CREDIT AGREEMENT


                                     between


                KANEB PIPE LINE OPERATING PARTNERSHIP, L.P., and
                               ST SERVICES, LTD.,
                                  as Borrowers,

                                       and


                             SUNTRUST BANK, ATLANTA,
                                    as Lender




                    (pound)16,000,000 Term Loan A in Sterling
                       $13,300,000 Term Loan B in Dollars
                       $5,000,000 Term Loan C in Dollars


                                January 29, 1999
















                      PREPARED BY HAYNES AND BOONE, L.L.P.


        TABLE OF CONTENTS

SECTION 1       DEFINITIONS AND TERMS   1
1.1     Definitions     1
1.2     Time References 13
1.3     Other References        13
1.4     Accounting Principles   13

SECTION 2       TERM LOANS      13

SECTION 3       PAYMENT TERMS   14
3.1     Notes and Payments      14
3.2     Payments        14
3.3     Interest Rates  14
3.4     Quotation of LIBOR Rates        14
3.5     Default Rate    15
3.6     Interest Recapture      15
3.7     Interest Calculations   15
3.8     Maximum Rate    15
3.9     Interest Periods        16
3.10    Continuations   16
3.11    Order of Application    16
3.12    Offset  16
3.13    Booking Borrowings      16
3.14    Basis Unavailable or Inadequate for LIBOR Rate  16
3.15    Additional Costs        17
3.16    Change in Laws  18
3.17    Funding Loss    18
3.18    Joint and Several Liability     18
3.19    Introduction of the Euro        19

SECTION 4       SECURITY        20
4.1     Guaranty        20
4.2     Collateral      20
4.3     Additional Security and Guaranties      21
4.4     Collateral Documentation        21

SECTION 5       CONDITIONS PRECEDENT    21

SECTION 6       REPRESENTATIONS AND WARRANTIES  21
6.1     Purpose of Credit Facility      21
6.2     Existence, Good Standing, and Authority 22
6.3     Subsidiaries    22
6.4     [INTENTIONALLY BLANK]   22
6.5     Authorization and Contravention 22
6.6     Binding Effect  22
6.7     Financial Statements    23
6.8     Litigation      23
6.9     Taxes   23
6.10    Environmental Matters   23
6.11    Employee Plans  23
6.12    Properties; Liens       23
6.13    Government Regulations  24
6.14    Affiliate Transactions  24
6.15    Debt Cross Defaults     24
6.16    Material Agreements     24
6.17    Insurance       24
6.18    Labor Matters   24
6.19    Solvency        24
6.20    Trade Names     25
6.21    Intellectual Property   25
6.22    Y2K Issue       25
6.23    Full Disclosure 25

SECTION 7       AFFIRMATIVE COVENANTS   25
7.1     Items to be Furnished   25
7.2     Use of Proceeds 27
7.3     Books and Records       27
7.4     Inspections     27
7.5     Taxes   27
7.6     Payment of Obligations  28
7.7     Expenses        28
7.8     Maintenance of Existence, Assets, and Business  28
7.9     Insurance       28
7.10    Preservation and Protection of Rights   28
7.11    Environmental Laws      28
7.12    Subsidiaries    29
7.13    Indemnification 29

SECTION 8       NEGATIVE COVENANTS      29
8.1     Taxes   29
8.2     [INTENTIONALLY BLANK]   29
8.3     Employee Plans  29
8.4     Funded Debt     29
8.5     Liens   30
8.6     Affiliate Transactions  31
8.7     Compliance with Laws and Documents      32
8.8     Loans, Advances, and Investments        32
8.9     Distributions   32
8.10    Asset Transfers 34
8.11    Dissolutions, Mergers, and Consolidations       35
8.12    Assignment      35
8.13    Fiscal Year and Accounting Methods      36
8.14    New Businesses  36
8.15    Government Regulations  36

SECTION 9       FINANCIAL COVENANTS     36
9.1     Current Ratio   36
9.2     Tangible Net Worth      36
9.3     Leverage Ratio  36
9.4     Fixed Charges Coverage Ratio    36

SECTION 10      DEFAULT 36
10.1    Obligation      37
10.2    Covenants       37
10.3    Debtor Relief   37
10.4    Misrepresentation       37
10.5    Judgments and Attachments       37
10.6    Certain Debt    37
10.7    Default Under Other Agreements  37
10.8    Validity and Enforceability of Loan Papers      38
10.9    Change of Control       38
10.10   KPC Merger or Consolidation     38

SECTION 11      RIGHTS AND REMEDIES     38
11.1    Remedies Upon Default   38
11.2    KPP Company Waivers.    38
11.3    Performance by Lender   38
11.4    Not in Control  39
11.5    Course of Dealing       39
11.6    Cumulative Rights       39
11.7    Application of Proceeds 39
11.8    Diminution in Value of Collateral       39
11.9    Certain Proceedings     39
11.10   Judgment Currency       39

SECTION 12      MISCELLANEOUS   40
12.1    Nonbusiness Days        40
12.2    Communications  40
12.3    Form and Number of Documents    40
12.4    Exceptions to Covenants 40
12.5    Survival        40
12.6    Governing Law   41
12.7    Invalid Provisions      41
12.8    Venue; Service of Process; Jury Trial   41
12.9    Amendments, Consents, Conflicts, and Waivers    41
12.10   Multiple Counterparts   42
12.11   Successors and Assigns; Syndication     42
12.12   Discharge Only Upon Payment in Full; 
        Reinstatement in Certain Circumstances     42
12.13   Entirety        42






        SCHEDULES AND EXHIBITS

Schedule 5      Closing Documents
Schedule 6.2    Jurisdictions of Organization and Business
Schedule 6.3    Organizational Structure
Schedule 6.8    Litigation
Schedule 6.10   Environmental Matters
Schedule 6.16   Material Agreements
Schedule 6.20   Trade Names
Schedule 9.9    Insurance
Schedule 9.8    Permitted Investments


Exhibit A-1     Term Loan A Note
Exhibit A-2     Term Loan B Note
Exhibit A-3     Term Loan C Note
Exhibit B       Guaranty
Exhibit C-1     Supplement to Collateral Trust and Intercreditor Agreement
Exhibit C-2     Third Amendment to Stock Pledge Agreement
Exhibit C-3     Fourth Modification to First Amended and Restated 
                Mortgage and Security Agreement
Exhibit D-1     Notice of Continuation
Exhibit D-2     Compliance Certificate
Exhibit D-3     Financial Statements Certificate
Exhibit E       Opinion of Counsel

                                CREDIT AGREEMENT


THIS  AGREEMENT is entered into as of January 29, 1999,  between KANEB PIPE LINE
OPERATING  PARTNERSHIP,  L.P., a Delaware limited partnership ("Borrower KPOP"),
ST SERVICES,  LTD.,  an English  company that is a wholly  owned  Subsidiary  of
Borrower KPOP  ("Borrower  ST"), and SUNTRUST BANK,  ATLANTA,  a Georgia banking
corporation ("Lender").
Terms used in this agreement are defined in Section 1.

A. Borrower ST and Borrower KPOP (collectively, "Borrowers") have requested that
Lender make the following term loans:

(1) To Borrower ST and Borrower KPOP jointly, a (pound)16,000,000 term loan (the
"Term  Loan  A"),  denominated  in  Sterling,  to be  used by  Borrowers  in the
acquisition  from GATX  Terminals  Corporation  of six terminals  located in the
United Kingdom (the "GATX Terminals").

(2) To Borrower KPOP,  the Dollar  Equivalent of an  (pound)8,000,000  term loan
(the "Term Loan B"),  denominated in Dollars also to be used by Borrower KPOP in
the acquisition from GATX Terminals.

(3) To Borrower KPOP, a $5,000,000 term loan (the "Term Loan C"), denominated in
Dollars, to be used by Borrower KPOP for general corporate purposes.

B. Borrower KPOP is the borrower  under the Chase Credit  Agreement and the Note
Agreements,  the indebtedness from time to time owed under which are or will be,
as  provided  in the  Intercreditor  Agreement,  pari  passu  guaranteed  by all
Restricted Companies and secured by all Collateral.

C.  Lender  has  agreed  to make  Term  Loan A,  Term  Loan B, and  Term  Loan C
(collectively,  the  "Term  Loans")  upon  the  terms  and  conditions  of  this
agreement,  including the conditions  that the Obligation  shall at all times be
(on a pari passu  basis with the  indebtedness  from time to time owed under the
Chase Credit Agreement, the Note Agreements, and the Chase Revolving Note and as
provided  in the  Intercreditor  Agreement)  (1)  guaranteed  by all  Restricted
Companies  and (2) secured by all  Collateral  effective  (a) in respect of Term
Loan A and Term Loan B, as a  condition  precedent  to the  making of those Term
Loans,  and (b) in respect of Term Loan C, upon that Term Loan satisfying all of
the conditions to being Qualifying Debt as defined in the Chase Credit Agreement
and the Note Agreements.

ACCORDINGLY,  for adequate and  sufficient  consideration,  Borrowers and Lender
agree as follows:

SECTION  1  DEFINITIONS  AND  TERMS.

1.1 Definitions. As used in the Loan Papers:

Affiliate  of a Person  means any other  individual  or entity who  (directly or
indirectly  through  ownership,  voting  securities,   contract,  or  otherwise)
controls,  is  controlled  by, or under common  control  with that  Person.  For
purposes of this  definition  (a)  "control" or similar  terms mean the power to
direct or cause the direction of management or policies of that Person,  but (b)
none  of  the  KPP  Companies  or  Restricted   Subsidiaries  at  any  time  are
"Affiliates" of each other.

Base Rate means,  for any day,  the higher of either (a) the Prime Rate for that
day or (b) the sum of the Federal Funds Rate for that day plus 0.50%,  with each
change in any interest rate provided for in this  agreement  based upon the Base
Rate  resulting from a change in the Base Rate taking effect at the time of that
change in the Base Rate.

Base Rate Borrowing means a Borrowing bearing interest at the Base Rate.

Borrower KPOP is defined in the introductory paragraph of this agreement.

Borrower ST is defined in the introductory  paragraph of this agreement and is a
wholly owned Subsidiary of STOP.

Borrowers is defined in the recitals to this agreement.

Borrowing means any amount  disbursed (a) by Lender to either Borrower under the
Loan Papers,  either as an original disbursement of funds or the continuation of
an  outstanding  amount or (b) by Lender in accordance  with, and to satisfy the
obligations of any KPP Company under, any Loan Paper.

Business Day means (a) for all purposes,  any day other than  Saturday,  Sunday,
and any other day that  commercial  banks are  authorized by Law to be closed in
Georgia or New York and (b) for purposes of any LIBOR Rate Borrowing, a day when
commercial banks are open for international business in London.

Chase means Chase Bank of Texas, National Association, in its individual banking
capacity.

Chase Credit Agreement means the Credit Agreement dated as of December 22, 1994,
between  Borrower  KPOP,  certain  lenders,   Chase  Bank  of  Texas,   National
Association (formerly Texas Commerce Bank National Association), acting as agent
for those lenders.

Chase Revolving Note means the Revolving Promissory Note With Agreement dated as
of February 1, 1999,  between  Borrower KPOP and Chase, in the stated  principal
amount of $15,000,000.

Closing Date means February 1, 1999.

Code means the Internal Revenue Code of 1986.

Collateral means all types and items of property  described as collateral in the
Security Documents.

Collateral Trustee means, at any time, Texas Commerce Bank National  Association
(or its  successor  appointed  under  the  Intercreditor  Agreement)  acting  as
collateral  trustee  under the  Intercreditor  Agreement,  Mortgage,  and Pledge
Agreement.

Compliance Certificate means, for any Person, a certificate substantially in the
form of Exhibit D-2 and signed by a Responsible Officer of that Person.


Current  Financials  means,  for KPP or  Borrower  KPOP,  as the case may be (a)
either  (i) their  respective  consolidated  Financial  Statements  for the year
ending  December 31, 1997,  together  with their  Financial  Statements  for the
portion of the fiscal year ending on  September  30,  1998,  or (ii) at any time
after their  respective  annual  Financial  Statements are first delivered under
Section 7.1, their annual consolidated  Financial  Statements then most recently
delivered to Lender under Section 7.1,  together with their quarterly  Financial
Statements  then most  recently  delivered to Lender under  Section 7.1, but (b)
does not include the results of operation and cash flows for any Company for the
time period  before it becomes a member of KPP's or KPOP's,  as the case may be,
consolidated  group  except for any periods for which that  Company's  Financial
Statements were audited by an accounting firm reasonably acceptable to Lender.

Debt -- for any Person,  at any time,  and without  duplication -- means (a) any
obligation of that Person either for borrowed money or incurred for the purchase
price of assets or services,  (b) any  indebtedness or obligation  secured by or
constituting  a Lien on property of that  Person,  whether or not that Person is
directly liable for that indebtedness or obligation,  (c) the face amount of all
letters of credit, bankers' acceptances, or similar facilities, whether drawn or
undrawn,  for which that Person is the account party, (d) every lease obligation
that  should  under  GAAP be  reflected  on that  Person's  balance  sheet  as a
capitalized-lease  obligation,  (e) the net amount  payable  by that  Person for
settlement  of all  interest-rate  swaps or similar  arrangements  (based on the
assumption that each such swap or similar arrangement  terminated) as of the end
of the  most-recently-ended-fiscal  quarter of that Person, and (f) all Guaranty
Liabilities of that Person in respect of Debt of any other person or entity.

Debtor Laws means the  Bankruptcy  Code of the United  States of America and all
other   applicable   liquidation,   conservatorship,   bankruptcy,   moratorium,
rearrangement, receivership, insolvency, reorganization, suspension of payments,
fraudulent   transfer  or  conveyance,   or  similar  Laws  generally  affecting
creditors'  Rights  applicable in any  jurisdiction  in the United States or the
United Kingdom.

Default is defined in Section 10.

Default Rate means,  for any day, an annual  interest rate equal from day to day
to the lesser of either (a) the Maximum Rate or (b) the sum of 2.0% plus:

(i) for a LIBOR Rate Borrowing either (A) the LIBOR Rate then in effect for that
Borrowing  until  the end of its  current  Interest  Period or (B) the Base Rate
thereafter;

(ii) for a Base Rate Borrowing, the Base Rate; and

(iii)   for a Fixed Rate Borrowing, the Fixed Rate.

Distribution,  for  any  shares  of any  capital  stock,  partnership  units  or
interests,  or other  equity  securities  or  interests  (for  purposes  of this
definition,  "securities")  issued  by  a  Person,  means  (a)  the  retirement,
redemption,  purchase,  or other acquisition for value of those securities,  (b)
the declaration or payment of any dividend or other distribution with respect to
those securities, (c) any loan or advance by that Person to, or other investment
by that  Person  in, the  holder of any of those  securities,  and (d) any other
payment by that Person with respect to those securities.

Dollars and the symbol $ mean lawful currency of the United States of America.


Dollar  Equivalent,  on any day, means (a) any amount denominated in Dollars and
(b) for any amount  denominated  in Sterling,  the  equivalent  in Dollars of an
amount  of  Sterling,  determined  at the rate of  exchange  quoted by Lender at
approximately  10:00 a.m. (Atlanta,  Georgia time) on that day to prime banks in
New York, New York for the spot purchase in the New York foreign exchange market
of that amount of Sterling with Dollars.

EBITDA -- for any Person, for any period,  and without  duplication -- means the
sum of net income  plus (to the extent  actually  deducted  in  calculating  net
income) deferred Taxes, depreciation,  amortization,  and cash interest payments
on Debt (including the interest portion of capitalized leases).

(a) For the  purpose  of  determining  whether  Funded  Debt may be  assumed  or
incurred  in  connection  with  the  purchase  of  assets  of any  Person  or in
connection  with a  merger  or  consolidation,  and of  determining  the  ratios
described in Sections 9.3 and 9.4:

(i) the determination of consolidated  EBITDA for any  12-calendar-month  period
includes the  consolidated  EBITDA  attributable  solely to the assets or Person
that has been or is proposed to be purchased or merged or consolidated  with for
that period,  after  elimination  of the  portions of earnings  included in that
consolidated  EBITDA that are or may be  attributable  to (A)  operations  to be
discontinued,  (B) sources of revenues that are unavailable to the KPP Companies
after  the  purchase,  merger,  or  consolidation,  (C) the gain (net of any Tax
effect) resulting from the sale of any capital assets other than in the ordinary
course of business,  (D) the total amount of unusual or nonrecurring  gains (net
of any Tax effect),  and (E) other  adjustments (such as additional or increased
expenses)  appropriate  to reflect the earnings that would have been realized by
the KPP  Companies  had the  purchase  of  property  or Person or the  merger or
consolidation occurred at the inception of that period; only if

(ii) KPP's chief financial officer provides to Lender a certificate, in form and
substance acceptable to Lender,  reflecting the determination of the earnings so
attributable to that property or Person,  which certificate must specifically be
based upon,  reference and attach either (A) audited  Financial  Statements that
reflect the earnings figures used in that  determination and any other source of
information used in that certificate or (B) unaudited Financial  Statements that
reflect the earnings figures used in that determination,  which must be prepared
in  accordance  with GAAP (and be  accompanied  by a  certificate  of that chief
financial officer certifying that they were so prepared),  be in form and detail
(and otherwise) acceptable to Lender in its reasonable discretion.

(b) For purposes of this  definition,  the term net income in respect of KPP and
its  Subsidiaries  excludes (i) portions of earnings  properly  attributable  to
minority  interests (but without excluding the portion of earnings  attributable
to KPC's 1% general  partnership  ownership in Borrower KPOP),  (ii) the loss or
earnings  of any  Subsidiary  that is not  consolidated  with KPP for  financial
reporting purposes,  (iii) except as otherwise  expressly provided,  the loss or
earnings of any  Subsidiary  for the period before it became a Subsidiary,  (iv)
the loss or gain of any sale of any capital  assets  other than in the  ordinary
course of business,  and (iv) all  nonrecurring  losses or gains (net of any Tax
effect).

Employee  Plan means an employee  pension  benefit  plan  covered by Title IV of
ERISA and established or maintained by any KPP Company.

Environmental  Law means any Law that relates to the  pollution or protection of
the environment or to Hazardous Substances.

ERISA means the Employee Retirement Income Security Act of 1974.

Federal Funds Rate means, for any day, the annual interest rate (rounded upward,
if necessary,  to the nearest 0.001%) equal to the weighted average of the rates
on overnight  Federal  funds  transactions  with members of the Federal  Reserve
System  arranged  by Federal  funds  brokers on such day,  as  published  by the
Federal  Reserve Bank of New York on the Business Day next  succeeding such day,
provided that (a) if that day is not a Business Day, then the Federal Funds Rate
for  that day  shall be such  rate on such  transactions  on the next  preceding
Business Day as so published on the next succeeding  Business Day, and (b) if no
such rate is so  published  on such next  succeeding  Business  Day, the Federal
Funds Rate for that day shall be the  average  rate quoted to the Lender on that
day on such transactions.

