MICROELECTRONIC PACKAGING INC /CA/
DEF 14A, 1998-04-30
SEMICONDUCTORS & RELATED DEVICES
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<PAGE>
 
                           SCHEDULE 14A INFORMATION
 
               PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                               (AMENDMENT NO.  )
 
Filed by the Registrant [X]
 
Filed by a Party other than the Registrant [_]
 
Check the appropriate box:
 
                                          [_] CONFIDENTIAL, FOR USE OF THE
[_] Preliminary Proxy Statement               COMMISSION ONLY (AS PERMITTED BY
                                              RULE 14A-6(E)(2))
 
[X] Definitive Proxy Statement
 
[_] Definitive Additional Materials
 
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
 
 
                        MICROELECTRONIC PACKAGING, INC.
               (NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
 
                                      N/A
   (NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
 
Payment of Filing Fee (Check the appropriate box):
 
[X] No fee required.
 
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
 
  (1)  Title of each class of securities to which transaction applies:
 
  (2)  Aggregate number of securities to which transaction applies:
 
  (3)  Per unit price or other underlying value of transaction computed
       pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
       filing fee is calculated and state how it was determined):
 
  (4)  Proposed maximum aggregate value of transaction:
 
  (5)  Total fee paid:
 
[_] Fee paid previously with preliminary materials.
 
[_] Check box if any part of the fee is offset as provided by Exchange Act
    Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
    paid previously. Identify the previous filing by registration statement
    number, or the Form or Schedule and the date of its filing.
 
  (1)  Amount Previously Paid:
 
  (2)  Form, Schedule or Registration Statement No.:
 
  (3)  Filing Party:
 
  (4)  Date Filed:
 
Notes:
<PAGE>
 
                        MICROELECTRONIC PACKAGING, INC.
 
                 NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS
 
                                 JUNE 17, 1998
 
TO THE SHAREHOLDERS OF MICROELECTRONIC PACKAGING, INC.:
 
  NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Microelectronic Packaging, Inc. (the "Company"), a California corporation,
will be held on June 17, 1998, at 10:00 a.m., local time, at 9577 Chesapeake
Drive, San Diego, California 92123, for the following purposes:
 
    1. To elect directors to serve for the ensuing year or until their
  successors are elected and qualified.
 
    2. To ratify the appointment of BDO Seidman, LLP ("BDO") as independent
  accountants of the Company for the fiscal year ended December 31, 1998.
 
    3. To vote upon such other matters as may properly come before the
  meeting or any adjournment thereof.
 
  The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
 
  Only shareholders of record at the close of business on May 1, 1998 are
entitled to notice of and to vote at the meeting. The stock transfer books
will not be closed between the record date and the date of the meeting. A list
of shareholders entitled to vote at the Annual Meeting will be available for
inspection at the executive offices of the Company for a period of ten days
before the Annual Meeting.
 
  All shareholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to sign
and return the enclosed Proxy as promptly as possible in the envelope enclosed
for that purpose.
 
  Any shareholder attending the meeting may vote in person even if he or she
has returned a Proxy.
 
                                       Sincerely,

                                       /s/ ANDREW K. WROBEL
 
                                       Andrew K. Wrobel
                                       President and Chief Executive Officer
 
April 27, 1998
 
   YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
 WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE READ THE ATTACHED
 PROXY STATEMENT CAREFULLY, AND COMPLETE, SIGN AND DATE THE ENCLOSED PROXY
 CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE.
 
<PAGE>
 
                                PROXY STATEMENT
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
GENERAL...................................................................   1
 Revocability of Proxies..................................................   1
 Solicitation.............................................................   1
 Deadline for Receipt of Shareholder Proposals............................   1
 Record Date and Voting...................................................   1
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING............................   2
 PROPOSAL ONE--ELECTION OF DIRECTORS......................................   2
  Nominees................................................................   2
  Business Experience of Directors........................................   2
  Director Remuneration...................................................   4
  Certain Relationships and Related Transactions..........................   6
 PROPOSAL TWO--RATIFICATION OF INDEPENDENT ACCOUNTANTS....................   9
 OTHER MATTERS............................................................   9
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........   9
EXECUTIVE COMPENSATION AND RELATED INFORMATION............................  12
 Summary of Cash and Certain Other Compensation...........................  12
 Option Grants in Last Fiscal Year........................................  14
 Aggregated Option Exercises and Fiscal Year-End Values...................  15
 Report on Repricing of Options...........................................  15
 Compensation Committee Interlocks and Insider Participation..............  16
 Employment Contracts and Termination of Employment and Change in Control
  Arrangements............................................................  16
COMPENSATION COMMITTEE REPORT.............................................  17
 General Compensation Policy..............................................  17
 Factors..................................................................  17
 Base Salary..............................................................  17
 Annual Incentive Compensation............................................  17
 Long-Term Incentive Compensation.........................................  18
 CEO Compensation.........................................................  18
 Special Option Regrant Program...........................................  18
 Compliance with Internal Revenue Code Section 162(m).....................  19
COMPARISON OF SHAREHOLDER RETURN..........................................  20
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934......  21
FORM 10-K.................................................................  21
</TABLE>
<PAGE>
 
                        MICROELECTRONIC PACKAGING, INC.
                             9577 CHESAPEAKE DRIVE
                          SAN DIEGO, CALIFORNIA 92123
 
                                PROXY STATEMENT
 
                    FOR THE ANNUAL MEETING OF SHAREHOLDERS
                          TO BE HELD ON JUNE 17, 1998
 
GENERAL
 
  The enclosed proxy ("Proxy") is solicited on behalf of the Board of
Directors of Microelectronic Packaging, Inc., a California corporation (the
"Company"), for use at the Annual Meeting of Shareholders to be held on June
17, 1998 (the "Annual Meeting"). The Annual Meeting will be held at 10:00
a.m., local time, at the Company's corporate headquarters at 9577 Chesapeake
Drive, San Diego, California, 92123.
 
  These proxy solicitation materials were mailed on or about May 11, 1998 to
all shareholders entitled to vote at the Annual Meeting.
 
REVOCABILITY OF PROXIES
 
  Any person giving a Proxy has the power to revoke it at any time before its
exercise. It may be revoked by filing with the Chief Financial Officer of the
Company at the Company's principal executive offices, 9577 Chesapeake Drive,
San Diego, California, 92123, a notice of revocation or another signed Proxy
with a later date. Any person may also revoke his or her Proxy by attending
the Annual Meeting and voting in person.
 
SOLICITATION
 
  The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional soliciting materials furnished to shareholders. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries, and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs in
forwarding the solicitation materials to such beneficial owners. The original
solicitation of proxies by mail will be supplemented by solicitation by
telephone, telegram, or other means by directors, officers or employees of the
Company. No compensation will be paid to directors, officers or employees for
any such services.
 
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
 
  Proposals of shareholders of the Company that are intended to be presented
by such shareholders at the 1999 Annual Meeting of Shareholders must be
received by the Company no later than December 28, 1998 in order that they may
be included in the proxy statement and form of proxy relating to that meeting.
 
RECORD DATE AND VOTING
 
  Shareholders of record on May 1, 1998 are entitled to notice of and to vote
at the Annual Meeting. At the record date, 10,793,279 shares of the Company's
common stock ("Common Stock"), no par value, were issued and outstanding and
no shares of preferred stock were outstanding. Abstentions and broker non-
votes are counted as present for the purpose of determining the presence of a
quorum for the transaction of business. Each shareholder is entitled to one
vote for each share of Common Stock held by such shareholder. All votes will
be tabulated by the inspector of election appointed for the meeting, who will
separately tabulate affirmative and negative votes, abstentions and broker
non-votes.
 
                                       1
<PAGE>
 
                MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
 
                      PROPOSAL ONE--ELECTION OF DIRECTORS
 
  The Bylaws of the Company provide that the Board of Directors shall be
comprised of no fewer than four (4) nor greater than seven (7) Directors, with
the exact number to be fixed by the Board. The currently authorized number of
Directors is five (5), and, as of the date of this Proxy Statement, is
comprised of Messrs. Solomon, Bryan, Howland, Stein and Wrobel. The Board of
Directors has selected five (5) nominees to be elected at the Annual Meeting.
PROXIES CANNOT BE VOTED FOR A GREATER NUMBER OF PERSONS THAN THE NUMBER OF
NOMINEES NAMED. Pursuant to the terms of the March 1996 agreement among the
Company and Transpac Capital Pte. Ltd. and a group of investors (collectively,
"Transpac"), Transpac has observer rights with respect to deliberations by the
Board of Directors and the right, in the future, to appoint a representative
of Transpac to the Board of Directors. At this time, Transpac has not
exercised its right to observe the Board of Directors or appoint a Director.
At the Annual Meeting, five (5) Directors are to be elected to serve until the
Company's next annual meeting or until their successors are elected and
qualified. The Board of Directors has selected five (5) nominees, all of whom
are current Directors of the Company. Each person nominated for election has
agreed to serve if elected and management has no reason to believe that any
nominee will be unavailable to serve. Unless otherwise instructed, the proxy
holders will vote the Proxies received by them FOR the nominees named below.
The five (5) candidates receiving the highest number of affirmative votes of
the shares entitled to vote at the Annual Meeting will be elected Directors of
the Company.
 
NOMINEES
 
  Set forth below is information regarding the nominees, including information
furnished by them as to principal occupations, certain other directorships
held by them, any arrangements pursuant to which they were selected as
directors or nominees and their ages as of April 15, 1998.
 
