AMERICAN INTERNATIONAL PETROLEUM CORP /NV/, DEF 14A, 1998-05-15

AMERICAN INTERNATIONAL PETROLEUM CORP /NV/
DEF 14A, 1998-05-15
PETROLEUM REFINING

Previous: AMERICAN INTERNATIONAL PETROLEUM CORP /NV/, S-3, 1998-05-15

Next: RAL YIELD PLUS EQUITIES IV LTD PARTNERSHIP, 10-Q, 1998-05-15

AMERICAN INTERNATIONAL PETROLEUM CORPORATION
444 Madison Avenue, 32 Floor
New York, New York 10022

-----------------------------------------------------------

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

-----------------------------------------------------------

To the Shareholders of American International Petroleum Corporation:

Notice is hereby given that the Annual Meeting of Shareholders of American
International Petroleum Corporation, a Nevada corporation (the "Company"), will
be held on June 29, 1998, at The University Club, One West 54th Street, New
York, New York 10022, at 10:00 a.m. Eastern Daylight Time, to consider and act
upon the following proposals:

1. To elect four (4) Directors to serve for a term of one year and until
their successors are duly elected and qualified;

2. To ratify the appointment of Hein + Associates LLP as independent public
accountants of the Company for 1998;

3. To ratify the adoption of the Company's 1998 Stock Option Plan;

4. To ratify the adoption of the Company's 1998 Stock Award Plan;

5. To ratify the issuance of 25,000 shares of Common Stock to each of four
officers of the Company in 1997.

6. To transact such other business as may properly come before the meeting
and any adjournment(s) thereof.

Shareholders of record at the close of business on May 5, 1998 will be entitled
to vote at the meeting or any adjournment thereof.

By order of the Board of Directors,

George N. Faris, Chairman of the Board
Dated: May 15, 1998

WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE DATE AND SIGN THE
ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE. THE PROXY MAY BE
REVOKED IN WRITING PRIOR TO THE MEETING, OR IF YOU ATTEND THE MEETING, YOU MAY
REVOKE THE PROXY AND VOTE YOUR SHARES IN PERSON.
<PAGE>

AMERICAN INTERNATIONAL PETROLEUM CORPORATION

-----------------------------------------------------------

PROXY STATEMENT

-----------------------------------------------------------

This Proxy Statement is being furnished in connection with the
solicitation by the Board of Directors of American International Petroleum
Corporation, a Nevada corporation (the "Company"), of proxies for the Annual
Meeting of Shareholders to be held at 10:00 a.m. Eastern Daylight Time, on June
29, 1998, and any adjournment or adjournments thereof (the "Meeting"). The
Meeting will be held at The University Club, One West 54th Street, New York, New
York 10022. The purposes for which the Meeting is to be held are set forth in
the Notice of Meeting on the preceding page. All expenses of this solicitation
will be paid for by the Company, which solicitation will be made by use of the
mails and by personal contacts by the officers of the Company. The approximate
date of mailing of this Proxy Statement and the accompanying form of proxy to
shareholders is May 15, 1998.

Shareholders of record at the close of business on May 5, 1998 (the
"Record Date") are entitled to notice of and to vote at the Meeting. Any
shareholder present at the Meeting may revoke his or her proxy by informing the
Secretary of such revocation and vote in person on each matter brought before
the Meeting. The accompanying proxy is also subject to revocation at any time
before it is exercised by filing with the Secretary of the Company an instrument
revoking the proxy or a duly executed proxy bearing a later date. All shares
represented by each properly signed and returned proxy in the accompanying form,
unless revoked, will be voted at the Meeting, or at any adjournment thereof, in
accordance with the instructions thereon. If no instructions are specified, the
shares will be voted in favor of the election of the nominees for Directors and
in favor of the ratification of the auditors. If any other matters are properly
presented at the Meeting, or any adjournment thereof, the persons voting the
proxies will vote them in accordance with their best judgment.

As of May 5, 1998, 51,573,761 shares of the common stock of the Company,
par value $.08 ("Common Stock"), were outstanding. Each share of Common Stock is
entitled to one vote. The affirmative vote of the plurality of the votes cast in
person or by proxy at the Meeting and entitled to vote will determine the
election of Directors. The affirmative vote of the majority of the voting power
present in person or by proxy at the Meeting and entitled to vote is required to
ratify the selection of the auditors.

Votes cast by proxy or in person at the Meeting will be counted by the
persons appointed by the Company to act as election inspectors for the Meeting.
The election inspectors will treat shares represented by proxies that reflect
abstentions as shares that are present and entitled to vote, for purposes of
determining the presence of a quorum. Abstentions, however, do not constitute a
vote "for" or "against" any matter and thus will be disregarded in the
calculation of votes cast. In addition, where brokers are prohibited from
exercising discretionary authority for beneficial owners who have not provided
voting instructions (commonly referred to as "broker non-votes"), those shares
will not be included in the vote totals.

A list of the shareholders entitled to vote at the Meeting will be
available at the Company's offices at 444 Madison Avenue, 32nd Floor, New York,
New York 10022 for a period of 10 days prior to the Meeting for examination by
any shareholder.
<PAGE>

ACTIONS TO BE TAKEN AT THE ANNUAL MEETING

Proposal 1. Election of Four (4) Nominees As Directors

At the Meeting, 4 Directors are to be elected for the ensuing year and
until their successors are duly elected and qualified. If, at the time of
election, any of the nominees should be unavailable for election, a circumstance
which is not expected by the Company, it is intended that the proxies will be
voted for such substitute nominee as may be selected by the Company. The number
of Directors authorized in the Articles of Incorporation is a number, not less
than 3 nor more than 10, as determined by the Board, but the Board has
determined to leave a vacancy on the Board, and until such time as qualified
additional persons are chosen to serve. The proxies cannot be voted for more
than 4 Directors at the Meeting. Proxies not marked to the contrary will be
voted for the election of the following 4 persons, all of whom are standing for
re-election.

Year First
Name Age Position(s) Became a Director
- ---------------- --- ----------- -----------------

George N. Faris 57 Chairman of the Board and 1981
Chief Executive Officer

William R. Smart 77 Director 1987

Daniel Y. Kim 73 Director 1987

Donald G. Rynne 75 Director 1992

- -----------------------------------

BIOGRAPHICAL INFORMATION

Dr. George N. Faris has been Chairman of the Board of Directors and Chief
Executive Officer of the Company since 1981. Dr. Faris was the founder of ICAT,
an international engineering and construction company, and served as its
President from ICAT's inception in 1972 until October 1985. Prior to 1972, Dr.
Faris was the President and Chairman of the Board of Directors of Donbar
Development Corporation, a company engaged in the patent development of rotary
heat exchangers, devices which exchange heat from medium to medium and on which
Dr. Faris was granted a number of patents. Dr. Faris received a Ph.D. in
Mechanical Engineering from Purdue University in 1968.

