<PAGE>   1
                                                                    EXHIBIT 10.5






                   TAX SHARING AND INDEMNIFICATION AGREEMENT,


                                  by and among


                             MERCURY AIR GROUP, INC.


                                       and


                                 MERCFUEL, INC.





<PAGE>   2

                                TABLE OF CONTENTS



<TABLE>
<CAPTION>
                                                                                          PAGE
                                                                                          ----
<S>                                                                                       <C>
SECTION 1 - DEFINITIONS.................................................................     2

        "Affiliated Person".............................................................     2
        "Associates"....................................................................     2
        "Audit".........................................................................     2
        "Beneficial Ownership"..........................................................     2
        "Code"        2
        "Combined Group"................................................................     2
        "Combined Return"...............................................................     2
        "Consolidated Group"............................................................     2
        "Consolidated Return"...........................................................     2
        "Deconsolidation"...............................................................     3
        "Deconsolidation Date"..........................................................     3
        "Deconsolidation Tax"...........................................................     3
        "Distribution"..................................................................     3
        "Estimated Tax Installment Date"................................................     3
        "Federal Income Tax"............................................................     3
        "Federal Tax"...................................................................     3
        "Final Determination"...........................................................     3
        "Gross Asset Value".............................................................     4
        "Group".........................................................................     4
        "Income Tax"....................................................................     4
        "Interest Accrual Period".......................................................     4
        "IPO"...........................................................................     4
        "MAG Affiliate".................................................................     4
        "MAG Group".....................................................................     4
        "Master Distribution Agreement".................................................     4
        "MercFuel Affiliate"............................................................     4
        "MercFuel Business".............................................................     4
        "MercFuel Group"................................................................     4
        "MercFuel Group Combined Returns"...............................................     5
        "MercFuel Group Combined Tax Liability".........................................     5
        "MercFuel Group Consolidated Returns"...........................................     5
        "MercFuel Group Federal Income Taxes"...........................................     5
        "MercFuel Group Federal Income Tax Liability"...................................     5
        "MercFuel Group Non-Federal Combined Taxes".....................................     5
        "MercFuel Group Non-Federal Separate Returns"...................................     5
        "MercFuel Group Non-Federal Separate Taxes".....................................     5
        "MercFuel Group Non-Federal Separate Tax Liability".............................     5
        "Non-Federal Combined Tax"......................................................     5
        "Non-Federal Separate Tax"......................................................     5
</TABLE>




                                      -ii-


<PAGE>   3

<TABLE>
<S>                                                                                         <C>
        "Non-Federal Separate Tax Return"...............................................     6
        "Non-Federal Tax"...............................................................     6
        "Opinion".......................................................................     6
        "Opinion Documents".............................................................     6
        "Payment Period"................................................................     6
        "Person"........................................................................     6
        "Post-Deconsolidation Period"...................................................     6
        "Pre-Deconsolidation Period"....................................................     6
        "Privilege".....................................................................     6
        "Pro Forma MercFuel Group Combined Return"......................................     6
        "Pro Forma MercFuel Group Consolidated Return"..................................     6
        "Pro Forma MercFuel Group Non-Federal Separate Tax Returns".....................     6
        "Restricted Period".............................................................     6
        "Retained Business".............................................................     6
        "Ruling"........................................................................     7
        "Ruling Documents"..............................................................     7
        "Separate Return"...............................................................     7
        "Separation"....................................................................     7
        "Separation Date"...............................................................     7
        "Separation Tax"................................................................     7
        "Service".......................................................................     7
        "Straddle Period"...............................................................     7
        "Tax"...........................................................................     7
        "Tax Asset".....................................................................     7
        "Tax Authority".................................................................     8
        "Tax Counsel"...................................................................     8
        "Tax Item"......................................................................     8
        "Tax Return"....................................................................     8
        "Treasury Regulations"..........................................................     8

SECTION 2 - PREPARATION AND FILING OF TAX RETURNS.......................................     8

        2.1   In General................................................................     8
        2.2   Manner of Preparing and Filing Tax Returns................................     8
        2.3   Agent.....................................................................     9

SECTION 3 - PAYMENT OF TAXES TO TAX AUTHORITIES.........................................    10

        3.1   Federal Income Taxes......................................................    10
        3.2   Non-Federal Combined Taxes................................................    10
        3.3   Non-Federal Separate Taxes................................................    10
        3.4   Other Federal Taxes.......................................................    10

SECTION 4 - ALLOCATION OF TAXES.........................................................    10

        4.1   MercFuel Liability for Federal Income Taxes and Non-Federal
              Combined Taxes............................................................    10
</TABLE>




                                     -iii-

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<TABLE>
<S>                                                                                         <C>
        4.2   MercFuel Group Federal Income Tax Liability..............................     10
        4.3   MercFuel Group Combined Tax Liability....................................     11
        4.4   MercFuel Group Non-Federal Separate Tax Liability........................     12
        4.5   Cooperation..............................................................     12
        4.6   Tax Sharing Installment Payments.........................................     12
        4.7   Tax Sharing True Up Payments.............................................     13
        4.8   Redetermination Amounts..................................................     13
        4.9   Payment of Taxes for Post-Deconsolidation Periods........................     14

SECTION 5 - TAX ATTRIBUTES.............................................................     14

        5.1   Allocation of Tax Items..................................................     14
        5.2   Post Deconsolidation.....................................................     14

SECTION 6 - ADDITIONAL OBLIGATIONS.....................................................     15

        6.1   Provision of Information and Mutual Cooperation..........................     15
        6.2   Indemnification..........................................................     16
        6.3   Tax Consequences of Payments.............................................     17
        6.4   Interest.................................................................     17
        6.5   Outside Fees.............................................................     17
        6.6   Carrybacks...............................................................     17

SECTION 7 - AUDITS    18

        7.1   In General...............................................................     18
        7.2   Notice...................................................................     18
        7.3   Failure to Notify........................................................     18
        7.4   Remedies.................................................................     19

SECTION 8 - IPO........................................................................     19

        8.1   IPO Related Items........................................................     19
        8.2   Tax Reporting of IPO Related Items.......................................     19
        8.3   Audits Relating to Separation............................................     20
        8.4   Provision of Information and Mutual Cooperation..........................     20
        8.5   Press Releases...........................................................     20

SECTION 9 - DISTRIBUTION...............................................................     20

        9.1   Distribution Related Items...............................................     20
        9.2   Information for Shareholders.............................................     24
        9.3   Allocation of Tax Assets.................................................     24

SECTION 10 - STOCK OPTIONS.............................................................     24
</TABLE>




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<TABLE>
<S>                                                                                         <C>
        10.1  Stock Option Adjustments..................................................    24
        10.2  Notices, Withholding......................................................    25

SECTION 11 - MISCELLANEOUS..............................................................    25

        11.1  Effectiveness.............................................................    25
        11.2  Notices...................................................................    26
        11.3  Changes in Law............................................................    26
        11.4  Successors and Assigns....................................................    26
        11.5  Authorization, Etc........................................................    26
        11.6  Complete Agreement........................................................    27
        11.7  Interpretation............................................................    27
        11.8  Governing Law.............................................................    27
        11.9  Counterparts..............................................................    27
        11.10 Legal Enforceability......................................................    27
        11.11 No Third Party Beneficiaries..............................................    27
        11.12 Jurisdiction; Forum.......................................................    27
        11.13 Amendment and Modification................................................    28
</TABLE>




                                      -v-

<PAGE>   6

                    TAX SHARING AND INDEMNIFICATION AGREEMENT

        TAX SHARING AND INDEMNIFICATION AGREEMENT (this "Agreement"), dated as
of ___________, 2001, and effective as of _________, 2001, by and among Mercury
Air Group, Inc. ("MAG"), a Delaware corporation, and MercFuel, Inc.
("MercFuel"), a Delaware corporation and wholly owned subsidiary of MAG.


                                    RECITALS

        WHEREAS, MAG is the common parent corporation of an affiliated group of
corporations within the meaning of Section 1504(a) of the Code (as defined
herein) and of consolidated, combined, unitary and other similar groups as
defined under similar laws of other jurisdictions, and MercFuel and certain
MercFuel Affiliates (as defined herein) are members of such groups;

        WHEREAS, the groups of which MAG is the common parent and MercFuel and
the MercFuel Affiliates are members file or intend to file Consolidated Returns,
Combined Returns and Separate Returns (as defined herein);

        WHEREAS, in addition to its other businesses, MAG has been engaged
through MercFuel and its various subsidiaries and divisions in the MercFuel
Business (as defined herein);

        WHEREAS, MAG has contributed and transferred to MercFuel, and MercFuel
has received and assumed, the assets and liabilities (including contingent
liabilities) of MAG and its Subsidiaries associated with the MercFuel Business
prior to the date hereof (the "Separation");

        WHEREAS, MAG and MercFuel currently contemplate that MercFuel will make
an initial public offering ("IPO") of an amount of its common stock pursuant to
a registration statement on Form S-1 under the Securities Act of 1933, as
amended that will reduce MAG's ownership interest in MercFuel to not less than
80.1% of the outstanding common stock of MercFuel;

        WHEREAS, MAG currently plans to complete the Distribution (as defined
herein) approximately six months following the IPO; and

        WHEREAS, it is appropriate and desirable to set forth the principles and
responsibilities of the parties to this Agreement regarding the allocation of
Taxes (as defined herein) and other related liabilities and adjustments with
respect to Taxes, Audits (as defined herein) and other related Tax matters.

        NOW, THEREFORE, in consideration of the premises or promises and the
mutual covenants contained herein and intending to be legally bound hereby, the
parties hereto hereby agree as follows:




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<PAGE>   7

                                    SECTION 1
                                   DEFINITIONS

        Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in the Master Distribution Agreement (as defined herein).
As used in this Agreement, capitalized terms shall have the following meanings
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined).

