MERCURY AIR GROUP. INC.

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD

[JUNE__, 2005]

AND

PROXY STATEMENT

IMPORTANT

PLEASE MARK, SIGN AND DATE YOUR PROXY
AND PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE

MERCURY AIR GROUP, INC.

[May __, 2005]

Dear Stockholder:

     You are cordially invited to attend a Special Meeting of Stockholders of Mercury Air Group, Inc. on [June ___, 2005], at 9:00 a.m., at the Company’s corporate office at 5456 McConnell Avenue, Los Angeles, California. We look forward to greeting those stockholders who are able to attend.

     At this important meeting, you will be asked to vote on a proposed Transaction that, if approved, is expected to result in termination of the registration of Mercury Air Group’s common stock under the federal securities laws and thereby eliminate the significant expense required to comply with the reporting and related requirements under those laws. The proposed Transaction will reduce the number of common stockholders of record to fewer than 300, permitting Mercury Air Group to file for termination of registration of its common stock under the federal securities laws. The reduction in the number of common stockholders will be accomplished by amending our Certificate of Incorporation to provide for a 1-for-501 reverse stock split, followed immediately by a 501-for-1 forward stock split of our common stock. The proposed amended and restated certificate of incorporation is attached as Appendix A to this proxy statement.

     If approved at the Special Meeting, the Transaction will affect Mercury Air Group’s common stockholders as follows:

     Because Mercury Air Group has a large number of common stockholders who own fewer than 501 shares, we expect that the number of common stockholders of record will be reduced from approximately 331 to approximately 33, while the number of outstanding shares will decrease by only approximately 6.3%, a reduction of approximately 192,613 common shares from the 3,056,355 common shares outstanding as of March 1, 2005. No reduction in the number of shares held by preferred stockholders will occur as a result of this Transaction.

     After careful consideration, the Board of Directors has concluded that the costs

associated with being a Securities and Exchange Commission (“SEC”) reporting company, especially in light of the additional costs associated with compliance with Section 404 of the Sarbanes-Oxley Act of 2002, are not justified by the benefits in view of our common stock’s limited trading activity. Mercury Air Group estimates that it will save up to $3,000,000 which would have been expended through June 30, 2007 and approximately $500,000 annually thereafter in Section 404 compliance costs. We believe that these cost-savings will be in the best interest of Mercury Air Group and its stockholders who remain after the Transaction. Although our common stock will no longer be listed on the American Stock Exchange if the Transaction is completed, we believe that our shares would be quoted on the “pink sheets” and our remaining stockholders would be able to trade their shares in the over-the-counter markets. In addition, the Transaction would allow our common stockholders who hold fewer than 501 shares immediately before the Transaction the opportunity to receive cash for their shares at a premium to the closing price of our common stock on the last trading day before the public announcement of the approval of the Transaction by the Special Committee and the Board of Directors, without having to pay brokerage commissions and other transaction costs.

     A special committee comprised of independent directors has reviewed the proposed Transaction and considered its fairness to preferred stockholders and to common stockholders who hold fewer than 501 shares of common stock as well as those common stockholders holding 501 or more shares of common stock, and received a fairness opinion from its financial advisor with regard to the per share cash amount to be paid to the unaffiliated common stockholders holding fewer than 501 shares of common stock.

     ACCORDINGLY, AFTER CONSIDERING THE RECOMMENDATION OF THE SPECIAL COMMITTEE AND CONDUCTING ITS OWN DELIBERATIONS OF THE ISSUES IT DEEMED PERTINENT, INCLUDING ALTERNATIVES TO THE TRANSACTION, THE COSTS AND BENEFITS OF REMAINING AN SEC REPORTING COMPANY AND THE FAIRNESS OF THE TRANSACTION TO STOCKHOLDERS, YOUR BOARD OF DIRECTORS BELIEVES THIS TRANSACTION IS IN THE BEST INTERESTS OF MERCURY AIR GROUP AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE PROPOSAL. The enclosed proxy statement includes a discussion of the alternatives and factors considered by the board in connection with the board’s approval of the Transaction. See “Special Factors — Background of the Transaction” and “Special Factors — Recommendation of the Board of Directors; Fairness of the Proposed Transaction.”

     Consummation of the Transaction is subject to certain conditions, including the affirmative vote of at least a majority of the shares of Mercury Air Group’s common and preferred stock entitled to vote at the Special Meeting, voting as a single class. It is anticipated that the Transaction will become effective at 11:59 p.m. on [June ___, 2005], or as soon as reasonably practicable thereafter. Details of the proposed Transaction are set forth in the accompanying proxy statement, which we urge you to read carefully in its entirety.

     At the Special Meeting, you will also be asked to grant Mercury’s board of directors discretionary authority to adjourn the Special Meeting, if necessary.

     The executive officers and director of Mercury have indicated that they intend to vote “FOR” the approval of the Transaction and “FOR” the proposal to grant discretionary authority to adjourn the Special Meeting. If Mercury’s executive officers and directors exercise presently exercisable options they hold prior to the record date for the Special Meeting, they would own approximately 42.8% of the then outstanding shares of common and preferred stock, voting as a single class entitled to vote at the Special Meeting.

     IT IS VERY IMPORTANT THAT YOUR SHARES ARE REPRESENTED AND VOTED AT THE MEETING, WHETHER OR NOT YOU PLAN TO ATTEND. ACCORDINGLY, PLEASE SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE AT YOUR EARLIEST CONVENIENCE.

     Your interest and participation in the affairs of the Company are greatly appreciated. Thank you for your continued support.

MERCURY AIR GROUP, INC.
5456 MCCONNELL AVENUE
LOS ANGELES, CALIFORNIA 90066
(310) 827-2737

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD [MAY 31, 2005]

[May __, 2005]

To the Stockholders of Mercury Air Group, Inc.:

     NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the “ Special Meeting”) of Mercury Air Group, Inc., a Delaware corporation (the “Company” or “ Mercury “), will be held at the Company’s corporate office at 5456 McConnell Avenue, Los Angeles, California, on the [ 31st day of May, 2005], at 9:00 a.m., for the following purposes:

     Owners of record of the Company’s common and preferred stock at the close of business on [May ___, 2005], the record date, will be entitled to vote at the meeting. If your shares are held in the name of a broker, trust or other nominee (often referred to as held in “street name”), you must instruct them on how to vote your shares. Whether or not you plan to attend the meeting, please date, sign and mail the enclosed proxy in the envelope provided. Thank you for your cooperation.

     The Board of Directors has carefully considered the terms of the Transaction and believes that they are fair to, and in the best interests of, Mercury and its stockholders. The Board of Directors unanimously recommends that you vote “FOR” the Transaction and “FOR” granting the board of directors discretionary authority to adjourn the Special Meeting..

PLEASE SIGN AND MAIL THE ENCLOSED PROXY
IN THE ACCOMPANYING ENVELOPE
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES

MERCURY AIR GROUP, INC.
5456 MCCONNELL AVENUE
LOS ANGELES, CALIFORNIA 90066
(310) 827-2737

[May __, 2005]

PROXY STATEMENT FOR
2005 SPECIAL MEETING OF STOCKHOLDERS

INTRODUCTION

     This Proxy Statement is furnished to the stockholders of Mercury Air Group, Inc., a Delaware corporation (the “Company” or “ Mercury “), in connection with the solicitation by the board of directors of the Company of proxies to be used at the Special Meeting of Stockholders (the “Special Meeting”) to be held at the Company’s corporate offices at 5456 McConnell Avenue, Los Angeles, CA 90066, on [June ___, 2005], at 9:00 a.m., local time, and at any adjournment thereof, and is being mailed to the stockholders on or about the date set forth above.

     All shares represented by properly executed proxies received by the board of directors pursuant to this solicitation will be voted in accordance with the stockholder’s directions specified on the proxy or, in the absence of specific instructions to the contrary, will be voted in accordance with the board of directors’ unanimous recommendations, which are:

     If the Transaction is approved, as permitted by Delaware law, common stockholders whose shares are converted into less than one whole share in the reverse split (meaning they held fewer than 501 shares at the effective time of the reverse split) will receive a cash payment from Mercury for their fractional shares interests equal to $4.00 cash, without interest, for each share of common stock they held immediately prior to the reverse split.

     Stockholders who own 501 or more shares of common stock at the effective time of the Transaction will not be entitled to receive any cash for their fractional share interests resulting from the reverse stock split. The forward split that will immediately follow the reverse split will reconvert their whole share and fractional share interests back into the same number of shares of common stock they held immediately prior to the effective time of the Transaction. As a result, the total number of shares held by such a stockholder will not change after completion of the Transaction.

     After the Transaction, Mercury anticipates that it will have approximately 33 common stockholders of record. In the event that there are fewer than 300 common stockholders of record following the Transaction, Mercury intends to file a Form 15 with the Securities and Exchange Commission to terminate registration of its common stock under the federal securities laws. As a result, Mercury would no longer be subject to the annual and periodic reporting requirements under the federal securities laws that are applicable to Securities and Exchange Commission (“SEC”) reporting companies although Mercury currently intends to continue to provide reports as to its financial condition and results of operation which Mercury expects may be accessed at www.pinksheets.com. In addition, Mercury common stock would cease to be listed on the American Stock Exchange, any trading in Mercury’s common stock after the Transaction and deregistration of the common stock will only occur in the over-the-counter market or in privately negotiated sales, and Mercury’s common stock will likely only be quoted in the “pink sheets.”

     This Transaction cannot occur unless the holders of more than a majority of the issued and outstanding shares of Mercury’s common stock and Series A 8% Cumulative Convertible Preferred Stock, $0.01 par value (“preferred stock”), voting as a single class, approve the Transaction and the proposed Amended and Restated Certificate of Incorporation, which is attached as Appendix A to this proxy statement.

     The executive officers and directors of Mercury have indicated that they intend to vote “FOR” the approval of the Transaction. If Mercury’s executive officers and directors exercise presently exercisable options they hold prior to the record date for the Special Meeting, they would own approximately 42.8% of the then outstanding shares of common and preferred stock, voting as a single class, entitled to vote at the Special Meeting.

     A proxy may be revoked, without affecting any vote previously taken, by written notice mailed to the Company (attention Wayne Lovett) or delivered in person at the meeting, by filing a duly executed, later dated proxy, or by attending the meeting and voting in person.

     Only stockholders of record at the close of business on [May ___, 2005], are entitled to notice of and to vote at the Special Meeting and any adjournment thereof. Each share so held entitles the holder thereof to one vote upon each matter to be voted on. As of the record date, the

Company had outstanding 3,056,355 shares of common stock and 462,627 shares of preferred stock. The presence of holders of a majority of the issued and outstanding shares of common and preferred stock, represented as a single class, entitled to vote at the Special Meeting, either in person or represented by a properly executed proxy, is necessary to constitute a quorum for the transaction of business at the Special Meeting.

     This document provides you with detailed information about the proposed Transaction. Please see “Where You Can Find More Information” for additional information about Mercury on file with the Securities and Exchange Commission.

     This Proxy Statement and the accompanying proxy were first mailed to stockholders on or about [May ___, 2005].

PRELIMINARY COPIES

TABLE OF CONTENTS

SUMMARY TERM SHEET

     THIS SUMMARY TERM SHEET, TOGETHER WITH THE QUESTIONS AND ANSWERS SECTION THAT FOLLOWS, PROVIDES AN OVERVIEW OF ALL MATERIAL MATTERS THAT ARE PRESENTED IN THE PROXY STATEMENT, INCLUDING THE MATERIAL TERMS OF THE PROPOSED TRANSACTION. FOR A MORE COMPLETE DESCRIPTION WE URGE YOU TO CAREFULLY READ THIS PROXY STATEMENT AND ALL OF ITS APPENDICES BEFORE YOU VOTE. FOR YOUR CONVENIENCE, WE HAVE CROSS-REFERENCED TO THE LOCATION IN THIS PROXY STATEMENT WHERE YOU CAN FIND A MORE COMPLETE DISCUSSION OF EACH ITEM BELOW.

     AS USED IN THIS PROXY STATEMENT, “MERCURY,” THE “COMPANY,” “WE,” “OUR,” “OURS” AND “US” REFER TO MERCURY AIR GROUP, INC., A DELAWARE CORPORATION, AND THE “TRANSACTION” REFERS TO THE 1-FOR-501 REVERSE STOCK SPLIT AND THE 501-FOR-1 FORWARD STOCK SPLIT, TOGETHER WITH THE RELATED CASH PAYMENTS TO COMMON STOCKHOLDERS HOLDING FEWER THAN 501 SHARES AT THE EFFECTIVE TIME OF THE TRANSACTION.

THE TRANSACTION

     If the Transaction is approved and completed:

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     For a more detailed discussion on the Transaction, see “Special Factors” beginning on page 15. For a description of the provisions regarding the treatment of shares held in street name, see “Special Factors — Certain Effects of the Transaction” beginning on page 52. (Shares held in

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“street name” are held in a stock brokerage account or by a bank or other nominee.)

ADJOURNMENT OF THE SPECIAL MEETING

     Mercury’s board of directors is seeking discretionary authority to adjourn the Special Meeting if necessary to satisfy the conditions to completion of the Transaction, including for the purpose of soliciting proxies to vote in favor of the Transaction. For more information, see “Adjournment of Meeting” beginning on page 61.

VOTE REQUIRED

     The required vote for each of the proposals presented at the Special Meeting are as follows:

     As of March 1, 2005, Mercury’s current directors and executive officers owned 1,329,280 common shares, and 25,820 preferred shares, or approximately 38.5% of Mercury’s 3,056,355 outstanding shares of common stock and 462,627 outstanding shares of preferred stock, voting as a single class, that would be entitled to vote at the Special Meeting. If Mercury’s directors and executive officers exercised presently exercisable options they hold prior to the record date for the Special Meeting, they would own approximately 1,595,408 common shares and 25,820 preferred shares or approximately 42.8% of the then outstanding shares of common and preferred stock, voting as a single class, entitled to vote at the Special Meeting. See “Security Ownership of Certain Beneficial Owners” on page 80, and “Special Factors — Interests of Mercury’s Directors and Officers in the Transaction” on page 45.

     The officers and directors of Mercury have indicated that they intend to vote “FOR” the approval of the Transaction. Other than such expressed intent of the officers and directors to vote their shares for the Transaction, Mercury has not obtained any assurances or agreements from any of its stockholders as to how they will vote on the Transaction.

THE VOTING MATERIALS

     We sent you the enclosed materials because Mercury’s Board of Directors is soliciting your vote for use at our Special Meeting of Stockholders, which will take place on [June ___, 2005]. As a stockholder, you are invited to attend the Special Meeting and are entitled to and requested to vote on the Transaction described in this proxy statement.

     This proxy statement provides information that you need to know in order to cast an informed vote at the meeting. You do not need to attend the Special Meeting, however, to vote

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your shares. Instead, you may simply complete, sign and return the enclosed proxy card.

     We began sending this proxy statement, notice of Special Meeting, and enclosed proxy card on or about [May ___, 2005] to all stockholders entitled to notice of and to vote at the Special Meeting. The record date for stockholders entitled to vote is [May ___, 2005]. On that date, there were [_,___,___] shares of our common stock and ___shares of our preferred stock outstanding. Stockholders are entitled to one vote for each share of common and each share of preferred stock held as of the record date.