Dr. Daniel Y. Kim has served as a member of the Company's Board of
Directors since July 1987. Dr. Kim is a Registered Professional Geophysicist in
California and Colorado. From 1981 until 1984, Dr. Kim was President and Chief
Executive Officer of Kim Tech, Inc., a research and development company. In
1984, Kim Tech, Inc. was merged into Bolt Industries, a public company engaged
in the manufacture of air guns and auxiliary equipment used to generate shock
waves in seismic exploration for oil, gas and minerals. Dr. Kim has been a
director of Bolt Industries since 1984. From 1977 to 1980, Dr. Kim was Chief
Consulting Geophysicist for Standard Oil Company of Indiana. Dr. Kim received a
B.S. degree in Geophysics and a Ph.D. degree in Geophysics from the University
of Utah in 1951 and 1955, respectively.

Mr. Donald G. Rynne has served as a member of the Company's Board of
Directors since September 1992. Mr. Rynne has been Chairman of the Board of
Directors of Donald G. Rynne & Co., Inc., a privately owned company engaged in
international consulting and trading, since founding that company in 1956. Mr.
Rynne is involved in international maritime trading and consulting, dealing
primarily in the Middle East in hydrocarbon products and capital equipment. Mr.
Rynne received a B.A. degree from Columbia University in 1949.

2
<PAGE>

Mr. William R. Smart has served as a member of the Company's Board of
Directors since June 1987. Since November 1, 1983, Mr. Smart has been Senior
Vice President of Cambridge Strategic Management Group, a management consulting
firm. Mr. Smart was Chairman of the Board of Directors of Electronic Associates,
Inc., a manufacturer of electronic equipment, from May 1984 until May 1992. He
has served on the Board of Directors of Apollo Computer Company and Executone
Information Systems, Inc. Mr. Smart is presently a director of National
Datacomputer Company and Hollingsworth and Voss Company. Mr. Smart received a
B.S. degree in Electrical Engineering from Princeton University in 1941.

The business background of each executive officer of the Company, to the
extent not set forth above, is described below.

Mr. Denis J. Fitzpatrick, 53, joined the Company in August 1994 as Vice
President, Secretary and Chief Financial Officer. During the previous five
years, Mr. Fitzpatrick was the Chief Financial Officer of Nahama & Weagant
Energy Company, a publicly traded independent exploration and production
company. Mr. Fitzpatrick has held various accounting and financial management
positions during his 24 years in the oil and gas industry. He has also served as
a Director or Officer of the Council of Petroleum Accountants Society; served on
the Tax Committee of the American Petroleum Institute and as a member of the
American Management Association. Mr. Fitzpatrick received a B.S. degree in
Accounting from the University of Southern California in 1974.

Mr. William L. Tracy, 50, has been employed by the Company since February
1992 and has been Treasurer and Controller of the Company since August 1993.
From May 1989 until February 1992, Mr. Tracy was self-employed as an energy
consultant with the Commonwealth of Kentucky. From June 1985 until May 1989, Mr.
Tracy served as President of City Gas and Transmission Corp., a public oil and
gas production and refining company. He received his BBA from Bellarmine College
in Louisville, Kentucky in 1974.

The Company's executive officers are appointed annually by the Board to
serve until their successors are duly elected and qualified.

CERTAIN INFORMATION CONCERNING THE BOARD OF DIRECTORS

The Company has three standing committees, the Executive Committee, to
oversee the day to day operations of the Company; the Compensation Committee, to
review and set the compensation to be received by various officers and other
employees and consultants of the Company; and the Audit Committee, to review the
financial reporting and internal controls of the Company. The Executive
Committee is composed of Messrs. Smart (Chairman), Rynne and Faris, the
Compensation Committee is composed of Messrs. Kim (Chairman), Smart and Rynne,
and the Audit Committee is composed of Messrs. Smart (Chairman) Rynne and Kim.

The Board of Directors held 12 meetings during the year ended December 31,
1997. The Compensation Committee held 1 meeting and the Audit Committee held 1
meeting during 1997. Each incumbent Director attended at least 75% of such Board
meetings and of the meetings of Committees on which such Director served.

During 1997, the Company reimbursed outside Directors for their actual
Company-related expenses, including the costs of attending Directors' meetings.
The Company accrued, for each outside Director, $500 per month for serving in
such capacity; $500 for participation in each Committee meeting, if such
Director served on a Standing Committee of the Board of Directors; and $500 for
each Board meeting attended in person.

3
<PAGE>

SECURITIES OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS

The following table sets forth certain information, as of the Record Date,
regarding the beneficial ownership of Common Stock of (i) each person known by
the Company to be the beneficial owner of more than 5% of the Common Stock; (ii)
each Director; (iii) each executive officer named in the Summary Compensation
Table below; and (iv) all Directors and executive officers as a group.

Name and Address Amount and Nature of Percent
of Beneficial Holder(1) Beneficial Ownership of Class
- ----------------------- -------------------- --------

George N. Faris 3,370,000(2) 6.3%

Daniel Y. Kim 163,500(3) *

Donald G. Rynne 666,862(4) 1.3%

William R. Smart 282,608(5) *

Denis J. Fitzpatrick 202,500(6) *

William L. Tracy 121,240(7) *

All officers and Directors
as a group (consisting of
6 persons) 4,806,710(8) 8.9%

============================
* Less than 1% of class

(1) All officers and Directors have an address c/o the Company, 444 Madison
Avenue, Suite 3203, New York, NY 10022.

(2) Includes 1,764,500 shares of common stock issuable upon the exercise of
stock options owned by Dr. Faris. Excludes 187,500 unexercisable options.

(3) Includes 155,500 shares of common stock issuable upon the exercise of
stock options owned by Dr. Kim. Excludes 50,000 unexercisable options.

(4) Includes 160,000 shares of common stock issuable upon the exercise of
stock options owned by Mr. Rynne. Excludes 50,000 unexercisable options.

(5) Includes 192,000 shares of common stock issuable upon the exercise of
stock options owned by Mr. Smart. Excludes 50,000 unexercisable options.

(6) Includes 202,500 shares of common stock issuable upon the exercise of
stock options owned by Mr. Fitzpatrick. Excludes 42,500 unexercisable
options.