Financial Hedge means a swap,  collar,  floor,  cap, or other contract between a
Borrower and Lender or another Person  reasonably  acceptable to Lender which is
intended to reduce or eliminate the risk of  fluctuations  in interest rates and
which is legal and enforceable under applicable Law.

Financial  Statements,  for a Person,  means  balance  sheets,  profit  and loss
statements,   reconciliations  of  capital  and  surplus  or  partners'  capital
accounts, and statements of cash flow prepared (a) according to GAAP, (b) except
as stated in Section  1.4,  in  comparative  form to prior  year-end  figures or
corresponding periods of the preceding fiscal year, as applicable,  and (c) on a
consolidated basis if that Person had any consolidated  Subsidiaries  during the
applicable period.

Fixed Rate means an annual interest rate of 7.14%.

Fixed Rate Borrowing means Term Loan A bearing interest at the Fixed Rate.

Financial Statements  Certificate means a certificate  substantially in the form
of Exhibit D-3.

Funded Debt -- for any Person, at any time, and without duplication -- means (a)
any obligation (including,  without limitation, the scheduled current portion of
that  obligation)  of that Person (i) either for borrowed  money or incurred for
the purchase  price of assets or services and (ii) which has a final maturity of
(or is renewable  or  extendable  at that  Person's  option to a final  maturity
beyond) one year or more from the date that  obligation  was  incurred,  (b) any
indebtedness or obligation secured by or constituting a Lien on property of that
Person,  whether or not that Person is directly liable for that  indebtedness or
obligation,  (c) the face amount of all letters of credit, bankers' acceptances,
or similar  facilities,  whether drawn or undrawn,  for which that Person is the
account party and which have a final  maturity of one year or more from the date
of issuance or  creation,  as the case may be, (d) every lease  obligation  that
should  under  GAAP  be  reflected  on  that   Person's   balance   sheet  as  a
capitalized-lease  obligation,  (e) the net amount  payable  by that  Person for
settlement  of all  interest-rate  swaps or similar  arrangements  (based on the
assumption that each such swap or similar arrangement  terminated) as of the end
of the most-recently-  ended-fiscal quarter of that Person, and (f) all Guaranty
Liabilities  of that  Person in  respect of Funded  Debt of any other  person or
entity.

Funding Loss means:


(a) In respect  of any LIBOR Rate  Borrowing,  any loss or expense  that  Lender
reasonably  incurs  because  Borrower  KPOP (i) fails or refuses (for any reason
whatsoever other than a default by Lender) to take that Borrowing on the Closing
Date or (ii) prepays or pays that Borrowing or that Borrowing is converted under
this  agreement for any reason to the Base Rate,  in each case,  before the last
day of its Interest Period; and

(b) In respect of a Fixed Rate Borrowing, the loss that Lender is deemed to have
incurred because either Borrower prepays Term Loan A before its stated maturity,
which loss shall be calculated by Lender to be equal to the amount, if any, that
Term Loan A is  exceeded by an amount,  expressed  as a  percentage  (rounded to
three decimal places,  0.0005 being rounded down), at which the gross redemption
yield on Term Loan A (if it were to be  purchased  at such  price on the  [third
dealing day before] the date of the prepayment) would equal the gross redemption
yield on such dealing day of 9-3/4% United Kingdom Treasury Stock due August 27,
2002 or (if that  stock is no  longer in issue)  of such  other  United  Kingdom
government  stock as Lender (with the advice of any combination of three leading
brokers  operating in the gilt-edged  market,  gilt-edged market makers, or such
other three persons  operating in the  gilt-edged  market as Lender may approve)
shall determine to be appropriate (i.e., the "reference  security") as quoted on
Bloomberg's Page BSUK at 2:00 p.m.( London,  England, time or 9:00 a.m. New York
time) (and for purposes of this provision,  the term "gross redemption yield" on
Term Loan A and the reference  security  shall be expressed as a percentage  and
calculated  on  the  basis  indicated  by the  Joint  Index  and  Classification
Committee of the  Institute  and Faculty of Actuaries as reported in the Journal
of the Institute of  Actuaries,  Vol. 105, Part 1, 1978 Page 18 or on such other
basis as Lender may approve).

GAAP means generally accepted accounting principles of the Accounting Principles
Board  of the  American  Institute  of  Certified  Public  Accountants  and  the
Financial Accounting Standards Board that are applicable from time to time.

Guarantors means KPP, STS, STOP, STI, STP, STH,  Borrower ST, STE, and any other
Restricted  Subsidiary or other Person that now or in the future  guaranties the
Obligation.

Guaranty means the Guaranty substantially in the form of Exhibit B.

Guaranty  Liability -- of any Person,  at any time,  and without  duplication --
means (a) any  guarantee or  endorsement  by that Person of  obligations  of any
other person or entity  (other than  endorsements  for purposes of collection in
the ordinary course of business),  (b) any obligation of that Person to purchase
goods, services, notes, or securities for the purpose of supplying funds for the
purchase,  payment,  or  satisfaction of (or measured by) any obligations of any
other person or entity,  (c) any other  contingent  obligation of that Person in
respect of, or to purchase or otherwise acquire or service,  obligations of, any
other  person or  entity,  (d) any  obligation  of that  Person,  whether or not
contingent, in respect of the obligations of a general or limited partnership of
which that Person is a general partner (unless the holder of that obligation has
agreed to waive all recourse to that Person for that obligation),  and (e) every
obligation of that Person for  obligations of any other person or entity if that
Person has in effect guaranteed by an agreement (contingent or otherwise) to (i)
make a loan, advance,  or capital  contribution to, or other investment in, that
other  person or entity for the  purpose of assuring  or  maintaining  a minimum
equity,  asset base, working capital,  or other balance sheet condition for that
other person or entity on any date,  (ii)  provide  funds for the payment of any
liability,  dividend, or stock liquidation payment of or by that other person or
entity, or (iii) otherwise supply funds to or in any manner invest in that other
person or entity for that purpose.


Hazardous  Substance  means any  substance  (a) the  presence of which  requires
removal,  remediation, or investigation under any Environmental Law, or (b) that
is defined or classified as a hazardous waste,  hazardous  material,  pollutant,
contaminant, or toxic or hazardous substance under any Environmental Law.

Insignificant  Subsidiary  means,  with respect to any Person, a Subsidiary that
contributes less than 5% of its parent's consolidated EBITDA, except that (a) if
all  of  the  Subsidiaries   that  would  have  otherwise  been   "Insignificant
Subsidiaries"  of a  common  parent  collectively  contribute  5% or more of the
parent's consolidated EBITDA, then none of those Subsidiaries are "Insignificant
Subsidiaries,"  and  (b) no KPP  Company  or  Restricted  Subsidiary  is ever an
"Insignificant Subsidiary" under any circumstances.

Intercreditor  Agreement means the Collateral Trust and Intercreditor  Agreement
dated as of  December  22,  1994,  between the lenders and agent under the Chase
Credit Agreement,  Noteholders, and Collateral Trustee, consented to by each KPP
Company.

Interest Period is determined in accordance with Section 3.9.

KPC means Kaneb Pipe Line Company, a Delaware corporation.

KPC  Companies  means KPC and its  Subsidiaries  (other  than its  Insignificant
Subsidiaries).

KPP means Kaneb Pipe Line Partners, L.P., a Delaware limited partnership.

KPP Companies means KPP,  Borrower KPOP, STS, STOP, STI, STP, STH,  Borrower ST,
and STE.

KPP Partnership Agreement means the Amended and Restated Agreement of Limited
Partnership  of Kaneb Pipe Line  Partners,  L.P.,  dated  September  18, 1995, a
certified copy of which has been delivered to Lender under Schedule 5.

KSI means Kaneb Services, Inc., a Delaware corporation.

KSI  Companies  means KSI and its  Subsidiaries  (other  than its  Insignificant
Subsidiaries).

Laws  means  all  applicable  statutes,  laws,  treaties,   ordinances,   rules,
regulations,  orders, writs,  injunctions,  decrees,  judgments,  opinions,  and
interpretations of any Tribunal.

Lender is defined in the introductory paragraph of this agreement.

Lender  Liens means Liens in favor of Lender or in favor of  Collateral  Trustee
and securing any of the Obligation, which Liens are, unless otherwise specified,
subject to the Intercreditor Agreement until it has been terminated.


LIBOR Rate means, for a LIBOR Rate Borrowing and its Interest Period, the sum of
(a) 0.75% plus (b) the quotient of (i) the annual  interest rate for deposits in
Dollars of amounts equal or  comparable  to the  principal  amount of that LIBOR
Rate Borrowing  offered for a term comparable to that Interest Rate,  which rate
appears on the Telerate  Page 3750 as of 11:00 a.m.  (London,  England time) two
Business  Days  before  the  beginning  of that  Interest  Period or, if no such
offered rates appear on such page,  then the rate used for that Interest  Period
shall be the arithmetic  average  (rounded  upwards,  if necessary,  to the next
higher 0.001%) of rate offered by Lender to not less than two major banks in New
York, New York at approximately 10:00 a.m. (Atlanta,  Georgia time) two Business
Days before the beginning of that Interest Period for deposits in Dollars in the
London  interbank  market of amounts equal or comparable to the principal amount
of that LIBOR Borrowing  offered for a term comparable to that Interest  Period,
divided by (ii) a number equal to 1.00 minus the LIBOR Reserve  Percentage.  The
rate so  determined  in  accordance  herewith  shall be  rounded  upwards to the
nearest multiple of 0.001%,  and the term "Telerate Page 3750" means the display
designated as "Page 3750" on the Dow Jones Markets Service,  Inc. (or such other
page as may  replace  Page 3750 on that  service  or  another  service as may be
nominated by the British Bankers'  Association as the information vendor for the
purpose of displaying British Bankers' Association Interest Settlement Rates for
Dollars).

LIBOR Rate Borrowing means a Borrowing bearing interest at the LIBOR Rate.

LIBOR Reserve Percentage means, any Interest Period with respect to a LIBOR Rate
Borrowing,  the reserve  percentage  applicable to that Interest  Period (or, if
more than one such percentage shall be so applicable,  then the daily average of
such  percentages  for those days in that Interest  Period during which any such
percentage shall be applicable)  under  regulations  issued from time to time by
the Board of  Governors of the Federal  Reserve  System (or any  successor)  for
determining   the  maximum   reserve   requirement   (including  any  emergency,
supplemental,  or other marginal reserve requirement) for Lender with respect to
liabilities or assets consisting of or including "eurocurrency  liabilities" (as
defined in Regulation D of the Board of Governors of the Federal Reserve System,
as in effect from time to time) having a term equal to that Interest Period.

Lien means,  with respect to any asset, any Right or interest in that asset of a
creditor to secure obligations, indebtedness, or claims owed to that creditor or
any other  arrangement  with that creditor that provides for the payment of that
obligation,  indebtedness,  or claim  out of that  asset or  which  allows  that
creditor to have that obligation,  indebtedness,  or claim satisfied out of that
asset in  priority  to the  general  creditors  of any  owner of it,  including,
without limitation (a) any lien, mortgage,  security interest,  pledge, deposit,
production payment,  Rights of a vendor under any title retention or conditional
sale agreement or lease substantially  equivalent to it, Tax lien, mechanic's or
materialman's  lien,  any other charge or  encumbrance  for  security  purposes,
whether arising by Law or agreement,  or otherwise,  and (b) any filed financing
statement,  any registration of a pledge (such as with an issuer of unregistered
securities),  or any other  arrangement or action which would serve to perfect a
Lien otherwise  described above,  regardless of whether that financing statement
is filed, registration is made, or arrangement or action is undertaken before or
after the Lien exists.

Litigation means any action by or before any Tribunal.

Loan Papers means (a) this agreement,  certificates and reports  delivered under
this agreement,  and exhibits and schedules attached to this agreement,  (b) the
Notes,  the  Security  Documents,  and  all  other  agreements,  documents,  and
instruments  in favor of Lender ever  delivered  under this  agreement,  (c) any
Financial Hedge between a Borrower and Lender, and (d) all renewals, extensions,
refinancings, and restatements of, and amendments and supplements to, any of the
foregoing.


Material  Adverse Event means any  circumstance  or event that,  individually or
collectively,  reasonably  is  expected to result in any (a)  impairment  of the
ability of any party (other than Lender) to any Loan Paper to perform any of its
payment or other  material  obligations  under any Loan Paper or the  ability of
Lender to enforce any of those  obligations  or any of its Rights under the Loan
Papers,  (b) material and adverse  effect on the financial  condition of the KPC
Companies as a whole as  represented  to Lender in the Current  Financials,  (c)
material and adverse effect on any part of the  Collateral  having a fair market
value of at least $5,000,000 at such time, or (d) Default or Potential Default.

Material  Agreement means,  for any Person,  any agreement  (excluding  purchase
orders for material or  inventory  in the ordinary  course of business) to which
that Person is a party, by which that Person is bound, or to which any assets of
that Person may be subject, and that is not cancelable by that Person upon 30 or
fewer days notice  without  liability  for further  payment  other than  nominal
penalty,  and that requires that Person to pay more than  $5,000,000  during any
12-month period.

Maximum  Amount and Maximum Rate  respectively  mean,  the maximum  non-usurious
amount and the maximum non-usurious rate of interest that, under applicable Law,
the Lender is permitted to contract for, charge,  take,  reserve,  or receive on
the Obligation.

Mortgage  means the First Amended and Restated  Mortgage and Security  Agreement
(And  Financing  Statement  and Fixture  Filing)  executed  and  delivered  KPP,
Borrower KPOP, and Collateral Trustee.

Multiemployer  Plan means a  multiemployer  plan as defined in Sections 3(37) or
4001(a)(3) of ERISA or Section  414(f) of the Code to which any Person (that for
purposes of Title IV of ERISA, is a member of Borrower KPOP's  controlled  group
or is under common  control with Borrower KPOP within the meaning of Section 414
of the  Code) is  making,  or has  made,  or is  accruing,  or has  accrued,  an
obligation to make contributions.

1994 Note Agreements mean the six Note Purchase  Agreements dated as of December
22, 1994,  between KPP,  Borrower KPOP,  STS,  STOP,  and each 1994  Noteholder,
collectively  providing for the issuance by Borrower KPOP of its First  Mortgage
Notes in the total stated  principal  amount of $27,000,000  and the issuance by
STI of its  First  Mortgage  Notes  in the  total  stated  principal  amount  of
$33,000,000.

1994  Noteholders  means  American  General Life Insurance  Company,  Merit Life
Insurance  Company,  MONY Life  Insurance  Company of  America,  The Mutual Life
Insurance Company of New York,  Principal Mutual Life Insurance Company, and The
Variable Annuity Life Insurance Company,  together with the successor holders of
notes issued under the 1994 Note Agreements.

1996 Note Agreements mean the five Note Purchase Agreements dated as of June 27,
1996,  between KPP,  Borrower  KPOP,  STS,  STOP,  STI,  STP, STH, and each 1996
Noteholder,  collectively  providing  for the  issuance by Borrower  KPOP of its
First Mortgage Notes in the total stated principal amount of $68,000,000.

1996 Noteholders means Metropolitan Life Insurance  Company,  Provident Life and
Accident  Insurance  Company,   Pacific  Mutual  Life  Insurance  Company,   AID
Association for Lutherans, and American General Life Insurance Company, together
with the successor holders of notes issued under the 1996 Note Agreements.

Note means Term Loan A Note, Term Loan B Note, and Term Loan C Note.

Noteholders means the 1994 Noteholders and the 1996 Noteholders.


Note Agreements means the 1994 Note Agreements and the 1996 Note Agreements.

Notice of Continuation means a notice substantially in the form of Exhibit D-1.

Obligation  means  all  present  and  future  indebtedness,   liabilities,   and
obligations,  and all renewals,  increases,  and extensions thereof, or any part
thereof,  now or  hereafter  owed to Lender by any Person  under any Loan Paper,
together  with  all  interest  accruing  thereon,   fees,  costs,  and  expenses
(including,  without  limitation,  all reasonable  attorneys'  fees and expenses
incurred in the enforcement or collection thereof) payable under the Loan Papers
or in connection with the protection of Rights under the Loan Papers.

PBGC means the Pension Benefit Guaranty Corporation.

Permitted-Funded  Debt means,  at any time,  Funded Debt permitted under Section
8.4.

Permitted Investments means those items described on Schedule 8.8.

Permitted  Liens means, at any time, the Lenders Liens and other Liens permitted
under Section 8.5.

Permitted  Transfer  means,  at any time, the Transfers  permitted under Section
8.10.

Person means any individual, Tribunal, or other entity.

Pledge Agreement means the Stock Pledge Agreement dated as of December 22, 1994,
and executed and delivered by Borrower KPOP in favor of Collateral Trustee.

Potential  Default  means  the  occurrence  of any  event  or  existence  of any
circumstance that would, upon notice or lapse of time or both, become a Default.

Prime Rate means,  for any day, the annual interest rate designated from time to
time by Lender at its  principal  office in  Atlanta,  Georgia,  to be its prime
rate,  which rate of interest may not be the lowest rate  available to customers
of the Lender,  with any change in the Prime Rate to be effective as of the date
of that change.

Principal  Debt  means,  at  any  time,  the  unpaid  principal  balance  of all
Borrowings.

Qualifying Debt means,  at any time,  Funded Debt for money borrowed by Borrower
KPOP with respect to which all of the following are true:

(a) that Debt is permitted to be incurred under Section 8.4(c) at the time it is
incurred;

(b) that Debt is  permitted  to be incurred by the terms of, or a prior  written
consent or waiver under, each agreement, document, or instrument governing other
Debt of any KPP Company or any of their Subsidiaries;

(c) that Debt is permitted to be pari passu  secured with all other Debt that is
secured by the Collateral by the terms of, or a prior written  consent or waiver
under,  each  agreement,  document,  or  instrument  governing  all Debt that is
secured by the Collateral;

(d)  each of the one or more  initial  holders  of that  Debt  (i) is  either  a
commercial  bank chartered  under (or duly authorized to operate a branch in the
United  States  under)  the Laws of the  United  States of America or any of its
states or an insurance company or commercial finance company organized under the
Laws of any  such  state,  and  (ii)  has  capital  and  surplus  in  excess  of
$100,000,000 at the time it becomes the holder of that Debt;

(e) that Debt is not  guarantied  in any manner by any Person and is not secured
by any Lien unless any that guaranty or Lien concurrently pari passu assures and
secures the Obligation; and

(f) Borrower KPOP has  delivered to Lender a certificate  (in form and substance
acceptable  to Lender) of a  Responsible  Officer of KPC at least 30 days before
the incurrence of that Debt  certifying that (i) Borrower KPOP intends to secure
that  Debt  with the  Collateral  and (ii) the Debt  complies  with  each of the
provisions of this definition in order to constitute "Qualifying Debt."

Representatives   means   representatives,   officers,   directors,   employees,
attorneys, accountants, and agents.

Responsible Officer of a Person means its chairman,  president,  chief executive
officer, chief financial officer, or treasurer.

