Exhibit 10.4

                              KANEB SERVICES, INC.
                       1996 DIRECTORS STOCK INCENTIVE PLAN

Purpose

         This Plan is intended to assist the Company in recruiting and retaining
directors  with ability and  initiative by enabling them to  participate  in the
Company's  future  success and to associate  their  interests  with those of the
Company and its shareholders.  The Plan is intended to permit the grant of SARs,
and the grant of  non-qualified  stock  options  (options  not  qualified  under
Section 422 of the Code as "incentive stock options").  The proceeds received by
the Company  from the sale of Common  Stock  pursuant to this Plan shall be used
for general corporate purposes.

Article I - Definitions

1.01     "Agreement"  means a written  agreement  (including  any  amendment  or
         supplement  thereto)  between the Company and a Participant  specifying
         the terms and  conditions  under  which an Option or SAR is  granted to
         such Participant.
1.02     "Board" means the Board of Directors of the Company.
1.03     "Code" means the  Internal  Revenue  Code of 1986,  and any  amendments
         thereto.
1.04     "Common  Stock"  means the Common  Stock,  without  par  value,  of the
         Company.
1.05     "Company" means Kaneb Services, Inc., a Delaware corporation.
1.06     "Corresponding  SAR"  means an SAR that is  granted  in  relation  to a
         particular  Option and that can be exercised only upon surrender to the
         Company,  unexercised,  of that  portion of the Option to which the SAR
         relates.
1.07     "Date of Exercise" means (i) with respect to a particular  Option,  the
         date that the Option  price is  received  by the  Company and (ii) with
         respect to an SAR,  the date that the notice of exercise is received by
         the Company.
1.08     "Director"  means any duly  elected  member of the  Company's  Board of
         Directors.
1.09     "Fair Market Value" means,  on any given date, the closing price of the
         Common Stock. If the Common Stock was not traded on such date, then the
         "Fair Market Value" is determined  with  reference to the preceding day
         that the Common Stock was so traded.
1.10     "Initial Value" means, with respect to an SAR, the Fair Market Value of
         one  share of Common  Stock on the date of  grant,  as set forth in the
         Agreement.
1.11     "Option" means a stock option that entitles the holder to purchase from
         the Company a stated  number of shares of Common Stock at the price set
         forth in an Agreement.
1.12     "Participant"   means  a  member  of  the  Board,   who  satisfies  the
         requirements  of Article III and is selected by the Board to receive an
         Option, an SAR, or a combination thereof.
1.13     "Plan" means the Kaneb  Services,  Inc. 1996 Directors  Stock Incentive
         Plan.
1.14     "SAR"  means a stock  appreciation  right that  entitles  the holder to
         receive,  with respect to each share of Common Stock encompassed by the
         exercise of such SAR, the amount  determined by the Board and specified
         in the Agreement.  In the absence of such a  determination,  the holder
         shall be  entitled  to  receive,  with  respect to each share of Common
         Stock  encompassed  by the exercise of such SAR, the excess of the Fair
         Market Value on the Date of Exercise over the Initial Value, payable in
         cash or the  equivalent  value in Common Stock,  at the election of the
         Board.  References to "SARs" include both  Corresponding  SARs and SARs
         granted independently of Options unless the context requires otherwise.

Article II - Administration

         Except as provided in this  Article II, the Plan shall be  administered
by the Board.  The Board shall have the  authority to grant  Options and SARs on
such  terms  (not  inconsistent  with  this  Plan) as the Board  shall  consider
appropriate.  Such terms may include  conditions (in addition to those contained
in this  Plan) on the  exercisability  of all or any part of an  Option  or SAR.
Notwithstanding  any  such  conditions,   the  Board  may,  in  its  discretion,
accelerate  the time at which any Option or SAR may be  exercised.  In addition,
the Board shall have  complete  authority to interpret  all  provisions  of this
Plan; to prescribe the form of Agreements;  to adopt,  amend,  and rescind rules
and regulations  pertaining to the  administration  of the Plan; and to make all
other determinations desirable, necessary or advisable for the administration of
this Plan.  The  express  grant in the Plan of any  specific  power to the Board
shall not be construed  as limiting  any power or  authority  of the Board.  Any
decision  made,  or  action  taken,  by the  Board  or in  connection  with  the
administration  of this  Plan  shall be final and  conclusive.  No member of the
Board  shall be liable for any act done in good faith with  respect to this Plan
or any Agreement,  Option, or SAR award. All expenses of administering this Plan
shall be borne by the Company.