        "Affiliated Person" has the meaning ascribed to such term in the
Investment Company Act of 1940, as amended, and the rules and regulations
promulgated thereunder.

        "Associates" has the meaning ascribed to such term in the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.

        "Audit" includes any audit, assessment of Taxes, other examination by
any Tax Authority, proceeding, or appeal of such a proceeding relating to Taxes,
whether administrative or judicial (including without limitation any
determination with respect to a claim for refund).

        "Beneficial Ownership" has the meaning ascribed to such term in the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

        "Code" means the United States Internal Revenue Code of 1986, as
amended, or any successor statute.

        "Combined Group" means a group of corporations or other entities that
files a Combined Return or a corporation or other entity that files a Combined
Return described in clause (ii) or clause (iii) of the definition of "Combined
Return".

        "Combined Return" means any Tax Return with respect to Non-Federal Taxes
(i) filed on a consolidated, combined (including nexus combination, worldwide
combination, domestic combination, line of business combination or any other
form of combination) or unitary basis wherein MercFuel or one or more MercFuel
Affiliates join in the filing of such Tax Return (for any taxable period or
portion thereof) with MAG or one or more MAG Affiliates, (ii) filed on a
separate basis that includes Tax Items relating to, or arising from, both the
MercFuel Business and the Retained Business, or (iii) pursuant to which Tax
Items or Tax Assets of (A) MAG (or any MAG Affiliate) are included on a separate
Tax Return of MercFuel (or any MercFuel Affiliate) or (B) MercFuel (or any
MercFuel Affiliate) are included on a separate Tax Return of MAG (or any MAG
Affiliate).

        "Consolidated Group" means an affiliated group of corporations within
the meaning of Section 1504(a) of the Code that files a Consolidated Return.

        "Consolidated Return" means any Tax Return with respect to Federal
Income Taxes filed on a consolidated basis wherein MercFuel or one or more
MercFuel Affiliates join in the filing of such Tax Return (for any taxable
period or portion thereof) with MAG or one or more MAG Affiliates.




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        "Deconsolidation" means with respect to each Tax Return (i) any event
pursuant to which MercFuel ceases to be a subsidiary corporation includible in
the Consolidated Return, (ii) any event pursuant to which neither MercFuel nor
any MercFuel Affiliate continues to be included in a Combined Return which
includes MAG and/or a MAG Affiliate, (iii) any event (including as a result of
transactions contemplated by the Separation) pursuant to which Tax Items
relating to, or arising from, both the MercFuel Business and the Retained
Business are no longer included on a Combined Return described in clause (ii) of
the definition of Combined Return or (iv) any event pursuant to which a Tax
Return described in clause (iii) of the definition of Combined Return no longer
includes Tax Items or Tax Assets of both MAG (or any MAG Affiliate) and MercFuel
(or any MercFuel Affiliate).

        "Deconsolidation Date" means the day on which a Deconsolidation occurs.

        "Deconsolidation Tax" means any Tax, resulting from a Deconsolidation,
taken into account under Section 1.1502-13 or Section 1.1502-19 or any
predecessor provision of the Treasury Regulations (or any similar provision
under Non-Federal Tax law).

        "Distribution" means any distribution (or exchange) by MAG or any MAG
Affiliate, with respect to its stock, of the stock of MercFuel (or any successor
corporation or corporation which owns stock of MercFuel) in a transaction
intended to qualify under Section 355 of the Code.

        "Estimated Tax Installment Date" means, in the case of Federal Income
Tax, the installment due dates prescribed in Section 6655(c) of the Code
(presently April 15, June 15, September 15 and December 15) together with due
date for applying for an extension of time to file a return prescribed in
Section 6072 of the Code or such other dates as may be prescribed by relevant
provisions by statute or regulation with respect to other Federal and
Non-Federal Taxes.

        "Federal Income Tax" means any Tax imposed under Subtitle A of the Code
or any other provision of United States federal Income Tax law (including the
Taxes imposed by Sections 11, 55, 59A, and 1201(a) of the Code), and any
interest, additions to Tax or penalties applicable or related thereto.

        "Federal Tax" means any Tax imposed under the Code or otherwise under
United States federal Tax law.

        "Final Determination" means the final resolution of any Tax (or other
matter) for a taxable period, including related interest or penalties, that,
under applicable law, is not subject to further appeal, review or modification
through proceedings or otherwise, including (1) by the expiration of a statute
of limitations or a period for the filing of claims for refunds, amending Tax
Returns, appealing from adverse determinations, or recovering any refund
(including by offset), (2) by a decision, judgment, decree, or other order by a
court of competent jurisdiction, which has become final and unappealable, (3) by
a closing agreement or an accepted offer in compromise under Section 7121 or
7122 of the Code, or comparable agreements under laws of other jurisdictions,
(4) by execution of an Internal Revenue Service Form 870 or 870AD, or by a
comparable form under the laws of other jurisdictions (excluding, however, with
respect to a




                                      -3-
<PAGE>   9

particular Tax Item for a particular taxable period any such form that reserves
(whether by its terms or by operation of law) the right of the taxpayer to file
a claim for refund and/or the right of the Tax Authority to assert a further
deficiency with respect to such Tax Item for such period), or (5) by any
allowance of a refund or credit, but only after the expiration of all periods
during which such refund or credit may be recovered (including by way of
offset).

        "Gross Asset Value" means, when used with respect to a specified Person,
the fair market value of such Person's assets unencumbered by any liabilities.

        "Group" means either the MAG Group or the MercFuel Group, as the context
provides.

        "Income Tax" means (a) any Tax based upon, measured by, or calculated
with respect to (1) net income or profits (including, without limitation, any
capital gains Tax, minimum Tax and any Tax on items of Tax preference, but not
including sales, use, real or personal property, gross or net receipts, transfer
or similar Taxes) or (2) multiple bases if one or more of the bases upon which
such Tax may be based, measured by, or calculated with respect to, is described
in clause (1) above, or (b) any United States state or local franchise Tax.

        "Interest Accrual Period" has the meaning set forth in Section 6.4 of
this Agreement.

        "IPO" has the meaning set forth in the recitals.

        "MAG Affiliate" means any corporation or other entity in which MAG owns
more than fifty percent (50%) of the total combined voting power (at any time
after the completion of the Separation), other than MercFuel or any MercFuel
Affiliate.

        "MAG Group" means the affiliated group of corporations as defined in
Section 1504(a) of the Code, or similar group of entities as defined under
corresponding provisions of the laws of other jurisdictions, of which MAG is the
common parent, and any corporation or other entity which is a member of such
group for the relevant taxable period or portion thereof, but excluding any
member of the MercFuel Group.

        "Master Distribution Agreement" means the Master Distribution Agreement,
dated as of ____________, 2001, and effective as of _______, 2001 by and between
MAG and MercFuel.

        "MercFuel Affiliate" means any corporation or other entity in which
MercFuel owns at least fifty percent (50%) of the total combined voting power
(at any time after the completion of the Separation).

        "MercFuel Business" has the meaning set forth in the Master Separation
and Distribution Agreement.

        "MercFuel Group" means the affiliated group of corporations as defined
in Section 1504(a) of the Code, or similar group of entities as defined under
corresponding provisions of the laws of other jurisdictions following the
completion of the Separation, of which MercFuel would




                                      -4-
<PAGE>   10

be the common parent if it were not a subsidiary of MAG, and any corporation or
other entity which would be a member of such group for the relevant taxable
period or portion thereof.

        "MercFuel Group Combined Returns" means, any tax return with respect to
Non-Federal Taxes filed on a consolidated, combined (including nexus
combination, worldwide combination, domestic combination, line of business
combination or any other form of combination) or unitary basis wherein MercFuel
and one or more MercFuel Affiliates join in the filing of such Tax Return.

        "MercFuel Group Combined Tax Liability" means, with respect to any
taxable period, the MercFuel Group's liability for Non-Federal Combined Taxes as
determined under Section 4.3 of this Agreement.

        "MercFuel Group Consolidated Returns" means, any Tax Return with respect
to Federal Income Taxes filed on a consolidated basis wherein MercFuel and one
or more MercFuel Affiliates join in the filing of such Tax Return (for any
taxable period or portion thereof).

        "MercFuel Group Federal Income Taxes" means any Tax imposed under
Subtitle A of the Code or any other provision of United States federal Income
Tax law (including the Taxes imposed by Sections 11, 55, 59A, and 1201(a) of the
Code), and any interest, additions to Tax or penalties applicable or related
thereto that are assessed against MercFuel or any MercFuel Affiliate.

        "MercFuel Group Federal Income Tax Liability" means, with respect to any
taxable period, the MercFuel Group's liability for Federal Income Taxes as
determined under Section 4.2 of this Agreement.

        "MercFuel Group Non-Federal Combined Taxes" means, any Non-Federal Tax
with respect to which a Combined Return is filed by the MercFuel Group.

        "MercFuel Group Non-Federal Separate Returns" means, any tax return
filed with respect to Non-Federal Separate Taxes by MercFuel or any member of
the MercFuel Group.

        "MercFuel Group Non-Federal Separate Taxes" means, any Non-Federal Tax
other than a Non-Federal Combined Tax assessed again MercFuel or any member of
the MercFuel Group.

        "MercFuel Group Non-Federal Separate Tax Liability" means, with respect
to any taxable period, the MercFuel Group's liability for Non-Federal Separate
Taxes as determined under Section 4.4 of this Agreement.

        "Non-Federal Combined Tax" means any Non-Federal Tax with respect to
which a Combined Return is filed.

        "Non-Federal Separate Tax" means any Non-Federal Tax other than a
Non-Federal Combined Tax.




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        "Non-Federal Separate Tax Return" means any Tax Return filed with
respect to Non-Federal Separate Taxes.

        "Non-Federal Tax" means any Tax other than a Federal Tax.

        "Opinion" means the opinion issued by Tax Counsel in connection with the
Distribution (and any related transactions).