(7) Includes 121,240 shares of common stock issuable upon the exercise of
stock options owned by Mr. Tracy. Excludes 25,000 unexercisable options.

(8) Includes all of the shares of common stock issuable upon the exercise of
options and warrants described in Notes (2) through (7) above.

4
<PAGE>

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors, and persons who own more than 10 percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Such reporting persons are required by regulation to furnish the Company with
copies of all Section 16(a) reports that they file.

Based solely on its review of the copies of such reports received by it,
or written representations from certain reporting persons that Form 5's were
filed for those persons, the Company believes that, during the period from
January 1, 1997 through December 31, 1997, all filing requirements applicable to
its officers, Directors and greater than 10 percent beneficial owners were
complied.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table discloses compensation for services rendered by the
Company's Chief Executive Officer and all other executive officers of the
Company whose compensation exceeded $100,000 in 1997, 1996, and 1995.

<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
----------------------------- --------------------------
Name and Principal Other Annual All Other
Position Year Salary Bonus Compensation 0ptions(#) Compensation
- ----------- ---- ------ ----- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
George N. Faris 1997 $ 312,000 $ 257,000 $ 7,200(3) 750,000 $ 193,000(1)
Chairman of the 1996 292,000 15,000 9,600(2) 1,202,500(4) 422,000(5)
Board and Chief 1995 240,000 -- 45,000(2) 202,500(4) --
Executive Officer

Denis J. Fitzpatrick 1997 $ 118,000 $ 102,000 $ -- 125,000 25,000(8)
Secretary, Vice 1996 105,000 5,000 15,000(6) 120,000(4) --
President and Chief 1995 105,000 -- 18,000(7) 20,000(4) --
Financial Officer

William L. Tracy 1997 $ 88,000 $ 62,000 75,000 $ 23,000(8)
Treasurer and 1996 (9)
Controller 1995 (9) -- -- -- --

Kenneth N. Durham 1997 (10) -- -- -- --
President and Chief 1996 (10) -- -- -- --
Operating Officer 1995 $ 145,000(10) -- -- -- --
</TABLE>

- ----------

(1) Includes deferred salary payment of $109,000 and income tax reimbursement
of $84,000.

(2) $35,500 of this amount constituted forgiveness of interest on a debt owed
to the Company, the principal of which was repaid to the Company; $9,600
was paid as a vehicle allowance in each of 1996 and 1995.

(3) Vehicle allowance.

5
<PAGE>

(4) The number of options shown for 1995 was issued in substitution for
previously outstanding options and re-issued in 1996. The exercise price
is now $.50 per share. See Ten Year Option Repricings table below.

(5) On October 13, 1995, the Company and Dr. Faris executed an amendment to
Dr. Faris' employment agreement, pursuant to which Dr. Faris relinquished
certain rights in exchange for 900,000 shares of Common Stock. See
"Employment Contract" below.

(6) Mr. Fitzpatrick is reimbursed up to $15,000 per year in living expenses
incurred while working in the New York office.

(7) Mr. Fitzpatrick was awarded 5,000 restricted shares of Common Stock as a
signing bonus, which shares were issued in 1995.

(8) Deferred salary payment.

(9) Mr. Tracy's compensation was less than $100,000 in each of 1996 and 1995.

(10) Mr. Durham resigned from employment with the Company effective on November
3, 1995.

1995 STOCK OPTION PLAN

The Company has established a 1995 Stock Option Plan (the "1995 Plan").
The 1995 Plan was approved by the Board of Directors on November 8, 1995 and by
the Company's shareholders on July 11, 1996. The 1995 Plan is administered by
the Board of Directors of the Company or a Committee designated by them. Under
the 1995 Plan employees, including officers and managerial or supervising
personnel, are eligible to receive Incentive Stock Options ("ISO's") or ISO's in
tandem with stock appreciation rights ("SAR's"), and employees, Directors,
contractors and consultants are eligible to receive non-qualified stock options
("NQSO's") or NQSO's in tandem with SAR's. Options may be granted under the 1995
Plan to purchase an aggregate of 3,500,000 shares of Common Stock. If an option
granted under the 1995 Plan terminates or expires without having been exercised
in full, the unexercised shares subject to that option will be available for a
further grant of options under the 1995 Plan. Options may not be transferred
other than by will or the laws of descent and distribution and, during the
lifetime of the optionee, may be exercised only by the optionee.

Options may not be granted under the 1995 Plan after November 7, 2005. The
exercise price of the options granted under the 1995 Plan cannot be less than
the fair market value of the shares of Common Stock on the date the option is
granted. ISO's granted to shareholders owning 10% or more of the outstanding
voting power of the Company must be exercised at a price equal to at least 110%
of the fair market value of the shares of Common Stock on the date of grant. The
aggregate fair market value of Common Stock, as determined at the time of the
grant with respect to which ISO's are exercisable for the first time by any
employee during any calendar year, shall not exceed $100,000. Any additional
Common Stock as to which options become exercisable for the first time during
any such year are treated as NQSO's. The total number of options granted under
the 1995 Plan, as of the Record Date was 3,477,500, which included 302,500
repriced options granted in substitution for options previously held.

6
<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

The table below includes the number of stock options granted to certain
executive officers during the year ended December 31, 1997, exercise information
and potential realizable value.

<TABLE>
<CAPTION>
Individual Grants
----------------- Potential Realizable
Number of Percent of Value at Assumed
Securities Total Options Annual Rates of Stock
Underlying Granted to Price Appreciation
Options Employees in Exercise Expiration for Option Term
Name Granted(#) Fiscal Year Price($/sh) Date 5%($) 10%($)
---- ---------- ----------- ---------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
George Faris 750,000 45% $1.05 12/31/02 $-0- $-0-

Denis Fitzpatrick 125,000 8% $1.05 12/31/02 $-0- $-0-

William L. Tracy 75,000 5% $1.05 12/31/02 $-0- $-0-
</TABLE>

AGGREGATE OPTION EXERCISES IN 1997 AND OPTION VALUES AT DECEMBER 31, 1997

The table below includes the number of shares covered by both exercisable
and non-exercisable stock options owned by certain executive officers as of
December 31, 1997. Also reported are the values for "in-the-money" options which
represent the positive spread between exercise price of any such existing stock
options and the year-end price.