Article III - Eligibility

3.01     General.  Each  Director of the Company is eligible to  participate  in
         this Plan. Any such Director may be granted one or more Options,  SARs,
         or Options  and SARs.  A Director  of the Company who is an employee of
         the Company or a Subsidiary  may be granted  Options or SARs under this
         Plan.
3.02     Grants.  The Board will designate  individuals to whom Options and SARs
         are to be granted and will specify the number of shares of Common Stock
         subject  to each  award or grant.  An  Option  may be  granted  with or
         without a related  SAR. An SAR may be granted with or without a related
         Option. All Options and SARs granted under this Plan shall be evidenced
         by Agreements  which shall be subject to the  applicable  provisions of
         this Plan and to such  other  provisions  as the Board may  adopt.  The
         Board may substitute new Options or SARs for previously granted Options
         or SARs,  including  those  previously  granted having higher  exercise
         prices.  The Board may also substitute new SARs for previously  granted
         Options or new Options for previously granted SARs including those SARs
         or Options  theretofore  granted  having  higher  exercise  prices.  No
         Participant may be granted incentive stock options under this Plan.

Article IV - Stock Subject to Plan

4.01     Source of Shares. Upon the exercise of any Options or SARs, the Company
         may use Common Stock held by the Company in its Treasury, or subject to
         shareholder  approval,  the Company may issue  authorized  but unissued
         Common Stock.
4.02     Maximum  Number of Shares.  The maximum  aggregate  number of shares of
         Common  Stock that may be utilized  pursuant to the exercise of Options
         and  SARs  under  this  Plan  is  400,000,  subject  to  increases  and
         adjustments as provided in Article VIII.
4.03     Forfeitures.  If an option or SAR is  terminated,  in whole or in part,
         for any reason other than its exercise,  the number of shares of Common
         Stock  allocated  to  the  Option  or  SAR or  portion  thereof  may be
         reallocated to other Options or SARs to be granted under this Plan.

Article V - Option Price

         The price per share for Common  Stock  purchased  on the exercise of an
Option shall be determined by the Board on the date of grant; provided, however,
that the price per share for  Common  Stock  purchased  on the  exercise  of any
Option, including an Option that is an incentive stock option, shall not be less
than the Fair Market Value on the date the Option is granted.

Article VI - Exercise of Options

6.01     Maximum Option or SAR Period.  The maximum period in which an Option or
         SAR may be exercised  shall be  determined  by the Board on the date of
         grant and any  Corresponding  SAR that  relates to such Option shall be
         exercisable  after the  expiration of 10 years from the date the Option
         or SAR was granted.  The terms of any Option or SAR may provide that it
         is exercisable for a period less than such maximum period.
6.02     Transferability.  Any  Option or SAR  granted  under this Plan shall be
         transferable  only by will,  laws of descent and  distribution  or by a
         gift from a Participant  to a family member or a trust,  partnership or
         similar entity for the benefit of a family member.  In the event of any
         such  transfer,  the Option and any  Corresponding  SAR that relates to
         such Option must be transferred to the same person or persons or entity
         or entities. No right or interest of a Participant in any Option or SAR
         shall be liable for, or subject to, any lien, obligation,  or liability
         of such Participant, except in connection with a permitted transfer.
6.03     Director  Status.  In the  event  that the  terms of any  Option or SAR
         provide that it may be exercised only during active service or within a
         specified  period of time after  termination of service,  the Board may
         decide to what  extent  leaves of absence  for  government  or military
         service,  illness,  temporary disability, or other reasons shall not be
         deemed  interruptions  of continuous  service.  In the absence of terms
         established  in an  Option  and or SAR  Agreement  by  the  Board,  the
         following shall apply:

