Exhibit 10.20

LOAN AGREEMENT

          THIS LOAN AGREEMENT (this “Agreement”), dated as of April 11, 2001, is
executed by Sheryle J. Bolton (“Borrower”), and SCIENTIFIC LEARNING CORPORATION,
a Delaware corporation (the “Company”).  All capitalized terms that are not
otherwise defined herein shall have the meaning set forth in the Security
Agreement.

RECITALS

          WHEREAS, the Board of Directors of the Company has authorized the
Company to loan up to $1,400,000 (the “Loan Cap”) to Borrower, which loan will
not be used to buy or carry public company stock (the “Loan”);

          WHEREAS, the parties wish to execute this Agreement to confirm the
Company’s commitment to extend such Loan and to attach the form of agreements to
be used in executing the Loan and extending a security interest to the Company
as collateral for the Loan;

          NOW, THEREFORE, in consideration of the promises made herein and for
other good and valuable consideration, Borrower and the Company hereby agree as
follows:

          1.       Loan.  Subject to the provisions of this Agreement, the
Company agrees, at any time prior to April 15, 2001, to make the Loan to
Borrower pursuant to a secured promissory note substantially in the form of
Exhibit A (the “Note”) and the pledge agreement substantially in the form of
Exhibit B (the “Security Agreement”) within five (5) business days of a written
request from Borrower.  Borrower may request that the amount of the Loan be less
than the Loan Cap.  Unless agreed to in writing by the Company, after
authorization by the Compensation Committee of the Board of Directors, the Loan
Cap shall not be increased.

          2.       Conditions to the Company’s Loan.  The Company’s obligation
to make the Loan described in Section 1 is contingent upon the following:

                    (a)      the Company’s obtaining a satisfactory bank loan to
finance the full amount of the Loan, which bank loan is expected to be
guaranteed by Warburg Pincus . or its affiliates;

                    (b)      the delivery by Borrower of an executed copy of the
Note, the Security Agreement, three undated stock powers with respect to the
certificates representing the Pledged Shares executed in blank by Borrower
substantially in the form attached as an Exhibit to the Security Agreement, one
or more UCC-1 financing statements substantially in the form attached as an
Exhibit to the Security Agreement and such other documents as the Company shall
reasonably request to perfect its security interest in the Collateral;

                    (c)      Borrower shall not have commenced a voluntary
proceeding seeking liquidation, reorganization or other relief with respect to
Borrower or Borrower’s debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official for Borrower or a
substantial part of Borrower’s property nor shall Borrower consent to any such
relief or to the appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against Borrower nor shall
Borrower make a general assignment for the benefit of creditors or generally
fail to pay Borrower’s debts as they become due or shall take any action to
authorize any of the foregoing;

                    (d)      an involuntary proceeding shall not have been
commenced against Borrower seeking liquidation, reorganization or other relief
with respect to Borrower or Borrower’s debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official for Borrower
or a substantial part of his property;

                    (e)      Borrower’s employment by or association with the
Company is terminated for “cause” (as defined in the form of Note attached
hereto as Exhibit A); and

                    (f)      Borrower is employed by, or provides consulting
services to, another company or business that provides neuroscience-based
educational technology products.

          3.       Miscellaneous

                    (a)      Governing Law.  This Agreement shall be construed
and enforced in accordance with, and the rights of the parties shall be governed
by, the internal laws of the State of California, without reference to
principles of conflicts of laws.

                    (b)      Counterparts.  This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

                    (c)      Entire Agreement. This Agreement and the exhibits
hereto constitute the entire agreement between the parties relating to the
subject matter hereof and no party shall be liable or bound to any other party
in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein.

                    (d)      Severability Of Provisions.  Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.

                    (e)      Notices. All written communications provided for
hereunder shall be sent by first class mail or nationwide overnight delivery
service (with charges prepaid) and (a) if to Borrower, addressed to Borrower’s
residence address on the records of the Company or at such other address as
Borrower shall have specified to the Company in writing; and (b) if to the
Company, addressed to it at its executive office address or at such other
address as the Company shall have specified to Borrower in writing.