<TABLE>
<CAPTION>
Shares
------
Acquired or Value Number of Unexercised Value of Unexercised
Name Exercised Realized Options at Year End In-the-money Options
- ---- --------- -------- ------------------- --------------------

Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George N. Faris -- -- 1,764,000 187,500 $4,771,495 $436,875

Denis J. Fitzpatrick -- -- 202,500 42,500 $537,825 $99,025

William L. Tracy -- -- 101,000 25,500 $263,380 $59,415
</TABLE>

EMPLOYMENT CONTRACT

Effective May 1, 1989, the Company entered into an employment agreement
with George N. Faris at an annual salary of $200,000, which agreement is renewed
annually. In 1992, the Board increased Dr. Faris' salary to $300,000 per year In
April 1994, Dr. Faris voluntarily reduced his salary to $240,000 per year. In
February 1996, Dr. Faris' salary was reinstated to $300,000 per year. Pursuant
to the employment agreement, in the event of a change in control of the Company
which Dr. Faris and a majority of the Company's Board of Directors approve, Dr.
Faris was entitled, upon such change of control, to terminate his employment and
receive 2.9 times his fixed compensation as defined in the employment agreement.
However, if Dr. Faris opposed a change in control, but the majority of the Board
of Directors voted in favor of such change, then Dr. Faris could have his
employment terminated and received 2.5 times his fixed compensation. In the
event that Dr. Faris' employment was terminated prior to the expiration of his
contract for reasons other than cause or death, or if such employment

7
<PAGE>

agreement is not renewed at termination, the Company was to pay severance to Dr.
Faris in an amount equal to the product of his number of years of service,
beginning with the calendar year 1981, multiplied by $50,000.

On September 7, 1995, the Board of Directors approved an amendment to Dr.
Faris' employment agreement, which was signed by Dr. Faris and the Company in
October 1995 and subsequently ratified by the Company's shareholders. Pursuant
to the amendment, the rights of Dr. Faris described in the previous paragraph
terminated, and Dr. Faris received, in exchange, 900,000 shares of restricted
Common Stock.

REPORT ON REPRICING OF OPTIONS

In October 1996, the Compensation Committee approved, and the Board of
Directors authorized, the granting of repriced options to all executive officers
of the Company and other employees who previously held options of the Company.
The Compensation Committee and the Board so acted because the exercise price of
such outstanding options was in each case so far in excess of the market price
of the Common Stock that such options no longer constituted an incentive to such
persons' performance. The closing market price of the Common Stock on the Nasdaq
National Market on October 22, 1996 was $.41 per share. The exercise price of
the options was lowered to $.50. This price was still in excess of the market
price on the date of grant, but it was closer to the market price and fulfilled
the original intention of the Compensation Committee and the Board to provide
performance incentives to the officers and employees.

Ten-year Option Repricings

The table below provides information regarding each instance in which the
options of executive officers named in the Summary Compensation Table were
repriced during the last 10 fiscal years of the Company.

<TABLE>
<CAPTION>
Number of
Securities
Underlying Market Price Exercise Price New Length of Original
Options of Stock at Time at Time of Exercise Option Term Remaining
Name Date Repriced of Repricing($) Repricing($) Price at Date of Repricing
- ---- ----- ----------- --------------- ------------ ------ --------------------
<S> <C> <C> <C> <C> <C> <C>
George Faris 11/08/95 1,202,500 $.78 $4.00 $1.00 2 years, 2 months
Chief Executive 10/22/96 1,202,500 $.41 $1.00 $ .50 1 year, 3 months
Officer

Denis Fitzpatrick 11/08/95 120,000 $.78 $1.50 $1.00 2 years, 10 months
Chief Financial 10/22/96 120,000 $.41 $1.00 $ .50 1 year, 11 months
Officer

William L. Tracy 11/08/95 1,000 $.78 $1.50 $1.00 2 years, 2 months
10/22/96 51,000 $.41 $1.00 $ .50 1 year, 11 months

Kenneth Durham 11/08/95 20,000(1) $.78 $4.00 $1.00 (1)
President
</TABLE>

(1) Mr. Durham left the Company on November 3, 1995, and his options expired
on February 1, 1996.

8
<PAGE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of the Compensation Committee was an officer or employee of the
Company or of any of its subsidiaries during the prior year or was formerly an
officer of the Company or any of its subsidiaries. During the last fiscal year,
none of the executive officers of the Company has served on the Board or
Compensation Committee of any other entity whose officers served either on the
Board of Directors of the Company or on the Compensation Committee of the
Company.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

It is the responsibility of the Compensation Committee of the Board of
Directors to administer the Company's incentive plans and to review the
compensation levels and performance of Management.

The Compensation Committee believes that maximizing shareholder value is
the most important measure of success, and achieving this depends on the
coordinated efforts of individual employees working as a team toward defined
common performance goals. The objectives of the Company's compensation program
are to align executive compensation with shareholder value, to reward individual
and team effort and performance furthering the Company's business goals, and to
attract, retain and reward employees who will contribute to the long-term
success of the Company with competitive salary and incentive compensation.

The total direct compensation package for the Company's executives,
including the Chief Executive Officer (the "CEO"), is made up of 3 elements:
base salary, a short-term incentive program in the form of a performance-based
bonus, and a long-term incentive program in the form of stock options. The total
compensation level for each executive is established by individual levels of
responsibility and reference to competitive compensation levels for executives
performing similar functions and having equivalent levels of responsibility. In
addition, the Compensation Committee factors into the total compensation of all
executives an incentive element that is dependent upon overall Company
performance and increases in shareholder value measured against objectives
established at the beginning of the fiscal year.

Salary

Recommendations for merit increases in base salary are reviewed on an
individual basis, and increases are dependent upon a favorable evaluation of
individual performance relative to individual goals, the functioning of the
executive's team within the corporate structure, success in furthering the
corporate strategy and goals, and individual management skills, responsibilities
and anticipated workload. The Compensation Committee also considers demonstrated
loyalty and commitment to the Company and the competitive salaries offered by
similar companies to attract executives. Merit increases for executives are
subject to the same budgetary guidelines as apply to all other employees. In
those cases where an executive has entered into an employment agreement, the
base salary is determined pursuant to the terms thereof.

As part of the Company's overall cost-reduction plan, in April 1994, all
officers and management of the Company voluntarily reduced their base salary
15%, and the CEO voluntarily reduced his salary 20%. This action was applied
during all of 1994 and 1995 and in January 1996. The Compensation Committee is
performing a review of comparable Companies' executive salary data, which was
last performed in 1993. The Compensation Committee granted no increases in base
salaries for management in 1996. In February 1996, however, in order to maintain
the Company's ability to attract and retain qualified management, to retain
employees who contribute to the long-term success of the Company, and to
recognize their contributions in meeting and exceeding the goal of the
cost-reduction program to reduce the Company's general and administrative and
operating expenses by an aggregate of 25%, the Board of Directors reinstated
these employees' salaries to their previous levels.

