SUBSIDIARY GUARANTEE AGREEMENT

SUBSIDIARY GUARANTEE AGREEMENT

This SUBSIDIARY GUARANTEE AGREEMENT (the "Agreement"), dated as of November

1, 2002, among each of the Subsidiaries listed on Schedule I hereto (each such

subsidiary individually, a "Guarantor" and collectively, the "Guarantors") of

KANEB PIPE LINE OPERATING PARTNERSHIP, L.P., a Delaware limited partnership (the

"Borrower"), and SUNTRUST BANK, a Georgia banking corporation as administrative

agent (the "Administrative Agent") for the Lenders (as defined in the Loan

Agreement referred to below).

Reference is made to the Bridge Loan Agreement, dated as of November 1,

2002 (as amended, supplemented or otherwise modified from time to time, the

"Loan Agreement"), among the Borrower, Kaneb Pipe Line Partners, L.P., the

lenders from time to time party thereto (the "Lenders") and SunTrust Bank, as

administrative agent for the Lenders (in such capacity, the "Administrative

Agent"). Capitalized terms used herein and not defined herein shall have the

meanings assigned to such terms in the Loan Agreement.

The Lenders have agreed to make Loans to the Borrower pursuant to, and upon

the terms and subject to the conditions specified in, the Loan Agreement. Each

of the Guarantors is a direct or indirect Subsidiary of the Borrower and

acknowledges that it will derive substantial benefit from the making of the

Loans by the Lenders. The obligations of the Lenders to make Loans are

conditioned on, among other things, the execution and delivery by the Guarantors

of a Subsidiary Guarantee Agreement in the form hereof. As consideration

therefor and in order to induce the Lenders to make Loans, the Guarantors are

willing to execute this Subsidiary Guarantee Agreement.

Accordingly, the parties hereto agree as follows:

SECTION 1. Guarantee.

Each Guarantor unconditionally guarantees, jointly with KPP and the other

Guarantors and severally, as a primary obligor and not merely as a surety, (i)

the due and punctual payment of (A) the principal of and premium, if any, and

interest (including interest accruing during the pendency of any bankruptcy,

insolvency, receivership or other similar proceeding, regardless of whether

allowed or allowable in such proceeding) on the Loans, when and as due, whether

at maturity, by acceleration, upon one or more dates set for prepayment or

otherwise, and (B) all other monetary obligations, including fees, costs,

expenses and indemnities, whether primary, secondary, direct, contingent, fixed

or otherwise (including monetary obligations incurred during the pendency of any

bankruptcy, insolvency, receivership or other similar proceeding, regardless of

whether allowed or allowable in such proceeding), of the Loan Parties to the

Administrative Agent and the Lenders under the Loan Agreement and the other Loan

Documents, (ii) the due and punctual performance of all covenants, agreements,

obligations and liabilities of the Loan Parties under or pursuant to the Loan

Agreement and the other Loan Documents; and (iii) the due and punctual payment

and performance of all obligations of the Borrower, monetary or otherwise, under

each Hedging Agreement entered into with a counterparty that was a Lender or an

Affiliate of a Lender at the time such Hedging Agreement was entered into (all

the monetary and other obligations referred to in the preceding clauses (i)

through (iii) being collectively called the "Obligations"). Each Guarantor

further agrees that the Obligations may be extended or renewed, in whole or in

part, without notice to or further assent from it, and that it will remain bound

upon its guarantee notwithstanding any extension or renewal of any Obligation.

SECTION 2. Obligations Not Waived.

To the fullest extent permitted by applicable law, each Guarantor waives

presentment to, demand of payment from and protest to the other Loan Parties of

any of the Obligations, and also waives notice of acceptance of its guarantee

and notice of protest for nonpayment. To the fullest extent permitted by

applicable law, the obligations of each Guarantor hereunder shall not be

affected by (i) the failure of the Administrative Agent or any Lender to assert

any claim or demand or to enforce or exercise any right or remedy against the

Borrower or any other Guarantor under the provisions of the Loan Agreement, any

other Loan Document or otherwise, (ii) any rescission, waiver, amendment or

modification of, or any release from any of the terms or provisions of, this

Agreement, any other Loan Document or any other agreement, including with

respect to any other Guarantor under this Agreement, or (iii) the failure to

perfect any security interest in, or the release of, any of the security held by

or on behalf of the Administrative Agent or any Lender.