Restricted  Subsidiary  means,  at any time,  each  Subsidiary of KPP other than
those that KPP has designated -- by a certificate of its chief financial officer
executed and delivered to Lender in form and  substance  acceptable to Lender --
as not being a Restricted Subsidiary,  which KPP may do from time to time and at
any time so long as (a) Borrower KPOP,  STS, STOP,  STI, STP, STH,  Borrower ST,
STE, and any other Subsidiary ever designated by KPP as a Restricted  Subsidiary
is  always a  Restricted  Subsidiary  for  purposes  of this  agreement  and (b)
immediately after that  designation,  no Default or Potential Default exists and
$1.00 of additional Funded Debt could be incurred under Section 8.4.

Rights means rights, remedies, powers, privileges, and benefits.

Security  Documents means,  collectively,  the Intercreditor  Agreement,  Pledge
Agreement, and Mortgage and any other document,  financing statements, and stock
powers creating or perfecting Lender Liens.

Series  Guaranties  means the  "Guaranties," as that term is defined in the Note
Agreements as in effect on the date of this agreement.

Series Notes means the  "Notes," as that term is defined in the Note  Agreements
as in effect on the date of this agreement.

Solvent means,  as to a Person,  that (a) the aggregate fair market value of its
assets exceeds its liabilities,  (b) it has sufficient cash flow to enable it to
pay its  Debts  as they  mature,  and (c) it does not  have  unreasonably  small
capital to conduct its businesses as currently, or proposed to be, conducted.

STE means ST Eastham, Ltd., an English company that is a wholly owned Subsidiary
of Borrower ST.

Sterling and the symbol (pound) means the lawful currency of the United Kingdom.

STH means  StanTrans  Holdings,  Inc., a Delaware  corporation  that is a wholly
owned Subsidiary of STI.

STI  means  StanTrans,  Inc.,  a  Delaware  corporation  that is a wholly  owned
Subsidiary of STS.

STOP means Support  Terminals  Operating  Partnership,  L.P., a Delaware limited
partnership,  of which  Borrower  KPOP is a 99% limited  partner and STS is a 1%
general partner.

STP means StanTrans Partners, L.P., a Delaware limited partnership, of which STH
is a 99% limited partner and STI is a 1% general partner.

STS means Support  Terminal  Services,  Inc., a Delaware  corporation  that is a
wholly owned Subsidiary of Borrower KPOP.

Subsidiary  of any  Person  means any entity of which at least 50% (in number of
votes) of the stock, partnership,  or equivalent interests is owned of record or
beneficially, directly or indirectly, by that Person.

Tangible  Net  Worth,  for any  Person  and at any  time,  means  the sum of (a)
stockholders'  equity or partner capital accounts,  as the case may be, as shown
on a balance  sheet,  minus (b) treasury  stock,  if  applicable,  minus (c) any
surplus  resulting from the write-up of assets,  minus (d) goodwill,  including,
without  limitation,  any amounts  representing the excess of the purchase price
paid for acquired  assets,  stock, or partnership  interests over the book value
assigned to them, minus (e) patents, trademarks, service marks, trade names, and
copyrights, minus (f) other intangible assets.

Taxes means, for any Person, taxes,  assessments,  or other governmental charges
or levies imposed upon it, its income, or any of its properties,  franchises, or
assets.

Term Loan A is defined in the recitals to this agreement.

Term Loan A Note means the note substantially in the form of Exhibit A-1.

Term Loan B is defined in the recitals to this agreement.

Term Loan B Note means the note substantially in the form of Exhibit A-2.

Term Loan C is defined in the recitals to this agreement.

Term Loan C Note means the note substantially in the form of Exhibit A-3.

Term Loans is defined in the recitals to this agreement.

Transfer means to sell, lease, transfer, or otherwise dispose or, as the context
requires, a sale, lease, transfer, or other disposition.


Tribunal  means  any (a)  local,  state,  or  federal  judicial,  executive,  or
legislative  instrumentality,  (b) private  arbitration  board or panel,  or (c)
central bank.

Y2K Issue means the risk that computer applications used by the KPP Companies or
by any of their  respective  suppliers  or  vendors  may be unable  properly  to
recognize and perform date-sensitive functions.

1.2 Time  References.  Unless otherwise  specified,  in the Loan Papers (a) time
references  (e.g.,  10:00  a.m.)  are to time in  Atlanta,  Georgia,  and (b) in
calculating  a period from one date to another,  the word "from" means "from and
including" and the word "to" or "until" means "to but excluding."

1.3 Other References.  Unless otherwise specified,  in the Loan Papers (a) where
appropriate,  the singular  includes the plural and vice versa, and words of any
gender include each other gender,  (b) heading and caption references may not be
construed in interpreting provisions, (c) monetary references are to currency of
the United States of America, (d) section,  paragraph, annex, schedule, exhibit,
and similar  references are to the particular Loan Paper in which they are used,
(e)  references  to  "telecopy,"  "facsimile,"  "fax," or  similar  terms are to
facsimile  or  telecopy  transmissions,   (f)  references  to  "including"  mean
including  without  limiting the  generality of any  description  preceding that
word, (g) the rule of construction  that references to general items that follow
references to specific  items are limited to the same type or character of those
specific  items is not  applicable  in the Loan Papers,  (h)  references  to any
Person  include  that  Person's  heirs,  personal  representatives,  successors,
trustees,  receivers,  and permitted assigns,  (i) references to any Law include
every  amendment or supplement to it, rule and regulation  adopted under it, and
successor or  replacement  for it, and (j) references to any Loan Paper or other
document include every renewal,  extension, and refinancing of it, amendment and
supplement to it, and replacement or substitution for it.

1.4     Accounting Principles.  Unless otherwise  specified,  in the Loan
Papers (a) GAAP  determines all  accounting  and financial  terms and compliance
with  financial  covenants,  (b) GAAP in  effect  on the date of this  agreement
determines  compliance with financial covenants,  (c) otherwise,  all accounting
principles  applied  in a current  period  must be  comparable  in all  material
respects to those applied during the preceding  comparable period, and (d) while
KPP has any consolidated Subsidiaries (i) all accounting and financial terms and
compliance with reporting covenants applicable to KPP must be on a consolidating
and  consolidated  basis,  as  applicable  and (ii)  compliance  with  financial
covenants applicable to KPP must be on a consolidated basis.

SECTION 2      TERM LOANS.  Subject to and upon the terms and conditions of this
agreement  and on the Closing  Date,  Lender shall make Term Loan A to Borrowers
jointly denominated in Sterling and make Term Loan B and Term Loan C to Borrower
KPOP  denominated  in  Dollars.  Term Loan A shall at all times be a Fixed  Rate
Borrowing.  Term Loan B and Term Loan C shall be LIBOR Rate  Borrowings  and for
Interest  Periods  (subject  to Section  3.9) as shall have been  designated  in
writing to Lender by Borrower KPOP at least two Business Days before the date of
the  Closing  Date.  No  portion of any Term Loan may be  reborrowed  under this
agreement once repaid.

SECTION 3       PAYMENT TERMS.

3.1 Notes and  Payments.

(a) The Principal Debt (and interest  thereon) of Term Loan A shall be evidenced
by Term Loan A Notes, one executed by each Borrower, and payable to the order of
Lender. The Principal Debt (and interest thereon) of Term Loan B and Term Loan C
shall be  evidenced  respectively  by the Term  Loan B Note and the Term  Loan C
Note,  executed  by  Borrower  KPOP,  and  payable to the order of  Lender.  The
Borrowers  must make each payment and  prepayment on the  Obligation to Lender's
principal  office in Atlanta,  Georgia,  by wire transfer  according to Lender's
wiring instructions from time to time provided to Borrowers,  in funds that will
be  available  for  immediate  use by  Lender  by  12:00  Noon on the  day  due.
Otherwise,  but subject to Section 3.8, those funds continue to accrue  interest
as if they were received on the next Business Day.

(b) All  payments  on  Term  Loan B and on Term  Loan C must be  denominated  in
Dollars.  All payments on Term Loan A must be denominated in Sterling.  It shall
not be a Default,  however,  if Borrowers  fail to make a payment in Sterling if
Lender  has  notified  the  Borrowers  that  Sterling  has  ceased  to be freely
transferable  and  convertible  into Dollars in the relevant  interbank  market;
provided that Borrowers shall pay (i) on the due date, the Dollar Equivalent (as
calculated  by Lender in good faith) of the amount of Sterling  due on that date
and (ii)  within ten days after  demand by Lender,  the amount that will (in the
reasonable  determination  of Lender)  reimburse  Lender for any loss or expense
caused by the  failure  of  Borrowers  to make that  payment  or  prepayment  in
Sterling on the date due. Lender shall submit a statement as to any such loss or
expense (including calculations in reasonable detail) to Borrowers, which shall,
in the absence of manifest error, be conclusive and binding on Borrowers.

3.2 Payments.  The Principal  Debt of the Term Loan A Note is due and payable on
January 31,  2002.  The  Principal  Debt of the Term Loan B Note and of the Term
Loan C Note is due and payable on June 30, 1999.  Accrued interest on each LIBOR
Rate  Borrowing  is due and payable on the last day of its  respective  Interest
Period.  If any  Interest  Period is a period  greater than three  months,  then
accrued  interest  is also due and  payable on the date  ending each three month
period after the  commencement of the Interest  Period.  Accrued interest at the
Fixed Rate is due and  payable on the last  Business  Day of each  March,  June,
September,  and December  (commencing  March 30, 1999). In any event all accrued
and unpaid interest on any Note is due and payable at its maturity (stated or by
acceleration).

3.3 Interest Rates.  Except where specifically  otherwise  provided,  Borrowings
bear  interest  at an annual  rate equal to the lesser of either (a) the Maximum
Rate or (b) in respect of (i) Term Loan A, the Fixed Rate,  and (ii) Term Loan B
and Term Loan C, the LIBOR Rate.  Each change in the Maximum Rate is  effective,
without notice to either  Borrower or any other Person,  upon the effective date
of change.

3.4 Quotation of LIBOR Rates.  A  Responsible  Officer of Borrower KPOP may call
Lender before the Closing Date or before  delivering a Notice of Continuation to
receive an indication of the LIBOR Rates then in effect, but the indicated rates
do not bind  Lender or affect the LIBOR Rate that is  actually  in effect on the
Closing Date or when Borrower KPOP delivers any Notice of Continuation.

3.5 Default Rate. All past-due Principal Debt and accrued interest thereon bears
interest from  maturity  (stated or by  acceleration)  at the Default Rate until
paid, regardless whether payment is made before or after entry of a judgment.


3.6 Interest  Recapture.  If the  designated  interest  rate  applicable  to any
Borrowing  exceeds the Maximum  Rate,  the  interest  rate on that  Borrowing is
limited to the Maximum Rate,  but any  subsequent  reductions in the  designated
rate shall not reduce the interest rate thereon below the Maximum Rate until the
total amount of accrued  interest  equals the amount of interest that would have
accrued if that  designated  rate had  always  been in  effect.  If at  maturity
(stated or by  acceleration),  or at final payment of a Note, the total interest
paid or  accrued  is less than the  interest  that  would  have  accrued  if the
designated rates had always been in effect, then, at that time and to the extent
permitted  by Law,  the  maker of that Note  shall  pay an  amount  equal to the
difference  between  (a) the  lesser of the amount of  interest  that would have
accrued  if the  designated  rates had  always  been in effect and the amount of
interest  that would have accrued if the Maximum Rate had always been in effect,
and (b) the amount of interest actually paid or accrued on that Note.

3.7     Interest Calculations.

(a) Interest will be calculated on the basis of actual number of days (including
the first  day but  excluding  the last day)  elapsed  but  computed  as if each
calendar  year  consisted  of 360 days (or 365 days for Fixed  Rate  Borrowings)
(unless the  calculation  would  result in an  interest  rate  greater  than the
Maximum Rate, in which event  interest will be calculated on the basis of a year
of 365 or 366 days,  as the case may be). All interest rate  determinations  and
calculations by Lender are conclusive and binding absent manifest error.

(b) The provisions of this  agreement  relating to calculation of the LIBOR Rate
are included only for the purpose of  determining  the rate of interest or other
amounts to be paid under this agreement that are based upon those rates.  Lender
may fund and  maintain  its funding of all or any part of each  Borrowing  as it
selects.

3.8     Maximum Rate.

Rate.  Regardless  of any provision  contained in any Loan Paper,  Lender is not
entitled to contract for, charge, take, reserve,  receive, or apply, as interest
on all or any part of the  Obligation  any amount in excess of the Maximum Rate,
and,  if Lender  ever does so,  then any  excess  shall be  treated as a partial
prepayment  of  principal  and any  remaining  excess  shall be  refunded to the
applicable Borrower.  In determining if the interest paid or payable exceeds the
Maximum Rate,  Borrowers and Lender shall, to the maximum extent permitted under
applicable  Law, (a) treat all  Borrowings  as but a single  extension of credit
(and Lender and Borrowers agree that that is the case and that provision in this
agreement for multiple Borrowings is for convenience only), (b) characterize any
nonprincipal payment as an expense, fee, or premium rather than as interest, (c)
exclude  voluntary  prepayments  and their effects,  and (d) amortize,  prorate,
allocate,  and  spread  the  total  amount of  interest  throughout  the  entire
contemplated term of the Obligation.  However, if the Obligation is paid in full
before the end of its full  contemplated  term, and if the interest received for
its actual period of existence  exceeds the Maximum Amount,  Lender shall refund
any excess (and Lender may not,  to the extent  permitted  by Law, be subject to
any  penalties  provided  by any Laws for  contracting  for,  charging,  taking,
reserving,  or receiving interest in excess of the Maximum Amount).  If the Laws
of the State of Texas are applicable  for purposes of  determining  the "Maximum
Rate" or the  "Maximum  Amount,"  then  those  terms  mean the  "indicated  rate
ceiling" from time to time in effect under Article 1.04, Title 79, Revised Civil
Statutes of Texas, as amended.


3.9 Interest  Periods.  When Borrower  KPOP  requests any LIBOR Rate  Borrowing,
Borrower  KPOP may elect  the  applicable  interest  period  (each an  "Interest
Period"),  which may be, at Borrower KPOP's option, three or six months, subject
to the following  conditions:  (a) the initial  Interest Period commences on the
Closing Date, and each subsequent  applicable  Interest Period  commences on the
day when the next  preceding  applicable  Interest  Period  expires;  (b) if any
Interest Period begins on a day for which no numerically  corresponding Business
Day in the calendar  month at the end of the Interest  Period  exists,  then the
Interest  Period ends on the last  Business Day of that calendar  month;  (c) no
Interest  Period  for any  portion  of  Principal  Debt may  extend  beyond  the
scheduled  repayment  date for that portion of Principal  Debt;  and (d) no more
than one  Interest  Period  may be in effect at one time for each of Term Loan B
and Term Loan C.

3.10  Continuations.  Borrower KPOP may elect a new Interest  Period for a LIBOR
Rate Borrowing, by giving a Notice of Continuation to Lender no later than 10:00
a.m.  on the second  Business  Day before the last day of the  Interest  Period.
Absent Borrower KPOP's notice of election of a new Interest Period, a LIBOR Rate
Borrowing shall be deemed continued for the same Interest Period.

3.11 Order of Application. The following provisions apply except when and to the
extent superseded by Section 4.09 of the Intercreditor Agreement.

(a) If no Default or Potential  Default exists,  payments on the Obligation must
be applied as required by applicable Loan Paper provisions other than clause (b)
below.

(b) If a Default or Potential Default exists, any payment must be applied in the
following order: (i) all fees and expenses for which Lender has not been paid or
reimbursed  in  accordance  with the Loan Papers;  (ii) accrued  interest on the
Principal  Debt;  (iii) the remaining  Principal Debt in the order as Lender may
elect (but Lender  agrees to apply  payments in an order that will  minimize any
Funding Loss); and (iv) the remaining  Obligation in the order and manner Lender
deems appropriate.

3.12 Offset.  If a Default exists,  Lender is entitled to exercise the Rights of
offset and banker's Lien against each and every account and other  property,  or
any interest therein, that any party to a Loan Paper (other than Lender) may now
or hereafter  have with, or which is now or hereafter in the possession of, that
Lender to the extent of the full  amount of the  Obligation  owed to it.  Lender
shall  promptly  notify each  Borrower of its actions  taken under this  Section
3.12.

3.13 Booking Borrowings. To the extent permitted by Law, Lender may make, carry,
or  transfer  its  Borrowings  at,  to, or for the  account of any of its branch
offices  or the  office  of any of its  Affiliates.  However,  no  Affiliate  is
entitled to receive any greater  payment  under  Section  3.15 than Lender would
have been  entitled to receive with respect to those  Borrowings.  Lender agrees
that it will use its reasonable  efforts  (consistent with its internal policies
and  applicable  Law) to make,  carry,  maintain,  or  transfer  its part of any
Borrowing  with its  Affiliates  or branch  offices in an effort to eliminate or
reduce to the extent  possible the  aggregate  amounts due to it under  Sections
3.15  and  3.16  if,  in its  reasonable  judgment,  such  efforts  will  not be
disadvantageous to it.

3.14 Basis  Unavailable  or Inadequate for LIBOR Rate. If (on or before any date
when a LIBOR Rate is to be determined for a Borrowing)  Lender  determines  that
the basis for  determining  the  applicable  rate is not  available  or that the
resulting  rate  does not  accurately  reflect  the cost to  Lender of making or
continuing  Borrowings at that rate for the  applicable  Interest  Period,  then
Lender shall  promptly  notify  Borrower  KPOP of that  determination  (which is
conclusive  and binding on Borrower KPOP absent  manifest  error).  Until Lender
notifies  Borrower  KPOP that  those  circumstances  no longer  exist.  then the
Principal  Debt of the Term Loan B Note and of the Term Loan C Note  shall  bear
interest  at an annual  rate  equal to the lesser of either the Base Rate or the
Maximum Rate.

3.15    Additional Costs.

With  respect  to any LIBOR  Rate  Borrowing,  (i) if any  present or future Law
imposes,  modifies,  or deems  applicable  (or if  compliance by Lender with any
requirement  of any  Tribunal  results  in) any  requirement  that any  reserves
(including  any  marginal,  emergency,  supplemental,  or special  reserves)  be
maintained,  and (ii) if those  reserves  reduce any sums  receivable  by Lender
under this  agreement or increase  the costs  incurred by Lender in advancing or
maintaining  any  portion  of any  LIBOR  Rate  Borrowing,  and  (iii) if Lender
determines  that  the  reduction  or  increase  is  material  (and  it  may,  in
determining the material nature of the reduction or increase, utilize reasonable
assumptions  and  allocations  of  costs  and  expenses  and use any  reasonable
averaging or attribution method), then (A) Lender shall deliver to Borrower KPOP
a certificate  setting forth in reasonable  detail the calculation of the amount
necessary to compensate it for its reduction or increase  (which  certificate is
conclusive  and binding absent  manifest  error) and (B) Borrower KPOP shall pay
that  amount to Lender  within  ten days after  demand.  The  provisions  of and
undertakings and  indemnification set forth in this clause (a) shall survive the
satisfaction and payment of the Obligation and termination of this agreement.