9
<PAGE>

Bonuses

Bonus incentives are structured so that, if the Company achieves its
target goals, an incentive bonus may be paid to the CEO and other executives,
the amount of which will be established by the Board of Directors. This policy
is designed to further motivate individuals to improve performance. The Company
paid an aggregate of $421,000 in bonuses to its executive officers in 1997,
approximately 26% of which consisted of shares of common stock of Mercantile
International Petroleum Inc. (which the Company received as partial proceeds
from the sale of certain assets in 1997) and of the Company.

Stock Options

Executives are eligible for annual stock option grants under the employee
stock option plans applicable, from time to time, to employees generally. The
number of options granted to any individual depends on individual performance,
salary level and competitive data. In addition, in determining the number of
stock options granted to each executive, the Compensation Committee reviews the
unvested options of each executive to determine the future benefits potentially
available to the executive. The number of options granted will depend in part on
the total number of unvested options deemed necessary to provide a long-term
incentive and encourage executives to remain with, and exert their utmost
efforts on behalf of, the Company. By giving to executives an equity interest in
the Company, the value of which depends upon stock performance, the policy seeks
to further align management and shareholder interests.

During 1997, an aggregate of 1,675,000 Incentive Stock Options were
granted under the 1995 Plan, 1,575,000 at an exercise price of $1.05 per share
and 100,000 with an exercise price of $4.22 per share.

In 1996, all officers and certain other management employees of the
Company received incentive stock options and also new options to replace all of
their existing options, with the only differences being that all exercise prices
of the options were reduced to $.50 and that the options are to be subject to
the Plan. This change was made because the exercise prices of the old options
were too far above the current stock price to provide incentives to these
employees.

Members of the Compensation Committee:

Daniel Y. Kim, Chairman
William R. Smart
Donald G. Rynne

10
<PAGE>

PERFORMANCE GRAPH

The graph below compares the cumulative shareholder return of the Company
with the cumulative return on the S&P 500 Stock Index and the S&P Exploration
and Production Index assuming a $100 investment made on December 31, 1992.
Cumulative return data presented assumes reinvestment of dividends. The stock
performance shown on the graph below is not necessarily indicative of future
price performance.

-------------------------
TOTAL SHAREHOLDER RETURNS
-------------------------

[The following table was represented as a line graph in the printed material.]

Years Ending
Company / Index Dec92 Dec93 Dec94 Dec95 Dec96 Dec97
- -------------------------------------------------------------------------------
Dollars
AMER INTL PETROLEUM CORP 100 10.66 7.79 3.62 2.26 19.55
OIL&GAS (EXPLOR&PRODTN)-500 100 97.21 77.28 90.81 120.27 110.23
S&P 500 INDEX 100 110.08 111.53 153.45 188.68 251.63

11
<PAGE>

TRANSACTIONS WITH MANAGEMENT AND OTHERS

In April 1997, Dr. George Faris and Mr. Donald Rynne purchased certain
convertible debentures (the "Debentures") of the Company, originally issued in
August 1996, for their face values of $225,000 and $75,000, respectively, from a
foreign investor and subsequently converted the Debentures, pursuant to the
original terms thereof, for 895,349 shares and 298,342 shares of Common Stock,
respectively, which shares are still held by Dr. Faris and Mr. Rynne.

In July 1997, the Company's Chairman and CEO, Dr. George Faris, loaned the
Company $500,000 on an interest-free basis, which loan was repaid in full by the
Company in August 1997.

In April 1997, the Company issued as a bonus, 25,000 shares of Common
Stock to each of Dr. Faris, Mr. Fitzpatrick, Mr. Tracy, and Mr. Lorrie Olivier,
a Vice President of the Company. Such issuance is subject to ratification by the
Shareholders at the Company's Annual Meeting. Absent such ratification, 75% of
such shares will be returned to the Company.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF THE
NOMINEES NAMED ABOVE (PROPOSAL 1).

Proposal 2. Ratification of Independent Public Accountants

Hein + Associates LLP was the Company's independent public accountants for
the year ended December 31, 1997. The Board has appointed these accountants to
be the Company's auditors for 1998 and is seeking shareholder ratification of
such appointment.

The Company has been apprised that Hein + Associates LLP has no financial
interest, either direct or indirect, in the Company. A representative of Hein +
Associates LLP is expected to attend the Meeting and to have an opportunity to
make a statement and/or respond to appropriate questions from shareholders.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 2.

Proposal 3. Ratification of 1998 Stock Option Plan

The Board of Directors of the Company, subject to the approval of
shareholders, has adopted a 1998 Stock Option Plan (the "1998 Plan") covering an
aggregate of 5,000,000 shares of Common Stock.

The Board of Directors has deemed that it is in the best interests of the
Company to establish the 1998 Plan so as to provide employees of the Company and
its subsidiaries, as well as Directors, independent contractors and consultants
of the Company and/or its subsidiaries an opportunity to acquire a proprietary
interest in the Company by means of grants of options to purchase Common Stock
in order to provide a closer identification of their interests with those of the
Company and its shareholders. The Company currently employs 73 persons and has 3
outside directors.

It is the opinion of the Board of Directors that by providing the
employees, Directors, independent contractors and consultants of the Company and
its subsidiaries the opportunity to acquire an equity investment in the Company,
the 1998 Plan will maintain and strengthen their desire to remain with the
Company, stimulate their efforts on the Company's behalf, and also attract other
qualified personnel to become employed by or otherwise become associated with
the Company. The 1998 Plan was adopted by the Company's Board of Directors on
April 2, 1998. As of April 12, 1998, no options have been granted

12
<PAGE>

pursuant to the 1998 Plan. The closing market price of the Common Stock, as
reported by Nasdaq on April 2, 1998 was $3.81 per share. The Board of Directors
has directed that the shares underlying the 1998 Plan be registered pursuant to
the Securities Act of 1933, and the Company intends to take steps to file a
Registration Statement on Form S-8 to register such shares promptly after
approval of this Proposal 3.

The following discussion summarizes certain provisions of the 1998 Plan,
which is qualified in its entirety by reference to the text of the Plan, copies
of which are available for examination at the Securities and Exchange Commission
and at the principal office of the Company, 444 Madison Avenue, New York, NY
10022.

