EXHIBIT 10.6



                              KANEB SERVICES, INC.
                            DEFERRED STOCK UNIT PLAN

     Purpose. This Deferred Stock Unit 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  additional  incentive and by
increasing  their  proprietary  interest in the success of the Company,  thereby
encouraging  them to continue  their  service to the  Company.  By this Plan (as
defined  below) the Company (as defined  below)  seeks 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,  in return for the
Participant's service to the Company or its subsidiaries.

Definitions.

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

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

          the  acquisitions  by  any  individual  or  entity  of  the  legal  or
     beneficial ownership of securities of the Company having 20% or more of the
     total votes that may be cast for the election of directors of the Company;

          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

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

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

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

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

     "Compensation" means with respect to a salaried employee his or her regular
base salary unless otherwise defined from time to time by the Committee.

     "Contribution  Period"  means the first  day of the  first  payroll  period
commencing on or after the Initial  Valuation Date and ending on the last day of
the last  payroll  period  as  determined  by the  Committee  and  elected  by a
Participant,  during which period the Participant defers  Compensation into this
Plan.

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

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

     "Deferred  Stock Unit Ledger" or "DSU Ledger" means a record that from time
to time reflects the name of each  Participant and credits such Participant with
the number of DSU's  which have been  purchased  on his or her behalf  under the
Plan. As each  Participant  becomes  Partially Vested and Fully Vested in DSU's,
the record will also indicate the vesting status of the DSU's.

     "Disability" means the inability of a Participant through  life-threatening
illness or other  life-threatening  cause,  within the judgment of the Committee
based on the advice of competent  physicians of their selection,  to continue in
the service of the Company for a  consecutive  period of six (6) months or more,
as  determined  by the  Committee,  or if the  Participant  is  determined to be
Disabled under the provisions Company's Long-term Disability Insurance Plan.

     "Distribution"  means the  distribution of KSL Common Shares by the Company
to its stockholders pursuant to the Distribution Agreement.

     "Distribution Agreement" means the Distribution Agreement by and among, the
Company, KSL and Tax Subsidiaries (as defined therein).

     "Employer"  means the  Company and any entity that adopts the Plan with the
consent of the Company.

     "Entrance  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.

     "Eligible Employee" means any officer or other key employee of the Employer
or any of its  subsidiaries  who is eligible to  participate in the Plan. In all
cases,  the  determination  of whether an  officer or other key  employee  is an
"Eligible Employee" shall be made solely by the Committee or its delegate.

     "Final Valuation Date" means, with respect to a Participant, the earlier to
occur of the following  dates:  (1) the date of a  Participant's  severance from
employment with the Employer by reason of death or Disability; (2) the date of a
Participant's severance from employment with the Employer; (3) the date on which
the  Company  undergoes  a Change of  Control;  (4) or any date  selected by the
Participant  which is on or after January 1 of the calendar year next succeeding
the calendar year in which the Contribution Period ends.

     "Initial  Valuation Date" means the date selected by the Committee on which
a Participant's DSU Ledger is established as prescribed in Section 7 hereof.

     "KSL" means Kaneb Services LLC, a Delaware limited liability company.

     "KSL Common Share" means a common share of KSL.

     "KSL  Deferred  Stock Unit  Ledger"  means a record  that from time to time
reflects  the name of each  Participant  and credits such  Participant  with the
number of KSL DSU's  which have been  credited  on his or her  behalf  under the
Plan.  As each  Participant  becomes  Partially  Vested and Fully  Vested in KSL
DSU's, the record will also indicate the vesting status of the KSL DSU's.

     "KSL DSU" means a unit credited to a Participant's  KSL Deferred Stock Unit
Ledger in accordance with Section 10 hereof.

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

     "Plan" means this Kaneb Services,  Inc.  Deferred Stock Unit Plan set forth
in this Agreement as it may be amended from time to time.