SECTION 3. Guarantee of Payment.

Each Guarantor further agrees that its guarantee constitutes a guarantee of

payment when due and not of collection, and waives any right to require that any

resort be had by the Administrative Agent or any Lender to any of the security

held for payment of the Obligations or to any balance of any deposit account or

credit on the books of the Administrative Agent or any Lender in favor of the

Borrower or any other Person.

SECTION 4. No Discharge or Diminishment of Guarantee.

The obligations of each Guarantor hereunder shall not be subject to any

reduction, limitation, impairment or termination for any reason (other than the

indefeasible payment in full in cash of the Obligations), including any claim of

waiver, release, surrender, alteration or compromise of any of the Obligations,

and shall not be subject to any defense or setoff, counterclaim, recoupment or

termination whatsoever by reason of the invalidity, illegality or

unenforceability of the Obligations or otherwise. Without limiting the

generality of the foregoing, the obligations of each Guarantor hereunder shall

not be discharged or impaired or otherwise affected by the failure of the

Administrative Agent or any Lender to assert any claim or demand or to enforce

any remedy under the Loan Agreement, any other Loan Document or any other

agreement, by any waiver or modification of any provision of any thereof, by any

default, failure or delay, willful or otherwise, in the performance of the

Obligations, or by any other act or omission that may or might in any manner or

to the extent vary the risk of any Guarantor or that would otherwise operate as

a discharge of each Guarantor as a matter of law or equity (other than the

indefeasible payment in full in cash of all the Obligations).

SECTION 5. Defenses of Borrower Waived.

To the fullest extent permitted by applicable law, each Guarantor waives

any defense based on or arising out of any defense of any Loan Party or the

unenforceability of the Obligations or any part thereof from any cause, or the

cessation from any cause of the liability of any Loan Party, other than the

final and indefeasible payment in full in cash of the Obligations. The

Administrative Agent and the Lenders may, at their election, foreclose on any

security held by one or more of them by one or more judicial or nonjudicial

sales, accept an assignment of any such security in lieu of foreclosure,

compromise or adjust any part of the Obligations, make any other accommodation

with any other Loan Party or any other guarantor, without affecting or impairing

in any way the liability of any Guarantor hereunder except to the extent the

Obligations have been fully, finally and indefeasibly paid in cash. Pursuant to

applicable law, each Guarantor waives any defense arising out of any such

election even though such election operates, pursuant to applicable law, to

impair or to extinguish any right of reimbursement or subrogation or other right

or remedy of such Guarantor against the Borrower or any other Guarantor or

guarantor, as the case may be, or any security.

SECTION 6. Agreement to Pay; Subordination.

In furtherance of the foregoing and not in limitation of any other right

that the Administrative Agent or any Lender has at law or in equity against any

Guarantor by virtue hereof, upon the failure of the Borrower or any other Loan

Party to pay any Obligation when and as the same shall become due, whether at

maturity, by acceleration, after notice of prepayment or otherwise, each

Guarantor hereby promises to and will forthwith pay, or cause to be paid, to the

Administrative Agent for the benefit of the Lenders in cash the amount of such

unpaid Obligations. Upon payment by any Guarantor of any sums to the

Administrative Agent, all rights of such Guarantor against any Loan Party

arising as a result thereof by way of right of subrogation, contribution,

reimbursement, indemnity or otherwise shall in all respects be subordinate and

junior in right of payment to the prior indefeasible payment in full in cash of

all the Obligations. In addition, any indebtedness of any Loan Party now or

hereafter held by any Guarantor is hereby subordinated in right of payment to

the prior payment in full in cash of the Obligations. If any amount shall

erroneously be paid to any Guarantor on account of (i) such subrogation,

contribution, reimbursement, indemnity or similar right or (ii) any such

indebtedness of any Loan Party, such amount shall be held in trust for the

benefit of the Administrative Agent and the Lenders and shall forthwith be paid

to the Administrative Agent to be credited against the payment of the

Obligations, whether matured or unmatured, in accordance with the terms of the

Loan Documents.

SECTION 7. Information.

Each Guarantor assumes all responsibility for being and keeping itself

informed of other Loan Parties' financial condition and