        "Opinion Documents" means the request for the Opinion submitted to Tax
Counsel, together with appendices and exhibits thereto and any supplemental
filings or other materials subsequently submitted to Tax Counsel, in connection
with the Distribution (and any related transactions).

        "Payment Period" has the meaning set forth in Section 6.4 of this
Agreement.

        "Person" means any natural person, corporation, limited liability
company, business trust, joint venture, association, company, partnership or
government, or any agency or political subdivision thereof.

        "Post-Deconsolidation Period" means any taxable period with respect to a
Consolidated Return or Combined Return, as the case may be, beginning after a
Deconsolidation Date.

        "Pre-Deconsolidation Period" means any taxable period with respect to a
Consolidated Return or Combined Return, as the case may be, beginning and ending
on or before a Deconsolidation Date.

        "Privilege" means any privilege that may be asserted under applicable
law including, any privilege arising under or relating to the attorney-client
relationship (including the attorney-client and work product privileges), the
accountant-client privilege, and any privilege relating to internal evaluation
processes.

        "Pro Forma MercFuel Group Combined Return" means a pro forma Non-Federal
Combined Tax return or other schedule prepared pursuant to Section 4.3 of this
Agreement.

        "Pro Forma MercFuel Group Consolidated Returns" means a pro forma
consolidated Federal Income Tax return or other schedule prepared pursuant to
Section 4.2 of this Agreement.

        "Pro Forma MercFuel Group Non-Federal Separate Tax Returns" means a pro
forma Non-Federal Separate Tax return or other schedule prepared pursuant to
Section 4.4 of this Agreement.

        "Restricted Period" means the two-year period following the date the
Distribution occurs.

        "Retained Business" means all lines of business retained by MAG
following any Deconsolidation.




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        "Ruling" means (a) the initial private letter ruling, if any, issued by
the Service in connection with the Distribution (and any related transactions)
or (b) any similar ruling issued by any Tax Authority other than the Service in
connection with the Distribution (and any related transactions).

        "Ruling Documents" means (a) the request for the Ruling submitted to the
Service, together with the appendices and exhibits thereto and any supplemental
filings or other materials subsequently submitted to the Service, in connection
with the Distribution (and any related transactions) or (b) any similar filings
submitted to any other Tax Authority in connection with the Distribution (and
any related transactions).

        "Separate Return" means any Tax Return with respect to Non-Federal
Separate Taxes filed by MAG, MercFuel, or any of their respective affiliates.

        "Separation" has the meaning set forth in the Recitals.

        "Separation Date" has the meaning set forth in the Master Distribution
Agreement.

        "Separation Tax" means any Tax (net of any current benefit arising from
any Tax Asset) resulting from the Separation imposed upon MAG or any MAG
Affiliate or MercFuel or any MercFuel Affiliate; provided that, such term shall
not refer to the collateral Tax effects of the Separation (including, without
limitation, relating to the tax basis of assets comprising the MercFuel Business
or the amount, if any, of Tax Assets or earnings and profits of MercFuel or any
MercFuel Affiliate following the Separation).

        "Service" means the Internal Revenue Service or any successor agency or
authority.

        "Straddle Period" means any taxable period with respect to a
Consolidated Return, Combined Return or Separate Return, as the case may be,
beginning on or before the Deconsolidation Date and ending after the
Deconsolidation Date.

        "Tax" means any charges, fees, levies, imposts, duties, or other
assessments of a similar nature, including income, alternative or add-on
minimum, gross receipts, profits, lease, service, service use, wage, wage
withholding, employment, workers compensation, business occupation, occupation,
premiums, environmental, estimated, excise, employment, sales, use, transfer,
license, payroll, franchise, severance, stamp, occupation, windfall profits,
withholding, social security, unemployment, disability, ad valorem, highway use,
commercial rent, capital stock, paid up capital, recording, registration,
property, real property gains, value added, business license, custom duties, or
other tax or governmental fee of any kind whatsoever, imposed or required to be
withheld by any Tax Authority including any interest, additions to tax, or
penalties applicable or related thereto.

        "Tax Asset" means any Tax Item that could reduce a Tax, including a net
operating loss, net capital loss, investment tax credit, foreign tax credit,
charitable deduction or credit related to alternative minimum tax or any other
Tax credit.




                                      -7-
<PAGE>   13

        "Tax Authority" means a U. S. or foreign governmental authority or any
subdivision, agency, commission or authority thereof or any quasi-governmental
or private body having jurisdiction over the assessment, determination,
collection or imposition of any Tax (including, without limitation, the
Service).

        "Tax Counsel" means Baker & McKenzie LLP or any other law firm which
issues an opinion to MAG with respect to the tax consequences of the
Distribution.

        "Tax Item" means any item of income, gain, loss, deduction or credit, or
other attribute that may have the effect of increasing or decreasing any Tax.

        "Tax Return" means any return, report, certificate, form or similar
statement or document (including, any related or supporting information or
schedule attached thereto and any information return, amended tax return, claim
for refund or declaration of estimated tax) required to be supplied to, or filed
with, a Tax Authority in connection with the determination, assessment or
collection of any Tax or the administration of any laws, regulations or
administrative requirements relating to any Tax.

        "Treasury Regulations" means the final, temporary and proposed income
tax regulations promulgated under the Code, as such regulations may be amended
from time to time (including corresponding provisions of succeeding
regulations).


                                    SECTION 2
                      PREPARATION AND FILING OF TAX RETURNS

        2.1 In General.

               (a) For any Pre-Deconsolidation Period, MAG shall have the sole
        and exclusive responsibility for the preparation and filing of: (1) all
        Consolidated Returns, (2) all Combined Returns and (3) all Separate
        Returns.

               (b) For the Straddle Period, MAG shall have the sole and
        exclusive responsibility for the preparation and filing of: (1) all
        Consolidated Returns, (2) all Combined Returns and (3) all Separate
        Returns.

               (c) For all Post-Deconsolidation Periods, MercFuel shall have the
        sole and exclusive responsibility for the preparation and filing of: (1)
        all MercFuel Group Consolidated Returns, (2) all MercFuel Group Combined
        Returns, and (3) all MercFuel Group Non-Federal Separate Returns.

        2.2 Manner of Preparing and Filing Tax Returns.

               (a) All Tax Returns filed after the date of this Agreement by MAG
        or any MAG Affiliate, shall be (1) prepared in a manner that is
        consistent with (i) Sections 5.1 and 9.3 of this Agreement and (ii) any
        Ruling Documents or Ruling, and (2) filed on a timely basis (taking into
        account applicable extensions) by MAG.




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<PAGE>   14

               (b) MAG shall have the exclusive right, in its sole discretion,
        with respect to any Tax Return relating to the Pre-Deconsolidation and
        Straddle Periods to determine (1) the manner in which such Tax Return
        shall be prepared and filed, including the elections, methods of
        accounting, positions, conventions and principles of taxation to be used
        and the manner in which any Tax Item shall be reported, (2) whether any
        extensions may be requested, (3) the elections that will be made by MAG,
        any MAG Affiliate, MercFuel, and any MercFuel Affiliate on such Tax
        Return, (4) whether any amended Tax Returns shall be filed, (5) whether
        any claims for refund shall be made, (6) whether any refunds shall be
        paid by way of refund or credited against any liability for the related
        Tax, and (7) whether to retain outside firms to prepare or review such
        Tax Return. MAG agrees to provide MercFuel with a copy of each such Tax
        Return prior to the due date for the filing of any such Tax Return
        (giving effect to applicable extensions) for such taxable years
        sufficiently in advance of such date to allow MercFuel the opportunity
        to review and comment on any such Tax Return.

               (c)    (1) MercFuel shall be responsible for providing financial,
                      transactional, legal and other information in a timely
                      manner as necessary for the preparation of the returns
                      described in Sections 2.1(a) and (b) of this Agreement.
                      Information shall be requested and submitted by way of
                      annual tax workpaper packages (due no later than March 31,
                      for the preceding tax year ended December 31), sales and
                      use tax reports (submitted as required to meet reporting
                      deadlines in accordance with the continuation of the
                      current process), other miscellaneous information requests
                      and other supporting documentation. Such information shall
                      be submitted within 30 days of written request in
                      accordance with MAG's normal information request practices
                      and due dates.

                      (2) For a period of one year beginning on the
                      Deconsolidation Date, MercFuel may elect to have MAG
                      prepare the returns described in Section 2.1(c) of this
                      Agreement. If MercFuel so elects then it shall provide
                      written notice to MAG as provided in Section 11.2. MAG
                      shall prepare such returns in accordance with the terms
                      and conditions contained in the Transitional Services
                      Agreement, dated as of __________, 2001 by and between MAG
                      and MercFuel, for services rendered pursuant to this
                      Section 2.2(c)(2).

        2.3 Agent. Subject to the other applicable provisions of this Agreement,
MercFuel hereby irrevocably designates, and agrees to cause each MercFuel
Affiliate to so designate, MAG as its sole and exclusive agent and
attorney-in-fact to take such action (including execution of documents) as MAG,
in its sole discretion, may deem appropriate in any and all matters (including
Audits) relating to any Tax Return described in Sections 2.1(a) and (b) of this
Agreement.




                                      -9-
<PAGE>   15

                                    SECTION 3
                       PAYMENT OF TAXES TO TAX AUTHORITIES

        3.1 Federal Income Taxes. MAG shall pay (or cause to be paid) to the
Service all Federal Income Taxes with respect to any Consolidated Return due and
payable for all Pre-Deconsolidation Periods and Straddle Periods. MercFuel shall
pay (or cause to be paid) to the Service all MercFuel Group Federal Income Taxes
due and payable for all Post-Deconsolidation Periods.