     "Quarterly  Cash  Distribution"  means  the  amount of the  quarterly  cash
distribution  KSL would have paid to the  Participant  if he had been the record
owner of the aggregate  number of KSL Common Shares equal to those number of KSL
DSU's  credited  to the  Participant's  KSL  Deferred  Stock Unit  Ledger on the
relevant date.

     "DSU Value" means:

          on any  Final  Valuation  Date  occurring  after  the end of the  full
     Contribution  Period,  the dollar value of DSU's  determined by multiplying
     the DSU's  credited  to the DSU  Ledger  account  of a  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; or

          on any Final Valuation Date prior to the end of the full  Contribution
     Period,  provided  that  a  Change  of  Control  has  not  occurred  or the
     Participant has not died or experienced a Disability, the lesser of (i) the
     actual dollar  amount of  compensation  deferred as of the Final  Valuation
     Date,  or (ii) the amount of cash  compensation  actually  deferred  by the
     Participant  as of the Final  Valuation Date divided by the amount of total
     aggregate  compensation  that  was  previously  calculated  on the  Initial
     Valuation Date to be the total expected  aggregate amount deferred over the
     Contribution Period multiplied by the closing price of the Company's Common
     Stock on the Final Valuation Date (or, if there is no reported sale on such
     date, on the last preceding day on which any such reported sale  occurred),
     however,  if the  Final  Valuation  Date in this  Section  2, item Z (2) is
     caused  by the  death or  Disability  of the  Participant,  or a Change  of
     Control,  DSU Value shall mean the greater of (i) the actual  dollar amount
     of compensation deferred as of the Final Valuation Date, or (ii) the amount
     of cash  compensation  actually deferred by the Participant as of the Final
     Valuation Date divided by the amount of total aggregate  compensation  that
     was  previously  calculated on the Initial  Valuation  Date to be the total
     expected aggregate amount deferred over the Contribution  Period multiplied
     by the closing price of the Company's  Common Stock on the Final  Valuation
     Date (or, if there is no reported sale on such date, on the last  preceding
     day on which any such reported sale occurred)."Fully Vested" shall mean the
     Participant's  DSU Value when  computed  pursuant  to Section 2, item Z (1)
     above.

     "Fully  Vested"  shall  mean the  Participant's  DSU  Value  when  computed
pursuant to Section 2, item Z(1) above.

     "Partially  Vested"  shall mean the  Participant's  DSU Value when computed
pursuant to Section 2, item Z (2) above.


Administration.

     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.

     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.

     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.

     The Company's Vice President 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.

     Determination of Eligible Employees.  The determination of which executives
or other key employees of the Employer 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.

     Method of Participation. Each Eligible Employee may elect to participate in
the Plan by executing and  delivering to the Company,  on or before the Entrance
Date,  an election  authorization  described in Section 6 below.  Such  eligible
employee  shall thereby  become a Participant  effective as of the Entrance Date
shall remain a Participant until such Participant or his or her beneficiary,  as
the case may be, has  received  payment  of the DSU value of such  Participant's
Deferred  Stock  Units in  accordance  with  Section  9  hereof,  or until  such
Participant's  rights are  earlier  forfeited  as provided in Section 11 hereof.
Upon electing to participate,  each Participant shall be granted a non-qualified
stock option to purchase shares of Common Stock of the Company for a price equal
to the closing sale price of the Company's Common Stock on the Initial Valuation
Date.  The  number of shares  subject  to such  non-qualified  stock  option and
vesting provisions  attached thereto shall be determined by the Committee in its
sole  discretion.  Upon  the  grant  of such  non-qualified  stock  option  to a
Participant, the Company and the Participant shall execute a non-qualified stock
option agreement.

     Election Authorization. The Company shall furnish to each Eligible Employee
an  election  authorization  in  such  form  or  forms  as the  Committee  shall
prescribe. The election authorization shall request a deferral of pay during the
Contribution  Period  of an  amount  up to  50%  of  such  Participant's  annual
Compensation (but not less than 5% of such Participant's  annual  compensation).
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,
more fully described below. No interest shall be payable on such accounts.