<TABLE>
<CAPTION>
   NAME                     AGE POSITIONS AND OFFICES HELD WITH THE COMPANY
   ----                     --- -------------------------------------------
   <S>                      <C> <C>
   Lewis Solomon (2) (4)...  64 Chairman of the Board of Directors
   Anthony J. A. Bryan (1)
    (3)....................  75 Director
   Frank Howland (1) (3)
    (4)....................  71 Director
   Gary S. Stein (2).......  49 Director
   Andrew K. Wrobel........  46 Director, President and Chief Executive Officer
</TABLE>
  --------
  (1) Member of the Compensation Committee
  (2) Member of the Audit Committee
  (3) Member of the Stock Option Plan Administration Committee
  (4) Member of the Technology Committee
 
BUSINESS EXPERIENCE OF DIRECTORS
 
  The principal occupations of each current director of the Company for at
least the last five (5) years are as follows:
 
  Lewis Solomon has served on the Board of Directors of the Company and as a
consultant to the Company since November 1996. Since 1988, Mr. Solomon has
been Chairman of the Board of Directors of G&L Investments, a strategic
business consulting firm ("G&L"). Mr. Solomon previously served on the Board
of Directors of the Company from January 1984 to February 1995. From October
1983 to February 1987, Mr. Solomon was Executive Vice President with Alan
Patricof & Associates, an international venture capital fund. From 1969 to
October 1983, Mr. Solomon worked at General Instrument Corporation,
a semiconductor and electronics manufacturing company ("General Instrument"),
where his last position was Senior Vice President and Assistant to the Chief
Executive Officer. Mr. Solomon also serves on the Boards of Directors of
Anacomp, Inc. a manufacturer of magnetic products, Anadigics, Inc., a
manufacturer of gallium arsenide semiconductors, and Computer Products, Inc.,
a communications company. Mr. Solomon holds a B.S. degree in physics from
St. Joseph's College and an M.S. in industrial engineering from Temple
University.
 
                                       2
<PAGE>
 
  Anthony J. A. Bryan has served on the Company's Board of Directors since
November 1996. Since March 1996, Mr. Bryan has been Senior Managing Director
of The Watley Group, LLC, a firm that specializes in corporate restructurings,
management consulting, merchant banking and mergers and acquisitions. From
December 1987 to December 1995, Mr. Bryan was Chairman of the Executive
Committee of Hospital Corporation International, a hospital management and
health care company. From March 1988 to February 1991, Mr. Bryan was Chairman
and Chief Executive Officer of Oceanics Group, a company specializing in
offshore surveying and positioning services. Prior to that, Mr. Bryan was
Chairman, President and Chief Operating Officer of Copperweld Corporation and
President and Chief Executive Officer of Cameron Iron Works. Mr. Bryan has
served on the boards of directors of several industrial, charitable and
educational institutions, including Federal Express, Chrysler Corporation,
Pittsburgh National Corporation and Imetal (Paris). Mr. Bryan holds a Masters
Degree in Business Administration from Harvard University.
 
  Frank L. Howland has served on the Company's Board of Directors since June
1994. Since March 1989, Dr. Howland has been President of Frank L. Howland
Inc., a consulting company specializing in the area of assembly and packaging
of electronic components. From 1955 to 1989, Dr. Howland was a manager in the
Electronic Component Research and Development divisions of Bell Laboratories,
Inc. Dr. Howland holds a B.S. degree in civil engineering from Rutgers
University and an M.S. and Ph.D. in civil/structural engineering from the
University of Illinois.
 
  Gary S. Stein has served on the Company's Board of Directors since June 12,
1997, and has served as a consultant to the Company since November 1996. Since
1988, Mr. Stein has been President of G&L. Since 1993, Mr. Stein has been
Director, President and Chief Operating Officer of Liverpool Industries, Inc.,
a manufacturer of precision sheet metal fabricated products and other
components. From 1972 to 1988, Mr. Stein was employed by General Instrument,
where he was a Vice President and Corporate Officer, and subsequently, was
Vice President for Corporate Strategic Marketing. Previously, at General
Instrument, Mr. Stein held the chief operating officer positions of President
of the Worldwide Wagering Group and Chairman of American Totalisator, Inc.,
Vice President and General Manager--Power Semiconductor Division and Vice
President and General Manager of a joint venture in pay television between
Mattel, Inc. and General Instrument. Mr. Stein holds a B.A. degree in
economics from Beloit College and received a Masters degree in Business
Administration in Finance from the Wharton School of Business at the
University of Pennsylvania. Mr. Stein has also completed the Executive
Marketing Management Program at the Harvard Business School.
 
  Andrew K. Wrobel has served on the Company's Board of Directors and has
served as President and Chief Executive Officer of the Company since October
6, 1997. From 1988 to 1997, Mr. Wrobel served as Chairman, President and Chief
Executive Officer of GIGATEK Memory Systems, Inc. Prior to 1988, Mr. Wrobel
was Vice President of Technology for Carlisle Memory Products Group and Vice
President of Engineering for Data Electronics. Mr. Wrobel has also held
management positions in Marketing and Engineering at Texas Instruments and
BASF. Mr. Wrobel holds a Masters degree from the Massachusetts Institute of
Technology.
 
  There are no family relationships among executive officers or directors of
the Company.
 
  During the fiscal year ended December 31, 1997, the Board of Directors held
eight (8) meetings and acted by unanimous written consent on five (5)
occasions. The Board of Directors has an Audit Committee, a Compensation
Committee, a Stock Option Plan Administration Committee and a Technology
Committee. No Director serving for the full fiscal year attended fewer than
75% of the aggregate number of meetings of the Board of Directors and meetings
of the Committees of the Board on which he serves.
 
  The Audit Committee currently consists of two (2) Directors, Mr. Stein, the
Chairman and Mr. Solomon. The Audit Committee is primarily responsible for
approving the services performed by the Company's independent accountants and
reviewing their reports regarding the Company's accounting practices and
systems of internal accounting controls. During fiscal year ended December 31,
1997, the Audit Committee held five (5) meetings.
 
                                       3
<PAGE>
 
  The Compensation Committee currently consists of two (2) Directors, Mr.
Bryan, the Chairman and Dr. Howland. During the fiscal year ended December 31,
1997, the Compensation Committee held three (3) meetings and acted by
unanimous written consent on one (1) occasion. This Committee reviews and
approves the Company's general compensation policies and sets compensation
levels, subject to Board review, for the Company's executive officers.
 
  The Technology Committee currently consists of two (2) Directors, Dr.
Howland, the Chairman and Mr. Solomon. During the fiscal year ended December
31, 1997, the Technology Committee held no official meetings. This Committee
reviews and makes suggestions to the Board about the current technology being
marketed and used by the Company.
 
  The Stock Option Plan Administration Committee currently consists of two (2)
Directors, Mr. Bryan, the Chairman and Dr. Howland. During the fiscal year
ended December 31, 1997, the Stock Option Plan Administration Committee held
one (1) meeting and acted by unanimous written consent on one (1) occasion.
The Stock Option Plan Administration Committee administers the Company's 1993
Stock Option/Stock Issuance Plan (the "1993 Plan").
 
DIRECTOR REMUNERATION
 
  Fees and Expenses. Directors are reimbursed for expenses incurred in
connection with attending Board and Committee meetings. Each non-employee
Director receives a fee of $1,500 for each meeting attended, $750 for each
Board committee meeting that does not occur on the date of a Board meeting and
a fee of $1,000 for each month of Board service as a Director. Directors who
are also employees of the Company receive no additional remuneration for
serving as Directors (other than reimbursement for expenses incurred).
 
  During 1997, the Company paid fees to the following Directors in their
capacity as a Director and in connection with consulting services provided to
the Company: Mr. Solomon--$198,111 (includes a portion of the fees paid to G&L
Investments); Mr. Bryan--$286,164 (includes all of the fees paid to The Watley
Group, LLC); Dr. Howland--$23,920; Mr. Stein--$99,000 (includes a portion of
the fees paid to G&L Investments); Mr. Thompson (a former director)--$11,500
and Mr. da Silva (a former Chief Executive Officer and Director)--$7,000. (For
further information regarding consulting services provided to the Company by
such Directors, See "Certain Relationships and Related Transactions.")
 
  Automatic Option Grants. Pursuant to the Automatic Option Grant Program of
the 1993 Plan, each individual who first joins the Board as a non-employee
director at any time after November 21, 1996 receives an option grant for
15,000 shares of Common Stock on the date of his or her initial election or
appointment to the Board. In addition, at each Annual Shareholders' Meeting,
beginning with the 1997 Annual Meeting, each individual who is to continue to
serve as a non-employee Board member, whether or not he or she is standing for
re-election at that particular meeting, will receive an option grant for
10,000 shares of Common Stock. Each grant under the Automatic Option Grant
Program will have an exercise price per share equal to the fair market value
per share of the Common Stock on the grant date and will have a maximum term
of ten years, subject to earlier termination should the optionee cease to
serve as a Board member. Each option granted under the Automatic Option Grant
Program becomes exercisable in four successive equal annual installments over
the optionee's period of continued Board service, measured from the grant
date. However, the shares subject to each outstanding option under the
Automatic Option Grant Program will accelerate and become exercisable in full
upon (i) an acquisition of the Company by merger or asset sale, (ii) a hostile
takeover of the Company or (iii) the optionee's death or disability while
continuing to serve as a Board member.
 
  On June 12, 1997, Mr. Stein was appointed to the Board to fill the vacancy
created by the resignation of Mr. Thompson. Pursuant to the Automatic Option
Grant Program of the 1993 Plan, Mr. Stein received a stock option grant for
15,000 shares of Common Stock at an exercise price of $0.26 per share, the
fair market value of the Common Stock on the date of grant. Such option grant
was subject to shareholder approval of certain amendments to the Automatic
Option Grant Program of the 1993 Plan, which was obtained on August 21, 1997.
 