(b) With  respect to any  Borrowing,  if any  present  or future  Law  regarding
capital  adequacy  or  compliance  by Lender  with any  request,  directive,  or
requirement now existing or hereafter imposed by any Tribunal  regarding capital
adequacy,  or any change in its written policies or in the risk category of this
transaction,  reduces the rate of return on its capital as a consequence  of its
obligations  under this agreement to a level below that which it otherwise could
have achieved  (taking into  consideration  its policies with respect to capital
adequacy) by an amount deemed by it to be material  (and it may, in  determining
the amount, utilize reasonable assumptions and allocations of costs and expenses
and use any reasonable averaging or attribution method), then (unless the effect
is  already  reflected  in the  rate of  interest  then  applicable  under  this
agreement)  Lender shall notify Borrowers and deliver to Borrowers a certificate
setting forth in reasonable  detail the  calculation of the amount  necessary to
compensate it (which  certificate  is  conclusive  and binding  absent  manifest
error),  and  Borrowers  shall  jointly and  severally pay that amount to Lender
within  ten  days  after  demand.   The  provisions  of  and   undertakings  and
indemnification  set forth in this clause (b) shall survive the satisfaction and
payment of the Obligation and termination of this agreement.


(c) All payments by each  Borrower  under each Loan Paper shall be made free and
clear of and  without  deduction  for any and all  present  or  future  Taxes or
withholdings  and all liabilities  with respect  thereto,  excluding,  (i) Taxes
measured by Lender's net income,  franchise, and similar Taxes imposed on it, by
the  jurisdiction  under  the  Laws of which it is  organized  or any  political
subdivision  thereof,  by the jurisdiction of Lender's applicable lending office
or any  political  subdivision  thereof,  and (ii) if Lender is entitled at such
time to a total or partial  exemption  from  withholding  that is required to be
evidenced  by a United  Kingdom  Inland  Revenue  Form FD13 or any  successor or
additional  form, Taxes imposed by reason of any failure of Lender to deliver to
the U.S.  Internal  Revenue  Service,  such  Form  FD13 or,  in each  case,  any
successor or additional form (all such  non-excluded  Taxes,  withholdings,  and
liabilities being hereinafter referred to as the "indemnified  Taxes";  provided
however,  that such exemption  shall not be available if Inland Revenue  Service
for any reason  does not accept  Lender's  Form  FD13).  If a Borrower  shall be
required  by law to deduct any  indemnified  Taxes from or in respect of any sum
payable  hereunder  to  Lender  (i) the sum  payable  shall  be  increased  (the
"gross-up")  as may be necessary  so that after  making all required  deductions
(including  deductions  applicable to additional sums payable under this Section
3.15(c)),  Lender receives an amount equal to the sum it would have received had
no such deductions  been made,  (ii) that Borrower shall make those  deductions,
(iii) that Borrower  shall pay the full amount  deducted to the relevant  taxing
authority or other  authority in accordance  with  applicable Law, and (iv) that
Borrower  shall  deliver to Lender  evidence  of that  payment  to the  relevant
taxation or other authority.  Notwithstanding the foregoing, Borrower KPOP shall
be liable for any excluded Taxes arising pursuant to Section 3.15(c)(ii).

(d) Any Taxes (other than under clause (c) above) payable by Lender or ruled (by
a  Tribunal)  payable by Lender in respect of this  agreement  or any other Loan
Paper shall -- if permitted by Law and if deemed material by Lender (who may, in
determining  the  material  nature of the  amount  payable,  utilize  reasonable
assumptions  and  allocations  of  costs  and  expenses  and use any  reasonable
averaging or attribution method) -- be paid by Borrowers, together with interest
and  penalties,  if any (except  for Taxes  payable on the overall net income of
Lender and except for interest and  penalties  incurred as a result of the gross
negligence or willful  misconduct of Lender).  Lender shall notify each Borrower
and deliver to each  Borrower a certificate  setting forth in reasonable  detail
the calculation of the amount of payable Taxes,  which certificate is conclusive
and binding  (absent  manifest  error),  and Borrowers  shall pay that amount to
Lender within ten days after demand. If Lender subsequently receives a refund of
the Taxes paid to it by  Borrowers,  then the recipient  shall  promptly pay the
refund to Borrowers.

3.16 Change in Laws. If any Law makes it unlawful for Lender to make or maintain
LIBOR Rate Borrowings,  then Lender shall promptly notify Borrower KPOP, and (a)
if  maintaining  the  Borrowing  until the last day of the  applicable  Interest
Period is unlawful,  the Borrowing shall be converted to the Base Rate as of the
date of notice,  and Borrower KPOP shall pay any related Funding Loss, or (b) if
not  prohibited by Law, the Borrowing  shall be converted to the Base Rate as of
the last day of the applicable  Interest  Period,  or (c) if any conversion will
not resolve the unlawfulness, Borrower KPOP shall promptly prepay the Borrowing,
without  penalty,   together  with  any  related  Funding  Loss.  No  Notice  of
Continuation is required to be delivered in connection with any conversion under
this Section 3.16.

3.17 Funding Loss.  Borrowers  jointly and severally  agree to indemnify  Lender
against,  and pay to it upon demand,  any Funding Loss. When Lender demands that
Borrowers pay any Funding Loss,  Lender shall deliver to Borrowers a certificate
setting forth in reasonable  detail the basis for imposing  Funding Loss and the
calculation  of the amount,  which  calculation is conclusive and binding absent
manifest error. The provisions of and undertakings and indemnification set forth
in this Section 3.17 survive the  satisfaction and payment of the Obligation and
termination of this agreement.

3.18 Joint and Several  Liability

(a)  The  Obligation  in  respect  of  Term  Loan A and  certain  other  payment
obligations  under the Loan Papers (for  purposes  of this  section,  "joint and
several  obligations") shall constitute one joint and several direct and general
obligation  of  Borrowers,  notwithstanding  whether any advance is stated to be
made to both or either of the  Borrowers,  and  notwithstanding  anything to the
contrary  contained  in any Loan  Papers,  each  Borrower  shall be directly and
unconditionally  liable to Lender on all joint and several obligations and shall
have the obligations of co-maker with respect thereto,  it being agreed that the
joint and several  obligations inure to the benefit of Borrowers and that Lender
is relying on the joint and several  liability  of  Borrowers  as  co-makers  in
respect thereof. Each Borrower  unconditionally and irrevocably agrees that upon
default in the payment when due (whether at stated maturity,  by acceleration or
otherwise) of any joint and several obligations, it will forthwith pay the same,
without notice or demand.

(b) No payment or payments made by a Borrower or any other Person or received or
collected by Lender from the other Borrower or any other Person by virtue of any
action or proceeding or any set-off or  appropriation or application at any time
or from time to time in  reduction  of or in  payment  of the joint and  several
obligations shall be deemed to modify, reduce,  release, or otherwise affect the
liability of each Borrower, which shall remain liable for such joint and several
obligations  until all such  obligations  are paid in full and this agreement is
terminated.

(c) Each Borrower  agrees that its joint and several  liability  with respect to
any of the joint and  several  obligations  shall not be impaired or affected by
any  modification,  supplement,  extension,  or  amendment  of any  contract  or
agreement  to which  the other  Borrower  may  hereafter  agree  (other  than an
agreement signed by Lender  specifically  releasing such liability),  nor by any
delay,  extension of time, renewal,  compromise,  or other indulgence granted by
Lender with respect to any of the joint and several obligations nor by any other
agreement or arrangements  whatever with the other Borrower or with anyone else,
each  Borrower  hereby  waiving  all notice of such delay,  extension,  release,
substitution, renewal, compromise, or other indulgence, and hereby consenting to
be bound thereby as fully and effectually as if it has expressly  agreed thereto
in advance. The liability of each Borrower is direct and unconditional as to all
of the joint and  several  obligations,  and may be enforced  without  requiring
Lender  to resort  to any  other  right,  remedy,  or  security.  Each  Borrower
expressly  waives  promptness,  diligence,  notice of acceptance,  and any other
notice  with  respect  to any of the  joint  and  several  obligations  and  any
requirement  that Lender  protect,  secure,  perfect,  or insure any Lien or any
property  subject  thereto or exhaust  any right or take any action  against any
Person or any Collateral.

3.19    Introduction of the Euro

(a) If, as a result of the  implementation of the European economic and monetary
union ("EMU") either Sterling ceases to be lawful currency of the United Kingdom
and is replaced by a European single or common currency (the "Euro") or Sterling
and the Euro are at the same time both  recognized  by the  central  bank of the
United Kingdom as lawful currency of the United Kingdom, then (i) if Sterling is
still a  recognized  lawful  currency  in the  United  Kingdom,  then any amount
payable  under  any Loan  Paper in  Sterling  (including  any  Borrowing)  shall
continue to be payable in Sterling,  (ii) if Sterling is no longer recognized as
a lawful currency in the United Kingdom,  then any amount payable under any Loan
Paper in Sterling  (including  any  Borrowing)  shall  instead be payable in the
Euro,  and the  amount so  payable  shall be  determined  by  redenominating  or
converting  such amount into the Euro at the exchange rate  officially  fixed by
the European  Central Bank for the purpose of implementing the EMU, (iii) if any
EMU  legislation  provides that an amount  denominated  either in the Euro or in
Sterling can be paid either in the Euro or in  Sterling,  each party to the Loan
Papers  shall  pay or  repay  such  amount  in  Sterling,  and  (iv)  if any EMU
legislation  provides that an amount denominated in Sterling must be paid in the
Euro,  then each party to the Loan Papers shall be entitled to pay or repay such
amount in the  Euro.  Before  the  occurrence  of the event or events  described
above,  each amount  payable under any Loan Paper in Sterling  shall,  except as
otherwise specifically provided in the Loan Papers,  continue to be payable only
in Sterling.

(b) Borrowers  shall,  in respect of Term Loan A, from time to time, at Lender's
request,  pay to Lender the amount of any cost or increased cost incurred by, or
of any  reduction  in any amount  payable to or in the  effective  return on its
capital to, or of interest or other return  foregone  by,  Lender or any holding
company  of  Lender  as a result  of the  introduction  of,  changeover  to,  or
operation of the Euro in the United Kingdom.

(c) Each Loan Paper  (including  the  calculation  of the Fixed  Rate)  shall be
amended to the  extent  determined  by Lender to be  necessary  to  reflect  any
implementation of the EMU and change in currency and to put Lender and Borrowers
in the same position,  so far as possible,  that they would have been in if that
implementation and change in currency had not occurred.

(d) Except as specifically  provided in the foregoing provisions of this Section
3.19, no such implementation or change in currency nor any economic consequences
resulting  therefrom shall (i) give rise to any Right to terminate  prematurely,
contest,  cancel,  rescind,  alter, modify, or renegotiate the provisions of any
Loan Paper or (ii) discharge, excuse, or otherwise affect the performance of any
obligations  of  Borrowers  or any  other  obligor  with  respect  to any of the
Obligation under any Loan Paper.

SECTION 4       SECURITY.

4.1 Guaranty. Full and complete payment of the Obligation shall be guaranteed in
accordance with the Guaranty executed by Guarantors.

4.2  Collateral.  Full and complete  payment of the Obligation  shall be secured
(effective,  for Term Loan A and Term Loan B, as of the  Closing  Date,  and for
Term Loan C, as of the date that it constitutes  Qualifying Debt under the Chase
Credit Agreement,  the Note Agreements,  and the Intercreditor Agreement) by the
Lender  Liens  on all of the  Collateral.  No  Collateral  may be  subordinated,
substituted, or released without the prior written consent of Lender.

(ai In furtherance of the above, Borrower KPOP represents and warrants to Lender
that  Borrower  KPOP has  given  all  required  notices  and  certifications  to
Collateral  Trustee,  the  Noteholders,  and the agent and banks under the Chase
Credit  Agreement  in  order  for the  Obligation  under  this  agreement  to be
"Qualifying Debt" under the Intercreditor  Agreement,  the Note Agreements,  and
the  Chase  Credit  Agreement  other  than the  execution  and  delivery  of the
Supplement to Collateral Trust and Intercreditor  Agreement in substantially the
form of Exhibit C-1 (which  Borrower KPOP  covenants and agrees with Lender that
Borrower  KPOP shall execute and deliver and shall cause  Collateral  Trustee to
execute and deliver on or before the Closing Date).

(bi Borrower  KPOP  further  represents  and  warrants to Lender that,  upon the
execution and delivery of the supplement referred to in clause (a) above and the
execution and delivery of the documents  described on Schedule 5, the Obligation
shall be fully  guarantied  by all  Guaranties  and  secured  by first and prior
perfected Liens that rank pari passu with the guaranties of, and Liens securing,
the indebtedness under the Chase Credit Agreement, the Note Agreements,  and the
Chase Revolving Note.


(ci Borrower  KPOP further  covenants  and agrees with Lender (a) within 30 days
after  the  Closing  Date,  to cause  STOP  and  Borrower  ST to enter  into all
appropriate  agreements and documents and take such action as may be appropriate
in order to create and perfect  Lender Liens  (ranking  pari passu with Liens in
favor of the Collateral  Trustee for the benefit of the other  "Creditors" under
the Intercreditor  Agreement) in all of the issued and outstanding capital stock
of Borrower ST and STE, (b) within 30 days after the Closing Date, to cause STOP
and Borrower ST to amend the Articles of Association  for Borrower ST and STE to
remove the absolute  discretion of the directors of those companies to refuse to
register a transfer of shares of those  companies,  (c) within 45 days after the
written request of Lender, to cause the Intercreditor Agreement to be amended to
ensure to Lender rights,  remedies,  and voting parity with the other"Creditors"
under the  Intercreditor  Agreement  (in  similar  form to the first and  second
amendments  to the  Intercreditor  Agreement),  and (c) promptly  upon  Lender's
request,   to  enter  into  all   appropriate   amendments,   supplements,   and
modifications  to the  Security  Documents  (as  defined  in  the  Intercreditor
Agreement) so that the Obligation is secured  thereby on a pari passu basis with
all other Funded Obligations (as defined in the Intercreditor Agreement).

4.3 Additional  Security and Guaranties4.3  Additional Security and Guaranties.3
Additional Security and Guaranties.3 Additional Security and Guaranties.  Lender
may (as  contemplated in connection with Qualifying Debt or otherwise),  without
notice or demand and without  affecting any Person's  obligations under the Loan
Papers,  from time to time (a) receive and hold  additional  collateral from any
Person  for the  payment  of all or any  part of the  Obligation  and  exchange,
enforce,  or release all or any part of that  collateral and (b) accept and hold
any  endorsement or guaranty of payment of all or any part of the Obligation and
release  any  endorser  or  guarantor,  or any  Person  who has  given any other
security  for the  payment  of all or any part of the  Obligation,  or any other
Person in any way obligated to pay all or any part of the Obligation.

4.4   Collateral    Documentation4.4   Collateral   Documentation.4   Collateral
Documentation.4 Collateral Documentation.  Borrower KPOP shall execute, or cause
to be executed,  financing statements,  stock powers,  assignments,  consents of
partners and other Persons,  and other agreements,  documents,  and instruments,
each in the form and content  reasonably  required by Lender,  and Borrower KPOP
shall  pay all costs of  filing  any  financing,  continuation,  or  termination
statements,  or  other  action  taken  by  Lender  relating  to the  Collateral,
including,  without limitation, costs and expenses of any Lien search reasonably
required by Lender.

SECTION 5       CONDITIONS PRECEDENTSECTION 5   CONDITIONS
PRECEDENTSECTION 5      CONDITIONS PRECEDENTSECTION 5   CONDITIONS
PRECEDENT.  Lender is not  obligated  to make any Term Loan  unless  Lender  has
received all of the items  described  in Schedule 5, each in form and  substance
acceptable to Lender and its counsel. Each condition precedent in this agreement
(including each in Schedule 5) is material to the  transactions  contemplated by
this  agreement,  and time is of the  essence  with  respect  to each  condition
precedent.

SECTION 6       REPRESENTATIONS AND WARRANTIESSECTION 6
        REPRESENTATIONS AND WARRANTIESSECTION 6 REPRESENTATIONS AND
WARRANTIESSECTION 6     REPRESENTATIONS AND WARRANTIES.  Borrowers jointly and
severally represent and warrant to Lender as follows:

6.1 Purpose of Credit Facility6.1 Purpose of Credit Facility.1 Purpose of Credit
Facility.1 Purpose of Credit Facility. Borrowers will use proceeds of Borrowings
as  reflected  in the recitals to this  agreement.  Neither  Borrower is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing  or carrying any "margin  stock" within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System.
No part of the proceeds of any Borrowing  will be used,  directly or indirectly,
for a  purpose  that  violates  any  Law,  including,  without  limitation,  the
provisions of Regulation U.


6.2 Existence,  Good Standing,  and Authority.2  Existence,  Good Standing,  and
Authority.2 Existence,  Good Standing, and Authority.2 Existence, Good Standing,
and Authority. Each KPP Company is duly organized, validly existing, and in good
standing under the Laws of its  jurisdiction  of  organization  as identified on
Schedule 6.2.  Except where failure is not a Material  Adverse  Event,  each KPP
Company (a) is duly  qualified to transact  business  and in good  standing as a
foreign  entity  in each  jurisdiction  where  (i) the  Collateral  is or may be
located and (ii) the nature and extent of its  business and  properties  require
due  qualification  and good standing (those  jurisdictions  for clauses (i) and
(ii) being  identified on Schedule 6.2 and as otherwise  disclosed in writing to
Lender from time to time after the date of this agreement) and (b) possesses all
requisite  authority  and power to conduct its  business as is now being,  or is
contemplated by this agreement to be,  conducted,  except where failure is not a
Material  Adverse  Event.  As used in this  Section  6.2,  the  concept of "good
standing" is inapplicable to each KPP Company that is a partnership.

6.3  Subsidiaries.3   Subsidiaries.3   Subsidiaries.3  Subsidiaries.   Excluding
Insignificant  Subsidiaries,  KPC has no  Subsidiaries  except as  disclosed  on
Schedule 6.3 (and as otherwise  disclosed in writing to Lender from time to time
after the date of this  agreement  to reflect any  changes to the  schedule as a
result of  transactions  permitted by this  agreement).  All of the  outstanding
shares of capital stock (or similar voting interests) of those  Subsidiaries are
duly authorized, validly issued, fully paid, and nonassessable, and are owned of
record  and  beneficially  as set forth  thereon,  free and clear of any  Liens,
restrictions,  claims, or Rights of another Person,  other than Permitted Liens,
and are not subject to any warrant,  option,  or other  acquisition Right of any
Person or subject to any transfer restriction except for restrictions imposed by
securities Laws and general corporate or partnership Laws.