        3.2 Non-Federal Combined Taxes. MAG shall pay (or cause to be paid) to
the appropriate Tax Authorities all Non-Federal Combined Taxes with respect to
any Combined Return due and payable for all Pre-Deconsolidation Periods and
Straddle Periods. MercFuel shall pay (or cause to be paid) to the appropriate
Tax Authorities all MercFuel Group Non-Federal Combined Taxes with respect to
any Combined Return due and payable for Post-Deconsolidation Periods.

        3.3 Non-Federal Separate Taxes. MAG shall pay (or cause to be paid) to
the appropriate Tax Authorities all Non-Federal Separate Taxes due and payable
for Pre-Deconsolidation Periods and Straddle Periods. MercFuel shall pay (or
cause to be paid) to the appropriate Tax Authorities all MercFuel Group
Non-Federal Separate Taxes due and payable for Post-Deconsolidation Periods.

        3.4 Other Federal Taxes. The parties shall each pay (or cause to be
paid) to the appropriate Tax Authorities all of their respective Federal Taxes
(excluding Federal Income Taxes for Pre-Deconsolidation Periods and Straddle
Periods which are governed by Section 3.1 of this Agreement).


                                    SECTION 4
                               ALLOCATION OF TAXES

        4.1 MercFuel Liability for Federal Income Taxes and Non-Federal Combined
Taxes. Within ten (10) days after completion of the IPO, MercFuel shall pay to
MAG the cumulative amount of the MercFuel Group Federal Income Tax Liability,
the MercFuel Group Combined Tax Liability and the MercFuel Group Separate Tax
Liability for all Consolidated Returns, Combined Returns and Separate Returns
for all Pre-Deconsolidation Periods, including estimated tax payments.

        4.2 MercFuel Group Federal Income Tax Liability. With respect to each
Pre-Deconsolidation Period (including the Straddle Period), the MercFuel Group
Federal Income Tax Liability for such taxable period shall be the MercFuel
Group's liability for Federal Income Taxes for such taxable period, as
determined on a Pro Forma MercFuel Group Consolidated Return prepared:

               (i) on a basis consistent with the preparation of the
        Consolidated Return for such period, determined by including only Tax
        Items of members of the MercFuel Group which are included in the
        Consolidated Return and by allocating Tax Assets to the




                                      -10-
<PAGE>   16

        MercFuel Group to the extent that the Tax Asset was created by a member
        of the MercFuel Group and such Tax Asset was actually utilized on the
        relevant Consolidated Return; and

               (ii) applying the highest statutory marginal corporate income Tax
        rate in effect for such taxable period (or portion thereof); provided
        that, in the event that the federal alternative minimum Tax applies to
        the Consolidated Return, the MercFuel Group Federal Income Tax Liability
        shall equal the lesser of (i) the alternative minimum Tax liability with
        respect to the Consolidated Return that would result by including only
        Tax Items and Tax Assets of members of the MercFuel Group included in
        the Consolidated Return or (ii) the aggregate Tax liability payable with
        respect to such Consolidated Return.

               (iii) The principles of Treasury Regulation Section
        1.1502-33(d)(3) also shall apply to the allocation set forth in Sections
        4.2(i) and (ii). If the amount of the consolidated federal income tax
        liability due under any Consolidated Return is less than the sum of the
        aggregate separate return tax liabilities of the MercFuel Group and the
        MAG Group (as computed pursuant to Sections 4.2(i) and (ii) above) due
        to losses or tax credits of one Group (including losses or tax credits
        carried over from prior years), the decrease in tax liability resulting
        therefrom shall be allocated 100 percent to that Group. A Group thus may
        have a "negative" income tax liability as a result of such an allocation
        (a "Loss Group"). If a Loss Group exists, the other Group shall pay to
        the Loss Group in a timely manner an amount equal to such "negative"
        income tax liability. In other words, if Tax attributes (e.g., losses or
        tax credits) of one Group are utilized by the other Group to reduce
        taxable income or Tax, as the case may be, the Group utilizing such Tax
        attributes shall pay to the other Group, with respect to losses, an
        amount equal to such reduction in taxable income resulting from the
        utilization of such losses multiplied by the top marginal federal
        corporate income Tax rate actually used by the Group utilizing the
        losses in calculating its deemed Tax liability (prior to the application
        of Tax credits against such liability) under Sections 4.2(i) and (ii)
        for the taxable period during which such losses are utilized and, with
        respect to Tax credits, an amount equal to the actual amount by which
        the deemed Tax liability calculated pursuant to Sections 4.2(i) and (ii)
        is reduced by such Tax credits for the taxable period during which such
        Tax credits are utilized.

        4.3 MercFuel Group Combined Tax Liability. With respect to any
Pre-Deconsolidation Period, the MercFuel Group Combined Tax Liability shall be
the sum for such taxable period of the MercFuel Group's liability for each
Non-Federal Combined Tax, as determined on Pro Forma MercFuel Group Combined
Returns prepared in a manner consistent with the principles and procedures set
forth in Sections 4.2(i) and (ii) hereof. The Pro Forma MercFuel Group Combined
Returns relating to Tax Returns described in clauses (ii) and (iii) of the
definition of "Combined Return" shall be prepared by including only Tax Items
and Tax Assets relating to or arising from the MercFuel Business. The principles
of Section 4.2(iii) shall also apply to this section 4.3.




                                      -11-
<PAGE>   17

        4.4 MercFuel Group Non-Federal Separate Tax Liability. With respect to
any Pre-Deconsolidation Period, the MercFuel Group Non-Federal Separate Tax
Liability shall be the sum for such taxable period of the MercFuel Group's
liability for each Non-Federal Separate Tax, as determined on Pro Forma MercFuel
Group Non-Federal Separate Returns prepared in a manner consistent with the
principles and procedures set forth in Section 4.2 hereof. The Pro Forma
MercFuel Group Non-Federal Separate Returns shall be prepared by including only
Tax Items and Tax Assets relating to or arising from the MercFuel Business.

        4.5 Cooperation.

               (a) MAG and MercFuel agree to cooperate in good faith in
        connection with the preparation of such pro forma tax returns and agree
        to make reasonably available any documents, information or employees in
        connection therewith. However, with respect to any Pre-Deconsolidation
        Period, MAG shall have the sole and exclusive responsibility for the
        preparation of any Pro Forma MercFuel Group Consolidated Returns, Pro
        Forma MercFuel Group Combined Returns and Pro Forma MercFuel Group
        Non-Federal Separate Returns and MAG shall have the exclusive right, in
        its sole discretion, to determine the proper application of the
        requirements set forth in Section 4.2 hereof.

               (b) The Pro Forma MercFuel Group Consolidated Returns, Pro Forma
        MercFuel Group Combined Returns and Pro Forma MercFuel Group Non-Federal
        Separate Returns, workpapers and other supporting documentation shall be
        completed no later than thirty (30) business days prior to the date on
        which the related Consolidated Return, Combined Return or Separate
        Return, as the case may be, is filed with the appropriate Tax Authority.

        4.6 Tax Sharing Installment Payments.

               (a) Federal Income Taxes. Not later than two (2) business days
        prior to each Estimated Tax Installment Date with respect to any
        Pre-Deconsolidation Period, the parties shall, consistent with MAG's
        current period annualization election and past practice, determine under
        the principles of Section 6655 of the Code the estimated amount of the
        related installment of the MercFuel Group Federal Income Tax Liability.
        MercFuel shall pay to MAG the amount thus determined on or before such
        Estimated Tax Installment Date.

               (b) Non-Federal Combined Taxes. MAG shall, in connection with any
        installment payment (payable with respect to any Combined Return
        prepared and filed by MAG) with respect to Non-Federal Combined Taxes
        for any Pre-Deconsolidation Period, consistent with MAG's current period
        annualization elections and past practice, determine the estimated
        amount of the related installment of the MercFuel Group Combined Tax
        Liability. From time to time, MAG may provide MercFuel with a written
        statement setting forth amounts owed by MercFuel in connection with any
        installment payments with respect to Non-Federal Combined Taxes made by
        MAG for the immediately preceding month and any other month for which a
        statement has not previously been




                                      -12-
<PAGE>   18

        provided by MAG. MercFuel shall pay the amounts set forth on any
        statement upon receipt of such statement.

               (c) Non-Federal Separate Taxes. MAG shall, in connection with any
        installment payment (payable with respect to any Separate Return
        prepared and filed by MAG) with respect to Non-Federal Separate Taxes
        for any Pre-Deconsolidation Period, consistent with MAG's current period
        annualization elections and past practice, determine the estimated
        amount of the related installment of the MercFuel Group Non-Federal
        Separate Tax Liability. From time to time, MAG may provide MercFuel with
        a written statement setting forth amounts owed by MercFuel in connection
        with any installment payments with respect to Non-Federal Separate Taxes
        made by MAG for the immediately preceding month and any other month for
        which a statement has not previously been provided by MAG. MercFuel
        shall pay the amounts set forth on any statement upon receipt of such
        statement.

        4.7 Tax Sharing True Up Payments.

               (a) Federal Income Taxes. Not later than thirty (30) business
        days following the completion of any Pro Forma MercFuel Group
        Consolidated Return, MercFuel shall pay to MAG, or MAG shall pay to
        MercFuel, as appropriate, an amount equal to the difference, if any,
        between the MercFuel Group Federal Income Tax Liability for the
        Pre-Deconsolidation Period and the aggregate amount paid by MercFuel
        with respect to such period under Section 4.6(a) of this Agreement.

               (b) Non-Federal Combined Taxes. Not later than thirty (30)
        business days following the completion of any Pro Forma MercFuel Group
        Combined Return, MercFuel shall pay to MAG, or MAG shall pay to
        MercFuel, as appropriate, an amount equal to the difference, if any,
        between the MercFuel Group Combined Tax Liability for the
        Pre-Deconsolidation Period and the amounts paid by MercFuel with respect
        to such period under Section 4.6(b) of this Agreement.

