Document:

EXHIBIT 10.7

     KANEB SERVICES, INC. NON-EMPLOYEE DIRECTORS' DEFERRED STOCK UNIT PLAN

     1.  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 non-employee directors of the Company 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.

     2. Definitions.

     3. "Board of  Directors"  or "Board"  means the board of  directors  of the
Company.

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

     5. 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;

     6.  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

     7. 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.

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

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

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

     11. "Compensation" means with respect to a Director his or her regular cash
payment from the Company in respect of his service to the Company.

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

     13.  "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.

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

     15.  "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.

     16.   "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.

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

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

     19. "Entrance Date" means the date on which an Eligible  Director elects to
become a  Participant  in the Plan by  delivering  to the Company  the  election
authorization described in Section 6 hereof.

     20. "Eligible Director" means any non-employee director of the Company.

     21.  "Final  Valuation  Date"  means,  with respect to a  Participant,  the
earlier to occur of the following  dates: (1) the date on which a Participant is
not reelected to the Board; (2) the date of a Participant's death or Disability;
(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.

     22.  "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.

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

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

     25. "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.

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

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

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

     29.  "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.

     30. "DSU Value" means:

     31.  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

     32. on any Final  Valuation Date prior to the end of the full  Contribution
Period,  the amount of 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).

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

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

     35. Administration.

     36. 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.

     37. 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.

     38. 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.

     39.  Notification of Eligibility.  The Committee shall notify each Eligible
Director in writing of eligibility prior to the Initial Valuation Date.

     40.  Method  of   Participation.   Each  Eligible  Director  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  Director  shall  thereby  become  a  Participant  effective  as of the
Entrance Date and 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 the effectiveness of the Participant's  election,  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.

     41.  Election  Authorization.  The Company  shall  furnish to each Eligible
Director 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  100% 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 compensation
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.

     42.  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 (a) the amounts actually deferred
from  his  or  her   Compensation   in  accordance  with  his  or  her  election
authorization  and (b) 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.

     43.  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.

     44.  Timing  of  Payment  of DSU  Value.  The  Company  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 DSU Value be
paid in accordance with such alternate  payment schedule as the Committee in its
sole discretion may approve.

     45.  Establishment  and  Maintenance  of KSL  Deferred  Stock Unit  Ledger.
Following the Distribution but effective as of the date of the Distribution, the
Company 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 Company  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.

     46. 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.

     47.  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 Company 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  credited to his KSL Deferred Stock
Unit Ledger (and interest thereon).

     48.  Timing of Payment of Amounts  Credited to the KSL Deferred  Stock Unit
Ledger. The Company 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 Company 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.

     49.  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.

     50.  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.

     51.  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 Company may set aside or earmark
to meet its contingent deferred obligation hereunder,  shall at all times remain
in the Company and no Participant or beneficiary  shall under any  circumstances
acquire any interest in any specific  assets in 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 the Committee's 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.

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

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

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

          55. Limit in any way the right of the  shareholders  of the Company to
     elect or choose not to elect a Participant to the Board;

          56. 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.

     57.  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.

     58.  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.

     59. Adjustments Upon Changes in Common Stock. 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.

     60. 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 Y(1)
and Y(2) above.

     61.  Withholding  Taxes. As of the Effective Date of this Plan, the Company
believes that it has no obligation to withhold taxes from Eligible  Directors of
the Company;  however,  if the Company in its discretion  determines  that it is
obligated  to  withhold  any tax in  connection  with the  payment or vesting of
benefits hereunder, the Company may withhold from the Participant's remuneration
the appropriate amount of the tax. At the discretion of the Company,  the amount
required to be withheld  may be  withheld in cash from such  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 Company does not
withhold an amount from the Participant's remuneration sufficient to satisfy the
withholding obligation of the Company, the Participant shall be required to make
reimbursement on demand, in cash, for the amount underwithheld.

     62.  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.

     63.  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.

     64.  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.

     65.  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.

     66.  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.

     67.  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.EXHIBIT 10.8

                              KANEB SERVICES, INC.
                  1996 SUPPLEMENTAL DEFERRED COMPENSATION PLAN

     Purpose. The Kaneb Services,  Inc. 1996 Supplemental  Deferred Compensation
Plan (the "Plan") is intended to advance the best  interests of Kaneb  Services,
Inc., a Delaware  corporation (the "Company") by providing  executives and other
key personnel of the Company and its affiliates that adopt the Plan with a means
of  supplementing  their  deferrals  under  The  Kaneb  Services,  Inc.  Savings
Investment  Plan and the Kaneb  Services LLC 401(k)  Savings Plan (the  "Savings
Plans").  Deferrals under the Savings Plans are limited by the Internal  Revenue
Code of 1986, as amended (the "Code"),  so that  allowable  deferrals,  employer
matching  and other  employer  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 Kaneb  Services,  Inc.'s Deferred Stock Unit
Plan may further  reduce the  compensation  considered  under the Savings Plans,
resulting  in   additional   reduction  of  allowable   deferrals  and  employer
contributions to that plan. By this Plan the Company 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  with those of the Company's  stockholders
over a multi-year term, in return for the  Participant's  service to the Company
or its affiliates.