6.4     [INTENTIONALLY BLANK]6.4        [INTENTIONALLY BLANK].4
        [INTENTIONALLY BLANK].4 [INTENTIONALLY BLANK]

6.5  Authorization  and   Contravention6.5   Authorization  and  Contravention.5
Authorization and Contravention.5 Authorization and Contravention. The execution
and  delivery  by each KPP Company of each Loan Paper to which it is a party and
the performance by it of its obligations thereunder (a) are within its corporate
or partnership  power, (b) have been duly authorized by all necessary  corporate
or  partnership  action,  (c) require no action by or filing  with any  Tribunal
(other  than any  action or filing  that has been taken or made on or before the
date of this agreement),  (d) do not violate any provision of its certificate or
agreement of limited partnership,  certificate or articles of incorporation,  or
bylaws (as  applicable),  (e) do not violate any provision of Law  applicable to
it, other than violations that  individually or collectively  are not a Material
Adverse  Event,  (f) do  not  violate  the  Chase  Credit  Agreement,  the  Note
Agreements,  any Security Documents, the Intercreditor Agreement, or any related
documents  (and no event of default  or  incipient  event of  default  otherwise
exists  under any of those  documents),  (g) do not violate  any other  Material
Agreements to which it is a party, other than violations that are not a Material
Adverse  Event,  or (h) do not result in the creation or  imposition of any Lien
(other than the Lender Liens) on any asset of any KPP Company.

6.6 Binding Effect.6  Binding  Effect.6  Binding  Effect.6 Binding Effect.  Upon
execution and delivery by all parties thereto, each Loan Paper will constitute a
legal and binding  obligation  of each KPP Company  party  thereto,  enforceable
against it in accordance with its terms, except as enforceability may be limited
by applicable Debtor Laws and general principles of equity.

6.7  Financial   Statements.7   Financial  Statements.7  Financial  Statements.7
Financial Statements.  The Current Financials of KPP were prepared in accordance
with GAAP and present fairly the consolidated  financial  condition,  results of
operations,  and cash flows of the KPP  Companies  as of, and for the portion of
the fiscal  year  ending on the date or dates  thereof  (subject  only to normal
year-end  adjustments).  All material liabilities of the KPP Companies as of the
date or dates of the Current  Financials  are reflected  therein or in the notes
thereto.   Except  for   transactions   directly  related  to,  or  specifically
contemplated  by, the Loan Papers,  no subsequent  material adverse changes have
occurred in the consolidated  financial condition of the KPP Companies from that
shown in the Current  Financials  of KPP,  nor has any KPP Company  incurred any
subsequent material liability.


6.8 Litigation.8  Litigation.8  Litigation.8 Litigation.  Except as disclosed on
Schedule 6.8 and as  otherwise  disclosed in writing to Lender from time to time
after the date of this agreement (if the disclosures are approved by Lender), no
KPP Company or  Restricted  Subsidiary is subject to, or aware of the threat of,
any Litigation that is reasonably  likely to be determined  adversely to any KPP
Company,  any  Collateral,  or any  Restricted  Subsidiary,  or, if so adversely
determined,  is a Material  Adverse Event.  No  outstanding or unpaid  judgments
exist against any KPP Company, any Collateral, or any Restricted Subsidiary.

6.9  Taxes.9  Taxes.9  Taxes.9  Taxes.  All Tax  returns of each KPP  Company or
Restricted  Subsidiary  required to be filed have been filed (or extensions have
been granted)  before  delinquency,  except for returns for which the failure to
file is not a  Material  Adverse  Event,  and all  Taxes  imposed  upon each KPP
Company and  Restricted  Subsidiary or any  Collateral  that are due and payable
have been paid  before  delinquency,  other  than  Taxes for which the  relevant
criteria for Permitted Liens have been satisfied or for which  nonpayment is not
a Material Adverse Event.

6.10 Environmental  Matters.10 Environmental Matters.10 Environmental Matters.10
Environmental  Matters.  Except as disclosed  on Schedule  6.10 and as otherwise
disclosed  in  writing  to  Lender  from  time to time  after  the  date of this
agreement  (if  the  disclosures  are  approved  by  Lender),   and  other  than
conditions,  circumstances,  or violations that are not,  individually or in the
aggregate,  a  Material  Adverse  Event,  neither  Borrower  (a)  knows  of  any
environmental  condition or circumstance  materially and adversely affecting any
KPP  Company's  or  Restricted  Subsidiary's   properties  (including,   without
limitation, the Collateral) or operations, (b) has received no report of any KPP
Company's or Restricted Subsidiary's violation of any Environmental Law, and (c)
is not  aware  that any KPP  Company  or  Restricted  Subsidiary  is  under  any
obligation  to remedy any violation of any  Environmental  Law. Each KPP Company
and  Restricted  Subsidiary  has  taken  prudent  steps  to  determine  that its
properties (including, without limitation, the Collateral) and operations do not
violate any Environmental Law, other than violations that are not,  individually
or in the aggregate, a Material Adverse Event.

6.11 Employee  Plans.11  Employee  Plans.11  Employee  Plans.11  Employee Plans.
Except where  occurrence or existence is not a Material  Adverse  Event,  (a) no
Employee Plan has incurred an  "accumulated  funding  deficiency" (as defined in
ss.302  of ERISA or  ss.412  of the  Code),  (b) no KPP  Company  or  Restricted
Subsidiary has incurred liability under ERISA to the PBGC in connection with any
Employee  Plan,  (c) no KPP Company or  Restricted  Subsidiary  has withdrawn in
whole or in part from participation in a Multiemployer  Plan, (d) no KPP Company
or Restricted Subsidiary has engaged in any "prohibited transaction" (as defined
in ss.406 of ERISA or ss.4975 of the Code),  and (e) no  "reportable  event" (as
defined in ss.4043 of ERISA) has occurred, excluding events for which the notice
requirement is waived under applicable PBGC regulations.

6.12 Properties;  Liens.12 Properties; Liens.12 Properties; Liens.12 Properties;
Liens. Each KPP Company and Restricted  Subsidiary has good and marketable title
to all its property (including, without limitation, the Collateral) reflected on
the Current  Financials  -- except for title  impairments  described  in Section
8.5((b)(ii)(C),  property  that is  obsolete,  or (c)  property  that  has  been
disposed  in the  ordinary  course  of  business  or,  after  the  date  of this
agreement,  as otherwise  permitted by Section 8.10 or Section 8.11.  Except for
Permitted  Liens, no Lien exists on any property of any KPP Company  (including,
without limitation, the Collateral), and the execution,  delivery,  performance,
or  observance  of the Loan Papers will not require or result in the creation of
any Lien  (other  than  Lender  Liens) on any  property  of any KPP  Company  or
Restricted Subsidiary (including, without limitation, the Collateral).

6.13   Government    Regulations.13    Government    Regulations.13   Government
Regulations.13  Government Regulations.  No KPP Company or Restricted Subsidiary
is subject to regulation  under the Investment  Company Act of 1940, as amended,
the Public  Utility  Holding  Company Act of 1935, as amended,  or any other Law
(other than  Regulations G, T, U, and X of the Board of Governors of the Federal
Reserve System) that regulates the incurrence of Debt.

6.14   Affiliate    Transactions.14    Affiliate    Transactions.14    Affiliate
Transactions.14 Affiliate Transactions.  No KPP Company or Restricted Subsidiary
is a party to a material  (i.e.,  requiring it to pay more than $100,000  during
the term of the  governing  agreement)  transaction  with any of its  Affiliates
other than  transactions  in the  ordinary  course of business and upon fair and
reasonable  terms not  materially  less  favorable than it could obtain or could
become entitled to in an arm's-length transaction with a Person that was not its
Affiliate.

6.15 Debt Cross  Defaults6.15 Debt Cross Defaults.15 Debt Cross Defaults.15 Debt
Cross Defaults.  No agreement  evidencing Debt of (a) any KPP Company contains a
cross-default  provision  concerning  any  Debt  of KSI or KPC or (b) KSI or KPC
contains a cross-default provision concerning any Debt of any KPP Company.

6.16  Material  Agreements6.16  Material  Agreements.16  Material  Agreements.16
Material Agreements.  No KPP Company or Restricted  Subsidiary is a party to any
Material Agreement,  other than the Loan Papers, the Note Agreements,  the Chase
Credit Agreement, and the Material Agreements described on Schedule 6.16. All of
those agreements and other described  Material  Agreements are in full force and
effect,  and no  default  or  potential  default  exists  on the part of any KPP
Company or Restricted Subsidiary thereunder that is a Material Adverse Event.

6.17  Insurance.17  Insurance.17  Insurance.17  Insurance.  Each KPP Company and
Restricted  Subsidiary  maintains  with  financially  sound,  responsible,   and
reputable insurance  companies or associations (or, as to workers'  compensation
or similar insurance,  with an insurance fund or by self-insurance authorized by
the  jurisdictions  in which it operates)  insurance  concerning  its properties
(including,   without   limitation,   the  Collateral)  and  businesses  against
casualties and  contingencies and of types and in amounts (and with co-insurance
and deductibles) as is customary in the case of similar businesses.

6.18 Labor Matters.18 Labor Matters.18 Labor Matters.18 Labor Matters. No actual
or -- to either Borrower's knowledge -- threatened strikes, labor disputes, slow
downs, walkouts, or other concerted interruptions of operations by the employees
of any KPP Company or Restricted  Subsidiary  exist that are a Material  Adverse
Event.  Hours  worked by and payment  made to  employees of each KPP Company and
Restricted Subsidiary have not been in violation of the Fair Labor Standards Act
or any  other  applicable  Law  dealing  with  labor  matters,  other  than  any
violations, individually or collectively, that are not a Material Adverse Event.
All  payments  due from any KPP Company or  Restricted  Subsidiary  for employee
health and welfare  insurance  have been paid or accrued as a  liability  on its
books, other than any nonpayments that are not, individually or collectively,  a
Material Adverse Event.

6.19 Solvency.19 Solvency.19 Solvency.19 Solvency. On the Closing Date, each KPP
Company is, and after giving effect to the Term Loans will be, Solvent.

6.20    Trade Names.20  Trade Names.20  Trade Names.20  Trade Names.
No KPP  Company  has used or  transacted  business  under any  other  corporate,
partnership,  or trade name in the five-year  period preceding the Closing Date,
except as disclosed on Schedule 6.20.


6.21 Intellectual Property6.21 Intellectual Property.21 Intellectual Property.21
Intellectual  Property.  Each KPP Company  and  Restricted  Subsidiary  owns all
material licenses,  patents,  patent  applications,  copyrights,  service marks,
trademarks,  trademark  applications,  and trade names  necessary to continue to
conduct its businesses as presently conducted by it and proposed to be conducted
by it  immediately  after  the  date of this  agreement.  Each KPP  Company  and
Restricted  Subsidiary is conducting its business without  infringement or claim
of  infringement of any license,  patent,  copyright,  service mark,  trademark,
trade name, trade secret, or other intellectual  property right of others, other
than any  infringements  or claims that,  if  successfully  asserted  against or
determined   adversely  to  any  KPP  Company,   would  not,   individually   or
collectively,  constitute a Material  Adverse Event.  To the knowledge of either
Borrower,  no  infringement  or claim of  infringement by others of any material
license, patent, copyright,  service mark, trademark,  trade name, trade secret,
or  Restricted  Subsidiary  or other  intellectual  property  of any KPP Company
exists.

6.22 Y2K Issue6.22 Y2K Issue.22 Y2K Issue.22 Y2K Issue.  The KPP Companies  have
(a)  initiated a review and  assessment  of all areas  within  their  respective
businesses  and operations  (including  those affected by suppliers and vendors)
that could be adversely affected by the Y2K Issue, (b) developed a plan and time
line for addressing the Y2K Issue on a timely basis, and (c) to date implemented
in all material respects that plan in accordance with that timetable.

6.23 Full  Disclosure.23  Full Disclosure.23 Full Disclosure.23 Full Disclosure.
Each  material  fact or condition  relating to the Loan Papers or the  financial
condition,  business,  or property of any KPP Company and Restricted  Subsidiary
that is a Material  Adverse Event has been  disclosed in writing to Lender.  All
information previously furnished by any KPP Company and Restricted Subsidiary to
Lender in  connection  with the Loan Papers was, and all  information  hereafter
furnished by any KPP Company and  Restricted  Subsidiary to Lender will be, true
and accurate in all material  respects or based on  reasonable  estimates on the
date the information is stated or certified.

SECTION 7       AFFIRMATIVE COVENANTSSECTION 7  AFFIRMATIVE
COVENANTSSECTION 7      AFFIRMATIVE COVENANTSSECTION 7  AFFIRMATIVE
COVENANTS.  Until all of the  Obligation  is fully paid and  performed -- unless
Borrowers receive a prior written consent to the contrary by Lender -- Borrowers
jointly and severally covenant and agree as follows:

7.1     Items to be Furnished.1 Items to be Furnished.1 Items to be
Furnished.1  Items to be  Furnished.  Borrowers  shall cause the following to be
furnished to Lender:

(ai Promptly after preparation,  and no later than 95 days after the last day of
each fiscal year of KPP, Financial Statements showing the consolidated financial
condition and results of operations of the KPP Companies and its Subsidiaries as
of, and for the year ended on, that last day, accompanied by:

(i0  the  unqualified  opinion  of a firm of  nationally-recognized  independent
certified  public  accountants,  based  on an  audit  using  generally  accepted
auditing  standards,  that the Financial  Statements were prepared in accordance
with  GAAP and  present  fairly,  in all  material  respects,  the  consolidated
financial condition and results of operations of KPP and its Subsidiaries;

(ii0    any management letter prepared by the accounting firm delivered in
connection with its audit;

(iii0 a certificate  from the accounting  firm to Lender  indicating that during
its audit it obtained no knowledge of any Default or Potential Default or, if it
obtained knowledge, the nature and period of existence thereof; and

(iv0    a Compliance Certificate.


(bi Promptly after preparation,  and no later than 95 days after the last day of
each fiscal year of Borrower KPOP, Financial Statements showing the consolidated
financial  condition and results of operations of the KPOP  Companies as of, and
for the year ended on, that last day,  accompanied by (i) a Financial Statements
Certificate  executed by the chief  financial  officer of Borrower KPOP and (ii)
any audit opinion delivered in connection with the Financial Statements.

(ci Promptly after preparation,  and no later than 50 days after the last day of
each of the first three fiscal quarters of KPP, Financial Statements showing the
consolidated  financial  condition  and  results  of  operations  of KPP and its
Subsidiaries  for the  applicable  fiscal  quarter  and for the period  from the
beginning  of the current  fiscal  year to the last day of that fiscal  quarter,
accompanied by a Compliance Certificate.

(d) Promptly after preparation,  and no later than 50 days after the last day of
each of the first three fiscal quarters of Borrower KPOP,  Financial  Statements
showing the  consolidated  financial  condition and results of operations of the
KPOP  Companies for the  applicable  fiscal  quarter and for the period from the
beginning  of the current  fiscal  year to the last day of that fiscal  quarter,
accompanied  by  a  Financial  Statements  Certificate  executed  by  the  chief
financial officer of Borrower KPOP.

(e) Promptly after  receipt,  a copy of each interim or special audit report and
management  letter  issued by  independent  accountants  with respect to any KPP
Company or Restricted Subsidiary or its financial records.

(f) Notice, promptly after either Borrower knows, of (i) the commencement of any
Litigation  that,  if  determined  adversely  to any KPP  Company or  Restricted
Subsidiary or the Collateral, would be a Material Adverse Event, (ii) any change
in any material fact or circumstance represented or warranted by any KPP Company
in any Loan Paper, (iii) the receipt by any KPP Company or Restricted Subsidiary
of notice of any violation or alleged  violation of any Environmental Law (which
individually  or  collectively   with  other  violations  or  allegations  could
constitute a Material Adverse Event), (iv) a Default or Potential Default or any
event of default or incipient event of default under the Chase Credit Agreement,
the Note Agreements,  or the Intercreditor  Agreement,  in each case, specifying
the nature  thereof and what  action  such  Borrower or any other KPP Company or
Restricted  Subsidiary  has taken,  is taking,  or proposes to take,  or (v) the
incurrence of any Funded Debt other than under this agreement.

(g) Promptly upon receipt (or upon delivery,  as the case may be), copies of all
notices of default,  potential  default,  or events of default  given by any KPP
Company to, or received by any KPP Company from, the agent or any bank under the
Chase Credit Agreement, Chase under the Chase Revolving Note, any Noteholder, or
the Collateral Trustee.

(h) Promptly after filing,  true,  correct,  and complete copies of all material
reports or filings filed by or on behalf of any KPP Company with any Tribunal.

(i) Upon request by Lender,  full information as to the insurance carried by the
KPP Companies and Restricted Subsidiaries, and promptly after receipt by any KPP
Company  or  Restricted  Subsidiary,  notice  from any  insurer of any notice of
cancellation or nonrenewal of a material  insurance policy or material change in
insurance coverage from that existing on the date of this agreement.


(j)  Promptly  after  publication,  copies  of  all  press  releases  and  other
statements made available generally by any KPP Company or Restricted  Subsidiary
to the public concerning material developments in its business.

(k) Notice  promptly  after  either of them  discovers  or  determines  that any
computer  applications  (including  those of  suppliers  and  vendors to any KPP
Company)  that are material to the  businesses  or operations of any KPP Company
will not be compliant in timely  resolving  the Y2K Issue if that failure  could
reasonably be expected to be a Material Adverse Event.

(l) As soon as is  reasonably  practical,  upon  reasonable  request  by Lender,
information  (not  otherwise  required to be  furnished  under the Loan  Papers)
respecting the business affairs,  assets  (including,  without  limitation,  the
Collateral),  and liabilities of the KPP Companies and Restricted  Subsidiaries,
and opinions,  certifications,  and documents in addition to those  mentioned in
this agreement.

7.2 Use of  Proceeds.2  Use of  Proceeds.2  Use of  Proceeds.2  Use of Proceeds.
Borrowers shall use the proceeds of Borrowings only for the purposes represented
in this agreement.

7.3 Books  and  Records.3  Books and  Records.3  Books and  Records.3  Books and
Records.  Each KPP Company  and  Restricted  Subsidiary  shall  maintain  books,
records,  and accounts  necessary to prepare financial  statements in accordance
with GAAP (except for any departure with respect to the accounting  treatment of
the pipeline, terminals, and related assets acquired by Borrowers).

7.4  Inspections.4  Inspections.4  Inspections.4  Inspections.  Upon  reasonable
request,  each KPP Company and Restricted  Subsidiary  shall allow Lender or its
Representatives  (who shall comply with the safety rules disclosed to it or them
at the time of inspection) to inspect any of its properties (including,  without
limitation, the Collateral),  to review reports, files, and other records and to
make and take away copies,  to conduct tests or  investigations,  and to discuss
any  of  its  affairs,  conditions,  and  finances  with  its  other  creditors,
directors,  officers,  employees,  or representatives  from time to time, during
reasonable  business  hours.  Fees and expenses  incurred under this Section 7.4
shall be borne by Lender  unless Lender acted under this Section 7.4 in order to
perform  its duties  under the Loan  Papers or preserve or protect the Rights of
Lender  under the Loan  Papers.  Lender and its  Representatives  agree to treat
confidential  those  matters  disclosed  by  Borrowers  as  being  confidential;
however, Lender and its Representatives may disclose confidential matters (a) to
Lender and each  actual or  prospective  Participant  or  Purchaser,  (b) to any
Tribunal having jurisdiction over it, and (c) that are public knowledge.

