Pozen (POZN)

Federal Income Tax Consequences

The following is a brief description of the U.S. federal income tax consequences generally arising with respect to grants that may be awarded under the Restated Plan. This discussion is intended only for the general information of stockholders in considering how to vote at the Annual Meeting and not as tax guidance or advice to individuals who participate in the Restated Plan or otherwise.

The grant of an ISO or NQSO will create no tax consequences for the participant or us. A participant generally will not recognize taxable income upon exercising an ISO (except that the alternative minimum tax may apply), and we will receive no deduction at that time. Upon exercising an NQSO, the participant must generally recognize ordinary income equal to the difference between the exercise price and the fair market value of the non-forfeitable shares received and is subject to income tax withholding by POZEN if the participant is an employee. We will be entitled to a deduction equal to the amount recognized as ordinary income by the participant.

A participant’s disposition of shares acquired upon the exercise of an option (NQSO or ISO) generally will result in capital gain or loss measured by the difference between the sale price and the participant’s tax basis in such shares. The participant’s basis in an NQSO is equal to the aggregate of the exercise price paid and the amount the participant recognized as ordinary income upon the exercise of the option. The participant’s basis in shares acquired by exercise of an ISO and held for the applicable holding period (a period of at least one year from the date the ISO was exercised and two years from the ISO date of grant) is the exercise price of the ISO. Generally, there will be no tax consequences to us in connection with a disposition of shares acquired under an option, except that we will be entitled to a deduction (and the participant will recognize ordinary income) if shares acquired upon exercise of an ISO are disposed of before the applicable ISO holding periods have been satisfied.

With respect to grants under the Restated Plan (other than ISOs and NQSOs, which are discussed above) that may be settled either in cash or in shares of common stock that are either not restricted as to transferability or not subject to a substantial risk of forfeiture, the participant must generally recognize ordinary income equal to the cash or the fair market value of the shares received. We will be entitled to a deduction for the same amount. With respect to grants involving shares that are restricted as to transferability and subject to a substantial risk of forfeiture, the participant must generally recognize ordinary income equal to the fair market value of the shares received at the time that the shares or other property become transferable or not subject to a substantial risk of forfeiture, whichever

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occurs earlier. We will be entitled to a deduction in an amount equal to the ordinary income recognized by the participant. A participant may elect to be taxed at the time of receipt of such restricted shares rather than upon the lapse of the restriction on transferability or the substantial risk of forfeiture. Such election must be made and filed with the Internal Revenue Service within thirty days after receipt of the shares.

In general, the grant of a restricted stock unit has no federal income tax consequences at the time of grant. If the stock issuable in settlement of a stock unit is paid out when the unit vests, the units are subject to taxation at the time of vesting. Assuming compliance with Code Section 409A, the participant will generally not have any federal income tax obligations upon vesting if the receipt of the shares is deferred beyond the time of vesting, but we may have income tax withholding obligations, if the participant is an employee. Upon delivery or payment of the stock or cash, the participant must generally recognize ordinary income in an amount equal to the fair market value of the shares. Generally, we will be entitled to a deduction to the extent the participant recognizes ordinary income from a grant, subject to any applicable withholding obligations we may have.

Code Section 162(m) generally disallows a public corporation’s tax deduction for compensation paid to its chief executive officer or any of its four other most highly compensated officers in excess of $1,000,000 in any year. Compensation that qualifies as “performance-based compensation” is excluded from the $1,000,000 deductibility cap, and therefore remains fully deductible by the corporation that pays it. The Compensation Committee intends that stock options granted under the Restated Plan will qualify as performance-based compensation, and the Restated Plan is designed to permit the grant of ISOs and NQSOs that qualify as “performance-based compensation”. Other grants awarded under the Restated Plan may not always qualify as “performance-based compensation.”