                    (f)      Benefit.  The Company may assign all or part of its
rights under this Agreement to any other party.  Borrower may not assign its
rights or obligations hereunder without the Company’s express written consent. 
Borrower, the Company and their permitted successors and assigns shall be bound
by this Agreement.  They shall be the only persons entitled to its benefits.

                    (g)      Expenses.  Each party to this Agreement and the
exhibits shall bear its own expenses and legal fees incurred by it with respect
to this Agreement and all related transactions and agreements.

                    (h)      Amendments.   Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived, only
with the written consent of the Company and Borrower.

                    (i)       Termination.   This Agreement, and all obligations
hereunder, shall terminate and be of no force and effect, after April 15, 2001.

 

[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]

          IN WITNESS WHEREOF, the parties hereto have executed this Loan
Agreement as of the date first above written.

  BORROWER:               Signature: /s/ Sheryle J. Bolton

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            Printed Name: Sheryle J. Bolton           THE COMPANY:      
SCIENTIFIC LEARNING CORPORATION               By: /s/ Carleton Holstrom

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    Carleton Holstrom, on behalf of the
Compensation Committee of the Board of
Directors

 

[SIGNATURE PAGE TO LOAN AGREEMENT]

 

SECURED PROMISSORY NOTE

 

$1,400,000.00 April 11, 2001   Oakland, California

 

          FOR VALUE RECEIVED, Sheryle J. Bolton (“Borrower”), an employee of
Scientific Learning Corporation, a Delaware corporation (“Company,) hereby
unconditionally promises to pay to the order of Company, in lawful money of the
United States of America and in immediately available funds, the principal sum
of One Million Four Hundred Thousand Dollars ($1,400,000.00) (the “Loan”)
together with accrued and unpaid interest thereon, due and payable on the dates
and in the manner set forth below.

          It is the intent of the parties that the purpose of this Note is not
for consumer, family or household purposes.

          This Secured Promissory Note is the Note referred to in and is
executed and delivered in connection with that certain Pledge Agreement dated as
of even date herewith and executed and delivered by Borrower in favor of Company
(as the same may from time to time be amended, modified or supplemented or
restated (the “Security Agreement”).  Additional rights of Company are set forth
in the Security Agreement.  All capitalized terms used herein and not otherwise
defined herein shall have the respective meanings given to them in the Security
Agreement.

          1.       Principal Repayment.  The outstanding principal amount of the
Loan shall be due and payable on December 31, 2005 (the “Termination Date”).

          2.       Interest Rate.       Borrower further promises to pay
interest on the outstanding principal amount hereof from the date hereof until
payment in full, which interest shall be compounded annually and payable at the
rate of Four and 94/100 percent (4.94%) per annum or the maximum rate
permissible by law (which under the laws of the State of California shall be
deemed to be the laws relating to permissible rates of interest on commercial
loans), whichever is less.  Interest shall be due and payable on the Termination
Date and shall be calculated on the basis of a 365 day year for the actual
number of days elapsed.

          Any principal repayment or interest payment on the Loan hereunder not
paid when due, whether at stated maturity, by acceleration or otherwise, shall
bear interest at Six and 94/100 percent (6.94%) per annum.

          3.       Manner of Payment. Both principal and interest are payable in
immediately available funds in lawful money of the United States of America to
the Company at the principal office of Company unless another place of payment
shall be specified in writing by Company.

 

          4.       Application of Payments.  Payment on this Note shall be
applied first to accrued interest, if any, and thereafter to the outstanding
principal balance hereof.  Borrower may at any time pay the full amount or any
portion of this Note without notice or payment of any penalty, premium or fee. 
Any such prepayment shall be accompanied by payment of any and all accrued and
unpaid interest on the amount prepaid. All payments made on account of the
principal of or interest on this Note shall be recorded in the books and records
of the Company; provided, however, that the failure of the Company to make any
notation or any error therein shall not in any manner affect the obligation of
Borrower to repay this Note in accordance with the terms hereof.  Borrower
agrees that any document submitted by the Company purporting to show the
outstanding principal amount of this Note and all accrued and unpaid interest
hereon shall be conclusive in the absence of manifest error.