7.5 Taxes.5  Taxes.5 Taxes.5 Taxes.  Each KPP Company and Restricted  Subsidiary
shall  promptly  pay when due any and all Taxes other than Taxes which are being
contested  in good faith by lawful  proceedings  diligently  conducted,  against
which reserve or other provision  required by GAAP has been made, and in respect
of which levy and execution of any Lien have been and continue to be stayed.

7.6 Payment of Obligations.6  Payment of Obligations.6  Payment of Obligations.6
Payment  of  Obligations.  Each KPP  Company  and  Restricted  Subsidiary  shall
promptly  pay (or renew and  extend)  all of its  material  obligations  as they
become  due  (unless  the  obligations  are  being  contested  in good  faith by
appropriate proceedings).


7.7 Expenses.7 Expenses.7  Expenses27.7  Expenses.  Borrowers shall promptly pay
upon  demand  (a) all costs,  fees,  and  expenses  paid or  incurred  by Lender
incident to any Loan Paper  (including,  but not limited to, the reasonable fees
and  expenses  of  Lender's   counsel  in  connection   with  the   negotiation,
preparation,  delivery,  and  execution  of the  Loan  Papers  and  any  related
amendment,  waiver,  or consent,  and (b) all  reasonable  costs and expenses of
Lender  incurred by Lender in connection with the enforcement of the obligations
of any  Person  arising  under the Loan  Papers or the  exercise  of any  Rights
arising  under  the Loan  Papers  (including,  but not  limited  to,  reasonable
attorneys' fees and court costs), all of which shall be a part of the Obligation
and shall bear  interest,  if not paid upon  demand,  at the Default  Rate until
repaid.

7.8 Maintenance of Existence,  Assets, and Business.8  Maintenance of Existence,
Assets,  and  Business.8  Maintenance  of  Existence,   Assets,  and  Business.8
Maintenance of Existence, Assets, and Business. Except as otherwise permitted by
Section 8.11, each KPP Company and Restricted  Subsidiary shall (a) maintain its
corporate or  partnership  existence  and good standing in its  jurisdiction  of
organization  and its  authority to transact  business in all other states where
the Collateral is or may be located and, additionally, where failure to maintain
its authority to transact business is a Material Adverse Event; (b) maintain all
licenses,  permits, and franchises necessary for its business where failure is a
Material  Adverse  Event;  (iii) keep all of its  assets  that are useful in and
necessary to its business in good working order and condition (ordinary wear and
tear excepted) and make all necessary repairs and replacements.

7.9  Insurance.9  Insurance.9  Insurance.9  Insurance.   Each  KPP  Company  and
Restricted  Subsidiary,  at its cost and expense,  shall maintain insurance with
financially  sound and reputable  insurers,  in such amounts,  and covering such
risks,  as is  ordinary  and  customary  for  similar  Persons in the  industry.
However, the insurance coverage,  at a minimum, must be in the amounts and cover
the risks described on Schedule 7.9. At Lender's  request,  each KPP Company and
Restricted  Subsidiary shall deliver to Agent certificates of insurance for each
policy of insurance. If any insurance policy covered by an insurance certificate
previously  delivered to Lender is altered or  canceled,  then  Borrowers  shall
cause to be promptly delivered to Lender a replacement  certificate (in form and
substance satisfactory to Lender).

7.10  Preservation  and Protection of Rights.10  Preservation  and Protection of
Rights.10  Preservation and Protection of Rights.10  Preservation and Protection
of Rights. Each KPP Company and Restricted Subsidiary shall perform the acts and
duly authorize, execute,  acknowledge,  deliver, file, and record any additional
writings as Lender may  reasonably  deem necessary or appropriate to perfect and
maintain  the Lender  Liens and  preserve and protect the Rights of Lender under
any Loan Paper.

7.11  Environmental   Laws.11   Environmental   Laws.11   Environmental  Laws.11
Environmental Laws. Each KPP Company and Restricted Subsidiary shall (a) conduct
its  business  and operate the  Collateral  so as to comply with all  applicable
Environmental  Laws and shall  promptly  take  corrective  action to remedy  any
non-compliance  with any  Environmental  Law, and (b)  establish  and maintain a
management  system designed to ensure  compliance with applicable  Environmental
Laws and minimize  financial and other risks to each KPP Company and  Restricted
Subsidiary  arising  under  applicable  Environmental  Laws or as the  result of
environmentally  related  injuries  to Persons or property  (including,  without
limitation, the Collateral).  Borrower KPOP shall deliver reasonable evidence of
compliance  with the  foregoing  covenant  to Lender  within  30 days  after any
request from Determining Lenders.

7.12 Subsidiaries7.12  Subsidiaries.12 Subsidiaries.12 Subsidiaries. Each Person
that becomes a Restricted  Subsidiary after the date of this agreement  (whether
as a result of acquisition,  creation, or otherwise) shall execute and deliver a
Guaranty within ten days after becoming a Restricted Subsidiary.


7.13    Indemnification.13      Indemnification.13      Indemnification.13
        Indemnification.  EACH KPP COMPANY, JOINTLY AND SEVERALLY, INDEMNIFIES,
PROTECTS,  AND  HOLDS  LENDER,  AND  ITS  PARENTS,   SUBSIDIARIES,   AFFILIATES,
REPRESENTATIVE,   SUCCESSORS,   AND  ASSIGNS  (COLLECTIVELY,   THE  "INDEMNIFIED
PARTIES")  HARMLESS  FROM  AND  AGAINST  ANY AND ALL  LIABILITIES,  OBLIGATIONS,
LOSSES, DAMAGES,  PENALTIES,  ACTIONS, JUDGMENTS, SUITS, CLAIMS, AND PROCEEDINGS
AND ALL COSTS, EXPENSES (INCLUDING,  WITHOUT LIMITATION, ALL ATTORNEYS' FEES AND
LEGAL EXPENSES WHETHER OR NOT SUIT IS BROUGHT), AND DISBURSEMENTS OF ANY KIND OR
NATURE  (THE  "INDEMNIFIED  LIABILITIES")  THAT MAY AT ANY TIME BE  IMPOSED  ON,
INCURRED BY, OR ASSERTED  AGAINST ANY INDEMNIFIED  PARTY, IN ANY WAY RELATING TO
OR ARISING OUT OF (A) THE DIRECT OR INDIRECT  RESULT OF THE VIOLATION BY ANY KPP
COMPANY OF ANY ENVIRONMENTAL LAW, (B) ANY KPP COMPANY'S GENERATION, MANUFACTURE,
PRODUCTION,  STORAGE,  RELEASE,  THREATENED  RELEASE,  DISCHARGE,  DISPOSAL,  OR
PRESENCE IN CONNECTION WITH ITS PROPERTIES (INCLUDING,  WITHOUT LIMITATION,  THE
COLLATERAL) OF A HAZARDOUS SUBSTANCE  (INCLUDING,  WITHOUT  LIMITATION,  (I) ALL
DAMAGES FROM ANY USE, GENERATION,  MANUFACTURE,  PRODUCTION,  STORAGE,  RELEASE,
THREATENED RELEASE,  DISCHARGE,  DISPOSAL, OR PRESENCE, OR (II) THE COSTS OF ANY
ENVIRONMENTAL INVESTIGATION,  MONITORING, REPAIR, CLEANUP, OR DETOXIFICATION AND
THE PREPARATION AND  IMPLEMENTATION OF ANY CLOSURE,  REMEDIAL,  OR OTHER PLANS),
(C) THE LOAN PAPERS OR ANY OF THE TRANSACTIONS CONTEMPLATED IN THEM, AND (D) ANY
INDEMNIFIED  PARTY'S  SOLE  OR  CONCURRENT  ORDINARY  NEGLIGENCE.   HOWEVER,  NO
INDEMNIFIED  PARTY IS ENTITLED TO BE  INDEMNIFIED  UNDER THE LOAN PAPERS FOR ITS
OWN FRAUD,  GROSS  NEGLIGENCE,  OR WILLFUL  MISCONDUCT.  The  provisions  of and
undertakings and  indemnification  in this Section 7.13 survive the satisfaction
and payment of the Obligation and termination of this agreement.

SECTION 8       NEGATIVE COVENANTSSECTION 8     NEGATIVE
COVENANTSSECTION 8      NEGATIVE COVENANTSSECTION 8     NEGATIVE
COVENANTS.  Until all Obligation is fully paid and performed -- unless Borrowers
receive a prior written  consent to the contrary by Lender -- Borrowers  jointly
and severely covenant and agree as follows:

8.1 Taxes.1 Taxes.1  Taxes.1 Taxes. No KPP Company or Restricted  Subsidiary may
use any portion of the  proceeds of any  Borrowing to pay the wages of employees
unless a timely  payment to or deposit with the United  States of America of all
amounts of Tax required to be deducted  and withheld  with respect to such wages
is also made.

8.2     [INTENTIONALLY BLANK]8.2        [INTENTIONALLY BLANK].2
        [INTENTIONALLY BLANK].2 [INTENTIONALLY BLANK].

8.3 Employee Plans.3  Employee  Plans.3 Employee Plans.3 Employee Plans.  Except
where a  Material  Adverse  Event  would not  result,  no event or  circumstance
described in Section 6.11 may exist or occur.

8.4     Funded Debt8.4  Funded Debt.4   Funded Debt.4   Funded Debt.  No KPP
Company or  Restricted  Subsidiary  may  create,  incur,  of suffer to exist any
Funded Debt except the following:

(a)     Funded Debt evidenced by the Notes, the Notes under the Chase Credit
Agreement, Series Notes, and Series Guaranties;

(b) other Funded Debt of the KPP Companies  outstanding on the "Series B Closing
Date" described in Schedule 5 to the Note Agreements as in effect on the date of
this agreement  (including any amendments and modifications of that Funded Debt,
but excluding any amendment,  modification,  renewal, extension, or refunding of
that  Funded  Debt  that has the  effect of  extending  its  final  maturity  or
increasing its principal amount); and


(c) other Funded Debt of any KPP Company or any Restricted Subsidiary so long as
-- at the time of, and  immediately  after giving  effect to, the  incurrence of
(including  any amendments  and  modifications  of, but excluding any amendment,
modification,  renewal, extension, or refunding that has the effect of extending
the final  maturity or increasing  the principal  amount of) it and  immediately
after  giving  effect to the  concurrent  application  of any  proceeds of it to
retire other Funded Debt -- (i) no Default or Potential  Default exists and (ii)
the ratio of KPP's consolidated  Funded Debt to its consolidated EBITDA does not
equal  or  exceed  3.15  to  1.00,  with  (A)  EBITDA  being  determined  for  a
12-calendar-month  period  ending no more than three  months  before the date on
which that KPP Company or  Restricted  Subsidiary  incurs that other Funded Debt
and (B) Funded Debt being  determined  as of the date of the  incurrence  of the
Funded Debt for which the calculation in this clause (c) is being made.

8.5     Liens8.5        Liens.5 Liens.5 Liens.

(a) No KPP Company or Restricted Subsidiary may (i) create, assume, or otherwise
incur or suffer to exist any Lien upon -- or,  whether by  Transfer to any other
KPP Company or  Restricted  Subsidiary  or  otherwise,  subject to the  priority
payment of any obligations,  indebtedness, or claim other than the Obligation --
any present, future, real, personal,  tangible, or intangible assets (including,
without limitation,  stock or other securities) of any KPP Company or Restricted
Subsidiary,  whether  now owned or  acquired  in the  future,  or any  income or
profits from any of those assets, (ii) own or acquire or agree to acquire any of
those assets  subject to or encumbered by any Lien, or (iii) suffer to exist any
obligations,  indebtedness, or claim of any KPP Company or Restricted Subsidiary
or claims or demands  against any KPP Company or  Restricted  Subsidiary,  which
obligations, indebtedness, claims, or demands, if unpaid, would (in the hands of
the holder of any of them,  any  guarantor of any of them, or any Person who has
any Right or obligation to purchase any of them),  by law or upon  bankruptcy or
insolvency  or  otherwise,  be  given  any  priority  whatsoever  over  that KPP
Company's or Restricted Subsidiary's general creditors.

(b) The  restrictions  in clause (a) above  neither (i) apply to Lender Liens or
other Liens under the Security  Documents which are subject to the Intercreditor
Agreement, nor (ii) prevent:

(A) any Lien existing on the "Series B Closing Date"  described on Schedule 5 to
the Note  Agreements  as in effect  on the date of this  agreement  that  secure
Funded  Debt  permitted  under  Section  8.4(b) and  renewals,  extensions,  and
refundings of that Funded Debt permitted under Section 8.4(c) but not extensions
of those Liens to cover any additional assets; or

(B) any Lien that is incidental  to the normal  conduct of business or ownership
of assets by any KPP Company or Restricted  Subsidiary so long as that Lien does
not secure Debt and does not  materially  impair the use of those  assets in the
operation of that KPP Company's or Restricted Subsidiary's businesses; or


(C) any (i) Lien for Taxes not yet due and payable or the nonpayment of which is
permitted by Section 7.5, (ii) survey exceptions,  encumbrances,  easements,  or
reservations of, or Rights of others for, Rights of way, sewers, electric lines,
telegraph and telephone  lines and other  similar  purposes,  or zoning or other
restrictions  as to the use of real  property,  and Rights of eminent  domain so
long as all of the foregoing do not collectively have a material-adverse  effect
on any assets of any KPP Company or Restricted  Subsidiary or materially  impair
their use in the  operation of its  businesses,  or (iii)  mechanic's  Liens and
materialman's  Liens for services or materials  for which payment is not yet due
and  payable  and which do not  materially  impair the use by any KPP Company or
Restricted Subsidiary in the operation of its businesses; or

(D) any Lien in  respect  of assets  acquired  by a KPP  Company  or  Restricted
Subsidiary  after the date of this  agreement to secure Debt assumed or incurred
to finance all or any part of the  purchase  price so long as that Lien (1) must
at all times apply solely to the assets so acquired and any improvements on them
that become fixtures or accessions to them, (2) secures only a principal  amount
of Debt that never  exceeds  the lesser of either the fair  market  value of the
acquired  assets at the time of their  acquisition  or the cost of those assets,
(3) must be either existing at the time of the acquisition or created within 120
days after the time of the  acquisition,  and (4) secures only Debt permitted by
Section 8.4 at the time the Debt is incurred; or

(E) any of the following Liens if (1) the validity,  applicability  or amount of
it is being  contested in good faith and by appropriate  and lawful  proceedings
diligently  conducted,  (2) the KPP Company or Restricted Subsidiary in question
has set aside on its  books,  reserves  for it that are deemed  adequate  in its
reasonable  opinion,  (3) levy and execution of that Lien continue to be stayed,
(4) it covers any Collateral and is subordinate to the Lender Liens, and (5) all
such Liens do not collectively materially detract from the value of the property
of the KPP Company or Restricted Subsidiary in question or materially impair the
use of that property in the operation of its business:  (a) All claims and Liens
of mechanics, materialmen, warehousemen -- other than those described in Section
8.5(b)(ii)(C)(iii),  and (b)  adverse  judgments  or orders  on  appeal  for the
payment of money not in excess of the total amount of $25,000,000; or

(F)     any Lien securing Qualifying Debt; or

(G) any Lien on assets that are not  Collateral  and securing Debt  permitted by
Section 8.4 so long as the total amount of Debt so secured  never exceeds 10% of
KPP's consolidated partners' capital.

8.6 Affiliate  Transactions8.6 Affiliate Transactions.6 Affiliate Transactions.6
Affiliate  Transactions.  No KPP Company or Restricted  Subsidiary may engage in
any transaction  with an Affiliate on terms less favorable to it than would have
been  obtainable in arm's length dealing in the ordinary course of business with
a Person not an Affiliate.

8.7 Compliance  with Laws and  Documents.7  Compliance with Laws and Documents.7
Compliance with Laws and Documents.7 Compliance with Laws and Documents.  No KPP
Company or  Restricted  Subsidiary  may (a) violate the  provisions  of any Laws
applicable  to it or of any  Material  Agreement  to which it is a party if that
violation alone, or when
aggregated with all other violations,  would be a Material Adverse Event, or (b)
violate, repeal, replace, or amend any provision of its certificate or agreement
of limited partnership,  certificate or articles of incorporation, or bylaws (as
applicable).

8.8 Loans, Advances, and Investments.8 Loans, Advances, and Investments.8 Loans,
Advances, and Investments.8 Loans, Advances, and Investments.  No KPP Company or
Restricted  Subsidiary  may make any loan,  advance,  extension  of  credit,  or
capital  contribution  to,  make any  investment  in, or  purchase  or commit to
purchase any stock or other securities or evidences of Debt of, or interests in,
any  other  Person,  except  (a) as  permitted  by  Sections  8.9 or 8.11 or (b)
Permitted Investments.


8.9  Distributions.9  Distributions.9  Distributions28.9  Distributions.  No KPP
Company  or  Restricted  Subsidiary  may  enter  into or  permit  to  exist  any
arrangement  or agreement  that  prohibits it from paying  Distributions  to its
equity holders -- other than this  agreement,  the Chase Credit  Agreement,  the
Chase Revolving Note, the Note Agreements,  and its charter  documents in effect
as of the  date of this  agreement  -- and  neither  KPP nor  Borrower  KPOP may
declare, make, or pay any Distribution:

(a)  if it  would  violate  the  KPP  Partnership  Agreement  or  Borrower  KPOP
Partnership Agreement or a Default or Potential Default is continuing; or

(b) for (i) Borrower  KPOP, the total  Distributions  paid by it in any calendar
quarter  would  exceed 100% of the  "Borrower  Available  Cash" for the calendar
quarter immediately preceding the quarter in which those Distributions are paid,
or (ii) KPP, the total  Distributions  paid by it in any calendar  quarter would
exceed the "KPP Available Cash" that constitutes "Cash from Operations" or "Cash
from  Interim  Capital   Transactions"  for  the  calendar  quarter  immediately
preceding the quarter in which those Distributions are paid.

For purposes of this Section 8.9 only:

Borrower  Available Cash means, with respect to any calendar quarter (i) the sum
of (a) all cash  receipts of Borrower KPOP during that quarter from all sources,
plus (b) any reduction in reserves established in prior quarters, minus (ii) the
sum of (aa) all  cash  disbursements  of  Borrower  KPOP  during  that  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 any Subsidiary (but excluding all
cash Distributions by Borrower KPOP), plus (bb) any reserves established in that
quarter in such amounts as KPC  determines  in its  reasonable  discretion to be
necessary or appropriate  to provide for the proper  conduct of Borrower  KPOP's
business  (including  reserves for future capital  expenditures),  plus (cc) any
other reserves  established in that quarter in such amounts as KPC determines in
its  reasonable  discretion to be necessary  because the  Distribution  of those
amounts would be prohibited by applicable Law or by any loan agreement, security
agreement,  mortgage, debt instrument, or other agreement or obligation to which
Borrower KPOP is a party or by which it is bound or its assets are subject.  For
purposes of this definition,  notwithstanding the foregoing, "Borrower Available
Cash" may 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 Borrower KPOP.

