Document:

Exhibit 10.6

                                 LOAN AGREEMENT

                                      among

                           KANEB SERVICES LLC ("KSL"),

                      KANEB PIPE LINE COMPANY LLC ("KPL"),

                                       and

                          BANK OF SCOTLAND (the "Bank")

                            dated as of July 13, 2001

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<TABLE>
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                                TABLE OF CONTENTS

                                                                                                           Page No.

<S>     <C>                                                                                                       <C>
Section 1.  DEFINITIONS.........................................................................................  1

Section 2.  THE LOAN FACILITIES.................................................................................1

         2.1  The Loans.........................................................................................1
         2.2  Notice of Borrowing...............................................................................1
         2.3  The Note..........................................................................................2
         2.4  Wiring Account....................................................................................3
         2.5  Mandatory Prepayments of Loans....................................................................3
         2.6  Nature of Borrowers' Obligations; Effect of Notices...............................................3
         2.7  Voluntary Repayment...............................................................................4
         2.8  Reduction of Commitment...........................................................................4

SECTION 2A.  LETTERS OF CREDIT..................................................................................4

         2A.1  Requests.........................................................................................4
         2A.2  Issuances and Extensions.........................................................................5
         2A.3  Fees and Expenses................................................................................6
         2A.4  Disbursements....................................................................................7
         2A.5  Reimbursement....................................................................................7
         2A.6  Deemed Disbursements.............................................................................7
         2A.7  Nature of Reimbursement Obligations...............................................................8
         2A.8  [intentionally omitted]...........................................................................9
         2A.9  [intentionally omitted]...........................................................................9
         2A.10 Collateralization.................................................................................9

Section 3.  INTEREST..............................................................................................9

         3.1  Rate of Interest...................................................................................9
         3.2  Interest Payment Dates............................................................................10
         3.3  Overdue Payment of Principal and Interest.........................................................10
         3.4  Interest Periods..................................................................................10
         3.5  Rollovers.........................................................................................11
         3.6  Automatic Conversion.............................................................................11
         3.7  Capital Adequacy; Qualification Requirements......................................................12
         3.8  Determination of Rate of Borrowing................................................................13
         3.9  Requirements of Law...............................................................................14
         3.10 Required Termination and Prepayment...............................................................15
         3.11 Compensation......................................................................................15

Section 4.  COMMITMENT FEE, ETC.................................................................................16

         4.1  Commitment Fee....................................................................................16
         4.2  Facility Fee......................................................................................16

Section 5.  PAYMENTS, ETC.......................................................................................16

         5.1  Payments on NON-Business Days; Calculations.......................................................16
         5.2  Net Payments; Application.........................................................................17

Section 6.  CONDITIONS PRECEDENT TO INITIAL LOANS...............................................................19

         6.1  Default, etc......................................................................................19
         6.2  Note..............................................................................................19
         6.3  Supporting Documents..............................................................................19
         6.4  Security Documents................................................................................20
         6.5  Approvals and Consents............................................................................20
         6.6  Solvency Certificate..............................................................................20
         6.7  Legal Opinions....................................................................................21
         6.8  Change in Law.....................................................................................21
         6.9  All Proceedings to be Satisfactory................................................................21
         6.10 No Opposition.....................................................................................21
         6.11 Adverse Change....................................................................................21
         6.12 Fees and Expenses.................................................................................21
         6.13 Distribution......................................................................................21
         6.14 Consent to Service................................................................................21
         6.15 Registration of LP Units..........................................................................21

Section 6A.  CONDITIONS PRECEDENT TO SUBSEQUENT ..................................................................
                  LOANS AND LETTERS OF CREDIT....................................................................22

         6A.1  Certain Conditions...............................................................................22
         6A.2  Subsequent Opinions of Counsel...................................................................22
         6A.3  Officer's Certificate............................................................................22

Section 7.  AFFIRMATIVE COVENANTS...............................................................................23

         7.1  Financial Statements..............................................................................23
         7.2  Notice of Litigation..............................................................................25
         7.3  Payment of Charges................................................................................26
         7.4  Conduct of Business...............................................................................26
         7.5  [intentionally omitted]...........................................................................26
         7.6  [intentionally omitted]...........................................................................26
         7.7  [intentionally omitted]...........................................................................26
         7.8  Inspection of Books and Assets....................................................................26
         7.9  Payment of Indebtedness............................................................................27
         7.10 Further Assurances................................................................................27
         7.11 Notice of Default.................................................................................27
         7.12 Reserves..........................................................................................27
         7.13 Affiliate Transactions............................................................................27
         7.14 Solvency...........................................................................................27

Section 8.  NEGATIVE COVENANTS..................................................................................27

         8.1  Same Type of Business.............................................................................28
         8.2  Liens.............................................................................................28
         8.3  Other Indebtedness................................................................................29
         8.4  Advances and Loans................................................................................30
         8.5  Consolidation and Merger..........................................................................30
         8.6  Sale of Assets....................................................................................30
         8.7  Purchase of Assets................................................................................30
         8.8  Accounting Changes................................................................................31
         8.9  Related Transactions..............................................................................31
         8.10 Subsidiaries; Other Securities....................................................................31
         8.11[intentionally omitted]............................................................................31
         8.12 Investments.......................................................................................31
         8.13 Financial Covenants...............................................................................31
         8.14 Compliance with ERISA.............................................................................32
         8.15 Charter Documents.................................................................................32

Section 9.  EVENTS OF DEFAULT...................................................................................32

         9.1  Principal and Interest............................................................................32
         9.2  Representations and Warranties....................................................................33
         9.3  Negative Covenants................................................................................33
         9.4  Other Covenants...................................................................................33
         9.5  Other Obligations.................................................................................33
         9.6  KPP Entities......................................................................................33
         9.7  Insolvency........................................................................................34
         9.8  Security Documents................................................................................35
         9.9  Judgments.........................................................................................35
         9.10 Material Adverse Change...........................................................................35

Section 10.  REPRESENTATIONS AND WARRANTIES.....................................................................35

         10.1  Status; Validity.................................................................................36
         10.2  Compliance with Other Instruments................................................................36
         10.3  Litigation.......................................................................................37
         10.4  Compliance with Law..............................................................................37
         10.5  Capitalization of Borrowers and Subsidiaries.....................................................37
         10.6  Government Approvals.............................................................................38
         10.7  Federal Reserve Margin Regulations; Use of Proceeds..............................................38
         10.8  Taxes............................................................................................38
         10.9  Investment Company Act, etc......................................................................39
         10.10 Properties of the Borrower.......................................................................39
         10.11 Financial Condition..............................................................................39
         10.12 Disclosure.......................................................................................40
         10.13 Compliance with ERISA............................................................................40
         10.14 The Security Documents...........................................................................40
         10.15 [intentionally omitted] .........................................................................41

Section 11.  [INTENTIONALLY OMITTED]............................................................................41

Section 12.  MISCELLANEOUS......................................................................................41

         12.1  Calculations and Financial Data..................................................................41
         12.2  Amendment and Waiver.............................................................................41
         12.3  Expenses.........................................................................................41
         12.4  Benefits of Agreement; Descriptive Headings......................................................42
         12.5  Notices, Requests, Demands, etc..................................................................44
         12.6  Governing Law....................................................................................44
         12.7  Counterparts; Telecopies.........................................................................44
         12.8  Waiver...........................................................................................45
         12.9  Recoveries.......................................................................................45
         12.10 Jurisdiction.....................................................................................45
         12.11 Severability.....................................................................................46
         12.12 Right of Set-off.................................................................................46
         12.13 No Third Party Beneficiaries.....................................................................47
         12.14 Effectiveness....................................................................................47
         12.15 Survival; Integration............................................................................47
         12.16 Domicile of Loans................................................................................47
         12.17 No Usury.........................................................................................47
         12.18 Waiver of Jury Trial.............................................................................48
         12.19 Securities Act...................................................................................48
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                                    EXHIBITS

EXHIBIT A                  Note
EXHIBIT B                  Notice of Borrowing
EXHIBIT C                  Pledge Agreement
EXHIBIT D                  Guaranty Agreement
EXHIBIT E                  Solvency Certificate
EXHIBIT F                  Distribution Agreement
EXHIBIT G                  KSI Credit Agreement
EXHIBIT H                  Compliance Certificate

                                    SCHEDULES

Schedule 8.2(f)            Liens
Schedule 8.3(b)            Indebtedness
Schedule 10.3              Litigation
Schedule 10.5(j)           Subsidiaries
Schedule 10.6              Governmental Approvals
Schedule 10.10(b)          Material Agreements

<PAGE>

                                 LOAN AGREEMENT

     LOAN  AGREEMENT  dated as of July 13,  2001  among  KANEB  SERVICES  LLC, a
Delaware  limited  liability  company  ("KSL"),  KANEB PIPE LINE  COMPANY LLC, a
Delaware limited liability  company ("KPL"),  and BANK OF SCOTLAND (the "Bank").
KSL and KPL are sometimes referred to herein,  collectively,  as the "Borrowers"
and, individually, as a "Borrower".

                              W I T N E S S E T H :

     WHEREAS,  Borrowers  have  requested that the Bank make available to them a
revolving credit facility of up to $50,000,000 in the aggregate; and

     WHEREAS,  the  Bank is  willing  to  extend  such  credit  facility  to the
Borrowers on the terms and conditions herein provided;

     NOW, THEREFORE, the parties hereto hereby agree as follows:

Section 1. DEFINITIONS.

     (a)  Terms used in this Agreement which are defined in Annex I hereto shall
          have the meanings  specified in such Annex I (unless otherwise defined
          herein) and shall include in the singular number the plural and in the
          plural number the singular.

     (b)  All  references  to  Sections in this  Agreement  or in Annex I hereto
          shall be  deemed  references  to  Sections  in this  Agreement  unless
          otherwise specified.

Section 2. THE LOAN FACILITIES.

     2.1 The Loans.  Subject to the terms and conditions  set forth herein,  the
Bank  agrees at any time and from time to time during the  Commitment  Period to
make loans to the Borrowers (each a "Loan" and collectively,  the "Loans") up to
the  Commitment;  provided that on the date of the making of any Loan (and after
giving effect thereto),  the aggregate  principal amount of Loans outstanding on
such date (plus the aggregate  amount of all LC  Obligations on such date) shall
not exceed (A) the  Commitment  then in effect,  or (B) 66.67% of the Collateral
Value on such day. During the Commitment  Period,  the Borrowers may utilize the
Commitment by borrowing, prepaying the Loans in whole or in part without penalty
or premium (except as otherwise provided by Section 3.11), and reborrowing,  all
in accordance with the terms and conditions hereof.

     2.2 Notice of Borrowing:

          (a) The  Borrowers  shall  give at least  four  Business  Days'  prior
     written  notice (a "Notice of  Borrowing")  to the Bank of the date  (which
     shall be a  Business  Day during the  Commitment  Period) of each  proposed
     borrowing  hereunder  (the  "Borrowing  Date").  Such notice shall  specify
     (subject to the provisions of this  Agreement) (i) the Borrowing Date, (ii)
     the total  amount of the  proposed  borrowing,  which shall be in a minimum
     amount of $500,000  (and, if greater,  in integral  multiples of $100,000),
     provided that the aggregate  principal  amount of such borrowing must equal
     or be less than the Unutilized Commitment (after giving effect to all other
     Notices of Borrowings for Loans and Issuance Requests pending at such time)
     at such time,  and (iii)  unless  such Loan will be a Base Rate  Loan,  the
     requested Interest Period therefor.  Unless otherwise agreed to by the Bank
     and  a  Borrower,   the  Notice  of  Borrowing   for  all  Loans  shall  be
     substantially  in the form of Exhibit B hereto.  Unless otherwise agreed to
     in  writing  by the  Bank  and a  Borrower,  or as  otherwise  specifically
     provided in this Agreement, all Loans shall be LIBOR Loans.

          (b) The Borrowers may not designate more than one Interest  Period for
     LIBOR Loans in the same Notice of Borrowing.  No more than five LIBOR Loans
     (whether by way of initial  borrowing or conversion  or  otherwise)  may be
     outstanding at any time. Without the Bank's consent,  no Loan shall be made
     or  maintained  if the  principal  amount  thereof  is less than  $500,000.
     Without the  consent of the Bank,  the  Borrowers  shall not be entitled to
     make borrowings under the Commitment more than once in any calendar week.

          (c) [intentionally omitted]

          (d) [intentionally omitted]

          (e) The Bank will make the  amount of its Loan or Loans  available  to
     the Borrowers on the applicable  Borrowing  Date, in immediately  available
     Dollars,  against  delivery  to the  Bank  at the  Closing  Office  of such
     instruments, documents and papers as are provided for herein.

          (f) [intentionally omitted]

          (g) [intentionally omitted]

     2.3 The Note:

               (a) The  Borrowers'  obligation  to pay  the  principal  of,  and
          interest  on, the Loans shall be  evidenced  by a Note  payable to the
          order  of the  Bank.  The Note is  entitled  to the  benefits  of this
          Agreement and shall be secured by the Security Documents.

               (b) The principal  amount of all Loans  outstanding  from time to
          time, and interest accrued  thereon,  shall be recorded on the records
          of the Bank and,  prior to any  transfer of, or any action to collect,
          the Note, the unpaid principal  amount of the Loans evidenced  thereby
          shall be endorsed on the reverse side of the Note,  together  with the
          date of such endorsement and the date to which interest has been paid;
          any  failure  to  make  such   endorsement   and  provide  such  other
          information,  however,  shall not  affect the  Borrowers'  obligations
          hereunder  or  under  the  Note.  The  Borrowers'  obligations  to pay
          principal  and interest in respect of the Note shall be limited to the
          unpaid  principal  amount of the Loans  evidenced  thereby  and unpaid
          interest   accrued  for  the  periods  during  which  such  Loans  are
          outstanding.

          2.4 Wiring Account. The Borrowers agree that the proceeds of all Loans
     shall (unless otherwise  directed in a writing signed by both Borrowers) be
     wired or  otherwise  transferred  into an account in a  Borrower's  name as
     directed in writing by a Borrower.

          2.5 Mandatory Prepayments of Loans.

               (a) The Borrowers shall prepay the Loans on the effective date of
          any reduction or  termination in the Commitment to the extent that the
          aggregate  principal amount of the Loans on such date shall exceed the
          amount  equal to (x) the  amount of the  Commitment  in effect on such
          date less (y) the amount of the LC  Obligations  at such time;  if the
          Commitment is terminated in full, then the Borrowers shall immediately
          prepay  in full the  aggregate  outstanding  principal  amount  of all
          Loans.

               (b) (i) The Borrowers shall  immediately  prepay the Loans to the
          extent that the sum of (x) the aggregate  outstanding principal amount
          thereof on any day,  plus (y) the aggregate  amount of LC  Obligations
          outstanding on such day,  shall exceed 66.67% of the Collateral  Value
          on such day.  Subject to the terms and  conditions of this  Agreement,
          amounts prepaid under this clause (b)(i) may be reborrowed.

                    (ii) As an  alternative  to the  prepayment  required by the
               foregoing  clause (i) (but only if a Borrower so requests and the
               Bank advises the Borrower in writing that, solely with respect to
               such request,  such  alternative is acceptable to the Bank),  the
               Borrowers shall  immediately  deliver and pledge to the Bank that
               number of  additional  LP Units  which,  when  multiplied  by the
               Market Value of such LP Units,  shall equal 150% of the amount of
               such  excess,  together  with a  pledge  agreement  substantially
               similar to the  Pledge  Agreement.  No  request by a Borrower  in
               accordance with this clause (b)(ii), nor any delay by the Bank in
               responding to any such request,  shall relieve either Borrower of
               its obligations under clause (b)(i)  immediately  preceding;  the
               Borrower shall have the right to utilize the alternative provided
               by   this   clause   (b)(ii)   only   after   receiving   written
               acknowledgement from the Bank that, as to the particular instance
               in question, the Bank is amenable to such alternative.

               (c)  Repayments  pursuant  to the  foregoing  provisions  of this
          Section  shall  first be made  against  (to the extent  available  and
          subject to the other provisions of this Agreement)  outstanding  LIBOR
          Loans having an Interest  Period ending on the date of such repayment,
          or to Base Rate  Loans,  as  directed  by a Borrower  by  written  (or
          telephonic,  promptly  confirmed in writing) notice to the Bank or, in
          the absence of such direction, by the Bank.

               (d) The  then-unpaid  principal  amount  of the  Loans  shall  be
          payable in full on the Maturity Date.

     2.6  Nature  of  Borrowers'  Obligations;  Effect  of  Notices.  All of the
obligations of the Borrowers hereunder and under the Note are joint and several.
Each Borrower  acknowledges that it will benefit from the proceeds of the Loans.
Any notice required to be given to the Borrowers (or either of them) by the Bank
pursuant to this  Agreement or any other Loan  Document may be given by the Bank
to either of the Borrowers,  and each of the Borrowers hereby  acknowledges that
any such notice given to the other Borrower  shall be considered  notice to both
Borrowers for all purposes of this Agreement and the other Loan Documents.  Each
Borrower agrees and  acknowledges  that any notice,  consent,  election or other
action given or taken,  or any right  exercised,  by either  Borrower  hereunder
(including,  without limitation, any Notice of Borrowing and any selection of an
Interest  Period pursuant to Section 3.4) shall be binding on both Borrowers for
all purposes of this Agreement and the other Loan Documents (and shall be deemed
given, taken or exercised (as the case may be) by both Borrowers, whether or not
it is expressly so provided in any other  provision  hereof or of the other Loan
Documents. In the case that more than one such notice is given by the Borrowers,
the first such notice to be received by the Bank shall be so binding.

     2.7 Voluntary  Repayment.  The Borrowers  shall have the right, at any time
and from time to time, by four Business  Days' prior written  notice to the Bank
to prepay the Loans, in whole, or in part in integral  multiples of $100,000 and
without  premium,  but in each case  subject to the payment of any  compensation
payable under Section 3.11 hereof;  provided that at the time of any  prepayment
of the Loans in full, the Borrowers shall pay all interest accrued on the amount
of such  prepayment  and all other amounts owing to the Bank in respect  thereof
including,  without  limitation,  any  compensation  payable  under Section 3.11
hereof.  Subject to the terms and conditions of this Agreement,  amounts prepaid
under this Section 2.7 may be reborrowed.

     2.8 Reduction of Commitment.

          (a) The  Borrowers  shall  have the right at any time and from time to
     time upon at least four Business  Days' prior written notice to the Bank to
     reduce  permanently  in  amounts  equal to  $500,000  (and if  greater,  in
     integral  multiples  thereof) or terminate  the  Commitment  (but not in an
     amount in excess  of the  Unutilized  Commitment  at such time  unless  the
     provisions of Sections 2.5(a) and 2A.10 are complied with simultaneous with
     such  reduction  or  termination).  Any  reduction  or  termination  of the
     Commitment pursuant to this Section 2.8 shall be accompanied by the payment
     in full of any Commitment Fee then accrued hereunder.

          (b) Any reduction of the Commitment pursuant to this Section 2.8 below
     the  amount of the LC  Commitment  shall  result in a  reduction  of the LC
     Commitment on a dollar-for-dollar basis.

SECTION 2A. LETTERS OF CREDIT.

          2A.1 Requests.

          (a)  By  delivering  to the  Bank  a  written  request  (an  "Issuance
     Request") on or before 10:00 a.m.  Closing  Office Time on a Business  Day,
     the Borrowers may request,  from time to time during the Commitment  Period
     and on not less than five  (unless the Bank  otherwise  consents)  nor more
     than ten Business Days' notice,  that the Bank issue an irrevocable standby
     letter  of credit  in such  form as shall be  acceptable  to the Bank and a
     Borrower (a "Letter of Credit"),  in support of such financial  obligations
     of a  Borrower  which  are  described  in  such  Issuance  Request  and are
     permitted by Section  2A.1(c).  Each Issuance Request shall specify (i) the
     proposed  date of  issuance  (which  shall be a  Business  Day  during  the
     Commitment Period),  (ii) the Stated Amount of the Letter of Credit,  (iii)
     the expiration  date of the Letter of Credit,  (iv) the name and address of
     the beneficiary of the Letter of Credit,  and (v) a precise  description of
     the documents and have attached the verbatim text of any  certificate to be
     presented by the  beneficiary of such Letter of Credit which,  if presented
     by such  beneficiary  prior to the expiration date of the Letter of Credit,
     would require the Bank to make payment or accept drafts under the Letter of
     Credit.

          (b) Each  Letter  of  Credit  shall  by its  terms  (unless  otherwise
     consented to by the Bank):

               (i) be issued for the  account of the  Borrowers,  and the Stated
          Amount of such  Letter of Credit  shall not exceed the then  effective
          Unutilized  LC  Commitment  (after  giving  effect  to all  Notice  of
          Borrowings  for Loans  and other  Issuance  Requests  pending  at such
          time);

               (ii) be stated to expire on a date (its "Stated  Expiry Date") no
          later than the  earlier of (x) one year from its date of  issuance  or
          (y) the last day of the  Commitment  Period;  and, if renewable by its
          terms,  shall not be  renewed so as to expire on a date later than the
          earlier  of (x) one year from the date of  renewal or (y) the last day
          of the Commitment Period;

               (iii) on or prior to its Stated Expiry Date

                    (A)  terminate  immediately  upon notice to the Bank thereof
               from the  beneficiary  thereunder  that all  obligations  covered
               thereby have been  terminated,  paid,  or otherwise  satisfied in
               full, and

                    (B) reduce in part immediately to the extent the beneficiary
               thereunder  has  notified the Bank that the  obligations  covered
               thereby have been paid or otherwise satisfied in part; and

               (iv) be denominated only in Dollars.

          (c)  Letters  of Credit may be issued to  support  lease  obligations,
     statutory    obligations,    performance   and    return-of-money    bonds,
     self-insurance and other similar obligations of a Borrower.

2A.2 Issuances and Extensions.

          (a) Subject to the terms and conditions of this  Agreement  (including
     without  limitation  Section 6A), the Bank shall issue Letters of Credit in
     accordance  with the Issuance  Requests made  therefor.  The Bank will make
     each Letter of Credit  available to the  beneficiary  thereof in accordance
     with the  Issuance  Request  therefor.  No Letter of Credit shall be issued
     unless the terms and conditions  thereof are satisfactory to the Bank and a
     Borrower.

          (b) No Letter of Credit shall be issued if on the date of the proposed
     issuance thereof (and after giving effect thereto), the aggregate principal
     amount of Loans  outstanding on such date (plus the aggregate amount of all
     LC  Obligations  on such  date)  shall  exceed (A) the  Commitment  then in
     effect, or (B) 66.67% of the Collateral Value on such day.

2A.3 Fees and Expenses.

          (a) The Borrowers agree to pay to the Bank on the date of the issuance
     of each Letter of Credit a letter of credit fee with respect to such Letter
     of Credit equal to the LIBOR Margin of the Stated  Amount of such Letter of
     Credit  (the Letter of Credit  Fee).  Each such fee shall be payable by the
     Borrowers  immediately  prior to the  issuance  of the  Letter of Credit to
     which it relates. In addition,  the Borrowers shall at the same time pay to
     the Bank an  issuance  fee of $500 for each  Letter of Credit  issued.  For
     purposes of this Section  2A.3,  any renewal of a Letter of Credit shall be
     treated as an issuance thereof.

          (b) The fees  referred to in Section  2A.3(a) shall be in addition to,
     and not in lieu of, fees required to be paid by the  Borrowers  pursuant to
     Section 4 hereof.

          (c) If any Regulatory  Change shall at any time (i) impose,  modify or
     deem applicable any reserve, special deposit or similar requirement against
     letters  of  credit  issued  by the  Bank or  participated  in by any  Bank
     Assignee,  or  (ii)  subject  letters  of  credit  issued  by the  Bank  or
     participations therein held by any Bank Assignee to any assessment or other
     cost imposed by the Federal Deposit Insurance  Corporation or any successor
     thereto  or (iii)  impose  on the Bank or any Bank  Assignee  any  other or
     similar  condition  regarding  any  Letter of  Credit,  the  commitment  or
     obligation  of the Bank to issue  Letters of Credit  hereunder  or any Bank
     Assignee's participation therein and the result of any event referred to in
     clause (i),  (ii) or (iii) above shall be to increase  the cost to the Bank
     or any Bank  Assignee  of  agreeing to issue,  issuing or  maintaining  any
     Letter of Credit or its  participation  therein by an amount which the Bank
     or such Bank  Assignee  shall deem to be material  (which  increase in cost
     shall be the result of the  reasonable  allocation by the Bank or such Bank
     Assignee  of the  aggregate  of such  cost  increases  resulting  from such
     events), then and in each case upon demand from time to time by the Bank or
     such  Bank  Assignee  (furnished  to  either  Borrower  by the  Bank),  the
     Borrowers shall promptly pay to the Bank (for its account or the account of
     the such Bank Assignee,  if applicable)  additional  amounts as directed by
     the Bank which shall be  sufficient  to  compensate  the Bank (or such Bank
     Assignee) for such  increased  cost from the date of such change,  together
     with interest on each such amount,  commencing three Business Days from the
     date  demanded by the Bank (or such Bank  Assignee),  until payment in full
     thereof (after as well as before judgment) at a rate per annum equal to the
     Past Due Rate from time to time in effect.  A  certificate  of the Bank (or
     such Bank Assignee) submitted to either Borrower (through the Bank, if from
     a  Bank  Assignee)  as to  any  additional  amount  or  amounts  (including
     calculations  thereof,  in  reasonable  detail)  shall,  in the  absence of
     manifest error, be conclusive and binding on the Borrowers.  In determining
     such amount or amounts,  the Bank (or such Bank Assignee) shall act in good
     faith and may use any reasonable  method of averaging and attribution as it
     shall deem applicable.

