Governance

The Board of Directors and Management of Microfluidics International Corporation are committed to the principles and practice of good corporate governance. In this regard, the Code of Ethics and Conduct and the Committee Charters of each of the Board Committees have been adopted.

Audit Committee

BOARD OF DIRECTORS OF MICROFLUIDICS INTERNATIONAL CORPORATION AUDIT COMMITTEE CHARTER

PURPOSE:

The purpose of the Audit Committee of the Board of Directors of Microfluidics International Corporation (the “Company”) shall be to:

• Oversee the accounting and financial reporting processes of the Company and audits of the financial statements of the Company;
• Assist the Board in oversight and monitoring of (i) the integrity of the Company's financial statements, (ii) the Company's compliance with legal and regulatory requirements, (iii) the independent auditor's qualifications, independence and performance, and (iv) the Company's internal accounting and financial controls;
• Prepare the report that the rules of the Securities and Exchange Commission (the “SEC”) require be included in the Company's annual proxy statement;
• Provide the Company's Board with the results of its monitoring and recommendations derived therefrom; and
• Provide to the Board such additional information and materials as it may deem necessary to make the Board aware of significant financial matters that require the attention of the Board. In addition, the Audit Committee will undertake those specific duties and responsibilities listed below and such other duties as the Board of Directors may from time to time prescribe.

MEMBERSHIP:

The Audit Committee members will be appointed by, and will serve at the discretion of, the Board of Directors. The Audit Committee will consist of at least three members of the Board of Directors. Members of the Audit Committee must meet the following criteria (as well as any criteria required by the SEC):

• Each member will be an independent director, as defined in (i) NASDAQ Rule 4200 and (ii) the rules of the SEC;
• Each member will be able to read and understand fundamental financial statements, in accordance with the NASDAQ National Market Audit Committee requirements; and
• At least one member will have past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background, including a current or past position as a principal financial officer or other senior officer with financial oversight responsibilities.

RESPONSIBILITIES:

The responsibilities of the Audit Committee shall include:

• Reviewing on a continuing basis the adequacy of the Company's system of internal controls, including meeting periodically with the Company's management and the independent auditors to review the adequacy of such controls and to review before release the disclosure regarding such system of internal controls required under SEC rules to be contained in the Company's periodic filings and the attestations or reports by the independent auditors relating to such disclosure;
• Appointing, compensating and overseeing the work of the independent auditors (including resolving disagreements between management and the independent auditors regarding financial reporting) for the purpose of preparing or issuing an audit report or related work;
• Pre-approving audit and non-audit services provided to the Company by the independent auditors (or subsequently approving non-audit services in those circumstances where a subsequent approval is necessary and permissible); in this regard, the Audit Committee shall have the sole authority to approve the hiring and firing of the independent auditors, all audit engagement fees and terms and all non-audit engagements, as may be permissible, with the independent auditors;
• Reviewing and providing guidance with respect to the external audit and the Company's relationship with its independent auditors by (i) reviewing the independent auditors' proposed audit scope, approach and independence; (ii) obtaining on a periodic basis a statement from the independent auditors regarding relationships and services with the Company which may impact independence and presenting this statement to the Board of Directors, and to the extent there are relationships, monitoring and investigating them; (iii) reviewing the independent auditors' peer review conducted every three years; (iv) discussing with the Company's independent auditors the financial statements and audit findings, including any significant adjustments, management judgments and accounting estimates, significant new accounting policies and disagreements with management and any other matters described in SAS No. 61, as may be modified or supplemented; and (v) reviewing reports submitted to the audit committee by the independent auditors in accordance with the applicable SEC requirements;
• Reviewing and discussing with management and the independent auditors the annual audited financial statements and quarterly unaudited financial statements, including the Company's disclosures under “Management's Discussion and Analysis of Financial Condition and Results of Operations,” prior to filing the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, respectively, with the SEC;
• Directing the Company's independent auditors to review before filing with the SEC the Company's interim financial statements included in Quarterly Reports on Form 10-Q, using professional standards and procedures for conducting such reviews;
• Conducting a post-audit review of the financial statements and audit findings, including any significant suggestions for improvements provided to management by the independent auditors;
• Reviewing before release the unaudited quarterly operating results in the Company's quarterly earnings release;
• Overseeing compliance with the requirements of the SEC for disclosure of auditor's services and audit committee members, member qualifications and activities;
• Reviewing, approving and monitoring the Company's code of ethics for its officers and directors;
• Reviewing management's monitoring of compliance with the Company's standards of business conduct and with the Foreign Corrupt Practices Act;
• Reviewing, in conjunction with counsel, any legal matters that could have a significant impact on the Company's financial statements;
• Providing oversight and review at least annually of the Company's risk management policies, including its investment policies;