  Under the Automatic Option Grant Program, a stock option for 10,000 shares
of Common Stock was granted on August 21, 1997 to each of Mr. Solomon, Mr.
Bryan, Dr. Howland and Mr. Stein, who continued to
 
                                       4
<PAGE>
 
serve as non-employee Board members following the Annual Shareholders Meeting
held on that date. Each of these options has an exercise price of $0.19875 per
share, the fair market value of the Common Stock on the date of grant.
 
  Discretionary Consultant Option Grants. On November 21, 1996, each of
Messrs. Solomon, Bryan, Howland and Stein (in his capacity as a consultant to
the Company) was awarded an option grant under the Discretionary Option Grant
Program of the 1993 Plan to purchase shares of Common Stock at an exercise
price of $1.91 per share, the fair market value of the Common Stock on such
date. The number of shares subject to each such grant was as follows: Mr.
Solomon--187,500; Mr. Bryan--125,000; Mr. Stein--187,500; and Dr. Howland--
100,000. With respect to the options granted to Mr. Solomon, Mr. Bryan and Mr.
Stein, such options were immediately exercisable as to 150,000, 100,000 and
150,000 of the option shares, respectively, and the remaining option shares
were to become exercisable upon the optionee's completion of six (6) years of
continuous service with the Company, subject to acceleration upon the
consummation by the Company of a Board-approved financing plan for up to $15
million at a price per share of not less than $1.875. Dr. Howland's option was
to vest upon his completion of six (6) years of continuous service with the
Company, subject to acceleration upon the consummation of such a Board-
approved financing plan for up to $15 million at a price per share of not less
than $1.875. In addition, on November 21, 1996, the Board of Directors agreed
to grant additional options to Messrs. Bryan (75,000 shares), Stein (112,500
shares) and Solomon (112,500 shares) upon the earlier of (i) two full business
days after the public announcement of the execution of a Board-approved term
sheet for a financing plan as described above or (ii) July 1, 1997. The
exercise price for such options was to be the fair market value of the Common
Stock on the effective date of grant and the exercise schedule for such
options was to be identical to the exercise schedule applicable under the
November 21, 1996 option grants to such three individuals as set forth above.
The option grants became effective as of July 1, 1997. The fair market value
per share of Common Stock on such grant date was $0.20313.
 
  August 21, 1997 Option Regrant Program. On August 21, 1997, following
approval by the Company's shareholders of certain amendments to the 1993 Plan,
the Board of Directors and the Stock Option Plan Administration Committee
approved a plan to cancel and regrant substantially all options outstanding
under the Discretionary Option Grant Program of the 1993 Plan which had an
exercise price in excess of $0.19875, the fair market value of the Common
Stock of the Company, as traded on the OTC Bulletin Board, on August 21, 1997.
Pursuant to this program, each such outstanding option was cancelled and a new
replacement option was granted for the same number of shares, with an exercise
price of $0.19875 per share and with a new vesting schedule measured from
August 21, 1997.
 
  Pursuant to the August 21, 1997 cancellation/regrant program, each of the
options granted to Messrs. Solomon, Bryan, Howland and Stein as of November
21, 1996 and July 1, 1997 was cancelled and replaced with a new option to
purchase the same number of shares of Common Stock at an exercise price of
$0.19875 per share, the fair market value per share of Common Stock on August
21, 1997. With respect to Messrs. Solomon, Bryan and Stein, the replacement
options are immediately exercisable with respect to 50% of the option shares
and become exercisable with respect to an additional 25% of the option shares
on each of the first and second anniversaries of the grant date, provided the
optionee continues to provide services to the Company through each such
anniversary date. The options will accelerate and become exercisable in full
in the event of a change in control of the Company. Dr. Howland's replacement
option is exercisable immediately for fully vested shares. Each option has a
maximum term of ten years, subject to earlier termination in the event of the
optionee's cessation of service with the Company. Each option will accelerate
and become exercisable in full in the event of a change in control of the
Company.
 
  In addition, on November 4, 1997, each of Messrs. Solomon, Bryan, Howland
and Stein received a stock option under the Discretionary Option Grant Program
of the 1993 Plan. The number of shares subject to each such grant is as
follows: Mr. Solomon--200,000; Mr. Bryan--133,333; Dr. Howland--100,000; and
Mr. Stein--200,000. Each option has an exercise price of $0.505 per share, the
fair market value per share of Common Stock on November 4, 1997. Each option
is immediately exercisable with respect to 50% of the option shares and
 
                                       5
<PAGE>
 
becomes exercisable with respect to an additional 25% of the option shares on
each of the first and second anniversaries of the grant date, provided the
optionee continues to provide services to the Company through each such
anniversary date. Each option has a maximum term of ten years, subject to
earlier termination in the event of the optionee's cessation of service with
the Company. Each option will accelerate and become exercisable in full in the
event of a change in control of the Company.
 
  The following table sets forth information with respect to each of the
Directors concerning his participation in the option cancellation/regrant
program, which was effected on August 21, 1997:
 
<TABLE>
<CAPTION>
                                  NUMBER OF                                           LENGTH OF
                                  SECURITIES  MARKET PRICE    EXERCISE             ORIGINAL OPTION
                                  UNDERLYING   OF STOCK AT    PRICE AT             TERM REMAINING
                                   OPTIONS       TIME OF       TIME OF      NEW      AT DATE OF
                         DATE OF  CANCELLED/  CANCELLATION/ CANCELLATION/ EXERCISE  CANCELLATION/
NAME AND POSITION        REGRANT REGRANTED(#)  REGRANT($)    REGRANT($)   PRICE($) REGRANT (YRS.)
- -----------------        ------- ------------ ------------- ------------- -------- ---------------
<S>                      <C>     <C>          <C>           <C>           <C>      <C>
Lewis Solomon........... 8/21/97   187,500       0.19875       1.90625    0.19875       9.25
 Chairman of the Board   8/21/97   112,500       0.19875       0.20313    0.19875       9.75
 and Consultant

Anthony J. A. Bryan, Sr. 8/21/97   125,000       0.19875       1.90625    0.19875       9.25
 Director/Consultant     8/21/97    75,000       0.19875       0.20313    0.19875       9.75

Frank L. Howland........ 8/21/97   100,000       0.19875       1.90625    0.19875       9.25
 Director/Consultant

Gary S. Stein........... 8/21/97   187,500       0.19875       1.90625    0.19875       9.25
 Director/Consultant     8/21/97   112,500       0.19875       0.20313    0.19875       9.75
</TABLE>
 
  For further information regarding the August 21, 1997 stock option
cancellation/regrant program, see "Compensation Committee Report--Special
Option Regrant Program."
 
  On August 21, 1997, each of Messrs. Solomon, Bryan, Howland, and Stein also
received a new, additional stock option under the Discretionary Option Grant
Program of the 1993 Plan covering the aggregate number of shares subject to
the higher-priced options granted to each such individual under the Automatic
Option Grant Program prior to August 21, 1997. The number of shares subject to
each such grant is as follows: Mr. Solomon--15,000; Mr. Bryan--15,000; Dr.
Howland--25,800; and Mr. Stein--15,000. Each option has an exercise price of
$0.19875 per share, the fair market value per share of the Common Stock on
August 21, 1997, and becomes exercisable for the option shares in a series of
four equal annual installments measured from the option grant date. Each
option has a maximum term of ten years, subject to earlier termination in the
event of the optionee's cessation of service with the Company.
 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
  In November 1996, the Company entered into an agreement for consulting
services with G&L Investments ("G&L"), which establishes a consulting
relationship with, among others, Lewis Solomon (Chairman of the Board of
Directors) and Gary Stein (appointed to the Board on June 12, 1997 to replace
Mr. Thompson). In exchange for consulting services, G&L, through an affiliate,
receives $15,000 plus reasonable expenses for each month that G&L provides
services to the Company. In January 1997, the Company agreed to pay an
additional aggregate sum of $50,000 to G&L, through an affiliate, over the
six-month period starting in January 1997. In June 1997, the Company agreed to
pay an additional aggregate sum of $50,000 to G&L, through an affiliate, over
the six month period starting in July 1997. Payments under the latter
agreement were cancelable upon 90 days prior written notice by the Board of
Directors to G&L. On August 19, 1997, the Board issued such 90 day
cancellation notice.
 
  In November 1996, the Company also entered into an agreement for consulting
services with The Watley Group, LLC ("Watley") which employs Mr. Moran (former
Acting President and Chief Executive Officer) and
 
                                       6
<PAGE>
 
Mr. Anthony Bryan (a Director), among others, pursuant to which Watley
receives $15,000 plus reasonable expenses for each month that it provides
services to the Company. Through the agreement with Watley, the Company
retained Mr. Moran as Acting President and Chief Executive Officer of the
Company for the period of January 1, 1997 through October 5, 1997, as a full-
time employee and paid Mr. Moran the prevailing minimum wage (which prevailing
wage was deducted from the fees referred to herein). In January 1997, the
Company agreed to pay Watley an additional aggregate sum of $50,000 over the
six-month period starting in January 1997. In June 1997, the Company agreed to
pay an additional aggregate sum of $50,000 to Watley over the six month period
starting in July 1997. Payments under the latter agreement were cancelable
upon 90 days prior written notice by the Board of Directors to Watley. On
August 19, 1997, the Board issued such cancellation notice.
 
  On January 16, 1998, the Company notified Watley that their agreement for
consulting services was terminated effective April 16, 1998. The Company is
currently in negotiations with Watley concerning a new agreement.
 
  During 1997, the Company paid Dr. Howland $3,420 for fees incurred in
connection with consulting services provided to the Company.
 
  The Company has entered into an indemnification agreement with each of its
directors.
 