          (d) The  provisions of Section  2A.3(c) and the remaining  Sections of
     this  Section  2A shall  survive  until one year after the later of (x) any
     termination of this Agreement and (y) the payment in full of the Note.

2A.4 Disbursements.

          (a) The Bank will  notify a Borrower  promptly of the  presentment  of
     each demand for payment under any Letter of Credit  together with notice of
     the date (the "Disbursement Date") such payment shall be made.

          (b) Prior to 10:00 a.m.,  Closing  Office  Time,  on the  Disbursement
     Date,  the Borrowers  will reimburse the Bank by making payment to the Bank
     at the Closing  Office for all amounts  disbursed or to be disbursed by the
     Bank on that day (the  "Disbursement")  under  such  Letter of Credit  (the
     "Reimbursement  Obligation").  To the extent the Bank is not  reimbursed in
     full in accordance with the foregoing  provisions of this Section  2A.4(b),
     the Borrowers'  Reimbursement  Obligation  shall accrue  interest (after as
     well as before  judgment)  at a rate per annum equal to the  Past-Due  Rate
     from time to time in effect, payable on demand.

     2A.5 Reimbursement. The Borrowers' Reimbursement Obligation with respect to
each   Disbursement   (including   interest   thereon)  shall  be  absolute  and
unconditional  under any and all  circumstances  and irrespective of any setoff,
counterclaim,  or defense to payment which either  Borrower may have or have had
against any  beneficiary,  the Bank or any Bank Assignee,  including any defense
based  upon the  failure  of any  Disbursement  to  conform  to the terms of the
applicable  Letter  of  Credit  or  any  application  or  misapplication  by the
beneficiary  of the proceeds of such  Disbursement,  or the legality,  validity,
form, regularity, or enforceability of such Letter of Credit; provided, however,
that  nothing  herein  shall  adversely  affect  the right of the  Borrowers  to
commence any proceeding  against the Bank for any wrongful  Disbursement made by
the Bank under a Letter of Credit as a result of acts or omissions  constituting
gross negligence or willful misconduct on the part of the Bank.

2A.6 Deemed Disbursements.

          (a) Upon the  occurrence  of any Event of Default  under  Section  9.7
     (with respect to either Borrower) and also, at the option of the Bank, upon
     the occurrence and during the continuance of any other Event of Default, an
     amount equal to the LC Outstandings shall, without demand upon or notice to
     either  Borrower,  be deemed to have  been  paid or  disbursed  by the Bank
     (each, a "Deemed  Disbursement")  under all  outstanding  Letters of Credit
     (notwithstanding  that  such  amount  may not in fact  have been so paid or
     disbursed).  Upon  notification  by the  Bank  to  either  Borrower  of the
     Borrowers'  obligations under this Section 2A.6 (no such notification being
     required in the case of an Event of Default  under Section 9.7 with respect
     to either  Borrower),  the  Borrowers  shall be  immediately  obligated  to
     reimburse the aggregate  amount of the Deemed  Disbursements  by paying the
     full amount thereof to the Bank prior to 10:00 a.m.  Closing Office Time on
     the date of such Deemed Disbursement and any amount not so reimbursed shall
     accrue  interest  (after  as well as before  judgment)  at a rate per annum
     equal to the Past Due Rate from time to time in effect,  payable on demand.
     All Deemed  Disbursements  reimbursed by either  Borrower  pursuant to this
     Section 2A.6(a) shall be deposited into a single special depository account
     of the  Borrower  (the "Deemed  Disbursement  Account")  maintained  by the
     Borrowers  with,  and under the  control  of, the Bank (in New York or such
     other  jurisdiction  as the Bank and the  Borrowers  agree  to) and  titled
     appropriately  so as to identify the nature of such account.  The Borrowers
     shall take all such action, if any, as is necessary to assure that the Bank
     has a perfected  first  priority  security  interest in said account to the
     extent that such a security interest can be so granted and perfected in the
     jurisdiction in which such account is held. All of Borrowers' right,  title
     and  interest  in and to all monies at any time in the Deemed  Disbursement
     Account  (and  all  Disbursement  Earnings,  if any,  thereon)  are  hereby
     irrevocably  pledged by the Borrowers to the Bank as security to secure the
     prompt  payment to the Bank of all the  Borrowers'  liabilities to the Bank
     and to secure the performance by the Borrowers of their  obligations  under
     this Agreement; and such amounts may be applied to such liabilities in such
     order as the Bank may direct  without  notice to, or the consent of, either
     Borrower. The Borrowers shall be entitled to receive monies from the Deemed
     Disbursement  Account only as permitted by Section 2A.6(b).  The Bank shall
     invest  the  monies in the  Deemed  Disbursement  Account  in such types of
     investments as are agreed to by either Borrower and the Bank.

          (b) If any such Letter of Credit shall  thereafter  terminate  without
     the Bank being  required to pay the full amount of the Deemed  Disbursement
     with respect to such Letter of Credit to the beneficiary  thereunder,  then
     (unless  the Loans have  matured,  by  acceleration  or  otherwise,  or the
     Borrowers  have  failed to pay any amount  then due and payable by it under
     this  Agreement) the Bank will return to the Borrowers an aggregate  amount
     equal to that  portion  of the  Deemed  Disbursement  with  respect to such
     terminated  Letter of Credit  not  theretofore  applied  by the Bank to any
     Reimbursement  Obligation  with respect to such Letter of Credit or applied
     by the Bank in payment of the Note or any other obligation of the Borrowers
     under this  Agreement or any of the Loan  Documents.  At such time when all
     Events of Default shall have been cured or waived, the Bank shall return to
     either or both of the  Borrowers  all amounts then on deposit in the Deemed
     Disbursement Account.

     2A.7 Nature of  Reimbursement  Obligations.  The Borrowers shall assume all
risks  of the  acts,  omissions,  or  misuse  of any  Letter  of  Credit  by the
beneficiary  thereof. The Bank (except to the extent of its own gross negligence
or willful misconduct) shall not be responsible for:

          (a) the form, validity,  sufficiency,  accuracy, genuineness, or legal
     effect of any Letter of Credit or of any draft,  demand or other  document,
     instrument or other paper  relating to, or presented  under,  any Letter of
     Credit,  or any  document  submitted  by any party in  connection  with the
     application  for and  issuance of a Letter of Credit,  even if it should in
     fact prove to be in any or all respects invalid, insufficient,  inaccurate,
     fraudulent, or forged;

          (b) the form, validity,  sufficiency,  accuracy, genuineness, or legal
     effect  of any  instrument  transferring  or  assigning  or  purporting  to
     transfer or assign a Letter of Credit or the rights or benefits  thereunder
     or proceeds  thereof in whole or in part,  which may prove to be invalid or
     ineffective for any reason;

          (c)  failure  of the  beneficiary  to  comply  fully  with  conditions
     required in order to demand payment under a Letter of Credit;

          (d) errors,  omissions,  interruptions,  or delays in  transmission or
     delivery of any messages, by mail, cable,  telegraph,  telex, telecopier or
     otherwise; or

          (e) any loss or delay in the transmission or otherwise of any document
     or draft required in order to make a Disbursement  under a Letter of Credit
     or of the proceeds thereof.

None of the foregoing shall affect, impair, or prevent the vesting of any of the
rights or powers granted the Bank  hereunder.  In furtherance  and extension and
not in limitation or  derogation  of any of the  foregoing,  any action taken or
omitted  to be  taken  by the  Bank in good  faith  shall  be  binding  upon the
Borrowers  and each Bank  Assignee  hereunder  and shall not put the Bank or any
Bank Assignee under any resulting  liability to either Borrower nor put the Bank
under  any  resulting  liability  to any Bank  Assignee.  Nothing  herein  shall
constitute  a  waiver  by the  Borrowers  of any of  their  rights  against  any
beneficiary of a Letter of Credit.

2A.8 [intentionally omitted]

2A.9 [intentionally omitted]

     2A.10  Collateralization.  If,  at any time  (after  giving  effect  to the
provisions  of Section  2.5(a) or 2.5(b),  if  applicable  at such time) when no
Loans are outstanding,  the aggregate  amount of the LC Obligations  exceeds (x)
the  amount of the  Commitment  then in effect or (y)  66.67% of the  Collateral
Value, the Borrowers shall (if the Bank so requests):

          (i) immediately deposit an amount, in Dollars,  equal to the amount of
     such excess in a cash collateral account (the "Shortfall Account") with the
     Bank, or

          (ii) as an alternative to the deposit required by the foregoing clause
     (i) (but only if a Borrower so requests  and the Bank  advises the Borrower
     in writing that,  solely with respect to such request,  such alternative is
     acceptable  to the Bank),  immediately  deliver and pledge to the Bank that
     number of additional LP Units which, when multiplied by the Market Value of
     such LP Units, shall equal 150% of the amount of such excess, together with
     a Pledge  Agreement,  in each case on terms and conditions  satisfactory to
     the Bank and as security for the  Obligations.  No request by a Borrower in
     accordance  with  clause  (ii)  preceding,  nor any  delay  by the  Bank in
     responding  to any such  request,  shall  relieve  either  Borrower  of its
     obligations  under clause (i) preceding;  the Borrower shall have the right
     to  utilize  the  alternative  provided  by said  clause  (ii)  only  after
     receiving written  acknowledgement from the Bank that, as to the particular
     instance in question, the Bank is amenable to such alternative.

Section 3. INTEREST.

     3.1 Rate of Interest. The Borrowers agree to pay interest in respect of the
unpaid principal amount of each Loan from time to time outstanding from the date
the  proceeds  thereof are made  available  to either  Borrower  until  maturity
(whether by acceleration or otherwise) at the following interest rates: (i) each
LIBOR Loan,  at a rate per annum for each  Interest  Period  applicable  thereto
equal to (x) LIBOR for such Interest Period plus (y) the LIBOR Margin,  and (ii)
each Base Rate Loan,  at a rate per annum equal to (x) the Base Rate,  such rate
to change as and when such Base Rate changes, plus (y) the Base Rate Margin.

     3.2 Interest Payment Dates. Interest on and prior to maturity in respect of
each Loan shall be payable in arrears (i) if such Loan is (x) a LIBOR  Loan,  on
the last day of each Interest  Period  applicable  thereto and, if such Interest
Period is longer  than three  months,  at the end of each  three-month  interval
within such Interest Period or (y) a Base Rate Loan, on the last Business Day of
each  calendar  quarter  after  the  making  thereof  and on the last day of any
Interest  Period  applicable  thereto,  (ii) upon any prepayment or repayment of
such Loan in full (to the extent  accrued on the amount  prepaid or repaid)  and
(iii) at  maturity  (whether  by  acceleration  or  otherwise).  The Bank  shall
endeavor to notify the Borrowers prior to each such interest payment date of the
amount to be paid by the  Borrowers on such date,  but no failure by the Bank to
do so shall in any way affect the Borrowers' obligations hereunder to timely pay
the full  amount of  interest  due when due;  however,  no such  amount  paid in
reliance on such a notice,  or paid in accordance with the Borrowers' good faith
calculations  in the  absence  of such a notice,  shall  constitute  an Event of
Default under Section 9.1 unless the Borrowers shall fail to timely pay the full
amount of any further  adjustment as may be appropriate  pursuant to notice to a
Borrower from the Bank.

     3.3 Overdue  Payment of Principal and Interest.  Overdue  principal of, and
overdue  interest  in respect of,  each Loan shall bear  interest  for each day,
payable on demand,  at a rate per annum (the  "Past-Due  Rate")  equal to 2% per
annum in excess of the interest  rate  otherwise  applicable to such Loan (up to
the end of the then-current Interest Period therefor) and thereafter equal to 2%
per annum in excess of the Base Rate.

     3.4 Interest  Periods.  For purposes of this  Agreement the term  "Interest
Period" shall mean (a) with respect to any LIBOR Loan:

          (i)  initially,  the  period  commencing  on the  borrowing  date with
     respect to such Loan and ending one, two,  three or six months  thereafter,
     as  selected by a Borrower in the Notice of  Borrowing  given with  respect
     thereto; and

          (ii)  thereafter,  each period  commencing on the last day of the next
     preceding  Interest  Period  applicable  to such Loan and ending one,  two,
     three or six months thereafter, as selected by the Borrowers by irrevocable
     notice (each an "Interest  Period Notice") to the Bank not later than 10:00
     a.m.,  Closing Office Time, four Business Days prior to the last day of the
     then current Interest Period with respect thereto;

     provided that, all of the foregoing provisions relating to Interest Periods
     for LIBOR Loans are subject to the following:

               (1) if any  Interest  Period  pertaining  to a LIBOR  Loan  would
          otherwise  end on a day  that is not a  Business  Day,  such  Interest
          Period  shall be extended to the next  succeeding  Business Day unless
          the result of such  extension  would be to carry such Interest  Period
          into another  calendar month in which event such Interest Period shall
          end on the immediately preceding Business Day;

               (2) any Interest  Period that would  otherwise  extend beyond the
          date final  payment is due on the LIBOR Loan shall end on such date of
          final payment;

               (3) any Interest Period pertaining to a LIBOR Loan that begins on
          the last Business Day of a calendar month (or on a day for which there
          is no numerically  corresponding  day in the calendar month at the end
          of such  Interest  Period)  shall  end on the last  Business  Day of a
          calendar month;

               (4) the  Borrowers  shall  select  Interest  Periods so as not to
          require a payment or  prepayment  of any LIBOR Loan during an Interest
          Period for such Loan; and

               (5) in the absence of timely  selection  by the  Borrowers  of an
          Interest  Period for a LIBOR Loan,  the  Interest  Period shall be one
          month (subject to the other terms of this proviso); and

          (b) With respect to any Base Rate Loan,  the period  commencing on the
     borrowing or conversion date, as the case may be, with respect to such Loan
     and  ending  on the  first  to  occur  of the  Maturity  Date  (whether  by
     acceleration or otherwise) of such Loan or the conversion date with respect
     to such Loan.

     3.5 Rollovers.  Any LIBOR Loan may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrowers giving
an Interest Period Notice to the Bank, in accordance  with Section 3.4,  setting
forth the  length of the next  Interest  Period to be  applicable  to such Loan,
provided  that no LIBOR Loan may be  continued  (i) when any Default or Event of
Default has occurred and is continuing and the Bank has  determined  that such a
continuation is not appropriate,  (ii) if, after giving effect thereto,  Section
2.2(b) would be  contravened  or (iii) after the date that is one month prior to
the  end  of  the  Commitment  Period  and  provided,   further,  that  if  such
continuation is not permitted, the Borrowers shall be required to pay such Loans
on the last day of such then expiring Interest Period.

     3.6  Automatic  Conversion.  If,  on  or  prior  to a  Eurodollar  Interest
Determination  Date for a LIBOR  Loan,  the Bank  shall have  determined  (which
determination shall be conclusive and binding upon the Borrowers), that it would
be impossible or unlawful to continue such Loan for another  Interest  Period or
to make a LIBOR Loan then being  requested  because (i) the Bank does not expect
to be able to fund such  Loan for the  Interest  Period  applicable  thereto  by
obtaining a matching deposit in the London interbank market at the relevant time
or (ii) the Bank  has  determined  that it  would  be  impossible,  unlawful  or
contrary to a regulation,  interpretation,  order, directive or request (whether
or not  having  the  force  of law)  applicable  to the  Bank of any  Government
Authority,  or any fiscal,  monetary,  central  bank or other  authority  having
jurisdiction  over the Bank,  for the Bank to make such  Loan  available  to the
Borrowers  or to continue  such Loan as a LIBOR Loan (as the case may be),  then
the Bank shall promptly notify (in writing or by telephone,  promptly  confirmed
in writing) the Borrowers thereof and

          (a) with respect to an existing  LIBOR Loan  otherwise to be continued
     as such, such Loan shall at the end of the current Interest Period therefor
     be converted into a Base Rate Loan (if permitted by the other provisions of
     the  Agreement)  unless a  Borrower  shall have  advised  the Bank that the
     Borrowers do not want same to be so converted, in which event the Borrowers
     shall be required to repay such Loans at the end of such  Interest  Period;
     and

          (b) with request to a LIBOR Loan then being requested, such Loan shall
     instead  be made as a Base Rate  Loan  (unless  the  Borrowers  shall  have
     requested  prior to the Borrowing Date that such Loan not be made, in which
     event such Loan shall not be made).

3.7 Capital Adequacy; Qualification Requirements.

          (a) If the Bank shall have determined that the applicability after the
     date hereof of any law, rule,  regulation or guideline  adopted pursuant to
     or arising  out of the July 1988 report of the Basle  Committee  on Banking
     Regulations and Supervisory Practices entitled  "International  Convergence
     of Capital  Measurement and Capital  Standards",  or the adoption after the
     date  hereof of any other law,  rule,  regulation  or  guideline  regarding
     capital  adequacy,  or  any  change  in  any  of  the  foregoing  or in the
     enforcement or  interpretation or administration of any of the foregoing by
     any court or any governmental authority,  central bank or comparable agency
     charged with the enforcement or interpretation  or administration  thereof,
     or  compliance  by the  Bank (or any  lending  office  of the  Bank) or any
     holding company of the Bank with any request or directive regarding capital
     adequacy  (whether  or not having the force of law) of any such  authority,
     central bank or comparable agency, has or would have the effect of reducing
     the rate of return on the Bank's  capital  or on the  capital of the Bank's
     holding company, if any, as a consequence of its obligations hereunder to a
     level below that which the Bank or the Bank's  holding  company  could have
     achieved but for such applicability, adoption, change or compliance (taking
     into  consideration  the Bank's  policies  and the  policies  of the Bank's
     holding company with respect to capital  adequacy) by an amount  reasonably
     deemed by the Bank to be  material,  then,  upon  demand  by the Bank,  the
     Borrowers shall pay to the Bank from time to time such additional amount or
     amounts as will  compensate  the Bank or the  Bank's  holding  company  (as
     determined by the Bank in good faith) for any such reduction  suffered as a
     consequence of the Bank's obligations hereunder,  together with interest on
     each such amount  (commencing  three  Business Days from the date demanded)
     until payment in full thereof at the Base Rate. A  certificate  of the Bank
     submitted  to the  Borrowers  as to any such  additional  amount or amounts
     (including calculations thereof in reasonable detail) shall, in the absence
     of  manifest  error,  be  conclusive  and  binding  on  the  Borrowers.  In
     determining such amount or amounts,  the Bank may use any reasonable method
     of averaging and attribution as it shall deem applicable.

          (b) If the Bank shall have  determined that the  applicability  of any
     Qualification  Requirement,  or any  Regulatory  Change  or  change  in any
     Qualification  Requirement  or in  the  enforcement  or  interpretation  or
     administration  of  any  Qualification   Requirement  by  any  Governmental
     Authority  charged with the enforcement or interpretation or administration
     thereof, has or would have the effect of reducing the rate of return on the
     Bank's capital or on the capital of the Bank's holding company,  if any, as
     a consequence of its obligations  hereunder to a level below that which the
     Bank or the  Bank's  holding  company  could  have  achieved  but for  such
     applicability,  adoption,  change or  compliance  by an  amount  reasonably
     deemed by the Bank to be  material,  then,  upon  demand  by the Bank,  the
     Borrowers shall pay to the Bank from time to time such additional amount or
     amounts as will  compensate  the Bank or the  Bank's  holding  company  (as
     determined by the Bank in good faith) for any such reduction  suffered as a
     consequence of the Bank's obligations hereunder,  together with interest on
     each such amount  (commencing  three  Business Days from the date demanded)
     until payment in full thereof at the Base Rate. A  certificate  of the Bank
     submitted  to the  Borrowers  as to any such  additional  amount or amounts
     (including calculations thereof in reasonable detail) shall, in the absence
     of  manifest  error,  be  conclusive  and  binding  on  the  Borrowers.  In
     determining such amount or amounts,  the Bank may use any reasonable method
     of averaging and  attribution as it shall deem  applicable.  "Qualification
     Requirement" shall mean any Legal Requirement that solely by reason of (and
     without regard to any other  activities of the Bank in any  jurisdiction in
     which Collateral is located) the entering into, performance and enforcement
     of this  Agreement  and the other Loan  Documents  by the Bank  constitutes
     "doing business" by the Bank in any  jurisdiction,  imposes on the Bank any
     liability for taxes or other governmental charges,  requires  qualification
     by the Bank to do  business  in any  jurisdiction  or  requires a "business
     activity,"  "doing business" or similar report or notice to be filed by the
     Bank in any jurisdiction.

          (c) No demand for compensation under this Section 3.7 shall be made by
     the Bank unless the Bank is making similar demands upon similarly  situated
     borrowers.

3.8 Determination of Rate of Borrowing.

          (a) As soon as practicable  after 11:00 a.m.,  Closing Office time, on
     each  Eurodollar  Interest  Determination  Date for a LIBOR Loan,  the Bank
     shall  determine  (which  determination  shall,  absent  manifest error, be
     final,  conclusive  and binding upon all parties) LIBOR to be applicable to
     such LIBOR Loan for the next succeeding  Interest Period therefor and shall
     promptly  give  notice  thereof in writing or by  telephone  (confirmed  in
     writing) to the Borrowers.

          (b)  Notwithstanding  the  foregoing,  in the event  that prior to the
     first day of any Interest Period for a LIBOR Loan:

               (i) the Bank shall have determined (which  determination shall be
          conclusive  and  binding  upon  the  Borrowers)  that,  by  reason  of
          circumstances  affecting the relevant market,  adequate and reasonable
          means do not  exist  for  ascertaining  the  LIBOR  for such  Interest
          Period, or

               (ii)  the  Bank   shall   have   reasonably   determined   (which
          determination shall be conclusive and binding upon the Borrowers) that
          LIBOR determined or to be determined for such Interest Period will not
          adequately  and  fairly  reflect  the  cost to the Bank of  making  or
          maintaining its affected Loans during such Interest  Period,  the Bank
          shall give  written or  telephonic  (promptly  confirmed  in  writing)
          notice thereof to the Borrowers as soon as practicable thereafter.  If
          such notice is given (x) any LIBOR Loans  requested  to be made on the
          first day of such  Interest  Period  shall be made as Base Rate Loans,
          and (y) any outstanding  LIBOR Loans shall be converted,  on the first
          day of such  Interest  Period,  to Base Rate Loans.  No further  LIBOR
          Loans  shall be made or  continued  as such  until  the  circumstances
          causing such suspension no longer exists.

     3.9 Requirements of Law.

          (a) If the Bank shall have reasonably  determined (which determination
     shall be final and  conclusive and binding upon all parties) that by reason
     of (x) the  requirements  of  Regulation D of the Board of the Governors of
     the Federal  Reserve  System or (y) any  Regulatory  Change  after the date
     hereof or (z) other  circumstances  affecting the Bank (such as for example
     but not limited to a change in official  reserve  requirements or increased
     capital reserves required or imposed by any regulatory  authority or entity
     (domestic or foreign) having  jurisdiction over or with respect to the Bank
     or any change in the basis of taxation of payments to the Bank of principal
     or interest  on any LIBOR Loan (other than taxes  covered by Section 5.2 or
     taxes on the Bank's  overall  income by the  jurisdiction  where the Bank's
     principal  or lending  office or  offices  are  located)  to the extent not
     provided for in clause (x) above),  the Bank shall incur increased costs or
     reductions in the amounts  received or  receivable  hereunder in respect of
     any LIBOR Loan,  then, and in any such event,  the Bank shall promptly give
     notice in writing or by telephone  (confirmed  in writing) to the Borrowers
     of such  determination.  Thereafter,  the Borrowers  shall pay to the Bank,
     upon written demand therefor,  such additional amounts (which may be in the
     form of an  increased  rate  of,  or a  different  method  of  calculating,
     interest if the  Borrowers and the Bank so agree) as shall be sufficient to
     compensate  the  Bank for  such  increased  cost or  reduction  in  amounts
     received or receivable, provided that in the case of any such determination
     pursuant to clause (x) with respect to any LIBOR Loan,  the written  notice
     from the Bank to the Borrowers shall specify the additional amount required
     to be paid with  respect  to such Loan  (with  such  amount so stated to be
     final  with  respect  to each  Interest  Period  therefor  until  notice is
     received by the Borrowers  from the Bank that the condition  giving rise to
     such  determination  is no longer  applicable) and such  additional  amount
     shall be paid at the same time, and together  with, the interest  otherwise
     payable in respect of such LIBOR Loans for such affected  Interest Periods.
     Each such  notice or demand  shall,  absent  manifest  error,  be final and
     conclusive and binding upon all of the parties hereto; provided that before
     giving any such  notice or making any such  demand,  the Bank agrees to use
     reasonable  efforts  (consistent  with its  internal  policy  and legal and
     regulatory   restrictions  and  so  long  as  such  efforts  would  not  be
     disadvantageous to it, in its reasonable discretion, in any legal, economic
     or regulatory manner) to designate a different lending office if the making
     of such  designation  would  avoid the need for, or  materially  reduce the
     amount of, such increased cost.