• Reviewing the Company's compliance with employee benefit plans;
• Overseeing and reviewing the Company's policies regarding information technology and management information systems;
• If necessary, instituting special investigations with full access to all books, records, facilities and personnel of the Company;
• As appropriate, obtaining advice and assistance from outside legal, accounting or other advisors;
• Reviewing and approving in advance any proposed related party transactions;
• Reviewing its own charter, structure, processes and membership requirements;
• Providing a report in the Company's proxy statement in accordance with the rules and regulations of the SEC; and
• Establishing procedures for receiving, retaining and treating complaints received by the Company regarding accounting, internal accounting controls or auditing matters and procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

MEETINGS:

The Audit Committee will meet at least four times each year. The Audit Committee may establish its own schedule, which it will provide to the Board of Directors in advance.

The Audit Committee will meet separately with the Chief Executive Officer and separately with the Chief Financial Officer of the Company at such times as are appropriate to review the financial affairs of the Company. The Audit Committee will meet separately with the independent auditors of the Company, at such times as it deems appropriate, but not less than quarterly, to fulfill the responsibilities of the Audit Committee under this charter.

MINUTES:

The Audit Committee will maintain written minutes of its meetings, which minutes will be filed with the minutes of the meetings of the Board of Directors.

REPORTS:

In addition to preparing the report in the Company's proxy statement in accordance with the rules and regulations of the SEC, the Audit Committee will summarize its examinations and recommendations to the Board of Directors as may be appropriate, consistent with the Committee's charter.

COMPENSATION:

Members of the Audit Committee shall receive such fees, if any, for their service as Audit Committee members as may be determined by the Board of Directors in its sole discretion. Such fees may include retainers or per meeting fees. Fees may be paid in such form of consideration as is determined by the Board of Directors.

Members of the Audit Committee may not receive any compensation from the Company except the fees that they receive for service as a member of the Board of Directors or any committee thereof.

DELEGATION OF AUTHORITY:

The Audit Committee may delegate to one or more designated members of the Audit Committee the authority to pre-approve audit and permissible non-audit services, provided such pre-approval decision is presented to the full Audit Committee at its scheduled meetings.

Compensation Committee Charter

1. PURPOSE

• Overseeing the Company’s compensation strategy and ensuring that all elements of compensation, supplemental compensation and benefits, including salary, bonus, incentive and equity compensation (“Compensation”), for executive officers and key management personnel are equitable, externally competitive and in accordance with the Company’s overall Compensation objectives and Compensation policy, and
• Developing a Compensation policy that creates a reasonable relationship between pay levels and corporate performance, and monitor the results of such policy to assure that the Compensation payable to the Company’s executives is reasonable, provides overall competitive pay levels, creates proper incentives and enhances stockholder value, and appropriately rewards superior performance.

2. MEMBERSHIP

The Committee shall consist of three or more independent directors (as determined by the Board from time to time) who satisfy the independence requirements under applicable law, rules and regulations. Members of the Committee shall be appointed by the Board upon the recommendation of the Nominating and Corporate Governance Committee and may be removed by the Board in its discretion.  The Chair of the Committee shall be appointed by the Board.