  The Company and certain of its shareholders entered into a registration
rights agreement pursuant to which entities that may be deemed affiliated with
a greater than five percent shareholder were granted certain registration
rights. Such agreement provides for indemnification by the Company for such
persons.
 
  On November 19, 1997, the Company entered into an Investment Banking
Agreement with H.J. Meyers & Co., Inc. for a term of two years. Pursuant to
the Investment Banking Agreement, the Company is to receive business
development services including the review of the Company's managerial and
financial requirements, review of the Company's budgets and business plans,
analysis of alternative methods by which the Company can raise capital and
certain other related services in exchange for the issuance of warrants to
purchase 1,000,000 shares of common stock. These warrants have a term of five
years, an exercise price of $1.00 per share, and have certain registration
rights. The fair market value of the Company's Common Stock on the grant date
was $0.625. The exercise of the warrants was contingent on shareholder
approval of an increase in the number of authorized shares necessary to
provide a sufficient number of shares underlying the warrant. Shareholders
subsequently granted such approval effective March 10, 1998.
 
  In March 1996, pursuant to a subscription agreement, the Company consummated
the sale and issuance of 842,013 shares of Common Stock (the "Transpac
Shares") to Transpac Capital Pte. Ltd. and a group of related investors
(collectively, "Transpac"), at the purchase price of $2.37526 per share, for a
total purchase price of $2,000,000 (the "Transpac Financing"). The Transpac
Shares represent approximately 7.8% of the Common Stock issued and outstanding
on March 31, 1998. In conjunction with the Transpac Financing, MPM (S) Pte.
Ltd. ("MPM"), a wholly owned subsidiary of the Company, issued a debenture
("Debenture") to Transpac in the principal amount of $9,000,000. The Debenture
could have been converted into shares of MPM's Common Stock provided MPM was
then a publicly traded company, or can be repaid in cash. In addition, the
Debenture could have been convertible, at Transpac's option, into shares of
the Company's Common Stock. Under its term, the Debenture could have been
convertible into up to the number of shares of the Company's Common Stock
that, when combined with the number of shares of the Company's Common Stock
then issued to Transpac upon the closing of the Transpac Financing or
otherwise, will equal 49.0% of the Company's then outstanding capitalization.
The Debenture could have been convertible into the number of shares of MPM
common stock
 
                                       7
<PAGE>
 
that is equivalent to up to 45% of MPM's then outstanding capitalization at
the time of conversion. Transpac has board observer rights and the right in
the future to appoint a representative of Transpac to the Company's Board of
Directors. The Company guaranteed the repayment of the Debenture. Neither MPM
nor the Company have been profitable, and MPM is currently in receivership
under the laws of Singapore and will cease to exist thereafter.
 
  In order to restructure the Company's debt, the Company is in negotiations
with all of its creditors holding debt related to the Company's discontinued
operations in Singapore. On April 24, 1998 the Company and Transpac entered
into a Restructuring, Settlement and Mutual Release Agreement which requires
the Company to: pay to Transpac $3,112,463 within six (6) months of the date
of the agreement; issue warrants to purchase 500,000 shares of Common Stock
with an exercise price of $1.00 per share; pay to Transpac 30% of the net cash
proceeds from any settlement received by the Company as a result of its
dispute with IBM; and guarantees that Transpac will receive at least $1
million no later than December 31, 1999 to be applied towards any such
settlement monies due to Transpac. In exchange, Transpac agrees to relieve the
Company of its obligation to pay the remaining balance of the principal and
accrued interest that would otherwise be due under its agreement with the
Company (approximately $6 million).
 
  The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and
its officers, directors, principal shareholders and affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested outside directors on the Board of Directors, and
will be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
 
  THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
ELECTION OF EACH OF THE NOMINEES TO SERVE AS DIRECTORS OF THE COMPANY UNTIL
THE NEXT ANNUAL MEETING OR UNTIL THEIR SUCCESSORS HAVE BEEN ELECTED AND
QUALIFIED.
 
                                       8
<PAGE>
 
             PROPOSAL TWO--RATIFICATION OF INDEPENDENT ACCOUNTANTS
 
  The Board of Directors has appointed the firm of BDO Seidman, LLP ("BDO"),
independent accountants, to audit the financial statements of the Company for
the fiscal year ended December 31, 1998, and is asking the shareholders to
ratify this appointment.
 
  In the event the shareholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified,
the Board of Directors in its discretion may direct the appointment of a
different independent accounting firm at any time during the year if the Board
of Directors believes that such a change would be in the best interests of the
Company and its shareholders. The affirmative vote of the holders of a
majority of the Company's voting shares represented and voting at the Annual
Meeting is required to ratify the selection of BDO.
 
  A representative of BDO is expected to be present at the Annual Meeting,
will have the opportunity to make a statement if he or she desires to do so,
and will be available to respond to appropriate questions.
 
  THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF BDO SEIDMAN, LLP TO SERVE AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
 
                                 OTHER MATTERS
 
  The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the annual meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board of Directors may
recommend. Discretionary authority with respect to such other matters is
granted by the execution of the enclosed Proxy.
 
                        SECURITIES OWNERSHIP OF CERTAIN
                       BENEFICIAL OWNERS AND MANAGEMENT
 
  The following table sets forth information known to the Company regarding
the ownership of the Company's Common Stock as of April 15, 1998 for (i) each
Director and nominee who owns Common Stock, (ii) all persons or entities who
were known by the Company to be beneficial owners of five percent (5%) or more
of the Company's Common Stock, (iii) the Chief Executive Officer and the other
executive officers whose compensation for 1997 were each in excess of $100,000
and (iv) all executive officers and Directors of the Company as a group.
 
<TABLE>
<CAPTION>
                                        NUMBER OF SHARES       PERCENT OF TOTAL SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER  BENEFICIALLY OWNED(1) OUTSTANDING BENEFICIALLY OWNED
- ------------------------------------  --------------------- ------------------------------
<S>                                   <C>                   <C>
H. J. Meyers & Co.,
 Inc.(2)................                    1,140,800                    9.6%
 125 Half Mile Road
 Red Bank, New Jersey 07701

Entities that may be
 deemed to be affiliated
 with Transpac Capital Pte.
 Ltd.(3)................                      842,013                    7.8%
 6 Shenton Way
 #2D-09 DBS Building
 Tower Two
 Singapore 068809

Joost Tjaden (4)........                      603,263                    5.6%
 c/o TBM Associates
 5339 Alpha, #120
 Dallas, Texas 75240
</TABLE>
 
                                       9
<PAGE>
 
<TABLE>
<CAPTION>
                                        NUMBER OF SHARES       PERCENT OF TOTAL SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER  BENEFICIALLY OWNED(1) OUTSTANDING BENEFICIALLY OWNED
- ------------------------------------  --------------------- ------------------------------
<S>                                   <C>                   <C>
Cabot Ceramics, Inc.(5).                      656,992                     6.1%
 c/o Cabot Corporation
 75 State Street
 Boston, MA 02119-1806

Lewis Solomon(6)........                      540,616                     4.8%

Anthony J. A. Bryan(7)..                      373,333                     3.3%

Frank Howland(7)........                      261,600                     2.4%

Gary S. Stein(7)........                      540,000                     4.8%

Andrew K. Wrobel(7).....                      600,000                     5.3%
 c/o Microelectronic
 Packaging, Inc.
 9577 Chesapeake Drive
 San Diego, California 92123

Alfred J. Moran, Jr.(7).                      333,334                     3.0%

Charles F. Wheatley(7)..                      275,000                     2.5%

Denis J. Trafecanty(7)..                      300,000                     2.7%

Timothy R. Sullivan(7)..                      150,000                     1.4%

All directors and execu-
 tive officers as a group
 (9 persons)(8).........                    3,373,883                    23.8%
</TABLE>
- --------
(1) Beneficial ownership is determined in accordance with the rules of the
    Securities and Exchange Commission and generally includes voting or
    investment power with respect to securities. Percentage beneficially owned
    is based on a total of 10,793,279 shares of Common Stock issued and
    outstanding as of April 15, 1998. Shares of Common Stock subject to
    options or warrants currently exercisable or convertible, or exercisable
    or convertible within 60 days of April 15, 1998 are deemed outstanding for
    computing the percentage of the person holding such options or warrants
    but are not outstanding for computing the percentage of any other person.
    Except as indicated in the footnotes to this table and pursuant to
    applicable community property laws, the persons named in the table have
    sole voting and investment power with respect to all shares of Common
    Stock beneficially owned.
 
(2) Consists of warrants to purchase 1,000,000 shares of Common Stock with an
    exercise price of $1.00 per share plus a warrant to purchase 140,800
    shares of Common Stock with an exercise price of $6.50 per share.
 
