Stem Cell Innovations, Inc. (the "Company") (formerly Interferon Sciences, Inc. ("ISI")) was incorporated in the state of Delaware in 1980. Until March 11, 2003, ISI was a biopharmaceutical company which studied, manufactured, and sold ALFERON N Injection(R), a highly purified, multi-species, natural-source alpha interferon product. ALFERON N Injection is approved by the United States Food and Drug Administration ("FDA") for the treatment of certain types of genital warts. On March 11, 2003, ISI sold its ALFERON N Injection business to Hemispherx Biopharma, Inc. On October 17, 2003, ISI and Amphioxus Cell Technologies, Inc. (" Amphioxus or ACT"), a cell biology company based in Houston, Texas, entered into a letter of intent pursuant to which a wholly owned subsidiary of ISI would acquire ACT. Pursuant to the terms of the Agreement and Plan of Merger dated February 14, 2006 (the "Merger Agreement") by and among the Company, Amphioxus and a wholly-owned subsidiary of the Company, Amphioxus Acquisition, Inc. ("Acquisition Sub"), Amphioxus merged with and into Acquisition Sub (the "Merger"), such that Acquisition Sub was the surviving corporation, changed its name to Amphioxus Cell Technologies, Inc. and became a wholly-owned subsidiary of the Company.

Merger Consideration. By virtue of the Merger, all outstanding shares of common stock of Amphioxus were converted into Series 1 Convertible Preferred Stock ("Series 1 Preferred") of the Company. The Series 1 Preferred issued in connection with the Merger is mandatorily convertible (upon stockholder approval amending the Certificate of Incorporation of the Company to increase the number of shares of common stock authorized to be issued by the Company) into an aggregate of 757,821,430 shares of common stock.

Acquisition of Plurion. Immediately prior to the completion of the Merger, Amphioxus acquired from Plurion, Inc. ("Plurion") all of its assets, consisting primarily of a patent and an assignment of its license to certain patents and patent applications in the field of pluripotent stem cells (the "Vanderbilt License"), and assumed certain liabilities of Plurion. This acquisition was effected in exchange for common stock of Amphioxus, which was, in turn, converted into shares of Series 1 Preferred in the Merger.

Eaglestone Exchange. Eaglestone Investment Partners I, L.P. ("Eaglestone") was an investor in Amphioxus. In connection with the Merger Eaglestone received, in exchange for termination of its prior rights and investment in Amphioxus, two million shares of Series 2 Preferred Stock, par value $.01 per share (the "Series 2 Preferred"), of the Company, a promissory note of the Company in the principal amount of $2,935,000 (the "Eaglestone Note"), a royalty right with respect to revenues received by the Company related to the C3A liver cell line technology of Amphioxus (the "Royalty Right") and shares of Series 1 Preferred convertible into 25,811,410 shares of Common Stock.

The Series 2 Preferred ranks senior to the Series 1 Preferred, does not pay dividends, does not carry the right to any vote except as required by the Delaware General Corporation Law and is redeemable by the Company for an aggregate payment of $3,065,000. The Eaglestone Note bears interest at the rate of 4% per annum from the date of the Merger and is repayable on June 15, 2009 or earlier to the extent of (i) 50% of the excess proceeds of an offering of equity securities by the Company that raises in excess of $6.5 million of net proceeds, (ii) 10% of the excess proceeds of a series of such equity offerings that raise in excess of $15 million or (iii) 25% of after-tax net income of the Company in excess of $1 million measured cumulatively from the closing of the Merger, and shall also be repayable in full if there is a change in control of the Company. The Series 2 Preferred will be mandatorily redeemable on June 15, 2009 or earlier on the same basis as the Eaglestone Note described above after the repayment of the Eaglestone Note. In addition, the Royalty Right will entitle Eaglestone to 2.5% of the revenues from products incorporating the C3A liver cell line technology for the greater of 10 years or the life of the relevant patents. The Company may repurchase this Royalty Right at any time for $10 million. Moreover, until the Eaglestone Note is repaid and the Series 2 Preferred redeemed as set forth above, Eaglestone will also be entitled to a 2.5% royalty on any other sales and licensing revenues of the Company and its subsidiaries, provided, however, that any such other royalty payments will be credited against the Company's obligations to pay the principal of and interest on the Eaglestone Note and to redeem the Series 2 Preferred. Eaglestone has agreed that the Company may repurchase the Eaglestone Note and the Series 2 Preferred at any time prior to May 14, 2007 for $4.8 million, against which will be credited any intervening principal payments on the Eaglestone Note and redemption payments on the Series 2 Preferred, any royalty payments resulting from technologies other than the C3A liver cell line technology and the principal amount of any portion of the Eaglestone Note or the liquidation value of any Series 2 Preferred voluntarily exchanged by Eaglestone for other equity securities of the Company. The terms of the Series 2 Preferred are set forth in a Certificate of Designations, Preferences and Rights establishing such series, a copy of which was filed as Exhibit 6 to the Company's Current Report on Form 8-K, dated February 14, 2006.