               (c) Non-Federal Separate Taxes. Not later than thirty (30)
        business days following the completion of any Pro Forma MercFuel Group
        Separate Return, MercFuel shall pay to MAG, or MAG shall pay to
        MercFuel, as appropriate, an amount equal to the difference, if any,
        between the MercFuel Group Separate Tax Liability for the
        Pre-Deconsolidation Period and the amounts paid by MercFuel with respect
        to such period under Section 4.6(c) of this Agreement.

        4.8 Redetermination Amounts. For any Pre-Deconsolidation Period or
Straddle Period, in the event of a redetermination of any Tax Item of any member
of a Consolidated Group or Combined Group as a result of a Final Determination,
the filing of a Tax refund claim or the filing of an amended Tax Return pursuant
to which Taxes are paid to a Tax Authority or a refund of Taxes is received from
a Tax Authority, MAG shall prepare, in accordance with the principles and
procedures set forth in this Section 4, revised Pro Forma MercFuel Group
Consolidated Returns, revised Pro Forma MercFuel Group Combined Returns and/or
revised Pro Forma MercFuel Group Non-Federal Separate Returns, as appropriate,
to reflect the




                                      -13-
<PAGE>   19

redetermination of such Tax Item as a result of such Final Determination, filing
of a Tax refund claim or filing of an amended Tax Return. Following the
preparation of such revised pro forma tax returns, MercFuel's payment
obligations under Sections 4.2, 4.3 and 4.4 hereof shall be redetermined to
reflect MercFuel's Tax liability pursuant to the revised Pro Forma MercFuel
Group Consolidated Returns, revised Pro Forma MercFuel Group Combined Returns
and/or revised Pro Forma MercFuel Group Non-Federal Separate Returns prepared
pursuant to this Section 4.8. MercFuel shall pay to MAG the amount by which the
Tax liability reflected on the revised Pro Forma MercFuel Group Consolidated
Returns, revised Pro Forma MercFuel Group Combined Returns and/or revised Pro
Forma MercFuel Group Non-Federal Separate Returns exceeds the Tax liability
reflected on the original Pro Forma MercFuel Group Consolidated Returns,
original Pro Forma MercFuel Group Combined Returns and/or original Pro Forma
MercFuel Group Non-Federal Separate Returns, and MAG shall pay to MercFuel the
amount by which the Tax liability reflected on the original Pro Forma MercFuel
Group Consolidated Returns, original Pro Forma MercFuel Group Combined Returns
and/or original Pro Forma MercFuel Group Non-Federal Separate Returns exceeds
the Tax liability reflected on the revised Pro Forma MercFuel Group Consolidated
Returns, revised Pro Forma MercFuel Group Combined Returns and or revised Pro
Forma MercFuel Group Non-Federal Separate Returns.

        4.9 Payment of Taxes for Post-Deconsolidation Periods. Except as
otherwise provided in this Agreement, MAG shall pay or cause to be paid all
Taxes and shall be entitled to receive and retain all refunds of Taxes with
respect to Tax Returns relating to Post-Deconsolidation Periods for which MAG
has filing responsibility, including under this Agreement. Except as otherwise
provided in this Agreement, MercFuel shall pay or cause to be paid all Taxes and
shall be entitled to receive and retain all refunds of Taxes with respect to Tax
Returns relating to Post-Deconsolidation Periods for which MercFuel has filing
responsibility, including under this Agreement.


                                    SECTION 5
                                 TAX ATTRIBUTES

        5.1 Allocation of Tax Items.

               (a) In General. All Tax computations for (i) any
        Pre-Deconsolidation Period ending on a Deconsolidation Date, (ii) the
        immediately following taxable period of MercFuel or any MercFuel
        Affiliate and (iii) any Straddle Period, shall be made pursuant to the
        principles of Section 1.1502-76(b) of the Treasury Regulations or of a
        corresponding provision under the laws of other jurisdictions and, to
        the extent possible, in a manner consistent with the principles set
        forth in Section 4.2(a) of this Agreement.

               (b) Reattribution. In the event of a Deconsolidation, MAG may, at
        its option, elect to reattribute to itself certain Tax Items of the
        MercFuel Group pursuant to Section 1.1502-20(g) of the Treasury
        Regulations. If MAG makes such election, MercFuel shall comply with the
        requirements of Section 1.1502-20(g)(5) of the Treasury Regulations.

        5.2 Post-Deconsolidation. To the extent permitted by applicable law,
following any Deconsolidation, the relevant Tax Assets with respect to the
Consolidated Group or Combined




                                      -14-
<PAGE>   20

Group, as the case may be, shall be allocated to the corporation or entity that
created or generated the Tax Asset.


                                    SECTION 6
                             ADDITIONAL OBLIGATIONS

        6.1 Provision of Information and Mutual Cooperation.

               (a) MAG and MercFuel shall, and shall cause their respective
        affiliates to, (1) furnish to the other in a timely manner such
        information, documents and other materials as the other may reasonably
        request for purposes of (i) preparing any Tax Return (or pro forma Tax
        Return prepared in accordance with Section 4 hereof) or portion thereof
        for which the other has responsibility for preparing under this
        Agreement, (ii) contesting or defending any Audit (including the
        provision of such information, documents and other materials as may be
        requested by any Tax Authority), and (iii) making any determination or
        computation necessary or appropriate under this Agreement, (2) make its
        employees available to the other to provide explanations of documents
        and materials and such other information as the other may reasonably
        request in connection with any of the matters described in subclauses
        (i), (ii) and (iii) of clause (1) above, (3) reasonably cooperate in
        connection with any Audit. For purposes of this Agreement, "timely"
        shall mean furnishing such information, documents and other materials or
        making its employees available within thirty (30) days of the time a
        request therefor is made by the other.

               (b) In the event that either MAG or MercFuel or their respective
        affiliates shall fail for any reason to timely comply with any written
        request pursuant to Section 6.1, MAG or MercFuel, as the case may be,
        may, in its sole discretion, have its employees or agents fulfill such
        request and charge the non-complying party for its costs incurred in
        fulfilling such request at the highest hourly rate then shown on the
        Appendix attached hereto but not less than $5,000 for each such request.
        For purposes of this Section 6.1(b), each written request made by any
        Tax Authority and properly forwarded by one party to the other for
        action shall be deemed a separate request.

               (c) MAG and MercFuel shall, and shall cause their respective
        affiliates to, retain and provide on reasonable demand books, records,
        documentation or other information relating to any Tax Return or Audit,
        with respect to any taxable period in which MAG owns, directly or
        indirectly, 50% or more (by vote or value) of the outstanding stock of
        MercFuel, until the later of (i) the expiration of the applicable
        statute of limitations (after giving effect to any extension, waiver, or
        mitigation thereof) and (ii) in the event any claim is made under this
        Agreement or by any Tax Authority for which such information is
        relevant, until a Final Determination is reached with respect to such
        claim. Notwithstanding anything to the contrary included in this
        Agreement, the parties will comply in all respects with the requirements
        of any applicable record retention agreement with the Service or other
        Tax Authority.

               (d) Notwithstanding any other provision of this Agreement, no
        member of the MAG Group shall be required to provide MercFuel or any
        MercFuel Affiliate access to or




                                      -15-
<PAGE>   21

        copies of (1) any Tax information that relates exclusively to any member
        of the MAG Group, (2) any Tax information as to which any member of the
        MAG Group is entitled to assert the protection of any Privilege, or (3)
        any Tax information as to which any member of the MAG Group is subject
        to an obligation to maintain the confidentiality of such information.
        MAG shall use reasonable efforts to separate any such information from
        any other information to which MercFuel is entitled to access or to
        which MercFuel is entitled to copy under this Agreement, to the extent
        consistent with preserving its rights under this Section 6.1(d).

               (e) Notwithstanding any other provision of this Agreement, with
        respect to Tax information that relates to any taxable period in which
        MercFuel is no longer included in the Consolidated Group of which MAG is
        the common parent and no Combined Return is filed, no member of the
        MercFuel Group shall be required to provide MAG or any MAG Affiliate
        access to or copies of (1) any Tax information as to which any member of
        the MercFuel Group is entitled to assert the protection of any Privilege
        or (2) any Tax information as to which any member of the MercFuel Group
        is subject to an obligation to maintain the confidentiality of such
        information. MercFuel shall use reasonable efforts to separate any such
        information from any other information to which MAG is entitled to
        access or to which MAG is entitled to copy under this Agreement, to the
        extent consistent with preserving its rights under this Section 6.1(e).

               (f) The parties agree to give the other party reasonable written
        notice prior to destroying or discarding any records pertaining to the
        Pre-Deconsolidation Period or Straddle Period records, and if the other
        party so requests, the party shall allow the other party to take
        possession of such tax records. Tax records shall include, inter alia,
        journal vouchers, cash vouchers, general ledgers, material contracts,
        authorizations for expenditures, and copies of returns.

        6.2 Indemnification.

               (a) General. MAG shall be liable for (and indemnify MercFuel and
        each MercFuel Affiliate against) Taxes of the MAG Group and its
        Affiliates (including the MercFuel Group) not specifically allocated to
        MercFuel and the MercFuel Affiliates under this Agreement, and MercFuel
        shall be liable for and indemnify the MAG Group against Taxes which are
        specifically allocated to MercFuel and the MercFuel Affiliates under
        this Agreement.

               (b) Failure to Pay. MAG and each MAG Affiliate shall jointly and
        severally indemnify and hold MercFuel and each MercFuel Affiliate
        harmless from and against any Tax that is attributable to, or results
        from the failure of MAG or any MAG Affiliate to make any payment
        required to be made by them under this Agreement, including without
        limitation any Tax for all Pre-Deconsolidation Periods (other than any
        Tax described in the succeeding sentence). MercFuel and each MercFuel
        Affiliate shall jointly and severally indemnify and hold MAG and each
        MAG Affiliate harmless from and against any Tax that is attributable to,
        or results from, the failure of MercFuel or any MercFuel Affiliate to
        make any payment required to be made under this Agreement.