TIME AND PLACE OF THE SPECIAL MEETING

     The Special Meeting will be held at the principal office of Mercury, located at 5456 McConnell Avenue, Los Angeles, California 90066 at 9:00 a.m., Pacific Time on [June ___, 2005].

SOLICITATION OF PROXIES

     This proxy is solicited by the Board of Directors of Mercury.

SHARES THAT CAN BE VOTED

     You may vote all shares of Mercury’s common and preferred stock that you own as of the close of business on the record date, which was [May ___, 2005]. These shares include shares held:

OWNERSHIP OF SHARES

     Many of our stockholders hold their shares through a broker, bank or other nominee rather than directly in their own name. Mercury intends to treat stockholders holding common stock in street name through a nominee (such as a bank or broker) in the same manner as stockholders whose shares are registered in their names (shareholder of record). Nominees may have different procedures, however, and stockholders holding common stock in street name should contact their nominees. As summarized below, there are some distinctions between shares held of record and those owned beneficially.

Stockholder of Record

     If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company (the “Transfer Agent”), you are considered, with respect to those shares, the “stockholder of record”, and these proxy materials are being sent to you by Mercury. As the stockholder of record, you have the right to vote by proxy or to vote in person at the Special Meeting. Mercury has enclosed a proxy card for you to use.

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Beneficial Owner

     If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial owner” of shares held in “street name” with respect to those shares, and the proxy materials are being forwarded to you by your broker or other nominee. Your broker or other nominee is considered, with respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker or other nominee how to vote and are also invited to attend the Special Meeting. As a beneficial owner, however, you are not the stockholder of record, and you may not vote these shares in person at the Special Meeting unless you obtain a signed proxy appointment form from the stockholder of record giving you the right to vote the shares. Your broker or nominee has enclosed or provided a voting instruction card for you to use in directing the broker or nominee how to vote your shares.

ATTENDANCE AT THE SPECIAL MEETING AND ELIGIBILITY TO VOTE

     All holders of our common and preferred stock may attend the Special Meeting in person. Only holders of record of our common stock as of [May ___, 2005] may cast their votes in person at the Special Meeting.

VOTING OF SHARES WITHOUT ATTENDING THE SPECIAL MEETING

     Whether you hold your shares directly as stockholder of record or beneficially in street name, you may direct your vote without attending the Special Meeting. You may vote by signing your proxy card or, for shares held in street name, by signing the voting instruction card included by your broker or nominee, and mailing it in the enclosed, pre-addressed envelope. If you provide specific voting instructions, your shares will be voted as you instruct. If you hold your shares of record and sign your proxy card, but do not provide instructions, your shares will be voted as described below in “How are my votes counted?”

COUNTING OF VOTES

     You may vote “FOR,” “AGAINST” or “ABSTAIN” on the Transaction and “FOR”, “AGAINST” or “ABSTAIN” on the proposal granting the Company’s Board of Directors discretionary authority to adjourn the Special Meeting if necessary to satisfy the condition to completing the Transaction, including for the purpose of soliciting proxies to vote in favor of the Transaction (the “Adjournment Proposal”). If you “ABSTAIN” on the Transaction it has the same effect as a vote “AGAINST” the Transaction. If you vote “ABSTAIN” on the Adjournment Proposal, it has no effect on such proposal. If you sign and date your proxy form with no further instructions, your shares will be voted “FOR” the approval of the Transaction and “FOR” the approval of the Adjournment Proposal.

NO APPRAISAL OR DISSENTERS’ RIGHTS; ESCHEAT LAWS

     Stockholders do not have appraisal or dissenters’ rights under Delaware state law or Mercury’s Certificate of Incorporation or Bylaws in connection with the Transaction.

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     The unclaimed property and escheat laws of each state provide that under circumstances defined in that state’s statutes, holders of unclaimed or abandoned property must surrender that property to the state. Persons whose shares are eliminated and whose addresses are unknown to Mercury, or who do not return their common stock certificate(s) and request payment therefore, generally will have a period of years (depending on applicable state law) from the effective date of the Transaction in which to claim the cash payment payable to them. Following the expiration of that period, the escheat laws of states of residence of stockholders, as shown by the records of Mercury, generally provide for such state to obtain either (i) custodial possession of property that has been unclaimed until the owner reclaims it or (ii) escheat of such property to the state. If Mercury does not have an address for the holder of record of the shares, then unclaimed cash-out payments, without interest, would be turned over to Mercury’s state of incorporation, the state of Delaware, in accordance with its escheat laws.

PURPOSE OF AND REASONS FOR THE TRANSACTION

     If approved, the Transaction will enable Mercury to terminate its registration as an SEC reporting company and thus terminate its obligation to comply with Section 404 of the Sarbanes-Oxley Act. The Transaction will also terminate Mercury’s obligation to file annual and periodic reports and make other filings with the SEC, although Mercury intends to continue to provide reports as to its financial condition and results of operation which Mercury expects may be accessed at www.pinksheets.com. The reasons for the proposed Transaction and subsequent termination of SEC registration include:

     Please read “Special Factors — Purpose of and Reasons for the Transaction” beginning on page 37.

BENEFITS OF THE TRANSACTION

     Benefits of the Transaction to Mercury are expected to include the following:

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     Benefits of the Transaction to affiliates of Mercury are expected to include the following:

     See “Special Factors— Purpose of and Reasons For the Transaction—Benefits of the Transaction” beginning on page 29 and “Special Factors—Interests of Mercury’s Directors and Officers in the Transaction” beginning on page 45.

     Benefits of the Transaction to unaffiliated stockholders of Mercury are expected to include the following:

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     See “Special Factors — Purpose of and Reasons for the Transaction — Benefits of the Transaction” beginning on page 29.

DISADVANTAGES OF THE TRANSACTION

     Disadvantages of the Transaction to Mercury are expected to include the following:

     See “Special Factors—Disadvantages of the Transaction” beginning on page 31.

     Disadvantage of the Transaction to affiliates of Mercury are expected to include the following:

     See “Special Factors—Disadvantages of the Transaction” beginning on page 31.

     Disadvantages of the Transaction to unaffiliated stockholders of Mercury are expected to include the following:

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     See “Special Factors—Disadvantages the Transaction” beginning on page 31.

RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS

     At a meeting held on March 21, 2005, the Special Committee , consisting of two independent directors, Messrs. Michael Janowiak and Angelo Pusateri, unanimously determined that the Transaction and the $4.00 cash consideration per pre-split share to be paid to stockholders who hold less than 501 shares of common stock before the Transaction (“cash consideration”) are advisable, fair to and in the best interests of Mercury and its stockholders, including all unaffiliated stockholders of Mercury (both those receiving the cash consideration and those remaining as stockholders following the Transaction), and the Special Committee recommended that the Board approve the Transaction. See “Special Factors — Recommendation of the Special Committee.”

     At a meeting held on March 21, 2005, the Board unanimously determined that the Transaction and the cash consideration to be paid to stockholders who hold less than 501 shares of common stock before the Transaction are advisable, fair to and in the best interests of Mercury and its stockholders, including all unaffiliated stockholders of Mercury (both those receiving the cash consideration and those remaining as stockholders following the Transaction). The Board of Directors has determined that the Transaction is advisable and in the best interests of Mercury and its unaffiliated stockholders. The Board of Directors, with Messrs. Kopko and Czyzyk abstaining, therefore unanimously approved the Transaction and recommends that you vote “FOR” approval of this matter at the Special Meeting.

     The Special Committee and the Board of Directors itself both considered a number of factors that they believe supports their determination that the Transaction is substantively and procedurally fair to Mercury ‘s unaffiliated stockholders, including each of the following factors:

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     For a complete discussion of the factors that were considered by the Special Committee and the Board of Directors to determine fairness, see “Special Factors — Recommendation of the Special Committee” beginning on page 34 and “Special Factors — Recommendation of the Board; Fairness of the Transaction” beginning on page 39.

RECENT MARKET PRICE OF MERCURY’S COMMON STOCK AND MARKET PRICE FOLLOWING ANNOUNCEMENT OF THE PROPOSED TRANSACTION

     The closing price of Mercury ‘s common stock on March 8, 2005 the day before the public announcement that the Special Committee was considering the Transaction, was $4.49 per share. The closing price of Mercury ‘s common stock on March 21, 2005, the last trading day before the public announcement of the approval of the proposed Transaction by the Special Committee and the Board, was $3.36 per share.

FAIRNESS OPINION OF FINANCIAL ADVISOR

     Imperial Capital, financial advisor to the Special Committee, has delivered to the Special Committee and to the Board its written opinion to the effect that, as of the date of such opinion and based upon and subject to the matters stated in the opinion, the cash consideration to be paid to those stockholders of Mercury receiving such consideration, other than Mercury’s current directors and executive officers, including CK Partners and their respective affiliates (collectively, “affiliates of Mercury”), as to whom Imperial Capital expressed no view, is fair, from a financial point of view, to such stockholders. The full text of the written opinion of Imperial Capital, which sets forth the assumptions made, matters considered and limitations on the review undertaken, is attached as Appendix B to this proxy statement. You should read the opinion carefully and in its entirety, along with the discussion under “Special Factors — Opinion of Imperial Capital, LLC” beginning on page 46.

     The opinion of Imperial Capital is directed to the Special Committee of Mercury’s Board of directors and to Mercury’s Board of Directors and addresses only the fairness from a financial point of view of the cash consideration to be paid in the proposed Transaction to stockholders other than affiliates of Mercury, and does not constitute a recommendation to any stockholder as to how such stockholder should vote at the Special Meeting.

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EFFECTS OF THE TRANSACTION

     As a result of the Transaction, Mercury anticipates that:

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     See “Special Factors — Certain Effects of the Transaction” beginning on page 52.

ALTERNATIVES CONSIDERED

     Prior to deciding to pursue the Transaction, Mercury considered and rejected a number of alternatives, including a cash tender offer at a similar price per share, cash-out merger, purchase of shares in the open market, reverse stock split without a forward stock split, and a sale of certain divisions of Mercury.

CONDITIONS TO COMPLETION OF THE TRANSACTION

     The completion of the Transaction depends upon the approval of the proposed amendment to Mercury’s Certificate of Incorporation that will implement the Transaction by the holders of at least a majority of Mercury’s outstanding shares of common and preferred stock, voting as a single class. A copy of the Amended and Restated Certificate of Incorporation effecting both the reverse split and the forward split following immediately thereafter is attached as Appendix A to this proxy statement.

RESERVATION OF RIGHTS

     Mercury’s Board of Directors reserves the right to abandon the Transaction without further action by its stockholders at any time before the filing of the Amended and Restated Certificate of Incorporation with the Delaware Secretary of State, even if the Transaction has been authorized by Mercury’s stockholders at the Special Meeting, and by voting in favor of the

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Transaction you are also expressly authorizing Mercury’s Board of Directors to determine not to proceed with the Transaction if it so decides. See “Special Factors — Reservation of Rights” beginning on page 61.

SOURCE OF FUNDS; FINANCING OF THE TRANSACTION

     Mercury estimates that the total funds required to pay the consideration to stockholders entitled to receive cash for their shares and to pay the costs of the Transaction will be approximately $1,092,000, net of taxes. The consideration to stockholders and the costs of the Transaction will be paid from working capital of Mercury and amounts available under Mercury’s loan agreement with the Bank of America, N.A. (“Bank of America”). See “Special Factors — Source of Funds; and Financing of the Transaction” on page 56.

CONFLICTS OF INTEREST OF DIRECTORS AND EXECUTIVE OFFICERS, INCLUDING CK PARTNERS

     Mercury’s directors and executive officers, including CK Partners, may have interests in the Transaction that are different from your interests as a stockholder, and have relationships that may present conflicts of interest, including the following:

     See “Special Factors — Interests of Mercury’s Directors and Officers in the Transaction” on page 45.

EXCHANGE OF CERTIFICATES

     Promptly after the Transaction, Mercury will send a letter of transmittal and instructions to effect the surrender of certificates for Mercury ‘s common stock to all stockholders who, based on information available to Mercury, appear to be holders of fewer than 501 shares of Mercury ‘s common stock in any one account. Upon surrender of a certificate for cancellation to Mercury

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together with such letter of transmittal, duly completed and executed, the holder of the certificate will receive a cash payment of $4.00 per share, without interest, from Mercury. See “The Proposed Amendment — Exchange of Certificates” beginning on page 70.

EFFECTUATION OF THE TRANSACTION

     Assuming the Transaction is approved by the stockholders at the Special Meeting held on [June ___, 2005], then, as soon as practicable thereafter, Mercury intends to file the proposed Amended and Restated Certificate of Incorporation effectuating the reverse and forward stock splits.

DATE OF COMPLETION OF THE TRANSACTION

     Mercury expects the Transaction to be completed at 11:59 p.m. on [June ___, 2005], or as soon as reasonably practicable thereafter.

U.S. FEDERAL INCOME TAX CONSEQUENCES

     Generally, for stockholders who hold fewer than 501 shares of common stock before the Transaction, the receipt of cash for fractional shares will be treated for tax purposes in the same manner as if the shares were sold in the market for cash. Stockholders who will remain stockholders of Mercury following the Transaction should not be subject to taxation as a result of the Transaction. Tax matters are very complicated, and the tax consequences to you of the Transaction will depend on your own situation. Please read “Special Factors — U.S. Federal Income Tax Consequences” beginning on page 57.

QUESTIONS AND ANSWERS ABOUT RESTRUCTURING YOUR SHARE OWNERSHIP

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SPECIAL FACTORS

CORPORATE DEVELOPMENTS IN LAST FOUR YEARS

Sale of FBOs

     Mercury sold all of its Fixed-Based Operations (“FBO’s”), excluding the Long Beach FBO, to Allied Capital Corporation (“Allied Capital”) on April 12, 2004. Mercury received cash consideration of $76,349,000, subject to adjustment, for the FBOs. The following gives a background description of that transaction (the “Allied Transaction”).

     For the period ended June 30, 2002, Mercury was in violation of certain financial

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covenants of its then existing senior secured credit facility held by Fleet National Bank (“Senior Secured Credit Facility” or “Facility”) and a promissory note with J.H. Whitney Mezzanine Fund, L.P., one of its creditors (the “Whitney Note”). These violations were as follows:

     During discussions with the senior secured lender, it advised Mercury that it was its preference not to amend the loan agreement or waive the default conditions, but rather have Mercury enter into a new credit facility with another senior lender that would allow Mercury to repay in full the outstanding obligations on the Senior Secured Credit Facility. During the third and fourth quarters of fiscal 2002 and the first and second quarters of fiscal 2003 Mercury held discussions with several financial institutions with the intent to prepay both the Senior Secured Credit Facility and the Whitney Note. As a result of those discussions, Mercury was able to secure a new senior secured lender. Foothill Capital Corporation (“Foothill”), now known as Wells Fargo Foothill, to provide a senior credit facility that would provide up to $42,500,000 in financing with $12,500,000 being in the form of a term loan with up to $30,000,000 in the form of a revolving credit line based on eligible customer accounts receivable. Mercury, however, was not able to secure an acceptable subordinated loan facility to replace the Whitney Note. Mercury then initiated talks with Whitney regarding amending the terms of the existing note. Table of Contents

     These discussions culminated on December 30, 2002, when Mercury entered into a new senior credit facility (the “New Facility”) with Foothill as agent for the lenders (the “Lenders”) parties thereto, for the purpose of refinancing the existing Senior Secured Credit Facility as well as for general working capital, and amended the existing Whitney Note. At closing, the Company received $16,923,000 from the New Facility and disbursed the funds as follows:

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     In addition, the Lenders issued letters of credit in the amount of $16,364,000 at closing that were secured by the New Facility.

