Exhibit 10.2

                              KANEB SERVICES, INC.
                  1996 SUPPLEMENTAL DEFERRED COMPENSATION PLAN

         1. Purpose.  This 1996 Supplemental Deferred Compensation Plan of Kaneb
Services,  Inc.,  a  Delaware  corporation,  is  intended  to  advance  the best
interests of the Company by providing  executives and other key personnel with a
means of  supplementing  their deferrals made to the Company's  401(k) plan, The
Kaneb Services,  Inc. Savings Investment Plan.  Deferrals to the 401(k) plan are
limited by the Internal  Revenue Code of 1986, as amended (the "Code"),  so that
allowable deferrals,  Company matching, and other Company contributions for many
key employees are, on a percentage of compensation basis, less than that allowed
for non-key  employees.  In addition,  participation  in the Company's  Deferred
Stock  Unit  Plan may  further  reduce  the  compensation  considered  under the
Company's 401(k) plan,  resulting in additional reduction of allowable deferrals
and Company  contributions  to that Plan.  By this Plan (as  defined  below) the
Company (as defined below) seeks to remain competitive in its compensation plans
and  programs,  thereby  serving to attract  and  retain  key  employees  and to
establish an orderly  compensation plan to more closely align the interests of a
Participant (as defined below) with those of the Company's  stockholders  over a
multi-year term, in return for the  Participant's  service to the Company or its
subsidiaries.

         2. Definitions.

                  A.  "Board  of  Directors"  or  "Board"  means  the  Board  of
         Directors of the Company.

                  B. "Change of Control" means, with respect to the Company, the
         occurrence of any one or more of the following events:

                           (1) the  acquisition  by any  individual or entity of
                  the legal or beneficial ownership of securities of the Company
                  resulting in such person having 20% or more of the total votes
                  that may be cast for the election of directors of the Company;

                           (2) the  approval by  stockholders  of the Company of
                  the sale or other  disposition of all or substantially  all of
                  the assets of the Company  (including a plan of liquidation or
                  dissolution)  or the merger or  consolidation  of the  Company
                  with or into  another  corporation,  in  accordance  with  the
                  requirements  of Certificate of  Incorporation  of the Company
                  and applicable law; or

                           (3) as a result of, or in connection with, any tender
                  offer,  exchange offer,  merger or other business  combination
                  which results in the failure of individuals who are members of
                  the  Board of  Directors  immediately  prior to such  event to
                  continue to constitute the majority of the Board.

                  C. "Committee"  means the Compensation  Committee of the Board
         of Directors, or any successor committee appointed by resolution of the
         Board.

                  D.  "  Company"  means  Kaneb  Services,  Inc.  ,  a  Delaware
         Corporation.

                  E. "Common  Stock"  means the Common Stock of the Company,  no
         par value.

                  F. "Compensation" means, with respect to a Participant, his or
         her regular base salary in respect of his or her service as an employee
         with the Company or any of its  subsidiaries,  unless otherwise defined
         from time to time by the Committee.

                  G. "Contributions" means the cumulative amount of Compensation
         which has been credited to a  Participant's  Deferred Stock Unit Ledger
         Account, in accordance with Section 7 hereof.

                  H. "Deferred Stock Unit" or "DSU",  means a unit credited to a
         Participant's  Deferred  Stock Unit Ledger  Account in accordance  with
         Section 7 hereof.

                  I.  "Deferred  Stock  Unit  Ledger"  or "DSU  Ledger"  means a
         bookkeeping record maintained by the Company which, among other things,
         reflects  the name of each  Participant,  the number of DSUs which have
         been  purchased  on his or her  behalf  under the Plan and the  vesting
         status of the DSUs for such Participant.

                  J. "Disability" means the inability of a Participant,  through
         life-threatening  illness or other  life-threatening cause or event, as
         determined in the  discretion  of the Committee  based on the advice of
         competent physicians of their selection,  to continue in the employment
         of the Company for a  consecutive  period of six (6) months or more, as
         determined by the Committee.