          (b) If the Bank has invoked the provisions of subsection 3.9(a) (other
     than in respect of clause (x)  thereof),  the Borrowers may (subject to the
     other  provisions  of this  Agreement)  exercise  any one of the  following
     options if the  exercise of such  option  shall  eliminate  the need to pay
     compensation to the Bank pursuant to Section 3.9(a):

               (i) If such determination  relates only to LIBOR Loans then being
          requested  by the  Borrowers  pursuant to a Notice of  Borrowing,  the
          Borrowers  may,  prior to the date on which such LIBOR Loans are to be
          made,  by giving  notice in  writing  or by  telephone  (confirmed  in
          writing) to the Bank, withdraw such Notice of Borrowing.

               (ii) Upon written notice to the Bank, the Borrowers may terminate
          the  obligation  of the Bank to make or maintain  Loans as LIBOR Loans
          and, in such event,  the Borrowers  shall on the first day of the next
          occurring  Interest Period applicable  thereto convert all LIBOR Loans
          into Base Rate Loans by written notice to the Bank thereof.

               (iii) The  Borrowers  may,  by giving  notice  in  writing  or by
          telephone (confirmed in writing) to the Bank, require the Bank to make
          the LIBOR Loan then being requested as a Base Rate Loan and to convert
          each LIBOR Loan then  outstanding that is so affected into a Base Rate
          Loan on the first day of the next occurring Interest Period applicable
          thereto, or within such earlier period, as is required by law.

     3.10 Required Termination and Prepayment. In the event that at any time the
Bank shall have reasonably  determined (which  determination  shall be final and
conclusive and binding upon all parties) that the making or  continuation of any
of its LIBOR Loans has become  unlawful by  compliance by the Bank in good faith
with any law, governmental rule, regulation,  guideline or order (whether or not
having the force of law and whether or not failure to comply  therewith would be
unlawful),  the Bank shall  promptly  give  notice in  writing  or by  telephone
(confirmed  in writing) to the  Borrowers of such  determination;  provided that
before  giving  any such  notice,  the Bank  agrees  to use  reasonable  efforts
(consistent  with its internal policy and legal and regulatory  restrictions and
so long as such efforts would not be  disadvantageous  to it, in its  reasonable
discretion,  in any  legal,  economic  or  regulatory  manner)  to  designate  a
different  lending  office if the making of such a  designation  would allow the
Bank to continue to perform its obligations to make LIBOR Loans affected by such
determination. Upon receiving such notification, the Borrowers shall (subject to
the  other  provisions  of this  Agreement)  forthwith  take one of the  actions
specified in Section 3.9(b) (to the extent required to cure such condition).  If
the Borrowers have not exercised one of the options  specified in Section 3.9(b)
within the time periods  therein  prescribed,  the Borrowers  shall be deemed to
have exercised the option set forth in clause (iii) of Section 3.9(b) (requiring
the making,  continuance  or conversion  into Base Rate Loans) and to have given
the notice specified therein. If any such conversion of a LIBOR Loan occurs on a
day which is not the last day of the then current  Interest  Period with respect
thereto,  the Borrowers  shall pay to the Bank such  amounts,  if any, as may be
required pursuant to Section 3.11. If circumstances  subsequently change so that
the Bank  shall  determine  that it is no  longer  so  affected,  the Bank  will
promptly notify the Borrowers,  and upon receipt of such notice, the obligations
of the Bank to make or continue  such LIBOR Loans or to convert  Loans into such
LIBOR Loans shall be reinstated.

     3.11  Compensation.  The Borrowers shall  compensate the Bank, upon written
request by the Bank (which request shall,  absent  manifest  error, be final and
conclusive and binding upon all parties),  for all reasonable  losses,  expenses
and liabilities (including, without limitation, any interest paid by the Bank to
lenders  of  funds  borrowed  by it to make or carry  its  LIBOR  Loans  and any
reasonable  loss  (including  any  loss  of  margin)  sustained  by the  Bank in
connection with the liquidation or re-employment of such funds),  which the Bank
may  sustain:  (i) if for  any  reason  (other  than a  default  by the  Bank) a
borrowing  of any LIBOR Loan does not occur on a date  specified  therefor  in a
Notice  of  Borrowing  (whether  or not  withdrawn),  (ii)  if  any  prepayment,
repayment or  conversion of any of its LIBOR Loans occurs on a date which is not
the last day of the Interest Period applicable thereto,  (iii) if any prepayment
of any of its  LIBOR  Loans  is not made on any date  specified  in a notice  of
prepayment  given by a Borrower,  or (iv) as a  consequence  of any default by a
Borrower hereunder.

Section 4. COMMITMENT FEE, ETC.

     4.1 Commitment Fee. The Borrowers agree to pay to the Bank a commitment fee
with respect to the Commitment for the period commencing on the Closing Date, to
and including the date on which the Commitment has been  permanently  terminated
in full,  equal to at a rate per annum equal to the  Commitment  Fee Rate on the
average daily Unutilized  Commitment during the period for which payment is made
(the "Commitment Fee"). For the purposes of the preceding sentence,  issuance of
Letters of Credit shall be deemed to be a utilization  of the Bank's  Commitment
in an amount  equal to LC  Outstandings.  Such  Commitment  Fee shall be payable
quarterly in arrears on the last  Business Day of each  calendar  quarter and on
the date upon which the  Commitment  shall be permanently  terminated.  The Bank
shall  endeavor to notify the  Borrowers  prior to the end of each such calendar
quarter of the amount to be paid by the  Borrowers  at the end of such  quarter,
but no  failure  by the  Bank to do so shall in any way  affect  the  Borrowers'
obligations  hereunder to timely pay the full amount due when due;  however,  no
such amount paid in reliance on such a notice,  or paid in  accordance  with the
Borrowers'  good  faith  calculations  in the  absence  of such a notice,  shall
constitute an Event of Default under Section 9.1 unless the Borrowers shall fail
to timely pay the full amount of any further  adjustment  as may be  appropriate
pursuant to notice to the Borrowers from the Bank.

     4.2  Facility  Fee. The  Borrowers  agree to pay to the Bank a facility fee
equal to 1.25% of the Commitment on the Effective Date (the "Facility  Fee). The
Facility  Fee  shall be  payable  1/3 on the  Effective  Date,  1/3 on the first
anniversary  of the  Effective  Date and 1/3 on the  second  anniversary  of the
Effective Date, provided that if the Commitment has been permanently  terminated
in full,  the balance of the  Facility  Fee shall be payable in full on the date
the Commitment has been permanently terminated in full.

Section 5. PAYMENTS, ETC.

     5.1 Payments on Non-Business  Days;  Calculations.  Except as otherwise set
forth in clause (1) of the proviso to Section 3.4(a), whenever any payment to be
made  hereunder or otherwise in  connection  with any Loan shall be stated to be
due on a day which is not a Business Day, the due date thereof shall be extended
to the  next  succeeding  Business  Day and  interest  shall be  payable  at the
applicable rate during such extension.  Interest hereunder  (including,  without
limitation,  interest on the Loans) and under the Loan Documents (other than any
interest  on the  Deemed  Disbursement  Account)  and  Commitment  Fees shall be
calculated on the basis of a 360 day year and the actual number of days elapsed;
if for any  reason a Loan is  repaid  on the  same day on which it is made,  one
day's interest (subject to the other provisions of this Agreement) shall be paid
on that Loan. The Borrowers  hereby  authorize and direct the Bank to charge any
account of either Borrower  maintained at any office of the Bank with the amount
of any  principal,  interest or fee when the same becomes due and payable  under
the terms hereof or of the Note; provided,  however,  that the Bank shall not be
under any obligation to charge any such account.

     5.2 Net Payments; Application.

          (a)  All  payments  hereunder  and  under  the  other  Loan  Documents
     (including,  without  limitation,  prepayments  and repayments  pursuant to
     Section  2)  shall  be made by the  Borrowers  to the  Bank in  immediately
     available, freely transferable,  freely convertible same day Dollars at the
     Closing Office without setoff or counterclaim and in such amounts as may be
     necessary in order that all such payments  (after (i) withholding for or on
     account of any present or future taxes,  levies,  imposts,  duties or other
     similar charges of whatsoever nature imposed on the amounts described above
     by any government or any political subdivision or taxing authority thereof,
     other than any tax (other than such taxes referred to in clause (ii) below)
     imposed on the Bank  pursuant  to the  income tax laws of the  jurisdiction
     where the  Bank's  principal  or  lending  office or  offices  are  located
     (collectively,  the "Taxes")  and (ii)  deduction of an amount equal to any
     taxes on or measured by the net income  payable to the Bank with respect to
     the amount by which the  payments  required to be made by this  Section 5.2
     exceed the amount  otherwise  specified to be paid under this Agreement and
     the Note) shall not be less than the amounts otherwise specified to be paid
     under this  Agreement and the Note.  With respect to each such deduction or
     withholding,  the Borrowers  shall  promptly (and in no event later than 30
     days thereafter) furnish to the Bank such certificates,  receipts and other
     documents  as may be required to  establish  any tax credit,  exemption  or
     reduction  in  rate  to  which  the  Bank or any  holder  of a Note  may be
     entitled.  The Bank, not being a bank organized and existing under the laws
     of the  United  States of  America or any  political  subdivision  thereof,
     agrees to furnish the Borrowers,  as soon as practicable  after any written
     request of the  Borrowers to such  effect,  any  executed  form  reasonably
     requested by the Borrowers such as IRS Form W-8BEN or W-8ECI, and any other
     applicable form as to the Bank's entitlement, if any, to exemption from, or
     a reduced rate of, or its subjection to withholding  tax on amounts payable
     to it hereunder or under the Note and the Bank  undertakes  to use its best
     efforts  promptly to notify the  Borrowers  of any  material  change in any
     information,  statement or form so furnished  to the  Borrowers;  provided,
     however,  that any  failure  on the part of the  Bank to  furnish  any such
     information,  statements  or forms shall in no way affect the terms of this
     Agreement or of the Note.  Notwithstanding the foregoing,  in the event the
     Bank  fails to  furnish  any such  information,  statements  or forms,  the
     Borrowers  shall only pay to the Bank such amounts under this Agreement and
     the Note as are due without  those  additions  described in clauses (i) and
     (ii)  above  that  would  not have  been  required  had  such  information,
     statements  or forms been  provided  in a timely  fashion.  As  promptly as
     practicable  after the Bank becomes aware of the existence or occurrence of
     an event  giving rise to the  imposition  of  withholding  tax upon amounts
     payable  to it  hereunder  or under the Note,  the Bank  shall use its best
     efforts to transfer its Loans or Commitment  to another  office of the Bank
     with a view to avoiding or mitigating the  consequences of such tax. If the
     Bank  determines that it is unable to effect such transfer on or before the
     thirtieth  day after the date the Bank  becomes  aware of the  existence or
     occurrence of an event giving rise to the  imposition of  withholding  tax,
     the Bank shall promptly give notice of such determination to the Borrowers.
     If either Borrower receives notice of such determination from the Bank, the
     Borrowers may, by notice to the Bank,  indicate  their  intention to prepay
     the affected Loan in full (but with all premiums,  if any,  provided for in
     this Agreement and with interest  accrued to the date of prepayment on such
     Loan and all other amounts then payable to the Bank hereunder) on the tenth
     Business Day after the date of such notice of  intention.  On or before the
     tenth day after receipt of any such notice of  intention,  the Bank may, by
     notice to the Borrowers,  irrevocably  elect to receive payments  hereunder
     reduced by the amount of such withholding.  If such an election is so made,
     the Borrowers (i) shall cease to be under any further obligation to pay any
     such additional  amount in respect of such withholding and (ii) shall cease
     to be  entitled  so to prepay the Loan by virtue of being  required to make
     such  withholding.  If the Bank has become subject to such withholding tax,
     it shall use its best efforts to provide the  Borrowers  with an affidavit,
     within 30 days  after  the Bank  files its tax  return,  setting  forth the
     amount of any tax credit it received with respect thereto.

          (b) Unless otherwise  specifically provided herein, all payments under
     or pursuant to, or in  satisfaction  of any of the  Borrowers'  obligations
     under this  Agreement  or under the Note will be  applied in the  following
     order of priority:  (i) to any amounts not otherwise listed in this Section
     5.2(b) then due and payable under this Agreement,  the Note or the Security
     Documents,  (ii) to any Commitment Fee, Facility Fee or other fees then due
     and  payable  pursuant  to  Section  4.1 of this  Agreement,  (iii)  to any
     interest on the Loans then due and payable (unless  otherwise  specified by
     Borrowers,  pro rata according to the aggregate amount of interest then due
     and payable on the  Loans),  (iv) to any  principal  amount then due on the
     Loans,  and (v) to any amounts owed by the  Borrowers  not then due on such
     Loans.

          (c) [intentionally omitted]

          (d) If (i) the  Borrowers  make any payment to the Bank under  Section
     5.2(a),  (ii)  there  are no  amounts  then  payable,  but  unpaid,  by the
     Borrowers  under this Agreement or the other Loan  Documents,  and (iii) no
     Default or Event of Default has occurred which has not been remedied by the
     Borrowers  or  waived  by the  Bank,  the  Bank  shall  negotiate  with the
     Borrowers with a view to reimbursing  the Borrowers,  following  receipt by
     the Bank (and the  passage of all  periods for the audit of the tax records
     of the Bank by the  appropriate  tax authority for the period in question),
     such proportion of any available  credit against,  or remission for, tax as
     the Bank in good faith  certifies to be  attributable  to this Agreement or
     the other  Loan  Documents  and the  proportion  which will leave it (after
     reimbursement  to the  Borrowers)  in no worse  position than it would have
     been in had the relative withholding or deduction never been required. This
     Section shall not impose any obligation on the Bank:

               (1) to manage its tax or other affairs in any particular  manner;
          or

               (2) to claim any credit against, or remission for, tax payable on
          amounts  received  by it  under  this  Agreement  or  the  other  Loan
          Documents in priority to any other tax relief,  or  allowance  for tax
          borne by it, on such amounts; or

               (3) to disclose any information concerning its tax affairs to the
          Borrowers or to any other Person.

     Any  reimbursement  to the Borrowers  shall be made promptly after any such
certification by the Bank of any amount due to the Borrowers.

Section 6. CONDITIONS PRECEDENT TO INITIAL LOANS.

     The Bank  shall not be  obligated  to make any Loan or issue any  Letter of
Credit hereunder  unless on or before the Closing Date the following  conditions
(unless   otherwise   specifically   indicated)   have  been  fulfilled  to  the
satisfaction of the Bank (or waived by the Bank):

     6.1  Default,  etc.  After  giving  effect to any Loans made and Letters of
Credit  issued on the  Closing  Date,  there  shall exist no Default or Event of
Default and all  representations  and warranties made by the Loan Parties herein
or in the other Loan  Documents  or  otherwise by the Loan Parties in writing in
connection  herewith  or  therewith  shall be true and  correct in all  material
respects with the same effect as though such representations and warranties have
been made at and as of such time.

     6.2 Note.  The Bank  shall  have  received  the  Note,  duly  executed  and
completed by the Borrowers.

     6.3 Supporting Documents.  There shall have been delivered to the Bank such
information and copies of documents,  approvals (if any) and records  (certified
where  appropriate)  of  corporate  and legal  proceedings  as the Bank may have
reasonably  requested  relating to the Loan Parties entering into,  issuance and
performance of the Loan Documents and the other agreements and documents related
thereto to which each is a party. Such documents shall, in any event, include:

          (a) certified  copies of the Charter  Documents of each Loan Party and
     KPP, KPOP, STSI and STOP;

          (b)  certificates of authorized  officers of each Loan Party,  KPP and
     KPOP,  certifying  the  resolutions  of each such  entity  relating  to the
     entering  into and  performance  of the  aforesaid  documents to which such
     entity is a party and the transactions contemplated thereby;

          (c)  certificates of authorized  officers of each Loan Party,  KPP and
     KPOP with  respect  to the  incumbency  and  specimen  signatures  of their
     respective officers or representatives authorized to execute such documents
     and any  other  documents  and  papers,  and to take any other  action,  in
     connection therewith; and

          (d)  a  certificate   of  an  authorized   officer  of  each  Borrower
     certifying,  as of the Closing  Date,  compliance  with the  conditions  of
     Section 6.1,  6.5,  6.6, 6.10 and 6.13 and also the absence of any Material
     Adverse Changes of the type referred to in Section 6.11.

     6.4 Security Documents. There shall have been delivered to the Bank:

          (a) A Pledge Agreement executed by KSL covering all present and future
     Equity Interests of KSL in any Subsidiary  (other than KPL),  together with
     (x) any  certificates  representing  such Equity  Interests and (y) undated
     stock or similar powers for such certificates executed in blank;

          (b) A Pledge Agreement executed by KPL covering (1) 4,095,500 LP Units
     owned by KPL, (2) all distributions,  dividends,  cash,  interest and other
     property from time to time received, receivable or otherwise distributed in
     respect of, or in exchange for, any or all of KPL's  interests or rights as
     the general  partner of KPP and KPOP,  (3) all  present  and future  Equity
     Interests  of KPL in any  Subsidiary,  together  with (x) any  certificates
     representing  such LP Units and Equity  Interests  and (y) undated stock or
     similar powers for such certificates executed in blank;

          (c) A Pledge Agreement  executed by KI covering 500,000 LP Units owned
     by KI, together with (x) any  certificates  representing  such LP Units and
     (y)  undated  stock or similar  powers for such  certificates  executed  in
     blank;

          (d) A Guaranty  Agreement  executed  by each Loan Party other than the
     Borrowers;

          (e) Such consents of third parties as the Bank may reasonably request;

          (f)  Evidence  of  all  filings  of  financing  statements  under  the
     applicable  Uniform  Commercial Code (to the extent required to perfect any
     security interest in any collateral),  satisfactory Lien search requests on
     Form UCC-11 and analogous  forms,  confirming  the absence of any perfected
     Liens  (except  Permitted  Liens) and all other actions with respect to the
     Liens created by the Security  Documents as are necessary or appropriate to
     perfect such Liens; and

          (g) To the  extent  required  by the  Bank,  a  release  (in  form and
     substance  satisfactory to the Bank) of all Liens (except  Permitted Liens)
     in all assets of the Loan  Parties,  including  (to the extent  applicable)
     properly executed UCC-3 termination  statements and similar documents under
     the applicable laws of other relevant jurisdictions.

     6.5 Approvals and Consents. All orders, permissions,  consents,  approvals,
licenses,  authorizations  and  validations  of,  and  filings,  recordings  and
registrations  with, and exemptions by, any Government  Authority,  or any other
Person, required to authorize or required in connection with the Distribution or
the  execution,  delivery  and  performance  of this  Agreement,  the other Loan
Documents and the transactions contemplated hereby and thereby by any Loan Party
or KPP Entity shall have been obtained.

     6.6  Solvency  Certificate.  There shall have been  delivered to the Bank a
certificate (substantially in the form of Exhibit E hereto) from the CFO of each
Borrower  to  the  effect  that,   after  giving  effect  to  the   transactions
contemplated by this Agreement and the Distribution  Agreement each Borrower (x)
is  Solvent,  (y)  does not have  unreasonably  small  capital  to  conduct  its
business, and (z) has not incurred debts beyond its ability to pay such debts as
they become due.

     6.7 Legal Opinions.

          (a) The Bank  shall  have  received a legal  opinion  of  Fulbright  &
     Jaworski  L.L.P.,  counsel  for the Loan  Parties,  in form  and  substance
     reasonably  satisfactory  to the Bank,  addressed to the Bank and dated the
     Closing Date.

          (b) If  requested  by the Bank,  the Bank shall have  received a legal
     opinion of local counsel for the Bank,  covering  such matters  incident to
     the transactions contemplated hereby as the Bank may request.

     6.8 Change in Law. No change shall have occurred in  applicable  law, or in
applicable  regulations   thereunder  or  in  interpretations   thereof  by  any
Government  Authority or other Person which,  in the opinion of the Bank,  would
make it illegal for the Bank to make any Loan required to be made (or any Letter
of Credit required to be issued).

     6.9  All   Proceedings  to  be   Satisfactory.   All  material   corporate,
partnership,  limited  liability  company and legal proceedings and all material
instruments in connection with the  transactions  contemplated by this Agreement
and the other  documents  referred to herein shall be  satisfactory  in form and
substance to the Bank, and the Bank shall have received  information  and copies
of all  documents  which the Bank may  reasonably  have  requested in connection
herewith,  such documents where  appropriate to be certified by proper corporate
officers or Government Authorities.

     6.10 No  Opposition.  No suit,  action or  proceeding  shall be  pending or
threatened  before or by any  Government  Authority or other  Person  seeking to
restrain or prohibit the consummation of the  transactions  contemplated by this
Agreement.

     6.11  Adverse  Change.  There  shall  have been,  in the Bank's  reasonable
opinion,  no Material  Adverse  Change with respect to each Loan Party since the
later of its respective formation or January 1, 2001.

     6.12 Fees and  Expenses.  The Letter of Credit Fees  payable on issuance of
any  Letters of Credit to be issued and the  Facility  Fee  payable on or before
such date  shall  have been paid in full.  The legal  fees and  expenses  of the
Bank's  counsel  in  connection  with  the  transactions  contemplated  by  this
Agreement  shall (to the extent demand for payment thereof shall have been made)
have been paid in full.

     6.13  Distribution.  Each of the  conditions  set forth in Article 7 of the
Distribution Agreement shall have been fulfilled and the Distribution shall have
been effected.

     6.14 Consent to Service. The Borrowers shall have delivered to the Bank the
consent  of the  Process  Agent to  acting as such,  as more  fully set forth in
Section 12.10 hereof.

     6.15 Registration of LP Units. On or before September 30, 2001 an effective
registration  statement  covering resales of the LP Units and complying with the
relevant  requirements of Federal securities laws covering the LP Units has been
declared  effective  by the SEC and the Bank shall  have  received a copy of the
notice from the SEC confirming such a registration statement is effective.

     All  documents  and papers  required by this Section 6 shall be in form and
substance  reasonably  satisfactory to the Bank and delivered to the Bank at its
Closing Office or as the Bank may otherwise direct.

     Notwithstanding  any other provision of this  Agreement,  if the conditions
set forth in Section 6 of this Agreement  (except as  specifically  indicated in
Section  6.15)  have  not  been  fulfilled  on or  before  July  31,  2001,  the
commitments  of the Bank to make the Loans or issue the Letters of Credit  shall
be terminated in full.

Section 6A. CONDITIONS PRECEDENT TO SUBSEQUENT LOANS AND LETTERS OF CREDIT.

     The Bank shall not be  obligated  to make any Loans or issue any Letters of
Credit after the Closing Date unless,  at the time of the making of such Loan or
issuing such Letter of Credit  (except as  hereinafter  indicated) the following
conditions (unless waived in writing by the Bank) have been satisfied:

     6A.1 Certain Conditions.  At the time of the making of such Loan or issuing
such Letter of Credit,  and  immediately  after giving effect  thereto,  (a) all
deficiencies,  if any, with respect to conditions precedent to any prior Loan or
Letter of Credit shall have been corrected,  (b) all of the conditions specified
in Sections 6.1, 6.5, 6.8, 6.9,  6.10,  6.11,  6.12,  6.13 and 6.15 (by the date
indicated in Section 6.15) shall be satisfied in full (with any reference in any
of such  Sections to the Closing  Date or the initial  Loans made to be deemed a
reference  to the Loan or Letters of Credit (as the case may be) then  requested
to be made), (c) each of the documents  specified in Sections 6.2, 6.3, 6.4, 6.6
and 6.14 shall have been  delivered and shall be in full force and effect and no
Loan Party thereto  shall have failed to perform in any material  respect any of
its  obligations  thereunder,  (d) no  issuer  of any  legal  opinion  issued in
connection  with any Loan  Document or the making of any Loan or issuance of any
Letter of Credit shall have rescinded or qualified any such legal  opinion,  and
(e) no issuer  thereof  shall have  rescinded or qualified  any of the financial
statements,  certificates,  letters,  reports or other  opinions  referred to in
Section 6.