     The Whitney Note was secured by Mercury’s assets, subordinated to a senior creditor position held by Foothill. Warrants to purchase an additional 5% of Mercury’s common stock, exercisable for nominal consideration, would have been issued if the principal amount of the Whitney Note was not prepaid by December 31, 2003. Warrants to purchase a second 5% of Mercury’s common stock, exercisable for nominal consideration, along with an additional note in the original principal amount of $5,000,000 would also have been issued if the outstanding principal amount of the Whitney Note was greater than $12,000,000 after December 31, 2003 (collectively, the “Whitney Note Penalty Provisions”). In addition, beginning in January 2004 and continuing through June 2004, the interest rate on the Whitney Note would have increased by 1% per annum each month up to a maximum rate of 18%. Mercury was also required to prepay all outstanding principal on the Whitney Note and any additional note on December 31, 2004 but Mercury’s failure to make such prepayment would not have entitled the holder to accelerate the balance on the outstanding Whitney Note or outstanding additional note. The Whitney Note included covenants that, among other matters, limited senior indebtedness, the payment of dividends, the disposition of assets, requirements for a minimum EBITDA (a financial measure of cash flow representing earnings before interest, taxes, depreciation and amortization) and capital expenditure limitations.

     As previously required by the Whitney Note, Mercury formed committees consisting of independent directors to seek opportunities for asset and other financing transactions, with a view to reducing Mercury’s total debt.

     Beginning in December 2002, Mercury was engaged in discussions with financial institutions proposing to purchase and lease back to Mercury certain FBO assets (“sale- leaseback”). Mercury engaged DAMG Worldwide, L.L.C. (“DAMG”) on a non-exclusive basis, to manage and participate in a public finance vehicle for the sale-leaseback of ten FBOs. Other participants included Bear Stearns, and Ambac Insurance with Standard and Poors (“S&P”) providing a bond rating. DAMG investigated the establishment of a special purpose entity which was to receive a bond rating in order to raise funds and effect the sale-leaseback transaction. Mercury abandoned the sale-leaseback process in September 2003 after S&P failed to deliver a timely and satisfactory bond rating of the special purpose entity, Ambac Insurance indicated that they would no longer participate and the engagement with DAMG expired.

     Beginning in January 2003, Mercury was responding to numerous solicited and unsolicited verbal purchase offers on the sale of certain FBOs. These responses resulted in three written proposals for the acquisition of selected FBOs. Two offers were contingent on airport lease extensions, which were not obtainable on a timely basis for those specific FBOs and the third offer was subject to financing through a leveraged buyout over a two year period.

     During the same time period, Mercury also responded to indications of interest regarding MercFuel, Inc. (“MercFuel”), Mercury’s fueling subsidiary, and Mercury Air Cargo, Inc. (“Cargo”), Mercury’s cargo-handling facility. With regard to MercFuel, a non-binding indication

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of interest had been received at a price of $15,000,000, which at less than three times cash flow from operations was deemed by management to be unacceptable. With regard to Cargo, discussions with an interested party failed to result in a formal offer as a result of an indication of a purchase price of less than two times cash flow from operations. Beginning in August 2001, Mercury retained Bank America Securities, LLC to market its government services business (“Maytag”) and were unable to obtain any acceptable offers that adequately reflected the value of Maytag.

     In February 2003, Mercury engaged, on a non-exclusive basis, the investment banking firm of ARGI to market some of its individual FBOs, and on February 28, 2003, Mercury engaged Imperial Capital to, among other things, assist management in evaluating interest from a list of buyers for certain of Mercury’s assets, including Mercury’s FBO subsidiary, Mercury Air Centers, Inc. (“Air Centers”), and advising management in the potential sale of such assets. These buyers consisted of both buyers who were interested in purchasing Mercury’s assets in order to make a short-term profit (“Financial Buyers”) and buyers who were interested in purchasing Mercury’s assets in order to expand or complement their existing businesses (“Strategic Buyers”). The efforts of the two investment banking firms preceded separately in that ARGI was to arrange for a sale of individual FBO’s while Imperial Capital was to arrange for the sale of one or more divisions of the Company. The efforts of the two investment banking firms were coordinated by Joseph Czyzyk, Chief Executive Officer. Following its engagement, ARGI held discussions with more than 20 qualified domestic and international acquirers about the purchase of one or more of Mercury’s FBOs. Their efforts resulted in eight separate purchase offers, four of which were for one particular location and four of which were for multiple locations. Five of the eight offers allowed the potential purchasers unlimited time to perform due diligence, which was unacceptable to Mercury due to the timing requirements of the principal reduction conditions associated with the Whitney Note. Of the offers originated by ARGI, seven of the offers were determined to be unacceptable because the amounts offered were from 15% to 30% lower than the amounts that Mercury had advised ARGI to sell the FBO’s for, and if accepted, would have provided insufficient proceeds for Mercury to retire the required amount of principal in the Whitney Note. The one financially adequate offer was not consummated or pursued by the potential buyer for reasons that the potential buyer elected not to disclose to Mercury.

     Imperial Capital was engaged specifically to identify, solicit and negotiate with interested and qualified parties for the purpose of selling significant assets or entire businesses belonging to Mercury adequate to yield sufficient proceeds so that Mercury would be able to repay the necessary amount of debt it was obligated to pay pursuant to the New Facility and the Whitney Note so that the Whitney Note Penalty Provisions would not apply. Pursuant to these documents, the minimum required amount to be repaid was $24,250,000 ($12,500,000 to Foothill and $12,000,000 to Whitney) by December 31, 2003. In order to yield that amount on an after-tax and expenses basis, Mercury instructed Imperial Capital to seek to sell significant assets or businesses belonging to Mercury for at least $30,000,000. Imperial Capital obtained necessary historical financial and operational history of the different businesses Mercury was engaged in and contacted fourteen potential purchasers (including Allied Capital) to solicit their interest, first by qualifying their financial capabilities and their historical acquisition experience, and second by engaging them in confidentiality agreements followed by provision of selected

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financial and operational information, resulting in offer to acquire letters. With the assistance of management, Imperial Capital prepared information and financial analyses describing the operations of each of Mercury’s business divisions, including Air Centers. Information was distributed by Imperial Capital to the fourteen potential financial and strategic buyers, ten of which were financial and four of which were strategic, each of which had expressed interest in receiving further information and signed confidentiality agreements to receive such information. Following its engagement, Imperial Capital received six offers for the stock and/or substantially all of the assets of Air Centers or certain assets of Air Centers. Four of these bidders, who had held meetings with Mercury’s management and conducted due diligence, sought to purchase certain assets of Air Centers. Three of the offers were subject to the bidders obtaining necessary financing. In addition, several other parties were contacted, executed a confidentiality agreement, and received information, but chose not to issue a proposal. Below is a summary, in chronological order, of the definitive bids received:

     In June, 2003 Mercury’s senior management began to deal directly with representatives from Party A. On July 30, 2003, Party A mailed a Letter of Intent to Mercury to purchase Mercury’s Charleston, SC FBO and Mercury’s Johns Island, SC FBO. On July 30, 2003, Party A mailed a Letter of Intent to Mercury for the purchase of Mercury’s FBOs in Reno, NV; Jackson, MS; and Nashville, TN. On August 18, 2003, Party A mailed a revised Letter of Intent for the purchase of the Mercury FBO in Nashville, TN because they had determined that their ability to conclude the sale of that FBO could be hampered by a Hart Scott Rodino (“HSR”) violation as Party A owned and operated the only other FBO competing with Mercury’s FBO at Nashville, TN Airport.

     During August and September, 2003 Party A proposed purchasing a total of four of Air Center’s FBOs. Party A submitted an offer to acquire these four FBOs, which collectively generated EBITDA of approximately $3,300,000, for total consideration of $20,000,000, representing an EBITDA multiple of 6.1x.

     On March 28, 2003, Party B submitted an initial proposal to purchase seven of Air Centers’ FBOs, with total EBITDA of approximately $6,600,000, and other Air Centers’ assets for total consideration of $25,800,000. On April 24, 2003, Party B submitted a revised proposal for eight of Air Centers’ FBOs, with total LTM EBITDA (latest twelve months EBITDA) of approximately $7,900,000 as of February 2003, for total consideration of $37,900,000, representing an EBITDA multiple of approximately 4.7x. On May 5, 2003, Mercury made a counter proposal to Party B which entailed the sale of six of Air Centers’ FBOs, with total EBITDA multiple of approximately $4,400,000, for total consideration of $30,900,000, representing an EBITDA multiple of approximately 7x.

     On May 7, 2003, Party C submitted an initial proposal, which entailed the purchase of ten FBOs, with total EBITDA of approximately $7,000,000, for total consideration of $31,000,000, representing an EBITDA multiple of 4.4x. In June 2003, Party C submitted a subsequent offer for nine FBOs, with total EBITDA of $5,500,000, for total consideration of $29,100,000, representing an EBITDA multiple of 5.3x.

     On May 28, 2003, Party B made a counterproposal which entailed the purchase of six

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FBOs, with total LTM EBITDA of approximately $4,400,000 as of March 2003, for total consideration of $21,500,000, representing an EBITDA multiple of approximately 4.9x.

     On June 10, 2003, Party C submitted a revised offer for nine of Air Centers’ FBOs, with total EBITDA of $5,600,000, for $36,600,000 in cash, representing an EBITDA multiple of 7.6x.

     In July 2003, Mercury engaged in discussions with a foreign investor who proposed to acquire all of Mercury’s FBOs, proposing a step transaction including cash and notes. Mercury rejected the offer due to the investor’s inability to verify and guarantee the availability of the funds.

     In July 2003, Mercury began to engage in discussions with Allied Capital for the acquisition of Mercury’s FBOs.

     On July 31, 2003, Party C submitted a revised offer for fourteen FBOs at a purchase price of $58,800,000 million, representing an EBITDA multiple of approximately 5.8x. On August 1, 2003, Party C issued a final proposal for substantially all of Air Centers FBOs for a total purchase price of $77,800,000 million, representing an EBITDA multiple of 6.3x. Each of Party C’s offers was subject to Party C successfully obtaining adequate senior and subordinated debt financing. Further, Party C’s never completed any due diligence.

     In August 2003, Mercury’s management determined not to pursue Party C’s final proposal based on (i) the financing contingency, and concerns by Mercury’s management of Party C’s ability to obtain the necessary financing, given Party C’s high degree of leverage; (ii) lack of certainty of closure on proposed terms; and (iii) Party C’s concerns regarding the construction obligations relating to the Los Angeles FBO.

     In August 2003, Party D submitted a verbal preliminary indication of interest for all Air Centers’ FBOs in the range of $65,000,000 to $70,000,000 million in cash, subject to financing.

     On August 14, 2003, Allied Capital submitted an initial Letter of Intent (“LOI”) for the purchase of all of the capital stock of Air Centers (all of Mercury’s FBOs) for a purchase price of $79,000,000 million in cash (subject to adjustment based on Air Centers’ net working capital as of the transaction closing date) and the assumption of Mercury’s and Air Centers’ liabilities for construction or renovations at Air Centers’ FBOs under existing agreements. The LOI provided, among other things, for Allied Capital to perform due diligence and the parties to work toward the negotiation, preparation and execution of a definitive agreement subject to certain exceptions. Mercury and Air Centers agreed to work exclusively with Allied Capital for a 45 day “No-Shop” period.

     On September 29, 2003, after performing additional due diligence and several weeks of negotiations, Mercury, Air Centers and Allied Capital entered into an LOI, which replaced the August 14, 2003 LOI. The new LOI provided for the purchase of all of the capital stock of Air Centers for a purchase price of $88,600,000 million in cash (subject to adjustment based on Air Centers’ net working capital as of the transaction closing date). Allied Capital agreed to assume all of Mercury’s and Air Centers’ liabilities for construction or renovations at Air Centers’ FBOs

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under existing agreements, the amount of which would be deducted from the $88,600,000 million of cash proceeds on the transaction closing date (effectively a $70,000,000 purchase price, representing an EBITDA multiple of 5.7x). The LOI also provided for Allied Capital to commence negotiations with J.H. Whitney Mezzanine Fund, L.P. regarding the execution and delivery of a binding agreement for the purchase by Allied Capital of the Whitney Note, and with Mercury regarding execution and delivery of a binding stock purchase agreement, both agreements to be executed simultaneously on or before October 8, 2003, with closing of the stock purchase to occur on or before December 31, 2003. Allied Capital agreed to remove the Whitney Note Penalty Provisions in the event it purchased the Whitney Note. The LOI provided, among other things, for Allied Capital to perform due diligence, and the parties to work together toward the negotiation, preparation and execution of a definitive agreement.

     Mercury and Air Centers agreed to work exclusively with Allied Capital for a No-Shop period ending October 8, 2003.

     Negotiations between Party A and Mercury were ongoing until Mercury’s execution of the September 29, 2003 LOI with Allied Capital. Mercury’s senior management determined that a transaction with Party A and Mercury for the four FBOs would have resulted in a significant tax expense to Mercury of approximately $4,000,000, resulting from the low tax base of these FBOs thereby not providing Mercury with sufficient capital to avoid the Whitney Note Penalty Provisions without additional asset sales. In addition, management was concerned that Party A would not be in a position to purchase all of Air Centers’ FBOs due to potential regulatory issues under the HSR Act and certain issues which had not yet been resolved. Party A was given the opportunity to pursue discussions regarding the acquisition of all of the FBO locations but declined. Mercury’s management determined to instead pursue the Allied Capital transaction.

     In October 2003 and November 2003, Mercury received two additional offers for one or more FBOs. Pursuant to the terms of the LOI and the stock purchase agreement, respectively, Mercury notified Allied Capital of these offers.

     On October 9, 2003, Mercury, Air Centers and Allied Capital extended the No-Shop period and the date for purchase of the Whitney Note and execution of a binding stock purchase agreement for the purchase of Air Centers to October 16, 2003.

     On October 14, 2003, Mercury, Air Centers and Allied Capital extended the No-Shop period and the date for purchase of the Whitney Note and execution of a binding stock purchase agreement for the purchase of Air Centers to October 29, 2003.

     On October 23, 2003, at a telephonic meeting, the Mercury Board reviewed Allied Capital’s offer in detail. Prior to the Board meeting, the Secretary of the Corporation distributed a copy of the most recent draft of the stock purchase agreement with Allied (“Allied Stock Purchase Agreement”), and Imperial Capital distributed a draft fairness opinion to the members of the Board of Directors of Mercury. Two representatives of Imperial Capital attended the Board meeting, made a presentation to the Board with respect to the Allied Transaction, issued its final opinion indicating that the Allied Transaction is fair to Mercury’s stockholders from a financial point of view, in substantially the form of the draft opinion that was previously

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distributed, and answered questions pertaining to its due diligence, methodology and the contents of the fairness opinion.