         (a)      Death. In the event of death while in active service,  Options
                  and SARs may be exercised  for a period of one hundred  eighty
                  (180)  days  after  the  Participant's   death  or  until  the
                  expiration of the Option or SAR (if sooner),  to the extent of
                  the shares with  respect to which the Option or SAR could have
                  been  exercised  by  the   Participant  on  the  date  of  the
                  Participant's  death, by the Participant's  estate or personal
                  representative,  or by the  person who  acquired  the right to
                  exercise  the Option or SAR by bequest  or  inheritance  or by
                  reason of the Participant's death;
         (b)      Disability.  In the event of  termination  of  service  as the
                  result of a permanent  disability or life-threatening  illness
                  (as  determined  by the  Board),  the  Option  or  SAR  may be
                  exercised by the  Participant  or his guardian for a period of
                  180  days  after  the   Participant's   termination  or  until
                  expiration  of the  Option or SAR  period  (if  sooner) to the
                  extent of the shares  with  respect to which the Option or SAR
                  could have been  exercised by the  Participant  on the date of
                  such termination;
         (c)      Termination.  A Participant may exercise such Option or SAR in
                  the  event  that he  resigns  or fails to be  reelected  for a
                  period of ninety (90) days after the Participant's termination
                  from service or until  expiration  of the Option or SAR period
                  (if sooner) to the extent of the shares with  respect to which
                  the Option or SAR could have been exercised by the Participant
                  on the date of termination of service.

6.04     Terms.  The  Board  may  provide  for the  terms  of the  Participant's
         eligibility to exercise  Options or SARs in  installments  or under any
         such conditions and restrictions as it may determine. In the absence of
         such terms  established in an Option or SAR Agreement by the Board, the
         Option  or SAR  shall be  exercisable  in its  entirety  on the date of
         grant,  subject  to any  applicable  law or  statute  and as  otherwise
         provided for in this Article VI.

Article VII - Method of Exercise

7.01     Exercise.  An Option or SAR granted  under this Plan shall be deemed to
         have been exercised on the Date of Exercise.  Subject to the provisions
         of  Articles VI and IX, an Option or SAR may be  exercised  in whole at
         any time or in part at any time at such  times and in  compliance  with
         such  requirements  as the  Board  shall  determine.  An  Option or SAR
         granted under this Plan may be exercised  with respect to any number of
         whole  shares less than the full  number of whole  shares for which the
         Option or SAR could be  exercised.  A partial  exercise of an Option or
         SAR shall not affect the right to exercise  the Option or SAR from time
         to time in accordance with this Plan and the applicable  Agreement with
         respect  to  remaining  shares  subject to the Option or related to the
         SAR. The exercise of either an Option or Corresponding SAR shall result
         in the  termination  of the other to the extent of the number of shares
         with respect to which the Option or Corresponding SAR is exercised.
7.02     Payment.  Unless  otherwise  provided by the Agreement,  payment of the
         Option price shall be made in cash, a cash equivalent acceptable to the
         Board, or in Common Stock.  With the approval of the Board, all or part
         of the Option price may be paid by surrendering  shares of Common Stock
         to the  Company.  If  Common  Stock  is  used to pay all or part of the
         Option  price,  the shares  surrendered  must have a Fair Market  Value
         (determined  as of the day preceding the Date of Exercise)  that is not
         less than such  price or part  thereof.  A  fractional  share of Common
         Stock shall not be  deliverable  upon the  exercise of an SAR or Option
         but a cash payment will be made in lieu thereof.
7.03     Shareholder   Rights.  No  Participant  shall  have  any  rights  as  a
         stockholder  with respect to shares  subject to his Option or SAR until
         the Date of Exercise of such Option or SAR.