     6A.2 Subsequent Opinions of Counsel.  If reasonably  requested by the Bank,
the Bank shall  have  received  from any or all of the  counsel  referred  to in
Section 6 or other counsel satisfactory to the Bank such favorable  supplemental
legal  opinions  addressed to the Bank and dated the date of such Loan or Letter
of Credit and covering such matters incidental to the transactions  contemplated
by this Agreement as the Bank shall reasonably  request,  each of which opinions
shall be in form and substance satisfactory to the Bank.

     6A.3 Officer's Certificate.

          (a) If  requested  by  the  Bank,  the  Bank  shall  have  received  a
     certificate of authorized officers of the Borrowers  certifying,  as of the
     date of the Loan then  being made or Letter of Credit  then  being  issued,
     compliance  with the provisions of Section 6.1 (with the reference  therein
     to Loan or Letter of Credit being deemed a reference to the Loan being made
     or Letter  of Credit  being  issued  on the date of said  certificate)  and
     further to the effect that the  conditions  specified  in Section  6A.1 are
     satisfied at such time. Any such certificate shall be given "to the best of
     such officers' knowledge,  based upon due and adequate investigation" or as
     otherwise agreed by the Borrowers and the Bank.

          (b) The making of each Loan and the  issuance of each Letter of Credit
     subsequent  to the  Closing  Date shall  constitute  a  representation  and
     warranty by the Borrowers to the Bank that, at the time of said  subsequent
     Loan or  Letter  of Credit  (and  after  giving  effect  thereto),  (i) all
     representations  and  warranties  contained  herein  or in the  other  Loan
     Documents  or  otherwise  made by a Loan Party in  connection  herewith  or
     therewith  are true and  correct  in all  material  respects  with the same
     effect as though such representations and warranties were being made at and
     as of such time,  (ii) no Default or Event of Default  exists and (iii) the
     conditions specified in Section 6A.1 are satisfied at such time.

     All of the documents and papers  referred to in this Section 6A shall be in
form and substance reasonably satisfactory to the Bank and shall be delivered to
the Bank at its Closing Office or at such other office as the Bank may from time
to time specify to the Borrowers.

Section 7. AFFIRMATIVE COVENANTS.

     The Borrowers jointly and severally covenant and agree hereby that, so long
as this Agreement is in effect and while any Letter of Credit is outstanding and
until the Commitment is terminated and all of the Loans, together with interest,
and all fees and all other  obligations  incurred  hereunder  (including  Deemed
Disbursements  and  Reimbursement  Obligations  and  fees and  disbursements  in
connection  therewith),  are paid in full, the Borrowers will perform,  and will
cause to be performed,  the  obligations set forth in this Section 7 (unless the
Bank should otherwise consent in writing).

     7.1 Financial Statements. Each Borrower will furnish to the Bank:

          (a) As soon as  practicable  and in any event within 60 days after the
     close of each of the first three  quarters of each Fiscal  Year,  as at the
     end of and for the period commencing at the end of the previous Fiscal Year
     and ending  with the end of such  month,  as the case may be, an  unaudited
     consolidated  balance sheet of KSL and its consolidated  Subsidiaries and a
     consolidated statement of income and change in retained earnings of KSL and
     its consolidated  Subsidiaries,  together with a cash flow statement,  such
     statements  to be  accompanied  by  consolidating  balance  sheets,  income
     statements and other  relevant  consolidating  information  for KSL and its
     consolidated  Subsidiaries,  all in reasonable  detail and certified by the
     CFO of the Borrower  subject to year-end audit and  adjustments and setting
     forth in  comparative  form (to the  extent  available)  the  corresponding
     figures as of one year prior thereto or for the appropriate  periods of the
     preceding Fiscal Year, as the case may be;

          (b) As soon as practicable  and in any event within the earlier of (x)
     five days after the  Borrower  receives  same or (y) one  hundred  and five
     (105) days after the close of each Fiscal  Year of KSL,  KPL and MOL, as at
     the end of and  for the  Fiscal  Year  just  closed,  as the  case  may be,
     consolidated balance sheet(s) of KSL and its consolidated Subsidiaries, KPL
     and  its   consolidated   Subsidiaries   and   MOL  and  its   consolidated
     Subsidiaries, and consolidated statement(s) of income and retained earnings
     of  KSL  and  its  consolidated  Subsidiaries,  KPL  and  its  consolidated
     Subsidiaries and MOL and its consolidated Subsidiaries for such Fiscal Year
     setting forth, in the case of  consolidated  balance sheets and statements,
     the  corresponding  figures  of the  previous  annual  audit (to the extent
     available) in comparative form, all in reasonable detail and accompanied by
     the Auditors' opinion (without any qualification  unacceptable to the Bank)
     that such Financial  Statements  have been prepared in accordance with GAAP
     consistently applied and fairly present the financial condition and results
     of  operations  of KSL  and  its  consolidated  Subsidiaries,  KPL  and its
     consolidated  Subsidiaries and MOL and its consolidated  Subsidiaries as at
     the Fiscal  Year-End  and for the Fiscal  Year  indicated,  such  Financial
     Statements to be accompanied by a cash flow statement and (x) consolidating
     balance  sheets,   income  statements  and  other  relevant   consolidating
     information for KSL and its consolidated Subsidiaries, (y) a certificate of
     said  Auditors  that, in  conducting  their audit in  connection  with such
     Financial  Statements,  they  obtained no knowledge of the existence of any
     Event of Default or Default  or, if in the  opinion of such  Auditors,  any
     Event of Default or Default  exists,  specifying the nature thereof and the
     period of existence  thereof,  and (z) a certificate of said  Auditors,  in
     form and substance  satisfactory  to the Bank,  confirming  the  Borrowers'
     calculations   with  respect  to  compliance  with  Section  8.13  for  the
     immediately preceding Fiscal Year;

          (c) As soon as  practicable  and in any event within 60 days after the
     close of each of the first three  quarters of each Fiscal Year and 105 days
     after the close of the fourth quarter of each Fiscal Year, a certificate in
     form and  substance  satisfactory  to the Bank and signed by the CFO of the
     Borrower (each such  certificate,  a "Quarterly  Certificate")  stating (i)
     that a review of the activities of the Consolidated  Group and KPP Entities
     during such  quarter has been made under their  supervision  with a view to
     determining  whether each of the Loan Parties has  observed,  performed and
     fulfilled all of its  obligations  under this  Agreement and the other Loan
     Documents, and (ii) that there exists no Event of Default or Default, or if
     any Event of Default or Default exists,  specifying the nature thereof, the
     period of  existence  thereof  and what  action  the  affected  Loan  Party
     proposes  to  take  with  respect  thereto;   together  with  a  compliance
     certificate of said CFO, substantially in form substantially in the form of
     Exhibit  H  attached   hereto  (each  such   certificate,   a   "Compliance
     Certificate"), setting forth among other things the Borrower's calculations
     with respect to its compliance with Section 8.13;

          (d) Promptly upon receipt  thereof,  copies of all detailed  financial
     reports and  Management  Letters,  if any,  submitted  to any member of the
     Consolidated  Group by the  Auditors,  in  connection  with each  annual or
     interim audit of their respective books by such Auditors;

          (e) As soon as  possible  and in any event (A)  within 30 days after a
     Loan Party, or any of its ERISA Affiliates knows that any Termination Event
     described in clause (i) of the definition of Termination Event with respect
     to any Pension  Plan has occurred or is expected to occur and (B) within 10
     days after a Loan Party or any of its ERISA Affiliates knows that any other
     Termination  Event with  respect to any  Pension  Plan has  occurred  or is
     expected to occur, a statement of the CFO of the Borrower  describing  such
     Termination  Event and the action, if any, which the affected Loan Party or
     ERISA Affiliate proposes to take with respect thereto;

          (f) Promptly and in any event within ten Business  Days after  receipt
     thereof  by a Loan  Party or any of its  ERISA  Affiliates  from the  PBGC,
     copies of each notice  received by such Person of the PBGC's  intention  to
     terminate any Pension Plan or to have a trustee appointed to administer any
     Pension Plan, any notice of  noncompliance  issued by the PBGC with respect
     to a proposed standard termination of a Pension Plan, and any notice issued
     by the PBGC with respect to a proposed  distress  termination  of a Pension
     Plan;

          (g) Promptly and in any event within 30 days after the filing  thereof
     with the IRS,  copies of each  Schedule B  (Actuarial  Information)  to the
     annual report (Form 5500 Series) with respect to each Pension Plan;

          (h) Promptly and in any event within ten Business  Days after  receipt
     thereof by a Loan Party or any of its ERISA Affiliates from a Multiemployer
     Plan sponsor,  a copy of each notice received by such Person concerning (x)
     the imposition or amount of withdrawal  liability under Subtitle E of Title
     IV of ERISA or (y) any  determination by a Multiemployer  Plan sponsor that
     such  Multiemployer  Plan is, or is  expected  to be,  in  "reorganization"
     (within the meaning of Section  4241 of ERISA) or  "insolvent"  (within the
     meaning of Section 4245 of ERISA),  or has incurred or is expected to incur
     an "accumulated  funding  deficiency" (within the meaning of Section 302 of
     ERISA or Section 412 of the Code);

          (i) No later than 30 days prior to each Fiscal Year-End, the operating
     budgets of each member of the Consolidated  Group (if one is prepared for a
     member of the  Consolidated  Group) and KPP for the coming  Fiscal Year, in
     form   reasonably   satisfactory  to  the  Bank  and  accompanied  by  such
     information related thereto as the Bank may reasonably request;

          (j) Promptly and in any event within five  Business Days after receipt
     thereof by a Loan  Party,  copies of the  Financial  Statements  of any KPP
     Entity,  and promptly and in any event within five  Business Days after the
     filing or distribution  thereof,  copies of all periodic and other reports,
     proxy  statements  and other  materials  filed by any Loan Party or any KPP
     Entity with the SEC or with any national securities exchange or distributed
     by any Loan Party or any KPP Entity to its security holders;  and. (k) With
     reasonable  promptness,  such other  information  respecting  the business,
     properties,  operations, prospects or condition (financial or otherwise) of
     any  member  of the  Consolidated  Group as the Bank may from  time to time
     reasonably request.

     7.2 Notice of  Litigation.  Each Borrower will promptly give written notice
to the Bank of (i) any action or  proceeding,  or to the  extent  any  executive
officer of any Loan Party may have any knowledge  thereof,  any claim, which may
reasonably  be expected to be  commenced  or asserted  against any member of the
Consolidated  Group in which the amount  involved is $500,000 or more,  and (ii)
any dispute which may exist between any member of the Consolidated Group and any
Government Authority (including any audit by the IRS).

     7.3 Payment of Charges.  Each Loan Party will duly pay and  discharge,  and
will cause each of its  Subsidiaries  to duly pay and  discharge  (i) all taxes,
assessments and governmental charges or levies imposed upon or against it or its
property  or assets,  or upon any  property  leased by it,  prior to the date on
which penalties  attach thereto,  unless and to the extent only that such taxes,
assessments and governmental charges or levies are being contested in good faith
and by appropriate  proceedings  diligently conducted and such Loan Party or its
Subsidiary has set aside on its books adequate  reserves  therefor in accordance
with GAAP,  (ii) all lawful  claims,  whether  for labor,  materials,  supplies,
services or anything  else,  which might or could,  if unpaid,  become a lien or
charge  upon such  property  or assets,  unless and to the extent  only that the
validity thereof is being contested in good faith and by appropriate proceedings
diligently conducted,  and (iii) all its trade bills when due in accordance with
their original terms, including any applicable grace periods,  unless and to the
extent  only that such  trade  bills are being  contested  in good  faith and by
appropriate proceedings diligently conducted.

     7.4 Conduct of Business.  Each Loan Party will,  and will cause each of its
Subsidiaries  to, keep adequate  insurance,  maintain its existence and right to
carry on business,  comply with all applicable Legal  Requirements and otherwise
conduct its business in accordance with prudent business management.

     7.5 [intentionally omitted]

     7.6 [intentionally omitted]

     7.7 [intentionally omitted]

     7.8 Inspection of Books and Assets.

          (a)  Each  Loan  Party  will  allow  any  representative,  officer  or
     accountant of the Bank to visit and inspect any of its property, to examine
     its books of record and account and to discuss its  affairs,  finances  and
     accounts with its officers or directors, and at such reasonable time and as
     often as the Bank may  request  and,  in each such case,  cause each of its
     Subsidiaries so to do.

          (b) Upon request by the Bank to the Borrowers, which request shall not
     be unreasonably  denied,  each Loan Party will, subject to applicable Legal
     Requirements  (including without limitation,  applicable  securities laws),
     allow any representative,  officer or accountant of the Bank to discuss the
     Financial  Statements,  the other financial  information  from time to time
     delivered   hereunder  and  the  financial  condition  of  members  of  the
     Consolidated Group and KPP Entities with the Auditors. Any such discussions
     will be held at times and  locations  reasonably  acceptable to each of the
     Bank,  the  Borrowers and the Auditors.  No such  discussions  will be held
     without the presence of an officer of the  Borrowers,  unless the Borrowers
     consent otherwise.

     7.9 Payment of Indebtedness.  Each Loan Party will duly and punctually pay,
or cause to be paid, the principal of and the interest on all  Indebtedness  for
Money Borrowed heretofore or hereafter incurred or assumed by such Person, or in
respect of which such Person  shall  otherwise  be liable,  when and as the same
shall become due and payable,  unless such  Indebtedness  for Money  Borrowed be
renewed or extended,  and will (and will cause each  Subsidiary  to)  faithfully
observe,  perform and discharge all the covenants,  conditions  and  obligations
which are imposed on such Person by any and all indentures and other  agreements
securing,  relating to, or evidencing  such  Indebtedness  for Money Borrowed or
pursuant to which such  Indebtedness  for Money  Borrowed is incurred,  and such
Person  will not permit any act or omission to occur or exist which is or may be
declared to be a default thereunder, provided that the failure of any Loan Party
so to do shall not create an Event of Default  under  Section  9.4 hereof to the
extent such failure does not give rise to an Event of Default  under Section 9.5
hereof.

     7.10 Further  Assurances.  Each Loan Party will, and will cause each of its
Subsidiaries to, make, execute or endorse,  and acknowledge and deliver or file,
all  such  vouchers,   invoices,  notices,  and  certifications  and  additional
agreements,  undertakings,   conveyances,  transfers,  assignments,  or  further
assurances,  and take any and all such other action,  as the Bank may, from time
to time,  reasonably request in connection with this Agreement,  the obligations
of such  Loan  Party  hereunder  or  under  the  Note or any of the  other  Loan
Documents  to which such Loan Party is a party,  or for the better  assuring and
confirming unto the Bank all or any part of the security for the Obligations.

     7.11 Notice of Default.  Forthwith  upon any executive  officer of any Loan
Party obtaining knowledge of the existence of a Default or Event of Default, the
Loan  Party  will  deliver  to the Bank a  certificate  signed by an  officer or
director  of the Loan  Party  specifying  the  nature  thereof,  the  period  of
existence  thereof,  and what action the affected  Person  proposes to take with
respect thereto.

     7.12  Reserves.  Each Loan  Party  will set up,  and will cause each of its
Subsidiaries to set up, on its books from its earnings, reserves for bad debt in
accordance with GAAP and in an aggregate  amount deemed adequate in the judgment
of such Loan Party and accepted by the Auditors in their annual audits.

     7.13 Affiliate Transactions. Each Loan Party will conduct and cause each of
its  Subsidiaries  to  conduct  all  material  transactions  with  any of  their
respective Affiliates on a commercially reasonable basis.

     7.14 Solvency.  Each Loan Party will continue to be Solvent and ensure each
of its Subsidiaries will continue to be Solvent.

Section 8. NEGATIVE COVENANTS.

     The Borrowers jointly and severally covenant and agree that so long as this
Agreement is in effect and while any Letter of Credit is  outstanding  and until
the Commitment is terminated and all of the Loans,  together with interest,  and
all  fees  and  all  other  obligations  incurred  hereunder  (including  Deemed
Disbursements  and  Reimbursement  Obligations  and  fees and  disbursements  in
connection  therewith),  are paid in full, the Borrowers will perform,  and will
cause to be performed,  the  obligations  set forth in this Section 8 (unless it
shall first have procured the written consent of the Bank to do otherwise).

     Nothing  contained in Section 8.3,  however,  shall be construed to prevent
(x)  a  KPP  Entity  from  contracting,  creating,  incurring  or  assuming  any
Indebtedness  for Borrowed Money or (y) KPL, as general partner of KPP and KPOP,
doing so on behalf of such KPP Entity or (z) STSI,  as general  partner of STOP,
doing so on behalf of STOP.  Nothing  contained  in  Section  8.7 or 8.12  shall
prohibit (x) KPL, as general  partner of KPP and KPOP, from taking any action on
behalf of such KPP Entity otherwise  prohibited by such section, or (y) STSI, as
general  partner of STOP,  from  taking  any action on behalf of STOP  otherwise
prohibited by such section.

     8.1 Same Type of Business.

          (a) KSL will not enter into any  business or  activity  other than its
     ownership of the Equity  Interests of its  Subsidiaries  and, to the extent
     KSL's board of directors  directs,  its participation in the management and
     business of its Subsidiaries.

          (b) KPL will not enter into any  business or  activity  other than (i)
     acting as the general  partner of KPP and KPOP,  (ii) its  ownership of the
     Equity Interests of its Subsidiaries,  (iii) its ownership of the LP Units,
     (iv) other business and activities in which it is engaged as of the Closing
     Date,  and  (v) to  the  extent  KPL's  board  of  directors  directs,  its
     participation in the management and business of its Subsidiaries.

     8.2 Liens. No Loan Party will contract,  create, incur, assume or suffer to
exist any Lien upon or with respect to, or by transfer or  otherwise  subject to
the  prior  payment  of any  indebtedness  (other  than the  Loans),  any of its
property or assets (including without limitation any of the LP Units, any Equity
Interests in any Person, the General Partnership Interests, the Equity Interests
of KPL or any of its Subsidiaries and any Intercompany Notes), whether now owned
or  hereafter  acquired,  or permit any of its  Subsidiaries  so to do (it being
acknowledged by the Bank that property or assets owned solely by a KPP Entity is
neither  property  nor  assets of KPL);  except  (i) liens for tax  assessments,
levies or governmental  charges not yet due or which are being contested in good
faith by appropriate  proceedings diligently conducted and for which appropriate
reserves have been  established  in accordance  with GAAP, and (ii) other liens,
charges,  and  encumbrances  incidental  to the  conduct of its  business or the
ownership of its property and assets which were not incurred in connection  with
the  borrowing of money or the  obtaining of advances or credit and which do not
materially detract from the value of its property or assets or materially impair
the use thereof in the operation of its business; and (iii) the following:

          (a) Liens in  connection  with  workmen's  compensation,  unemployment
     insurance or other social security obligations;

          (b) Deposits or pledges  securing the  performance  of bids,  tenders,
     contracts  (other  than  contracts  for  the  payment  of  money),  leases,
     statutory  obligations,  surety and appeal bonds and other  obligations  of
     like nature made in the ordinary course of business;

          (c) Mechanics', carriers',  warehousemen's,  workmen's, materialmen's,
     or other like liens arising in the ordinary course of business with respect
     to obligations which are not due or which are being contested in good faith
     by appropriate proceedings diligently conducted;

          (d) Encumbrances consisting of zoning regulations,  easements,  rights
     of way, survey exceptions and other similar restrictions on the use of real
     property or minor  irregularities in titles thereto which do not materially
     impair use of such property by such Loan Party or its  Subsidiaries  in the
     operation of the business of such Loan Party or the  Subsidiary  owning the
     same;

          (e) Liens in favor of the Bank securing such Loan Party's Obligations;

          (f) Liens  existing  on the  Closing  Date and  indicated  on Schedule
     8.2(f) to this  Agreement  (other  than  those (if any)  indicated  on such
     Schedule with an asterisk,  which shall be released or otherwise terminated
     on or prior to the Closing Date);

          (g) Liens on miscellaneous  office furniture and equipment incurred in
     connection  with the lease thereof;  provided that the aggregate  amount of
     obligations  secured by all of such Liens does not exceed  $100,000  at any
     one time; and

          (h) Liens  against the assets of MOL in favor of Harris Bank under the
     MOL Loan Agreement.

     8.3 Other Indebtedness.  No Loan Party will contract, create, incur, assume
or suffer to exist any  Indebtedness  for Money  Borrowed  or permit  any of its
Subsidiaries so to do; except

          (a) the Loans and LC Outstandings;

          (b)  indebtedness  existing  on the  Closing  Date  listed on Schedule
     8.3(b) to this Agreement;

          (c) trade  payables  incurred  in the  ordinary  course  of  business,
     provided that such trade payables  (except to the extent being contested in
     good faith by appropriate  proceedings  diligently  conducted and for which
     appropriate reserves have been established in accordance with GAAP) are not
     more than 60 days past due;

          (d) Guarantees by such Person in favor of the Bank; and

          (e)  indebtedness  of MOL to Harris Bank under the MOL Loan  Agreement
     not to exceed $20,000,000 in the aggregate at any time outstanding.

     8.4  Advances  and  Loans.  No Loan Party will lend money or credit or make
advances to any Person or permit any Subsidiary so to do;  provided that KSL may
make  loans  to KSI  pursuant  to the KSI  Credit  Agreement  (the  "KSI  Credit
Agreement")  dated as of June 28, 2001 between KSL and KSI attached as Exhibit G
hereto (the "KSI Loan") if (i) the  outstanding  amount of the KSI Loan does not
exceed  $25,000,000 in the aggregate at any time, (ii) the KSI Loan is evidenced
by the Note (as defined in the KSI Loan  Agreement  (the "KSI Note"),  (iii) the
KSI  Note is  Satisfactorily  Pledged  to the  Bank and (iv) the KSI Note is not
subject to any Lien in favor of any Person other than the Bank.  Notwithstanding
the  foregoing,  any Loan Party may lend money or credit or make advances to any
other Loan Party (each such loan or advance, an "Intercompany  Loan");  provided
that (i) each  Intercompany  Loan is  evidenced  by a  promissory  note or other
evidence of indebtedness (each such promissory note or evidence of indebtedness,
an "Intercompany  Note"), (ii) each Intercompany Note is Satisfactorily  Pledged
to the Bank and (iii) the  Intercompany  Notes  are not  subject  to any Lien in
favor of any Person other than the Bank.

     8.5  Consolidation  and Merger.  No Loan Party will wind up,  liquidate  or
dissolve its affairs or enter into any transaction of merger or consolidation or
permit  any  Subsidiary  so to do (or  agree to do any of the  foregoing  at any
future time) without the prior written consent of the Bank,  which consent shall
not be unreasonably withheld.

     8.6 Sale of Assets. Neither Borrower will Transfer (or agree to Transfer at
any future time) (i) all or a substantial  part of its property or assets or any
part of such  property  or  assets  essential  to the  conduct  of its  business
substantially  as now  conducted by such Loan Party,  or (ii) to the extent such
Transfer is not  prohibited by any other Section of this  Agreement,  any of its
assets  except in the  ordinary  course  of  business  unless  such  assets  are
Transferred for a price at least equal to their fair market value (as determined
in good faith by the board of directors of the Loan Party).  No Loan Party other
than a Borrower  will  Transfer (or agree to Transfer at any future time) unless
such  assets are  Transferred  for a price at least  equal to their fair  market
value (as  determined in good faith by the board of directors of the Loan Party)
(i) all or a  substantial  part of its  property  or  assets or any part of such
property or assets essential to the conduct of its business substantially as now
conducted  by such  Loan  Party,  or (ii) to the  extent  such  Transfer  is not
prohibited by any other Section of this  Agreement,  any of its assets except in
the ordinary course of business.

     8.7  Purchase  of Assets.  Without the prior  written  consent of the Bank,
which consent shall not be unreasonably  withheld, no Loan Party will other than
in the ordinary course of business (i) purchase,  lease or otherwise acquire all
or any substantial  part of the property or assets of any Person,  or permit any
Subsidiary so to do, or (ii) purchase,  lease or otherwise  acquire  property or
net assets in excess of $1,000,000 (for all Loan Parties combined) in any Fiscal
Year, or permit any Subsidiary so to do;

     8.8 Accounting Changes.

          (a) No Loan  Party  will make or  permit  any  Subsidiary  to make any
     significant change in accounting  treatment and reporting  practices except
     as permitted or required by GAAP.

          (b) No Loan Party will change its Fiscal Year or permit any Subsidiary
     to change  its Fiscal  Year  unless the Bank  consents  in writing  thereto
     (which consent shall not be unreasonably  withheld, it being agreed that it
     shall not be  unreasonable to withhold such consent if such proposed change
     would  affect any  computation  required  by  Section  8.13  hereof,  until
     appropriate amendments are made to this Agreement with respect thereto).