     October 28, 2003 Allied Capital purchased the Whitney Note and simultaneously, Mercury, Air Centers and Allied Capital entered into the Allied Stock Purchase Agreement.

     On October 27, 2003, the day immediately preceding the public announcement of the Allied Transaction, the closing price of Mercury Common Stock on the American Stock Exchange was $8.00.

     On November 26, 2003, Signature Flight Support Corporation (“Signature”), previously identified herein as Party A, filed a complaint in the Federal District Court, Central District of California, against Air Centers (the former FBO division of Mercury that was the subject of the Allied Stock Purchase Agreement) and Allied Capital alleging: 1) breach of contract against Air Centers; 2) tortious interference with contract against Allied Capital; 3) tortious interference with prospective economic advantage against Allied Capital; and 4) unfair business practices against Mercury and Allied Capital. Mercury agreed to indemnify Allied Capital and its affiliates (including, without limitation, Air Centers after the closing of the FBO sale), directors, officers, agents, employees and controlling persons from any liability, obligation, losses or expenses to which Allied Capital may become subject as a result of the complaint. On January 26, 2005 the Federal District Court granted Allied Capital’s motion for summary judgment dismissing all claims against Allied Capital with prejudice. The Court also granted Mercury Air Centers motion in part dismissing in its entirety Signature’s unfair business practices claim and holding that the substantive deal terms of the parties’ executed letter of intent were non-binding. The sole remaining claim of Signature is for breach of the stand-down provision within the disputed letter of intent between the parties. The Court limited Signature’s damages in that claim to reasonable out of pocket costs and expenses, and set the amount of damages at $160,000 if Signature proves the existence of a binding contract and material breach thereof. This matter is expected to be appealed. In addition, on September 22, 2004, Signature filed a complaint against Mercury Air Group, Inc. in Los Angeles Superior Court, alleging unfair business practices, tortious interference with contract and prospective economic advantage and fraud. Mercury has filed a counterclaim against Signature and others for fraud, negligent misrepresentation and other claims in the Los Angeles Superior Court action. Signature filed an amended complaint on or about February 1, 2005. Mercury believes these allegations have no merit and will also be vigorously disputed and defended. In the opinion of management, the ultimate resolution of these complaints will not have a material effect on Mercury’s consolidated financial statements.

     The sale of the FBO assets to Allied Capital closed on April 12, 2005. Imperial Capital received $300,000 from Mercury in connection with the sale to Allied Capital - $262,500 for services in connection with the purchase of the Whitney Note by Allied Capital and the execution of the Allied Stock Purchase Agreement, and $37,500 for rendering the fairness opinion.

Special Dividend

     On October 6, 2004, Mercury announced that its Board of Directors declared a one-time

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special dividend totaling $17,500,000, or approximately $5.45 to $5.60 per share that would be payable on a pro rata basis to holders of record of its common stock as of the close of business on October 18, 2004. On October 5, 2004, the day immediately preceding the public announcement of the special dividend, the closing price of the common stock on the American Stock Exchange was $5.39. The Board of Directors declared the one-time special cash dividend after a lengthy review of strategic goals in light of the sale of the FBO business. The dividend was paid on November 5, 2004. The dividend was paid from cash on hand and a $10,000,000 cash advance on the loan agreement with Bank of America. Based on 3,056,355 shares of its common stock outstanding as of the close of business on October 18, 2004, the dividend payable per common share was $5.70. The amount payable per share of common stock was net of the mandatory dividend payments of approximately $70,000 on Mercury’s outstanding preferred stock as of the dividend payment date of November 5, 2004.

BACKGROUND OF THE TRANSACTION - BOARD AND SPECIAL COMMITTEE DELIBERATIONS

     At a Board meeting on February 2, 2005, the Board of Directors formally asked management to consider the topic of SEC deregistration and delisting from the American Stock Exchange . The Board’s interest in deregistration as an SEC reporting company was the result of the Audit Committee report of estimated costs by outside consultant SenPro Consulting/Casey & Co. for implementation of Section 404 internal controls certification provisions of the Sarbanes-Oxley Act. In selecting SenPro Consulting/Casey & Co., the former CFO of the Company reviewed the costs, availability and background of a number of consultants engaged in Sarbanes-Oxley Compliance analyses. The former CFO had a long standing business relationship with a high ranking officer of the Casey Group of Parsippany, NJ. The Casey Group has specialized experience in IT evaluation and enterprise driven work. The Casey Group in turn contacted and hired SenPro Consulting for its specific Sarbanes-Oxley expertise. SenPro consultants came to the Company with experience working with 10 accelerated filer companies and specific experience dealing with the needs of small cap companies. Except as set forth above, no material relationship existed during the past two years or is mutually understood to be contemplated between SenPro Consulting/Casey & Co. and/or its affiliates and the Company and/or its affiliates.

     At the February 2, 2005 Board meeting, the Board discussed the high cost of maintaining the status quo and complying with the Section 404 Internal Controls Certification provisions, and the cost-savings benefits of SEC deregistration in light of the Company’s lack of liquidity for its common stock. The Board also discussed that the Company’s common stock would likely be quoted on the “pink sheets.” At this meeting, the Board discussed certain matters with Mercury’s outside legal counsel, McBreen & Kopko (“M&K”). M&K is a law firm of which Frederick H. Kopko, Jr. is a partner. The matters discussed with M&K included, potential methods for deregistration as an SEC reporting company, which would require Mercury to reduce the number of stockholders of record of its common stock to less than 300. At this meeting the Board of Directors formed the Special Committee, which consisted of two independent directors to consider delisting and deregistering the Company’s common stock. The Board of Directors also discussed at this meeting the advisability of continuing to utilize M&K as its outside legal counsel. The Board of Directors determined that, due to M&K’s knowledge of the Company, it

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would be in the best interests of the Company and its stockholders to continue to use M&K as its outside legal counsel, however, the Board of Directors also determined that it would be in the best interests of the Company and its stockholders to also utilize an independent legal counsel to advise the Special Committee in connection with a possible deregistration and delisting.

     Following the Board meeting on February 2, 2005, Bingham McCutchen, LLP (“Bingham McCutchen”) was engaged as independent legal counsel to the Special Committee and Imperial Capital was engaged as financial adviser to the Special Committee and the Board. Bingham McCutchen was requested to provide a presentation to the Special Committee on the considerations of delisting from the American Stock Exchange and deregistration as an SEC reporting company. Imperial Capital was requested to discuss with the Special Committee the advantages and disadvantages of delisting, deregistering and being quoted on the “pink sheets.”

     The Special Committee discussed the topics of deregistration and delisting at a meeting held on February 16, 2005, with its independent legal counsel, Bingham McCutchen. The Company’s third independent director who is not a member of the Special Committee, Gary Feracota, was invited to, and did, participate in the meeting of the Special Committee. At such meeting, the Special Committee confirmed its scope of duties and responsibilities, the independence of its members, its engagement of Bingham McCutchen and its engagement of Imperial Capital. The members of the Special Committee confirmed their selection of Imperial Capital on the basis that Imperial Capital is an independent and experienced provider of valuation and fairness opinions; it does not have an advisory or other potentially conflicting role in the proposed Transaction; and it is thoroughly familiar with Mercury and its operations from having rendered prior fairness opinions in unrelated transactions and could therefore perform the analysis more expeditiously and cost effectively than other financial advisors.

     The Special Committee discussed in detail with its counsel its fiduciary obligations. The Special Committee also discussed in detail the information needed to evaluate the proposed Transaction, including the cost of maintaining the status quo, information regarding anticipated cost savings and anticipated expenses, all of which were considered in order to make an informed recommendation to the Board as to whether Mercury should delist its common stock from the American Stock Exchange and deregister its common stock as an SEC reporting company. The Special Committee reviewed material from Bingham McCutchen which consisted of an agenda and a draft delisting/deregistration process memorandum. The Special Committee also considered a reverse/forward stock split as one of the methods of reducing the holders of record of Mercury’s common stock to less than 300. Mercury’s management and the Special Committee’s advisers were requested to provide the Special Committee with responses to a variety of questions and to respond to a variety of requests for information. The information requested included examples of press releases and proxy statement information for other companies that had deregistered, a report on any of Mercury’s contractual arrangements that might be impacted, alternatives to a reverse/forward stock split as the mechanism for accomplishing deregistration and a liquidity study to be performed by Imperial Capital as to the market impact of deregistration by other companies.

     On February 21, 2005, the Special Committee met again to review information with which it had been supplied including proposed transaction details provided by management and

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responses to previous questions posed to management and Bingham McCutchen. The Special Committee also discussed with Bingham McCutchen various issues being considered as to the advantages and disadvantages for ceasing to have its shares of common stock continue to be listed on the American Stock Exchange and registered with the SEC. These included, cost savings that likely would result, both on an initial and continuing basis, the costs of accomplishing delisting and deregistration, the impact on stockholders’ liquidity for their shares of common stock, and the consequences to stockholders who would receive cash for their fractional shares. Bingham McCutchen provided a revised “step-by-step” memorandum at this meeting and advised the Special Committee on both procedural and substantive considerations for effecting a transaction that would result in SEC deregistration and American Stock Exchange delisting, including the fiduciary duties of directors on the Special Committee. The methods for accomplishing such delisting and deregistration again were discussed, including management’s recommendation of a reverse/forward stock split with cash being paid to holders of record of Mercury’s common stock who hold less than 501 shares. Other methods considered were a cash tender offer, a cash-out merger, purchase of shares in the open market, a reverse stock split without a forward stock split and the sale of certain divisions. The method of determining the fairness of a cash payment to unaffiliated stockholders for fractional shares was discussed in detail. At the request of the Special Committee, additional information was to be provided for future meetings by Mercury’s management, Bingham McCutchen and Imperial Capital. Management was requested to provide a detailed analysis of anticipated cost savings of deregistration, particularly as such cost savings relate to not having to comply with Section 404 of the Sarbanes-Oxley Act, and to provide a description of anticipated corporate governance if deregistration occurred. Bingham McCutchen was requested to provide the Special Committee with a detailed check list of matters that should be considered. Imperial Capital was requested to provide an analysis of companies that had deregistered and the reasons therefore and their trading history pre and post deregistration.

     The Special Committee met again on February 25, 2005 with Bingham McCutchen and Imperial Capital. The additional information that had been supplied to the Special Committee was reviewed in detail, including preliminary drafts of information about: other companies who had used a reverse stock split for deregistration and their reasons for doing so; a liquidity analysis of companies that had become traded on the “pink sheets” after having been traded either on a major stock exchange or quoted on NASDAQ; an analysis of anticipated cost savings; Delaware case law on the selective purchase of fractional shares; a share premium analysis; and a preliminary draft of a fairness opinion. The revised “step-by-step” memorandum provided by Bingham McCutchen also was discussed in detail, further information was requested from Mercury’s management and refinements were asked to be made in the analyses provided by Imperial Capital. The additional information requested from Mercury’s management included the computation of anticipated cost savings based on analyses of consultants, a detailed summary of the proposed Transaction, potential audit firm issues if Mercury deregistered, whether credit agreement or other contractual consents or modifications would be required, whether registration rights exist, whether employment agreements would be impacted, the amount and source of funding required and the projected increase in ownership that would occur to the largest stockholders of Mercury.

     On March 1, the Special Committee again met with Bingham McCutchen and Imperial

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Capital to discuss the additional information and reports it had received, including the documentation utilized in determining anticipated cost savings resulting from deregistration, a revised liquidity analysis of companies that had begun trading on the “pink sheets” after having been traded either on a major stock exchange or quoted on NASDAQ, that separately breaks out “distressed” companies and Imperial Capital’s preliminary opinion, subject to various assumptions and limitations as set forth therein. The Special Committee discussed with Imperial Capital the methodology for determining an appropriate range of cash consideration that would be fair, from a financial point of view, to those stockholders receiving the cash consideration, including all unaffiliated stockholders. The Special Committee requested that any preliminary information and reports be revised before the next meeting of the Special Committee. The Special Committee also reviewed a revised “step-by-step” memorandum that had been provided by Bingham McCutchen to determine what additional information was needed and who was to provide such information. Except for the “step-by-step” memorandum discussed above, memoranda regarding agendas and processes, legal research and publicly available information on other companies, Bingham McCutchen did not provide any opinions or presentation materials at the March 1, 2005 Special Committee meeting or at any other meeting of the Special Committee or the Board of Directors.

     Another meeting of the Special Committee was held on March 3, 2005 with Bingham McCutchen and Imperial Capital to review the procedural and substantive issues that the Special Committee had considered to date. M&K, the Company’s outside legal counsel, reported to the Special Committee on the extension of the required compliance date for the Section 404 provisions of the Sarbanes-Oxley Act for small issuers, such as Mercury. The Special Committee then discussed the impact of such extension on its deliberations and whether further information would be useful in reaching a decision to recommend to the Board that Mercury delist its common stock from the American Stock Exchange and deregister such common stock from SEC reporting requirements in accordance with the proposed Transaction being considered. The Special Committee discussed in detail the previous draft opinion and other materials from Imperial Capital consisting of a revised reverse stock split analysis of other public companies and an analysis of how much it would cost Mercury to undertake the reverse stock split with various ratios and prices. The Special Committee previously had been furnished with a draft of a preliminary proxy statement that included a discussion of the proposed Transaction. After reviewing the draft of the preliminary proxy statement, the Special Committee determined to further reflect on the issues presented, to further review the material provided, including a further update to the draft of the preliminary proxy statement, and to meet again the following week.

     The Special Committee next met on March 8, 2005 with Bingham McCutchen and Imperial Capital. Management and M&K reported to the Special Committee on unusual price and volume activity that was occurring that day in Mercury’s common stock and reviewed with the Special Committee a proposed press release to be released later that day. The Special Committee reviewed in detail: the advice that it had received; the information and reports provided from all sources, consisting of cost savings projections from Sen/Pro Consulting/Casey & Co., a separate report from Parson Consulting also setting forth cost savings projections, a Mercury historical price and volume analysis and a share premium analysis; and the draft fairness opinion issued by Imperial Capital with respect to the proposed Transaction, which was

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previously provided to the Special Committee. Regarding Parson Consulting, that company contacted Mercury and provided its estimate based on the study prepared by SenPro Consulting/Casey & Co. Parson Consulting has performed over 50 Sarbanes-Oxley estimates. No material relationship existed during the past two years or is mutually understood to be contemplated between Parson Consulting and its affiliates and Mercury and its affiliates.

     At the March 8, 2005 Special Committee meeting, Imperial Capital discussed with the Special Committee Mercury’s historical trading prices and volumes for its common stock and provided a detailed review of its draft fairness opinion. Imperial also reviewed typical premiums paid in going private transactions, how the Special Committee might approach determining the price to be paid to holders of fractional shares and how this information should be compared with Mercury’s range of implied equity values set forth in Imperial Capital’s draft fairness opinion.

     The two members of Mercury’s Special Committee next met on March 9, 2005 with Bingham McCutchen to review with the third independent director, who was not a member of the Special Committee, a summary of the discussions that the Special Committee had engaged in to date, the information and reports it had previously received, including a revised Mercury historical price analysis, the draft fairness opinion from Imperial Capital and the most recent draft of proposed proxy materials. The independent directors again reviewed with counsel their fiduciary duties, the advantages and disadvantages of the proposed Transaction as detailed in the draft proxy statement and the methodology for determining the cash price for fractional shares in the event that the Special Committee recommended the proposed Transaction to the Board of Directors.