The 1998 Plan allows the Company to grant incentive stock options
("ISOs"), as defined in Section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code"), Non-Qualified Stock Options ("NQSOs") not intended to
qualify under Section 422(b) of the Code, and ISOs or NQSOs in tandem with Stock
Appreciation Rights ("SARs"). ISOs, NQSOs and SARs are referred to collectively
herein as "Options."

Options granted under the 1998 Plan prior to the approval of the 1998 Plan
by the Company's shareholders are conditioned upon approval of the 1998 Plan by
such shareholders on or before June 29, 1998. If such approval is not obtained
by such date, such Options shall become null and void, and the 1998 Plan shall
terminate.

ELIGIBILITY FOR PARTICIPATION

The 1998 Plan provides that ISOs or ISOs in tandem with SARs may be
granted to employees of the Company and its subsidiaries, including officers and
Directors who are also employees and that NQSOs or NQSOs in tandem with SARs may
be granted to employees of the Company and its subsidiaries, Directors,
independent contractors, consultants and other individuals who are not employees
of, but are involved in the continuing development and success of, the Company
and its subsidiaries ("Participants").

ADMINISTRATION

The 1998 Plan is administered by the Board of Directors and/or a stock
option committee of the Board of Directors (the "Committee"). The Board of
Directors and/or the Committee will, among other things, select the optionees,
determine the number of shares to be subject to each Option and determine the
vesting period, option period and option price. In making such determinations,
there will be taken into account the nature of the services rendered by
Participants, their present and potential contributions to the success of the
Company, and such other relevant factors as the Board and/or the Committee in
its discretion shall deem relevant.

TERMS OF OPTIONS

The terms of Options granted under the 1998 Plan are to be determined by
the Board of Directors and/or the Committee. Each Option is to be evidenced by a
stock option agreement between the Company and the Participant to whom such
Option is granted and is subject to the following additional terms and
conditions:

(a) Exercise of the Option: The Board of Directors and/or the Committee
will determine the time periods during which Options granted under the 1998 Plan
may be exercised. An Option must be granted within 10 years from the date the
1998 Plan was adopted. The 1998 Plan is deemed adopted on April 2, 1998. Options
may be exercisable in whole or in part at any time during the period but may not
have an

13
<PAGE>

expiration date later than 10 years from the date of grant. ISOs or ISOs in
tandem with SARs granted to holders of more than 10% of the Common Stock,
however, may not have a term of more than 5 years. An Option is exercised by
giving written notice of exercise to the Company specifying the number of full
shares of Common Stock to be purchased and tendering payment of the purchase
price to the Company in cash or certified check, or if permitted by the
instrument of grant with respect to ISOs or ISOs granted in tandem with SARs and
at any time as permitted by the Board of Directors or the Committee with respect
to other Options, by delivering a promissory note or exchanging shares of Common
Stock owned by the Participant, or by a combination of cash, promissory notes
and/or shares of Common Stock, or, in the sole discretion of the Board or the
Committee, by another medium of payment. The ability to pay the option exercise
price in shares of Common Stock may enable a Participant to engage in a series
of successive stock-for-stock exercises of an Option and thereby fully exercise
an Option with little or no cash investment. Officers and Directors who receive
grants of SARs may exercise them at any time after 6 months from the date of
grant, but generally may only exercise them within the period of 10 business
days following publication of the Company's quarterly financial information.

(b) Option Price: In no event may the option price of the shares subject
to an ISO or a SAR issued in tandem with an ISO be less than the fair market
value of the Common Stock on the date of grant. The Board of Directors and/or
the Committee may set the price of an NQSO or an NQSO granted in tandem with a
SAR without any limitation. Fair market value in the case of ISOs shall be the
closing price of the Common Stock on its principal market on the date of grant,
if the Common Stock is traded on an exchange, or the average of the closing bid
and asked prices, if it is traded over-the-counter. ISOs or ISOs in tandem with
SARs granted to holders of more than 10% of the Common Stock are subject to the
additional restriction that the option price must be at least 110% of the fair
market value of the Common Stock on the date of grant.

(c) Vesting: The Board of Directors and/or the Committee, will determine
the time or times the Options become exercisable. However, the 1998 Plan
provides that, with respect to holders of more than 10% of the Common Stock,
such Options must become first fully exercisable not later than 5 years from the
date of grant, and no less than 20% of the Option must become exercisable in
each of the first 5 years of the Option until fully exercisable.

(d) Termination of Employment; Disability; Death: If the employment of a
Participant under the 1998 Plan is terminated for any reason (other than because
of death, disability, voluntary termination or for cause), his ISOs and SARs
issued in tandem with ISOs shall expire and no longer be exercisable 3 months
after such termination, but in no event later than the expiration date of the
Options, and his other Options shall terminate as determined under the option
agreement, but not later than the expiration date. In the event a Participant's
employment is terminated voluntarily or for cause, his Options shall immediately
expire.

In the event a Participant dies while in the employ of the Company
or its subsidiaries or within 3 months thereafter, his Options may be exercised
by a legatee or legatees of such Options under such Participant's last will or
by his personal representatives or distributees within a period determined by
the Board or the Committee of at least 6 months after his death, but in no event
later than the expiration date of the Options.

A Participant's employment with the Company or a subsidiary will not
be considered to be terminated for purposes of the 1998 Plan while the
Participant is not active due to a disability; provided, that an ISO may only be
exercised within 6 months after the Participant's employment would be considered
terminated because of such disability under applicable Sections of the Code,
except as determined by the Board of Directors or the Committee, but in no event
later than the expiration date of the Option.

14
<PAGE>

Under the 1998 Plan, Participants on military or sick leave, or on
any other bona fide leave of absence, are to be considered as remaining in the
employ of the Company or its subsidiaries for 90 days or such longer period as
is guaranteed either by contract or statute.

(e) Nontransferability of Options; No Liens: An Option is nontransferable
and non-assignable by the Participant, other than by will or the laws of descent
and distribution and is exercisable during the Participant's lifetime only by
the Participant.

(f) Maximum Number of ISOs or SARs in Tandem with ISOs which may Be
Issued: No employee may receive a grant of ISOs or SARs in tandem with ISOs if
the aggregate fair market value of all ISOs and SARs in tandem with ISOs granted
to him under the 1998 Plan and any other qualified incentive stock option plan
of the Company exceeds $100,000, as determined at the date of grant. Any options
granted in excess of the $100,000 limit are deemed to be NQSOs under the 1998
Plan.

The option agreement may contain such other terms, provisions and
conditions not inconsistent with the 1998 Plan as may be determined by the Board
of Directors and/or the Committee.