                                      -16-
<PAGE>   22

               (c) Inaccurate or Incomplete Information. MAG and each MAG
        Affiliate shall jointly and severally indemnify MercFuel and hold
        MercFuel and each MercFuel Affiliate harmless from and against any Tax
        or loss attributable to the negligence of MAG or any MAG Affiliate in
        supplying MercFuel or any MercFuel Affiliate with inaccurate or
        incomplete information, in connection with the preparation of any Tax
        Return or any Audit. MercFuel and each MercFuel Affiliate shall jointly
        and severally indemnify and hold MAG and each MAG Affiliate harmless
        from and against any Tax or loss attributable to the negligence of
        MercFuel or any MercFuel Affiliate in supplying MAG or any MAG Affiliate
        with inaccurate or incomplete information, in connection with the
        preparation of any Tax Return or any Audit.

        6.3 Tax Consequences of Payments. For all Tax purposes and
notwithstanding any other provision of this Agreement, to the extent permitted
by applicable law, the parties hereto shall treat any payment made pursuant to
this Agreement (other than any payment made in satisfaction of an intercompany
obligation) as a capital contribution or dividend distribution, as the case may
be, immediately prior to the Separation Date and, accordingly, as not includible
in the taxable income of the recipient. If, as a result of a Final
Determination, it is determined that the receipt or accrual of any payment made
under this Agreement is taxable to the recipient, the payor shall pay to the
recipient an amount equal to any increase in the Income Taxes of the recipient
as a result of receiving the payment from the payor (grossed up to take into
account such payment, if applicable).

        6.4 Interest. Payments pursuant to this Agreement that are not made
within the period prescribed in this Agreement or, if no period is prescribed,
within thirty (30) business days after demand for payment is made (the "Payment
Period") shall bear interest for the period from and including the date
immediately following the last date of the Payment Period through and including
the date of payment (the "Interest Accrual Period") at a per annum rate equal to
the prime rate (as quoted in the Wall Street Journal) in effect on the last day
of such Payment Period, plus 200 basis points. Such interest will be payable at
the same time as the payment to which it relates and shall be calculated on the
basis of a year of 365 days and the actual number of days for which due.

        6.5 Outside Fees. For any Pre-Deconsolidation Period, MercFuel and all
MercFuel Affiliates will be allocated their proportional share of all outside
fees as determined by MAG. For purposes of this Section 6.5, outside fees will
be allocated to the period to which they relate (as MAG shall in its sole
discretion determine) and not the period in which they may be incurred. Outside
fees include (but are not limited to) accounting, legal and other fees for
preparation and filing of Tax Returns, Tax research, planning, strategy, and
assistance with Tax Audits. The allocated amount will be billed to the MercFuel
Group and is due upon receipt.

        6.6 Carrybacks. MercFuel shall make an election under Section 172(b)(3)
of the Code to relinquish the entire carryback period with respect to any net
operating loss attributable to MercFuel or any MercFuel Affiliate in any taxable
period beginning on or after a Deconsolidation Date that could be carried back
to a taxable year of MercFuel or any MercFuel Affiliate ending on or before the
Deconsolidation Date. Neither MAG nor any member of the




                                      -17-
<PAGE>   23

MAG Group shall be required to pay to MercFuel or any MercFuel Affiliate any
refund or credit of Taxes that results from the carryback to any taxable period
ending on or before the Deconsolidation Date of any net operating loss, capital
loss, or tax credit attributable to MercFuel or any MercFuel Affiliate in any
taxable period beginning on or after the Deconsolidation Date.


                                    SECTION 7
                                     AUDITS

        7.1 In General.

               (a) MAG shall have the exclusive right, in its sole discretion,
        to control, contest, and represent the interests of MAG, any MAG
        Affiliate, MercFuel or any MercFuel Affiliate in any Audit relating to
        any Tax Return described in Sections 2.1(a) and (b) of this Agreement
        and to resolve, settle or agree to any deficiency, claim or adjustment
        proposed, asserted or assessed in connection with or as a result of any
        such Audit. MAG's rights shall extend to any matter pertaining to the
        management and control of an Audit, including, without limitation,
        execution of waivers, choice of forum, scheduling of conferences and the
        resolution of any Tax Item.

               (b) MAG shall keep MercFuel informed of all material developments
        and events pertaining to any Audit that relates directly to any Tax Item
        included in any Consolidated Return or Combined Return for which
        MercFuel is responsible for the resulting tax liability. MercFuel shall
        have the right to review at its own expense any materials that it may
        reasonably request that pertain to any Audit that relates directly to
        any Tax Item included in any Consolidated Return or Combined Return for
        which MercFuel is responsible for the resulting tax liability.

               (c) MercFuel shall have the exclusive right, in its sole
        discretion, to control, contest, and represent the interests of MercFuel
        or any MercFuel Affiliate in any Audit relating to any Tax Return
        described in Section 2.1(c) of this Agreement and to resolve, settle, or
        agree to any deficiency, claim or adjustment proposed, asserted or
        assessed in connection with or as a result of any such Audit.

        7.2 Notice. If MAG or any member of the MAG Group receives written
notice of, or relating to, an Audit from a Tax Authority that asserts, proposes
or recommends a deficiency, claim or adjustment that, if sustained, would result
in the redetermination of a Tax Item of a member of the MercFuel Group, MAG
shall promptly provide a copy of such notice to MercFuel (but in no event later
than thirty (30) business days following the receipt of such notice). If
MercFuel or any member of the MercFuel Group receives written notice of, or
relating to, an Audit from a Tax Authority with respect to a Tax Return
described in Section 2.1(a) or (b) of this Agreement, MercFuel shall promptly
provide a copy of such notice to MAG (but in no event later than thirty (30)
business days following the receipt of such notice).

        7.3 Failure to Notify. The failure of MAG or MercFuel to notify the
other of any matter relating to a particular Tax for a taxable period or to take
any action specified in this




                                      -18-
<PAGE>   24

        Agreement shall not relieve such other party of any liability and/or
        obligation which it may have under this Agreement with respect to such
        Tax for such taxable period except to the extent that such other party's
        rights hereunder are materially prejudiced by such failure.

        7.4 Remedies. MercFuel agrees that no claim against MAG and no defense
to MercFuel' liabilities to MAG under this Agreement shall arise from the
resolution by MAG of any deficiency, claim or adjustment relating to the
redetermination of any Tax Item of MAG or a MAG Affiliate.


                                    SECTION 8
                                       IPO

        8.1 IPO Related Items.

               (a) Liability for Separation Taxes and Deconsolidation Taxes.
        Only except as provided in Section 8.1(b) hereof, MAG shall be
        responsible for the payment of, and shall indemnify and hold MercFuel
        harmless from and against, any Separation Taxes and Deconsolidation
        Taxes.

               (b) Liability for Undertaking Certain Actions. Notwithstanding
        Section 8.1(a) of this Agreement, MercFuel and each member of the
        MercFuel Group shall be jointly and severally responsible for, and shall
        indemnify and hold MAG harmless from and against, any Separation Taxes
        that are attributable to, or result from, (i) any action taken by
        MercFuel or any member of the MercFuel Group that was not contemplated
        by the parties in connection with the Separation (including, without
        limitation, by taking any action not contemplated in connection with
        obtaining a ruling from any Tax Authority or an opinion from tax
        counsel) or (ii) the failure by MercFuel or any member of the MercFuel
        Group to take any action that MercFuel is responsible for taking under
        this Agreement, the Master Distribution Agreement or any other agreement
        related to the Separation or the IPO (including, without limitation, by
        failing to make an election or enter into a transaction specifically
        required in connection with obtaining a ruling from any Tax Authority or
        an opinion from tax counsel). Each of the parties hereto agrees to act
        in good faith and without negligence in connection with the Tax
        reporting of and all other aspects related to the Tax consequences of
        the Separation and any Deconsolidation and shall be responsible for any
        Taxes or losses arising from any failure to act in good faith or any
        negligent act or omission with respect thereto.

        8.2 Tax Reporting of IPO Related Items.

               (a) Separation Taxes. Any Tax Return (or portion thereof) that
        includes any Tax Item resulting from the Separation shall be prepared
        and filed by MAG.

               (b) Deconsolidation Taxes. Any Tax Return (or portion thereof)
        that includes any Tax Item relating to any Deconsolidation (to the
        extent resulting in Deconsolidation Taxes) shall be prepared and filed
        by MAG.




                                      -19-
<PAGE>   25

        8.3 Audits Relating to Separation. Notwithstanding any other provision
of this Agreement, MAG shall have the exclusive right, in its sole discretion,
to control, contest, and represent the interests of MAG, any MAG Affiliate,
MercFuel or any member of the MercFuel Group in any Audit with respect to Tax
Items related to the Separation or Deconsolidation (to the extent resulting in
Deconsolidation Taxes), and to resolve, settle or agree to any deficiency, claim
or adjustment proposed, asserted or assessed in connection with or as a result
of any such Audit. MAG's rights shall extend to any matter pertaining to the
management and control of an Audit, including execution of waivers, choice of
forum, scheduling of conferences and the resolution of any Tax Item.

        8.4 Provision of Information and Mutual Cooperation. In addition to the
parties' respective obligations under Section 6.1 and subject to the provisions
of Section 6.1(b) of this Agreement, MAG and MercFuel shall, and shall cause
their respective Affiliates to, cooperate with respect to all aspects of the
Separation including, without limitation, by (1) furnishing to the other in a
timely manner such information, documents and other materials as the other may
reasonably request for purposes of (i) preparing any Tax Return that includes
Tax Items relating to or arising from the Separation and (ii) contesting or
defending any Audit with respect to Tax Items relating to or arising from the
Separation and (2) make its employees available to the other to provide
explanations of documents and materials and such other information as the other
may reasonably request in connection with any of the matters described in
subclauses (i) and (ii) of clause (1) above.

        8.5 Press Releases. Notwithstanding any other provision of this
Agreement to the contrary, MAG shall have the exclusive right, in its sole
discretion, to review and approve all press releases and other public
communications with respect to the subjects to which this Agreement relates
prior to their release. MercFuel shall provide all such press releases or other
public communication to MAG no later than one (1) day prior to their proposed
release date at the place and manner specified in Section 11.2 of this
Agreement.


                                    SECTION 9
                                  DISTRIBUTION

        9.1 Distribution Related Items.

               (a) Restrictions on Certain Post-Distribution Actions. MercFuel
        agrees that it will not take or fail to take, or permit any member of
        the MercFuel Group to take or fail to take, any action where such action
        or failure to act would be inconsistent with any material, information,
        covenant or representation in the Opinion Documents or the Opinion.

               (b) Certain MercFuel Actions Following Distribution.

                      (1) Covenants. Without limiting the generality of Section
               9.1(a), MercFuel and each member of the MercFuel Group jointly
               and severally covenant and agree with MAG that during the
               Restricted Period:




                                      -20-
<PAGE>   26

                             (i) MercFuel and the members of the MercFuel Group
                      will continue to engage in their business, and will
                      continue to maintain a substantial portion of their
                      respective assets and business operations, as they existed
                      immediately prior to the Distribution; provided that the
                      foregoing shall not be deemed to prohibit MercFuel and the
                      members of the MercFuel Group from entering into or
                      acquiring other businesses or operations or from disposing
                      of or shutting down segments of such businesses so long as
                      MercFuel and the members of the MercFuel Group continue to
                      engage in such businesses and continue to so maintain such
                      substantial portion of their assets and business
                      operations;

                             (ii) MercFuel will continue to manage and to own
                      (A) directly, assets which represent at least 50% of the
                      Gross Asset Value which MercFuel managed and owned
                      directly immediately after the Distribution, and (B)
                      directly or indirectly, through one or more entities,
                      assets which represent at least 50% of the Gross Asset
                      Value which MercFuel owned indirectly through one or more
                      entities immediately after the Distribution;

                             (iii) Except as provided in Section 9.1(b)(3),
                      neither MercFuel nor any member of the MercFuel Group nor
                      any of its or their respective directors, officers or
                      other representatives (acting in their capacity as
                      directors, officers, or representatives) will undertake,
                      authorize, approve, recommend, permit, facilitate, or
                      enter into any contract, or consummate any transaction
                      with respect to:

                                    (a) the issuance of MercFuel common stock
                             (including options, warrants, rights or securities
                             exercisable for, or convertible into, MercFuel
                             common stock) in a single transaction or in a
                             series of related or unrelated transactions
                             (including the IPO) which represents (treating any
                             such options, warrants, rights, or securities as
                             exercised or converted) 40% or more of the
                             outstanding shares of MercFuel common stock;

                                    (b) the issuance of any class or series of
                             capital stock or any other instrument (other than
                             MercFuel common stock and options, warrants, rights
                             or securities exercisable for, or convertible into,
                             MercFuel common stock) that would constitute equity
                             for federal tax purposes (such classes or series of
                             capital stock and other instruments being referred
                             to herein as "Disqualified MercFuel Stock");

                                    (c) the issuance of any options, rights,
                             warrants, securities or similar arrangements
                             exercisable for, or convertible into, Disqualified
                             MercFuel Stock;




                                      -21-
<PAGE>   27

                                    (d) the dissolution, merger, or complete or
                             partial liquidation of MercFuel or any announcement
                             of such action; and/or

                                    (e) any other action that may result in the
                             Distribution being characterized as a distribution
                             to which section 355(e) applies.

                      (2) In addition to the other representations, warranties,
               covenants and agreements set forth in this Agreement, MercFuel
               and each member of the MercFuel Group will take, or refrain from
               taking, as the case may be, such actions as MAG may request to
               ensure that the Distribution qualifies for tax-free treatment
               stated in any Ruling or the Opinion, including, without
               limitation, such actions as MAG determines may be necessary or
               advisable to preserve the validity of the Ruling. Without
               limiting the generality of the foregoing and subject to the
               provisions of Section 6.1(b), MercFuel and the MercFuel Group
               shall cooperate with MAG if MAG, in its sole discretion,
               determines to obtain additional or supplemental rulings
               pertaining to whether any actual or proposed change in facts and
               circumstances affects the tax-free status of the Distribution.
               The MAG Group shall bear responsibility for all expenses
               associated with any such additional or supplemental rulings,
               except that expenses associated with any additional or
               supplemental rulings based on a proposed action or omission by
               MercFuel or a member of the MercFuel Group will be borne solely
               by MercFuel.

                      (3) Following the Deconsolidation Date and during the
               Restricted Period, neither MercFuel nor any member of the
               MercFuel Group shall take any action or engage in conduct
               otherwise prohibited by Section 9.1(b) unless prior to such
               action or conduct, as the case may be, MercFuel receives express
               written consent from MAG which consent will be granted, if at
               all, in the sole discretion of MAG.

               (c) Liability of MercFuel for Certain Transactions.

                      (1) MercFuel Indemnity. If MercFuel, or another member (or
               former member) of the MercFuel Group (collectively, the
               "Indemnifying Parties") takes or fails to take any action whether
               or not prohibited or required by Section 9.1 or violates a
               representation or covenant in Section 9.1 or in the Ruling
               Documents, and the Distribution fails to or otherwise does not
               qualify for the tax treatment stated in the Ruling or the Opinion
               as a result of such action, failure to take action, or violation,
               then the Indemnifying Parties shall jointly and severally defend,
               indemnify and hold harmless (the "Indemnified Party") against any
               liability for such Taxes which the Indemnified Party may assume
               or otherwise incur and any and all Taxes or other liabilities
               directly or indirectly imposed upon or incurred by the
               Indemnified Party as a result of such failure or lack of
               qualification, including, without limitation, any liability of
               the Indemnified Party arising from Taxes imposed on shareholders
               of MAG whether or not any shareholder or shareholders




                                      -22-
<PAGE>   28

               of MAG or MercFuel, or the Service or other taxing authority,
               successfully seeks recourse against the Indemnified Party on
               account of any such failure.

                      (2) Tender Offer or Purchase Offer. Notwithstanding
               anything to the contrary set forth in this Agreement, if, during
               the Restricted Period, any Person or group of Affiliated Persons
               or Associates acquires Beneficial Ownership of MercFuel common
               stock (or any other class of outstanding MercFuel stock) or
               commences a tender or other purchase offer for the capital stock
               of MercFuel or initiates any other form of transaction to acquire
               directly or indirectly MercFuel capital stock, upon consummation
               of which such Person or Group of Affiliated Persons or Associates
               would acquire Beneficial Ownership of MercFuel common stock (or
               any other class of outstanding MercFuel stock or equity) and as a
               result thereof the Distribution fails to or otherwise does not
               qualify for the tax treatment stated in the Ruling then the
               Indemnifying Parties shall defend, indemnify and hold harmless
               the Indemnified Party against any liability for Taxes which the
               Indemnified Party may assume or otherwise incur and any and all
               Taxes or other liabilities directly or indirectly imposed upon or
               incurred by any Indemnified Party and/or its shareholders as a
               result of such failure.

                      (3) Effect Of Express Written Consent of MAG. The
               Indemnified Party shall be defended, indemnified and held
               harmless under Section 9.1(c)(1) without regard to the fact that
               the Indemnifying Party may have received the express written
               consent of MAG as contemplated by Section 9.1. The Indemnified
               Party shall be defended, indemnified and held harmless under
               Section 9.1(c)(2) whether or not the acquisition of Beneficial
               Ownership results from a transaction that is not prohibited under
               Section 9.1.

                      (4) Amount of Indemnity. The amount indemnified against
               under Sections 9.1(c)(1)-(3) ("Indemnified Liability") for a Tax
               based on or determined with reference to income shall be deemed
               to be the sum of (x) for each applicable taxing jurisdiction, an
               amount determined by multiplying (i) the taxing jurisdiction's
               highest marginal corporate income tax rate for the taxable period
               in which the Distribution occurs, times (ii) the gain or income
               of the Indemnified Party which is subject to such Tax, plus (y)
               an amount determined by multiplying (i) an assumed marginal
               income tax rate of 45%, times (ii) the total amount of gain or
               income asserted as allocable to or imposed on the shareholders of
               MAG and/or MercFuel by the Service or any other Tax Authority. In
               the case of other Indemnified Liabilities, the amount of the
               Indemnified Liability shall be equal to the amount so owed. In
               addition, the amount of any Indemnified Liability shall be
               increased by any interest, costs, legal and professional fees,
               additions, expenses and penalties incurred by the Indemnified
               Party. All amounts payable under this Section 9.1(c)(4) shall, to
               the extent that such amounts constitute taxable income, be
               grossed-up, based on the tax rate referred to in clause (x)(i) of
               the first sentence of this Section 9.1(c)(4).




                                      -23-
<PAGE>   29

               (d) Liability for Breach of Representation. MercFuel shall, and
        shall cause each member of the MercFuel Group to, comply with each
        representation and statement concerning MercFuel and the MercFuel Group
        made in the Ruling Documents and in the materials submitted to the
        Service in connection with the Ruling Documents, and to comply with each
        representation and statement concerning MercFuel and the MercFuel Group
        made in the Opinion Documents and in material submitted to Tax Counsel
        in connection with the Opinion Documents. MercFuel has reviewed the
        materials submitted to the Service in connection with the Ruling
        Documents and material submitted to Tax Counsel in connection with the
        Opinion Documents and represents to MAG that these materials, including
        without limitation, any statements and representations concerning
        MercFuel, its business operations, capital structure and/or
        organization, are complete and accurate. During the Restricted Period,
        neither MercFuel nor any member of the MercFuel Group shall take any
        action, refrain from taking any action or enter into any transaction or
        series of transactions or agree to take any action, refrain from taking
        any action or enter into any transaction or series of transactions that
        could jeopardize the tax-free status of the Distribution, including any
        action, inaction or transaction that would be inconsistent with any
        representation or statement made to the Service in connection with the
        Ruling Documents and any representation or statement made by Tax Counsel
        in connection with the Opinion Documents, unless prior thereto MercFuel
        obtains the express written consent of MAG which consent will be
        granted, if at all, in the sole discretion of MAG. MercFuel hereby
        represents and warrants to MAG that MercFuel has no intention to
        undertake or allow to be undertaken any of the transactions set forth in
        Section 9.1(d)(1)(iii), nor does MercFuel or any member of the MercFuel
        Group have any intention to cease to engage in the active conduct of its
        trade or business (within the meaning of Section 355(b)(2) of the Code).

        9.2 Information for Shareholders. MAG shall provide each shareholder
that receives stock of MercFuel pursuant to the Distribution with the
information necessary for such shareholder to comply with the requirements of
Section 355 of the Code and the Treasury regulations thereunder with respect to
statements that such shareholders must file with their United States federal
income Tax Returns demonstrating the applicability of Section 355 of the Code to
the Distribution.

        9.3 Allocation of Tax Assets. In connection with the Distribution, Tax
Assets shall be allocated among MAG, each MAG Affiliate, MercFuel and each
MercFuel Affiliate in accordance with applicable law. The parties hereby agree
that in the absence of controlling legal authority, Tax Assets shall be
allocated to the entity that created or generated the Tax Asset.


                                   SECTION 10
                                  STOCK OPTIONS

        10.1 Stock Option Adjustments. Pursuant to the terms of the Employee
Matters Agreement, concurrently with the Distribution MAG will adjust certain
options to acquire its stock (the "MAG Common Stock Options") and MercFuel will
grant options to acquire its stock (the "MercFuel Common Stock Options") to
employees of both MAG and MercFuel as follows:




                                      -24-
<PAGE>   30

               (i) the terms, conditions and/or price of MAG Common Stock
        Options held by employees of the MAG Group at the time of the
        Distribution will be adjusted in a manner that preserves 100% of the
        intrinsic value of such options held by MAG employees immediately prior
        to the Distribution;

               (ii) the terms conditions and/or price of the of the MAG Common
        Stock Options of employees of the MercFuel Group at the time of the
        Distribution will be adjusted in a manner that preserves none of the
        intrinsic value of such options held by MAG employees immediately prior
        to the Distribution; and

               (iii) MercFuel shall grant to employees of the MercFuel Group who
        hold MAG Common Stock Options a number of options to purchase MercFuel
        Common Stock that will replace 100% of the intrinsic value of the MAG
        Common Stock Options held by such employees immediately prior to the
        Distribution.

        10.2 Notices, Withholding.

               (a) MAG shall promptly notify MercFuel of any post-Distribution
        Date event giving rise to income to any MercFuel Group employees and
        former employees in connection with the MAG Common Stock Options and, if
        required by law, MercFuel shall withhold applicable Taxes and satisfy
        applicable Tax reporting obligations in connection therewith. MAG shall
        within ten days of demand thereof reimburse MercFuel for all reasonable
        out-of-pocket expenses incurred in connection with the MAG Common Stock
        Options, including with respect to incremental Tax reporting obligations
        and any incremental employment Tax obligations; provided that MercFuel
        shall use reasonable efforts to collect any such amounts required to be
        paid by MercFuel Group employees and former employees from such MercFuel
        Group employees and former employees.

               (b) MercFuel shall promptly notify MAG of any post-Distribution
        Date event giving rise to income to any non-MercFuel Group Employees and
        former employees in connection with the MAG Common Stock Options and/or
        MercFuel Common Stock Options and, if required by law, MAG shall
        withhold applicable Taxes and satisfy applicable Tax reporting
        obligations in connection therewith. MAG shall within ten days of demand
        thereof reimburse MercFuel for all reasonable out-of-pocket expenses
        incurred in connection with the MAG Common Stock Options and/or MercFuel
        Common Stock Options, including with respect to incremental Tax
        reporting obligations and any incremental employment Tax obligations;
        provided that MAG shall use reasonable efforts to collect any such
        amounts required to be paid by non-MercFuel Group Employees and Former
        Employees from such non-MercFuel Group Employees and Former Employees.


                                   SECTION 11
                                  MISCELLANEOUS

        11.1 Effectiveness. This Agreement shall become effective on the
Separation Date.




                                      -25-
<PAGE>   31

        11.2 Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and, unless otherwise provided herein,
shall be deemed to have been duly given (i) on the date of service if served
personally on the party to whom notice is given, (ii) on the day of transmission
if sent via facsimile transmission to the facsimile number given below;
provided, telephonic confirmation of receipt is obtained promptly after
completion of transmission, (iii) on the business day after delivery to an
overnight courier service or the Express mail service maintained by the United
States Postal Service; provided, receipt of delivery has been confirmed, or (iv)
on the fifth day after mailing; provided, receipt of delivery is confirmed, if
mailed to the party to whom notice is to be given, by first class mail,
registered or certified, postage prepaid, properly addressed and return-receipt
requested, to the party as follows:

<TABLE>
<S>                                                <C>
If to MAG or any MAG Affiliate, to:                Copy to:

Mercury Air Group, Inc.                            McBreen & Kopko
5456 McConnell Avenue                              20 North Wacker Drive, Suite 2520
Los Angeles, California  90066                     Chicago, Illinois  60606
Attention:  Chief Executive Officer                Attention:  Frederick H. Kopko, Jr.
Facsimile:  (310) 827-0650                         Facsimile:  (312) 332-2657


If to MercFuel or any MercFuel Affiliate to:       Copy to:

MercFuel, Inc.                                     McBreen & Kopko
5456 McConnell Avenue                              20 North Wacker Drive, Suite 2520
Los Angeles, California  90066                     Chicago, Illinois  60606
Attention:  Chief Executive Officer                Attention:  Frederick H. Kopko, Jr.
Facsimile:  (310) 827-0650                         Facsimile:  (312) 332-2657
</TABLE>


Any party may change its address or fax number by giving the other party written
notice of its new address or fax number in the manner set forth above.

        11.3 Changes in Law. Any reference to a provision of the Code or a law
of another jurisdiction shall include a reference to any applicable successor
provision or law.

        11.4 Successors and Assigns. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by either
party without the prior written consent of the other party.

        11.5 Authorization, Etc. Each of the parties hereto hereby represents
and warrants that it has the power and authority to execute, deliver and perform
this Agreement, that this Agreement has been duly authorized by all necessary
corporate action on the part of such party, that this Agreement constitutes a
legal, valid and binding obligation of each such party and that the execution,
delivery and performance of this Agreement by such party does not contravene or




                                      -26-
<PAGE>   32

conflict with any provision of law or of its charter or bylaws or any agreement,
instrument or order binding on such party.

        11.6 Complete Agreement. This Agreement shall constitute the entire
agreement between MAG or any MAG Affiliate and MercFuel or any MercFuel
Affiliate with respect to the subject matter hereof and shall supersede all
previous negotiations, commitments and writings with respect to such subject
matter. Unless the context indicates otherwise, any reference to MercFuel in
this Agreement shall refer to MercFuel and the MercFuel Affiliates and any
reference to MAG in this Agreement shall refer to MAG and the MAG Affiliates.

        11.7 Interpretation. The Section headings contained in this Agreement
are solely for the purpose of reference, are not part of the agreement of the
parties and shall not in any way affect the meaning or interpretation of this
Agreement. Whenever any words are used herein in the masculine gender, they
shall be construed as though they were also used in the feminine gender in all
cases where they would so apply.

        11.8 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of California (regardless
of the laws that might otherwise govern under applicable principles of conflicts
law) as to all matters, including, without limitation, matters of validity,
construction, effect, performance and remedies.

        11.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

        11.10 Legal Enforceability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

        11.11 No Third Party Beneficiaries. This Agreement is solely for the
benefit of MAG, the MAG Affiliates, MercFuel and the MercFuel Affiliates, and is
not intended to confer upon any other person any rights or remedies hereunder.

        11.12 Jurisdiction; Forum.

               (a) By the execution and delivery of this Agreement, MAG and
        MercFuel submit and agree to cause the MAG Affiliates and MercFuel
        Affiliates, respectively, to submit to the personal jurisdiction of any
        state or federal court in the State of California in any suit or
        proceeding arising out of or relating to this Agreement.

               (b) To the extent that MAG, MercFuel, any MAG Affiliate or any
        MercFuel Affiliate has or hereafter may acquire any immunity from
        jurisdiction of any California court or from any legal process (whether
        through service or notice, attachment prior to judgment, attachment in
        aid of execution, execution or otherwise) with respect to itself or




                                      -27-
<PAGE>   33

        its property, MAG or MercFuel, as the case may be, hereby irrevocably
        waives, and agrees to cause the MAG Affiliates and the MercFuel
        Affiliates, respectively, to waive such immunity in respect of its
        obligations with respect to this Agreement.

               (c) The parties hereto agree that an appropriate and convenient,
        non-exclusive forum for any disputes between any of the parties hereto
        or the MAG Affiliates and the MercFuel Affiliates arising out of this
        Agreement shall be in any state or federal court in the State of
        California.

        11.13 Amendment and Modification. This Agreement may be amended,
modified or supplemented only by written agreement of the parties.

        IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by a duly authorized officer as of the date first above written.



MERCURY AIR GROUP, INC.
on behalf of itself and its affiliates



By: _______________________________________
Its:




MERCFUEL, INC.
on behalf of itself and its affiliates



By: _______________________________________
Its:




                                      -28-