     At a meeting on March 10, 2005, the Special Committee, along with the third independent director, again reviewed the procedures and process that had been followed by the Special Committee in considering the proposed Transaction and the advice and information that had been furnished to the Special Committee. The Special Committee reviewed in detail with Mercury’s chief financial officer the computation of cost savings that are anticipated to result from deregistration based on materials provided by SenPro Consulting/Casey & Co., additional materials provided by Parson Consulting, a revised share premium analysis, a revised comparable company analysis, and the latest draft of the fairness opinion. A new draft of the preliminary proxy materials was to be furnished to the independent directors not later than March 11, 2005 and would be reviewed by the independent directors before the meeting of the Special Committee on March 14, 2005.

     On March 14, 2005, the Special Committee again met with the third independent director, with Bingham McCutchen and with Imperial Capital to discuss the additional information it received since its last meeting. Such additional information included: revised preliminary proxy material prepared by M&K; the materials previously provided from SenPro Consulting/Casey & Co. concerning the implementation of the Section 404 internal controls certification provisions of the Sarbanes-Oxley Act; an updated draft of the fairness opinion, a comparable stock-split transaction study previously provided, an updated share premium study (all from Imperial Capital); and a summary of the determination of the existence of a legal source under Delaware law for the proposed purchase of fractional shares. The updated draft of the fairness opinion again was thoroughly discussed with Imperial Capital and certain members of Mercury’s senior management. The status of requested changes to the loan agreement with Bank of America also

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was discussed. The Special Committee members and the third independent director again reviewed with Imperial Capital and counsel whether to recommend the proposed Transaction to the Board and, if so, the methodology for determining the cash consideration to be paid that would be advisable, fair and in the best interests of Mercury and all of its stockholders, including unaffiliated stockholders.

     The Special Committee met for a final time on March 21, 2005 to review in detail: the advice that it had received; the information and reports provided from all sources, including a new share premium analysis and the most recent draft of the fairness opinion issued by Imperial Capital with respect to the proposed Transaction. In considering the cash consideration to be paid to stockholders who would receive less than one share in the reverse stock split, the Special Committee reviewed a number of factors as discussed in “Special Factors — Recommendation of the Special Committee” beginning on page 34 below. The Special Committee also considered the advice received from Imperial Capital, including Imperial Capital’s fairness opinion. The full text of Imperial Capital’s opinion is attached as Appendix B. Mr. Janowiak noted that Mr. Czyzyk had suggested that the Special Committee consider a repurchase price of $3.65, which then represented a premium of $.29 to the $3.36 March 21, 2005 closing price for the Company’s common stock. Both committee members considered the range of implied equity values as set forth in Imperial Capital’s analysis of value, as well as the closing prices over the last 10, 20 and 30 trading days and one month average closing prices. Mr. Janowiak proposed a $4.00 repurchase price, representing a premium of $.64 or 19% over the closing price on March 21, 2005. Mr. Pusateri agreed and subject to Board approval and stockholder approval, the Special Committee unanimously recommended the cash consideration of $4.00 per share and determined that: (i) both the Transaction and the payment of cash consideration of $4.00 per share of common stock to stockholders who otherwise would receive less than one share in the reverse stock split are advisable, fair and in the best interests of Mercury and all of its stockholders, including all unaffiliated stockholders, and (ii) the proposed Transaction, including the cash consideration, be recommended to Mercury’s Board of Directors for adoption.

     At the special Board meeting on March 21, 2005, Mr. Janowiak, chairman of the Special Committee, reported on the Special Committee meeting held earlier that day. The Board discussed extensively the Special Committee’s review of the reverse stock split, the estimated cost to accomplish the Transaction, and the cost savings that would be realized by SEC deregistration. The Board and its counsel, M&K, specifically discussed the preliminary proxy materials previously furnished to the Board members and the cash consideration of $4.00 per pre-split share to be paid to stockholders who would otherwise receive less than one share in the reverse stock split. In considering the price for the cash consideration, the Board reviewed a number of factors as discussed in “Special Factors — Recommendation of the Board; Fairness of the Transaction” beginning on page 39. The Board also considered the Special Committee’s recommendation and the opinion of the Special Committee’s financial advisor. With Messrs. Czyzyk and Kopko abstaining, the remainder of the Board unanimously voted to approve the Transaction and directed that the Transaction be submitted to stockholders for a vote at a Special Meeting of Stockholders. The Board recommended that stockholders approve the Transaction.

PURPOSE OF AND REASONS FOR THE TRANSACTION

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     The purpose of the Transaction is to cash-out the equity interests in Mercury of stockholders who, as of the effective date, hold fewer than 501 shares of common stock in any discrete account at a price determined to be fair by the entire Board in order to enable Mercury to deregister its common stock under the Exchange Act and thus terminate its obligation to comply with Section 404 of the Sarbanes-Oxley Act. The Transaction will also terminate Mercury’s obligation to file annual and periodic reports and make other filings with the SEC, although Mercury currently intends to continue to provide reports as to its financial condition and results of operation which Mercury expects may be accessed at www.pinksheets.com.

     The reasons for the Transaction and subsequent deregistration of Mercury as an SEC reporting company include:

BENEFITS OF THE TRANSACTION

Benefits and Cost Savings of Termination as an SEC Reporting Company

     Mercury anticipates it will save up to $3,000,000 through June 30, 2007, and approximately $500,000 per year thereafter, by not having to comply with Section 404 of the Sarbanes-Oxley Act. Mercury will also save approximately $15,000 per year in American Stock Exchange fees. Mercury also incurs substantial additional costs as a result of its status as a reporting company and being required to file annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements and stockholder reports as required by Regulation 14A under the Exchange Act, and current reports on Form 8-K; however, these costs are not enumerated below as Mercury intends to continue to provide reports as to its financial condition and results of operation.

     The annual savings that Mercury expects to realize as a result of the Transaction are estimated as follows:

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     approximately $500,000.

     Estimates of the annual savings expected to be realized if the Transaction is implemented are based upon a study prepared by SenPro Consulting/Casey & Co., in the case of costs of complying with Section 404 of the Sarbanes-Oxley Act of 2002, and actual costs to Mercury in the case of the American Stock Exchange listing fee.

     In addition to the above costs, Mercury believes that there will be a reduction in auditing fees if Mercury ceased to be an SEC reporting company as there will not be any fees for the auditors to attest to internal controls pursuant to Section 404 of the Sarbanes-Oxley Act.

     The estimate regarding Section 404 of the Sarbanes-Oxley Act of 2002 is only an estimate, and the actual savings to be realized may be higher or lower than estimated above. In addition, Mercury expects the various costs associated with remaining an SEC reporting company will continue to increase as a result of enactment of the Sarbanes-Oxley Act of 2002 and regulations adopted pursuant to that legislation. Based on Mercury’s size and resources, the Board does not believe the costs associated with remaining an SEC reporting company are justified.

Comparing the Benefits of Termination versus Remaining an SEC Reporting Company

     The Board believes that Mercury will not benefit significantly from remaining an SEC reporting company. Even as an SEC reporting company that is listed on the American Stock Exchange, there is a very limited trading market for Mercury’s shares, especially for sales of larger blocks of Mercury’s shares, and stockholders derive little benefit from Mercury’s status as an SEC reporting company that is listed on the American Stock Exchange. During the 30-day period prior to the announcement that the Special Committee and the Board had approved the Transaction, the average daily trading volume on the American Stock Exchange of Mercury ‘s common stock was approximately 9,093 shares. Mercury’s small public float and limited trading volume have limited the ability of Mercury’s stockholders to sell their shares without also reducing Mercury’s trading price.

     Further, the Board has no present intention to raise capital through sales of securities in a public offering in the future or to acquire other business entities using Mercury ‘s stock as the consideration for any acquisition, and Mercury is therefore unlikely to have the opportunity to take advantage of its current status as an SEC reporting company for these purposes. If for any reason the Board of Directors decides in the future to access the public capital markets, Mercury could do so by filing a registration statement for such securities.

Benefits of the Transaction to Affiliates of Mercury

     Benefits of the Transaction to affiliates of Mercury are expected to include the following:

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     See “—Interests of Mercury’s Directors and Executive Officers in the Transaction” beginning on page 45.

Benefits of the Transaction to Unaffiliated Stockholders

     Benefits of the Transaction to unaffiliated stockholders of Mercury are expected to include the following:

DISADVANTAGES OF THE TRANSACTION

Disadvantages of the Transaction to Mercury

     Disadvantages of the Transaction to Mercury are expected to include the following:

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Disadvantages of the Transaction to Affiliates of Mercury

     Disadvantage of the Transaction to affiliates of Mercury are expected to include the following:

Disadvantages of the Transaction to Unaffiliated Stockholders of Mercury

     Disadvantages of the Transaction to unaffiliated stockholders of Mercury are expected to include the following:

     See “Certain Effects of the Transaction” beginning on page 52.

TIMING OF THE TRANSACTION

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     In light of the foregoing, the Board believes that it is in the best interests of Mercury and its stockholders, including unaffiliated stockholders, to change the status of Mercury to a non-SEC reporting company at this time because the sooner the proposal can be implemented, the sooner Mercury will cease to incur the expenses and burdens (which are only expected to increase in the near future) and the sooner stockholders who are to receive cash in the Transaction will receive and be able to reinvest or otherwise make use of such cash payments.

ALTERNATIVES CONSIDERED

     The Special Committee and the Board considered several other alternatives to accomplish the reduction in the number of record stockholders to fewer than 300, but ultimately rejected these alternatives because the Special Committee and the Board believed that the proposed Transaction consisting of a reverse stock split followed by a forward stock split structure would be the simplest and least costly method. The other alternatives considered were:

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stockholders. In a reverse stock split without a subsequent forward stock split, Mercury would acquire the interests of the cashed-out stockholders and the fractional share interests of those stockholders who are not cashed-out (as compared to the proposed Transaction in which only those stockholders whose shares are converted to less than one whole share after the reverse stock split would have their fractional interests cashed-out; and all fractional interests held by stockholders holding more than one whole share after the reverse stock split would be reconverted to whole shares in the forward stock split). Thus, the Special Committee and the Board rejected this alternative due to the higher cost involved of conducting a reverse stock split without a forward stock split.

     The Special Committee and the Board also considered reverse stock splits followed by forward stock splits at different ratios than the Transaction, such as reverse stock splits in the amount of 1-for-100, 1-for-200, 1-for-300, 1-for-400, 1-for-500, 1-for-1,000, 1-for-1,500 or 1-for-5,000 followed by, in each case, forward stock splits in the same ratio. Although the lower ratios would be less costly for the Company, and would also reduce the number of record holders below 300, the Special Committee and the Board concluded that the additional cost savings would not be worth the risk of Mercury having to re-register as a reporting Company, which would be required if a sufficient number of beneficial owners elected to take record ownership of their shares, causing the number of record owners to exceed 500.

RECOMMENDATION OF THE SPECIAL COMMITTEE

     The composition of the Special Committee consisted of two directors, Messrs. Michael Janowiak and Angelo Pusateri. Each of these directors has been deemed independent by the Board of Directors as independence is defined in NASD Rule 4200(a)(15) and Rule 10A-3(b)(1) of the Exchange Act. The Special Committee retained Imperial Capital as its financial advisor and Bingham McCutchen as independent legal counsel.

     In evaluating the proposed Transaction and the cash consideration, the Special Committee relied on its knowledge of the business, financial condition and prospects of Mercury as well as the advice of it financial advisors and legal counsel. In view of the wide variety of factors considered in connection with the evaluation of the Transaction and cash consideration, the Special Committee did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the specific factors it considered it reaching its determinations.

     The discussion herein of the information and factors considered by the Special Committee is not intended to be exhaustive, but is believed to include all material factors considered by the Special Committee. In determining that the Special Committee would recommend the Transaction and the cash consideration to the Board of Directors, the Special Committee considered the following substantive factors in the aggregate, which in the view of

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the Special Committee, supported such determination.

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36

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     Despite the fact that no unaffiliated stockholder representative was retained to act solely on behalf of the unaffiliated stockholders in the Transaction to negotiate the terms or prepare a report on behalf of the unaffiliated stockholders and the approval of a majority of the unaffiliated holders of Mercury’s common stock is not required, the Special Committee believes that the Transaction is procedurally fair because, among other things:

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     Of particular importance to the belief of the Special Committee that the Transaction is procedurally fair, in the absence of dissenters rights, is the fact that stockholders can increase, divide or otherwise adjust their existing holdings, prior to the effective date of the Transaction, so as either to retain some or all of their shares or to cash-out some or all of their shares.

     Based on the foregoing analyses, the Special Committee believes that the Transaction is procedurally and substantively fair to all stockholders, including the unaffiliated stockholders, regardless of whether a stockholder receives cash or continues to be a stockholder following the Transaction, and believes the $4.00 cash amount to be fair consideration for those stockholders holding less than 501 shares. The Transaction was unanimously approved by the Special Committee, all members of the Special Committee being non-employees of Mercury.

RECOMMENDATION OF THE BOARD; FAIRNESS OF THE TRANSACTION

     The Board unanimously determined that the Transaction, taken as a whole, is fair to, and in the best interests of Mercury and its common and preferred stockholders, including unaffiliated stockholders, as discussed below, regardless of whether a stockholder receives cash in lieu of fractional shares, or remains a holder of Mercury’s common stock. The Board also believes that the process for approving the Transaction is procedurally fair. The Board recommends that stockholders vote FOR approval and adoption of the Transaction.

     The Board has retained for itself the absolute authority to reject (and not implement) the Transaction (even after approval of the Transaction) if it determines subsequently that the Transaction is not then in the best interests of Mercury and its stockholders. If for any reason the Transaction is not approved, or, if approved, is not implemented, the common stock will not be deregistered until such time as Mercury otherwise is eligible and determines to do so.

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     As discussed above, the Board considered alternatives to the Transaction, but ultimately approved the Transaction’s structure. Please see “ Alternatives” beginning on page 41.

     In considering whether the cash payment of $4.00 per share payable to stockholders in lieu of fractional shares in connection with the Transaction is substantively fair from a financial point of view to our stockholders, the Board considered, among other things, the financial analysis and opinion of Imperial Capital that was rendered to the Special Committee and the Board adopted the analyses and conclusions of Imperial Capital. The Board also considered the recommendation of the Special Committee.

     The Board also considered a number of factors in determining whether it was in the best interests of, and fair to, Mercury and its stockholders to undertake a Transaction to reduce the number of its common stockholders to fewer than 300 record holders in order to terminate the registration of its common stock under the Exchange Act. The discussion herein of the information and factors considered is not intended to be exhaustive, but is believed to include all material factors considered by the Board. The Board did not assign any specific weight to the factors below, and individual directors may have given differing weights to different factors. Factors considered included:

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41

42

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     Despite the fact that no unaffiliated stockholder representative was retained to act solely on behalf of the unaffiliated stockholders in the Transaction to negotiate the terms or prepare a report on behalf of the unaffiliated stockholders and the approval of a majority of the unaffiliated holders of Mercury common stock is not required, the Board also believes that the Transaction is procedurally fair because, among other things:

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     Of particular importance to the belief of the Board that the Transaction is procedurally fair, in the absence of dissenters rights, is the fact that stockholders can increase, divide or otherwise adjust their existing holdings, prior to the effective date of the Transaction, so as either to retain some or all of their shares or to cash-out some or all of their shares.