                  K.  "Election  Date"  means  the  date on  which  an  Eligible
         Employee  elects to become a  Participant  in the Plan by delivering to
         the Company the  election  authorization  described in Section 6 hereof
         and all periods of  revocability  of  participation  have expired.  The
         initial  election  date shall be made prior to August 16,  1996 for the
         period August 16, 1996 through December 31, 1996.  Subsequent  Election
         Dates shall be offered prior the date an Eligible Employee commences or
         recommences  Contributions  and  again,  prior  to  January  1 of  each
         subsequent calendar year, to be effective for that year.

                  L. "Eligible Employee" means any officer or other key employee
         of  the  Company  or  any  of  its  subsidiaries  who  is  eligible  to
         participate in the Company's  401(k) Plan and who  participates  in the
         Company's  Deferred Stock Unit Plan or an officer or other key employee
         who is  eligible  to  participate  in the  Company's  401(k) plan whose
         compensation  exceeds  the  limitations  referred  to above  and  whose
         Company matching and other Company  contributions under the 401(k) Plan
         are reduced or limited by the Code.

                  M.  "Final   Valuation   Date"   means,   with  respect  to  a
         Participant, the date elected by the Participant in the manner and form
         prescribed by the Committee on which the Participant's Vested DSU Value
         will be calculated for  distribution.  The Participant may elect his or
         her Final Valuation Date as any one of the following: (i) the date of a
         Participant's  severance  from  employment  with  the  Company  or  any
         subsidiary  occurs for any  reason;  (ii) the earlier of, the date of a
         Participant's  severance  from  employment  with  the  Company  or  any
         subsidiary,  or a specific date selected by the Participant,  or; (iii)
         the later of the date of a Participant's severance from employment with
         the  Company or any  subsidiary,  or a specific  date  selected  by the
         Participant,   all  as   indicated   on  the   Participant's   election
         authorization.  Notwithstanding  the above,  the Final  Valuation  Date
         shall  occur  as of the  date of  occurrence  of a  Change  of  Control
         regardless of such other date elected by the  Participant  as described
         above.

                  N.  "Monthly  Valuation  Date"  means  the  last  day of  each
         calendar  month,  commencing  with the first month or partial  month of
         participation..

                  O.  "Participant"  means each Eligible  Employee who elects to
         participate in the Plan pursuant to Section 5 hereof.

                  P. "Plan" means this Kaneb  Services,  Inc. 1996  Supplemental
         Deferred  Compensation  Plan as the same may be  amended  from  time to
         time.

                  Q. "DSU Value" means:  on any Final Valuation Date, the dollar
         value of DSUs  determined by multiplying the number of DSUs credited to
         the DSU Ledger account of any Participant by the closing sale price per
         share of the Company's  Common Stock on the New York Stock  Exchange on
         such date (or, if there is no reported  sale on such date,  on the last
         preceding date on which such sale occurred).

                  R. "Vested" shall mean the  Participant is entitled to receive
         as of the  Final  Valuation  Date the DSU Value on  applicable  DSUs as
         computed pursuant to Section 2, item Q above.

         3. Administration.

                  A.  The Plan  shall  be  administered  by the  Committee.  The
         Committee may delegate the  Administration of the Plan to an officer or
         executive of the Company,  however the  Committee  may not delegate its
         authority to amend, change or terminate the Plan.

                  B. The Committee may make such rules and  regulations  for the
         conduct of its  affairs,  and  subject to the  provisions  of the Plan,
         interpret  the Plan,  amend the Plan and make all other  determinations
         and  perform  such  actions  as it  deems  necessary  or  advisable  to
         administer the Plan.

                  C. No member of the  Committee  shall be liable for any action
         taken or  determination  made in good faith with respect to the Plan or
         any Option granted hereunder.

                  D. The Company's  Director of Human  Resources shall report as
         necessary  to the  Committee  those  events  with  respect  to the Plan
         requiring action, determination, or rulings from the Committee.

         4.  Determination  of Eligible  Employees.  The  determination of which
executives or other key employees of the Company are Eligible Employees and thus
eligible to participate  in the Plan shall be within the sole  discretion of the
Committee.  Upon  determining  that any  executive  or other key  employee is an
Eligible Employee, the Committee shall notify such person in writing.