TERMINATION; AMENDMENT OR DISCONTINUANCE

The 1998 Plan (but not Options previously granted under the 1998 Plan)
shall terminate 10 years from the date of its adoption by the Board of
Directors. No Option will be granted from the 1998 Plan after termination of
such plan.

The Board of Directors of the Company may terminate the 1998 Plan at any
time prior to its expiration date, or from time to time make such modifications
or amendments of the 1998 Plan as it deems advisable. However, the Board may
not, without the approval of holders of a majority of the outstanding shares of
the Company, except under conditions described under "Adjustments Upon Changes
in Common Stock," increase the maximum number of shares as to which Options may
be granted under the 1998 Plan, or materially change the standards of
eligibility under the 1998 Plan.

No termination, modification or amendment of the 1998 Plan may adversely
affect the terms of any outstanding Options without the consent of the holders
of such Options.

ADJUSTMENTS UPON CHANGES IN COMMON STOCK

In the event that the number of outstanding shares of Common Stock of the
Company is changed by reason of recapitalization, reclassification, stock split,
stock dividend, combination, exchange of shares or the like, or as a result of a
merger, consolidation or reorganization involving the Company or its
subsidiaries, the Board of Directors will make an appropriate adjustment in the
aggregate number of shares of Common Stock available under the 1998 Plan, in the
number of shares of Common Stock issuable upon the exercise of then outstanding
Options and in the exercise prices of such Options. Any adjustment in the number
of shares will apply proportionately only to the unexercised portion of Options.

FEDERAL INCOME TAX CONSEQUENCES

The following discussion is only a summary of the principal Federal income
tax consequences of the Options and is based on existing Federal law, which is
subject to change, in some cases retroactively. This discussion is also
qualified by the particular circumstances of individual Participants, which may
substantially alter or modify the Federal income tax consequences herein
discussed.

Generally, under present law, when an Option qualifies as an ISO under
Section 422 of the Code, (i) an employee will not realize taxable income either
upon the grant or the exercise of the Option, (ii) the

15
<PAGE>

amount by which the fair market value of the shares acquired by the exercise of
the Option at the time of exercise exceeds the option price is included in
alternative minimum taxable income for purposes of determining the employee's
alternative minimum tax, (iii) any gain or loss (the difference between the net
proceeds received upon the disposition of the shares and the option price paid
therefor), upon a qualifying disposition of the shares acquired by the exercise
of the Option will be treated as capital gain or loss if the stock qualifies as
a capital asset in the hands of the employee, and (iv) no deduction will be
allowed to the Company for Federal income tax purposes in connection with the
grant or exercise of an ISO or a qualifying disposition of the shares. A
disposition by an employee of shares acquired upon exercise of an ISO will
constitute a qualifying disposition if it occurs more than 2 years after the
grant of the Option and one year after the issuance of the shares to the
employee. If such shares are disposed of by the employee before the expiration
of those time limits, the transfer would be a "disqualifying disposition" and
the employee, in general, will recognize ordinary income (and the Company will
receive an equivalent deduction) equal to the lesser of (i) the aggregate fair
market value of the shares as of the date of exercise less the option price, or
(ii) the amount realized on the disqualifying disposition less the option price.
Ordinary income from a disqualifying disposition will constitute compensation
for which withholding may be required under Federal and state law. The maximum
rate of tax on ordinary income is greater than the rate of tax on long-term
capital gains.

In the case of an NQSO granted under the 1998 Plan, no income generally is
recognized by the Participant at the time of the grant of the Option assuming
such NQSO does not have a readily ascertainable fair market value. The
Participant generally will recognize ordinary income when the NQSO is exercised
equal to the aggregate fair market value of the shares acquired less the option
price. Withholding may be required, and the Company will receive an equivalent
deduction, subject to excessive employee remuneration provisions of Section 162
(m) of the Code. Section 162 (m) generally disallows a deduction for employee
remuneration paid by a company in any taxable year to an executive officer in
excess of $1,000,000 (unless such compensation is considered performance based
compensation). For purposes of determining remuneration paid, the excess of the
fair market value of the Common Stock upon exercise of an NQSO over the exercise
price is considered remuneration paid in the year of exercise unless the income
is considered performance-based compensation. One of the requirements to qualify
as performance-based compensation is that the 1998 Plan set forth the maximum
number of Options to which a Participant may be entitled. The 1998 Plan does not
contain such a provision. Therefore, the NQSOs granted under the 1998 Plan will
not be considered performance-based compensation for purposes of Section 162(m).

Shares acquired upon exercise of an NQSO will have a tax basis equal to
their fair market value on the exercise date or other relevant date on which
ordinary income is recognized and the holding period for the shares generally
will begin on the date of the exercise or such other relevant date. Upon
subsequent disposition of the shares, the participant will recognize capital
gain or loss if the stock is a capital asset in his hands. Provided the shares
are held by the Participant for more than one year prior to disposition, such
gain or loss will be long-term capital gain or loss. As set forth above, the
maximum rate of tax on ordinary income is currently greater than the maximum
rate of tax on long-term capital gains. To the extent a Participant recognizes a
capital loss, such loss generally may offset capital gains and $3,000 of
ordinary income. Any excess capital loss is carried forward indefinitely.

The grant of an SAR is generally not a taxable event for the optionee.
Upon the exercise of an SAR the optionee will recognize ordinary income in an
amount equal to the amount of cash and the fair market value of any Common Stock
received upon such exercise, and the Company will be entitled to a deduction
equal to the same amount.

Notwithstanding the above, if the sale of any shares received upon the
exercise of an NQSO or a SAR in tandem with an NQSO would be subject to Section
16(b) of the Securities Exchange Act of 1934, recognition of ordinary income
attributable to such shares received will be deferred until the date such

16
<PAGE>

sale would not give rise to a Section 16(b) action. However, such shares will be
valued at the fair market value at such later time, unless the optionee has made
an election under Section 83(b) of the Code within 30 days after the date of
exercise to recognize ordinary income as of the date of exercise based on the
fair market value at the date of exercise.

The foregoing discussion is only a brief summary of the applicable Federal
income tax laws as in effect on this date and should not be relied upon as being
a complete statement. The Federal tax laws are complex, and they are subject to
legislative changes and new or revised judicial or administrative
interpretations at any time. In addition to the Federal income tax consequences
described herein, a Participant may also be subject to state and/or local income
tax consequences in the jurisdiction in which the grantee works and/or resides.

The affirmative vote of the holders of a majority of the shares of Common
Stock represented at the Meeting is required to ratify the adoption of the 1998
Plan.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 3.