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 Participant his or her regular base
salary  from the  Employer  unless  otherwise  defined  from time to time by the
Committee.

     "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.

     "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 which from time
to time reflects the name of each  Participant and credits such Participant with
the  number of DSUs  which have been  purchased  on his or her behalf  under the
Plan. As each Participant  becomes Vested in DSUs, the record will also indicate
the vesting status of the DSUs.

     "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  employment  of the Employer for a  consecutive  period of six (6) months or
more, as determined by the Committee.

     "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).

     "Election  Date"  means the date on which an  Eligible  Employee  elects to
become a  Participant  in the Plan by  delivering  to the  Employer the election
authorization  described in Section 6 hereof. The initial election date shall be
made prior to the date on which the Participant  first defers  Contributions  to
the Plan. Subsequent Election Dates, at such time that Eligible Participants may
change any  existing  election  shall be prior to January 1 of each year,  to be
effective for that year.

     "Eligible Employee" means any officer or other key employee of the Employer
who is eligible to participate in one of the Savings Plans and who  participates
in the Kaneb Services,  Inc. Deferred Stock Unit Plan or an officer or other key
employee  who is  eligible  to  participate  in one of the  Savings  Plans whose
compensation  exceeds  the  limitations  referred  to above and  whose  Employer
matching and other Employer contributions under the Savings Plans are reduced or
limited by the Code.

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

     "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:  (1) the date of a  Participant's  severance from employment with all
Employers occurs for any reason; (2) the earlier of, the date of a Participant's
severance from employment with all Employers, or a specific date selected by the
Participant,  or; (3) the later of the date of a  Participant's  severance  from
employment with all Employers,  or a specific date selected by the  Participant.
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.

     "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  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.

     "Monthly Valuation Date" means the last trading day of each month.

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

     "Plan"  means  the  Kaneb  Services,   Inc.  1996   Supplemental   Deferred
Compensation Plan as the same shall 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.

     "Savings Plans" means the Kaneb Services,  Inc. Savings Investment Plan and
the Kaneb Services LLC 401(k) Savings Plan.

     "DSU Value" means:  on any Final  Valuation  Date, the dollar value of DSUs
determined by  multiplying  the 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).

     "Vested"  shall mean the  Participant's  vested  interest  in his DSU Value
determined in accordance with Section 7.

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.

     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.

     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.

     Method of Participation. Eligible Employees may elect to participate in the
Plan by executing  and  delivering  to the Company,  on a date prior to the date
they are eligible to commence participation, an election authorization described
in Section 6 below.  Such eligible  employee  shall thereby become a Participant
effective as of the date he is first eligible to participate  and shall remain a
Participant  until such participant or his 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.

     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 6% of such Participant's  Compensation as
calculated  prior to  reduction  by other  deferrals  but  reduced by his or her
projected contributions to the Savings Plans. 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  establishment  of the Plan,  the Company  shall  establish  an Employee
Deferred  Stock Unit  Sub-Ledger  account  which shall  reflect the name of each
Participant and credit to each such Participant's account established thereunder
(1) the amounts  actually  deferred from his or her  Compensation  in accordance
with his or her election authorization and (2) the number of his or her Deferred
Stock Units. For this purpose,  the number of DSUs to be credited to the 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.

     The Employer  shall  establish a Company  Matching DSU  Sub-Ledger  Account
which shall  reflect  the name of each  Participant  and 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.

     The Employer  shall  establish a Company 2% DSU  Sub-Ledger  Account  which
shall  reflect  the  name  of  each  Participant  and  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.

     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 Vested DSU Value of such
Participant's  DSU Ledger  Accounts  determined as of such Final Valuation Date.
All amounts  distributed to Participants or beneficiaries  with respect to Final
Valuation  Dates  prior  to the date two (2)  years  subsequent  to the date the
Participant  commenced  participation,  shall  be  paid  in  cash.  All  amounts
distributed to  Participants  or  beneficiaries  with respect to Final Valuation
Dates on or after the date two (2) years  subsequent to the date the Participant
commenced participation shall be in shares of the Company's Common Stock, unless
the Committee in its sole  discretion  elects to make such payment in cash.  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 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 or any applicable  state securities
law.

     Timing of Payment of DSU Value. 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 DSU 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  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 a vested interest in amounts credited to his KSL Deferred
Stock Unit Ledger in the same  pro-rata  manner as he becomes  Vested 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
Valuation 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 (and interest thereon) credited
to his KSL Deferred Stock Unit Ledger,  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 first Monthly  Valuation Date, each
Participant shall file with the Employer 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.  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 vested shall be forfeited.

     Contingent  Right to  Receive  Amounts  Under the  Plan.  The right of each
Participant  to payment of the  amounts  under the Plan is  contingent  only and
subject to forfeiture as provided herein.  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  Designate(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 Employer;

          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
or 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 Employer 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 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 Q and R 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.

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