     8.9  Related  Transactions.  No Loan Party will enter into any  transaction
with any Person which is an Affiliate  of such Loan Party or any  Subsidiary  or
with which any  officer or  director  of such Loan Party or a  Subsidiary  has a
financial interest,  or with any Associate of any such Person, on more favorable
terms than if such Person was totally unrelated,  or permit any Subsidiary to so
do.

     8.10 Subsidiaries; Other Securities.

          (a) No Loan Party will (x) sell, assign, transfer or otherwise dispose
     of,  or in any  way  part  with  control  of,  any  Equity  Interests  of a
     Subsidiary or any  indebtedness  or  obligations of any character of any of
     its  Subsidiaries,  or permit any of its Subsidiaries so to do with respect
     to any Equity  Interests of any other  Subsidiary  or any  indebtedness  or
     obligations of any character of such Loan Party or any of its Subsidiaries,
     or (y) issue, or permit any of its  Subsidiaries  to issue,  any additional
     Equity  Interests to any Person other than a Borrower or another Loan Party
     all of the Equity  Interests in which are owned (directly or indirectly) by
     the Borrower  and, in such case, no such Equity  Interests  shall be issued
     unless the terms thereof are  satisfactory  to the Bank and such additional
     Equity Interests are Satisfactorily Pledged.

          (b) KPL will not sell, assign, transfer or otherwise dispose of, or in
     any way part with control of, the General  Partnership  Interests or the LP
     Units.

     8.11 [intentionally omitted]

     8.12 Investments.  No Loan Party will invest in (by capital contribution or
otherwise),  or acquire for  investment  or purchase or make any  commitment  to
purchase  the  obligations  or stock of, any Person,  except (i) the purchase of
marketable  direct or guaranteed  obligations of the national  government of the
US;  (ii)  stock or  obligations  issued to such Loan Party or a  Subsidiary  in
settlement  of claims  against  others by reason of an event of  bankruptcy or a
composition or readjustment of debt or a reorganization  of such Loan Party or a
Subsidiary;  (iii) certificates of deposit and banker's  acceptances of the Bank
or any branch of the Bank; (iv) Commercial  Paper rated P-1 or A-1 by Standard &
Poors ("S&P") or Moody's Investors  Service  ("Moodys") or the equivalent rating
by any other rating agency nationally  recognized in the US; (v) certificates of
deposit and  banker's  acceptances  of any bank with a AA or better  rating from
Moodys or the  equivalent  rating by S&P or any other rating  agency  nationally
recognized in the US. As used in this Agreement,  "Commercial  Paper" shall mean
short-term promissory notes due no later than 270 days from the date of issuance
of each such note.

     8.13 Financial Covenants.

          (a) Adjusted  Debt/Free  Cash Flow shall not exceed 4.2 to 1 as of the
     end of each quarter of each Fiscal Year.

          (b) The aggregate  outstanding  principal amount of the Loans plus the
     aggregate amount of the LC Obligations  outstanding shall not exceed 66.67%
     of the Collateral Value at any time.

     8.14 Compliance  with ERISA.  No Loan Party will  terminate,  or permit any
Subsidiary  to  terminate,  any Pension Plan so as to result in any material (in
the opinion of the Bank)  liability of any Loan Party or any  Subsidiary  to the
PBGC, (ii) permit to exist the occurrence of any Reportable Event (as defined in
Section  4043 of  ERISA),  or any other  event or  condition,  which  presents a
material (in the opinion of the Bank) risk of such a termination  by the PBGC of
any Pension Plan,  (iii) allow, or permit any Subsidiary to allow, the aggregate
amount of "benefit  liabilities"  (within the meaning of Section  4001(a)(16) of
ERISA) under all Pension Plans of which any Loan Party or any ERISA Affiliate is
a "contributing sponsor" (within the meaning of Section 4001(a)(13) of ERISA) to
exceed  $250,000,  (iv) allow,  or permit any  Subsidiary to allow,  any Plan to
incur an "accumulated  funding deficiency" (within the meaning of Section 302 of
ERISA or Section 412 of the Code),  whether or not waived, (v) engage, or permit
any Subsidiary or any Plan to engage,  in any "prohibited  transaction"  (within
the meaning of Section 406 of ERISA or Section  4975 of the Code)  resulting  in
any  material (in the opinion of the Bank and  considered  by itself or together
with all other  such  liabilities  of the  Borrower  and all  ERISA  Affiliates)
liability to any Loan Party or any ERISA  Affiliate,  (vi) allow,  or permit any
Subsidiary to allow,  any Plan to fail to comply with the applicable  provisions
of ERISA  and the Code in any  material  respect,  (vii)  fail,  or  permit  any
Subsidiary to fail, to make any required contribution to any Multiemployer Plan,
or (viii) completely or partially withdraw, or permit a Subsidiary to completely
or partially  withdraw,  from a Multiemployer  Plan, if such complete or partial
withdrawal  will result in any material (in the opinion of the Bank)  withdrawal
liability under Title IV of ERISA.

     8.15  Charter  Documents.  No Loan Party will  amend or  otherwise  modify,
directly or indirectly, any of its Charter Documents,  without the prior written
consent of the Bank, which consent shall not be unreasonably withheld;  provided
that any Loan Party may amend or modify its  Charter  Documents  so long as such
amendments  or  modifications  cannot  reasonably be expected to have an adverse
effect on the validity, payment, performance or enforceability of this Agreement
or any of the other Loan Documents or any  obligation of a Loan Party  hereunder
or thereunder.  Copies of any such amendments or modifications shall be promptly
delivered to the Bank.

Section 9. EVENTS OF DEFAULT.

     Upon the  occurrence  of any of the  following  specified  events  (each an
"Event of Default"):

     9.1  Principal and  Interest.  The  Borrowers  shall default in the due and
punctual  payment of (i) any  principal due on any Loan; or (ii) any interest on
any Loan or Note or in the due and punctual payment of the fees or other amounts
due hereunder; or (iii) any repayment of any Reimbursement  Obligation or Deemed
Disbursement or any interest payable thereon;  provided that failure to duly and
punctually make an interest  payment shall not be an Event of Default under this
Section 9.1 if such interest  payment is paid within five days after the date it
is due and the Borrowers have not been late in making an interest payment on the
Note more than once in the preceding 12 months; or

     9.2  Representations  and  Warranties.  Any  representation,   warranty  or
statement  made by a Loan Party or an officer  thereof in any Loan  Document  to
which it is a party or  otherwise in writing by such Person in  connection  with
any of the foregoing or in any certificate or statement furnished pursuant to or
in  connection  with any of the  foregoing,  shall be  breached in a manner that
could reasonably be expected to have an adverse effect on the validity, payment,
performance  or  enforceability  of  this  Agreement  or any of the  other  Loan
Documents or any  obligation  of a Loan Party  hereunder or  thereunder or shall
prove to be untrue in any material  and adverse  respect on the date as of which
made; or

     9.3 Negative Covenants. Any Loan Party shall default in the due performance
or observance of any term,  covenant or agreement on its part to be performed or
observed pursuant to Section 8 of this Agreement; or

     9.4 Other Covenants. Any Loan Party shall default in the due performance or
observance of any term,  covenant  (including  without  limitation the condition
described in Section 6.15 by the date  indicated) or agreement on its part to be
performed or observed pursuant to any of the provisions of this Agreement (other
than those  referred to in Sections  9.1,  9.2 or 9.3) and such  default  (which
shall be  capable of cure)  shall  continue  unremedied  for a period of 30 days
after the earlier of the date on which (x) the Bank gives the  Borrowers  notice
thereof,  or (y) an executive officer or director of the Borrowers becomes aware
thereof; or

     9.5 Other  Obligations.  Any indebtedness of any Loan Party or a Subsidiary
or a KPP  Entity  (i) in  respect  of  indebtedness  in  excess of  $250,000  in
aggregate principal amount, shall be duly declared to be or shall become due and
payable prior to the stated maturity thereof, or (ii) in respect of indebtedness
in excess of $250,000 in aggregate  principal  amount,  shall not be paid as and
when the same becomes due and payable  including any applicable grace period, or
there shall occur and be  continuing  any event  which  constitutes  an event of
default under any instrument,  agreement or evidence of indebtedness relating to
any  indebtedness of any Loan Party or a Subsidiary or a KPP Entity in excess of
$250,000 in aggregate  principal  amount which has not been waived by the holder
or holders of such  instrument,  agreement  or  evidence of  indebtedness,  or a
trustee, bank or other representative on behalf of such holder or holders; or

     9.6 KPP Entities.

          (a) KPL  withdraws,  is  removed  or  otherwise  ceases to be the sole
     general partner of KPP or KPOP; or STSI withdraws,  is removed or otherwise
     ceases to be the sole general partner of STOP.; or

          (b)  KPL  shall  at any  time  own  less  than  100%  of  the  general
     partnership interests of KPP or any of the general partnership interests of
     KPP is the subject of any Lien in favor of any Person  other than the Bank;
     or KPL  shall at any time own less  than  100% of the  general  partnership
     interests  of KPOP or any of the general  partnership  interests of KPOP is
     the subject of any Lien in favor of any Person other than the Bank;  or KPP
     shall at any time own less than 100% of the limited  partnership  interests
     of KPOP or any of the limited partnership  interests of KPOP is the subject
     of any Lien in favor of any Person  other  than the Bank;  or KPOP shall at
     any time own less than 100% of the Equity  Interests  of STSI or any of the
     Equity  Interests of STSI is the subject of any Lien in favor of any Person
     other  than the Bank;  or STSI  shall at any time own less than 100% of the
     general  partnership  interests  of STOP or any of the general  partnership
     interests  of STOP is the subject of any Lien in favor of any Person  other
     than the Bank;  or KPOP shall at any time own less than 100% of the limited
     partnership  interests of STOP or any of the limited partnership  interests
     of STOP is the  subject of any Lien in favor of any  Person  other than the
     Bank; or

          (c) The Charter  Documents  of KPP,  KPOP,  STSI or STOP are  amended,
     altered,  changed, repealed or rescinded in any respect that would have the
     effect of reducing the percentage of the Partners (or an unidentified class
     or other portion thereof) required to take any action; or

          (d) The LP Units are not listed on a national  securities  exchange or
     cannot  be  publicly  sold  without   restriction  or  registration   under
     securities laws; or

     9.7  Insolvency.  Any Loan Party or any  Subsidiary or any KPP Entity shall
dissolve or suspend or discontinue its business, or shall make an assignment for
the benefit of creditors or a  composition  with  creditors,  shall be unable or
admit in writing its  inability  to pay its debts as they  mature,  shall file a
petition in bankruptcy, shall become insolvent (howsoever such insolvency may be
evidenced),  shall be adjudicated insolvent or bankrupt, shall petition or apply
to any tribunal for the appointment of any receiver, liquidator or trustee of or
for it or any  substantial  part of its property or assets,  shall  commence any
proceedings  relating to it under any bankruptcy,  reorganization,  arrangement,
readjustment of debt, receivership, dissolution or liquidation law or statute of
any  jurisdiction,  whether  now or  hereafter  in  effect;  or  there  shall be
commenced  against any Loan Party or any  Subsidiary  or any KPP Entity any such
proceeding  which shall remain  undismissed  for a period of 60 days or more, or
any order,  judgment or decree  approving  the  petition in any such  proceeding
shall be entered; or any Loan Party or any Subsidiary or any KPP Entity shall by
any act or failure to act indicate its consent to,  approval of or  acquiescence
in, any such  proceeding or in the  appointment  of any receiver,  liquidator or
trustee of or for it or any substantial part of its property or assets, or shall
suffer any such appointment to continue undischarged or unstayed for a period of
60 days or more;  or any Loan Party or any  Subsidiary  or any KPP Entity  shall
take any action for the purpose of effecting any of the foregoing;  or any court
of competent  jurisdiction  shall assume  jurisdiction  with respect to any such
proceeding  or a receiver  or trustee or other  officer or  representative  of a
court or of creditors, or any court, governmental officer or agency, shall under
color of legal  authority,  take and hold possession of any substantial  part of
the property or assets of any Loan Party or any Subsidiary or any KPP Entity; or

     9.8  Security  Documents.  The  breach  by any  Loan  Party  of any term or
provision of any Security  Document or Loan Document (other than this Agreement)
to which such Person is a party,  which default could  reasonably be expected to
have an adverse effect on the validity,  payment,  performance or enforceability
of this  Agreement or any of the other  Security  Documents or Loan Documents or
any obligation of a Loan Party hereunder or thereunder,  or if any such Security
Document or Loan Document is at any time not in full force and effect; or any of
the  Security  Documents  shall  fail to grant to the  Bank the  Liens  (if any)
intended to be created  thereby  unless  such  failure  results  solely from the
failure  or  refusal  of the Bank to take some  action  which is in the sole and
absolute control and discretion of the Bank (for example, to file a continuation
statement)  and such  failure  or refusal  continues  after  reasonable  written
request by the Borrowers; or

     9.9 Judgments.

          (a) Any final  non-appealable  judgment  for the  payment  of money in
     excess of  $10,000,000  (after  giving  effect  to any  amount  covered  by
     insurance as to which the insurer shall not have denied or  questioned  its
     obligation  to pay)  shall  be  rendered  against  any  Loan  Party  or any
     Subsidiary or any KPP Entity; or

          (b) Final  judgment  for the payment of money in excess of  $5,000,000
     shall be  rendered  against  any Loan  Party or any  Subsidiary  or any KPP
     Entity,  and the same  shall  remain  undischarged  for a period of 30 days
     during which execution shall not be effectively stayed or contested in good
     faith; or

     9.10 Material Adverse Change. The occurrence of any Material Adverse Change
with respect to any Loan Party or any KPP Entity,  as  reasonably  determined by
the Bank; then, and in any such event, and at any time thereafter,  if any Event
of  Default  shall  then be  continuing  the Bank may by  written  notice to the
Borrowers: (i) declare the principal of and accrued interest on the Loans to be,
whereupon the same shall forthwith become, due and payable without  presentment,
demand,  protest or other notice of any kind,  all of which are hereby waived by
the Borrowers; and/or (ii) declare the commitments of the Bank to make the Loans
or issue the Letters of Credit hereunder terminated,  whereupon such commitments
shall  forthwith  terminate  immediately;  provided that if any Event of Default
described in Section 9.7 shall occur with respect to either Borrower, the result
which would  otherwise  occur only upon the giving of written notice by the Bank
to the  Borrowers as herein  described  shall occur  automatically,  without the
giving of any such notice.

Section 10. REPRESENTATIONS AND WARRANTIES.

     In order to induce  the Bank to enter into this  Agreement  and to make the
Loans and issue the Letters of Credit provided for herein, each Borrower jointly
and severally  makes the following  representations,  covenants and  warranties,
both as of the date hereof,  as of the Closing Date and as of any Borrowing Date
(unless otherwise specified),  which  representations,  covenants and warranties
shall  survive  the  execution  and  delivery  of this  Agreement  and the other
documents and instruments referred to herein:

     10.1 Status; Validity.

          (a) Each  Loan  Party and its  Subsidiaries  is a duly  organized  and
     validly  existing  limited  partnership,  corporation or limited  liability
     company  in  good  standing  under  the  laws  of the  jurisdiction  of its
     organization  and has the  requisite  power  and  authority  (corporate  or
     otherwise to own or hold under lease its  property and assets,  to transact
     the  business  in  which it is  engaged,  to enter  into and  perform  this
     Agreement and the other Loan Documents to which it is party, and, as to the
     Borrowers,  to borrow  hereunder.  Each  Loan  Party is duly  qualified  or
     licensed as a foreign limited partnership, corporation or limited liability
     company  in good  standing  in (x) each  jurisdiction  where  failure to so
     qualify  would  have a  Material  Adverse  Effect on such Loan Party or the
     Consolidated  Group.  Each  Subsidiary  is duly  qualified or licensed as a
     foreign limited  partnership,  corporation or limited  liability company in
     good  standing in (x) each  jurisdiction  where failure to so qualify would
     have a Material Adverse Effect on it.

          (b) The  execution,  delivery and  performance  by the Loan Parties of
     this  Agreement and the other Loan Documents to which each is party and the
     other documents,  agreements or instruments provided for herein and therein
     to which each is party, the  consummation of the transactions  contemplated
     thereunder  and  the  use of the  proceeds  of the  Loans  have  been  duly
     authorized  by  all  necessary  limited  liability  company,   partnership,
     corporate,  member,  partner and stockholder action. This Agreement and the
     other Loan  Documents and the other  documents,  agreements or  instruments
     provided  for herein and therein to which each such Person is party are the
     legal,  valid and binding  obligations  of the Loan Parties party  thereto,
     enforceable  in  accordance  with their  respective  terms  subject,  as to
     enforceability,  to applicable bankruptcy,  insolvency,  reorganization and
     similar laws affecting the enforcement of creditors'  rights  generally and
     to general  principles of equity (regardless of whether such enforcement is
     considered in a proceeding in equity or at law).

     10.2 Compliance with Other Instruments.  No Loan Party or Subsidiary or KPP
Entity is in material  default  under any  Material  Agreement  to which it is a
party,  and neither the execution,  delivery or performance by any Loan Party of
this  Agreement  and  the  other  Loan  Documents  nor the  consummation  of the
transactions herein or therein  contemplated,  nor compliance with the terms and
provisions  hereof  or  thereof,  will  contravene  any  provision  of any Legal
Requirement or will conflict or will be inconsistent  with or will result in any
breach  of,  any of the  terms,  covenants,  conditions  or  provisions  of,  or
constitute a default  under,  or, except as provided by the Security  Documents,
result in the creation or imposition of (or the  obligation to create or impose)
any Lien upon any of the  property  or assets  of any Loan  Party or KPP  Entity
pursuant  to the terms of any  indenture,  mortgage,  deed of trust or  Material
Agreement  to which such Person is a signatory  or by which such Person is bound
or to which such Person may be subject or violate any  provision  of the Charter
Documents of such Person.

     10.3 Litigation.  There are no actions, suits or proceedings pending or, to
the  knowledge  of any Loan  Party or any  executive  officer  of a Loan  Party,
threatened,  against or affecting  any Loan Party or any  Subsidiary  before any
Government  Authority  which,  if  adversely  determined,  would have a Material
Adverse Effect on any member of the Consolidated  Group,  except as disclosed on
Schedule  10.3 to this  Agreement  (or,  with  respect  to  actions,  suits  and
proceedings not pending or threatened  prior to the Closing Date, as notified to
the Bank after the Closing Date pursuant to Section 7.2).

     10.4  Compliance  with Law.  Except for matters which could not result in a
Material Adverse Change in respect of any member of the Consolidated  Group: (a)
all business and  operations of each Loan Party and the  Subsidiaries  have been
and are being  conducted in accordance with all applicable  Legal  Requirements;
(b) each Loan Party and  Subsidiary  has  obtained  all  permits,  licenses  and
authorizations,  or consents which are otherwise  necessary,  for such Person to
conduct its  business as it is or is proposed to be  conducted;  and (c) no Loan
Party or Subsidiary is a party to, has been  threatened  with,  and there are no
facts existing as a basis for, any  governmental or other proceeding which might
result in a suspension,  limitation or revocation of any such permit, license or
authorization.

     10.5 Capitalization of Borrowers and their Subsidiaries.

          (a) All Equity Interests of each Loan Party have been duly and validly
     issued, are fully paid and nonassessable.

          (b) KSL is the sole owner of all of the Equity  Interests of KPL, free
     and clear of any Liens.  KPL is the sole owner of the  General  Partnership
     Interests,  free and clear of any Liens  other  than  Liens in favor of the
     Bank.  KPL is the  sole  general  partner  of KPP and  KPOP;  such  general
     partnership  interests  of KPL are  evidenced  by the  General  Partnership
     Interests.  The General  Partnership  Interests  evidence a 1%  partnership
     interest in each of KPP and KPOP. KPL is also a limited partner of KPP.

          (c) The aggregate  number of LP Units owned by KPL on the Closing Date
     is  4,095,500,  none of which is subject  to any Liens  other than Liens in
     favor of the Bank.

          (d) The  aggregate  number of LP Units owned by KI on the Closing Date
     is 500,000, none of which is subject to any Liens other than Liens in favor
     of the Bank..

          (e) The aggregate  number of LP Units owned by MOL on the Closing Date
     is 500,000,  none of which is subject to any Liens  (other  than,  from and
     after the  Closing  Date,  (x) Liens in favor of Harris  Bank under the MOL
     Loan  Agreement and (y) Liens in favor of the Bank that may exist after the
     Closing Date).

          (f) No Loan Party owns any LP Units other than the Pledged Units owned
     by KPL  described in this Section  10.5(c),  the Pledged  Units owned by KI
     described  in  Section  10.5(d)  and the  Non-Pledged  Units  owned  by MOL
     described in Section  10.5(e).  None of the LP Units hereafter  acquired by
     any Loan Party  will be  subject to any Liens  other than Liens in favor of
     the Bank.

          (g) All Equity  Interests  (other  than LP Units  hereafter  acquired,
     Non-Pledged  Units and the Equity Interests of KPL) in any Person now owned
     or hereafter  acquired by any Loan Party will be Satisfactorily  Pledged to
     the Bank as  security  for the  Obligations.  None of the Equity  Interests
     (including LP Units and the Equity Interests of KPL) hereafter  acquired by
     any Loan Party  will be  subject to any Liens  other than Liens in favor of
     the Bank.

          (h) KPOP owns 100% of the Equity  Interests of STSI.  STSI is the sole
     general partner of STOP. KPOP is also the sole limited partner of STOP.

          (i)  Neither  KPL  nor any of its  Subsidiaries  has  outstanding  any
     option,  warrant, bonds, debentures or other right, put, call or commitment
     to issue,  or any  obligation or commitment to purchase,  any of its Equity
     Interests or any securities convertible into or exchangeable for any of its
     Equity Interests.

          (j) Schedule  10.5(j) hereto  accurately  lists (x) each Subsidiary of
     the Loan Parties and the ownership of Equity  Interests issued by each such
     Subsidiary.  Each  Loan  Party  is the  sole  owner  of  all of the  Equity
     Interests of its Subsidiaries (other than Kaneb LLC), free and clear of any
     Liens  other than Liens in favor of the Bank.  KSL owns 99.9% of the Equity
     Interests of Kaneb LLC and Kaneb, Inc. owns 0.1% of the Equity Interests of
     Kaneb LLC.

     10.6 Government  Approvals.  Except for those listed in Schedule 10.6, each
of which has been duly obtained and is in full force and effect (or, as to those
asterisked on such schedule, will be duly obtained by the Closing Date and be in
full force and effect  thereafter),  no order,  permission,  consent,  approval,
license,  authorization,  registration  or  validation  of, or filing  with,  or
exemption by, any Government Authority is required to authorize,  or is required
in connection with the  Distribution or the execution,  delivery and performance
of this  Agreement or the other Loan  Documents by any Loan Party or Subsidiary,
or the taking of any action hereby or thereby contemplated.

     10.7 Federal Reserve Margin Regulations; Use of Proceeds.

          (a) No member of the  Consolidated  Group and no other  Loan  Party or
     Subsidiary  thereof  is  engaged  principally,  or as one of its  important
     activities,  in the  business  of  extending  credit  for  the  purpose  of
     purchasing or carrying any margin stock (within the meaning of Regulation U
     of the Board of Governors of the Federal  Reserve  System).  No part of the
     proceeds  of any Loan will be used to  purchase  or carry  any such  margin
     stock or to extend  credit to  others  for the  purpose  of  purchasing  or
     carrying any such margin stock.

          (b) The  proceeds of the Loans shall be used  strictly  (i) to pay the
     Actual Tax Liability, (ii) to pay the Expense Reimbursement,  (iii) to fund
     the KSI Note and (iv) for working capital purposes.

     10.8 Taxes.

          (a) All material tax returns of any nature  whatsoever,  including but
     not limited to, all U.S. income,  payroll,  stock transfer,  and excise tax
     returns and all appropriate state and local income, sales, excise, payroll,
     franchise  and real and personal  property tax returns,  and  corresponding
     returns under the laws of any jurisdiction,  which are required to be filed
     by a Loan  Party or any  Subsidiary  have  been or will be filed by the due
     date or extended due date of such returns.

          (b) Except for amounts which in the aggregate do not exceed  $250,000,
     all taxes due and payable with  respect to each member of the  Consolidated
     Group have been paid, and there are no  liabilities,  interest or penalties
     payable with respect to any taxes which remain unpaid.

     10.9 Investment  Company Act, etc. Neither any Loan Party or Subsidiary nor
the entering into of the Loan Documents, nor the issuance of the Note is subject
to any of the  provisions  of the  Investment  Company Act of 1940,  as amended.
Neither any Loan Party nor any  Subsidiary is a "holding  company" as defined in
the Public Utility  Holding  Company Act of 1935, as amended,  or subject to any
other  federal or state  statute or  regulation  limiting  its  ability to incur
Indebtedness for Money Borrowed.