(3) The Transpac entities include Transpac Capital Pte Ltd. (the "Manager"), a
    Singapore private limited company; Transpac Industrial Holdings Limited
    ("TIH"), a Singapore private limited company; Regional Investment Company
    Limited ("Regional"), a Singapore public limited company; Transpac Equity
    Fund ("TEF"), a British Virgin Islands trust; Transpac Venture Partnership
    II ("TVP"), a collective investment scheme; Transpac Manager's Fund
    ("TMP"), a British Virgin Islands international business company; and
    NatSteel Equity III Pte Ltd. ("NatSteel"), a Singapore private limited
    company. The Manager does not have any direct ownership interest in the
    Company's Common Stock. The Manager has, in its capacity as investment
    adviser to each of TIH, Regional, TEF and TVP, the power to control the
    voting and disposition of the 765,466 shares of Common Stock held in the
    aggregate by TIH, Regional, TEF and TVP and, therefore, may be deemed to
    be a beneficial owner of such shares. Such shares constitute approximately
    13.90 percent of the outstanding Common Stock. TIH has direct beneficial
    ownership of 334,069 shares (approximately 6.1%) of the Common Stock. TIH
    shares the power to control the voting and disposition of such 334,069
    shares of Common Stock with the Manager. TIH disclaims beneficial
    ownership of any shares of Common Stock held by any other Transpac entity.
    Regional has direct beneficial ownership of 92,066 shares (approximately
    1.79%) of the Common Stock. Regional shares the power to control the
    voting and disposition of such 92,066 shares of Common Stock with the
    Manager. Regional disclaims beneficial ownership of any shares of Common
    Stock held by any other Transpac entity. TEF has direct beneficial
 
                                      10
<PAGE>
 
    ownership of 197,285 shares (approximately 1.79%) of the Common Stock. TEF
    shares the power to control the voting and disposition of such 197,285
    shares of Common Stock with the Manager. TEF disclaims beneficial ownership
    of any shares of Common Stock held by any other Transpac entity. TVP has
    direct beneficial ownership of 139,415 shares (approximately 2.5%) of the
    Common Stock. TVP shares the power to control the voting and disposition of
    such 139,415 shares of Common Stock with the Manager. TVP disclaims
    beneficial ownership of any shares of Common Stock held by any other
    Transpac entity. TMF has direct beneficial ownership of 2,631 shares
    (approximately 0.05%) of the Common Stock. NatSteel has direct beneficial
    ownership of 75,547 shares (approximately 1.4%) of the Common Stock.
    NatSteel and the Manager have no formal relationship, advisory or otherwise,
    in respect of the shares of Common Stock held by NatSteel. However, NatSteel
    anticipates that it may rely upon the advice of Transpac in connection with
    the voting and disposition of the shares of Common Stock held by it.
    NatSteel disclaims beneficial ownership of the shares of Common Stock held
    by any other Transpac entity. The preceding information was obtained from a
    Schedule 13D filed with the Securities and Exchange Commission on or about
    April 3, 1996. Mr. Wong Lin Hong is Director and Executive Vice President of
    Transpac Capital Pte Ltd., and as such may be deemed to share voting and
    investment power with respect to the Transpac entities' shares. Mr. Wong
    disclaims beneficial ownership of such shares except to the extent of his
    pecuniary interest therein. The number of shares beneficially owned does not
    include a warrant to purchase 500,000 shares of Common Stock at $1.00 per
    share, which will be issued by the Company to Transpac pursuant to a
    Restructuring, Settlement and Mutual Release Agreement which was signed on
    April 24, 1998.
 
(4) Includes shares owned by TBM Associates, Inc. ("TBM"), an investment
    management company in which Mr. Tjaden is a significant shareholder, and
    as such may be deemed to share voting and investment power. TBM exercises
    voting control over shares of MPI common stock held by Bostech Associates
    (1,719 shares), Ion Associates (33,685 shares) and N.V. Bever Holding
    (368,094 shares and a warrant to purchase 1,173 additional shares at an
    exercise price of $5.63). Also includes shares held by Janivo Fonds
    (99,307 shares) and Van Doorne Group (99,285 shares), over which Mr.
    Tjaden exercises voting control. Mr. Tjaden disclaims beneficial ownership
    of all such shares.

(5) Includes 654,326 shares owned by Cabot Ceramics, Inc. and 2,666 shares
    issuable upon exercise of a warrant. Cabot Ceramics, Inc. is a corporation
    wholly owned by Cabot Corporation. The executive management of Cabot
    Corporation has voting and investment power over such shares and may be
    deemed to beneficially own such shares.

(6) Includes options to purchase 540,000 shares of common stock, exercisable
    within 60 days of April 15, 1998.

(7) All shares in the form of stock options exercisable within 60 days of
    April 15, 1998.

(8) See Notes 6 and 7 above.
 
  To the Company's knowledge, based solely upon representations from such
shareholders, each beneficial owner of more than ten percent of the Company's
capital stock and all officers and directors filed all reports and reported
all transactions on a timely basis with the Securities and Exchange Commission
(the "Commission"), the NASD and the Company.
 
                                      11
<PAGE>
 
                EXECUTIVE COMPENSATION AND RELATED INFORMATION
 
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
 
  The following table provides certain summary information concerning
compensation earned, for services rendered in all capacities to the Company
and its subsidiaries, for the fiscal years ended December 31, 1997, 1996 and
1995, by all persons who served as the Company's Chief Executive Officer
during 1997, and each of the other three (3) most highly compensated executive
officers of the Company who earned more than $100,000 in compensation for the
1997 fiscal year (hereafter referred to as "Named Executive Officers").
 
<TABLE>
<CAPTION>
                                                                   LONG TERM
                                                                  COMPENSATION
                                                                     AWARDS
                                    ANNUAL COMPENSATION            ------------
                          ---------------------------------------  SECURITIES     ALL OTHER
NAME AND PRINCIPAL                                 OTHER ANNUAL    UNDERLYING    COMPENSATION
POSITION                  YEAR SALARY($) BONUS($) COMPENSATION($)  OPTIONS(#)       ($)(1)
- ------------------        ---- --------- -------- --------------- ------------   ------------
<S>                       <C>  <C>       <C>      <C>             <C>            <C>
Andrew K. Wrobel(2).....  1997   46,664   25,000       2,583(3)     600,000             99
 President and Chief      1996      --       --          --             --             --
 Executive Officer        1995      --       --          --             --             --
Alfred Jay Moran,
 Jr.(4).................  1997    7,905      --       21,690(5)     408,334(6)         --
 Former Acting President
  and CEO                 1996      --       --          --         125,000            --
                          1995      --       --          --             --             --
Charles F. Wheatley.....  1997  149,257   25,000      13,597(7)     275,000(8)       5,339
 Executive Vice Presi-
  dent                    1996  120,000    6,670         --             --           3,330
 Sales and Marketing      1995  120,000      --       77,348(7)      10,661          3,046
Denis J. Trafecanty(9)..  1997  149,414   35,000      28,798(10)    300,000(11)      5,102
 Senior Vice President
  and CFO                 1996   37,736      --          --          50,000            --
                          1995      --       --          --             --             --
Timothy R. Sullivan(12).  1997   97,741   20,000         502        150,000         21,612(12)
 Vice President and Con-
  troller                 1996      --       --          --             --             --
                          1995      --       --          --             --             --
</TABLE>
- --------
(1) All other compensation is comprised of (i) matching contributions made by
    the Company on behalf of the Named Executive Officer to its Section 401(k)
    Plan and (ii) annual premiums paid for group term life insurance policies.
    Under such policies, the Named Executive Officer may designate the
    beneficiary of the insurance proceeds payable upon death. The amounts of
    the Company's matching contribution to its Section 401(k) Plan and the
    life insurance premiums are set forth below:
 
<TABLE>
<CAPTION>
                                                 MATCHING 401(K)  LIFE INSURANCE
                                                 CONTRIBUTION ($)  PREMIUM ($)
                                                 ---------------- --------------
     <S>                                    <C>  <C>              <C>
     Andrew K. Wrobel...................... 1997        --               99
                                            1996        --              --

     Alfred Jay Moran, Jr.................. 1997        --              --
                                            1996        --              --

     Charles F. Wheatley................... 1997      4,181           1,158
                                            1996      3,330             --
                                            1995      3,046             --

     Denis J. Trafecanty................... 1997      4,360             742
                                            1996        --              --

     Timothy R. Sullivan................... 1997      1,650             112
                                            1996        --              --
</TABLE>
 
                                      12
<PAGE>
 
(2)  Mr. Wrobel was appointed as President and Chief Executive Officer of the
     Company in October 1997.

(3)  Other Annual Compensation for Mr. Wrobel is comprised of an auto allowance
     provided by the Company.

(4)  Mr. Moran resigned as Acting President and Chief Executive Officer
     effective October 5, 1997. Although Mr. Moran was not paid a salary in
     1996, Mr. Moran is a member of The Watley Group, LLC, which was being paid
     a monthly fee by the Company of $15,000 from October 1996. Starting in
     January 1997, The Watley Group, LLC was paid an aggregate of $50,000
     additionally for two consecutive six-month periods beginning in January
     1997. In addition, from January 1997, Mr. Moran was paid the prevailing
     minimum wage (which prevailing wage was deducted from the additional
     $50,000 fees paid to The Watley Group, LLC). For information regarding
     consulting fees paid to The Watley Group, LLC, see "Certain Relationships
     and Related Transactions."

(5)  The Company reimbursed Mr. Moran for temporary housing while providing
     services to the Company ($12,440) and also reimbursed him for income taxes
     on this additional income ($9,250).

(6)  Includes options for 200,000 shares granted on August 21, 1997 in exchange
     for the cancellation of an option for 125,000 shares originally granted on
     November 21, 1996 with an exercise price of $1.90625 per share and an
     option for 75,000 shares originally granted on July 1, 1997 with an
     exercise price of $0.20313 per share.

(7)  For 1997, Other Annual Compensation includes a car allowance of $7,152,
     reimbursement of income taxes on this additional income of $2,900 and
     reimbursement of income taxes incurred in connection with Mr. Wheatley's
     prior overseas assignment of $3,000. For 1995, Other Annual Compensation is
     comprised of housing reimbursement of $31,280, the value of the use of a
     1989 Toyota Corona estimated to be $34,371, reimbursement of relocation and
     storage costs of $8,220, and reimbursement of medical expenses of $3,477,
     all in connection with Mr. Wheatley's overseas assignment.