Cash from  Interim  Capital  Transactions  means,  on any day, the amount of KPP
Available Cash that KPC determines to be Cash from Interim Capital  Transactions
in accordance with Section 5.3 of the KPP Partnership Agreement.


Cash from Operations  means,  on any day before  commencement of the dissolution
and liquidation of KPP -- on a cumulative basis -- the sum of (a) the sum of all
cash receipts of KPP plus $3,526,000 -- including Distributions of cash received
from Borrower  KPOP and  excluding  any cash  proceeds from any Interim  Capital
Transactions  or Terminating  Capital  Transactions  during the period since the
commencement  of  operations by KPP through that day -- minus (b) the sum of (i)
all cash operating  expenditures of KPP during that period,  including,  without
limitation,  Taxes on KPP as an  entity or Taxes  paid by KPP on  behalf  of, or
amounts  withheld  with  respect  to,  all  (but  not  less  than  all)  of  its
unitholders, if any, plus (ii) all cash debt service payments of KPP during that
period -- other than payments or prepayments  of principal and premium  required
by  reason  of loan  agreements  (including  covenants  and  default  provisions
therein)  or by  lenders,  in each  case  in  connection  with  sales  or  other
dispositions of assets or made in connection with  refinancings or refundings of
indebtedness  (provided that any payment or prepayment of principal,  whether or
not then due, must be  determined at the election and in the  discretion of KPC,
to be refunded or refinanced by any  indebtedness  incurred or to be incurred by
KPP  simultaneously  with or within  180 days  before or after  that  payment or
prepayment  to the  extent  of the  principal  amount  of that  indebtedness  so
incurred), plus (iii) all cash capital expenditures of KPP during that period --
other than (A) Expansive Capital  Expenditures and (B) cash expenditures made in
payment of transaction expenses relating to Interim Capital Transactions -- plus
(iv) an amount equal to revenues  collected pursuant to a rate increase that are
subject to possible refund, plus (v) any additional  reserves  outstanding as of
that day which KPP  determines in its  reasonable  discretion to be necessary or
appropriate to provide for the future cash payment of items of the type referred
to in  clauses  (i)  through  (iii)  above,  plus  (vi)  any  reserves  that KPC
determines  in its  reasonable  discretion  to be  necessary or  appropriate  to
provide funds for Distributions with respect to any one or more of the next four
calendar  quarters,  all  as  determined  on  a  consolidated  basis  and  after
elimination  of  intercompany  items  and of the  interest  attributable  to the
general  partner  interest in Borrower  KPOP.  For purposes of this  definition,
Taxes  paid by KPP on  behalf  of less  than all of its  unitholders  may not be
considered   cash  operating   expenditures  of  KPP  which  reduce  "Cash  from
Operations."

Expansive Capital  Expenditures means cash capital expenditures made to increase
the throughput or deliverable  capacity or terminaling capacity (assuming normal
operating conditions,  including down-time and maintenance) of the assets of KPP
or Borrower KPOP, taken as a whole, from the throughput or deliverable  capacity
or  terminaling  capacity  (assuming  normal  operating  conditions,   including
down-time  maintenance)  existing immediately before those capital expenditures.
For purposes of this definition, when cash capital expenditures are made in part
to increase the  throughput or deliverable  capacity or terminaling  capacity of
the  assets  of KPP,  taken as a whole,  and in part for other  purposes,  KPP's
good-faith  allocation thereof between the portion  increasing  capacity and the
portion for other purposes is conclusive.

Interim  Capital  Transaction  means (a) borrowing and sales of debt  securities
(other than for working capital  purposes and items purchased on open account in
the ordinary  course of business) by KPP or Borrower KPOP, (b) sales of interest
in KPP by KPP or Borrower KPOP, and (c) sales or other  voluntary or involuntary
dispositions  of any  assets of KPP or  Borrower  KPOP,  other than (i) sales or
other disposition of inventory in the ordinary course of business, (ii) sales or
other  dispositions of other current assets including  receivables and accounts,
or (iii) sales or other  dispositions of assets as a part of normal  retirements
or replacements  -- in each case before the  commencement of the dissolution and
liquidation of KPP.


KPP Available  Cash means,  with respect to any calendar  quarter (a) the sum of
(i) all cash  receipts of KPP during that  quarter  from all sources  (including
Distributions  of cash received  from Borrower  KPOP) plus (ii) any reduction in
reserves  established  in  prior  quarters,  minus  (b) the sum of (i) all  cash
disbursements  of  KPP  during  that  quarter,  including,  without  limitation,
disbursements for operating  expenses,  Taxes on KPP as an entity or paid by KPP
on behalf of, or amounts  withheld  with respect to, all (but not less than all)
of its  unitholders,  if any, 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
its  partners),  plus (ii) any  reserves  established  in that  quarter  in such
amounts as KPC  determines  in its  reasonable  discretion  to be  necessary  or
appropriate  (A) to provide for the proper conduct of KPP's business  (including
reserves  for  future  capital   expenditures)  or  (B)  to  provide  funds  for
Distributions  with  respect  to any  one or  more  of the  next  four  calendar
quarters,  plus (iii) any other  reserves  established  in that  quarter in such
amounts as KPC 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 KPP is a party or by which it is bound or its
assets are subject. For purposes of this definition, Taxes paid by KPP on behalf
of, or amounts withheld with respect to, less than all of KPP's  unitholders may
not be considered cash  disbursements  of KPP which reduce "KPP Available Cash,"
and, notwithstanding the foregoing, "KPP Available Cash may 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
KPP.

Terminating Capital Transaction means any sale or other disposition of assets of
KPP or Borrower KPOP following  commencement  of the dissolution and liquidation
of KPP or Borrower KPOP.

8.10 Asset  Transfers.10  Asset Transfers.10 Asset Transfers.10 Asset Transfers.
No KPP Company or Restricted Subsidiary may Transfer any of its assets, issue or
sell shares of its  capital  stock or its  partnership  units,  or Transfer  any
capital stock or  partnership  units of a Restricted  Subsidiary  other than the
following:

(a) a Transfer in the  ordinary  course of business  (including  any Transfer of
obsolete or worn-out assets);

(b)     a Transfer pursuant to a transaction permitted under Section 8.11;

(c) a Transfer and  lease-back  of any property  within 180 days  following  the
acquisition of the property so long as no Default or Potential Default exists at
the time of and after giving effect to that transaction;

(d) a Transfer at the time of which and immediately after giving effect to which
(i) the  Transfer  is for fair  market  value and in the best  interests  of the
Person  making it, (ii) no Default or  Potential  Default  exists or would exist
after giving effect to it, or (iii) all such  Transfers  which are to be treated
as  "Permitted  Transfers"  under this clause (d) in any fiscal year  consist of
assets or of  capital  stock of a KPP  Subsidiary  that do not have a total book
value (or total fair  market  value,  whichever  is higher) --  determined  with
regard  to each  such  asset  or such  capital  stock  at the  time  the same is
Transferred -- of more than 10% of KPP's  consolidated  partners'  capital as of
the end of the immediately preceding fiscal year;

(e) a  Transfer  for  cash so long  as,  within  one  year  from the date of the
Transfer,  the KPP  Companies or their  Subsidiaries  use the full amount of the
proceeds received from the Transfer, net of all expenses of the KPP Companies or
their Subsidiaries  incurred in connection with it, either (1) to acquire assets
used in the storage, terminaling,  pipeline, and transportation business, (2) to
pay Funded Debt of the KPP Companies, or (3) any combination of the two;

(f) a Transfer to any other KPP Company or wholly owned Restricted Subsidiary;

(g) issuance or sale of its capital stock to another KPP Company or wholly owned
Restricted Subsidiary;

(h) new  issuances of limited  partnership  units of KPP in exchange for cash or
property  representing  fair  consideration in the determination of the Board of
Directors of KPC;

(i) a merger or consolidation that complies with the provisions of Section 8.11;
or

(j) a  contribution  of  capital  stock of a  Restricted  Subsidiary  to a joint
venture so long as, following that contribution, an additional $1 of Funded Debt
could be incurred under Section 8.4.

8.11 Dissolutions,  Mergers, and  Consolidations.11  Dissolutions,  Mergers, and
Consolidations.11 Dissolutions,  Mergers, and Consolidations28.11  Dissolutions,
Mergers,  and  Consolidations.  No KPP  Company  or  Restricted  Subsidiary  may
liquidate,  wind up, or dissolve or merge or  consolidate  with any other Person
other than:

(a) a  Subsidiary  of KPP may be merged into or  consolidated  with  another KPP
Company or wholly owned  Subsidiary  of KPP so long as (i) Borrower  KPOP is the
surviving Person if it is involved, or (ii) otherwise, a KPP Company or a wholly
owned  Subsidiary  of KPP  (which  must  be a  Restricted  Subsidiary  if one is
involved in the merger or consolidation) is the surviving Person; and

(b) a KPP Company or Restricted Subsidiary may merge or consolidate with another
corporation,  partnership,  or limited liability company (other than KSI or KPC)
so long as (i) both before and immediately after the merger or consolidation, no
Default or Potential Default exists, (ii) following the merger or consolidation.
the  successor  company is Borrower  KPOP (if it is involved) or otherwise a KPP
Company or a Restricted  Subsidiary that is Solvent and maintains  substantially
all of its assets in the United States of America, (iii) following the merger or
consolidation,  an additional $1 of Funded Debt could be incurred  under Section
8.4(c), and (iv) immediately before the merger or consolidation, Lender receives
a  certificate  of  Responsible  Officer  of KPP  certifying  that the merger or
consolidation complies with all requirements of this Section 8.11.

8.12 Assignment.12  Assignment.12  Assignment.12  Assignment. No KPP Company may
assign or transfer any of its Rights,  duties,  or obligations  under any of the
Loan  Papers  except as a result of a merger or  consolidation  permitted  under
Section  8.11, in which case the  assignment or transfer of the Rights,  duties,
and  obligations of the  non-surviving  KPP Company is permitted if the survivor
assumes in writing all Rights,  duties, and obligations of the non-surviving KPP
Company under the Loan Papers.

8.13 Fiscal Year and Accounting Methods.13 Fiscal Year and Accounting Methods.13
Fiscal Year and Accounting Methods.13 Fiscal Year and Accounting Methods. No KPP
Company or  Restricted  Subsidiary  may change its fiscal  year or its method of
accounting (other than immaterial changes in methods or as required by GAAP).

8.14 New Businesses8.14  New Businesses.14 New Businesses.14 New Businesses.  No
KPP  Company or  Restricted  Subsidiary  may engage in any  business  except the
businesses in which they are presently engaged and any other reasonably  related
business.

8.15   Government    Regulations.15    Government    Regulations.15   Government
Regulations.15  Government Regulations.  No KPP Company or Restricted Subsidiary
may conduct its business in a way that it becomes regulated under the Investment
Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935,
as amended, or any other Law (other than Regulations G, T, U, and X of the Board
of Governors of the Federal  Reserve  System) that  regulates the  incurrence of
Debt.


SECTION 9       FINANCIAL COVENANTSSECTION 9    FINANCIAL
COVENANTSSECTION 9      FINANCIAL COVENANTSSECTION 9    FINANCIAL
COVENANTS.  Until all Obligation is fully paid and performed -- unless Borrowers
receive a prior written  consent to the contrary by Lender -- Borrowers  jointly
and severally covenants and agrees as follows:

9.1     Current Ratio9.1        Current Ratio.1 Current Ratio.1 Current Ratio.
The ratio of the current  liabilities  (excluding  current  maturities of Funded
Debt and  Distributions  permitted by this agreement that have been declared but
not yet paid) of the KPP  Companies  and  their  Subsidiaries  to their  current
assets may never exceed 1.00 to 1.00.

9.2 Tangible Net Worth9.2 Tangible Net Worth.2 Tangible Net Worth.2 Tangible Net
Worth.  The Tangible Net Worth of the KPP Companies and their  Subsidiaries  may
never  be less  than  the sum of (a)  $70,000,000  plus  (b) if  contributed  to
Borrower  KPOP by KPP,  100% of the net cash  proceeds  (i.e.,  the  gross  cash
proceeds  less usual and customary  costs and expenses  related to the offering)
received by KPP upon its issuance of partner interests of any kind.

9.3 Leverage Ratio.3 Leverage Ratio.3 Leverage Ratio.3 Leverage Ratio. The ratio
of the total Debt of the KPP Companies and their Subsidiaries on the last day of
any fiscal quarter to their EBITDA for the  four-consecutive  quarters ending on
that last day may never exceed 3.15 to 1.00.

9.4 Fixed Charges  Coverage Ratio.4 Fixed Charges Coverage Ratio.4 Fixed Charges
Coverage     Ratio.4    Fixed     Charges     Coverage     Ratio.     For    any
four-consecutive-quarterly  period,  the ratio of the amount in clause (a) below
to the amount in clause (b) below may never be less than 1.25 to 1.00:

(a) The sum  (without  duplication)  of  EBITDA of the KPP  Companies  and their
Subsidiaries  plus (to the extent  actually  deducted in calculating  net income
feature of EBITDA) cash operating lease payments.

(b) The sum (without  duplication) of the KPP Companies' and their Subsidiaries'
(i)  cash  interest   payments  on  Debt  (including  the  interest  portion  of
capitalized  leases),  plus (ii)  cash  operating  lease  payments,  plus  (iii)
scheduled  cash  payments  of Funded  Debt,  plus (iv) cash  payments of capital
expenditures.

SECTION 10 DEFAULTSECTION  10  DEFAULTSECTION 10 DEFAULTSECTION 10 DEFAULT.  The
term "Default" means the occurrence of any one or more of the following events:

10.1 Obligation.1 Obligation.1  Obligation.1 Obligation.  The failure or refusal
of (a) either  Borrower to make any  interest  payment  owed by it within  three
Business  Days after it becomes due and payable under the Loan Papers or (b) any
KPP  Company to pay any other part of the  Obligation  after it becomes  due and
payable under the Loan Papers.

10.2 Covenants.2  Covenants.2  Covenants.2 Covenants.  The failure or refusal of
either  Borrower (and, if  applicable,  any other KPP Company) to punctually and
properly perform,  observe,  and comply with any other covenant,  agreement,  or
condition  contained  in any Loan Paper -- other than the  covenants  to pay the
Obligation  --  and  that  failure  or  refusal  is in  respect  of a  covenant,
agreement, or condition (a) in Section 4.2, (b) in either Section 8 or Section 9
and it  continues  for 30  days,  or (c)  elsewhere  in any  Loan  Paper  and it
continues  for 30 days after the earlier of either (i) any KPP Company  receives
notice  of it or (ii)  any  Responsible  Officer  of any KPP  Company  otherwise
obtains knowledge of it.


10.3 Debtor Relief.3  Debtor  Relief.3  Debtor  Relief.3 Debtor Relief.  Any KPC
Company (a) is not Solvent,  (b) fails to pay its Debts generally as they become
due, (c)  voluntarily  seeks,  consents to, or  acquiesces in the benefit of any
Debtor  Relief  Law,  or (d)  becomes a party to or is made the  subject  of any
proceeding  provided for by any Debtor  Relief Law,  other than as a creditor or
claimant,  that could suspend or otherwise adversely affect the Rights of Lender
granted in the Loan  Papers  (unless,  if the  proceeding  is  involuntary,  the
applicable petition is dismissed within 60 days after its filing).

10.4    Misrepresentation.4     Misrepresentation.4     Misrepresentation.4
        Misrepresentation.  Any material  representation or warranty made by any
party (other than Lender) contained in any Loan Paper at any time proves to have
been materially incorrect when made.

10.5  Judgments  and  Attachments.5  Judgments and  Attachments.5  Judgments and
Attachments.5   Judgments  and  Attachments.   Any  KPP  Company  or  Restricted
Subsidiary  fails,  within 60 days  after  entry,  to pay,  bond,  or  otherwise
discharge any judgment or order for the payment of money in excess of $5,000,000
(or the Sterling  equivalent)  (individually  or collectively) or any warrant of
attachment,  sequestration,  or similar  proceeding against any KPP Company's or
Restricted  Subsidiary's assets having a value (individually or collectively) of
$5,000,000 (or the Sterling  equivalent),  which is neither (a) stayed on appeal
nor (b)  diligently  contested  in good  faith by  appropriate  proceedings  and
adequate reserves have been set aside on its books in accordance with GAAP.

10.6 Certain  Debt10.6 Certain Debt.6 Certain Debt.6 Certain Debt. (a) A payment
Default occurs under the Chase Credit Agreement, and the applicable grace period
has expired;  (b) any other Default occurs under the Chase Credit Agreement that
has not been cured or  permanently  waived before  expiration of the  applicable
grace period;  (c) a payment Event of Default  occurs under any Note  Agreement,
and the applicable  grace period under that Note Agreement has expired;  (d) any
other Event of Default  occurs under any Note  Agreement that has not been cured
or permanently  waived before  expiration of the  applicable  grace period under
that Note  Agreement;  (e) a payment  Event of  Default  occurs  under the Chase
Revolving  Note, and the applicable  grace period under the Chase Revolving Note
has expired;  (f) any other Event of Default  occurs  under the Chase  Revolving
Note that has not been cured or  permanently  waived  before  expiration  of the
applicable  grace period under the Chase  Revolving  Note; or (g) the occurrence
and  continuance  of any  Event  of  Default  as  defined  in the  Intercreditor
Agreement.

10.7 Default Under Other Agreements.7  Default Under Other Agreements.7  Default
Under Other Agreements.7 Default Under Other Agreements.  (a) Any KPP Company or
Restricted Subsidiary fails to pay when due (after lapse of any applicable grace
period) any Debt in excess (individually or collectively) of $5,000,000; (b) any
default  exists  under  any  agreement  to  which a KPP  Company  or  Restricted
Subsidiary is a party,  the effect of which is to cause, or to permit any Person
(other  than a KPP  Company or  Restricted  Subsidiary)  to cause,  an amount in
excess (individually or collectively) of $5,000,000 to become due and payable by
any KPP Company or Restricted  Subsidiary  before its stated maturity,  and such
default  is not  cured or amount is not  paid,  as the case may be,  within  the
required time period under the applicable  agreement;  or (c) any Debt in excess
(individually  or  collectively) of $5,000,000 is declared to be due and payable
or required to be prepaid by any KPP Company or Restricted Subsidiary before its
stated maturity.