     10.10 Properties of the Borrower.

          (a) No Loan Party owns any real property. To the best of the knowledge
     of  each  Borrower,  each  Loan  Party  has  been  and  continues  to be in
     substantial  compliance with all Environmental  Laws the violation of which
     would have a Material Adverse Effect.

          (b) All Material  Agreements or similar  commitments of any Loan Party
     or any  Subsidiary are listed in Schedule  10.10(b)  hereto and are in full
     force and effect,  none of the parties  thereunder are in material  default
     thereunder  and no written  notice of default  has been given or  received.
     Each Loan Party or its  Subsidiaries,  as the case may be, have full, valid
     and existing right,  title and interest (in fee simple where applicable) to
     all of its or their  material  real and personal  property and all tangible
     and intangible  rights,  and the ownership  rights of such Person in and to
     all of such tangible and intangible rights are subject to no Liens, burdens
     or defects other than Permitted  Liens;  any security  interests  indicated
     with an asterisk on such  schedule  have been or will be  terminated on the
     Closing Date.

     10.11 Financial Condition.

          (a) At the time of,  and after  giving  effect  to,  each Loan and the
     issuance of each Letter of Credit, each Loan Party (i) is Solvent, and (ii)
     possesses,  in the opinion of the Borrowers  sufficient  capital to conduct
     the business in which it is engaged or presently proposes to engage.

          (b) The Financial  Statements of each Loan Party furnished to the Bank
     have been and will be prepared in accordance with GAAP consistently applied
     and fairly  present the  financial  condition  and results of operations of
     each  Loan  Party  as at the end of and for the  reporting  period  covered
     thereby.  There are no material  liabilities or any material  unrealized or
     anticipated  losses of the Loan  Parties  which are not  disclosed  in such
     Financial Statements.

          (c) There has been no Material Adverse Change with respect to any Loan
     Party from that set forth in the  Financial  Statements  of each Loan Party
     furnished to the Bank.

     10.12  Disclosure.  Neither  this  Agreement  or any Loan  Document nor any
statement, list, certificate or other document or information,  or any schedules
to this  Agreement or any other Loan  Document,  delivered or to be delivered to
the Bank,  contains or will contain any untrue  statement of a material  fact or
omits  or will  omit to  state a  material  fact  necessary  to make  statements
contained  herein or therein,  in light of the  circumstances  in which they are
made, not misleading.

     10.13  Compliance with ERISA.  Each Loan Party and each ERISA Affiliate and
each Plan and the trusts maintained  pursuant to such plans are in compliance in
all material respects with the presently  applicable  provisions of Sections 401
through  and  including  417 of the Code,  and of ERISA  and (i) no event  which
constitutes a Reportable  Event as defined in Section 4043 of ERISA has occurred
and is  continuing  with respect to any Plan which is or was covered by Title IV
of ERISA,  (ii) no Plan which is  subject to Part 3 of  Subtitle B of Title 1 of
ERISA has incurred any "accumulated  funding  deficiency" (within the meaning of
Section  302 of ERISA or Section  412 of the Code)  whether or not  waived,  and
(iii) no written  notice of liability has been received with respect to any Loan
Party or any Subsidiary for any "prohibited  transaction" (within the meaning of
Section 4975 of the Code or Section 406 of ERISA),  nor has any such  prohibited
transaction  resulting  in  liability  to any  Loan  Party  or  ERISA  Affiliate
occurred.

     Neither  any Loan  Party  nor any  ERISA  Affiliate  (i) has  incurred  any
liability to the PBGC (or any successor  thereto under ERISA), or to any trustee
of a trust  established under Section 4049 of ERISA, in connection with any Plan
(other than  liability  for  premiums  under  Section  4007 or ERISA),  (ii) has
incurred  any  withdrawal  liability  under  Subtitle  E of Title IV of ERISA in
connection  with  any  Plan  which  is  a  Multiemployer  Plan,  nor  (iii)  has
contributed or has been obligated to contribute on or after  September 26, 1980,
to any "multiemployer plan" (within the meaning of Section 3(37) of ERISA) which
is subject to Title IV of ERISA.

     The  consummation  of the  transactions  contemplated by this Agreement (i)
will not give rise to any  liability  on  behalf of any Loan  Party or its ERISA
Affiliates  under Title IV of ERISA to the PBGC (other than  ordinary  and usual
PBGC  premium  liability),  to the  trustee of a trust  established  pursuant to
Section  4049  of  ERISA,  or to any  Multiemployer  Plan,  and  (ii)  will  not
constitute a "prohibited transaction" under Section 406 of ERISA or Section 4975
of the Code.

     10.14 The Security  Documents.  Each Security  Document when delivered will
grant a Lien in the  properties  or rights  intended to be covered  thereby (the
"Collateral")  which  (i)  will  constitute  a valid  and  enforceable  security
interest  under  the  Uniform  Commercial  Code of the  State  (x) in which  the
Collateral  is located and (y) by which any  Security  Document is governed  (as
applicable, the "UCC"), (ii) will be entitled to all of the rights, benefits and
priorities  provided  by the UCC,  and (iii)  when such  Security  Documents  or
financing  statements with respect thereto are filed and recorded as required by
the UCC,  will be  superior  and prior to the  rights of all third  Persons  now
existing or hereafter arising whether by way of mortgage, pledge, lien, security
interest,  encumbrance or otherwise, except for Permitted Liens. All such action
as is  necessary  in law has been taken,  or prior to the Closing Date will have
been taken,  to establish  and perfect the security  interest of the Bank in the
Collateral and to entitle the Bank to exercise the rights and remedies  provided
in each of the Security  Documents  and the UCC, as  applicable,  and no filing,
recording,  registration  or giving of notice  or other  action is  required  in
connection  therewith  except  such as has been  made or given or will have been
made or given prior to such dates or except as provided for in Section 6.15. All
filing and other fees and all recording or other tax payable with respect to the
recording of any of the Security  Documents  and UCC financing  statements  have
been paid or provided for.

     10.15 [intentionally omitted]

Section 11. [INTENTIONALLY OMITTED]

Section 12. MISCELLANEOUS.

     12.1 Calculations and Financial Data.  Calculations  hereunder  (including,
without limitation,  calculations used in determining,  or in any certificate of
any Loan Party  reflecting,  compliance by any Loan Party with the provisions of
this  Agreement)  shall be made and  financial  data  required  hereby  shall be
prepared both as to  classification of items and as to amount in accordance with
GAAP consistent with the Financial  Statements of such Loan Party for its Fiscal
Year ended December 31, 2000 that were previously delivered to the Bank.

     12.2 Amendment and Waiver.

          (a) Except as  otherwise  provided,  no  provision  of any of the Loan
     Documents may be changed, waived, discharged or terminated orally, but only
     by an instrument in writing signed by the Bank and a Borrower,  except that
     waivers  of   provisions   relating   to  a   Borrower's   performance   or
     non-performance  of its  obligations  hereunder or  thereunder  need not be
     signed by such Borrower or any other Loan Party.  Any such change,  waiver,
     discharge or termination  shall be effective only in the specific  instance
     and for the specific purposes for which made or given.

          (b) THIS WRITTEN  AGREEMENT (AND THE OTHER LOAN DOCUMENTS)  REPRESENTS
     THE FINAL  AGREEMENT  AMONG THE PARTIES  HERETO WITH RESPECT TO THE MATTERS
     COVERED  HEREBY AND  THEREBY  AND MAY NOT BE  CONTRADICTED  BY  EVIDENCE OF
     PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

          (c) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

     12.3 Expenses; Indemnification.

          (a)  Whether  or not the  transactions  hereby  contemplated  shall be
     consummated, the Borrowers shall upon demand of the Bank pay all reasonable
     out-of-pocket  costs and  expenses of the Bank (x)  incurred in  connection
     with the  preparation,  execution,  delivery,  administration,  filing  and
     recording of, and (y) incurred in connection with the amendment  (including
     any waiver or consent), modification, and enforcement of or preservation of
     any  rights  under,  this  Agreement,  the Loan  Documents,  the making and
     repayment  of the  Loans,  the  issuance  of  Letters  of  Credit  and  the
     maintenance  and  operation of the Other  Accounts,  and the payment of all
     interest and fees, including,  without limitation,  (A) the reasonable fees
     and expenses of Cowles & Thompson, counsel for the Bank, and any special or
     local or other counsel  retained by the Bank, (B) the  reasonable  fees and
     expenses of consultants  and appraisers  retained by the Bank in connection
     with the transactions  contemplated  hereunder,  and (C) printing,  travel,
     title insurance,  recording,  filing,  communication  and signing taxes and
     costs.

          (b) The Borrowers  jointly and severally agree (x) to pay, and to save
     the Bank  harmless  from all  present  and future  stamp,  filing and other
     similar taxes, fees or charges (including interest and penalties,  if any),
     which may be payable in connection  with the Loan Documents or the issuance
     of the Note or of  Letters  of  Credit  or any  modification  of any of the
     foregoing, and (y) to save the Bank harmless from all finder's and broker's
     fees  (other  than any that may have  been  contracted  for by the Bank) in
     connection  with the  transactions  contemplated  by this Agreement and the
     other Loan Documents.

          (c) Without  limiting any of the rights or obligations as set forth in
     this Agreement on the part of the Bank, the Borrowers jointly and severally
     agree to indemnify and hold  harmless the Bank,  any Bank Assignee and each
     holder  of a  Note  and  their  respective  present  and  future  officers,
     directors,  employees and banks (collectively,  the "Indemnified  Parties")
     from and against all liability,  losses,  damages and expenses  (including,
     without limitation,  legal fees and expenses) arising out of, or in any way
     connected  with,  or as a result of (i) the  execution and delivery of this
     Agreement,  the Note and the  other  Loan  Documents  or the  documents  or
     transactions  contemplated  hereby and  thereby or the  performance  by the
     parties  hereto or thereto of their  respective  obligations  hereunder and
     thereunder  or  relating  thereto;  or  (ii)  any  claim,   action,   suit,
     investigation or proceeding (in each case, regardless of whether or not the
     Indemnified Party is a party thereto or target thereof) in any way relating
     to any Collateral, either Borrower, any other Loan Party, any KPP Entity or
     any  Affiliate of any of the  foregoing;  or (iii) any  violation by either
     Borrower,  any other Loan Party,  any KPP Entity or any Affiliate of any of
     the  foregoing  (or any  predecessor  in  interest  of any of  them) of any
     Environmental  Law, any  Environmental  Claim or Environmental  Cost or the
     imposition of any Environmental Lien; provided that the Borrowers shall not
     be liable to any  Indemnified  Party for any  portion of such  liabilities,
     liabilities, losses, damages and expenses sustained or incurred as a direct
     result of the gross  negligence  or willful  misconduct of the Bank if such
     gross negligence or willful  misconduct is determined to have occurred by a
     final and non-appealable decision of a court of competent jurisdiction.

          (d) All  obligations  provided  for in this Section 12.3 and any other
     Sections of this Agreement shall survive any termination of this Agreement,
     the expiration and termination of all Letters of Credit, the payment of all
     Deemed Disbursements and Reimbursement  Obligations and the payment in full
     of the Loans.

     12.4 Benefits of Agreement; Descriptive Headings

          (a) This  Agreement  shall be binding upon and inure to the benefit of
     and be enforceable by the parties  hereto and their  respective  successors
     and assigns, and, in particular,  shall inure to the benefit of the holders
     from time to time of the Note; provided, however, that neither Borrower may
     assign or transfer any of its rights or obligations  hereunder  without the
     prior  written  consent of the Bank and any such  purported  assignment  or
     transfer shall be void. In furtherance of the foregoing,  the Bank shall be
     entitled  at any  time  to  grant  participations  in or  assign,  sell  or
     otherwise  transfer  the whole or any part of its  rights  and  obligations
     under this  Agreement,  the Loan  Documents  or any Loan or the Note or any
     Letter of Credit to any  Person  subject  to  obtaining  the prior  written
     consent of the  Borrowers  (but no other  Person),  such  consent not to be
     unreasonably  withheld.  No such participation,  assignment,  sale or other
     transfer  pursuant to this Section  12.4(a) shall relieve the Bank from its
     obligations hereunder and the Borrowers need deal solely with the Bank with
     respect to waivers,  modifications and consents to this Agreement, the Loan
     Documents  or the  Note.  Any  such  participant,  assignee,  purchaser  or
     transferee  is  referred to in this  Agreement  as a "Bank  Assignee".  The
     Borrower agrees that the provisions of Sections 2A.3, 3.7, 3.9, 3.10, 3.11,
     5.2 and  12.3  shall  run to the  benefit  of each  Bank  Assignee  and its
     participations  or  interests  herein,   and  the  Bank  may  enforce  such
     provisions on behalf of any such Bank Assignee;  provided, however, that if
     the Bank or any Bank Assignee  assigns,  sells,  or otherwise  transfers or
     grants  participations  in or otherwise  disposes of all or any part of the
     Borrowers'  indebtedness under this Agreement to any party pursuant to this
     Section  12.4(a),  then the amounts that the  Borrowers are required to pay
     pursuant  to this  Agreement  (including,  without  limitation,  additional
     amounts made pursuant to Section 5.2) shall not exceed the amounts that the
     Borrowers  would have been  required  to pay to the Bank  pursuant  to this
     Agreement had the Bank not made such  assignment,  sale,  transfer,  grant,
     participation  or other  disposition of the Borrowers'  indebtedness  under
     this  Agreement.  The  Borrowers  hereby  further  agree that any such Bank
     Assignee may, to the fullest extent  permitted by applicable law,  exercise
     the right of setoff with respect to such participation (and in an amount up
     to the amount of such participation) as fully as if such Bank Assignee were
     the direct  creditor of the Borrowers.  Upon a  participation,  assignment,
     sale or transfer in accordance  with the  foregoing,  the  Borrowers  shall
     execute such documents and do such acts as the Bank may reasonably  request
     to  effect  such  assignment,  provided  that such  documents  and acts are
     consistent  with the terms and conditions of the Loan  Documents.  The Bank
     may furnish any information concerning any Loan Party, any Subsidiary,  any
     member of the  Consolidated  Group or any KPP Entity in its possession from
     time to time to Bank Assignees (including prospective Bank Assignees).  The
     Bank shall  notify  Borrowers  of any  participation,  assignment,  sale or
     transfer  granted by it pursuant to this Section  12.4(a).  Borrowers shall
     not be  responsible  for any due diligence  costs or legal  expenses of any
     party  (including any Bank Assignee) in connection with their entering into
     such participation,  assignment,  sale or transfer. The Bank further agrees
     that no holder of any participation  hereunder,  other than an Affiliate of
     the Bank, shall be entitled to require the Bank to take or omit to take any
     action hereunder, except that the Bank may agree with such participant that
     the Bank will not, without such participant's  consent,  take any action to
     decrease  the  interest  rates  applicable  to the Loans,  extend the final
     maturity date of the Loans or decrease the principal amount of the Loans.

          (b)  The  descriptive  headings  of the  various  provisions  of  this
     Agreement are inserted for  convenience  of reference only and shall not be
     deemed to affect  the  meaning  or  construction  of any of the  provisions
     hereof.

          (c)  Notwithstanding  anything to the contrary  contained herein or in
     any of the Loan  Documents,  the  exhibits to this  Agreement  shall not be
     required  to be  attached  to the  execution  or any  other  copy  of  this
     Agreement, and any references in this Agreement or the other Loan Documents
     to such  exhibits as "Exhibits  hereto" or "Exhibits to this  Agreement" or
     words of  similar  effect  shall be  deemed  to refer to such  document  as
     executed by the parties  thereto and delivered on the Closing Date (or such
     other date on which they were executed and delivered).

          (d) [intentionally omitted]

          (e) [intentionally omitted]

     12.5  Notices,  Requests,  Demands,  etc.  Except  as  otherwise  expressly
provided herein, all notices,  requests,  demands or other  communications to or
upon the  respective  parties  hereto shall be deemed to have been duly given or
made when  delivered  (if sent by  Federal  Express or other  similar  overnight
delivery  service),  or 3 days after mailing (when mailed,  postage prepaid,  by
registered or certified  mail,  return  receipt  requested),  or (in the case of
telex,  telegraphic,  telecopier or cable  notice) when  delivered to the telex,
telegraph,  telecopier or cable company,  or (in the case of telex or telecopier
notice sent over a telex or telecopier owned or operated by a party hereto) when
sent; in each case, addressed as follows, except that notices and communications
to the Bank pursuant to Sections 2 and 9 shall not be effective  until  received
by the Bank:  (i) if to the Bank,  at the Closing  Office,  (ii)  [intentionally
omitted],  and  (iii)  if to a  Borrower,  at its  address  specified  with  its
signature below (Attention: President), or to such other addresses as any of the
parties  hereto may  hereafter  specify to the others in writing,  provided that
communications  with  respect  to a change  of  address  shall be  deemed  to be
effective  when actually  received.  As further set forth in Section 2.6 hereof,
notices   and   communications   sent  to  either   Borrower   shall  be  deemed
satisfactorily  sent to both Borrowers.  Notices and communications  sent to the
Bank by any Loan Party shall be deemed  satisfactorily  sent by all Loan Parties
if such notices and communications specifically reference this Agreement.

     12.6  Governing  Law.  THIS  AGREEMENT  AND THE  LOANS AND THE  RIGHTS  AND
OBLIGATIONS  OF THE PARTIES  HEREUNDER  SHALL BE GOVERNED BY AND  CONSTRUED  AND
INTERPRETED IN ACCORDANCE  WITH THE LAWS OF THE STATE OF NEW YORK  APPLICABLE TO
CONTRACTS  EXECUTED WHOLLY WITHIN THE STATE OF NEW YORK (REGARDLESS OF THE PLACE
WHERE THIS AGREEMENT IS EXECUTED).

     12.7 Counterparts;  Telecopies. This Agreement and the other Loan Documents
may be  executed in any number of  counterparts,  and by the  different  parties
hereto and thereto on the same or separate  counterparts,  each of which when so
executed and delivered shall be deemed to be an original;  all the  counterparts
for  each  such  Loan  Document  shall  together  constitute  one and  the  same
agreement. Telecopied signatures hereto and to the other Loan Documents shall be
of the same force and effect as an original of a manually signed copy.

     12.8 Waiver.  No failure or delay on the part of the Bank in exercising any
right,  power or privilege under this Agreement or any other Loan Document,  and
no course of dealing  between  any Loan  Party and the Bank  shall  operate as a
waiver thereof;  nor shall any single or partial exercise of any right, power or
privilege  hereunder  preclude  any other or  further  exercise  thereof  or the
exercise of any other right, power or privilege.  The rights and remedies herein
expressly  provided are  cumulative  and not exclusive of any rights or remedies
which the Bank would  otherwise  have  pursuant to such  documents  or at law or
equity.  No notice to or demand on any Loan Party in any case shall entitle such
Loan Party or any other  Loan Party to any other or further  notice or demand in
similar or other  circumstances  or constitute a waiver of the right of the Bank
to any other or further action in any circumstances without notice or demand.

     12.9 Recoveries.

          (a) Any  Recoveries  (after  deduction and payment of all expenses and
     costs  permitted by this  Agreement,  the Security  Documents or applicable
     law),  shall be applied  against the Loans or against unpaid  Reimbursement
     Obligations  (and, if no Loans or Reimbursement  Obligations  shall then be
     outstanding,  shall be held in trust by the Bank on behalf of the Borrowers
     to the  extent of the  amount of the LC  Outstandings  from time to time in
     existence until satisfaction in full of all amounts due thereunder).

          (b) [intentionally omitted]

     12.10  Jurisdiction.  THE  PARTIES  HERETO  AGREE THAT ANY LEGAL  ACTION OR
PROCEEDING  AGAINST ANY OTHER PARTY HERETO WITH RESPECT TO THIS  AGREEMENT,  THE
LOANS OR ANY OF THE LOAN  DOCUMENTS OR THE  DOCUMENTS  DELIVERED  IN  CONNECTION
THEREWITH  MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK  LOCATED IN NEW
YORK CITY OR OF THE UNITED  STATES OF AMERICA FOR THE  SOUTHERN  DISTRICT OF NEW
YORK AS SUCH PARTY MAY ELECT, AND, BY EXECUTION AND DELIVERY HEREOF, EACH OF THE
PARTIES  HERETO  ACCEPTS AND CONSENTS FOR ITSELF AND IN RESPECT TO ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH OF
THE PARTIES  HERETO  AGREE THAT SUCH  JURISDICTION  SHALL BE  EXCLUSIVE,  UNLESS
WAIVED  BY THE BANK  (WITH  RESPECT  TO  ACTIONS  OR  PROCEEDINGS  BROUGHT  BY A
BORROWER) OR BY THE BORROWERS (WITH RESPECT TO ACTIONS OR PROCEEDINGS BROUGHT BY
THE BANK) IN WRITING, AND WITH RESPECT TO ANY QUESTIONS RELATING TO USURY EXCEPT
THAT WITHOUT SUCH WRITTEN  CONSENT THE BANK MAY BRING ACTIONS AND PROCEEDINGS IN
ANY OTHER JURISDICTION  WHERE A BORROWER HAS PROPERTY OR DOES BUSINESS.  EACH OF
THE  PARTIES  HERETO  AGREES  THAT  SECTIONS  5-1401 AND  5-1402 OF THE  GENERAL
OBLIGATIONS  LAW OF THE STATE OF NEW YORK SHALL APPLY TO THE LOAN  DOCUMENTS AND
WAIVES ANY RIGHT TO STAY OR TO DISMISS ANY ACTION OR PROCEEDING  BROUGHT  BEFORE
SAID NEW YORK OR US COURTS ON THE BASIS OF FORUM NON CONVENIENS.  IN FURTHERANCE
OF THE FOREGOING,  EACH BORROWER HEREBY  IRREVOCABLY  DESIGNATES AND APPOINTS CT
CORPORATION SYSTEM AT 1633 BROADWAY, NEW YORK, NEW YORK 10019, AS ITS AGENT (THE
"PROCESS AGENT") TO RECEIVE SERVICE OF ALL PROCESS BROUGHT AGAINST SUCH BORROWER
WITH RESPECT TO ANY SUCH  PROCEEDING IN ANY SUCH COURT IN NEW YORK, SUCH SERVICE
BEING HEREBY  ACKNOWLEDGED  BY THE BORROWERS TO BE EFFECTIVE AND BINDING SERVICE
IN EVERY  RESPECT.  COPIES OF ANY SUCH  PROCESS SO SERVED  SHALL ALSO BE SENT BY
REGISTERED  MAIL TO  BORROWERS  AT ITS ADDRESS  SET FORTH NEXT TO ITS  SIGNATURE
BELOW,  BUT THE  FAILURE OF EITHER  BORROWER TO RECEIVE  SUCH  COPIES  SHALL NOT
AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS AS AFORESAID.  EACH BORROWER SHALL
FURNISH TO THE BANK A CONSENT OF THE PROCESS  AGENT  AGREEING  TO ACT  HEREUNDER
PRIOR TO THE CLOSING DATE.  NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE BANK TO
SERVE  PROCESS  IN ANY OTHER  MANNER  PERMITTED  BY LAW.  IF FOR ANY  REASON THE
PROCESS  AGENT SHALL  RESIGN OR  OTHERWISE  CEASE TO ACT AS AGENT EACH  BORROWER
HEREBY IRREVOCABLY  AGREES TO (I) IMMEDIATELY  DESIGNATE AND APPOINT A NEW AGENT
(ALSO,  THE "PROCESS  AGENT")  ACCEPTABLE  TO THE BANK TO SERVE IN SUCH CAPACITY
AND, IN SUCH EVENT,  SUCH NEW AGENT  SHALL BE DEEMED TO BE  SUBSTITUTED  FOR THE
PRIOR PROCESS BANK FOR ALL PURPOSES HEREOF AND (II) PROMPTLY DELIVER TO THE BANK
THE WRITTEN CONSENT (IN FORM AND SUBSTANCE SATISFACTORY TO THE BANK) OF SUCH NEW
AGENT AGREEING TO SERVE IN SUCH CAPACITY.

     12.11  Severability.  If any provision of this  Agreement  shall be held or
deemed to be or shall, in fact, be illegal,  inoperative or  unenforceable,  the
same shall not affect any other  provision  or  provisions  herein  contained or
render the same invalid, inoperative or unenforceable to any extent whatever.