         5.  Method  of  Participation.  Each  Eligible  Employee  may  elect to
participate in the Plan by executing and delivering to the Company, on or before
the date his or her salary is first  applicable to  Contribution to the Plan, an
election  authorization  described in Section 6 below.  Such  eligible  employee
shall thereby become a Participant  effective as such date  described  above and
shall remain a Participant until such Participant or his or her beneficiary,  as
the  case  may  be,  has  received  payment  of the  Vested  DSU  value  of such
Participant's  Deferred Stock Units in accordance  with Sections 8 and 9 hereof,
or until such Participant's  rights are earlier forfeited as provided in Section
11.

         6. Election  Authorization.  The Company shall furnish to each Eligible
Employee an election  authorization in such form or forms as the Committee shall
proscribe. The election authorization shall request a deferral of pay during the
Contribution  Period of an amount up to six (6)  percent  of such  Participant's
Compensation as calculated  prior to reduction by other deferrals but reduced by
his or her  projected  contribution  to the  Company's  401(k) plan. No election
authorization shall be effective sooner than the next payroll period that begins
after the Company's receipt of the election authorization.  All amounts deferred
in accordance with a Participant's  election  authorization shall be credited to
such  Participant's  account under the Deferred Stock Unit Ledger, as more fully
described herein. No interest shall be payable on such accounts.

         7. Establishment and Maintenance of Deferred Stock Unit Ledger.

                  A. Concurrent with the  establishment of the Plan, the Company
         shall  establish an Employee  Deferred  Stock Unit  Sub-Ledger  account
         which shall be used as the  official  record and method of  identifying
         the number and value of DSU's  credited to a  Participant's  individual
         accounts  under the  Participant's  DSU Ledger.  The Employee  Deferred
         Stock Unit Sub-ledger will reflect,  with respect to each Participant's
         respective accounts  thereunder (as may be more specifically  described
         below):  (i) the name of each  Participant;  (ii) the amounts  actually
         deferred  (as of the  relevant  date) from his or her  Compensation  in
         accordance with his or her election authorization;  (iii) the number of
         his  or  her   Deferred   Stock  Units  to  which  such   Participant's
         Contributions  equate; (iv) the vesting status of the DSU's credited to
         each respective  Participant's DSU Ledger account;  and, (v) such other
         information  as the Committee or its designee  shall deem  appropriate.
         For purposes of a Participant's Employee  Contributions,  the number of
         DSUs to be initially  credited to the  Sub-Ledger  account shall be the
         number of DSUs  determined  by  dividing  the  amount  of  Compensation
         deferred for that month as described in Section 6 above, by the closing
         price per share of the  Company's  Common  stock on the New York  Stock
         Exchange on the Monthly  Valuation  Date.  The  Participant's  Employee
         Deferred  Stock Unit  Sub-Ledger  Account shall always be Vested in the
         full value of such account.

                  B. Concurrent with the  establishment of the Plan, the Company
         shall  establish  a  Participant's  Company  Matching  Unit  Sub-Ledger
         account  which  shall be used as the  official  record  and  method  of
         identifying  the number and value of DSU's credited to a  Participant's
         individual   accounts   under  the   Participant's   DSU  Ledger.   The
         Participant's  Company  Matching Unit  Sub-ledger  will  reflect,  with
         respect to each Participant's  respective accounts thereunder:  (i) the
         name of each  Participant;  (ii) the amounts  actually  credited by the
         Company;  (iii) the number of his or her Deferred  Stock Units to which
         such credit  equates;  (iv) the vesting status of the DSU's credited to
         each respective  Participant's DSU Ledger account;  and, (v) such other
         information  as the Committee or its designee  shall deem  appropriate.
         For purposes of a Participant's  Company Matching  Sub-Ledger  Account,
         the Company  shall  credit  monthly to each  Participant's  account the
         number  of DSUs  equal to 50% of the DSUs  determined  in the  Employee
         Deferred Stock Unit Sub-Ledger Account above. The Participant's Company
         Matching  Sub-Ledger  Account shall vest in 20%  increments in the same
         manner as the  Participant's  Kaneb Services,  Inc. Savings  Investment
         Plan  401(k)  account,  and shall be Vested at any and all times in the
         same percentage as the  Participant's  Employer Account under the Kaneb
         Services, Inc. Savings Investment 401(k) Plan.