3. POWERS AND RESPONSIBILITIES

The Committee’s responsibilities shall remain flexible to react to changing conditions and to ensure the Board and stockholders that: (a) the achievement of the overall goals and objectives of the Company can be supported by adopting an appropriate executive Compensation policy and implementing it through an effective total Compensation program and (b) the Compensation program and practices of the Company are designed with full consideration of all accounting, tax, securities law, employment law and regulatory requirements.  The Committee’s authority shall also encompass Compensation arrangements for any senior executive officer of any subsidiary, affiliate or special purpose entity of the Company.

In carrying out its responsibilities, the Committee shall:

• Assist the Board in developing and evaluating potential candidates for executive positions, including the Chief Executive Officer, and oversee the development of executive succession plans.
• Review and approve on an annual basis the corporate goals and objectives with respect to Compensation for the Chief Executive Officer.  The Committee shall evaluate at least once a year the Chief Executive Officer’s performance in light of these established goals and objectives and, based upon these evaluations, shall set the Chief Executive Officer’s annual Compensation.
• Review and approve changes in the Compensation of key executives that are recommended by the Chief Executive Officer for consistency with the Company’s overall Compensation objectives and policy, and in keeping with (a) pre-established performance goals and objectives, (b) Company performance, (c) strategic leadership consistent with the Company’s long term strategies, and (d) an appropriate peer group.
• Evaluate the performance of the Company’s senior executive officers and approve the annual Compensation for such senior executive officers. The Committee shall also provide oversight of management’s decisions concerning the performance and compensation of other Company officers.
• Review the Company’s incentive compensation and other stock-based plans and recommend changes in such plans to the Board, as needed. The Committee shall have and may exercise all the authority of the Board with respect to the administration of such plans.  The Committee shall also review and make recommendations regarding the number of shares, price per share and period and duration of stock grants under stock option plans approved by stockholders of the Company.
• Review and make recommendations regarding the Company’s retirement plans.
• Review and make recommendations to the Board for approval of independent directors’ compensation (e.g., retainers, fees, long-term incentive and equity plans).
• Prepare and publish an annual executive compensation report in the Company’s proxy statement.

The Committee shall have authority to retain such compensation consultants, outside counsel and other advisors as the Committee may deem appropriate in its sole discretion. The Committee shall have sole authority to approve related fees and retention terms.

4. MEETINGS

Meetings of the Committee shall be scheduled as deemed necessary by the Committee’s Chair.  Members of management and independent consultants requested by the Committee will attend Committee meetings when and as may be requested by the Committee.

A simple majority of the members of the Committee, but not less than two, will constitute a quorum.  A majority of the members present at any meeting at which a quorum is present may act on behalf of the Committee. The Committee will meet at such times as shall be determined by the Chair, or upon the request of any two of its members. The Chair will preside, when present, at all Committee meetings. Minutes of Committee meetings will be recorded as directed by the Chair and will be subject to review by the Chair.

In discharging its responsibilities, the Committee may meet privately with independent consultants and is free to speak directly and independently with any members of management or employees.

The Chair will periodically report the Committee’s findings, conclusions and recommendations to the Board and present to the Board an annual performance evaluation of the Committee. The Committee shall review at least annually the adequacy of this Charter and recommend any proposed changes to the Board for approval.

The Compensation Committee’s responsibilities and powers as delegated by the Board of Directors are set forth in this Charter.  The Committee relies to a significant extent on information and advice provided by management and independent advisors.

NOMINATING AND CORPORATE GOVERNANCE COMMITTEE CHARTER

1.    PURPOSE

The Nominating and Corporate Governance Committee (the “Committee”) is appointed by the Board of Directors (the “Board”) of Microfluidics International Corporation (the “Company”) for the primary purposes of assisting the Board in:

• Identifying qualified individuals to become board members,

• Determining the composition of the Board and its committees,

• Monitoring a process to assess board effectiveness, and

• Developing and recommending the Company’s corporate governance guidelines.