(8)  Includes options for 21,322 shares granted on August 21, 1997 in exchange
     for the cancellation of an option for 10,661 shares originally granted on
     February 15, 1994 with an exercise price of $5.00 per share and an option
     for 10,661 shares originally granted on June 5, 1995 with an exercise price
     of $1.8125 per share.

(9)  Mr. Trafecanty was appointed as Chief Financial Officer of the Company in
     August 1996.

(10) The Company provided a car allowance to Mr. Trafecanty of $8,812, living
     expenses totaling $10,926 and reimbursed Mr. Trafecanty for the income
     tax impact of these benefits, which totaled $8,147.

(11) Includes options for 50,000 shares granted on August 21, 1997 in exchange
     for the cancellation of an option for 50,000 shares originally granted on
     August 26, 1996 with an exercise price $4.00 per share.

(12) Mr. Sullivan was appointed as Vice President and Controller of the
     Company in March 1997. The Company paid Mr. Sullivan $19,850 in
     connection with consulting services rendered to the Company during
     January and February 1997. These fees are included in the caption All
     Other Compensation.
 
 
                                      13
<PAGE>
 
OPTION GRANTS IN LAST FISCAL YEAR
 
  The following table contains information concerning stock option grants made
to the Company's Chief Executive Officer and each of the other Named Executive
Officers during the fiscal year ended December 31, 1997. No stock appreciation
rights were granted or exercised during such fiscal year.
<TABLE>
<CAPTION>
                                                                             
                                                                             POTENTIAL REALIZABLE
                                  INDIVIDUAL GRANTS                            VALUE AT ASSUMED
                         ----------------------------------------               ANNUAL RATES OF
                          NUMBER OF       % OF TOTAL                              STOCK PRICE
                         SECURITIES        OPTIONS                             APPRECIATION FOR
                         UNDERLYING       GRANTED TO  EXERCISE OR               OPTION TERM(2)
                           OPTIONS       EMPLOYEES IN BASE PRICE  EXPIRATION ---------------------
NAME                     GRANTED (#)     FISCAL YEAR   ($/SH)(1)     DATE      5%($)      10%($)
- ----                     -----------     ------------ ----------- ---------- ---------- ----------
<S>                      <C>             <C>          <C>         <C>        <C>        <C>
Andrew K. Wrobel........   500,000(3)        33.6%      0.43000   10/5/2007     135,212    342,655
                           100,000(3)         6.7%      0.50500   11/3/2007      31,759     80,484

Alfred Jay Moran, Jr....    75,000(4)         4.0%      0.20313         N/A         N/A        N/A
                           200,000(5)(6)     10.5%      0.19875   8/20/2007      24,999     63,351
                           133,334(6)         7.0%      0.50500   11/3/2007      42,346    107,313

Charles F. Wheatley.....    21,322(5)(7)      1.1%      0.19875   8/20/2007       2,665      6,734
                           178,678(7)         9.4%      0.19875   8/20/2007      22,333     56,597
                            75,000(8)         4.0%      0.50500   11/3/2007      23,819     60,363

Denis J. Trafecanty.....    50,000(5)(9)      2.6%      0.19875   8/20/2007       6,250     15,838
                           150,000(7)         7.9%      0.19875   8/20/2007      18,749     47,513
                           100,000(8)         5.3%      0.50500   11/3/2007      31,759     80,484

Timothy R. Sullivan.....   100,000(7)         5.3%      0.19875   8/20/2007      12,499     31,676
                            50,000(8)         2.6%      0.50500   11/3/2007      15,880     40,242
</TABLE>
- --------
(1) The exercise price may be paid in cash or in shares of Common Stock valued
    at fair market value on the exercise date. Alternatively, the option may
    be exercised through a cashless exercise procedure pursuant to which the
    optionee provides irrevocable instructions to a brokerage firm to sell the
    purchased shares and to remit to the Company, out of the sale proceeds, an
    amount equal to the exercise price plus all applicable withholding taxes.
    The plan administrator of the 1993 Plan ("Plan Administrator") may also
    permit the optionee to pay the exercise price in installments over a
    period of years. The Plan Administrator has the discretionary authority to
    reprice outstanding options through the cancellation of those options and
    the grant of replacement options with an exercise price equal to the fair
    market value of the option shares on the regrant date.

(2) The 5% and 10% rates of appreciation are mandated by the rules of the
    Securities and Exchange Commission and do not represent the Company's
    estimates or projections of future Common Stock prices. There can be no
    assurance provided to any executive officer or any other holder of the
    Company's securities that the actual stock price appreciation over the ten
    (10) year option term will be at the assumed 5% and 10% levels or at any
    other defined level.

(3) The options become exercisable in a series of 36 equal monthly
    installments over Mr. Wrobel's period of service with the Company measured
    from the option grant date. The options will become exercisable on an
    accelerated basis in the event of an acquisition of the Company by merger
    or asset sale, unless the options are assumed by the acquiring entity. The
    options become exercisable on an accelerated basis in the event of an
    involuntary termination of Mr. Wrobel's service with the Company, other
    than for cause.

(4) Mr. Moran's stock option was granted on July 1, 1997. Pursuant to the
    August 21, 1997 option cancellation/regrant program, the option was
    cancelled and a new option granted in its place on August 21, 1997. See
    footnote (5) below.

(5) Represents options granted on August 21, 1997 in cancellation of pre-
    existing option grants with higher exercise prices per share.
 
                                      14
<PAGE>
 
(6) The option is exercisable with respect to 50% of the option shares as of
    the November 4, 1997 date of grant and becomes exercisable for an
    additional 25% of the option shares on each of the first and second
    anniversaries of such grant date, provided Mr. Moran continues in the
    Company's service through each such anniversary date. The options become
    exercisable on an accelerated basis in the event of an acquisition of the
    Company by merger or asset sale.

(7) The option becomes exercisable with respect to one-third ( 1/3) of the
    total option shares on February 21, 1998 and with respect to an additional
    8.3% of the option shares upon the optionee's completion of each three
    months of service measured from and after such date. The option will
    become exercisable on an accelerated basis in the event of an acquisition
    of the Company by merger or asset sale, unless the option is assumed by
    the acquiring entity.

(8) The option becomes exercisable with respect to one-third ( 1/3) of the
    total option shares on November 4, 1998 and with respect to an additional
    8.3% of the option shares upon the optionee's completion of each three
    months of service measured from and after such date. The option will
    become exercisable on an accelerated basis in the event of an acquisition
    of the Company by merger or assets sale, unless the option is assumed by
    the acquiring entity.

(9) The option becomes exercisable with respect to one-third ( 1/3) of the
    total option shares on February 21, 1998 and with respect to an additional
    6.7% of the option shares upon the optionee's completion of each three
    months of service measured from and after such date. The option will
    become exercisable on an accelerated basis in the event of an acquisition
    of the Company by merger or asset sale, unless the option is assumed by
    the acquiring entity.
 
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES
 
  No options were exercised by the Company's Chief Executive Officer or the
other Named Executive Officers during the fiscal year ended December 31, 1997.
The following table sets forth information concerning option holdings for such
fiscal year with respect to the Company's Chief Executive Officer and each of
the other Named Executive Officers. The fair market value of the Common Stock
at fiscal year-end was $0.53 per share, based on the average of the highest
bid and lowest ask price as quoted on the OTC Bulletin Board. No stock
appreciation rights were exercised or outstanding during such fiscal year.
 
<TABLE>
<CAPTION>
                               NUMBER OF SECURITIES
                              UNDERLYING UNEXERCISED   VALUE OF UNEXERCISED IN-
                              OPTIONS AT FISCAL YEAR-    THE-MONEY OPTIONS AT
                                      END(#)              FISCAL YEAR-END($)
                             ------------------------- -------------------------
NAME                         EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----                         ----------- ------------- ----------- -------------
<S>                          <C>         <C>           <C>         <C>
Andrew K. Wrobel............    33,334      566,666       2,917       49,583
Alfred Jay Moran, Jr........   166,667      166,667      34,792       34,792
Charles F. Wheatley.........       --       275,000         --        68,125
Denis J. Trafecanty.........       --       300,000         --        68,750
Timothy R. Sullivan.........       --       150,000         --        34,375
</TABLE>
 
REPORT ON REPRICING OF OPTIONS
 
  As discussed in the Compensation Committee Report on Executive Compensation
below, on August 21, 1997 the Company implemented an option
cancellation/regrant program for virtually all officers, employees and
consultants holding stock options with an exercise price per share in excess
of the market price of the Common Stock on such date. Pursuant to the
cancellation/regrant program, each such option with an exercise price in
excess of $0.19875 was canceled and a new option for the same aggregate number
of shares was granted with an exercise price of $0.19875, the fair market
value per share of Common Stock on August 21, 1997.
 
 
                                      15
<PAGE>
 
  The following table sets forth information with respect to certain of the
Named Executive Officers concerning his participation in the option
cancellation/regrant program, which was effected on August 21, 1997. Neither
Mr. Wrobel nor Mr. Sullivan participated in such program.
 