                  C. Concurrent with the  establishment of the Plan, the Company
         shall establish a Company 2% DSU Sub-Ledger account which shall be used
         as the official  record and method of identifying  the number and value
         of  DSU's  credited  to a  Participant's  individual  accounts  under a
         Participant's DSU Ledger.  The Participant's  Company 2% DSU Sub-ledger
         will reflect,  with respect to each Participant's  respective  accounts
         thereunder: (i) the name of each Participant; (ii) the amounts actually
         credited by the Company;  (iii) the number of his or her Deferred Stock
         Units to which such  credit  equates;  (iv) the  vesting  status of the
         DSU's credited to each  respective  Participant's  DSU Ledger  account;
         and, (v) such other  information as the Committee or its designee shall
         deem  appropriate.  For purposes of a  Participant's  2% DSU Sub-Ledger
         Account, the Company shall credit monthly to each Participant's account
         the  number  of  DSUs  equal  to two  (2)  percent  of his or her  base
         compensation  prior to reduction by other deferrals,  but reduced by an
         amount   equal   to  his  or  her   projected   Non-matching   Employer
         Contributions made to his Kaneb Services,  Inc. Savings Investment Plan
         401(k)  account  for the same  period.  The  Participant's  Company  2%
         Sub-Ledger  Account shall vest in 20%  increments in the same manner as
         the Participant's  Kaneb Services,  Inc. Savings Investment Plan 401(k)
         account,  and  shall  be  Vested  at any  and  all  times  in the  same
         percentage  as the  Participant's  Employer  Account  under  the  Kaneb
         Services, Inc. Savings Investment 401(k) Plan.

         8. Amount and Form of Payment. On a Participant's Final Valuation Date,
such  Participant  or his or her  beneficiary,  as the  case  may be,  shall  be
entitled  to  receive  an  amount   equal  to  the  Vested  DSU  Value  of  such
Participant's  DSU Ledger  Accounts  determined as of such Final Valuation Date,
and to be distributed in the manner described herein. All amounts distributed to
Participants  or  beneficiaries  with respect to Final Valuation Dates less than
one (1) year after the date  participation  commenced shall be paid in cash. All
amounts  distributed  to  Participants  or  beneficiaries  with respect to Final
Valuation  Dates  occurring  one (1) year or more  after the date  participation
commenced  shall be in shares of the  Company's  Common  Stock.  The Company may
satisfy  its  obligation  to deliver  shares of stock  hereunder  from  treasury
shares,  from authorized but unissued shares of Common Stock, or by repurchasing
shares  of its  Common  Stock on the  open  market.  The  Company  shall,  where
applicable,  issue and  deliver  to the  Participant  certificates  representing
shares of its Common Stock as soon as practicable  after the Vested DSU Value of
such Participant's account becomes due and payable hereunder;  provided however,
that the  obligation  of the Company to deliver  shares of Common Stock shall be
postponed  for such  period of time as may be  necessary  to register or qualify
such shares under the  Securities  Act of 1933,  as amended,  or any  applicable
state  securities  law or in order to list such  shares  with the New York Stock
Exchange.

         9. Timing of Payment. The Company shall pay to such Participant,  or to
his or her  beneficiary,  as the  case  may be,  the  Vested  DSU  Value  of the
Participant's account in the form determined in accordance with Section 8 above,
in a single lump-sum no later than sixty (60) days following such  Participant's
Final Valuation Date;  provided  however,  that on or before his or her Election
Date, the Participant may elect that his or her Unit Value be paid in accordance
with such alternate payment schedule as the Committee in its sole discretion may
approve.

         10. Beneficiary Designation. Prior to the first Monthly Valuation Date,
each Participant  shall file with the Company a beneficiary  designation on such
form or forms as the Committee shall proscribe naming one or more  beneficiaries
to succeed to the Participant's right to receive payments hereunder in the event
of his or her  death.  The  Participant  shall  have the  right to  change  such
beneficiary  designation  from  time to time;  provided,  however,  that no such
change shall become  effective until received in writing by the Committee or its
designee.