     At the Board’s meeting on March 21, 2005, Mr. Janowiak, chairman of the Special Committee, reviewed Imperial Capital’s fairness opinion with the Board and presented a summary of the principal financial analyses supporting its financial opinion. The Board had an opportunity to ask questions and discuss each of the analyses individually. Although it is difficult to determine what the Board as a whole or any individual Board member concluded from any one particular analysis, certain issues were discussed at length. Additionally, in determining the $4.00 per share price to be paid as cash consideration in the Transaction, the Board determined that while Mercury common stock traded at both higher and lower levels in the recent year, such historical price data did not take account of the special dividend of $5.70 per share paid as of November 5, 2004 and therefore was of lesser relevance than more recent trading data and in light of the premiums that the cash consideration represents over the average closing sales price of Mercury’s common stock for the previous 10 trading days, previous 20 trading days, previous 30 trading days, and previous one month periods immediately prior to the date that a public announcement is proposed to be made of the approval of the proposed Transaction by the Special Committee and the Board and over the closing price of Mercury’s common stock on the last day immediately prior to such public announcement. After careful consideration of these factors, the Board concluded that $4.00 per share was not only a fair price to stockholders being cashed-out, but also to stockholders remaining after the Transaction.

     The Board also considered the fact that, in addition to the deregistration of Mercury’s common stock under the Exchange Act as a result of the Transaction, the common stock would cease to be quoted on the American Stock Exchange. The Board determined, however, that the current limited market for Mercury’s common stock provides little benefit to Mercury’s stockholders.

     Based on the foregoing analysis, the Board believes that the Transaction is procedurally and substantively fair to all common and preferred stockholders, including the unaffiliated stockholders, regardless of whether a stockholder receives cash or continues to be a stockholder following the Transaction. Four of Mercury’s five directors are not employees of the Company. The Transaction was approved by the Board, including all non-employee directors, with Messrs. Czyzyk and Kopko abstaining from the vote.

INTERESTS OF MERCURY’S DIRECTORS AND EXECUTIVE OFFICERS IN THE TRANSACTION

     In considering the recommendation of the Board of Directors with respect to the

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Transaction, stockholders should be aware that Mercury’s executive officers and directors have interests in the Transaction that are in addition to, or different from, the stockholders generally. These interests may create potential conflicts of interest and include the following:

OPINION OF IMPERIAL CAPITAL, LLC

     On February 24, 2005, the Special Committee and the Board of Directors formally retained Imperial to consider the fairness, from a financial point of view, of the cash consideration (as defined below) to be paid to those stockholders of Mercury receiving the cash consideration, other than affiliates of Mercury, as to whom Imperial Capital expresses no view. As a result of the Transaction, (a) each stockholder owning fewer than 501 shares immediately before the Transaction will receive from Mercury consideration of $4.00 in cash for each of such stockholder’s pre-split shares; and (b) each share of common stock held by a stockholder owning 501 or more shares will continue to represent one share of Mercury after completion of the Transaction. At a meeting of the Special Committee held on March 21, 2005, Imperial Capital delivered its oral opinion to the Special Committee, and immediately following the meeting, delivered its written opinion to all the members of the Special Committee that, as of March 21, 2005, the cash consideration to be paid to those stockholders receiving the cash consideration, other than the affiliates of Mercury, was fair, from a financial point of view, to such holders. Imperial Capital subsequently confirmed its opinion in writing.

     The Special Committee and the Board retained Imperial Capital based upon the following factors: Imperial Capital is an independent and experienced provider of valuation and fairness opinions; it does not have an advisory or other potentially conflicting role in the Transaction; and it is thoroughly familiar with Mercury and its operations from having rendered prior fairness opinions in unrelated transactions and could therefore perform the analysis more expeditiously and cost effectively than other financial advisors. No limitations were imposed by the Special Committee or the Board on Imperial Capital with respect to the investigations made or procedures followed by Imperial Capital in rendering its opinion.

     Imperial Capital’s opinion was prepared at the request and for the information and use of the Special Committee and the Board in connection with its consideration of the Transaction.

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Imperial Capital’s opinion does not address the business decision by Mercury to engage in the Transaction or address the relative merits of any alternatives discussed by the Special Committee and the Board. Imperial Capital’s opinion does not constitute a recommendation as to how any stockholder should vote with respect to the Transaction. Imperial Capital did not make, and was not requested by Mercury or any other person to make, any recommendations as to the relative merits of any alternative discussed by the Board.

     THE FULL TEXT OF IMPERIAL CAPITAL’S WRITTEN OPINION IS ATTACHED AS APPENDIX B TO THIS PROXY STATEMENT, AND DESCRIBES THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN. THE DESCRIPTION OF IMPERIAL CAPITAL’S OPINION CONTAINED IN THIS PROXY STATEMENT SHOULD BE REVIEWED TOGETHER WITH THE FULL TEXT OF THE WRITTEN OPINION, WHICH YOU ARE URGED TO READ CAREFULLY IN ITS ENTIRETY. THE SUMMARY OF THE OPINION OF IMPERIAL CAPITAL SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF IMPERIAL CAPITAL’S WRITTEN OPINION, WHICH IS ATTACHED AS APPENDIX B HERETO.

     THE PROJECTIONS UPON WHICH IMPERIAL CAPITAL’S OPINION IS IN PART BASED ARE ATTACHED AS EXHIBIT (C)24 TO THE AMENDMENT NO. 1 TO SCHEDULE 13E-3 FILED AS OF THE DATE HEREOF BY MERCURY. PLEASE BE ADVISED THAT THE PROJECTIONS WERE PREPARED ONLY FOR THE USE OF IMPERIAL CAPITAL, AND ARE NOT TO BE USED BY ANY OTHER PERSON OR ENTITY. IN ADDITION, THE PROJECTIONS SPEAK AS OF THE DATE THEREOF, AND MERCURY DOES NOT INTEND TO UPDATE SUCH PROJECTIONS.

     In connection with the rendering of its opinion, Imperial Capital has:

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     In connection with this review, with Mercury’s consent, Imperial Capital relied upon the accuracy and completeness of the foregoing financial and other information and has not assumed responsibility for independent verification of such information or conducted or has been furnished with any independent valuation or appraisal of any assets of Mercury or any appraisal or estimate of liabilities of Mercury. With respect to the financial forecasts, Imperial Capital assumed, with Mercury’s consent, that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments of senior management of Mercury as to the future financial performance of Mercury. Imperial Capital also relied upon the assurances of senior management of Mercury that they are unaware of any facts that would make the information or financial forecasts provided to Imperial Capital incomplete or misleading. Imperial Capital assumed no responsibility for, and expressed no view, as to such financial forecasts or the assumptions on which they are based.

     Imperial Capital’s opinion was based upon economic, monetary and market conditions existing on the date of the opinion and does not address the fairness of the Transaction Consideration as of any other date. Imperial Capital expressed no opinion, nor should one be implied, as to the current fair market value of Mercury’s common stock or the prices at which Mercury’s common stock will trade at any time.

     In preparing its opinion, Imperial Capital performed certain financial and comparative analyses summarized in the following paragraphs. Imperial Capital believes that its analyses must be considered as a whole and that selecting portions of such analyses and the factors it considered, without considering all such analyses and factors, could create an incomplete view of the analyses and the process underlying the opinion. While the conclusions reached in connection with each analysis were considered carefully by Imperial Capital in arriving at its opinion, Imperial Capital made various subjective judgments in arriving at its opinion and did not consider it practicable to, nor did it attempt to, assign relative weights to the individual analyses and specific factors considered in reaching its opinion.

     Historical Stock Trading Analysis. Imperial reviewed the historical performance of Mercury’s common stock based on an historical analysis of closing prices and trading volumes for the one-year period prior to the date of the fairness opinion. Imperial noted that the closing price for Mercury’s common stock over this period ranged from $3.08 to $8.45. The following chart summarizes the average closing prices and volume of trading of Mercury’s common stock over the last year.

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     Mercury Common Stock Trading History

     Imperial Capital noted that Mercury paid a Special Dividend totaling approximately $17,500,000 ($5.70 per share) to holders of the Company’s common stock on November 5, 2004, which had a significant impact on the trading price and volume of Mercury’s common stock.

     Imperial noted that the Transaction Consideration was above the average closing prices of Mercury’s common stock for the 5-day, 10-day, 30-day and one month periods reviewed as part of the historical stock trading analysis.

     Comparable Company Analysis. Imperial Capital’s comparable company analysis was based on a comparison of Mercury’s valuation multiples with those of a selected group of comparable public companies (the “Company Comparables”).

     In selecting the Company Comparables, Imperial Capital searched comprehensive lists and directories of public companies. When selecting the Company Comparables, certain determinant factors included: (i) the company had to provide products or services for the fuel services and air cargo handling industries; (ii) the company had to make its financial information public; and (iii) the company was required to have an active trading market to measure public perception. The Company Comparables selected were:

     Due to the lack of public companies that provide the same range of services as Mercury, Imperial Capital chose to select Company Comparables with businesses focused on air cargo handling and fuel services. Imperial Capital’s decision to select such companies was due in part to their exposure to similar macroeconomic and industry-specific risks as those faced by the Company including, but not limited to, exposure to commercial and general aviation industry trends; geo-political risks (e.g., post-September 11 downturn in commercial aviation, oil prices, etc.); and similar customer bases.

     No company included in the selected Company Comparables is identical to Mercury. In selecting and evaluating the Company Comparables, Imperial Capital made subjective judgments

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and assumptions with regard to industry performance, general business, economic, market and financial conditions, and other matters. Because of the inherent differences between the business, operations, financial condition and prospects of Mercury and those of the selected Company Comparables, Imperial Capital believed it was inappropriate to, and therefore did not, rely solely on the quantitative results of the Company Comparables analysis.

     Imperial Capital then compared market values of, among other things, current enterprise value (equity value, plus total debt, minority interest, preferred stock and convertible instruments, less instruments in unconsolidated affiliates, cash and cash equivalents) (“EV”) as multiples of the latest twelve months EBITDA. Based on a comparison of Mercury with the Company Comparables, Imperial Capital arrived at an aggregate range of values between $0.00 per share and $7.79 per share, with a mean value of $4.17 per share. Imperial Capital noted that the cash consideration was in the range of these values and was slightly lower than the mean value.

     Comparable Transaction Analysis. Imperial Capital’s comparable transaction analysis was based on a comparison of Mercury’s valuation multiples with those implied by certain announced control transactions deemed relevant based on similarity of business operations (the “Transaction Comparables”).

     In selecting the Transaction Comparables, Imperial Capital searched comprehensive lists and directories of public companies. When selecting the Transaction Comparables, certain determinant factors included: (i) the transaction had to involve controlling interests in companies in a similar industry or with operations similar to the principal business operations of Mercury; and (ii) the purchase price and the operating results of the acquired company had to be public.

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     No acquired company involved in the selected Transaction Comparables is identical to Mercury. In selecting and evaluating the Transaction Comparables, Imperial Capital made subjective judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions, and other matters. Because of the inherent differences between the business, operations, financial condition and prospects of Mercury and those of the acquired companies included in the selected Transaction Comparables, Imperial Capital believed it was inappropriate to, and therefore did not, rely solely on the quantitative results of the Transaction Comparables analysis.

     Imperial Capital then compared market values of, among other things, current EV as multiples of the latest twelve months EBITDA. Based on a comparison of Mercury with the Transaction Comparables, Imperial Capital arrived at an aggregate range of values between $1.20 per share and $7.73 per share, with a mean value of $3.73 per share. Imperial Capital noted that the cash consideration was in the range of these values and was slightly higher than the mean value.

     Discounted Cash Flow Analysis. Imperial Capital performed a discounted cash flow analysis (“DCF”) on Mercury. The fundamental premise of the DCF approach is to estimate the available cash flows a prudent investor would expect a company to generate over its remaining life. To determine this amount, Imperial Capital relied on cash flow projections for FYE June 30, 2005 through 2008, as provided by Mercury’s management. Imperial Capital estimated Mercury’s weighted average cost of capital by performing analyses consistent with the Capital Asset Pricing Model. In its analyses Imperial Capital applied the average unlevered beta of 0.80 for the comparable group (this group consists of those companies specified in the Company Comparables analysis). Imperial Capital then applied a 0.0% to 5.0% company specific risk premium which reflects risks which affect the valuation of Mercury. Using a range of 9% to 11% (rounded) as the estimate of cost of capital, Imperial Capital calculated the present value of free cash flows for the 2005 through 2008 years and the present value of the terminal value of Mercury (the calculated value of Mercury at the end of the projection period). Imperial Capital calculated a terminal value at the end of 2008 that incorporated a perpetual growth rate of 2.8%. Imperial Capital arrived at an aggregate range of values between $1.82 per share and $4.43 per share, with a mean value of $2.95 per share. Imperial Capital noted that the cash consideration is within the range of these values.

     In the ordinary course of its business and in accordance with applicable state and federal securities laws, Imperial Capital may trade Mercury’s securities for its own account and for the accounts of customers and, accordingly, may at any time hold long or short positions in such securities.

     Imperial Capital received a fee of $75,000 for rendering the fairness opinion attached as Appendix B, which fee was due and payable at the time such opinion was delivered to the Special Committee and the Board, and an additional fee of $20,000 for rendering a related liquidity analysis, which fee was due and payable upon delivery of a liquidity analysis to the Special Committee and the Board. Imperial Capital has acted as financial advisor to Mercury in connection with the purchase of the Whitney Note and the sale of the FBO business and received a total fee of $300,000 for its services, as set forth in “Corporate Developments in Last Four

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Years – Sale of FBO’s”. Mercury also agreed, in connection with the issuance of its opinion letter in connection with the Transaction, to indemnify Imperial Capital, its affiliates and each of its directors, officers, agents and employees and each person, if any, controlling Imperial Capital or any of its affiliates against certain liabilities, including liabilities under federal securities laws. Imperial Capital did not recommend the amount of consideration to be paid in the Transaction. The cash consideration of $4.00 per share was recommended by the Special Committee.

CERTAIN EFFECTS OF THE TRANSACTION

     The Transaction will have various effects on Mercury, the affiliated stockholders, including CK Partners, and the unaffiliated stockholders, which are described in the applicable sections below:

Effects on Mercury

     If approved at the Special Meeting, the Transaction, if implemented, will have various effects on Mercury, as described below:

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Effects on Affiliated Stockholders

     The Transaction will have various effects on stockholders who are affiliates of Mercury, as described below. As used in this proxy statement, the term “affiliated stockholder” means any stockholder who is a director or executive officer of Mercury, or who owns 10% or more of Mercury’s outstanding common and preferred stock, voting as a single class, and the term “unaffiliated stockholder” means any stockholder other than an affiliated stockholder. The effects of the Transaction to an affiliated stockholder will vary based on whether or not all or any portion of the affiliated stockholder’s shares will be cashed-out in the Transaction. The determination of whether or not any particular shares of Mercury’s common stock will be cashed-out in the Transaction will be based on whether the holder of those shares hold either fewer than 501 shares or 501 or more shares. Because an affiliated stockholder may beneficially own both shares held by more than one holder of shares, an affiliate may beneficially own both shares that will be cashed-out in the Transaction and shares that will remain outstanding in the

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Transaction. Except for 382 shares of common stock held by Mr. Czyzyk’s wife, as custodian for their children, all affiliated stockholders will retain beneficial ownership of all Mercury common shares held by them prior to the Transaction.