Article VIII - Adjustment Upon Change in Common Stock

8.01     General.  The maximum number of shares as to which Options and SARs may
         be granted under this Plan shall be proportionately  adjusted,  and the
         terms of outstanding  Options and SARs shall be adjusted,  as the Board
         shall determine to be equitably  required in the event that the Company
         effects one or more stock dividends,  stock split-ups,  subdivisions or
         consolidations  of shares.  Any  determination  made under this Article
         VIII by the Board shall be final and  conclusive.  This issuance by the
         Company of shares of stock of any class, or securities convertible into
         shares of stock of any  class,  for cash or  property,  or for labor or
         services,  either  upon  direct  sale or upon  exercise  of  rights  or
         warrants  to  subscribe  therefore,  or upon  conversion  of  shares or
         obligations  of the  Company  convertible  into  such  shares  or other
         securities,  shall not affect and no adjustment by reason thereof shall
         be made with  respect to,  outstanding  Options or SARs.  The Board may
         grant  Options,  and may grant SARs in  substitution  for stock awards,
         stock options,  stock appreciation rights, or similar awards held by an
         individual  who  becomes  a member of the  Board in  connection  with a
         transaction  described in the first  paragraph  of this  Article  VIII.
         Notwithstanding   any  provision  of  the  Plan,   the  terms  of  such
         substituted  Option  or  SAR  grants  shall  be as  the  Board,  in its
         discretion, determines is appropriate.
8.02     Liquidation  or  Dissolution.  In case the Company  shall,  at any time
         while  any  unexercised  Option  or SAR  shall be in force  and  remain
         unexpired  under  this  Plan,  (i)  sell all or  substantially  all its
         property and thereafter  distribute in partial or total  liquidation of
         the Company, or (ii) dissolve,  liquidate, or wind up its affairs, then
         each  Participant  may  thereafter  receive upon exercise of Options or
         SARs (in lieu of each share of Common  Stock of the Company  which such
         Participant  would have been  entitled  to  receive)  the same kind and
         amount of any securities or assets as may be issuable, distributable or
         payable  upon any such sale,  dissolution,  liquidation,  or winding up
         with respect to each share of Common Stock of the Company. In the event
         that the  Company  shall,  at any time prior to the  expiration  of any
         Option or SAR,  make any  partial  distribution  of its assets (but not
         including  dividends  payable in capital stock of the Company),  in the
         nature of a partial  liquidation,  whether  payable  in cash or in kind
         (but  excluding  the  distribution  of a cash  dividend  payable out of
         earned  surplus and designated as such) then in such event the exercise
         prices then in effect with  respect to each  outstanding  Option or SAR
         shall  be  reduced,  on the  payment  date  of  such  distribution,  in
         proportion  to the  percentage  reduction in the tangible book value of
         the shares of the Company's Common Stock (determined in accordance with
         generally accepted accounting  principles)  resulting by reason of such
         distribution.

Article IX - Compliance With Law and Approval of Regulatory Bodies

         No Option or SAR shall be exercisable, no Common Stock shall be issued,
no  certificates  for shares of Common Stock shall be delivered,  and no payment
shall be made under this Plan except in compliance  will all applicable  federal
and state laws and regulations  (including without  limitation,  withholding tax
requirements, if any) and the rules of all domestic stock exchanges on which the
Company's  shares may be listed.  The Company shall have the right to rely on an
opinion of its counsel as to such compliance.  Any share  certificate  issued to
evidence  Common  Stock for which an  Option or SAR is  exercised  may bear such
legends and statements as the Board may deem advisable to assure compliance with
applicable  federal  and state laws and  regulations.  No Option or SAR shall be
exercisable, no Common Stock Shall be issued, no certificate for shares shall be
delivered,  and no payment  shall be made under this Plan until the  Company has
obtained  such  consent  or  approval  as the  Board  may  deem  advisable  from
regulatory bodies having jurisdiction over such matters.

Article X - General Provisions

10.01    Effect on Service.  Neither the adoption of this Plan,  its  operation,
         nor any  documents  describing  or  referring to this Plan (or any part
         thereof)  shall  confer upon any  Director any right to continue in the
         service of the  Company or in any way effect any right and power of the
         shareholders  of the  Company to  terminate  the  service of a director
         without  assigning a reason  therefor. 
10.02    Unfunded Plan. The Plan,  insofar as it provides for grants,  shall not
         be required to segregate any assets that may at any time be represented
         by grants under this Plan.  Any  liability of the Company to any person
         with  respect to any grant  under this Plan shall be based  solely upon
         any contractual  obligations that may be created pursuant to this Plan.
         No such  obligation of the Company shall be deemed to be secured by any
         pledge of, or other encumbrance on, any property of the Company.
10.03    Rules of Construction.  Headings are given to the articles and sections
         of this Plan  solely as a  convenience  to  facilitate  reference.  The
         reference to any statute,  regulation,  or other provision of law shall
         be construed  to refer,  as well,  to any  amendment to or successor of
         such provision of law.

Article XI - Amendment

         The Board may amend or terminate this Plan from time to time, provided,
however,  that no amendment may become effective until  shareholder  approval is
obtained if the amendment  increases  the  aggregate  number of shares of Common
Stock that may be issued  under the Plan,  other than  through use Common  Stock
held in its  Treasury.  No  amendment  shall  without  a  Participant's  consent
adversely  affect  any  rights  of such  Participant  under  any  Option  or SAR
outstanding at the time such amendment is made.

Article XII - Duration of Plan

         No  Option  or SAR may be  granted  under  this Plan more than 10 years
after the date that the Plan is adopted by the Board.

Article XIII - Effective Date of Plan

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