          5.       Secured Note.  The full amount of this Note is secured by the
collateral identified and described as security therefor in the Security
Agreement. Borrower shall not, directly or indirectly, create, permit or suffer
to exist, and shall defend the collateral against and take such other action as
is necessary to remove, any lien on or in the collateral, or in any portion
thereof, except as permitted pursuant to the Security Agreement.  To the extent
Borrower is unable to satisfy this Note when due with the collateral described
in the Security Agreement, the Company may hold Borrower personally liable for
this Note or assert any claim against Borrower for the payment of this Note.

          6.       Default.  Each of the following events shall be an “Event of
Default” hereunder:

                    (a)      Borrower shall fail to pay when due the Obligations
or any part thereof and such failure shall have continued for at least five
business days thereafter;

                    (b)      Any representation or warranty made or deemed made
by Borrower in the Security Agreement or in any certificate, report, notice or
financial statement furnished at any time in connection with the Security
Agreement, the Loan or this Note shall be false, misleading or erroneous in any
material respect when made or deemed to have been made;

                    (c)      Borrower shall fail to perform, observe or comply
with any covenant, agreement or term contained in the Security Agreement and
such failure shall continue for a period of ten business days after the earlier
of (i) notice thereof being given by the Company to Borrower or (ii) such
default otherwise becoming known to Borrower;

                    (d)      Borrower shall commence a voluntary proceeding
seeking liquidation, reorganization or other relief with respect to Borrower or
Borrower’s debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official for him or a substantial part of
his property or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against him or shall make a general assignment for the
benefit of creditors or shall generally fail to pay his debts as they become due
or shall take any action to authorize any of the foregoing;

 

                    (e)      an involuntary proceeding shall be commenced
against Borrower seeking liquidation, reorganization or other relief with
respect to Borrower or Borrower’s debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official for Borrower
or a substantial part of his property, and such involuntary proceeding shall
remain undismissed and unstayed for a period of 60 days;

                    (f)      the Security Agreement or this Note shall cease to
be in full force and effect or shall be declared null and void or the validity
or enforceability thereof shall be contested or challenged by Borrower, or
Borrower shall deny any further liability or obligation under the Security
Agreement or this Note;

                    (g)      Borrower’s employment by or association with the
Company is terminated for “cause” (as defined below);

                    (h)      Borrower is employed by, or provides consulting
services to, another company or business that provides neuroscience-based
educational technology products; or

                    (i)       Borrower shall breach any representation or
covenant under the Security Agreement.

          Upon the occurrence of an Event of Default hereunder, all unpaid
principal, accrued interest and other amounts owing hereunder shall, at the
option of Company, and, in the case of an Event of Default pursuant to (d), (e)
or (f) above, automatically, be immediately due, payable and collectible by
Company pursuant to applicable law.  Notwithstanding the foregoing, if an Event
of Default has occurred under (g) or (h) above (together, the “Employment
Defaults”), Borrower shall have 90 days after such event to pay all unpaid
principal, accrued interest and other amounts owing hereunder.   Company shall
have all rights and may exercise any remedies available to it under law,
successively or concurrently.  Borrower expressly acknowledges and agrees that
the Company shall have the right to offset any obligations of Borrower hereunder
against salaries, bonuses or other amounts that may be payable to Borrower by
the Company.

          “Cause” shall be defined to include the following, as determined in
good faith by the Board of Directors in its sole discretion: (i) material breach
of the Company’s policies, (ii) material breach of the Security Agreement or
this Note, (iii) neglect or abandonment of assigned duties, (iv) the commission
of any act of fraud, embezzlement or dishonesty against the Company, (v)
conviction of any felony or any crime of moral turpitude or dishonesty, (vi)
intentional damage to the Company’s property, (vii) any material breach of a
proprietary information and inventions agreement with the Company or
unauthorized use or disclosure of confidential information or trade secrets of
the Company, or (viii) conduct by Borrower which demonstrates unfitness to
serve.

          Waiver. Borrower waives presentment and demand for payment, notice of
dishonor, protest and notice of protest of this Note, and shall pay all costs of
collection when incurred, including, without limitation, reasonable attorneys’
fees, costs and other expenses.