Effects on Unaffiliated Stockholders

     The Transaction will have various effects on stockholders who are not affiliates of Mercury, as described below. The effects of the Transaction to an unaffiliated stockholder will vary based on whether or not the unaffiliated stockholder’s shares will be cashed-out in the Transaction.

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CONDUCT OF MERCURY’S BUSINESS AFTER THE TRANSACTION

     Mercury’s executive officers and Board of Directors will remain the same immediately following the Transaction. Mercury expects to conduct its business and operations after the effective date of the Transaction in substantially the same manner as they are currently being conducted and, except as described in this proxy statement with respect to: (1) the use of funds to finance the Transaction and related costs and (2) Mercury’s plans to deregister its Common Stock

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under the 1934 Act and delist it from the American Stock Exchange, the Transaction is not anticipated to have a material effect upon the conduct of Mercury’s business.

     Neither Mercury nor its management has any current plans or proposals to effect any extraordinary corporate transaction, such as a merger, reorganization or liquidation; a sale or transfer of any material amount of its assets; a change in its Board or management; a material change in its indebtedness or capitalization (except as described in this proxy statement); or any other material change in its corporate structure or business. However, Mercury may engage in such a transaction in the future to the extent that management and the Board determines it to be in the interest of Mercury and its stockholders.

CONDITIONS TO THE COMPLETION OF THE TRANSACTION

     The Transaction will not be effected unless and until Mercury stockholders approve the Transaction and the Board of Directors determines that:

     In addition, the Board may decide to abandon the Transaction (even after stockholder approval) at any time prior to its consummation if the Board believes that such action would be in the best interests of Mercury and its stockholders. Assuming that these conditions are satisfied, Mercury, as promptly as reasonably practicable, will file an Amended and Restated Certificate of Incorporation with the Delaware Secretary of State and thereby effect the Transaction. In that case, the approximate record date for effectuating the Transaction will be [May 31, 2005]. If Mercury does not effect the Transaction, Mercury will continue as a company with its common stock registered under the Exchange Act, and the common stock will continue to be traded on the American Stock Exchange.

SOURCE OF FUNDS AND FINANCING OF THE TRANSACTION

     Based on estimates of ownership of shares of common stock, the number of shares outstanding and other information as of March 1, 2005, and assuming that, as a result of the Transaction, 192,613 fractional shares are cashed out, Mercury estimates that the total funds required to consummate the Transaction will be approximately $1,092,000 after taxes, of which $771,000 will be used to pay the consideration to stockholders entitled to receive cash for their shares, and $500,000, or $322,000 after taxes, will be used to pay the costs of the Transaction, as follows:

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     On July 29, 2004, Mercury and Bank of America entered into a three-year $30,000,000 revolving credit line under a loan agreement with the Bank of America collateralized by all of the assets of Mercury, the terms of which were amended effective November 1, 2004. In accordance with the terms of the B of A Credit Facility, as amended, the revolving line of credit is used as collateral for any letters of credit issued by Mercury and for general working capital needs. Upon the effective date of the B of A Credit Facility, $15,414,000 of cash deposited by Mercury as collateral for outstanding letters of credit and reported as restricted cash on Mercury’s balance sheet at June 30, 2004 was released to Mercury for general corporate purposes. As of December 31, 2004, Mercury had $2,931,000 of unused revolving credit line available under the B of A Credit Facility. The amount of credit available to Mercury on the B of A Credit Facility, as amended, is determined monthly and is equal to the lesser of 1) sum of: a) 80% of the balance due on Domestic Eligible Receivables less b) $2,000,000; and 2) $30,000,000. The B of A Credit Facility, as amended, contains certain financial covenants limiting the amount Mercury can expend annually for capital expenditures to $2,000,000. The B of A Credit Facility, as amended, also prohibits the repurchase of stock and the payment of cash dividends, except for cash dividends in an amount not to exceed $17,500,000 by June 30, 2005. Mercury is also required to comply with certain financial covenants for tangible net worth and fixed charges. The B of A Credit Facility bears interest at the prime rate, and expires on July 31, 2007, or earlier under certain circumstances. Mercury is in compliance with all of the terms and conditions of the B of A Credit Facility. On March 17, 2005, the Bank of America informed Mercury, in writing, that it would allow Mercury to repurchase its common stock during fiscal year 2005, in an aggregate amount not to exceed $1,000,000. Consequently, under the existing B of A Credit Facility, financing will be assured to effect the Transaction, provided the Transaction is completed by June 30, 2005. There are no alternative financing plans in the event the financing under the B of A Credit Facility falls through.

ANTICIPATED ACCOUNTING TREATMENT

     Mercury anticipates that it will account for the purchase of outstanding Mercury common stock in the Transaction from stockholders as cancelled stock.

U.S. FEDERAL INCOME TAX CONSEQUENCE

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     Summarized below are the material federal income tax consequences to Mercury and its stockholders resulting from the Transaction. This summary is based on existing federal income tax law, which may change, even retroactively. This summary does not discuss all aspects of federal income taxation that may be important to you in light of your individual circumstances. Many types of stockholders (such as financial institutions, insurance companies, broker-dealers, tax-exempt organizations, and foreign persons) may be subject to special tax rules. Other stockholders may also be subject to special tax rules including, but not limited to, stockholders who received Mercury common stock as compensation for services or pursuant to the exercise of an employee stock option, or stockholders who have held, or will hold, stock as part of a straddle, hedging, or conversion transaction for federal income tax purposes. In addition, this summary does not discuss any state, local, foreign or other tax considerations.

     This summary assumes that you are one of the following:

     This summary also assumes that you have held and will continue to hold your shares as capital assets.

NO RULING FROM THE INTERNAL REVENUE SERVICE OR OPINION OF COUNSEL WILL BE OBTAINED REGARDING THE FEDERAL INCOME TAX CONSEQUENCES TO THE STOCKHOLDERS OF MERCURY IN CONNECTION WITH THE TRANSACTION. ACCORDINGLY, EACH STOCKHOLDER IS ENCOURAGED TO CONSULT THEIR OWN TAX ADVISOR AS TO THE PARTICULAR FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES, IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES.

The Transaction

     We believe that the Transaction will be treated as a tax-free “recapitalization” for federal income tax purposes. This will result in no material federal income tax consequences to Mercury.

Federal Income Tax Consequences to Stockholders, Including Affiliates, Who Are Not Cashed-out in the Transaction

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     If you continue to hold Mercury common stock immediately after the Transaction, and you receive no cash as a result of the Transaction, you will not recognize any gain or loss in the Transaction and will have the same adjusted tax basis and holding period in your Mercury common stock as you had in such stock immediately prior to the Transaction.

Federal Income Tax Consequences to Stockholders, Including Affiliates, Who Both Receive Cash and Own, or Are Considered to Own for Federal Income Tax Purposes, Mercury Common Stock After the Transaction

     In some instances you may be entitled to receive cash in the Transaction for shares you hold in one capacity, but continue to hold shares in another capacity. For example, you may own less than 501 shares in your own name (for which you will receive cash) and own more than 501 shares that are held in your brokerage account in street name. Alternatively, for federal income tax purposes you may be deemed to own shares held by others. For instance, if you own less than 501 shares in your own name (for which you will receive cash) and your spouse owns more than 501 shares (which will continue to be held following the completion of the Transaction), the shares owned by your spouse will be attributable to you. As a result, in some instances the shares you own in another capacity, or which are attributed to you, may remain outstanding. In determining whether you are deemed to continue to hold stock immediately after the Transaction, you will be treated as owning shares actually or constructively owned by certain family members and entities in which you have an interest (such as trusts and estates of which you are a beneficiary and corporations and partnerships of which you are an owner, and shares you have an option to acquire).

     If you both receive cash as a result of the Transaction and continue to hold Mercury common stock either directly or through attribution, you will recognize gain, if any, in an amount not to exceed the amount of cash received. Generally no loss will be recognized. The receipt of cash will be characterized as either a dividend or as a payment received in exchange for the stock. The Transaction will be taxed as a dividend unless the payment:

     If you satisfy one of these tests, you will recognize income in an amount equal to the excess of the cash received for your shares over your adjusted basis in those shares, and this income will be characterized as capital gain.

     If you fail to satisfy one of these tests, then the cash received will be treated as a dividend

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to you to the extent of your ratable share of Mercury undistributed earnings and profits, then as a tax-free return of capital to the extent of your aggregate adjusted tax basis in your shares, and any remaining amount will be treated as capital gain.

     If you, or a person or entity whose ownership of Mercury shares would be attributed to you, will continue to hold Mercury common stock immediately after the Transaction, you are urged to consult with your tax advisor as to the particular federal, state, local, foreign, and other tax consequences of the Transaction, in light of your specific circumstances.

Federal Income Tax Consequences to Cashed-out Stockholders, including Affiliates, Who do not Own, and Are Not Deemed to Own, Mercury Common Stock After the Transaction

     If you receive cash as a result of the Transaction and do not own, and are not deemed to own Mercury common stock immediately after the Transaction, you will recognize capital gain or loss. The amount of capital gain or loss you recognize will equal the difference between the cash you receive for your cashed-out stock and your adjusted tax basis in such stock.

Capital Gain and Loss

     For individuals, capital gain recognized on the sale of capital assets that have been held for more than 12 months (to the extent they exceed capital losses) generally will be subject to tax at a federal income tax rate not to exceed 15%. Net capital gain recognized from the sale of capital assets that have been held for 12 months or less will be subject to tax at ordinary income tax rates. In addition, capital gain recognized by a corporate taxpayer will be subject to tax at the ordinary income tax rates applicable to corporations. In general, the capital losses of individuals may only be deducted to the extent of the individual’s capital gains plus $3,000 each year. Any capital loss of an individual which is not deductible by reason of the foregoing limitation may be carried forward to subsequent years. In the case of corporations, capital losses may only be deducted to the extent of capital gains.

     Any capital loss of a corporation which is not deductible by reason of the foregoing limitation may be carried back three years and carried forward five years.

Dividend

     For individuals, if any portion of the cash received is treated as a dividend under the rules described above, the dividend generally will be subject to tax at a federal income tax rate not to exceed 15%, provided that the individual satisfies the holding period requirement.

Backup Withholding

     Stockholders will be required to provide their social security or other taxpayer identification numbers (or, in some instances, additional information) in connection with the Transaction to avoid backup withholding requirements that might otherwise apply. The letter of transmittal will require each stockholder to deliver such information when the common stock certificates are surrendered following the effective time of the Transaction. Failure to provide

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such information may result in backup withholding.

     As explained above, the amounts paid to you as a result of the Transaction may result in dividend income, capital gain income, or some combination of dividend and capital gain income to you depending on your individual circumstance.

REGULATORY APPROVALS

     Mercury is not aware of any material governmental or regulatory approval required for completion of the Transaction, other than compliance with the relevant federal and state securities laws and the corporate laws of the state of Delaware.

NO APPRAISAL OF DISSENTERS’ RIGHTS; ESCHEAT LAWS

     Stockholders do not have appraisal or dissenters’ rights under Delaware state law or Mercury’s Certificate of Incorporation or Bylaws in connection with the Transaction.

     The unclaimed property and escheat laws of each state provide that under circumstances defined in that state’s statutes, holders of unclaimed or abandoned property must surrender that property to the state. Persons whose shares are eliminated and whose addresses are unknown to Mercury, or who do not return their common stock certificate(s) and request payment therefor, generally will have a period of years (depending on applicable state law) from the effective date of the Transaction in which to claim the cash payment payable to them. Following the expiration of that period, the escheat laws of states of residence of stockholders, as shown by the records of Mercury, generally provide for such state to obtain either (i) custodial possession of property that has been unclaimed until the owner reclaims it or (ii) escheat of such property to the state. If Mercury does not have an address for the holder of record of the shares, then unclaimed cash-out payments, without interest, would be turned over to Mercury’s state of incorporation, the state of Delaware, in accordance with its escheat laws.

ADJOURNMENT OF MEETING

     Although it is not expected, the Special Meeting may be adjourned for the purpose of soliciting additional proxies. Any adjournment of the Special Meeting may be made without notice, other than by announcement made at the Special Meeting, by approval of the holders of a majority of the shares of Mercury’s common and preferred stock represented in person or represented by proxy at the Special Meeting, whether or not a quorum exists.

RESERVATION OF RIGHTS

     The Board has retained for itself the absolute authority to reject (and not implement) the Transaction (even after approval thereof) if it determines subsequently that the Transaction is not then in the best interests of Mercury and its stockholders.

EXAMPLES

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     In general, the Transaction can be illustrated by the following examples:

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SELECTED PER SHARE FINANCIAL INFORMATION

     The following table sets forth selected historical per share financial information for Mercury and unaudited pro forma per share financial information for Mercury giving effect to the Transaction as if it had been consummated as of the end of each period presented, in the case of book value per share information, and as of the beginning of the respective periods, in the case of income per share and weighted common share outstanding information. The information presented below is derived from (i) the consolidated historical financial statements of Mercury, including the related notes thereto, and (ii) the unaudited Pro Forma Consolidated Financial Statements, including the related assumptions, beginning on page 75. This table should be read together with the Selected Historical Financial Information beginning on page 73, the unaudited Pro Forma Consolidated Financial Statements and the related assumptions and footnotes beginning on page 75 and the consolidated financial statements of Mercury and the notes thereto included in Mercury’s Annual Report on Form 10-K for the fiscal year ended June 30, 2004 and Mercury’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2004, which information is attached to and incorporated by reference in this proxy statement. As described in the assumptions to the unaudited Pro Forma Consolidated Financial Statements, the pro forma per share information assumes that 192,613 shares of Common Stock will be cashed out in connection with the Transaction, and that the total cash required for the Transaction will be $1,271,000, including the cash paid for these shares, and amounts required to pay the other costs of the Transaction, or $1,092,000 net of taxes. The pro forma information set forth below is not necessarily indicative of what Mercury’s financial position or results of operations actually would have been if the Transaction had been consummated as of the above referenced dates or of Mercury’s financial position or results of operations in the future.

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MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

MARKET PRICES OF THE COMMON STOCK

     Mercury’s common stock is listed on the American Stock Exchange under the symbol “MAX.” The following table sets forth the range of high and low closing prices as reported on the American Stock Exchange for the calendar periods set forth below. On March 8, 2005, the day before the public announcement that the Special Committee was considering the Transaction, the closing price of the common stock on the American Stock Exchange was $4.49 per share. On March 21, 2005, the day before Mercury’s announcement that the Transaction had been approved by the Special Committee and the Board, the closing price of the common stock on the American Stock Exchange was $3.36 per share. On ___, 2005 (the most recent practicable date prior to the printing of this proxy statement), the closing price of the common stock was $  per share.