Proposal 4. Ratification of 1998 Stock Award Plan

On April 2, 1998, the Board of Directors adopted, subject to the approval
of the stockholders of the Company, the American International Petroleum
Corporation 1998 Stock Award Plan (the "Plan"). The Plan provides for the
granting of stock awards not to exceed an aggregate of 500,000 shares of Common
Stock of the Company.

The purpose of the Plan is to attract, retain, motivate and reward, and to
provide competitive incentive compensation for employees, officers, and
consultants of the Company, and to encourage stock ownership and a proprietary
interest in the Company by such employees, officers, and consultants. The Board
of Directors believes that the Plan will encourage this sense of proprietorship
on the part of key employees and consultants and is necessary to assist the
Company in its efforts to attract, retain and motivate key employees and
consultants.

A copy of the Plan is annexed to this Proxy Statement as Exhibit A and the
following summary of its principal provisions is subject in all respects to the
full text of the Plan.

The effective date of the Plan is April 2, 1998, subject to approval by
stockholders of the Company at the Annual Meeting. Awards may be made by the
Company under the Plan until April 2, 2008. Shares awarded may be from
authorized but unissued shares or from Company treasury shares. No recipient
shall be entitled to more than an aggregate of 50,000 shares of Common Stock
issuable pursuant to awards under the Plan. The recipient of an award under the
Plan will be issued a stock certificate for shares (the "Shares") of Common
Stock of the Company equivalent in number to the award granted, and the
certificate shall bear an appropriate restrictive legend on its face, which
legend shall be subject to removal pursuant to an effective registration
statement or an opinion of counsel satisfactory to the Company that such
registration is not required.

The Board of Directors or Committee may, in its sole discretion, grant to
a recipient of an award, a cash amount ("Cash Amount") not to exceed the
federal, state and local taxes the recipient must pay as a result of the fair
market value of the award being included in income for federal, state and local
income tax purposes. The grant of a Cash Amount to one recipient shall in no way
require the Board of Directors or the Committee to grant a Cash Amount to any
other recipient of an award.

17
<PAGE>

Participation under the Plan shall be limited to officers and key
employees of the Company, including directors of the Company who are also key
employees of the Company and consultants to the Company.

The Plan is to be administered by the Company's Board of Directors and/or
by a Stock Grant Committee or Compensation Committee, a committee comprised of
the non-employee members of the Company's Board of Directors (the "Committee").
The Company's Board of Directors and/or the Committee has full and exclusive
authority in its discretion to grant shares of Common Stock to eligible
employees, officers, and consultants in such amounts as are deemed appropriate,
to determine the time or times at which awards will be granted, to interpret the
provisions and supervise the administration of the Plan, and to prescribe, amend
and rescind rules and regulations with respect to the Plan.

The Company has been advised that the Federal income tax consequences to
the Company and the recipient of an award under the Plan and the existing
applicable provisions of the Internal Revenue Code and regulations are
substantially as follows: for Federal Income Tax purposes, the recipient must
include in his or her gross income the fair market value of Common Stock at the
time of the award of the Common Stock and the amount of any Cash Amount paid.
The Company is entitled to a deduction for compensation equal to the amount of
gross income recognized by the recipient at the time so recognized.

Required Stockholder Vote

Approval of the Plan requires the affirmative vote of the holders of a
majority of the shares of Common Stock voting either in person or by proxy at
the Annual Meeting. The Board of Directors believes that it is in the best
interests of the Company to approve the Plan, and the Board of Directors
unanimously recommends that stockholders vote FOR the proposal to ratify the
Plan.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 4.

Proposal 5. Ratification of the Issuance in 1997 of Common Stock to Officers.

In April 1997, the Company issued a $10,000 bonus, which was paid with
25,000 shares of Common Stock, to each of Dr. Faris, Mr. Fitzpatrick, Mr. Tracy,
and Mr. Lorrie Olivier, a Vice President of the Company. Such issuance is
subject to ratification by the Shareholders at the Company's Annual Meeting.
Absent such ratification, 75% of such shares will be returned to the Company.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL 5.

SHAREHOLDER PROPOSALS

No person who intends to present a proposal for action at a forthcoming
shareholders' meeting of the Company may seek to have the proposal included in
the proxy statement or form of proxy for such meeting unless that person (a) is
a record beneficial owner of at least $1,000 in market value of shares of Common
Stock, has held such shares for at least one year at the time the proposal is
submitted, and such person shall continue to own such shares through the date on
which the meeting is held, (b) provides the Company in writing with his name,
address, the number of shares held by him and the dates upon which he acquired
such shares, with documentary support for a claim of beneficial ownership, (c)
notifies the Company of his intention to appear personally at the meeting or by
a qualified representative under Nevada law to present his proposal for action
and (d) submits his proposal timely. A shareholder may submit only one proposal
with a supporting statement of not more than 500 words, if requested, for
inclusion in the proxy materials. Under certain circumstances enumerated in the
Securities and

18
<PAGE>

Exchange Commission's rules relating to the solicitation of proxies, the Company
may be entitled to omit the proposal and any statement in support thereof from
its proxy statement and form of proxy.

Proposals of shareholders of the Company which are intended to be
presented at the Company's next annual meeting must be received by the Company
no later than March 1, 1999 in order that they may be included in the proxy
statement and form of proxy relating to that Meeting.

By Order of the Board of Directors,

George N. Faris
Chairman of the Board of Directors
Dated: May 15, 1998

<PAGE>

PROXY AMERICAN INTERNATIONAL PETROLEUM CORPORATION

This Proxy is Solicited by the Board of Directors

The undersigned, a holder of Common Stock of American International
Petroleum Corporation, a Nevada corporation (the "Company"), hereby appoints
GEORGE N. FARIS and DENIS J. FITZPATRICK, and each of them, the proxies of the
undersigned, each with full power of substitution, to represent and vote for the
undersigned all of the shares of the Company which the undersigned would be
entitled to vote at the Annual Meeting of Shareholders of the Company to be held
on June 29, 1998 and adjournments thereof, as follows:

1. The election of four (4) members to the Board of Directors to hold office
until the next annual meeting of shareholders and until their successors are
duly elected and qualified:

|_| FOR all nominees listed below |_| WITHHOLD AUTHORITY to vote for all
nominees listed below.

(Instructions: To withhold authority to vote for any individual nominee, strike
a line through his name below.)

George N. Faris, Daniel Y. Kim, Donald G. Rynne, William R. Smart

2. The ratification of the appointment of Hein + Associates LLP as independent
public accountants of the Company for 1998.