          The right to plead any and all statutes of limitations as a defense to
any demands hereunder is hereby waived to the full extent permitted by law.

          7.       Governing Law.  This Note shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.

          8.       Expenses.  Borrower agrees to pay all reasonable costs and
expenses, including, without limitation, reasonable attorneys’ fees and costs of
court, incurred by Company or any other holder of this Note in collecting or
enforcing payment of this Note in accordance with its terms.

          9.       Amendment. This Note may not be changed, amended or modified
except in a writing executed by Borrower and the holder hereof.

          10.     Complete Agreement. This Note and the Security Agreement
represent the final agreement between Borrower and Company with respect to the
matters referred to herein and may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreement of Borrower and Company.  There are
no oral agreements between Borrower and Company with respect to the matters
referred to herein.

          11.     Successors and Assigns.  The provisions of this Note shall
inure to the benefit of and be binding on any successor to Borrower and shall
extend to any holder hereof. Borrower shall not, without the prior written
consent of holder, assign any of its rights or obligations hereunder.

          IN WITNESS WHEREOF, this Note has been executed as of the date first
written above.

BORROWER:

Signature: /s/ Sheryle J. Bolton

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  Printed Name: Sheryle J. Bolton

 

PLEDGE AGREEMENT

          THIS PLEDGE AGREEMENT (this “Agreement”), dated as of April 11, 2001
is executed by Sheryle J. Bolton (“Borrower”), an individual residing in
Oakland, California, and SCIENTIFIC LEARNING CORPORATION, a Delaware corporation
(the “Company”).

          WHEREAS, the Company has loaned $1,400,000 to Borrower which loan will
not be used to buy or carry public company stock;

          WHEREAS, such loan (the “Loan”) is evidenced by a Secured Promissory
Note, dated the date hereof, executed by Borrower and made payable to the order
of the Company (together with all renewals, extensions and replacements thereof,
the “Note”); and

          WHEREAS, the Company was unwilling to make the Loan to Borrower unless
Borrower entered into this Agreement to secure the payment and performance of
the Note by Borrower.

          NOW, THEREFORE, Borrower and the Company hereby agree as follows:

          Section 1.    Definitions.  For purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires, the
following terms shall have the following respective meanings:

          “Code” means the Uniform Commercial Code in effect in the State of
California.

          “Collateral” means (a) the Pledged Shares and the certificates
representing the Pledged Shares, and all dividends, cash instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares, (b) all
dividends, distributions and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the Pledged Shares and (c) all proceeds of any of the foregoing (whether such
proceeds arise before or after the commencement of a case under the bankruptcy
laws by or against Borrower as debtor).

          “Event of Default” means any one or more of the following events:

          (a)      Borrower shall fail to pay when due the Obligations or any
part thereof and such failure shall have continued for at least five business
days;

          (b)      any representation or warranty made or deemed made by
Borrower in this Agreement or in any certificate, report, notice or financial
statement furnished at any time in connection with this Agreement, the Loan or
the Note shall be false, misleading or erroneous in any material respect when
made or deemed to have been made;

          (c)      Borrower shall fail to perform, observe or comply with any
covenant, agreement or term contained in this Agreement and such failure shall
continue for a period of five business days after the earlier of (i) notice
thereof being given by the Company to Borrower or (ii) such default otherwise
becoming known to Borrower;

          (d)      Borrower shall commence a voluntary proceeding seeking
liquidation, reorganization or other relief with respect to Borrower or
Borrower’s debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official for him or a substantial part of
his property or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against him or shall make a general assignment for the
benefit of creditors or shall generally fail to pay his debts as they become due
or shall take any action to authorize any of the foregoing;

          (e)      an involuntary proceeding shall be commenced against Borrower
seeking liquidation, reorganization or other relief with respect to Borrower or
Borrower’s debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official for Borrower or a substantial
part of his property, and such involuntary proceeding shall remain undismissed
and unstayed for a period of 60 days;

          (f)      this Agreement or the Note shall cease to be in full force
and effect or shall be declared null and void or the validity or enforceability
thereof shall be contested or challenged by Borrower, or Borrower shall deny any
further liability or obligation under this Agreement or the Note; or

          (g)      ninety (90) days after any Employment Default (as defined in
the Note), if any amount then remains outstanding under the Note.