     12.12 Right of Set-off.  In addition to any rights now or hereafter granted
under  applicable  law or  otherwise  and not by way of  limitation  of any such
rights, upon the occurrence of an Event of Default the Bank is hereby authorized
at any time or from time to time,  without  notice to either  Borrower or to any
other Person,  any such notice being hereby expressly  waived, to set-off and to
appropriate and apply any and all deposits (general or special,  time or demand,
provisional  or final) and any other  indebtedness  at any time held or owing by
the Bank to or for the  credit  or the  account  of a  Borrower  against  and on
account of the  obligations  and  liabilities  of such Borrower now or hereafter
existing  under any of the Loan  Documents  irrespective  of  whether or not any
demand  shall  have  been  made   thereunder  and  although  said   obligations,
liabilities or claims, or any of them, shall be contingent or unmatured.  If the
Bank exercises any rights  granted under this Section 12.12 it shall  thereafter
notify the affected  Borrower of such action;  provided that the failure to give
such notice shall not affect the validity of such set-off and application.

     12.13 No Third  Party  Beneficiaries.  This  Agreement  is  solely  for the
benefit  of the Bank and the  Borrowers  and  their  respective  successors  and
assigns,  and  nothing  contained  herein  shall be deemed to confer upon anyone
other  than the Bank and the  Borrowers  and  their  respective  successors  and
assigns any right to insist on or to enforce the  performance  or  observance of
any of the obligations  contained  herein.  All conditions to the obligations of
the Bank to make the Loans and issue  Letters of Credit  hereunder  are  imposed
solely  and  exclusively  for the  benefit  of the Bank and its  successors  and
assigns and no other Person shall have standing to require  satisfaction of such
conditions  in  accordance  with their terms and no other Person shall under any
circumstances be deemed to be beneficiary of such conditions.

     12.14  Effectiveness.  This Agreement shall become effective when and as of
the date (the "Effective Date") that all of the parties hereto shall have signed
a copy hereof  (whether the same or different  counterparts)  and the  Borrowers
shall have delivered the same to the Bank.

     12.15 Survival; Integration.

          (a)  Each  of  the  representations,   warranties,  terms,  covenants,
     agreements and conditions  contained in this Agreement  shall  specifically
     survive the  execution  and delivery of this  Agreement  and the other Loan
     Documents and the making of the Loans and shall, unless otherwise expressly
     provided, continue in full force and effect until the Commitments have been
     terminated  and the Loans  together  with  interest  thereon,  the fees and
     compensation  of  the  Bank,  and  all  other  sums  payable  hereunder  or
     thereunder have been indefeasibly paid in full.

          (b) This Agreement, together with the other Loan Documents,  comprises
     the complete and integrated  agreement of the parties on the subject matter
     hereof and thereof and supersedes all prior agreements, written or oral, on
     the subject matter hereof and thereof.  In the event of any direct conflict
     between  the  provisions  of this  Agreement  and those of any  other  Loan
     Document,  the  provisions  of this  Agreement  shall  control  and govern;
     provided that the inclusion of supplemental  rights or remedies in favor of
     the Bank in any other Loan  Document  shall not be deemed a  conflict  with
     this Agreement. Each Loan Document was drafted with the joint participation
     of the respective  parties  thereto and shall be construed  neither against
     nor in favor of any party,  but rather in accordance  with the fair meaning
     thereof.

     12.16 Domicile of Loans. The Bank may make, maintain or transfer any of its
Loans hereunder to, or for the account of, any branch office and (subject to the
prior consent of the Borrowers, such consent not to be unreasonably withheld) to
any subsidiary or affiliate of the Bank.

     12.17 No Usury.  It is expressly  stipulated and agreed to be the intent of
the Bank and the Borrowers to comply at all times with applicable usury laws. If
at any time such laws would ever render usurious any amount called for under any
of the Loan  Documents,  then it is the express  intention of the parties hereto
that such excess amount be immediately  credited on the Note, or if the Note has
been fully paid,  refunded by the Bank to the Borrowers (and the Borrowers shall
accept such refund) and the provisions hereof and thereof be immediately  deemed
to be reformed to comply with the then applicable laws, without the necessity of
the execution of any further documents,  but so as to permit the recovery to the
fullest amount otherwise called for hereunder and thereunder. Any such crediting
or refunding shall not cure or waive any default by the Borrowers under the Loan
Documents.  If at any time  following  any such  reduction to the interest  rate
payable by the Borrowers  there remains  unpaid any principal  amounts under the
Note and the maximum  interest rate  permitted by applicable law is increased or
eliminated,  then the interest rate payable to the Bank shall be readjusted,  to
the full  extent  permitted  by  applicable  law,  so that the  total  amount of
interest  thereunder  payable by the Borrowers to the Bank shall be equal to the
amount of interest  which would have been paid by the Borrowers  without  giving
effect  to  applicable  usury  laws.  The  Borrowers  agree,  however,  that  in
determining  whether or not any  interest  payable  under the Note or any of the
other  Loan   Documents   exceeds  the  highest  rate   permitted  by  law,  any
non-principal  payment (except payments  specifically stated in the Note or such
other Loan Documents to be  "interest"),  including fees and commissions and all
other  sums  payable  hereunder  or  thereunder  or in  connection  herewith  or
therewith,  shall be  deemed,  to the full  extent  permitted  by law,  to be an
expense, fee, premium or penalty rather than interest.

     12.18 Waiver of Jury Trial.  EACH  BORROWER AND THE BANK HEREBY  KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY  WAIVE ANY AND ALL RIGHTS THEY MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION  BASED ON, OR ARISING OUT OF, UNDER,  OR IN
CONNECTION  WITH,  THIS AGREEMENT OR ANY OTHER LOAN  DOCUMENT,  OR ANY COURSE OF
CONDUCT,  COURSE OF DEALING,  STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS
OF ANY  SUBSIDIARY,  ANY LOAN PARTY OR THE BANK.  THIS  PROVISION  IS A MATERIAL
INDUCEMENT  FOR THE  BANK  ENTERING  INTO  THIS  AGREEMENT  AND THE  OTHER  LOAN
DOCUMENTS.

     12.19 Securities Act. The Bank agrees that it will not transfer the Note in
a manner that would  subject the Note to the  registration  requirements  of the
Securities Act of 1933 (the "1933 Act").

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
duly executed and delivered by their  respective duly authorized  officers as of
the date first above written.

                                       KANEB SERVICES LLC
2435 N. Central Expressway
Richardson, Texas  75080
Fax:  214/699-4025                     By:  _______________________
                                       Name:    Howard C. Wadsworth
                                       Title:   Vice President

                                       KANEB PIPE LINE COMPANY LLC
2435 N. Central Expressway
Richardson, Texas  75080
Fax: 214/699-4025                      By:  _______________________
                                       Name:    Howard C Wadsworth
                                       Title:   Vice President

565 Fifth Avenue                       BANK OF SCOTLAND
New York, New York 10017
Fax: 212/682-5720
                                       By:  _______________________
                                       Name:
                                       Title:

<PAGE>
                                                                       ANNEX I

                                   DEFINITIONS

     As used in the  Loan  Agreement  to  which  this  Annex I is  annexed,  the
following terms shall have the meanings herein  specified or as specified in the
Section of such Loan Agreement or in such other document herein referenced:

     "Actual Tax  Liability"  shall mean the actual  liability  of the Group (as
defined  in the  Distribution  Agreement)  for Income  Taxes (as  defined in the
Distribution  Agreement)  resulting  from  the  Distribution  and  restructuring
transactions resulting from it, and for operations in 2000 and 2001, taking into
account the Group's  utilization  of  current-period  net  operating  losses and
carryforwards (and other tax attributes and items) from prior years.

     "Adjusted  Debt/Free Cash Flow" shall mean, for KSL and its Subsidiaries as
of the end of any Fiscal  Quarter,  the ratio of (i) Adjusted Debt as of the end
of such  Fiscal  Quarter to (ii) Free Cash Flow for the  preceding  four  fiscal
quarters.  "Adjusted Debt" shall mean as of any date the difference  between (x)
all  Indebtedness  for Borrowed  Money of KSL and its  Subsidiaries  and (b) all
indebtedness  of MOL  permitted by Section 8.3 (e).  "Free Cash Flow" shall mean
for any  period  the  difference  between  (A)  Adjusted  EBITDA  of KSL and its
Subsidiaries and (B) Adjusted EBITDA of MOL.  "Adjusted  EBITDA" shall mean, for
any Person for any period, EBITDA less capital expenditures.  For the purpose of
the calculation of Adjusted Debt/Free Cash Flow only,  Indebtedness for Borrowed
Money shall not include any Indebtedness for Borrowed Money of any KPP Entity.

     "Affiliate" shall mean, with respect to any Person,  any other Person which
directly  or  indirectly  controls,  or is  under  common  control  with,  or is
controlled by, such first Person and, if such first Person is an individual, any
member  of  the  immediate  family  (including  parents,  spouse,  children  and
siblings) of such individual and any trust whose  principal  beneficiary is such
individual or one or more members of such immediate family and any Person who is
controlled by any such member or trust.  As used in this  definition,  "control"
(including,  with its  correlative  meanings,  "controlled by" and "under common
control") shall mean possession,  directly or indirectly,  of power to direct or
cause the  direction of  management or policies  (whether  through  ownership of
securities  or  partnership  or  other  ownership  interests,   by  contract  or
otherwise).

     "Agreement"  or "Loan  Agreement"  shall mean this Loan Agreement as it may
from time to time be amended,  extended,  restated,  supplemented  or  otherwise
modified.

     "Associate" when used to indicate a relationship with a Person,  shall mean
(i)  another  Person  (other  than a Loan Party or a  Subsidiary)  of which such
Person is an officer or partner or is,  directly or  indirectly,  the beneficial
owner of 10 percent or more of any class of equity securities, (ii) any trust or
other estate in which such Person has a substantial beneficial interest or as to
which such Person or an immediate member of his family serves as trustee or in a
similar  capacity,  and (iii)  any  relative  or  spouse  of such  Person or any
relative of such spouse.

     "Auditors" shall mean, as to each Loan Party,  such  independent  certified
public accountants of national  recognized standing selected by a Loan Party (as
to itself).

     "Bank" - introductory paragraph.

     "Bank Assignee" - Section 12.4.

     "Base  Rate"  shall mean,  for any day,  the higher of (x) the  fluctuating
interest rate per annum, as in effect from time to time, established by the Bank
in New York from time to time as the Bank's base,  prime or  reference  rate for
U.S.  domestic  commercial loans in Dollars,  or (y) the Federal Funds Effective
Rate in effect on such day plus 1/2%.  Any change in the interest rate resulting
from a change in such Base Rate shall be effective as of the opening of business
on the day on which such change becomes  effective;  it is understood and agreed
that the aforesaid  rates and the Base Rate are reference  rates only and do not
necessarily represent the lowest or best rate actually charged to any customer.

     "Base  Rate  Margin"  shall mean from day to day the  applicable  Base Rate
Margin set forth in the Pricing Grid.

     "Base Rate Loan" shall mean a Loan during any period that it bears interest
determined by reference to the Base Rate.

     "Borrower" - introductory paragraph.

     "Borrowing Date" - Section 2.2(a).

     "Business  Day" shall mean any day that is not a Saturday,  Sunday or legal
holiday  in  the  State  of New  York  or a day on  which  banking  institutions
chartered by the State of New York or the United States are legally  required or
authorized to close,  and, when used in  connection  with LIBOR,  means a day on
which deposits in Dollars may be dealt in on the London interbank market.

     "Capitalized  Lease  Obligations"  shall mean all rental obligations which,
under GAAP, are or would be required to be capitalized on the books of a Person,
in each case taken at the amount thereof  accounted for as indebtedness  (net of
interest expense) in accordance with such principles.

     "CEO",  as to any Loan Party shall mean such Loan Party's  chief  executive
officer.

     "CFO",  as to any Loan Party shall mean such Loan Party's  chief  financial
officer.

     "Charter  Document"  shall  mean (i) with  respect  to a  corporation:  its
certificate  or  articles of  incorporation  or  association  and its by-laws or
comparable documents under non-US laws; (ii) with respect to a partnership:  its
partnership agreement, certificate of partnership (if a limited partnership) and
its  certificate  of  doing  business  under  an  assumed  name  (if  a  general
partnership);  (iii) with respect to a trust, its trust agreement or declaration
of trust; and (iv) with respect to a limited liability company,  its certificate
of formation and limited liability company agreement or analogous documents.

     "Closing  Date"  shall mean the date of the making of the  initial  Loan or
issuance  of the  initial  Letter of Credit  or, if  earlier,  the date that the
conditions in Section 6 of the Agreement have been fulfilled to the satisfaction
of the Bank (or waived by the Bank).

     "Closing Office" shall mean the office of the Bank at 565 Fifth Avenue, New
York,  New York or such  other  office as may be  designated  in  writing to the
Borrowers by the Bank.

     "Closing  Office  Time"  shall mean the local time in effect at the Closing
Office.

     "Code"  shall mean the Internal  Revenue  Code of 1986,  as the same may be
amended from time to time.

     "Collateral"  - Section  10.14.  Without  limiting  the  generality  of the
foregoing,  the term  "Collateral"  also  includes  all other real and  personal
property and interests therein granted or purported to be granted as security to
the Bank  pursuant to any Security  Document,  whether  before,  on or after the
Closing Date.

     "Collateral  Value" shall mean, as of any date of computation,  the product
of the number of Pledged  Units  multiplied  by the Market Value of such Pledged
Units as of the close of business on the immediately preceding Business Day.

     "Commercial Paper" - Section 8.12.

     "Commitment"  shall  mean,  as the same from time to time may be reduced or
terminated  pursuant  to  Section  2.8,  Section 9 or any other  section  of the
Agreement,  (a) prior to the satisfaction of the conditions set forth in Section
6.15 of this  Agreement,  an  amount  equal to  $10,000,000,  and (b)  after the
satisfaction of the conditions set forth in Section 6.15 of this  Agreement,  an
amount equal to $50,000,000.

     "Commitment Fee" - Section 4.1.

     "Commitment Fee Rate" shall mean from day to day the applicable  Commitment
Fee Rate set forth in the Pricing Grid.

     "Commitment  Period"  shall mean the period  from the  Closing  Date to and
including  the  Maturity  Date,  or such earlier  date as the  Commitment  shall
terminate as provided in the Loan Agreement.

     "Compliance Certificate" - Section 7.2.

     "Consolidated Group" shall mean KSL and its consolidated Subsidiaries.

     "Contaminant"  means any waste,  pollutant,  chemical,  hazardous material,
hazardous substance, toxic substance,  hazardous waste, special waste, petroleum
or  petroleum-derived  substance  or  waste,  or any  constituent  of  any  such
pollutant material, substance or waste, including, without limitation, asbestos,
radiation and any pollutant,  material,  substance or waste  regulated under any
Environmental Law.

     "Control"  (including the terms  "controlling,"  "controlled by" and "under
common  control  with") shall mean the  possession,  direct or indirect,  or the
power to direct or cause the  direction  of the  management  and  policies  of a
person,  whether  through the ownership of voting  securities,  by contract,  or
otherwise.

     "Deemed Disbursement" - Section 2A.6.

     "Deemed Disbursement Account"-- Section 2A.6(a).

     "Default" shall mean any event which with notice or lapse of time, or both,
would become an Event of Default.

     "Disbursement" - Section 2A.4.

     "Disbursement Date" - Section 2A.4.

     "Disbursement   Earnings"   shall  mean  the  amount  (if  any)  earned  by
investments  (if any) made by the Bank with  amounts in the Deemed  Disbursement
Account.

     "Distribution"  shall  have  the  meaning  set  forth  in the  Distribution
Agreement.

     "Distribution  Agreement" shall mean the Distribution  Agreement dated June
28,  2001 by and  between  KSI and KSL and the Tax  Subsidiaries  (as defined in
Article 1 thereof) of KSL attached as Exhibit F hereto.

     "Dollars",  "U.S. $", "$" and "U.S. dollars" shall mean the lawful currency
of the United States of America.

     "EBIT" for any Person for any period shall mean the consolidated Net Income
of such  Person  and its  consolidated  Subsidiaries  for  such  period,  before
interest  expense  and  provision  for taxes and  without  giving  effect to any
extraordinary  gains or losses and gains or losses  from sales of assets  (other
than sales of  inventory in the ordinary  course of  business),  for such period
(taken as one accounting period), determined in accordance with GAAP.

     "EBITDA"  for any Person for any period  shall mean the EBIT of such Person
and its  consolidated  Subsidiaries for such period plus (to the extent deducted
in computing EBIT for such period) depreciation, amortization and other non-cash
items, determined in accordance with GAAP.

     "Effective Date" - Section 12.14.

     "Environmental  Claim"  shall  mean  any  notice,  complaint,  request  for
information, claim, demand or similar communication (whether written or oral) by
any  Person  (including,   without  limitation,   the  environmental  protection
authorities  of the  jurisdiction  in which any Property is located or any other
national or local regulatory or administrative body), whether based in contract,
tort, implied or express warranty,  strict liability,  criminal or civil statute
(including  any  Environmental  Law,  permit,  order,  approval,  authorization,
license,  variance or agreement with any Person),  arising from or in respect of
(i) the presence of any Contaminant or any other environmental, health or safety
conditions  or a Release or threatened  Release on, in, under or emanating  from
any Property or resulting from any past, present or future operation of any Loan
Party or KPP Entity (or any predecessor in interest of any of them) of any other
Person in  connection  with the business of any Loan Party or KPP Entity (or any
predecessor  in  interest  of any of them),  (ii) any Release for which any Loan
Party or KPP Entity is otherwise responsible under the Environmental Laws, (iii)
any  other   circumstance   (including,   without   limitation,   any   off-site
transportation  of a Contaminant)  forming the basis of any violation or alleged
violation of, or liability or alleged  liability under, any Environmental Law by
any Loan Party or KPP Entity (or any  predecessor  in  interest of any of them),
(iv) any  Remedial  Action  required to be taken by any Loan Party or KPP Entity
under  the  Environmental  Laws,  or (v) any  harm,  injury or damage to real or
personal property,  natural resources,  the environment or any Person alleged to
have resulted from any of the foregoing.

     "Environmental Costs" shall mean all expenditures made by, all costs, fees,
disbursements  and  expenses  (including,  without  limitation,  any expenses of
engineers, experts, consultants, attorneys, contractors, surveyors, laboratories
and like Persons and costs of investigation  and feasibility  studies)  incurred
by, and all liabilities,  obligations and  responsibilities  assumed or incurred
by, any Loan Party or KPP Entity for or in respect of (i) any judgments,  fines,
penalties, obligations, interest, losses, claims, amounts, impositions, damages,
punitive damages,  consequential damages, treble damages or remedial action paid
or taken or agreed to be paid or taken by, due from or assessed against any Loan
Party or KPP Entity in respect of any Environmental  Claim and (ii) all Remedial
Action  (including,   without  limitation,  any  off-site  transportation  of  a
Contaminant)  taken by any Loan Party or KPP  Entity,  whether  pursuant  to any
Environmental Claim or otherwise.

     "Environmental   Laws"  means  all  laws,  rules,   regulations,   by-laws,
directives,   codes,   orders,   decrees,   judgments  or  injunctions   issued,
promulgated, approved or entered thereunder by any Government Authority relating
to pollution or protection of the environment or occupational health and safety,
including, without limitation, laws relating to emissions,  discharges, releases
or threatened releases of any waste,  pollutant,  chemical,  hazardous material,
hazardous substance, toxic substance,  hazardous waste, special waste, petroleum
or  petroleum-derived  substance  or  waste,  or any  constituent  of  any  such
pollutant material, substance or waste, into the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata) or otherwise relating to the manufacture, processing, distribution, use,
treatment,  storage,  disposal,  transport or handling of any waste,  pollutant,
chemical,  hazardous material,  hazardous substance, toxic substance,  hazardous
waste, special waste, petroleum or petroleum-derived substance or waste.

     "Environmental Lien" means any Lien in favor of any Governmental  Authority
for Environmental Costs.

     "Equity  Interests"  shall mean any equity  interests issued by any Person,
including, without limitation, shares of capital stock, partnership interests or
limited liability company interests,  any other securities  convertible into, or
exercisable  for, any of the foregoing or other  securities of such Person,  and
options and warrants or other rights to acquire any of the foregoing.

     "ERISA" shall mean the Employee  Retirement Income Security Act of 1974, as
amended from time to time.

     "ERISA Affiliate" shall mean any Person which is from time to time a member
of a controlled group or a group under common control with any Loan Party within
the meaning of Sections 414(b),  414(c), 414(m) or 414(o) of the Code or Section
4001(a)(14) of ERISA.

     "Eurodollar  Interest  Determination  Date" shall mean the date as of which
LIBOR is  determined  for a LIBOR Loan which shall be two Business Days prior to
the commencement of each Interest Period.

     "Event of  Default"  shall mean each of the  Events of  Default  defined in
Section 9.

     "Expense  Reimbursement"  shall mean expenses incurred by KSI in connection
with  the  Distribution   which  KSL  has  agreed  to  pay  to  KSI,   including
approximately  $6,100,000 in expenses  that KSI has incurred in connection  with
its redemption of its Adjustable  Rate  Cumulative  Class A Preferred  Stock and
reasonable legal and professional and other expenses.

     "Facility Fee" - Section 4.2.

     "Federal Funds Effective  Rate" shall mean the rate of interest  charged by
banks with excess reserves at a Federal  Reserve  district bank to banks needing
overnight loans to meet reserve requirements.

     "Financial  Statements"  shall  mean,  with  respect  to  any  Person,  the
statement of financial  position  (balance sheet) and the statement of earnings,
cash flow and stockholders' (or partners') equity of such Person.

     "Fiscal Year" shall mean each January 1 - December 31 period.

     "Fiscal  Year-End" shall mean, with respect to any Person,  the last day of
such Person's Fiscal Year.

     "GAAP" shall mean generally accepted accounting  principles (as promulgated
by the Financial Accounting Standards Board or any successor entity).

     "General   Partnership   Interests"  shall  mean  the  general  partnership
interests  in KPP and KPOP that are owned of record and  beneficially  by KPL at
any time.

     "Government  Authority"  shall mean any nation or government,  any state or
political subdivision thereof and any entity exercising executive,  legislative,
judicial, regulatory or administrative functions of or pertaining to government.

     "Guarantee"  shall  mean  by any  Person,  any  obligation,  contingent  or
otherwise,  of such Person directly or indirectly  guaranteeing any Indebtedness
for Borrowed Money or other obligation of any other Person and, without limiting
the generality of the foregoing, any obligation,  direct or indirect, contingent
or otherwise,  of such Person (i) to purchase or pay (or advance or supply funds
for the purchase or payment of) such  Indebtedness  for Borrowed  Money or other
obligation (whether arising by virtue of partnership arrangements,  by agreement
to keep-well, to purchase assets, goods, securities or services, to take-or-pay,
or to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the obligee of such Indebtedness
for Borrowed Money or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part), provided that the
term  "Guarantee"  shall not include  endorsements for collection or deposits in
the  ordinary  course of  business.  The term  "Guarantee"  used as a verb has a
corresponding meaning.

     "Guaranty Agreement" shall mean a guaranty agreement,  substantially in the
form  of  Exhibit  D  hereto,  as  such  guaranty   agreement  may  be  amended,
supplemented or otherwise modified from time to time.

     "Harris Bank" shall mean Harris Trust and Savings Bank, Chicago, Illinois.

     "Indebtedness  for  Borrowed  Money"  shall  mean (i) all  indebtedness  of
(including, without limitation, all indebtedness assumed by) a Person in respect
of money  borrowed  (including,  without  limitation,  the unpaid  amount of the
purchase  price of any property,  incurred for such purpose in lieu of borrowing
money or using  available  funds to pay said  amount,  and not  constituting  an
account payable or expense accrual incurred or assumed in the ordinary course of
business),  or  evidenced by a promissory  note,  bond,  debenture or other like
obligation to pay money, and including  indebtedness under banker's  acceptances
and with respect to letters of credit,  and (ii) all  obligations of (including,
without  limitation,  all  obligations  assumed by) a Person (x)  constituting a
Capitalized  Lease Obligation of such Person, or (y) constituting a Guarantee by
such Person.

     "Indemnified Party" - Section 12.3.

     "Intercompany Loan" - Section 8.4.

     "Intercompany Note" - Section 8.4.

     "Interest Period" - Section 3.4.

     "Interest Period Notice" - Section 3.4.

     "Issuance Request" - Section 2A.1.

     "IRS" shall mean the Internal Revenue Service of the United States.

     "KI" shall mean  Kaneb  Investment,  LLC.,  a  Delaware  limited  liability
company.

     "KPL" - introductory paragraph.

     "KPP Entity" or "KPP Entities" shall mean,  individually and  collectively,
KPP, KPOP, STSI and STOP and each of their respective material Subsidiaries.

     "KPOP" shall mean Kaneb Pipe Line Operating  Partnership,  L.P., a Delaware
limited partnership.

     "KPP"  shall mean  Kaneb  Pipe Line  Partners,  L.P.,  a  Delaware  limited
partnership.

     "KSI" shall mean Kaneb Services, Inc., a Delaware corporation.

     "KSI Credit Agreement" - Section 8.4.

     "KSI Loan" - Section 8.4.