<TABLE>
<CAPTION>
                                   NUMBER OF                                            LENGTH OF
                                  SECURITIES   MARKET PRICE    EXERCISE              ORIGINAL OPTION
                                  UNDERLYING    OF STOCK AT  PRICE AT TIME           TERM REMAINING
                                    OPTIONS       TIME OF         OF          NEW      AT DATE OF
                                  CANCELLED/   CANCELLATION/ CANCELLATION/ EXERCISE   CANCELLATION/
NAME AND POSITION         DATE   REGRANTED (#)  REGRANT ($)   REGRANT ($)  PRICE ($)  REGRANT (YRS)
- -----------------        ------- ------------- ------------- ------------- --------- ---------------
<S>                      <C>     <C>           <C>           <C>           <C>       <C>
Alfred Jay Moran, Jr.... 8/21/97    125,000       0.19875       1.90625     0.19875       9.25
 Former President and    8/21/97     75,000       0.19875       0.20313     0.19875       9.75
 Chief Executive Officer

Charles F. Wheatley..... 8/21/97     10,661       0.19875       5.00000     0.19875       6.50
 Executive Vice Presi-
  dent,                  8/21/97     10,661       0.19875       1.81250     0.19875       7.75
 Sales and Marketing

Denis J. Trafecanty..... 8/21/97     50,000       0.19875       4.00000     0.19875       9.00
 Senior Vice President
 and Chief Financial Of-
  ficer
</TABLE>
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
  The individuals who served on the Compensation Committee of the Company's
Board of Directors during the fiscal year ended December 31, 1997 were Mr.
Bryan, the Chairman, Dr. Howland, Mr. Solomon and Mr. Thompson (a former
Director). None of these individuals was at any time during such fiscal year,
or at any other time, an officer or employee of the Company.
 
  No current executive officer of the Company has ever served as a member of
the board of directors or compensation committee of any other entity that has
or has had one or more executive officers serving as a member of the Company's
Board of Directors or Compensation Committee.
 
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
 
 Employment Agreement with Andrew K. Wrobel
 
  Effective October 6, 1997, the Company entered into a two (2)-year
employment agreement ("Agreement") with Andrew K. Wrobel. The term of this
Agreement shall automatically be extended, unless not less than one (1) year
prior to the expiration date, the Company shall have delivered written notice
to Mr. Wrobel that the term of this Agreement shall terminate on the
expiration date; or Mr. Wrobel, not less than thirty (30) days prior to the
expiration date, elects to terminate this Agreement by delivering written
notice of such desire to terminate to the Company. Under the terms of this
agreement, Mr. Wrobel is entitled to a base salary of not less than $220,000
per year, plus a minimum increase of six (6) percent of his base salary on
each anniversary of the agreement. Mr. Wrobel is also entitled to receive a
bonus equal to sixty percent (60%) of his then existing base salary, payable
quarterly pro rata upon the Company's achievement of the performance criteria
set forth in the business plan to be prepared by Mr. Wrobel for the Company
and approved by the Board. Mr. Wrobel was eligible to receive, and in February
1998 did receive, payment of $25,000 of the bonus at the end of the first
three (3) months of his employment, based on his completion of a board-
approved business plan. The Agreement also guaranteed Mr. Wrobel a stock
option for 500,000 shares of the Company's Common Stock at the fair market
value on the date of the Agreement ($0.43 per share). The options will become
exercisable on an accelerated basis in the event of an acquisition of the
Company by merger or asset sale, unless the options are assumed by the
acquiring entity. Mr. Wrobel participates in all of the Company's employee
benefit plans. In the event of his termination other than for cause, Mr.
Wrobel is entitled to full acceleration of his options and a severance payment
equal to one (1) year of his then current salary within five (5) business days
of his termination plus twelve (12) months additional coverage under the
Company's health, medical and dental plans.
 
                                      16
<PAGE>
 
 Change in Control Arrangements
 
  The Stock Option Plan Administration Committee of the Board of Directors has
the authority as Plan Administrator of the 1993 Plan to provide for the
accelerated vesting of the shares of Common Stock subject to outstanding
options held by the Chief Executive Officer and the Company's other executive
officers under that plan in the event their employment were to be terminated
(whether involuntarily or through a forced resignation) following an
acquisition of the Company by merger or asset sale. In connection with a
hostile change in control of the Company effected through a successful tender
offer for more than 50% of the Company's outstanding voting stock or through a
proxy contest for the election of Board members, the Plan Administrator has
the discretionary authority to provide for automatic acceleration of
outstanding options under the Discretionary Option Grant Program of the 1993
Plan and the automatic vesting of outstanding shares under the Stock Issuance
Program.
 
                         COMPENSATION COMMITTEE REPORT
 
  For the 1997 fiscal year, the Compensation Committee of the Board of
Directors was responsible for establishing the base salary and incentive cash
bonus programs for the Company's executive officers and other key employees
and administering certain other compensation programs for such individuals,
subject in each instance to review and final approval by the full Board. The
Compensation Committee also had the exclusive responsibility during such year
for the administration of the Company's 1993 Plan under which grants may be
made to executive officers and other key employees.
 
  General Compensation Policy. The fundamental policy of the Compensation
Committee is to provide the Company's executive officers and other key
employees with compensation opportunities based upon their contribution to the
financial success of the Company and their personal performance. It is the
Compensation Committee's objective to have a substantial portion of each
officer's compensation contingent upon the Company's performance as well as
upon his own level of performance. Accordingly, the compensation package for
each executive officer and key employee is comprised of three elements: (i)
base salary which reflects individual performance, (ii) annual variable
performance awards payable in cash and tied to the Company's achievement of
financial performance targets, and (iii) long-term stock-based incentive
awards which strengthen the mutuality of interests between the executive
officers and the Company's shareholders. As an executive officer's level of
responsibility increases, it is the intent of the Compensation Committee to
have a greater portion of his total compensation be dependent upon Company
performance and stock price appreciation rather than base salary.
 
  Factors. For Andrew K. Wrobel, the Compensation Committee followed the terms
of his employment agreement with the Company in determining his compensation
for 1997. That agreement specifies the compensation, subject to Board
adjustment, that was paid to Mr. Wrobel during 1997. Several of the more
important factors which the Compensation Committee considered in establishing
the components of the compensation packages for executive officers who do not
have an employment agreement with the Company for the 1997 fiscal year are
summarized below. Additional factors were also taken into account and the
Compensation Committee may, in its discretion, apply entirely different
factors, particularly different measures of financial performance, in setting
executive compensation for future fiscal years.
 
  Base Salary. The base salary for each officer who does not have an
employment agreement with the Company is determined on the basis of the
following factors: experience, personal performance and internal comparability
considerations. The weight given to each of these factors differs from
individual to individual, as the Compensation Committee deems appropriate.
 
  Annual Incentive Compensation. Annual bonuses are earned by each executive
officer primarily on the basis of the Company's achievement of certain
corporate financial performance targets established for each fiscal year.
 
                                      17
<PAGE>
 
  Long-Term Incentive Compensation. Long-term incentives are provided through
stock option grants. The grants are designed to align the interests of each
executive officer with those of the shareholders and provide each individual
with a significant incentive to manage the Company from the perspective of an
owner with an equity stake in the business. Each grant allows the individual
to acquire shares of the Common Stock at a fixed price per share (the market
price on the grant date) over a specified period of time (up to ten years).
Each option generally becomes exercisable in installments over a two and one-
half (2 ) or three (3)-year period, contingent upon the executive officer's
continued employment with the Company or a subsidiary. Accordingly, the option
will provide a return to the executive officer only if the executive officer
remains employed by the Company during the vesting period, and then only if
the market price of the underlying shares appreciates over the option term.
 
  The number of shares subject to each option grant is set at a level intended
to create a meaningful opportunity for stock ownership based on the officer's
current position with the Company, the base salary associated with that
position, the size of comparable awards made to individuals in similar
positions within the industry, the individual's potential for increased
responsibility and promotion over the option term, and the individual's
personal performance in recent periods. The Compensation Committee also takes
into account the number of vested and unvested options held by the executive
officer in order to maintain an appropriate level of equity incentive for that
individual. However, the Compensation Committee does not adhere to any
specific guidelines as to the relative option holdings of the Company's
executive officers. In 1997, all Named Executives received an option grant.
Such options are described in the Summary Compensation Table, in the column
entitled "Long Term Compensation Awards--Securities Underlying Options" and in
the "Option Grants in Last Fiscal Year" table.
 
  CEO Compensation. In setting the compensation payable to the Company's Chief
Executive Officer, Mr. Wrobel, the Compensation Committee followed the terms
of the employment agreement that was previously negotiated between Mr. Wrobel
and the Company and subsequently executed. In accordance with the terms of his
employment agreement, Mr. Wrobel received a base salary of $46,664 in 1997
($220,000 annually).
 
  A cash bonus was paid to Mr. Wrobel for the 1997 fiscal year of $25,000 and
on October 6, 1997 Mr. Wrobel was granted an option to purchase 500,000 shares
of Common Stock (see "Employment Contracts and Termination of Employment and
Change in Control Arrangements--Employment Agreement with Andrew K. Wrobel")
to make a portion of his total compensation contingent on increased value for
the Company's shareholders; the option will have no value unless there is
appreciation in the value of the Company's Common Stock over the option term.
On November 4, 1997, Mr. Wrobel received an option to purchase an additional
100,000 shares of Common Stock.
 
  Mr. Alfred Moran served as Acting President and Chief Executive Officer of
the Company from January 1997 to October 1997. In 1997, Mr. Moran was paid a
salary by the Company equal to the prevailing minimum wage. Mr. Moran is a
member of The Watley Group, LLC, which was being paid a monthly retainer of
$15,000 per month by the Company through December 31, 1997.
 
  Special Option Regrant Program. On August 21, 1997, following approval by
the Company's Shareholders of certain amendments to the 1993 Plan, the Board
of Directors and Stock Option Plan Administration Committee approved a plan to
cancel and regrant substantially all outstanding options (other than options
granted to non-employee Directors pursuant to the Automatic Option Grant
Program of the 1993 Plan), having an exercise price greater than $0.19875 per
share, the fair market value of the Common Stock on August 21, 1997. Based
upon the delisting of the Company's Common Stock from the Nasdaq National
Market, the financial condition of the Company, the stock price, the probable
lack of a request for a $15 million financing on which the vesting of the
options previously granted to certain executive officers and consultants of
the Company was contingent, and the necessity of retaining its employees and
restoring value to their options, the Board of Directors and the Stock Option
Plan Administration Committee believed that this program was in the best
interests of the shareholders. Pursuant to this program, each such outstanding
option was cancelled and a new replacement option was granted for the same
number of shares, with an exercise price of $0.19875 per share
 
                                      18
<PAGE>
 
and, generally, with a new vesting schedule measured from such date. In
addition, on August 21, 1997, each of the non-employee directors was granted
an additional option under the Discretionary Option Grant Program of the 1993
Plan to purchase the number of shares of Common Stock subject to the higher-
priced options previously granted to each such individual under the Automatic
Option Grant Program.
 