         11.  Forfeiture  of Deferred  Stock  Units.  On a  Participant's  Final
Valuation Date, any DSUs not Fully Vested shall be forfeited.

         12.   Contingent  Right  to  Receive  DSU  Value.  The  right  of  each
Participant  to payment and  distribution  of the DSU Value is  contingent  only
upon,  and subject to,  forfeiture as provided  herein.  Title to and beneficial
ownership of any assets,  whether cash or  investments,  tangible or intangible,
which the Company may set aside or  designate  to meet its  contingent  deferred
obligation  hereunder  shall at all times remain  vested in and with the Company
and no  Participant  or beneficiary  shall under any  circumstances  acquire any
interest in any general or specific  assets of the  Company.  Nothing  contained
herein  shall be deemed  to create a trust of any kind or to create a  fiduciary
relationship  between the Company or the  Committee (or its  designee(s))  and a
Participant.  To the extent that any person acquires a right to receive payments
from the Company  under this Plan,  such right shall be no greater  than that of
any unsecured general creditor of the Company.

         13. Limitation on Rights. Nothing in this Plan shall be construed to:

                  A. give any employee of the Company any unilateral right to be
         named an Eligible Employee or a Participant in the Plan;

                  B. give a Participant  any rights  whatsoever  with respect to
         shares of Common Stock of the Company;

                  C.  give a  Participant  any  rights of a  shareholder  of the
         Company;

                  D. limit in any way the right of the  Company to  terminate  a
         Participant's employment with the Company at any time;

                  E. be evidence of any agreement or  understanding,  express or
         implied,  that the Company will engage the services of a Participant in
         any particular position or at any particular rate of remuneration.

         14. Dividends and Dilution. The existence of outstanding Deferred Stock
Units  shall  not  affect in any way the  right or power of the  Company  or its
shareholders   to   make  or   authorize   any   adjustment,   recapitalization,
reorganization,  or any other change in the Company's  capital  structure or its
business,  any  merger  or  consolidation  of the  Company,  any issue of bonds,
debentures, preferred or prior preference stock ahead of or affecting the Common
Stock or any right thereto,  the dissolution or liquidation of the Company,  any
sale or  transfer  of all or any part of its  assets or  business,  or any other
corporate act or proceeding whether of a similar character or otherwise.

         15. Transferability of Contingent Right to Future Payments. No right or
payment  under this Plan shall be subject  to  anticipation,  alienation,  sale,
assignment,  pledge,  encumbrance  or charge,  and any  attempt  to  anticipate,
alienate,  sell, assign,  pledge,  encumber or charge the same shall be void. No
right or payment  hereunder  shall in any manner be liable for or subject to the
debts, contracts,  liabilities or torts of any person entitled to such benefits.
If any Participant or beneficiary  hereunder shall become bankrupt or attempt to
anticipate,  alienate,  assign,  sell,  pledge,  encumber or charge any right or
benefit  hereunder,  or if any creditor  shall  attempt to subject the same to a
writ of garnishment,  attachment, execution, sequestration, or any other form of
process or involuntary lien or seizure, then such right or payment shall, in the
discretion of the Committee, either cease and terminate absolutely or be held by
the Company for the sole benefit of the Participant or such beneficiary,  his or
her spouse,  children or other dependents,  or any of them in such manner and in
such proportion as the Committee shall deem proper, free and clear of the claims
of any other party whatsoever.

         16.  Adjustments  Upon Changes in Common  Stock.  In the event that the
Company  shall effect a split of its Common stock or declare a dividend  payable
in Common  Stock,  or in the event that the  outstanding  Common  Stock shall be
combined into a smaller number of shares,  the number of DSUs of any Participant
shall be increased or decreased proportionately,  in a manner deemed appropriate
by the  Committee.  In the  event of a  reclassification  of  Common  Stock  not
encompassed by the foregoing, or in the event of a liquidation or reorganization
of the  Company,  including  a  merger,  consolidation  or sale of  assets,  the
Committee shall make such adjustments, if any, as it may deem appropriate in the
number of DSUs of any  Participant  that are subject to the Plan. The provisions
of this Section  shall only be applicable  if, and only to the extent that,  the
application  thereof  does not  conflict  with  any  valid  government  statute,
regulation or rule.