          “Lien” means any lien, mortgage, security interest, tax lien, pledge,
assessment, encumbrance, lease, adverse claim, levy, charge or retained interest
pursuant to a conditional sale or title retention contract, or any other
interest in property designed to secure the repayment of debt or any other
obligation, whether arising by agreement, operation of law or otherwise, or any
contract to give any of the foregoing.

          “Loan” has the meaning specified in the second recital hereof.

          “Note” has the meaning specified in the second recital hereof.

          “Obligations” means all obligations of Borrower to the Company under
or in connection with the Note, regardless of how created, arising or evidenced
and whether direct or indirect, primary or secondary, absolute or contingent,
joint or several or now or hereafter existing or due or to become due, and all
interest accruing thereon, and all attorneys’ fees and other expenses incurred
in the enforcement or collection thereof.

          “Person” means any natural person, partnership, corporation, business
trust, association, company, limited liability company, joint venture,
governmental authority or any other form of business or legal entity.

          “Pledged Shares” means a total of 260,785 shares of Common Stock of
the Company registered in the name of Borrower, which are represented by stock
certificates numbers SCIL 890, SCIL 876, SCIL 985, SCI 2022, SCI 2084 and SCI
2085.  Notwithstanding the foregoing, “Pledged Shares” shall not include any
shares of Common Stock of the Company which have been released from this
Agreement pursuant to Section 10.

          “Securities Act” means the Securities Act of 1933, as amended.

          Unless the context otherwise requires, terms defined in the Code shall
have the same meanings when used in this Agreement.

          Section 2.    Pledge.

          (a)      As security for the prompt and complete payment and
performance when due of all of the Obligations, Borrower hereby pledges,
hypothecates, assigns and grants to the Company a continuing security interest
of first priority in all of the Collateral.

          (b)      On the date hereof, Borrower shall deliver to the Company
three undated stock powers with respect to the certificates representing the
Pledged Shares duly executed in blank, substantially in the form of Exhibit A
attached hereto, one or more UCC-1 financing statements, substantially in the
form of Exhibit B attached hereto, and such other documents as the Company shall
reasonably request to perfect its security interest in the Collateral.

          As further described in this Agreement, nothing in this Agreement, the
Note or any other agreement shall limit the Company’s right to hold Borrower
personally liable for the Note or assert any claim against Borrower for the
payment of the Note.

          Section 3.    Stock Dividends, etc.  If, while this Agreement is in
effect, Borrower shall become entitled to receive or shall receive any stock
certificate (including, without limitation, any certificate representing a stock
dividend or a distribution in connection with any reclassification, increase or
reduction of capital, or issued in connection with any reorganization), option
or rights (in connection with Borrower’s ownership of the Collateral, whether as
an addition to, in substitution of or in exchange for any Pledged Shares or any
other Collateral), Borrower agrees to accept the same as the Company’s agent and
to hold the same in trust on behalf of and for the benefit of the Company,
subject to the terms of this Agreement, as additional Collateral.

          Section 4.    Cash Dividends; Voting Rights; Dissolution.

          (a)      Unless an Event of Default shall have occurred and be
continuing, Borrower shall be entitled, except as provided in Sections 3 and 5,
to receive all dividends and distributions in respect of the Collateral, to vote
the Collateral and to give consents, waivers and ratifications in respect of the
Collateral; provided, however, that no vote shall be cast or consent, waiver or
ratification given or action taken which would have a material adverse effect on
the value or marketability of the Collateral or be inconsistent with or violate
the provisions of this Agreement and, provided further, that any sums paid upon
or in respect of the Collateral upon the liquidation or dissolution of the
issuer thereof shall be paid over to the Company to be held by it as additional
Collateral for the Obligations subject to the term hereof.