     Establishment and Maintenance of Deferred Stock Unit Ledger. On the Initial
Valuation  Date, the Company shall  establish a Deferred Stock Unit Ledger which
shall reflect the name of each Participant and credit to each such Participant's
account established thereunder (i) the amounts actually deferred from his or her
Compensation in accordance with his or her election  authorization  and (ii) the
number of his or her Deferred Stock Units. For this purpose, the number of DSU's
to be  credited  to the  account  shall be the  number  of DSU's  determined  by
dividing  (x) the  aggregate  amount  of the  Participant's  Compensation  to be
deferred over the Contribution  Period by (y) the closing price per share of the
Company's  Common stock on the New York Stock Exchange on the Initial  Valuation
Date. As each Participant  becomes  Partially Vested and Fully Vested as defined
in Section 2 above,  the DSU Ledger  shall also reflect the number of his or her
cumulative vested units. Finally, on the Participant's Final Valuation Date, his
or her account  shall be credited with a dollar amount equal to the DSU value of
all his or her Fully  Vested or Partially  Vested DSU's on such Final  Valuation
Date.

     Amount  and  Form of  Payment  of DSU  Value.  Upon 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  DSU  Value  of such
Participant's Fully Vested or Partially Vested DSU's determined as of such Final
Valuation Date. All amounts  distributed to Participants or  beneficiaries  with
respect  to  Final   Valuation  Dates  occurring  prior  the  end  of  the  full
Contribution  Period as elected by the  Participant  shall be paid in cash.  All
amounts  distributed  to  Participants  or  beneficiaries  with respect to Final
Valuation Dates occurring after the end of such Contribution  Period shall be in
shares of the Company's  Common Stock. The Company may satisfy its obligation to
deliver  shares of stock 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 DSU Value of such  Participant  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 or
any applicable state securities law.

     Timing of Payment of DSU Value. The Employer shall pay to such Participant,
or to his or her  beneficiary,  as  the  case  may  be,  the  DSU  Value  of the
Participant's  DSU's 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 Final
Valuation  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.

     Establishment and Maintenance of KSL Deferred Stock Unit Ledger.  Following
the Distribution but effective as of the date of the Distribution,  the Employer
shall establish a KSL Deferred Stock Unit Ledger which shall reflect the name of
each  Participant  and  credit to each such  Participant's  account  established
thereunder one  non-monetary  unit equal to one KSL Common Share for every three
non-monetary units equal to three shares of Common Stock that is deemed credited
to his DSU  Ledger as of the  record  date for the  Distribution.  Each  quarter
following the date of the  Distribution,  the Employer  shall also credit to the
Participant's  KSL  Deferred  Stock  Unit  Ledger  with an  amount  equal to the
Quarterly  Cash  Distribution.  As of December  31 of each  calendar  year,  the
aggregate  amount  of the  Quarterly  Cash  Distributions  credited  to his  KSL
Deferred  Stock Unit Ledger shall be credited with interest at the prime rate as
published  in the  Wall  Street  Journal  on the  relevant  December  31 (or the
immediately  preceding  publication  date  if  there  is no  publication  on the
relevant  December 31). As each Participant  becomes  partially vested and fully
vested  (determined  in accordance  with Section 11) the KSL Deferred Stock Unit
Ledger shall reflect his or her cumulative vested interest therein.

     Vesting of Amounts  Credited  to the KSL  Deferred  Stock  Unit  Ledger.  A
Participant  shall earn fully  vested or  partially  vested  interest in amounts
credited to his KSL Deferred Stock Unit Ledger in the same pro-rata manner as he
earns a Fully Vested or Partially Vested interest in amounts credited to his DSU
Ledger for the applicable Contribution Period.