     "KSI Note" - Section 8.4.

     "KSL" - introductory paragraph.

     "LC Commitment" shall mean $5,000,000, as such amount may from time to time
be reduced or terminated pursuant to Section 2.8, Section 9 or any other section
of the Agreement.

     "LC Obligations"  shall mean the aggregate amount (without  duplication) of
all LC Outstandings, Deemed Disbursements and Reimbursement Obligations.

     "LC  Outstandings"  shall mean the  aggregate  Stated  Amount (as it may be
reduced  from  time to time) of all  Letters  of  Credit  issued  hereunder  and
outstanding at any point in time.

     "Legal  Requirements"  shall mean,  with  respect to any Person,  all laws,
common law, statutes, rules and regulations of any Government Authority to which
such Person or any of its assets is subject or any judgment,  decree, franchise,
order or permit of any Government  Authority applicable to such Person or any of
its assets.

     "Letter of Credit" - Section 2A.1.

     "Letter of Credit Fee" - Section 2A.3.

     "LIBOR"  shall mean,  for each Interest  Period,  (x) the per annum rate of
interest  at  which  U.S.  Dollar  deposits  in the  amount  of the  outstanding
principal  balance of the LIBOR Loan are or would be offered  for such  Interest
Period in the London  interbank  market at 11:00 A.M.  London time two  Business
Days prior to the start of such Interest  Period by the Bank to prime banks and,
in case of variations in rates, the arithmetic average thereof rounded upward if
necessary  to the nearest  1/16th of 1%  calculated  by the Bank,  divided  (and
rounded  upward to the  nearest  1/16 of 1%) by (y) a  percentage  equal to 100%
minus  the then  stated  maximum  rate of all  reserve  requirements  (including
without  limitation  any  marginal,  emergency,  supplemental,  special or other
reserves  required  by  applicable  law)  applicable  to any member  bank of the
Federal Reserve System in the United States in respect of  Eurocurrency  funding
or liabilities.

     "LIBOR  Loan" shall mean a Loan  during any period  that it bears  interest
determined by reference to LIBOR.

     "LIBOR Margin" shall mean from day to day the  applicable  LIBOR Margin set
forth in the Pricing Grid.

     "Lien"  shall mean any  mortgage,  deed of trust,  security  deed,  pledge,
security interest, assignment,  encumbrance, lien or other charge of any kind or
any other  agreement or  arrangement  having the effect of  conferring  security
(including any agreement to give any of the  foregoing,  any lease in the nature
thereof, and any conditional sale or other title retention agreement),  any lien
arising  by  operation  of law,  and the  filing  of or  agreement  to give  any
financing statement under the Uniform Commercial Code of any jurisdiction.

     "Loan" - Section 2.1.

     "Loan  Agreement"  shall mean this Agreement as it may from time to time be
amended, extended, restated, supplemented or otherwise modified.

     "Loan Documents" shall mean, individually and collectively, this Agreement,
the  Note,  the  Security  Documents,  the  Letters  of  Credit,  and all  other
instruments  and agreements  executed in connection  herewith and therewith,  in
each case as amended,  supplemented  or  otherwise  modified  from time to time.
Without  limiting  the  generality  of  the  foregoing,  each  amendment  to the
Agreement  (as in effect at any time  prior to such  amendment)  or to any other
Loan  Document,  each waiver of any  provision of the Agreement (as in effect at
any time,  before or after any  amendment  thereof or thereto) or any other Loan
Document,  and each instrument and agreement executed in connection  herewith or
therewith  shall  be  deemed  to be a Loan  Document  for  all  purposes  of the
Agreement and the other Loan Documents.

     "Loan Party" or Loan Parties" shall mean,  individually  and  collectively,
KSL, KPL and each of their respective Subsidiaries.  Unless otherwise indicated,
neither KPP nor any of its Subsidiaries shall be considered a Loan Party.

     "LP  Units"  shall  mean the  securities  issued  by KPP that  evidence  or
otherwise  constitute limited  partnership  interests in KPP which are listed on
the NYSE under the symbol KPP and which, upon satisfaction of the conditions set
forth in Section  6.15,can be publicly sold without  restriction or registration
under securities laws.

     "Management  Letter" shall mean any  correspondence  or report submitted by
the Auditors to a Loan Party's CEO, CFO, its board of directors or any committee
thereof containing comments and suggestions concerning a Loan Party's accounting
procedures  and systems  based upon the work done by the  Auditors  during their
annual or other audit.

     "Margin  Regulations"  shall mean Regulations G, T, U and X of the Board of
Governors  of the  Federal  Reserve  System,  as the same have been  amended  or
supplemented from time to time, and any analogous future regulations.

     "Market Value" shall mean, as of any date of computation, the closing price
of the  security  in  question  on the NYSE as of the close of  business  on the
immediately preceding Business Day.

     "Material  Adverse  Change" in  respect  of a Person  shall mean a material
adverse  change  in (i)  the  business,  properties,  operations,  prospects  or
condition  (financial  or  otherwise) of such Person or (ii) if such Person is a
Loan  Party,  the  ability  of such  Loan  Party to  perform,  or of the Bank to
enforce, the Obligations.

     "Material  Adverse Effect" in respect of a Person shall mean an effect that
would result in a Material Adverse Change.

     "Material  Agreement"  shall mean all  outstanding  contracts,  agreements,
leases and other  understandings  to which any Person is a party, or by or under
which either has any rights or obligations,  which (i) involve the payment to or
by any Person of an aggregate of $500,000 or more or (ii) is otherwise  material
to any Person.

     "Maturity Date" shall mean July 1, 2008.

     "MOL" shall mean Martin Oil LLC, a Delaware limited liability company.

     "MOL Loan Agreement"  shall mean the Credit Agreement dated as of March 25,
1998 by and between MOL and Harris  Bank,  as amended by the First  Amendment to
Credit  Agreement dated as of March 18, 1999 and the Second  Amendment to Credit
Agreement dated as of February 11, 2000.

     "Moodys" - Section8.12.

     "Multiemployer  Plan"  shall  mean any  employee  benefit  plan  which is a
"multiemployer  plan" within the meaning of Section  3(37) of ERISA and to which
any Loan Party or any ERISA Affiliate of either Borrower contributes or has been
obligated to contribute.

     "Net  Income" as to any Person for any period  shall mean the  consolidated
net income of such Person and its  Subsidiaries  for such period,  determined in
accordance with GAAP.

     "Net  Worth"  of  a  Person  shall  mean  such  Person's  assets  less  its
liabilities, all determined in accordance with GAAP.

     "1933 Act" - Section 12.19.

     "Non-Pledged  Units"  shall mean the LP Units  owned by MOL on the  Closing
Date and pledged to Harris Bank under the MOL Loan Agreement.

     "Note" shall mean a promissory note of the Borrowers  substantially  in the
form of  Exhibit  A to this  Agreement,  as such  note may be from  time to time
amended, supplemented, restated or otherwise modified.

     "Notice of Borrowing" - Section 2.2(a).

     "NYSE" shall mean The New York Stock Exchange, Inc.

     "Obligations"  shall mean (x) with  respect to each Loan Party other than a
Borrower,  all  obligations  of such Loan Party with respect to the repayment or
performance of any obligations  (monetary or otherwise) of the Borrower  arising
under or in  connection  with  this  Agreement,  the Note  and each  other  Loan
Document,  and (y) with respect to a Borrower,  all  obligations of the Borrower
with  respect to the  repayment  or  performance  of  obligations  (monetary  or
otherwise) arising under or in connection with this Agreement, the Note and each
other Loan Document.

     "Other  Accounts"  shall  mean  the  Deemed  Disbursement  Account  and the
Shortfall Account.

     "Past-Due Rate" - Section 3.3.

     "PBGC"  shall mean the Pension  Benefit  Guaranty  Corporation  established
pursuant to Section 4002 of ERISA.

     "Pension  Plan" shall mean any  employee  pension  benefit  plan subject to
Title IV of ERISA and maintained by any Loan Party or any ERISA Affiliate of any
Loan Party or any such plan to which any Loan Party or any ERISA Affiliate is or
has been required to contribute on behalf of any of its employees,  other than a
Multiemployer Plan.

     "Permitted  Liens"  shall mean the Liens  permitted  by Section 8.2 of this
Agreement  including  the  specific  liens  listed  on  Schedule  8.2(f) to this
Agreement  (but not any that the Bank  requires to be  terminated on or prior to
the Closing Date).

     "Person" shall mean and include an individual, a partnership, a corporation
(including  a  business  trust),  a joint  stock  company,  a limited  liability
company, a trust, an unincorporated association, a joint venture or other entity
or a government or an agency or political subdivision thereof.

     "Plan"  shall mean any  "employee  benefit  plan"  (within  the  meaning of
Section 3(3) of ERISA)  maintained  by any Loan Party or any ERISA  Affiliate or
any such plan to which  any Loan  Party or any  ERISA  Affiliate  is or has been
required  to  contribute  on  behalf  of  any  of its  employees,  other  than a
Multiemployer Plan.

     "Pledge Agreement" shall mean a pledge agreement, substantially in the form
of Exhibit C hereto,  as such pledge  agreement may be amended,  supplemented or
otherwise modified from time to time.

     "Pledged Units" shall mean the LP Units Satisfactorily  Pledged by the Loan
Parties to the Bank pursuant to the Security Documents.

     "Pricing Grid" shall mean the following:

<TABLE>
<CAPTION>

<S>                             <C>                          <C>                          <C>
------------------------------- ---------------------------- ---------------------------- ----------------------------

 Adjusted Debt/Free Cash Flow          LIBOR Margin               Base Rate Margin            Commitment Fee Rate
------------------------------- ---------------------------- ---------------------------- ----------------------------

        less than 1.5                      1.00%                        0.00%                        0.25%
------------------------------- ---------------------------- ---------------------------- ----------------------------

 equal to or greater than 1.5              1.50%                        0.50%                        0.35%
      and less than 3.5
------------------------------- ---------------------------- ---------------------------- ----------------------------

 equal to or greater than 3.5              1.75%                        0.75%                        0.50%
      and less than 4.0
------------------------------- ---------------------------- ---------------------------- ----------------------------

 equal to or greater than 4.0              2.00%                        1.00%                        0.75%
------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>

     "Process Agent" - Section 12.10.

     "Property"  shall mean any  property  owned,  leased,  controlled,  used or
operated in the past, present or future by any Loan Party or any KPP Entity.

     "Qualification Requirement" - Section 3.7.

     "Quarterly Certificate" - Section 7.1(c).

     "Recoveries"   shall  mean  any  funds,  or  substitution  or  receipts  or
collateral,  received  by the  Bank  (a)  from  the  sale,  collection  or other
disposition  pursuant to the Security  Documents of any collateral,  or (b) from
any  distribution to the Bank, or abandonment to the Bank, or substitute Lien or
payment  given to the Bank  pursuant  to events  or  proceedings  of the  nature
referred  to  in  Section  9.7  of  the  Agreement,  or  otherwise,   and  which
distribution or abandonment pertains to any collateral.

     "Regulatory Change" means,  relative to the Bank or any Bank Assignee,  any
change after  January 1, 2001 in any (or the adoption  after  January 1, 2001 of
any new):

          (a)  United  States  Federal,  state  or  local  law  or  foreign  law
     applicable to the Bank or any Bank Assignee; or

          (b) regulation, interpretation,  directive, or request (whether or not
     having the force of law)  applying to the Bank or such Bank Assignee of any
     court  or  governmental   authority  charged  with  the  interpretation  or
     administration  of any law  referred  to in  clause  (a) or of any  fiscal,
     monetary, central bank or other authority having jurisdiction over the Bank
     or such Bank Assignee.

     "Reimbursement Obligation" - Section 2A.4.

     "Release"  shall  mean any  release,  spill,  emission,  leaking,  pumping,
injection, deposit, disposal, discharge, dispersal, pouring, emptying, escaping,
dumping,  discarding,  leaching or migration of a Contaminant into the indoor or
outdoor environment or into or out of any property, including without limitation
the movement of Contaminants  through,  on or in the air, soil, surface water or
groundwater or the  abandonment  or discarding of barrels,  containers and other
closed receptacles containing any Contaminant.

     "Remedial  Action"  shall mean all actions taken or required to be taken to
(i) clean up,  remove,  treat or in any other way  address  Contaminants  in the
indoor or  outdoor  environment,  (ii)  prevent a Release or  condition  that is
reasonably  likely to  result  in a  Release  or  minimize  further  release  of
Contaminants so they do not migrate or endanger or threaten to endanger  present
or future public health or welfare or the indoor or outdoor  environment,  (iii)
perform pre-remedial studies and investigations and post-remedial monitoring and
care, or (iv) cure any other violation of any Environmental Laws.

     "Reportable  Event" shall mean a Reportable Event described in Section 4043
of ERISA and the regulations issued thereunder.

     "S&P" - Section 8.12.

     "Satisfactorily  Pledged" shall mean pledged and  delivered,  by the Person
owning the relevant  securities,  to the Bank as collateral for the  Obligations
pursuant  to the  Security  Documents  or a  different  agreement  in  form  and
substance reasonably satisfactory to the Bank.

     "SEC" shall mean the  Securities  and Exchange  Commission or any successor
entity.

     "Security  Documents" shall be the collective  reference to (i) each of the
agreements referred to in Section 6 (including, without limitation, Section 6.4)
pursuant to which Collateral is intended to be granted,  directly or indirectly,
to the Bank,  (ii) the  sections of this  Agreement  pursuant to which the Other
Accounts are  established,  and (iii) each Pledge  Agreement or other  agreement
entered into after the Closing Date pursuant to which  Collateral is intended to
be  granted,  directly  or  indirectly,  to the Bank,  and (iv) all  amendments,
supplements or other modifications to such agreements or replacements thereof.

     "Shortfall Account"-- Section 2A.10.

     "Solvent"  shall mean,  with respect to any Person,  that the fair saleable
value of the  tangible  and  intangible  property  (including  goodwill) of such
Person  is,  on the date of  determination,  greater  than the  total  amount of
liabilities of such Person as of such date (including contingent  liabilities of
such  Person to the extent  such  Person  considers  it  probable  that it shall
actually be liable  thereon) and that,  as of such date,  such Person is able to
pay all Indebtedness for Borrowed Money of such Person as such  Indebtedness for
Borrowed Money matures.

     "Stated Amount" shall mean, as to each Letter of Credit, the maximum amount
payable thereunder to the beneficiary thereof upon compliance with the terms and
conditions stated therein, as such amount may be reduced from time to time.

     "Stated Expiry Date" - Section 2A.1(b).

     "STOP" shall mean Support Terminals Operating Partnership, L.P., a Delaware
limited partnership.

     "STSI" shall mean Support Terminal Services, Inc., a Delaware corporation.

     "Subsidiary"  of  any  Person  shall  mean  any  other  firm,  corporation,
partnership,  trust or other unincorporated organization or association or other
enterprise,  50% or more of the indicia of equity rights (whether  capital stock
or otherwise)  of which is at the time owned,  directly or  indirectly,  by such
Person and/or by one or more of such  Person's  Subsidiaries.  Unless  otherwise
indicated, references to Subsidiaries shall refer to Subsidiaries of KSL.

     "Taxes" - Section 5.2.

     "Termination  Event" shall mean (i) a Reportable Event described in Section
4043 of ERISA and the  regulations  issued  thereunder  (other than a Reportable
Event not  subject to the  provision  for  30-day  notice to the PBGC under such
regulations),  or (ii)  the  withdrawal  of any Loan  Party or any of its  ERISA
Affiliates from a Pension Plan during a plan year in which it was a "substantial
employer" as defined in Section  4001(a)(2) of ERISA, or (iii) the issuance of a
notice of intent to terminate a Pension Plan or the  treatment of a Pension Plan
amendment as a termination  under Section 4041 of ERISA,  or (iv) receipt by any
Loan Party or any ERISA Affiliate of notice of the PBGC's intention to terminate
any Pension Plan or to have a trustee or the PBGC  appointed to  administer  any
Pension Plan or (v) any other event or condition which might constitute  grounds
under  Section 4042 of ERISA for the  termination  of, or the  appointment  of a
trustee to administer, any Pension Plan.

     "Transfer" shall mean any sale, conveyance, lease or other disposition (and
"Transferred",   "Transferring"   and  other   variations   thereof  shall  have
correlative meanings).

     "UCC" - Section 10.14.

     "Unutilized  Commitment"  shall mean the amount by which the  Commitment at
any time  exceeds the sum of (x) the  aggregate  principal  amount of Loans then
outstanding plus (y) the LC Obligations.

     "Unutilized LC Commitment" shall mean the amount by which the LC Commitment
at any time exceeds the LC Obligations.

     "UK" shall mean the United Kingdom.

     "United States," "US" or "U.S." shall mean the United States of America.

     "Written" or "in writing" shall mean any form of written communication or a
communication by means of telex, telecopier device, telegraph or cable.<PAGE>

         WAIVER AND EIGHTH AMENDMENT TO THE LOAN AND SECURITY AGREEMENT
         --------------------------------------------------------------

     Waiver  and Eighth Amendment dated as of August 10, 2001 (this "AMENDMENT")
to  the  Loan  and Security Agreement, dated as of December 31, 1997 (as amended
and modified, the "LOAN AGREEMENT"), among GENERAL ELECTRIC CAPITAL CORPORATION,
a  Delaware  corporation  ("LENDER")  and  KNOGO  NORTH AMERICA INC., a Delaware
corporation ("BORROWER"), and the other Credit Parties executing this Amendment.

                                  WITNESSETH :
                                  ----------

     WHEREAS, Borrower has requested that Lender waive the defaults arising from
the  breach  of  the "Minimum Net Worth" financial covenant for certain dates of
determination  and  amend  the  terms  of  certain  financial  covenants;

     WHEREAS,  Lender  is  willing to waive such financial covenant defaults and
amend  the  Loan  Agreement  only  on the terms and conditions set forth herein;

     NOW,  THEREFORE,  in  consideration  of  the  premises,  the  covenants and
agreements  contained herein, and for other good and valuable consideration, the
receipt  and  adequacy  of  which are hereby acknowledged, the parties do hereby
agree  that  all  capitalized terms used herein shall have the meanings ascribed
thereto  in  the  Loan  Agreement  and  do  hereby  further  agree  as  follows:

                               STATEMENT OF TERMS
                               ------------------

1.     WAIVERS.  Lender  hereby  waives the Event of Default arising solely as a
       --------
result  of  the  breach of the Minimum Net Worth covenant solely for the periods
ending  December  31, 2000, January 31, 2001, February 28, 2001, March 31, 2001,
April  30,  2001  and  May  31,  2001.

2.     AMENDMENT.  Paragraph 2 of Schedule G of the Loan Agreement is amended in
       ---------
     its  entirety  to  provide  as  follows:

"Minimum  Net  Worth.  Sentry  and its Subsidiaries on a consolidated basis
 -------------------
shall have  a  Net  Worth of not less than the amounts set forth below as of
the dates set forth below:
<TABLE>
<CAPTION>

<S>                                   <C>
Fiscal Month Ending                   Net Worth
------------------------------------  ----------

June 30, 2001                         $3,200,000
July 31, 2001                         $2,700,000
August 31, 2001                       $2,700,000
September 30, 2001 and the last       $3,200,000
day of each Fiscal Month thereafter"
</TABLE>

3.     REPRESENTATIONS  AND  WARRANTIES.  To  induce  Lender  to enter into this
       ---------------------------------
Amendment, each Credit Party hereto hereby warrants, represents and covenants to
Lender that: (a) each representation and warranty of the Credit Parties set
forth  in  the  Loan  Agreement  is  hereby  restated and reaffirmed as true and
correct on and as of the date hereof after giving affect to this Amendment as if
such  representation  or warranty were made on and as of the date hereof (except
to  the  extent  that any such representation or warranty expressly relates to a
prior  specific  date  or period in which case it is true and correct as of such
prior  date  or  period), and no Default or Event of Default has occurred and is
continuing  as of this date under the Loan Agreement after giving effect to this
Amendment; and (b) each Credit Party hereto has the power and is duly authorized
to  enter  into,  deliver  and perform this Amendment, and this Amendment is the
legal,  valid and binding obligation of such Credit Party enforceable against it
in  accordance  with  its  terms.
<PAGE>

4.     CONDITIONS  PRECEDENT  TO  EFFECTIVENESS  OF  THIS  AMENDMENT.  The
       -------------------------------------------------------------
effectiveness  of  this Amendment is subject to the fulfillment of the following
conditions  precedent:

     (a)     Lender  shall  have  received  one  or  more  counterparts  of this
Amendment  duly  executed  and  delivered  by  the  Credit  Parties  hereto;

     (b)     Any  and  all  guarantors of the Obligations shall have consented
to the execution,  delivery  and  performance  of  this  Amendment  and  all  of
the transactions  contemplated  hereby  by  signing one or more counterparts of
this Amendment in the appropriate space indicated below and returning same to
Lender; and

     (c)     Borrower  shall  have  paid  to Lender an amendment fee in the
amount  of  $5,000 which shall be charged to Borrower's loan account on the date
of  this  Amendment  together with all of Lenders legal fees, costs and expenses
incurred in connection with the preparation, negotiation, execution and delivery
of  this  Amendment.

5.     CONTINUING  EFFECT  OF  LOAN  AGREEMENT.  Except  as  expressly set forth
       ---------------------------------------
herein,  the provisions of the Loan Agreement, and the Liens granted thereunder,
are  and  shall  remain in full force and effect and the waiver set forth herein
shall  be  limited precisely as drafted and shall not constitute a waiver of any
other  provisions  of  the  Loan  Agreement.

6.     COUNTERPARTS.  This  Amendment  may  be executed in multiple counterparts
       ------------
each  of  which  shall  be  deemed to be an original and all of which when taken
together  shall  constitute  one  and  the  same  instrument.

7.     GOVERNING  LAW.  THIS  AMENDMENT  SHALL  BE GOVERNED BY, AND CONSTRUED IN
       ---------------
ACCORDANCE  WITH,  THE  INTERNAL  LAWS  OF  THE  STATE OF NEW YORK APPLICABLE TO
CONTRACTS  MADE  AND  PERFORMED  IN  SUCH STATE WITHOUT REGARD TO THE PRINCIPLES
THEREOF  REGARDING  CONFLICTS  OF  LAWS.

<PAGE>

     IN  WITNESS  WHEREOF,  the  parties hereto have caused this Amendment to be
duly  executed  and  delivered as of the day and year specified at the beginning
hereof.

                                      KNOGO  NORTH  AMERICA  INC.,
                                      AS  BORROWER

                                      By:     /s/  Peter  J.  Mundy
                                             ---------------------
                                      Name:       Peter  J.  Mundy
                                      Title:       V.P.  -  CFO

                                      SENTRY  TECHNOLOGY  CORPORATION,
                                      AS  CREDIT  PARTY

                                      By:     /s/  Peter  J.  Mundy
                                             ---------------------
                                      Name:       Peter  J.  Mundy
                                      Title:       V.P.  -  CFO

                                      VIDEO  SENTRY  CORPORATION,
                                      AS  CREDIT  PARTY

                                      By:     /s/  Peter  J.  Mundy
                                             ---------------------
                                      Name:       Peter  J.  Mundy
                                      Title:       V.P.  -  CFO

                                      KNOGO  CARIBE,  INC.,
                                      AS  CREDIT  PARTY

                                      By:     /s/  Peter  J.  Mundy
                                              ---------------------
                                      Name:       Peter  J.  Mundy
                                      Title:       V.P.  -  CFO

                                      GENERAL  ELECTRIC  CAPITAL  CORPORATION,
                                      AS  LENDER

                                      By:     /s/  Philip  F.  Carfora
                                              ------------------------
                                      Name:     Philip  F.  Carfora
                                      Title:     Duly  Authorized  Signatory
<PAGE>
                              CONSENT OF GUARANTORS

     Each  of  the  undersigned guarantors does hereby consent to the execution,
delivery  and performance of the within and foregoing Amendment and confirms the
continuing  effect of such guarantor's guarantee of the Obligations after giving
effect  to  the  foregoing  Amendment.

     IN  WITNESS  WHEREOF,  each of the undersigned guarantors has executed this
Consent  to  Guarantors  as  of  the  day  and  year  first  above  set  forth.

                    GUARANTORS:

                    SENTRY  TECHNOLOGY  CORPORATION

                    By:  /s/  Peter  J.  Mundy
                         ---------------------
                    Name:  Peter  J.  Mundy
                    Title:     V.P.  -  CFO

                    VIDEO  SENTRY  CORPORATION

                    By:  /s/  Peter  J.  Mundy
                         ---------------------
                    Name:     Peter  J.  Mundy
                    Title:     V.P.  -  CFO

                    KNOGO  CARIBE,  INC.

                    By:  /s/  Peter  J.  Mundy
                         ---------------------
                    Name:  Peter  J.  Mundy
                    Title:     Treasurer

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