          (b)      Borrower hereby appoints the Company, with full power of
substitution, effective upon the occurrence of any Event of Default,  as
Borrower’s proxy and attorney-in-fact to vote, give consents and approvals, call
meetings and exercise any other rights with respect to the Pledged Shares or any
other Collateral.  This proxy and power-of-attorney shall be in full force and
effect upon the occurrence of any Event of Default until the termination of this
Agreement and is irrevocable and exclusive and shall not be terminated or
otherwise affected by any action or inaction of Borrower or by operation of law,
by death or disability of Borrower or by the occurrence of any other event. 
Except as set forth in paragraph (a) above, Borrower shall have no right to
vote, give consents or approvals or exercise any other right with respect to the
Pledged Shares or any other Collateral.

          Section 5.    Rights of the Company.

          (a)      The Company shall have the right to deliver any stop-order
instructions to the Company’s transfer agent in order to prevent Borrower from
making any transfers or pledges of the Pledged Shares in violation of this
Agreement.  The Company shall also have the right to remove any such stop-order
instructions at any time.

          (b)      Subject to the Company’s obligations under secured
transactions law if the Company has taken possession of the Collateral, the
Company shall not be liable for failure to collect or realize upon the
Obligations secured hereby or any collateral security or guarantee therefor, or
any put thereof, or for any delay in so doing, nor shall the Company be under
any obligation to take any action whatsoever with regard thereto.

          (c)      If an Event of Default has occurred and is continuing, the
Company shall notify Borrower in writing requesting immediate delivery by
Borrower to the Company of any and all certificates comprising a part of the
Collateral.  If Borrower delivers such certificate(s), the Company may transfer
or register or have registered in the name of the Company or the Company’s
nominee any and all shares comprising a part of the Collateral, and the Company
or its nominee may thereafter exercise all voting and corporate rights at any
meeting of the Company’s shareholders and any and all rights of conversion,
exchange, subscription or any other rights, privileges or options pertaining to
any shares comprising a part of the Collateral as if it were the absolute owner
thereof, including, without limitation, the right to exchange, at its
discretion, any and all of the Collateral upon the merger, consolidation,
reorganization, recapitalization or other readjustment of the Company or upon
the exercise by Borrower or the Company of any right, privilege or option
pertaining to the Collateral, and, in connection therewith, to deposit and
deliver any and all of the Collateral with any committee, depositary, transfer
agent, registrar or other designated agency upon such terms and conditions as it
may determine, all without liability except to account for property actually
received by it. If Borrower fails to deliver such certificates within three (3)
business days of receipt of the Company’s notice, Borrower agrees that the
Company may complete one or more stock powers in order to transfer to the
Company (or such other individual or entity as the Company determines) the
number of shares necessary to satisfy the Obligations and the Company shall have
such rights described in this Section 5.  The Company shall have no duty to
exercise any of the aforesaid rights, privileges or options, and the Company
shall not be responsible for any failure to do so or delay in so doing.

 

          Section 6.    Remedies.

          (a)      In the event that an Event of Default shall have occurred and
be continuing, the Company may (i) by notice to Borrower, declare the Note, or
any portion thereof, to be immediately due and payable, and the same shall
thereupon become immediately due and payable, without any other notice and
without demand, presentment, notice of dishonor, notice of acceleration, notice
of intent to accelerate, notice of intent to demand, protest or other
formalities of any kind, all of which are hereby expressly waived by Borrower to
the extent permitted by law and/or (ii) without demand of performance or other
demand, advertisement or notice of any kind to or upon Borrower or any other
Person (all and each of which demands, advertisements and/or notices are hereby
expressly waived to the extent permitted by law), exercise in respect of the
Collateral, in addition to the other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the Code (whether or not the Code applies to the affected
Collateral), including collecting, receiving, appropriating and realizing upon
the Collateral, or any part thereof, and/or may forthwith sell, assign, give an
option or options to purchase, contract to sell or otherwise dispose of and
deliver the Collateral, or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange, broker’s board or at any of the
Company’s offices or elsewhere upon such terms and conditions as it may, in its
absolute discretion, deem advisable and at such prices as it may, in its
absolute discretion, deem best, for cash or on credit or for future delivery
without the assumption of any credit risk, free of any right or equity of
redemption in Borrower, which right or equity is hereby expressly waived and
released to the extent permitted by law, upon any such sale or sales, public or
private, to purchase the whole or any part of the Collateral so sold; provided,
however, that Borrower shall not be credited with the net proceeds of any credit
sale or future delivery until cash proceeds are actually received by the
Company.