10.8 Validity and Enforceability of Loan Papers.8 Validity and Enforceability of
Loan  Papers.8  Validity  and  Enforceability  of  Loan  Papers.8  Validity  and
Enforceability  of Loan  Papers.  Except  in  accordance  with  its  terms or as
otherwise  expressly  permitted by this  agreement,  any Loan Paper, at any time
after its  execution  and delivery  ceases to be in full force and effect in any
material  respect  or is  declared  to be  null  and  void  or its  validity  or
enforceability  is contested by any party (other than Lender) to any Loan Paper,
if party  thereto,  or any party  (other  than  Lender)  denies  that it has any
further liability or obligations under any Loan Paper to which it is a party.

10.9 Change of  Control.9  Change of  Control.9  Change of  Control.9  Change of
Control.  KPC fails to be the sole general  partner of KPP and Borrower  KPOP or
KPP fails to be the sole limited partner of Borrower KPOP.


10.10   KPC Merger or Consolidation.10  KPC Merger or Consolidation.10  KPC
Merger or  Consolidation.10  KPC  Merger  or  Consolidation.  Whether  it is the
survivor or not, KPC is merged into or consolidated with KSI.

SECTION 11      RIGHTS AND REMEDIESSECTION 11   RIGHTS AND
REMEDIESSECTION 11      RIGHTS AND REMEDIESSECTION 11   RIGHTS AND
REMEDIES.

11.1 Remedies Upon  Default.1  Remedies Upon  Default.1  Remedies Upon Default.1
Remedies Upon Default.

(a) If a Default  exists under  Section 10.3,  the entire unpaid  balance of the
Obligation  automatically becomes due and payable without any action of any kind
whatsoever.

(b) If any Default exists,  Lender may do any one or more of the following:  (i)
if the maturity of the Obligation has not already been accelerated under Section
11.1(a),  declare the entire unpaid balance of all or any part of the Obligation
immediately  due and payable,  whereupon it is due and payable;  (ii) reduce any
claim to judgment;  (iii) to the extent permitted by Law, exercise the Rights of
offset or banker's  Lien against the interest of any KPP Company in and to every
account  and other  property of any KPP Company  that are in the  possession  of
Lender to the extent of the full amount of the Obligation; and (iv) exercise any
and all other legal or equitable Rights afforded by the Loan Papers, the Laws of
the State of Texas, or any other applicable jurisdiction.

11.2 KPP Company Waivers. .2 KPP Company Waivers. .2 KPP Company Waivers. .2 KPP
Company  Waivers.  To the  extent  permitted  by Law,  each KPP  Company  waives
presentment and demand for payment,  protest, notice of intention to accelerate,
notice of  acceleration,  and notice of protest and nonpayment,  and agrees that
its liability  with respect to all or any part of the Obligation is not affected
by any  renewal  or  extension  in the time of payment of all or any part of the
Obligation,  by any indulgence,  or by any release or change in any security for
the payment of all or any part of the Obligation.

11.3    Performance by Lender.3 Performance by Lender.3 Performance by
Lender.3  Performance by Lender. If any covenant,  duty, or agreement of any KPP
Company is not performed in accordance with the terms of the Loan Papers, Lender
may, while a Default exists,  at its option,  perform or attempt to perform that
covenant,  duty,  or  agreement  on behalf of that KPP  Company  (and any amount
expended by Lender in its performance or attempted performance is payable by the
KPP Companies,  jointly and severally,  to Lender on demand, becomes part of the
Obligation,  and bears  interest at the  Default  Rate from the date of Lender's
expenditure until paid).  However,  Lender does not assume and shall never have,
except by its express written consent,  any liability or responsibility  for the
performance of any covenant, duty, or agreement of any KPP Company. Lender shall
promptly notify Borrowers of any action taken under this Section 11.3.

11.4 Not in Control.4 Not in Control.4 Not in Control.4 Not in Control.  None of
the covenants or other provisions contained in any Loan Paper shall, or shall be
deemed to, give Lender the Right to exercise control over the assets (including,
without limitation,  real property),  affairs, or management of any KPP Company;
the power of Lender is limited to the Right to exercise the remedies provided in
this Section 11.

11.5 Course of  Dealing.5  Course of  Dealing.5  Course of  Dealing.5  Course of
Dealing. The acceptance by Lender of any partial payment on the Obligation shall
not be deemed to be a waiver of any Default then  existing.  No waiver by Lender
of any  Default  shall be deemed to be a waiver  of any other  then-existing  or
subsequent Default. No delay or omission by Lender in exercising any Right under
the Loan Papers will impair that Right or be  construed  as a waiver  thereof or
any acquiescence  therein,  nor will any single or partial exercise of any Right
preclude  other or further  exercise  thereof or the exercise of any other Right
under the Loan Papers or otherwise.


11.6 Cumulative  Rights.6  Cumulative  Rights.6  Cumulative  Rights.6 Cumulative
Rights.  All Rights  available to Lender under the Loan Papers are cumulative of
and in  addition  to all other  Rights  granted  to Lender at law or in  equity,
whether or not the  Obligation is due and payable and whether or not Lender have
instituted any suit for collection,  foreclosure,  or other action in connection
with the Loan Papers.

11.7  Application  of  Proceeds.7   Application  of  Proceeds.7  Application  of
Proceeds.7 Application of Proceeds. Any and all proceeds ever received by Lender
from the exercise of any Rights pertaining to the Obligation shall be applied to
the Obligation according to Section 3.

11.8  Diminution in Value of  Collateral.8  Diminution in Value of  Collateral.8
Diminution in Value of  Collateral.8  Diminution in Value of Collateral.  Lender
has no liability or  responsibility  whatsoever for any diminution in or loss of
value of any collateral now or hereafter  securing payment or performance of all
or any part of the Obligation  (other than diminution in or loss of value caused
by its gross negligence or willful misconduct).

11.9    Certain Proceedings11.9 Certain Proceedings.9   Certain Proceedings.9
        Certain  Proceedings.  Borrowers shall promptly execute and deliver,  or
cause  the   execution   and  delivery  of,  all   applications,   certificates,
instruments,  registration statements, and all other documents and papers Lender
reasonably  requests in connection with the obtaining of any consent,  approval,
registration,  qualification,  permit, license, or authorization of any Tribunal
or other  Person  necessary or  appropriate  for the  effective  exercise of any
Rights under the Loan Papers.  Because Borrowers agree that Lender's remedies at
Law for failure of Borrowers  to comply with the  provisions  of this  paragraph
would be inadequate and that that failure would not be adequately compensable in
damages,   Borrowers   agree  that  the  covenants  of  this  paragraph  may  be
specifically enforced.

11.10   Judgment Currency11.10  Judgment Currency.10    Judgment
Currency.10 Judgment Currency.  If, for the purpose of obtaining judgment in any
court,  it is  necessary  to  convert  an amount due under any Loan Paper from a
currency (the "original currency") into another currency (the "other currency"),
then the rate of exchange used shall be that at which Lender (in accordance with
normal banking  procedures)  could purchase the original currency with the other
currency at its principal office in Atlanta,  Georgia,  two Business Days before
the day on which final judgment is given.

(a) Each Borrower's  obligation for any amount due in the original currency from
it to Lender  under any Loan Paper shall  (notwithstanding  any  judgment in any
other  currency) be discharged only if and to the extent that -- on the Business
Day following the day on which Lender  receives any amount adjudged to be so due
in the other  currency  -- Lender is able (in  accordance  with  normal  banking
procedures) to purchase the same amount of the original  currency with the other
currency as the amount that Lender could have purchased two Business Days before
the day on which the final judgment referred to above is given.

(b) If the amount of the original  currency so purchased  under clause (a) above
by Lender is less than the amount of the  original  currency  that Lender  could
have so purchased,  then  Borrowers  jointly and severally  shall (as a separate
obligation  and  notwithstanding  any such  judgment)  remit the  deficiency  to
Lender.

(c) If the amount of the original  currency so purchased  under clause (a) above
exceeds the amount of the original currency that Lender could have so purchased,
then Lender shall remit that excess to the relevant Borrower.

SECTION 12      MISCELLANEOUSSECTION 12 MISCELLANEOUSSECTION 12
        MISCELLANEOUSSECTION 12 MISCELLANEOUS.


12.1 Nonbusiness  Days.1 Nonbusiness Days.1 Nonbusiness Days.1 Nonbusiness Days.
Any payment or action that is due under any Loan Paper on a non-Business Day may
be delayed until the  next-succeeding  Business Day (but interest shall continue
to accrue on any  applicable  payment  until payment is in fact made) unless the
payment  concerns a LIBOR Rate Borrowing,  in which case if the  next-succeeding
Business Day is in the next calendar  month,  then such payment shall be made on
the next-preceding Business Day.

12.2    Communications.2        Communications.2        Communications.2
        Communications.  Unless otherwise stated,  when a Loan Paper requires or
permits any  consent,  approval,  notice,  request,  or demand from one party to
another, it must be written and is deemed given:

o if by telecopy,  when  transmitted to the  appropriate  telecopy  number (but,
without  affecting  the date  deemed  given,  a telecopy  communication  must be
promptly confirmed by telephone);

o if by mail, on the third Business Day after enclosed in a properly  addressed,
stamped,  and sealed  envelope  deposited  in the  appropriate  official  postal
service; and

o       if by other means, when actually delivered.

Until  changed by notice,  the address and  telecopy  number are stated for each
Borrower and Lender, beside their names on the signature page below.

12.3    Form and Number of Documents.3  Form and Number of Documents.3  Form
and Number of Documents.3 Form and Number of Documents. The form, substance, and
number of counterparts of each writing to be furnished under this agreement must
be satisfactory to Lender and its counsel.

12.4  Exceptions  to  Covenants.4   Exceptions  to  Covenants.4   Exceptions  to
Covenants.4  Exceptions to Covenants.  No party to a Loan Paper may take or fail
to take any action that is permitted  as an  exception  to any of the  covenants
contained  in any Loan  Paper if that  action or  omission  would  result in the
breach of any other covenant contained in any Loan Paper.

12.5  Survival.5  Survival.5  Survival.5  Survival.  All covenants,  agreements,
undertakings,  representations,  and  warranties  made in any of the Loan Papers
survive all closings under the Loan Papers and,  except as otherwise  indicated,
are not affected by any investigation made by any party.

12.6    Governing Law.6 Governing Law.6 Governing Law.6 Governing
Law. The Laws (other than conflict-of-laws provisions) of the State of Texas and
of the United  States of America  govern the Rights and duties of the parties to
the Loan Papers and the validity, construction,  enforcement, and interpretation
of the Loan Papers.

12.7 Invalid  Provisions.7  Invalid  Provisions.7  Invalid  Provisions.7 Invalid
Provisions.  Any  provision  in any Loan Paper held to be illegal,  invalid,  or
unenforceable is fully severable;  the appropriate Loan Paper shall be construed
and enforced as if that  provision  had never been  included;  and the remaining
provisions  shall  remain in full force and effect and shall not be  affected by
the severed provision.  Lender,  Borrowers, and each other party to the affected
Loan Paper shall negotiate,  in good faith, the terms of a replacement provision
as similar to the severed provision as may be possible and be legal,  valid, and
enforceable.


12.8 Venue;  Service of Process;  Jury Trial.8 Venue;  Service of Process;  Jury
Trial.8 Venue; Service of Process;  Jury Trial.8 Venue; Service of Process; Jury
Trial. EACH PARTY TO ANY LOAN PAPER, IN EACH CASE FOR ITSELF, ITS SUCCESSORS AND
PERMITTED ASSIGNS,  (a) IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE  JURISDICTION OF
THE STATE AND FEDERAL COURTS OF THE STATE OF TEXAS, (b) IRREVOCABLY  WAIVES,  TO
THE FULLEST EXTENT  PERMITTED BY LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF VENUE OF ANY  LITIGATION  ARISING OUT OF OR IN  CONNECTION
WITH THE LOAN PAPERS AND THE  OBLIGATION  BROUGHT IN  DISTRICT  COURTS OF DALLAS
COUNTY,  TEXAS, OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT
OF TEXAS, DALLAS DIVISION, (c) IRREVOCABLY WAIVES ANY CLAIMS THAT ANY LITIGATION
BROUGHT IN ANY OF THE AFOREMENTIONED  COURTS HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM,  (d)  IRREVOCABLY  CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THOSE
COURTS IN ANY  LITIGATION  BY THE MAILING OF COPIES  THEREOF BY CERTIFIED  MAIL,
RETURN RECEIPT REQUESTED, POSTAGE PREPAID, BY HAND-DELIVERY, OR BY DELIVERY BY A
NATIONALLY RECOGNIZED COURIER SERVICE, AND SERVICE SHALL BE DEEMED COMPLETE UPON
DELIVERY OF THE LEGAL  PROCESS AT ITS ADDRESS SET FORTH IN THIS  AGREEMENT,  (e)
IRREVOCABLY AGREES THAT ANY LEGAL PROCEEDING AGAINST ANY PARTY TO ANY LOAN PAPER
ARISING OUT OF OR IN CONNECTION  WITH THE LOAN PAPERS OR THE  OBLIGATION  MAY BE
BROUGHT IN ONE OF THE  AFOREMENTIONED  COURTS, AND (f) IRREVOCABLY WAIVES TO THE
FULLEST EXTENT  PERMITTED BY LAW, ITS  RESPECTIVE  RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY LOAN PAPER.  The scope
of each of the foregoing waivers is intended to be  all-encompassing  of any and
all  disputes  that may be filed in any  court and that  relate  to the  subject
matter of this transaction, including, without limitation, contract claims, tort
claims,  breach of duty claims,  and all other common law and statutory  claims.
Each  Borrower  acknowledges  that these  waivers are a material  inducement  to
Lender's  agreement  to enter  into a  business  relationship,  that  Lender has
already relied on these waivers in entering into this agreement, and that Lender
will continue to rely on each of these waivers in related future dealings.  Each
Borrower further warrants and represents that it has reviewed these waivers with
its legal counsel,  and that it knowingly and voluntarily  agrees to each waiver
following  consultation with legal counsel. THE WAIVERS IN THIS SECTION 12.8 ARE
IRREVOCABLE,  MEANING THAT THEY MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THESE WAIVERS SHALL APPLY TO ANY  SUBSEQUENT  AMENDMENTS,  SUPPLEMENTS,  AND
REPLACEMENTS  TO OR OF THIS OR ANY OTHER LOAN PAPER. In the event of Litigation,
this agreement may be filed as a written consent to a trial by the court.

12.9  Amendments,  Consents,  Conflicts,  and  Waivers.9  Amendments,  Consents,
Conflicts,  and  Waivers.9  Amendments,   Consents,   Conflicts,  and  Waivers.9
Amendments, Consents, Conflicts, and Waivers.

(a) This  agreement may be amended only by an instrument in writing  executed by
Borrowers  and Lender and  supplemented  only by  documents  delivered  or to be
delivered in accordance with the express terms of this  agreement,  and (ii) the
other Loan  Papers may only be the  subject of an  amendment,  modification,  or
waiver that has been approved by Lender and the  Person(s)  party to those other
Loan Papers.

(b) Any conflict or ambiguity between the terms and provisions of this agreement
and terms and  provisions in any other Loan Paper is controlled by the terms and
provisions of this agreement.

(c)     No course of dealing or any failure or delay by Lender or any of its
Representatives  with  respect  to  exercising  any Right of Lender  under  this
agreement  operates as a waiver thereof.  A waiver must be in writing and signed
by Lender to be effective,  and a waiver will be effective  only in the specific
instance and for the specific purpose for which it is given.

12.10 Multiple Counterparts.10 Multiple Counterparts.10 Multiple Counterparts.10
Multiple  Counterparts.  Any Loan Paper may be executed in a number of identical
counterparts, each of which shall be deemed an original for all purposes and all
of which constitute,  collectively,  one agreement; but, in making proof of this
agreement,  it shall not be  necessary  to produce or account  for more than one
counterpart.

12.11   Successors  and  Assigns;   Syndication12.11   Successors  and  Assigns;
Syndication.11  Successors and Assigns;  Syndication.11  Successors and Assigns;
Syndication.  Each Loan  Paper  binds and inures to the  benefit of the  parties
thereto,  any  intended  beneficiary  thereof,  and  each  of  their  respective
successors and permitted assigns. Lender may transfer,  pledge, assign, sell any
participation in, or otherwise encumber the Obligation. Should Lender ever elect
to syndicate  any of the Term Loans among one or more other  lenders,  Borrowers
covenant  and  agree  to  perform  those  acts  and  duly  authorize,   execute,
acknowledge,   deliver,  file,  and  record  an  amendment  to  this  agreement,
replacement  notes,  and such other  additional  documents and  certificates  as
Lender may request in order to accomplish  that  syndication  with Lender as the
agent for itself and those other lenders.

12.12   Discharge   Only  Upon  Payment  in  Full;   Reinstatement   in  Certain
Circumstances.12  Discharge Only Upon Payment in Full;  Reinstatement in Certain
Circumstances.12  Discharge Only Upon Payment in Full;  Reinstatement in Certain
Circumstances.12  Discharge Only Upon Payment in Full;  Reinstatement in Certain
Circumstances.  Each Person's  obligations  under the Loan Papers remain in full
force and effect until the  Obligation  is paid in full  (except for  provisions
under the Loan Papers  expressly  intended to survive  payment of the Obligation
and termination of the Loan Papers). If at any time any payment of the principal
of or interest on any Note or any other amount payable by any KPP Company or any
other  obligor on the  Obligation  under any Loan Paper is  rescinded or must be
restored or returned upon the insolvency,  bankruptcy,  or reorganization of any
Person or otherwise,  the  obligations of each Person under the Loan Papers with
respect to that payment  shall be  reinstated as though the payment had been due
but not made at that time.

12.13 Entirety.13  Entirety.13  Entirety.13 Entirety.  THE LOAN PAPERS REPRESENT
THE FINAL AGREEMENT  BETWEEN BORROWERS AND LENDER AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

        REMAINDER OF PAGE INTENTIONALLY BLANK.
        SIGNATURE PAGES FOLLOW.

EXECUTED as of the date first stated in this Credit Agreement.


Kaneb Pipe Line Operating Partnership, L.P.
c/o Kaneb Pipe Line Company
2435 North Central Expressway, Suite 700
Richardson, TX 75080
Attn:   Edward D. Doherty, Chairman
Telephone:      972-699-4013
Telecopy:       972-699-1894


KANEB PIPE LINE OPERATING
PARTNERSHIP, L.P., as a Borrower

By      KANEB PIPE LINE COMPANY,
General Partner


By
Edward D. Doherty,
Chairman



ST Services, Ltd.


Attn:                                   ,

Telephone:
Telecopy:


ST SERVICES, LTD., as a Borrower


By
Name:
Title:


SunTrust Bank, Atlanta
25 Park Place
24th Floor, MC-120
Atlanta, GA 30303
Attn:   John A. Fields, Jr., Vice President
Telephone:      404-724-3667
Telecopy:       404-827-6270


SUNTRUST BANK, ATLANTA, as
Lender


By
John A. Fields, Jr., Vice President


By
Name:
Title: