<PAGE>   1
                                                                    EXHIBIT 10.2








                          MASTER DISTRIBUTION AGREEMENT


                                     BETWEEN


                             MERCURY AIR GROUP, INC.


                                       AND


                                 MERCFUEL, INC.






<PAGE>   2

                                TABLE OF CONTENTS



<TABLE>
<CAPTION>
                                                                                              PAGE
                                                                                              ----
<S>                                                                                           <C>
ARTICLE I - DOCUMENTS AND ITEMS TO BE DELIVERED ON THE EFFECTIVE DATE..................          1

        1.1  Documents to be Delivered by MAG..........................................          1
        1.2  Documents to be Delivered by MercFuel.....................................          2

ARTICLE II - THE DISTRIBUTION..........................................................          2

        2.1  The Distribution..........................................................          2
        2.2  Actions Prior to the Distribution.........................................          3
        2.3  Sole Discretion of MAG....................................................          3
        2.4  Conditions Precedent to Distribution......................................          4
        2.5  Fractional................................................................          4

ARTICLE III - COVENANTS AND OTHER MATTERS..............................................          5

        3.1  Other Agreements..........................................................          5
        3.2  Further Instruments.......................................................          5
        3.3  Additional Transitional Services Agreements...............................          6
        3.4  Agreement for Exchange of Information.....................................          6
        3.5  Auditors and Audits; Annual and Quarterly Statements and Accounting.......          7
        3.6  Consistency with Past Practices...........................................          9
        3.7  Payment of Expenses.......................................................          9
        3.8  Foreign Subsidiaries......................................................          9
        3.9  Dispute Resolution........................................................         10
        3.10  Governmental Approvals...................................................         11
        3.11  No Representation or Warranty............................................         11
        3.12  Non-Solicitation of Employees............................................         11
        3.13  Employee Agreements Definition...........................................         11
        3.14  Cooperation in Obtaining New Agreements..................................         13

ARTICLE IV - MISCELLANEOUS.............................................................         14

        4.1  Limitation of Liability...................................................         14
        4.2  Entire Agreement..........................................................         14
        4.3  Governing Law.............................................................         14
        4.4  Termination...............................................................         14
        4.5  Notices...................................................................         14
        4.6  Counterparts..............................................................         15
        4.7  Binding Effect; Assignment................................................         15
        4.8  Severability..............................................................         15
        4.9  Failure or Indulgence Not Waiver; Remedies Cumulative.....................         15
</TABLE>




                                      -ii-



<PAGE>   3

<TABLE>
<S>                                                                                             <C>
        4.10  Amendment................................................................         15
        4.11  Authority................................................................         16
        4.12  Interpretation...........................................................         16
        4.13  Conflicting Agreements...................................................         16

ARTICLE V - DEFINITIONS................................................................         16

        5.1   Affiliated Company.......................................................         16
        5.2   Governmental Approvals...................................................         16
        5.3   Governmental Authority...................................................         16
        5.4   Information..............................................................         16
        5.5   MAG Group................................................................         17
        5.6   MAG'S Auditors...........................................................         17
        5.7   MercFuel's Assets........................................................         17
        5.8   MercFuel Group...........................................................         17
        5.9   MercFuel's Auditors......................................................         17
        5.10  Person...................................................................         17
        5.11  Record Date..............................................................         17
        5.12  Subsidiary...............................................................         17
</TABLE>




                                     -iii-

<PAGE>   4

                          MASTER DISTRIBUTION AGREEMENT

        This Master Distribution Agreement (this "Agreement") is entered into as
of ___________, 2001, between Mercury Air Group, Inc., ("MAG") a Delaware
corporation, and MercFuel, Inc. ("MercFuel"), a Delaware corporation.
Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to such terms in Article VII hereof.


                                    RECITALS

        WHEREAS, MAG currently owns all of the issued and outstanding common
stock of MercFuel;

        WHEREAS, MercFuel is engaged in the business of fuel sales and related
fuel management services (the "MercFuel Business");

        WHEREAS, on January 1, 2001 (the "Separation Date"), MAG contributed and
transferred to MercFuel, and MercFuel received and assumed assets and
liabilities which were held by MAG and associated with the MercFuel Business
(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 pursuant to the Securities Act of 1933, as
amended (the "IPO Registration Statement"), that will reduce MAG's ownership of
MercFuel to not less than 80.1%.

        WHEREAS, MAG currently contemplates that, no later than 6 months
following the IPO, MAG will distribute, pro rata, to the holders of its common
stock, $0.01 par value, all of the shares of MercFuel common stock owned by MAG
(the "Distribution");

        WHEREAS, MAG and MercFuel intend that the Separation and the
Distribution will qualify as a tax-free reorganization under Sections
368(a)(1)(D) and 355 of the Internal Revenue Code of 1986, as amended (the
"Code"), and that this Agreement is intended to be, and is hereby adopted as, a
plan of reorganization under Section 368 of the Code; and

        WHEREAS, the parties intend in this Agreement, including the Exhibits
hereto, to set forth the principal arrangements between them regarding the
separation of the MercFuel Business.

        NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth below, the parties hereto agree as follows:


                                    ARTICLE I
            DOCUMENTS AND ITEMS TO BE DELIVERED ON THE EFFECTIVE DATE

        1.1 Documents to Be Delivered by MAG. On the date of the effectiveness
of the IPO (the "Effective Date"), MAG will deliver, or will cause its
appropriate Subsidiaries to deliver, to




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<PAGE>   5

MercFuel all of the following items and agreements (collectively, together with
all agreements and documents contemplated by such agreements, the "Ancillary
Agreements"):

        (a) A duly executed Master Technology Ownership and License Agreement
substantially in the form attached hereto as Exhibit A;

        (b) A duly executed Employee Matters Agreement substantially in the form
attached hereto as Exhibit B;

        (c) A duly executed Tax Sharing Agreement substantially in the form
attached hereto as Exhibit C;

        (d) A duly executed Master Transitional Services Agreement substantially
in the form attached hereto as Exhibit D;

        (e) A duly executed Real Estate Matters Agreement substantially in the
form attached hereto as Exhibit E;

        (f) A duly executed Master Confidential Disclosure Agreement
substantially in the form attached hereto as Exhibit F;

        (g) A duly executed Indemnification and Insurance Matters Agreement
substantially in the form attached hereto as Exhibit G;

        (h) Such other agreements, documents or instruments as the parties may
agree are necessary or desirable in order to achieve the purposes hereof.

        1.2 Documents to Be Delivered by MercFuel. As of the Effective Date,
MercFuel will deliver to MAG the following:

In each case where MercFuel is a party to any agreement or instrument referred
to in Section 1.1, a duly executed counterpart of such agreement or instrument.


                                   ARTICLE II
                                THE DISTRIBUTION

        2.1 The Distribution.

        (a) Delivery of Shares for Distribution. Subject to Section 2.4 hereof,
on or prior to the date the Distribution is effective (the "Distribution Date"),
MAG will deliver to the distribution agent (the "Distribution Agent") to be
appointed by MAG to distribute to the stockholders of MAG the shares of common
stock of MercFuel held by MAG pursuant to the Distribution for the benefit of
holders of record of common stock of MAG on the Record Date, a single stock
certificate, endorsed by MAG, representing all of the outstanding shares of
common stock of MercFuel then owned by MAG, and shall cause the transfer agent
for the shares of common stock of MAG to instruct the Distribution Agent to
distribute on the Distribution Date




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<PAGE>   6

the appropriate number of such shares of common stock of MercFuel to each such
holder or designated transferee or transferees of such holder.

        (b) Shares Received. Subject to Sections 3.4 and 3.5, each holder of
common stock of MAG on the Record Date (or such holder's designated transferee
or transferees) will be entitled to receive in the Distribution a number of
shares of common stock of MercFuel equal to the number of shares of common stock
of MAG held by such holder on the Record Date.

        (c) Obligation to Provide Information. MercFuel and MAG, as the case may
be, will provide to the Distribution Agent all share certificates and any
information required in order to complete the Distribution on the basis
specified above.

        2.2 Actions Prior to the Distribution.

        (a) Information Statement. MAG and MercFuel shall prepare and mail,
prior to the Distribution Date, to the holders of common stock of MAG, such
information concerning MercFuel and the Distribution and such other matters as
MAG shall reasonably determine are necessary and as may be required by law. MAG
and MercFuel will prepare, and to the extent required under applicable law, file
with the Commission the Form 10 Registration Statement and any other
documentation which MAG and MercFuel determine is necessary or desirable to
effectuate the Distribution, and MAG and MercFuel shall each use its reasonable
commercial efforts to obtain all necessary approvals from the Commission with
respect thereto as soon as practicable.

        (b) Blue Sky. MAG and MercFuel shall take all such actions as may be
necessary or appropriate under the securities or blue sky laws of the United
States (and any comparable laws under any foreign jurisdiction) in connection
with the Distribution.

        (c) Amex Listing. MercFuel shall prepare and file, and shall use its
reasonable commercial efforts to have approved, an application for the listing
of the common stock of MercFuel to be distributed in the Distribution on the
American Stock Exchange, subject to official notice of distribution.

        (d) Conditions. MAG and MercFuel shall take all reasonable steps
necessary and appropriate to cause the conditions set forth in Section 2.4 to be
satisfied and to effect the Distribution on the Distribution Date.

        2.3 Sole Discretion of MAG. MAG currently intends to complete the
Distribution in no event before the later of six months following the IPO, and
receipt of approval of MAG's lenders. MAG shall, in its sole and absolute
discretion, determine the date of the consummation of the Distribution and all
terms of the Distribution, including, without limitation, the form, structure
and terms of any transaction(s) and/or offering(s) to effect the Distribution
and the timing of and conditions to the consummation of the Distribution. In
addition, MAG may at any time and from time to time until the completion of the
Distribution, modify or change the terms of the Distribution, including, without
limitation, by accelerating or delaying the timing of the consummation of all or
part of the Distribution. MercFuel shall cooperate with MAG in all




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<PAGE>   7

respects to accomplish the Distribution and shall, at MAG's direction, promptly
take any and all actions necessary or desirable to effect the Distribution,
including, without limitation, the registration under the Securities Act of the
common stock of MercFuel on an appropriate registration form or forms to be
designated by MAG. MAG shall select any investment banker(s) and manager(s) in
connection with the Distribution, as well as any financial printer, solicitation
and/or exchange agent and outside counsel for MAG; provided, however, that
nothing herein shall prohibit MercFuel from engaging (at its own expense) its
own financial, legal, accounting and other advisors in connection with the
Distribution.

        2.4 Conditions Precedent to Distribution. The following are conditions
that must take place prior to the consummation of the Distribution. The
conditions are for the sole benefit of MAG and shall not give rise to or create
any duty on the part of MAG or the MAG Board of Directors to waive or not waive
any such condition.

        (a) Tax Opinion. MAG shall have obtained a tax opinion from Baker &
McKenzie in form and substance satisfactory to MAG (in its sole discretion), to
the effect that (i) the transfer by the MAG Group to the MercFuel Group of the
property, subject to liabilities, held by MAG of the MercFuel Business, and
MercFuel's assumption of liabilities held by MAG related to the MercFuel
Business, followed by the distribution by MAG of all of its MercFuel stock to
the stockholders of MAG, should qualify as a reorganization under Sections
368(a)(1)(D) and 355 of the Code; (ii) no gain or loss should be recognized by
MAG on its transfer of property of the MercFuel Business to MercFuel; (iii) no
gain or loss should be recognized by MercFuel on its receipt of property of the
MercFuel Business from MAG; and (iv) no gain or loss should be recognized by
(and no amount will otherwise be included in the income of) the stockholders of
MAG upon their receipt of MercFuel common stock pursuant to the Distribution.

        (b) Government Approvals. Any material governmental approvals and
consents necessary to consummate the Distribution shall have been obtained and
be in full force and effect;

        (c) No Legal Restraints. No order, injunction or decree issued by any
court or agency of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Distribution shall be in effect
and no other event outside the control of MAG shall have occurred or failed to
occur that prevents the consummation of the Distribution;

        (d) Required Consents. Acceptable bank financing must be in effect; and

        (e) No Material Adverse Effect. No other events or developments shall
have occurred that, in the judgment of the Board of Directors of MAG, would
result in the Distribution having a material adverse effect on MAG or on the
stockholders of MAG.

        2.5 Fractional Shares. As soon as practicable after the Distribution
Date, MAG shall direct the Distribution Agent to determine the number of whole
shares and fractional shares of common stock of MercFuel allocable to each
holder of record or beneficial owner of common stock of MAG as of the Record
Date, to aggregate all such fractional shares and sell the whole shares obtained
thereby at the direction of MAG, in open market transactions, at then prevailing
trading prices, and to cause to be distributed to each such holder or for the
benefit of each such




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<PAGE>   8

beneficial owner to which a fractional share shall be allocable such holder's or
owner's ratable share of the proceeds of such sale, after making appropriate
deductions of the amount required to be withheld for federal income tax purposes
and after deducting an amount equal to all brokerage charges, commissions and
transfer taxes attributed to such sale. MAG and the Distribution Agent shall use
their reasonable commercial efforts to aggregate the shares of common stock of
MAG that may be held by any beneficial owner thereof through more than one
account in determining the fractional share allocable to such beneficial owner.


                                   ARTICLE III
                           COVENANTS AND OTHER MATTERS

        3.1 Other Agreements. MAG and MercFuel agree to execute or cause to be
executed by the appropriate parties and deliver, as appropriate, such other
agreements, instruments and other documents as may be necessary or desirable in
order to effect the purposes of this Agreement and the Ancillary Agreements. MAG
and MercFuel further agree to take such other actions as the parties hereto may,
based upon the advice of counsel, reasonably request to be taken prior to: (i)
an initial public offering of shares of common stock of MercFuel, and (ii) any
other registration statement with respect to shares of common stock of MercFuel,
in order to assure the successful completion of the initial public offering or
other registration statement.

        3.2 Further Instruments. At the request of MercFuel, and without further
consideration, MAG will execute and deliver, and will cause its applicable
Subsidiaries to execute and deliver, to MercFuel and its Subsidiaries such other
instruments of transfer, conveyance, assignment, substitution and confirmation
and take such action as MercFuel may reasonably deem necessary or desirable in
order to more effectively transfer, convey and assign to MercFuel and its
Subsidiaries and confirm MercFuel's and its Subsidiaries' title to all of the
assets, rights and other things of value transferred pursuant to the Separation
or contemplated to be transferred to MercFuel and its Subsidiaries pursuant to
this Agreement, the Ancillary Agreements, and any documents referred to therein,
to put MercFuel and its Subsidiaries in actual possession and operating control
thereof and to permit MercFuel and its Subsidiaries to exercise all rights with
respect thereto (including, without limitation, rights under contracts and other
arrangements as to which the consent of any third party to the transfer thereof
shall not have previously been obtained). At the request of MAG and without
further consideration, MercFuel will execute and deliver, and will cause its
applicable Subsidiaries to execute and deliver, to MAG and its Subsidiaries all
instruments, assumptions, novations, undertakings, substitutions or other
documents and take such other action as MAG may reasonably deem necessary or
desirable in order to have MercFuel fully and unconditionally assume and
discharge the liabilities assumed or contemplated to be assumed by MercFuel
under this Agreement or any document in connection herewith and to relieve the
MAG Group of any liability or obligation with respect thereto and evidence the
same to third parties. Neither MAG nor MercFuel shall be obligated, in
connection with the foregoing, to expend money other than reasonable out-of-
pocket expenses, attorneys' fees and recording or similar fees. Furthermore,
each party, at the request of the other party hereto, shall execute and deliver
such other instruments and do and perform such other acts and things as may be
necessary or desirable for effecting completely the consummation of the
transactions contemplated hereby.




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        3.3 Additional Transitional Services Agreements. MAG and its
Subsidiaries and MercFuel and its Subsidiaries will enter into transitional
services agreements covering the provision of various transitional services,
including financial, legal, accounting, real estate and site services, sales,
customer support, human resources, supply chain services and information
technology services by MAG (and its Subsidiaries) to MercFuel (and its
Subsidiaries) or, in certain circumstances, vice versa. Such services will
generally be provided for a fee equal to $70,000 per month. The transitional
services agreements will generally provide for a term of one (1) year or less.
However, some transitional services agreements may be extended beyond the
initial one (1) year term, in which case the fee for such services shall be
direct costs incurred plus 10%.

        3.4 Agreement for Exchange of Information.

        (a) Generally. Each of MAG and MercFuel agrees to provide, or cause to
be provided, to each other, at any time before or after the Distribution Date,
as soon as reasonably practicable after written request therefor, any
Information in the possession or under the control of such party that the
requesting party reasonably needs (i) to comply with reporting, disclosure,
filing or other requirements imposed on the requesting party (including under
applicable securities laws) by a Governmental Authority having jurisdiction over
the requesting party, (ii) for use in any other judicial, regulatory,
administrative or other proceeding or in order to satisfy audit, accounting,
claims, regulatory, litigation or other similar requirements, (iii) to comply
with its obligations under this Agreement or any Ancillary Agreement or (iv) in
connection with the ongoing businesses of MAG or MercFuel, as the case may be;
provided, however, that in the event that any party determines that any such
provision of Information could be commercially detrimental, violate any law or
agreement, or waive any attorney-client privilege, the parties shall take all
reasonable measures to permit the compliance with such obligations in a manner
that avoids any such harm or consequence.

        (b) Internal Accounting Controls; Financial Information. After the
Effective Date, (i) each party shall maintain in effect at its own cost and
expense adequate systems and controls for its business to the extent necessary
to enable the other party to satisfy its reporting, accounting, audit and other
obligations, and (ii) each party shall provide, or cause to be provided, to the
other party and its Subsidiaries in such form as such requesting party shall
request, at no charge to the requesting party, all financial and other data and
information as the requesting party determines necessary or advisable in order
to prepare its financial statements and reports or filings with any Governmental
Authority.

        (c) Ownership of Information. Any Information owned by a party that is
provided to a requesting party pursuant to this Section 3.4 shall be deemed to
remain the property of the providing party. Unless specifically set forth
herein, nothing contained in this Agreement shall be construed as granting or
conferring rights of license or otherwise in any such Information.

        (d) Record Retention. To facilitate the possible exchange of Information
pursuant to this Section 3.4 and other provisions of this Agreement after the
Distribution Date, each party agrees to use its reasonable commercial efforts to
retain all Information in its respective




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possession or control on the Distribution Date substantially in accordance with
the policies of MAG as in effect on the Separation Date. However, except as set
forth in the Tax Sharing Agreement, at any time after the Distribution Date,
each party may amend its respective record retention policies at such party's
discretion; provided, however, that if a party desires to effect the amendment
within three (3) years after the Distribution Date, the amending party must give
thirty (30) days prior written notice of such change in the policy to the other
party to this Agreement.

               (i) No party will destroy, or permit any of its Subsidiaries to
        destroy, any Information that exists on the Separation Date (other than
        Information that is permitted to be destroyed under the current record
        retention policies of MAG) and that falls under the categories listed in
        Section 4.4(a), without first using its reasonable commercial efforts to
        notify the other party of the proposed destruction and giving the other
        party the opportunity to take possession of such Information prior to
        such destruction.

        (e) Limitation of Liability. No party shall have any liability to any
other party in the event that any Information exchanged or provided pursuant to
this Section 3.4 is found to be inaccurate, in the absence of gross negligence
or willful misconduct by the party providing such Information. No party shall
have any liability to any other party if any Information is destroyed or lost
after reasonable commercial efforts by such party to comply with the provisions
of Section 3.4(d).

        (f) Other Agreements Providing for Exchange of Information. The rights
and obligations granted under this Section 3.4 are subject to any specific
limitations, qualifications or additional provisions on the sharing, exchange or
confidential treatment of Information set forth in this Agreement and any
Ancillary Agreement.

        (g) Production of Witnesses; Records; Cooperation. After the
Distribution Date, except in the case of a legal or other proceeding by one
party against another party (which shall be governed by such discovery rules as
may be applicable under Section 3.9 or otherwise), each party hereto shall use
its reasonable commercial efforts to make available to each other party, upon
written request, the former, current and future directors, officers, employees,
other personnel and agents of such party as witnesses and any books, records or
other documents within its control or which it otherwise has the ability to make
available, to the extent that any such person (giving consideration to business
demands of such directors, officers, employees, other personnel and agents) or
books, records or other documents may reasonably be required in connection with
any legal, administrative or other proceeding in which the requesting party may
from time to time be involved, regardless of whether such legal, administrative
or other proceeding is a matter with respect to which indemnification may be
sought hereunder. The requesting party shall bear all costs and expenses in
connection therewith.

        3.5 Auditors and Audits; Annual and Quarterly Statements and Accounting.
Each party agrees that, for so long as MAG is required in accordance with United
States generally accepted accounting principles to consolidate MercFuel's
results of operations and financial position:




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        (a) Selection of Auditors. MercFuel shall not select a different
accounting firm from that used by MAG to serve as its (and its Subsidiaries')
independent certified public accountants ("MercFuel's Auditors") for purposes of
providing an opinion on its consolidated financial statements without MAG's
prior written consent (which shall not be unreasonably withheld).

        (b) Date of Auditors' Opinion and Quarterly Reviews. MercFuel shall use
its reasonable commercial efforts to enable the MercFuel Auditors to complete
their audit such that they will date their opinion on MercFuel's audited annual
financial statements on the same date that MAG's independent certified public
accountants ("MAG's Auditors") date their opinion on MAG's audited annual
financial statements, and to enable MAG to meet its timetable for the printing,
filing and public dissemination of MAG's annual financial statements. MercFuel
shall use its reasonable commercial efforts to enable the MercFuel Auditors to
complete their quarterly review procedures such that they will provide clearance
on MercFuel's quarterly financial statements on the same date that MAG's
Auditors provide clearance on MAG's quarterly financial statements.

        (c) Annual and Quarterly Financial Statements. MercFuel shall provide to
MAG on a timely basis all Information that MAG reasonably requires to meet its
schedule for the preparation, printing, filing, and public dissemination of
MAG's annual and quarterly financial statements. Without limiting the generality
of the foregoing, MercFuel will provide all required financial Information with
respect to MercFuel and its Subsidiaries to MercFuel's Auditors in a sufficient
and reasonable time and in sufficient detail to permit MercFuel's Auditors to
take all steps and perform all reviews necessary to provide sufficient
assistance to MAG's Auditors with respect to financial Information to be
included or contained in MAG's annual and quarterly financial statements.
Similarly, MAG shall provide to MercFuel on a timely basis all financial
Information that MercFuel reasonably requires to meet its schedule for the
preparation, printing, filing, and public dissemination of MercFuel's annual and
quarterly financial statements. Without limiting the generality of the
foregoing, MAG will provide all required financial Information with respect to
MAG and its Subsidiaries to MAG's Auditors in a sufficient and reasonable time
and in sufficient detail to permit MAG's Auditors to take all steps and perform
all reviews necessary to provide sufficient assistance to MercFuel's Auditors
with respect to Information to be included or contained in MercFuel's annual and
quarterly financial statements.

        (d) Identity of Personnel Performing the Annual Audit and Quarterly
Reviews. MercFuel shall authorize MercFuel's Auditors to make available to MAG's
Auditors both the personnel who performed or will perform the annual audits and
quarterly reviews of MercFuel and work papers related to the annual audits and
quarterly reviews of MercFuel, in all cases within a reasonable time prior to
MercFuel's Auditors' opinion date, so that MAG's Auditors are able to perform
the procedures they consider necessary to take responsibility for the work of
MercFuel's Auditors as it relates to MAG's Auditors' report on MAG's financial
statements, all within sufficient time to enable MAG to meet its timetable for
the printing, filing and public dissemination of MAG's annual and quarterly
statements. Similarly, MAG shall authorize MAG's Auditors to make available to
MercFuel's Auditors both the personnel who performed or will perform the annual
audits and quarterly reviews of MAG and work papers related to the annual audits
and quarterly reviews of MAG, in all cases within a reasonable time prior to
MAG's Auditors' opinion date, so that MercFuel's Auditors are able to perform
the procedures




                                      -8-
<PAGE>   12

they consider necessary to take responsibility for the work of MAG's Auditors as
it relates to MercFuel's Auditors' report on MercFuel's statements, all within
sufficient time to enable MercFuel to meet its timetable for the printing,
filing and public dissemination of MercFuel's annual and quarterly financial
statements.

        (e) Access to Books and Records. MercFuel shall provide MAG's internal
auditors and their designees access to MercFuel's and its Subsidiaries' books
and records so that MAG may conduct reasonable audits relating to the financial
statements provided by MercFuel pursuant hereto as well as to the internal
accounting controls and operations of MercFuel and its Subsidiaries. Similarly,
MAG shall provide MercFuel's internal auditors and their designees access to
MAG's and its Subsidiaries' books and records so that MercFuel may conduct
reasonable audits relating to the financial statements provided by MAG pursuant
hereto as well as to the internal accounting controls and operations of MAG and
its Subsidiaries.

        (f) Notice of Change in Accounting Principles. MercFuel shall give MAG
as much prior notice as reasonably practical of any proposed determination of,
or any significant changes in, its accounting estimates or accounting principles
from those in effect on the Separation Date. MercFuel will consult with MAG and,
if requested by MAG, MercFuel will consult with MAG's independent public
accountants with respect thereto. MAG shall give MercFuel as much prior notice
as reasonably practical of any proposed determination of, or any significant
changes in, its accounting estimates or accounting principles from those in
effect on the Separation Date.

        (g) Conflict with Third-Party Agreements. Nothing in Sections 3.4 and
3.5 shall require MercFuel to violate any agreement with any third party
regarding the confidentiality of confidential and proprietary information
relating to that third party or its business; provided, however, that in the
event that MercFuel is required under Sections 3.4 and 3.5 to disclose any such
Information, MercFuel shall use all commercially reasonable efforts to seek to
obtain such third party's consent to the disclosure of such information.

        3.6 Consistency with Past Practices. At all times, MercFuel will conduct
the MercFuel Business before the Distribution Date in the ordinary course,
consistent with past practices.

        3.7 Payment of Expenses. Except as otherwise provided in this Agreement,
the Ancillary Agreements or any other agreement between the parties relating to
the Separation, the IPO or the Distribution, all costs and expenses of the
parties hereto in connection with the Separation, the IPO (including
underwriting discounts and commissions), and the Distribution and costs and
expenses of the parties hereto in connection with the Separation shall be
allocated between MercFuel and MAG. MercFuel and MAG shall each be responsible
for their own internal fees, costs and expenses incurred in connection with the
Separation, the IPO, and the Distribution.

        3.8 Foreign Subsidiaries. MAG and MercFuel shall cause each of their
foreign subsidiaries to execute such local transfer agreements, assignments,
assumptions, novations and other documents as shall be necessary to effect the
purposes of this Agreement with respect to their respective operations outside
the United States.




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        3.9 Dispute Resolution.

        (a) If a dispute, controversy or claim ("Dispute") arises between the
parties relating to the interpretation or performance of this Agreement or the
Ancillary Agreements, or the grounds for the termination hereof, appropriate
senior executives of each party who shall have the authority to resolve the
matter shall meet to attempt in good faith to negotiate a resolution of the
Dispute prior to pursuing other available remedies. The initial meeting between
the appropriate senior executives shall be referred to herein as the "Dispute
Resolution Commencement Date". Discussions and correspondence relating to trying
to resolve such Dispute shall be treated as confidential information developed
for the purpose of settlement and shall be exempt from discovery or production
and shall not be admissible. If the senior executives are unable to resolve the
Dispute within thirty (30) days from the Dispute Resolution Commencement Date,
and either party wishes to pursue its rights relating to such Dispute, then the
Dispute will be mediated by a mutually acceptable mediator appointed within
thirty (30) days after written notice by one party to the other demanding
non-binding mediation. Neither party may unreasonably withhold consent to the
selection of a mediator or the location of the mediation. Both parties will
share the costs of the mediation equally, except that each party shall bear its
own costs and expenses, including attorney's fees, witness fees, travel
expenses, and preparation costs. The parties may also agree to replace mediation
with some other form of non-binding or binding ADR.

        (b) Any Dispute which the parties cannot resolve through mediation
within ninety (90) days of the Dispute Resolution Commencement Date, unless
otherwise mutually agreed, shall be submitted to final and binding arbitration
under the then current Commercial Arbitration Rules of the American Arbitration
Association ("AAA"), by three (3) arbitrators in Los Angeles County, California.
Such arbitrators shall be selected by the mutual agreement of the parties or,
failing such agreement, shall be selected according to the aforesaid AAA rules.
The arbitrators will be instructed to prepare and deliver a written, reasoned
opinion stating their decision within thirty (30) days of the completion of the
arbitration. The prevailing party in such arbitration shall be entitled to
expenses, including costs and reasonable attorneys' and other professional fees,
incurred in connection with the arbitration (but excluding any costs and fees
associated with prior negotiation or mediation). The decision of the arbitrator
shall be final and non-appealable and may be enforced in any court of competent
jurisdiction. The use of any ADR procedures will not be construed under the
doctrine of laches, waiver or estoppel to adversely affect the rights of either
party.

        (c) Any Dispute regarding the following is not required to be
negotiated, mediated or arbitrated prior to seeking relief from a court of
competent jurisdiction: breach of any obligation of confidentiality;
infringement, misappropriation, or misuse of any intellectual property right;
any other claim where interim relief from the court is sought to prevent serious
and irreparable injury to one of the parties or to others. However, the parties
to the Dispute shall make a good faith effort to negotiate and mediate such
Dispute, according to the above procedures, while such court action is pending.




                                      -10-
<PAGE>   14

        (d) Continuity of Service and Performance. Unless otherwise agreed in
writing, the parties will continue to provide service and honor all other
commitments under this Agreement and each Ancillary Agreement during the course
of dispute resolution pursuant to the provisions of this Section 4.9 with
respect to all matters not subject to such dispute, controversy or claim.

        3.10 Governmental Approvals. To the extent that the Separation requires
any Governmental Approvals, the parties will use their reasonable commercial
efforts to obtain any such Governmental Approvals.

        3.11 No Representation or Warranty. MAG does not, in this Agreement or
any other agreement, instrument or document contemplated by this Agreement, make
any representation as to, warranty of or covenant with respect to:

        (a) the value of any asset or thing of value to be transferred to
MercFuel;

        (b) the freedom from encumbrance of any asset or thing of value to be
transferred to MercFuel;

        (c) the absence of defenses or freedom from counterclaims with respect
to any claim to be transferred to MercFuel; or

        (d) the legal sufficiency of any assignment, document or instrument
delivered hereunder to convey title to any asset or thing of value upon its
execution, delivery and filing.

        Except as may expressly be set forth herein or in any Ancillary
Agreement, all assets transferred or to be transferred to MercFuel have been and
shall be transferred "AS IS, WHERE IS" and MercFuel shall bear the economic and
legal risk that any conveyance shall prove to be insufficient to vest in
MercFuel good and marketable title, free and clear of any lien, claim, equity or
other encumbrance.

        3.12 Non-Solicitation of Employees. MAG and MercFuel each agree not to
solicit or recruit, without the other party's express written consent, the other
party's employees for a period of two (2) years following the Distribution Date.
Notwithstanding the foregoing, this prohibition on solicitation does not apply
to actions taken by a party either: (a) solely as a result of an employee's
affirmative response to a general recruitment effort carried out through a
public solicitation or general solicitation, or (b) as a result of an employee's
initiative.

        3.13 Employee Agreements. Definition. As used in this Section 3.13,
"Employee Agreement" means the Invention and Nondisclosure Agreement, the
Non-Competition and Non-Solicitation Agreement and corresponding agreements in
foreign countries executed by each MAG employee.

        (a) Survival of MAG Employee Agreement Obligations and MAG's Common Law
Rights. The MAG Employee Agreements of all former MAG employees transferred to
MercFuel as of the Distribution Date shall remain in full force and effect
according to their terms; provided, however, that none of the following acts
committed by former MAG employees




                                      -11-
<PAGE>   15

within the scope of their MercFuel employment shall constitute a breach of such
MAG Employee Agreements: (i) the use or disclosure of Confidential Information
(as that term is defined in the former MAG employee's MAG Employee Agreement)
for or on behalf of MercFuel, if such disclosure is consistent with the rights
granted to MercFuel and restrictions imposed on MercFuel under this Agreement,
any Ancillary Agreement or any other agreement between the parties; (ii) the
disclosure and assignment to MercFuel of rights in proprietary developments
authored or conceived by the former MAG employee after the Separation Date and
resulting from the use of, or based upon intellectual property (whether patented
or not) which is retained by MAG; provided, however, that in no event shall such
disclosure and assignment be regarded as assigning the underlying intellectual
property to MercFuel; (iii) the rendering of any services, directly or
indirectly, to MercFuel to the extent such services are consistent with the
assignment or license of rights granted to MercFuel and the restrictions imposed
on MercFuel under this Agreement, any Ancillary Agreement or any other agreement
between the parties; and (iv) solicitation of the employees of one party by the
other party prior to the Distribution Date (so long as such solicitation does
not violate Section 4.12 hereof). Further, MAG retains any rights it has under
statute or common law with respect to actions by its former employees to the
extent such actions are inconsistent with the rights granted to MercFuel and
restrictions imposed on MercFuel under this Agreement, any Ancillary Agreement
or any other agreement between the parties.

        (b) Assignment, Cooperation for Compliance and Enforcement.

               (i) MAG retains all rights under the MAG Employee Agreements of
        all former MAG employees necessary to permit MAG to protect the rights
        and interests of MAG, but hereby transfers and assigns to MercFuel its
        rights under the MAG Employee Agreements of all former MAG employees to
        the extent required to permit MercFuel to enjoin, restrain, recover
        damages from or obtain specific performance of the MAG Employee
        Agreements or obtain other remedies against any employee who breaches
        his/her MAG Employee Agreement.

               (ii) MAG and MercFuel agree, at their own respective cost and
        expense, to use their reasonable efforts to cooperate as follows: (A)
        MercFuel shall advise MAG of: (1) any violation(s) of the MAG Employee
        Agreement by former MAG employees, and (2) any violation(s) of the
        MercFuel Employee Agreement which affect MAG's rights; and (B) MAG shall
        advise MercFuel of any violations of the MAG Employee Agreement by
        current or former MAG employees which affect MercFuel's rights;
        provided, however, that the foregoing obligations shall only apply to
        violations which become known to an attorney within the legal department
        of the party obligated to provide notice thereof.

               (iii) MAG and MercFuel each may separately enforce the MAG
        Employee Agreements of former MAG employees to the extent necessary to
        reasonably protect their respective interests, provided, however, that
        (i) MercFuel shall not commence any legal action relating thereto
        without first consulting with MAG's General Counsel or his/her designee
        and (ii) MAG shall not commence any legal action relating thereto
        against any former MAG employee who is at the time an MercFuel employee
        without first consulting with MercFuel's General Counsel or his/her
        designee. If either party, in




                                      -12-
<PAGE>   16

        seeking to enforce any MAG Employee Agreement, notifies the other party
        that it requires, or desires, such party to join in such action, then
        the other party shall do so. In addition, if either party commences or
        becomes a party to any action to enforce a MAG Employee Agreement of a
        former MAG employee, the other party shall, whether or not it becomes a
        party to the action, cooperate with the other party by making available
        its files and employees who have information or knowledge relevant to
        the dispute, subject to appropriate measures to protect the
        confidentiality of any proprietary or confidential information that may
        be disclosed in the course of such cooperation or action and subject to
        any relevant privacy laws and regulations. Any such action shall be
        conducted at the expense of the party bringing the action and the
        parties shall agree on a case by case basis on compensation, if any, of
        the other party for the value of the time of such other party's
        employees as reasonably required in connection with the action.

               (iv) MAG and MercFuel understand and acknowledge that matters
        relating to the making, performance, enforcement, assignment and
        termination of employee agreements are typically governed by the laws
        and regulations of the national, federal, state or local governmental
        unit where an employee resides, or where an employee's services are
        rendered, and that such laws and regulations may supersede or limit the
        applicability or enforceability of this Section 3.13. In such
        circumstances, MAG and MercFuel agree to take action with respect to the
        employee agreements that best accomplishes the parties' objectives as
        set forth in this Section 3.13 and that is consistent with applicable
        law.

        3.14 Cooperation in Obtaining New Agreements. MAG understands that,
prior to the Separation Date, MercFuel derived benefits under certain agreements
and relationships between MAG and third parties, which agreements and
relationships have not been and are not being assigned or transferred to
MercFuel in connection with the Separation. Upon the request of MercFuel, MAG
agrees to make introductions of appropriate MercFuel personnel to MAG's contacts
at such third parties, and agrees to provide reasonable assistance to MercFuel,
at MAG's own expense, so that MercFuel may enter into agreements or
relationships with such third parties under substantially equivalent terms and
conditions, including financial terms and conditions, that apply to MAG. Such
assistance may include, but is not limited to, (a) requesting and encouraging
such third parties to enter into such agreements or relationships with MercFuel,
(b) attending meetings and negotiating sessions with MercFuel and such third
parties, and (c) participating in buying consortiums with MercFuel. MAG also
understands that certain agreements between MAG and third parties which are
being assigned to MercFuel in connection with the Separation may require the
consent of the applicable third party. MAG shall assist MercFuel in seeking and
obtaining the consent of such third parties to such assignment. The parties
expect that the activities contemplated by this Section 4.14 will be
substantially completed by the Distribution Date, but in no event will MAG have
any obligations hereunder after the first anniversary of the Distribution Date.




                                      -13-
<PAGE>   17

                                   ARTICLE IV
                                  MISCELLANEOUS

        4.1 LIMITATION OF LIABILITY. IN NO EVENT SHALL ANY MEMBER OF THE MAG
GROUP OR MERCFUEL GROUP BE LIABLE TO ANY OTHER MEMBER OF THE MAG GROUP OR
MERCFUEL GROUP FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE
DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY
(INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT, WHETHER OR NOT
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED,
HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT EACH PARTY'S
INDEMNIFICATION OBLIGATIONS FOR LIABILITIES AS SET FORTH IN THE INDEMNIFICATION
AND INSURANCE MATTERS AGREEMENT.

        4.2 Entire Agreement. This Agreement, the Ancillary Agreements and the
Exhibits and Schedules referenced or attached hereto and thereto, constitute the
entire agreement between the parties with respect to the subject matter hereof
and thereof and shall supersede all prior written and oral and all
contemporaneous oral agreements and understandings with respect to the subject
matter hereof and thereof.

        4.3 Governing Law. This Agreement shall be construed in accordance with
and all Disputes hereunder shall be governed by the laws of the State of
California, excluding its conflict of law rules and the United Nations
Convention on Contracts for the International Sale of Goods. The Superior Court
of Los Angeles County and/or the United States District Court for the Southern
District of California shall have jurisdiction and venue over all Disputes
between the parties that are permitted to be brought in a court of law pursuant
to Section 4.9 above.

        4.4 Termination. This Agreement may be terminated at any time before the
Distribution Date by mutual consent of MAG and MercFuel. In the event of
termination pursuant to this Section 5.4, no party shall have any liability of
any kind to the other party.

        4.5 Notices. Notices, offers, requests or other communications required
or permitted to be given by either party pursuant to the terms of this Agreement
shall be given in writing to the respective parties to the following addresses:

        if to MAG :        Mercury Air Group, Inc.
                           5456 McConnell Avenue
                           Los Angeles, CA  90066
                           Attention: Joseph A. Czyzyk, Chief Executive Officer

        if to MercFuel:    MercFuel, Inc.
                           5456 McConnell Avenue
                           Los Angeles, CA  90066
                           Attention: Joseph A. Czyzyk, Chief Executive Officer




                                      -14-
<PAGE>   18

or to such other address as the party to whom notice is given may have
previously furnished to the other in writing as provided herein. Any notice
involving non-performance, termination, or renewal shall be sent by hand
delivery, recognized overnight courier or, within the United States, may also be
sent via certified mail, return receipt requested. All other notices may also be
sent by fax, confirmed by first class mail. All notices shall be deemed to have
been given and received on the earlier of actual delivery or three (3) days from
the date of postmark.

        4.6 Counterparts. This Agreement, including the Ancillary Agreement and
the Exhibits and Schedules hereto and thereto and the other documents referred
to herein or therein, may be executed in counterparts, each of which shall be
deemed to be an original but all of which shall constitute one and the same
agreement.

        4.7 Binding Effect; Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective legal
representatives and successors, and nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement. This Agreement may
be enforced separately by each member of the MAG Group and each member of the
MercFuel Group. Neither party may assign this Agreement or any rights or
obligations hereunder, without the prior written consent of the other party, and
any such assignment shall be void; provided, however, either party may assign
this Agreement to a successor entity in conjunction with such party's
reincorporation.

        4.8 Severability. If any term or other provision of this Agreement or
the Exhibits or Schedules attached hereto is determined by a court,
administrative agency or arbitrator to be invalid, illegal or incapable of being
enforced by any rule of law or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to either party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the fullest extent possible.

        4.9 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or
delay on the part of either party hereto in the exercise of any right hereunder
shall impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty or agreement herein, nor shall any
single or partial exercise of any such right preclude other or further exercise
thereof or of any other right. All rights and remedies existing under this
Agreement or the Exhibits or Schedules attached hereto are cumulative to, and
not exclusive of, any rights or remedies otherwise available.

        4.10 Amendment. No change or amendment will be made to this Agreement or
the Exhibits or Schedules attached hereto except by an instrument in writing
signed on behalf of each of the parties to such agreement.




                                      -15-
<PAGE>   19

        4.11 Authority. Each of the parties hereto represents to the other that
(a) it has the corporate or other requisite power and authority to execute,
deliver and perform this Agreement, (b) the execution, delivery and performance
of this Agreement by it have been duly authorized by all necessary corporate or
other actions, (c) it has duly and validly executed and delivered this
Agreement, and (d) this Agreement is a legal, valid and binding obligation,
enforceable against it in accordance with its terms subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and general equity principles.

        4.12 Interpretation. The headings contained in this Agreement, in any
Exhibit or Schedule hereto and in the table of contents to this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any capitalized term used in any Exhibit or
Schedule but not otherwise defined therein, shall have the meaning assigned to
such term in this Agreement. When a reference is made in this Agreement to an
Article or a Section, Exhibit or Schedule, such reference shall be to an Article
or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated.

        4.13 Conflicting Agreements. In the event of conflict between this
Agreement and any Ancillary Agreement or other agreement executed in connection
herewith, the provisions of such other agreement shall prevail.


                                    ARTICLE V
                                   DEFINITIONS

        5.1 Affiliated Company. "Affiliated Company" of any Person means any
entity that controls, is controlled by, or is under common control with such
Person. As used herein, "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such entity, whether through ownership of voting securities or other interests,
by contract or otherwise.

        5.2 Governmental Approvals. "Governmental Approvals" means any notices,
reports or other filings to be made, or any consents, registrations, approvals,
permits or authorizations to be obtained from, any Governmental Authority.

        5.3 Governmental Authority. "Governmental Authority" shall mean any
federal, state, local, foreign or international court, government, department,
commission, board, bureau, agency, official or other regulatory, administrative
or governmental authority.

        5.4 Information. "Information" means information, whether or not
patentable or copyrightable, in written, oral, electronic or other tangible or
intangible forms, stored in any medium, including studies, reports, records,
books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how,
techniques, designs, specifications, drawings, blueprints, diagrams, models,
prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes,
computer programs or other software, marketing plans, customer names,
communications by or to attorneys (including attorney-client privileged
communications), memos and other materials




                                      -16-
<PAGE>   20

prepared by attorneys or under their direction (including attorney work
product), and other technical, financial, employee or business information or
data.

        5.5 MAG Group. "MAG Group" means MAG, each Subsidiary and Affiliated
Company of MAG (other than any member of the MercFuel Group) immediately after
the Separation Date and each Person that becomes a Subsidiary or Affiliate
Company of MAG after the Separation Date.

        5.6 MAG's Auditors. "MAG's Auditors" means MAG's independent certified
public accountants.

        5.7 MercFuel Assets. "MercFuel Assets" has the meaning set forth in
Section 1.2 of the Assignment Agreement.

        5.8 MercFuel Group. "MercFuel Group" means MercFuel, each Subsidiary and
Affiliated Company of MercFuel immediately after the Separation Date or that is
contemplated to be a Subsidiary or Affiliated Company of MercFuel and each
Person that becomes a Subsidiary or Affiliate Company of MercFuel after the
Separation Date.

        5.9 MercFuel's Auditors. "MercFuel's Auditors" means MercFuel's
independent certified public accountants.

        5.10 Person. "Person" means an individual, a partnership, a corporation,
a limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.

        5.11 Record Date. "Record Date" means the close of business on the date
to be determined by the Board of Directors of MAG as the record date for
determining the stockholders of MAG entitled to receive shares of common stock
of MercFuel in the Distribution.

        5.12 Subsidiary. "Subsidiary" of any Person means a corporation or other
organization whether incorporated or unincorporated of which at least a majority
of the securities or interests having by the terms thereof ordinary voting power
to elect at least a majority of the board of directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such Person or by any one or more
of its Subsidiaries, or by such Person and one or more of its Subsidiaries;
provided, however, that no Person that is not directly or indirectly
wholly-owned by any other Person shall be a Subsidiary of such other Person
unless such other Person controls, or has the right, power or ability to
control, that Person.




                                      -17-
<PAGE>   21

        WHEREFORE, the parties have signed this Master Distribution Agreement
effective as of the date first set forth above.



                                  MERCURY AIR GROUP, INC.


                                  By: __________________________________________
                                        Joseph Czyzyk, Chief Executive Officer



                                  MERCFUEL, INC.


                                  By: __________________________________________
                                        Joseph Czyzyk, Chief Executive Officer




                                      -18-
<PAGE>   22

                                    EXHIBITS



Exhibit A     Master Technology Ownership and License Agreement

Exhibit B     Employee Matters Agreement

Exhibit C     Tax Sharing Agreement

Exhibit D     Master Transitional Services Agreement

Exhibit E     Real Estate Matters Agreement

Exhibit F     Master Confidential Disclosure Agreement

Exhibit G     Indemnification and Insurance Matters Agreement






                                      -19-