          (b)      Borrower agrees that, to the extent notice of sale shall be
required by law, at least 10 days’ notice to Borrower of the time and place of
any public sale or of the time after which a private sale or other intended
disposition is to take place shall be commercially reasonable notification of
such matters.

          (c)      In case the Company shall have instituted any proceeding to
enforce any right, power or remedy under this Agreement by foreclosure, sale,
entry or otherwise, and such proceeding shall have been discontinued or
abandoned for any reason or shall have been determined adversely to the Company
then and in every such case Borrower and the Company shall be restored to their
respective former positions and rights hereunder with respect to the Collateral
and all rights, remedies and powers of the Company shall continue as if no such
proceeding had been instituted.

          (d)      All rights and remedies of the Company expressed herein are
in addition to all other rights and remedies possessed by the Company under the
Note, at law or in equity.

 

          Section 7.    Sale of Collateral.

          (a)      If at any time when the Company shall determine to exercise
its right to sell all or any part of the Collateral pursuant to Section 6
hereof, such Collateral or the part thereof to be sold shall not, for any reason
whatsoever, be effectively registered under the Securities Act, the Company may,
in its sole and absolute discretion, sell such Collateral or part thereof by
private sale in such manner and under such circumstances as the Company may deem
necessary or advisable in order that such sale may legally be effected without
such registration. Without limiting the generality of the foregoing, in any such
event the Company, in its sole and absolute discretion, (i) may proceed to make
such private sale notwithstanding that a registration statement for the purpose
of registering such Collateral or part thereof shall have been filed under the
Securities Act, (ii) may approach and negotiate with a single possible purchaser
to effect such sale and (iii) may restrict such sale to a purchaser who will
represent and agree that such purchaser is purchasing for its own account, for
investment, and not with a view to the distribution or sale of such Collateral
or part thereof.  In the event of any such sale, the Company shall incur no
responsibility or liability for selling all or any part of the Collateral at a
price which the Company, in its sole and absolute discretion, may in good faith
deem reasonable under the circumstances, notwithstanding the possibility that a
substantially higher price might be realized if the sale were deferred until
after registration as aforesaid.  Borrower agrees that the Company need not sell
the Collateral in a public offering even though it may yield a higher price than
the actual method of sale.

          (b)      Borrower agrees that a sale of any Collateral is a public
sale pursuant to Section 9-504(3) of the Uniform Commercial Code if (i) an offer
to sell such Collateral has been advertised for at least one day in each of two
consecutive weeks in any newspaper of general circulation in the San Francisco
financial community and such sale is made more than 10 days after the first such
advertisement or (ii) such Collateral is offered to at least five bona fide
offerees who the Company reasonably believes may be interested in that type of
investment.  This shall not constitute an admission that any such offer is a
public offering under securities laws or that any other method of sale is not a
public sale.

          Section 8.    Application of Proceeds.  Any proceeds of disposition of
any Collateral shall be applied:

          first, to the Company’s expenses in enforcing its rights and remedies,
including reasonable attorney’s fees and expenses,

          second, to the satisfaction of the Obligations, in the order and
manner provided in the Note,

          third, to the payment of any other amount required by law, and

          fourth, to Borrower.

          Borrower shall remain liable for any deficiency in the Obligations.

 

          Section 9.    Possession of Collateral.  For convenience purposes
only, and not to extend any rights to Borrower thereby, Borrower shall be
entitled to hold the Collateral in trust subject to the provisions of this
Agreement, except as from time to time the Collateral may be required for
recordation or for the purpose of enforcing or realizing upon any right or value
represented thereby.  As further described below in Section 12, Borrower’s
possession of the Collateral does not give Borrower the right to transfer the
Collateral or take any other action that would restrict or nullify the Company’s
rights to hold a perfected security interest in the Collateral.  In order to
handle the administrative task of transferring ownership of the Collateral from
Borrower should an Event of Default occur and Borrower fail to provide the
Company with the certificates representing the Collateral, Borrower shall
deliver to the Company three undated stock powers with respect to the
certificates representing the Pledged Shares duly executed in blank,
substantially in the form of Exhibit A attached hereto.