     A special cash dividend of $5.70 per share was paid to stockholders effective the close of business on November 5, 2004. The prices set forth below are not adjusted for this special cash dividend. The prices set forth below are adjusted for a 1-for-2 reverse stock split as of June 18, 2003.

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     There were approximately 331 common stockholders of record as of March 1, 2005.

DIVIDENDS

     On October 6, 2004, Mercury announced that its Board of Directors declared a one-time special cash dividend totaling $17,500,000, that would be payable on a pro rata basis to holders of record of its common stock. The dividend was paid on November 5, 2004. Based on 3,056,355 shares of its common stock outstanding as of the close of business on the record date, the dividend payable per common shares was $5.70. The amount payable per share of common stock was net of the mandatory dividend payments of approximately $70,000 on the Company’s outstanding preferred stock as of the dividend payment date of November 5, 2004. This one-time special cash dividend was funded, in part, by a cash advance on Mercury’s credit facility with the Bank of America in the amount of $10,000,000.

     Except as set forth above, Mercury has not declared any dividends on the common stock during the past five years, and the Board of Directors does not currently intend to pay any cash dividends on the common stock in the foreseeable future. Payment of cash dividends by Mercury is at the discretion of its Board of Directors and is dependent on its earnings, financial condition, capital requirements and other relevant factors. Mercury’s current credit facility also contains limitations on Mercury’s ability to pay dividends.

STOCK PURCHASES BY MERCURY AND AFFILIATES

STOCK PURCHASES BY MERCURY

     Except as described below, Mercury has not purchased any shares of its common stock within the past two years.

     During the period from January 1, 2003 through March ___, 2005, Mercury purchased an aggregate of 519,850 shares of its common stock. The following table sets forth information by quarter regarding such share repurchases, both on an actual basis and on a basis adjusted to account for the $5.70 per share dividend paid to stockholders as of November 5, 2004:

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STOCK PURCHASES BY AFFILIATES

     Except as described below, and except for acquisitions and exercises of stock options, to the best of Mercury’s knowledge, at $5.87 per share, by Mr. Feracota, neither CK Partners nor any executive officer or director of Mercury, or any other person in control of Mercury (“Affiliates”)have purchased any shares of Mercury’s common stock within the past two years.

     During the period from January 1, 2003 through May ___, 2005, the Affiliates purchased an aggregate of 419,807 shares of its common stock. The following table sets forth information by quarter regarding such share repurchases:

THE SPECIAL MEETING

GENERAL

     Mercury is providing this proxy statement to Mercury’s stockholders of record as of [April ___, 2005], along with a form of proxy that the Mercury Board of Directors is soliciting for use at the Special Meeting to be held on [May 31, 2005] at 9:00 a.m., at 5456 McConnell Avenue, Los Angeles, California 90066. At the Special Meeting, the stockholders will vote upon

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(1) a proposal to adopt the Amended and Restated Certificate of Incorporation that will effect a 1-for-501 reverse stock split followed immediately by a 501-for-1 forward stock split of Mercury’s common stock; and (2) a proposal to grant the Company’s board of directors discretionary authority to adjourn the Special Meeting if necessary to satisfy the conditions to completing the transaction, including for the purpose of soliciting proxies to vote in favor of the transaction.

WHO CAN VOTE AT AND ATTEND THE SPECIAL MEETING

     You may vote all of Mercury’s common and preferred stock that you own as of the close of business on the record date, which was [April ___, 2005]. These shares include:

     Many of Mercury’s stockholders hold their shares through a broker, bank or other nominee rather than directly in their own name. As summarized below, there are some distinctions between shares held of record and those owned beneficially.

     Stockholder of Record. If your shares are registered directly in your name with the Transfer Agent, you are considered, with respect to those shares, the stockholder of record, and these proxy materials are being sent to you by Mercury. As the stockholder of record, you have the right to vote by proxy or to vote in person at the Special Meeting. Mercury has enclosed a proxy card for you to use.

     Beneficial Owner. If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial owner” of shares held in “street name” with respect to those shares, and the proxy materials are being forwarded to you by your broker or other nominee. Your broker or other nominee is considered, with respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker or other nominee how to vote and are also invited to attend the Special Meeting. As a beneficial owner, however, you are not the stockholder of record, and you may not vote these shares in person at the Special Meeting unless you obtain a signed proxy appointment form from the stockholder of record giving you the right to vote the shares. Your broker or nominee has enclosed or provided a voting instruction card for you to use in directing the broker or nominee how to vote your shares.

     All holders of Mercury’s common and preferred stock may attend the Special Meeting in person. If you are a beneficial owner of Mercury’s common stock held by a broker, bank or other nominee (i.e., in “street name”), you will need proof of ownership to be admitted to the Special Meeting. A recent brokerage statement or letter from a bank or broker are examples of proof of ownership. Only holders of record of Mercury’s common and preferred stock as of [April ___, 2005] may cast their votes in person at the Special Meeting.

     Whether you hold your shares directly as stockholder of record or beneficially in street

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name, you may direct your vote without attending the Special Meeting. You may vote by signing your proxy card or, for shares held in street name, by signing the voting instruction card included by your broker or nominee and mailing it in the enclosed, pre-addressed envelope. If you provide specific voting instructions, your shares will be voted as you instruct. If you sign but do not provide instructions, your shares will be voted as described above in “Questions and Answers — About the Meeting and — Voting Procedures — How are my Votes Counted?”

VOTE REQUIRED

     The required vote for each of the proposals presented at the Special Meeting are as follows:

     The proposals to approve the Transaction and grant the Board of Directors with discretionary authority to adjourn the Special Meeting are “non-discretionary” items, meaning that brokerage firms cannot vote shares in their discretion on behalf of a client if the client has not given voting instructions. Accordingly, shares held in street name that have been designated by brokers on proxy cards as not voted with respect to that proposal (“broker non-vote shares”) will not be counted as votes cast.

     In accordance with Mercury’s Bylaws relating to special meetings of stockholders, no other business may be presented at the Special Meeting other than matters incidental to the conduct of the Special Meeting.

     As of the record date, the directors and executive officers of Mercury held a total of approximately 38.5% of the outstanding shares of Mercury’s common and preferred stock entitled to vote at the Special Meeting. The directors and executive officers of Mercury have indicated that they will vote “FOR” each of the proposals presented at the Special Meeting.

VOTING AND REVOCATION OF PROXIES

     The shares of Mercury’s common and preferred stock represented by properly completed proxies received at or before the time for the Special Meeting (or any adjournment) will be voted as directed by the respective stockholders unless the proxies are revoked as described below. If no instructions are given, executed proxies will be voted “FOR” approval of the Transaction, , and “FOR” approval of the proposal granting the Board of Directors discretionary authority to adjourn the Special Meeting.

     The proxies will be voted in the discretion of the proxy holders on other matters, if any, that are properly presented at the Special Meeting and voted upon.

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     You may revoke your proxy at any time before the vote is taken at the Special Meeting. To revoke your proxy, you must either: notify Wayne Lovett in writing at Mercury’s principal executive office; submit a later dated proxy to Mr. Lovett; or attend the Special Meeting and vote your shares in person. Your attendance at the Special Meeting will not automatically revoke your proxy. If you hold your shares in street name, please see the voting form provided by your broker for additional information regarding the voting of your shares. Your broker may allow you to deliver your voting instructions via the telephone or the internet. If your shares are not registered in your name, you will need additional documentation from your record holder to vote the shares in person.

RECOMMENDATION OF THE BOARD OF DIRECTORS

     The Board of Directors of Mercury has approved the Transaction and believes that it is fair to and in the best interests of, Mercury and its stockholders. With Messrs. Czyzyk and Kopko abstaining, the remainder of the Board of Directors unanimously recommends that Mercury’s stockholders vote “FOR” approval of the Transaction.

     The Board of Directors of Mercury also recommends that you vote “FOR” the proposal to grant the Board of Directors discretionary authority to adjourn the Special Meeting.

THE PROPOSED AMENDMENT

     The following is a description of the material terms and effects of the Transaction. A copy of the proposed Amended and Restated Certificate of Incorporation effecting both the reverse split and the forward split following immediately thereafter is attached as Appendix A to this proxy statement. This discussion does not include all of the information that may be important to you. You should read the proposed Amended and Restated Certificate of Incorporation and this proxy statement and related appendices before deciding how to vote at the Special Meeting.

THE STRUCTURE OF THE TRANSACTION

     The Transaction includes both a reverse stock split and a forward stock split of the common stock. If the Transaction is approved by stockholders and implemented by the Board of Directors, the reverse and forward splits are expected to occur at 11:59 p.m., Eastern Time, on or about [May 31, 2005] (the “effective time”).

     Upon consummation of the reverse split, each registered stockholder at the effective time will receive 1 share of common stock for each 501 shares of common stock held in his or her account at that time. If a registered stockholder holds 501 or more shares of common stock in his or her account, any fractional shares in such account will not be cashed-out after the reverse stock split and the forward stock split, and the total number of shares held by such holder will not change as a result of the Transaction. Any registered stockholder who holds fewer than 501 shares of common stock in his or her account at the effective time will receive a cash payment instead of fractional shares. This cash payment will be determined and paid as described under “

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- Conversion of Shares in the Transaction” below.

     We intend to treat stockholders holding common stock in street name through a nominee (such as a bank or broker) in the same manner as stockholders whose shares are registered in their names, and nominees will be instructed to effect the Transaction for their beneficial holders. Nominees may have different procedures, however, and stockholders holding shares in street name should contact their nominees.

CONVERSION OF SHARES IN THE TRANSACTION

     At the effective time of the Transaction:

As used above:

     Mercury (along with any other person or entity to which it may delegate or assign any responsibility or task with respect thereto) shall have full discretion and exclusive authority (subject to its right and power to so delegate or assign such authority) to:

     For purposes of effecting the Transaction, Mercury may, in its sole discretion, but without any obligation to do so,

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     Rule 12g5-1 under the Exchange Act provides that, for the purpose of determining whether an issuer is subject to the registration provisions of the Exchange Act, securities shall be deemed to be “held of record” by each person who is identified as the owner of such securities on the records of security holders maintained by or on behalf of the issuer, subject to the following:

EXCHANGE OF CERTIFICATES

     Promptly after the Transaction, Mercury will mail to each holder who appears to have owned fewer than 501 common shares immediately prior to the effective time of the Transaction, based on information available to Mercury, a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the certificates shall pass, only upon delivery of the certificates to Mercury) and instructions to effect the surrender of the certificates in exchange for a cash payment, if any, payable with respect to such certificates. Upon surrender of a certificate for cancellation to Mercury, together with such letter of transmittal, duly completed and executed and containing the certification that the holder of the certificate holds fewer than 501 common shares, and such other customary documents as may be required pursuant to such instructions, the holder of such certificate will receive a cash payment payable with respect to the shares formerly represented by such certificate and the certificate so surrendered shall be canceled.

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     All amounts payable to stockholders will be subject to applicable state laws relating to abandoned property. No service charges or brokerage commissions will be payable by stockholders in connection with the Transaction. Mercury will not pay any interest on any cash amounts payable to its stockholders as a result of the Transaction.

YOU SHOULD NOT SEND YOUR STOCK CERTIFICATES NOW. YOU SHOULD SEND THEM ONLY AFTER YOU RECEIVE A LETTER OF TRANSMITTAL FROM MERCURY. LETTERS OF TRANSMITTAL WILL BE MAILED SOON AFTER THE TRANSACTION IS COMPLETED.

TIME OF CLOSING

     If the Transaction is approved by the Mercury stockholders, the Transaction will take place on [May 31, 2005] or as soon as practicable thereafter. As soon as practicable following the Special Meeting, the Amended and Restated Certificate of Incorporation will be filed with the Secretary of State of Delaware. Each of the reverse split and the forward split will become effective on the date and at the time specified in the Amended and Restated Certificate of Incorporation .

PROPOSAL FOR DISCRETIONARY ADJOURNMENT OF THE SPECIAL MEETING

     The board of directors is seeking discretionary authority to adjourn the Special Meeting if necessary to satisfy the conditions to completing the transaction, including for the purpose of soliciting proxies to vote in favor of the transaction.

     Approval of the proposal to grant the board of directors discretionary authority to adjourn the Special Meeting requires the affirmative vote of the holders of a majority of the shares of common and preferred stock, voting as a single class on the matter. The board of directors recommends a vote FOR granting the board of directors discretionary authority to adjourn the meeting. Abstentions and broker non-votes have no effect in the matter. Unless a contrary choice is indicated, proxies solicited by the board of directors will be voted FOR granting the board of directors discretionary authority to adjourn the Special Meeting.

FINANCIAL INFORMATION

Summary Historical Financial Information

     The following summary of historical consolidated financial data was derived from Mercury’s audited consolidated financial statements as of and for each of the fiscal years ended June 30, 2004, 2003, and 2002, and from unaudited interim consolidated financial statements as of and for the six months ended December 31, 2004 and 2003. The statement of operations data for the six months ended December 31, 2004 is not necessarily indicative of results to be expected for the full fiscal year. This financial information is only a summary and should be read in conjunction with the consolidated financial statements of Mercury and other financial information, including the notes thereto, contained in Mercury’s Annual Report on Form 10-K

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for the fiscal year ended June 30, 2004 and Mercury’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2004, which information is attached hereto and incorporated by reference in this proxy statement. See “Where You Can Find More Information” and “Documents Incorporated by Reference” both on page ___.

Notes:

Pro Forma Consolidated Financial Statements (Unaudited)

     The following unaudited pro forma consolidated balance sheet as of December 31, 2004, and the unaudited pro forma consolidated statements of operations for the six months ended December 31, 2004 and for the fiscal year ended June 30, 2004, show the pro forma effect of the Transaction and related events as required by Rule 11-02 of Regulation S-X. The historical

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figures for the fiscal year ended June 30, 2004, were derived from Mercury’s audited consolidated financial statements that were included in Mercury’s Annual Report on Form 10-K for the fiscal year ended June 30, 2004. The historical figures as of and for the period ended December 31, 2004 were derived from Mercury’s unaudited consolidated financial statements that were included in Mercury’s Quarterly Report on Form 10-Q for the six months ended December 31, 2004.

     The pro forma information below in this section giving effect to the Transaction is based on estimates of record ownership of shares of common stock, the number of shares outstanding and other information as of December 31, 2004 and assumes that, as a result of the foregoing, 192,613 fractional shares are cancelled or cashed out at a price of $4.00 per pre-Transaction share. Pro forma adjustments to the pro forma balance sheets are computed as if the Transaction had occurred at December 31, 2004, while the pro forma income statements are computed as if the Transaction had occurred at the beginning of the period.

     The pro forma information is not necessarily indicative of what Mercury’s financial position or results of operations actually would have been if the Transaction had occurred on July 1, 2003 or July 1, 2004, or of Mercury’s financial position or results of operations in the future.

     The unaudited pro forma financial statements should be read in conjunction with the historical financial statements and accompanying footnotes included in Mercury’s Annual Report on Form 10-K for the year ended June 30, 2004, and in our Quarterly Report on Form 10-Q for the quarters ended December 31, 2004, which are attached hereto and incorporated by reference in this proxy statement.

Mercury Air Group, Inc.
Pro Forma Consolidated Balance Sheet
For the Six Months Ended December 31, 2004
As if the Transaction Occurred December 31, 2004
(Dollars in thousands)
(Unaudited)

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