     Amount and Form of Payment of Amounts  Credited to the KSL  Deferred  Stock
Unit Ledger.  Upon the Participant's Final Valuation Date, the Participant shall
be  entitled  to receive  such  number of KSL  Common  Shares as is equal to the
Participant's number of vested KSL DSU's credited to his KSL Deferred Stock Unit
Ledger.  The Employer shall cause to be issued and delivered to the  Participant
certificates  representing such KSL Common Shares.  Upon the Participant's Final
Distribution  Date,  the  Participant  shall also be  entitled to receive a cash
payment in an amount equal to the aggregate amount of the  Participant's  vested
interest in the Quarterly Cash  Distributions (and interest thereon) credited to
his KSL Deferred Stock Unit Ledger.

     Timing of  Payment  of  Amounts  Credited  to the KSL  Deferred  Stock Unit
Ledger.  The  Employer  shall  pay  to  such  Participant,  or  to  his  or  her
beneficiary,  as the case  may be,  the  Participant's  vested  interest  in the
aggregate  amount of Quarterly Cash  Distributions  credited to his KSL Deferred
Stock Unit Ledger (and  interest  thereon),  in a single sum no later than sixty
(60) days following such Participant's  Final Valuation Date;  provided however,
that on or before his or her Final  Valuation  Date, the  Participant  may elect
that such amount be paid in accordance with such alternate  payment  schedule as
the Committee in its sole discretion may approve. The Employer shall cause to be
issued to the Participant, or to his or her beneficiary, as the case may be, the
number of KSL Common Shares  determined in accordance  with Section 12 not later
than sixty (60) days following such Participant's Final Valuation Date; provided
however,  that on or before his or her Final Valuation Date, the Participant may
elect  that such KSL Common  Shares be paid in  accordance  with such  alternate
payment schedule as the Committee in its sole discretion may approve.

     Beneficiary  Designation.   Prior  to  the  Initial  Valuation  Date,  each
Participant  shall file with the Company a beneficiary  designation on such form
or forms as the Committee shall prescribe  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
designation  from time to time;  provided,  however,  that no such change  shall
become effective until received in writing by the Committee.

     Forfeiture of Amounts Credited. Notwithstanding any other provision hereof,
on  a  Participant's   Final  Valuation  Date,  any  amounts   credited  to  the
Participant's  DSU  Ledger  or KSL  Deferred  Stock  Unit  Ledger  that  are not
Partially Vested or Fully Vested shall be forfeited.

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

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


          Give any employee of the Employer any unilateral  right to be named an
     Eligible Employee or a Participant in the Plan;

          Give a  Participant  any rights  whatsoever  with respect to shares of
     Common Stock or KSL Common Shares;

          Give a Participant any rights of a shareholder of the Company or KSL;

          Limit  in  any  way  the  right  of  the   Employer  to   terminate  a
     Participant's employment with the Employer at any time;

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

     Dividends and Dilution.  The existence of outstanding  Deferred Stock Units
and KSL DSU's  shall not affect in any way the right or power of the  Company or
its shareholders or KSL or its shareholders to make or authorize any adjustment,
recapitalization,  reorganization, or any other change in the Company's or KSL's
capital structure or its business, any merger or consolidation of the Company or
KSL, any issue of bonds,  debentures,  preferred or prior preference stock ahead
of or affecting the Common Stock or KSL Common Shares or any right thereto,  the
dissolution or liquidation of the Company or KSL, 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.

     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.

     Adjustments  Upon  Changes in Common Stock or Common  Shares.  In the event
that the Company or KSL shall  effect a split of its Common  Stock or KSL Common
Shares,  or declare a dividend payable in Common Stock or KSL Common Shares,  or
in the event that the  outstanding  Common  Stock or KSL Common  Shares shall be
combined into a smaller number of shares,  the number of DSU's,  or KSL DSU's as
the  case  may  be,  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 or KSL Common Shares not  encompassed by
the foregoing, or in the event of a liquidation or reorganization of the Company
or KSL, 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
DSU's, or KSL DSU's as the case may be, 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 statue, regulation or rule.

     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 Z (1) and Z (2)
above.

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

     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.

     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.

     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.

     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.

     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.

     Effective  Date.  This  amendment  and  restatement  of the  Plan  has been
approved by the  Compensation  Committee,  effective as of the 7th day of April,
2001.