         17.  Financial   Hardship.   Upon  written  petition  of  the  affected
Participant,  in a manner  specified by the Committee,  the Committee may in its
sole discretion, with satisfactory documentation from the Participant, determine
a Final  Valuation  Date for the affected  Participant.  The value at such Final
Valuation  Date shall be determined as provided for under Section 2, Items Q and
R above.

         18.  Withholding  Taxes.  If  the  Company  or  any  subsidiary  in its
discretion  determines  that it is obligated  to withhold any tax in  connection
with the payment or vesting of benefits  with  respect to Deferred  Stock Units,
the Company or such subsidiary may withhold from the Participant's wage or other
remuneration the appropriate amount of the tax. At the discretion of the Company
or such  subsidiary,  the amount required to be withheld may be withheld in cash
from  such  wages or other  remuneration  or in cash or in kind from cash or the
Common  Stock,  respectively  deliverable  to the  Participant  under  the terms
hereof.  If the Company or any  subsidiary  does not withhold an amount from the
Participant's wages or other remuneration  sufficient to satisfy the withholding
obligation of the Company or such subsidiary,  the Participant shall be required
to make reimbursement on demand, in cash, for the amount underwithheld.

         19.  Amendment or  Termination of Plan. The Company may amend this Plan
in  whole or in part at any time  and  from  time to  time.  Notice  of any such
amendment  shall be given in writing to each  Participant  and  beneficiary of a
deceased  participant.  No amendment shall operate  retroactively to deprive any
Participant or  beneficiary of any benefit  hereunder to which he or she is then
entitled.  The Company may  terminate  the Plan at any time.  Notice of any such
termination  shall be given in writing to each  participant and beneficiary of a
deceased  Participant.  No such  termination  shall be operate  retroactively to
deprive any  Participant or beneficiary of any benefit  hereunder to which he or
she is then entitled.

         20.  Special  Start-up   Provision.   Eligible  Employees  whose  Kaneb
Services, Inc. Savings Investment Plan 401(k) Company contributions to that plan
were  limited as  described  in Section 2, Item L prior to August 16, 1996 shall
have the opportunity to defer  additional  Compensation  during the remainder of
1996 of up to the aggregate amount of additional deferrals which could have been
made under the Kaneb Services,  Inc.  Savings  Investment Plan 401(k) as if such
deferrals were not limited by the Code during that time, to the extent that such
deferrals  when added to actual  deferrals made under the Kaneb  Services,  Inc.
Savings  Investment  Plan do not exceed six (6) percent of  Compensation  during
that time. Such additional deferrals,  if any, shall be credited to the Eligible
Employee's  Employee DSU Sub-Ledger  account in a manner consistent with Section
7,  Item A  above.  If the  Eligible  Employee  makes  additional  deferrals  as
described in this Section 20, the Company shall make a  corresponding  credit to
the Eligible  Employee's  Company  Matching DSU  Sub-Ledger  Account in the same
manner  and  terms as  described  in  Section  7 above.  Further,  the  Eligible
Employee's  Company 2% DSU  Sub-ledger  Account  shall be credited for the prior
period in the same manner described in Section 7 above, regardless of whether or
not the Eligible Employee makes all or part of the additional deferral available
under this Section 20.

         21. Gender.  Reference  hereunder to the male gender shall be deemed to
include the female and neuter genders,  unless  otherwise stated or indicated by
the circumstances.

         22. Headings.  All the headings set forth in this Plan are intended for
convenience  only and shall not control or affect the meaning,  construction  or
effect of this Plan.

         23. Severability.  In case any term in this Plan shall be held invalid,
illegal  or  unenforceable  in whole or in part,  neither  the  validity  of the
remaining  part of such term,  nor the validity of the other terms of this Plan,
shall in any way be affected thereby.

         24.  Applicable  Law.  To the extent not in  conflict  with  applicable
federal  law,  the  laws of the  State  of  Texas  shall  govern  the  validity,
construction and interpretation of this Plan.

         25.  Effective  Date.  This Plan has been approved by the  Compensation
Committee, effective as of the 23rd day of July, 1998.