2.    MEMBERSHIP

The Committee shall consist of three or more independent directors (as determined by the Board from time to time) who satisfy the independence requirements under applicable law, rules and regulations.  Members of the Committee shall be appointed by the Board and may be removed by the Board in its discretion.  The Chair of the Committee shall be appointed by the Board.

3.    POWERS AND RESPONSIBILITIES

The Committee’s primary responsibilities include:

Nominations

• Developing the criteria and qualifications (including an assessment of the appropriate balance of skills and other characteristics) for membership on the Board;

• Identifying, screening, recruiting, considering (including consideration of advice offered by the directors, senior officers and any outside advisors that may be retained by the Committee) and recommending candidates to fill open Board positions for independent and non-independent Directors;

• Reviewing and making recommendations regarding continued Board membership of any Board member;

• Assessing whether independent directors satisfy the independence requirements under applicable law, rules and regulations of national securities markets and exchanges;

• Recommending Director nominees for approval by the Board and the stockholders; and

• Recommending to the Board (after consultation with the Chairman of the Board) Director nominees for each of the Board’s committees (together with the Chairman of the Board, conducting an annual review of committee appointments and considering the recommendations concerning possible rotation of committee chairs and members).

Corporate Governance General

• Reviewing and recommending to the Board any proposed changes to the Company’s Certificate of Incorporation and Bylaws; and

• Reviewing, considering and reporting to the Board on matters of corporate governance and conducting an annual review, and addressing and recommending revisions (as appropriate), of this Charter, the Company’s corporate governance guidelines and the Company’s code of business conduct and ethics.

Board Oversight

• Evaluating the effectiveness of the Board and its committees and recommending to the Board ways to improve such effectiveness in the corporate governance of the Company;

• Making recommendations to the Board regarding the size and composition of the Board;

• Establishing evaluation criteria for a review of each Board member and implementing the annual evaluation process regarding, and evaluating annually the performance of, each Board member;

• Developing programs for continuing education for all Directors and for the orientation of new Directors;

• Monitoring the functions of the various committees of the Board and conducting annual reviews and evaluations of the contributions of each such committee to the Company (including reviewing the objectives of each such committee, as stated at the beginning of each year, and comparing such stated objectives to the results and time expended to achieve such results at the end of such year);

• Reviewing and considering questions of possible conflicts of interest of Board members and resolving all such questions regarding Board members;

• Reviewing relationships of Company officers and directors to outside for-profit and not-for-profit boards; and

• Reviewing and making recommendations concerning the interaction and communication between of management and the Board.

The Committee shall have the authority to delegate any of its responsibilities to subcommittees as the Committee may deem appropriate in its sole discretion.
The Committee shall have the authority to retain any search firm engaged to assist in identifying director candidates, and to retain outside counsel and any other advisors as the Committee may deem appropriate in its sole discretion. The Committee shall have sole authority to approve related fees and retention terms.

4.    MEETINGS

The Committee shall meet at least twice annually or more frequently as necessary or appropriate.  Members of management and independent consultants requested by the Committee will attend Committee meetings when and as may be requested by the Committee.

A simple majority of the members of the Committee, but not less than two, will constitute a quorum. A majority of the members present at any meeting at which a quorum is present may act on behalf of the Committee. The Committee will meet at such times as shall be determined by the Chair of the Committee, or upon the request of any two of its members. The Chair will preside, when present, at all Committee meetings. Minutes of Committee meetings will be recorded as directed by the Chair and will be subject to review by the Chair.

In discharging its responsibilities, the Committee may meet privately with independent consultants and is free to speak directly and independently with any members of management or employees.

The Chair will periodically report the Committee’s findings, conclusions and recommendations to the Board and present to the Board an annual performance evaluation of the Committee. The Committee shall review at least annually the adequacy of this Charter and recommend any proposed changes to the Board for approval.

The Nominating and Corporate Governance Committee’s responsibilities and powers as delegated by the Board of Directors are set forth in this Charter. The Committee relies to a significant extent on information and advice provided by management and independent advisors.