  The lower exercise prices in effect under the new options make those options
valuable once again to the executive officers, key employees and non-employee
Directors who are critical to the Company's financial performance and success.
However, those individuals will enjoy the benefits of the new options only if
they remain in the Company's service and the market price of the Company's
Common Stock increases.
 
  Compliance with Internal Revenue Code Section 162(m). As a result of Section
162(m) of the Internal Revenue Code, the Company will not be allowed a federal
income tax deduction for compensation paid to certain executive officers, to
the extent that compensation exceeds $1 million per officer in any fiscal
year. This limitation applies to all compensation paid to the covered
executive officers, which is not considered to be performance based.
Compensation that does qualify as performance-based compensation will not have
to be taken into account for purposes of this limitation. Non-performance
based compensation paid to the Company's executive officers for the 1997
fiscal year did not exceed the $1 million limit per officer, and the
Compensation Committee does not anticipate that the non-performance based cash
compensation to be paid to the Company's executive officers for fiscal 1998
will exceed that limit. In addition, option grants and other awards made under
the 1993 Plan prior to January 1, 1998 were structured so that any
compensation deemed paid to an executive officer in connection with those
awards will qualify as performance-based compensation which will not be
subject to the $1 million limitation. However, any compensation deemed paid by
the Company in connection with transactions relating to options or other
awards granted during the 1998 fiscal year will have to be taken into account
for purposes of the $1 million limitation. Because it is very unlikely that
the compensation payable to any of the Company's executive officers in the
foreseeable future will approach the $1 million limit, the Compensation
Committee has decided at this time not to take any action to limit or
restructure the elements of compensation payable to the Company's executive
officers. The Compensation Committee will reconsider this decision should the
individual compensation of any executive officer ever approach the $1 million
level.
 
Dated as of April 24, 1998
 
                                          Mr. Anthony J. A. Bryan
                                          Dr. Frank L. Howland
 
                                      19
<PAGE>
 
                       COMPARISON OF SHAREHOLDER RETURN
 
  The graph below reflects a comparison of the cumulative total return (change
in stock price plus reinvestment dividends) of the Company's Common Stock
price with the cumulative total returns of the Nasdaq Market Index, a line-of-
business index which is based on the Company's four-digit SIC Code (3674--
Semiconductors and Related Devices) and the Peer Group previously selected by
the Company which included Altron, Inc., Ceramics Process Systems Corporation,
Dense-Pac Microsystems, Inc., Irvine Sensors Corporation and Microsemi Corp.
Due to the closure of the Company's pressed ceramics product line in
Singapore, the Company has determined that the companies listed above no
longer represent an appropriate peer group for the Company's current product
line (multichip modules). As a result, the Company has elected to use a line-
of-business index.

                       [PERFORMANCE GRAPH APPEARS HERE]
<TABLE> 
<CAPTION> 

Measurement Period           Microelectronic      SIC Code      NASDAQ Market     Old Peer     
(Fiscal Year Covered)        Packaging, Inc.      Index         Index             Group
- -------------------          ----------------     ---------     -------------     --------
<S>                          <C>                  <C>           <C>               <C>
Measurement Pt.                  100.00            100.00          100.00           100.00
FYE  Jun-94                      102.50             99.96           98.29            98.50
FYE  Sep-94                       92.50            104.03          103.52           112.83            
FYE  Dec-94                       60.00            110.58          101.44           114.18            
FYE  Mar-95                       35.00            136.61          104.44           116.84            
FYE  Jun-95                       47.50            194.56          114.25           164.48      
FYE  Sep-95                       47.50            214.37          127.30           216.68
FYE  Dec-95                       40.00            171.22          126.28           196.30
FYE  Mar-96                       82.50            165.05          132.11           185.08
FYE  Jun-96                       87.50            177.93          141.90           174.74
FYE  Sep-96                       67.50            212.65          145.81           124.56
FYE  Dec-96                       19.38            271.99          152.67           156.62
FYE  Mar-97                        6.25            291.03          144.91           136.83
FYE  Jun-97                        4.38            306.67          171.44           131.90
FYE  Sep-97                        7.00            383.00          199.88           158.44
FYE  Dec-97                       11.60            281.27          187.28           149.25

</TABLE> 
- --------
(1) The graph covers the period from April 21, 1994, the date the Company's
    initial public offering commenced, through the fiscal year ended December
    31, 1997.

(2) The graph assumes that $100 was invested on April 21, 1994 in the
    Company's Common Stock and in each index and that all dividends were
    reinvested. No cash dividends have been declared on the Company's Common
    Stock.

(3) Shareholder returns over the indicated period should not be considered
    indicative of future shareholder returns.

(4) The performance graph and all of the material in the Compensation
    Committee Report is not deemed filed with the Securities and Exchange
    Commission, and is not incorporated by reference to any filing of the
    Company under the Securities Act of 1933, as amended or the Securities
    Exchange Act of 1934, whether made before or after the date of this Proxy
    Statement and irrespective of any general incorporation language in any
    such filing.
 
                                      20
<PAGE>
 
     COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
 
  Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who own more than ten percent of
the Company's Common Stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Executive
officers, directors and greater than ten percent shareholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
 
  Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Form 5s were
required for such persons, the Company believes that all filing requirements
applicable to its officers, directors, and greater than ten percent beneficial
owners during the period from January 1, 1997 to December 31, 1997, were
complied with.
 
                                   FORM 10-K
 
  The Company files an Annual Report on Form 10-K with the SEC. A copy of the
Annual Report on Form 10-K (excluding exhibits) including financial statements
and schedules has been included with the mailing of this proxy to all
shareholders. SHAREHOLDERS MAY OBTAIN ADDITIONAL COPIES OF THESE REPORTS,
INCLUDING FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES, WITHOUT
CHARGE, BY WRITING TO DENIS J. TRAFECANTY, CHIEF FINANCIAL OFFICER OF THE
COMPANY, AT THE COMPANY'S EXECUTIVE OFFICES AT 9577 CHESAPEAKE DRIVE, SAN
DIEGO, CALIFORNIA 92123.
 
  The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board of Directors may
recommend. Discretionary authority with respect to such other matters is
granted by the execution of the enclosed Proxy.
 
                                          THE BOARD OF DIRECTORS
 
Dated: April 24, 1998
 
                                      21
<PAGE>
 
                        MICROELECTRONIC PACKAGING, INC.                    PROXY

                 ANNUAL MEETING OF SHAREHOLDERS, JUNE 17, 1998

          THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
                      OF MICROELECTRONIC PACKAGING, INC.

  The undersigned revokes all previous proxies, acknowledges receipt of the 
Notice of the Annual Meeting of Shareholders to be held June 17, 1998 and the 
Proxy Statement and appoints Andrew Wrobel and Denis Trafecanty and each of 
them, the Proxy of the undersigned, with full power of substitution, to vote all
shares of Common Stock of Microelectronic Packaging, Inc. (the "Company") which 
the undersigned is entitled to vote, either on his or her own behalf or on 
behalf of any entity or entities, at the Annual Meeting of Shareholders of the 
Company to be held at 9577 Chesapeake Drive, San Diego, California 92123 on June
17, 1998 at 10:00 a.m. (the "Annual Meeting"), and at any adjournment or 
postponement thereof, with the same force and effect as the undersigned might or
could do if personally present thereat. The shares represented by this Proxy 
shall be voted in the manner set forth on the reverse side.

<TABLE> 
 <C>                         <S> 
 1.  FOR WITHHOLD AUTHORITY  EXCEPTIONS [_] TO ELECT FIVE DIRECTORS TO SERVE FOR
     [_] TO VOTE FOR         THE NEXT YEAR UNTIL THE EXPIRATION OF THEIR TERMS
         NOMINEES  [_]       IN 1999 OR UNTIL THEIR SUCCESSORS ARE ELECTED AND
                             QUALIFIED.

     INSTRUCTION: To withhold authority to vote for any individual nominee, mark
     the "EXCEPTIONS" box, and strike a line through the nominee's name in the
     list below:
     Lewis Solomon, Anthony J.A. Bryan, Frank Howland, Gary Stein and
     Andrew Wrobel.

 2.  FOR  AGAINST  ABSTAIN   To ratify the appointment of BDO Seidman, LLP
     [_]    [_]      [_]     ("BDO") as independent accountants of the Company
                             for the fiscal year ended December 31, 1998.

 3.  FOR  AGAINST  ABSTAIN   In their discretion, the Proxies are authorized to 
     [_]    [_]      [_]     vote upon such other matters as may properly come
                             before the meeting.
</TABLE> 

  The Board of Directors recommends a vote FOR the proposals. This Proxy, when 
properly executed, will be voted as specified above. This Proxy will be voted 
FOR the proposals if no specification is made. The Proxy will also be voted at 
the discretion of the proxy holder on such matters other than the two specific 
proposals as may come before the meeting.

  Please print the name(s) appearing on each share certificate(s) over which you
  have voting authority: _______________________________________________________
                                      (Print name(s) on certificate)

  Please sign your name: _________________________________________ Date: _______
                                 (Authorized Signature(s))



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