          Section 10.  Release of Collateral.

          (a)      If the Aggregate Market Value on any date exceeds the
Borrowing Base on such date, then Borrower shall be entitled to obtain a release
of Pledged Shares from this Agreement and the security interest created hereby
so long as, immediately after giving effect to such release, the Aggregate
Market Value is not less than the Borrowing Base.  As used herein, (i)
“Aggregate Market Value” means, as of any date, the aggregate fair market value
of the Pledged Shares on such date, as determined by the Per Share Market Value
on such date, (ii) “Per Share Market Value” means, as of any date, the closing
price per share of Common Stock of the Company as reported in the Wall Street
Journal for the last trading day immediately preceding such date and (iii)
“Borrowing Base” means, as of any date, 120% of the principal balance of the
Note outstanding on such date.

          (b)      In the event that the Aggregate Market Value is less than the
Borrowing Base, then Borrower shall have no obligation to pledge additional
shares of Common Stock of the Company.

          (c)      At the request of Borrower, the Company shall promptly
execute and deliver to Borrower all such certificates and other instruments,
including the filing of any amended UCC-1 financing statements, as shall be
necessary or appropriate in order to effectuate any release to which Borrower
has become entitled under this Section 10.

          (d)      If Borrower wishes to sell Pledged Shares that Borrower is
not entitled to have released under this Section 10 for the purpose of using the
proceeds to pay obligations under the Note, the Company and Borrower shall
cooperate to facilitate the prompt execution of such sales and delivery to the
Company of the proceeds thereof as payment under the Note.

          Section 11.  Representations and Warranties of Borrower.  Borrower
hereby represents and warrants to the Company as follows:

          (a)      Borrower has the legal capacity necessary or advisable to
enter into and perform this Agreement.

          (b)      Borrower has duly executed and delivered this Agreement.

 

          (c)      Borrower’s execution, delivery and performance of this
Agreement, and the enforcement by the Company of any of its rights hereunder, do
not and will not breach or constitute a default, give rise to any right of
acceleration or termination or result in or require the creation of any Lien
under any agreement or instrument to which Borrower is a party or by which
Borrower or any of Borrower’s property is bound.

          (d)      This Agreement is a legal, valid and binding obligation of
Borrower, enforceable against Borrower in accordance with its terms.

          (e)      This Agreement creates in favor of the Company a legal, valid
and binding security interest, enforceable in accordance with its terms, in all
the Collateral.

          (f)      The Company has a first priority security interest in the
Pledged Shares.  No action by the Company is required to perfect a first
priority security interest in favor of the Company in all Collateral.

          Section 12.  Certain Covenants of Borrower.  Borrower covenants and
agrees with the Company that until the Obligations are paid and performed in
full:

          (a)      Borrower shall promptly notify the Company of the occurrence
or existence of any Event of Default or the occurrence or existence of any
condition or event that, with the giving of notice or lapse of time or both,
would be an Event of Default.

          (b)      Borrower shall maintain the Collateral free from any Lien
adverse to the Company.

          (c)      Borrower shall keep accurate records with respect to the
Collateral. If requested by the Company, Borrower shall permit the Company and
its agents and representatives to examine and make copies or abstracts of such
records. If requested by the Company, Borrower shall prepare and deliver to the
Company a statement accurately identifying or describing any or all Collateral.

          (d)      Borrower agrees to take any action (including the execution,
delivery, recording, filing, rerecording and refiling of any financing
statements, continuation statements or other documents) that the Company may
reasonably request to (i) perfect, continue, maintain, preserve and protect the
security interest purported to be created hereby as a first priority security
interest in all the Collateral, (ii) enable the Company to exercise and enforce
its rights and remedies or (iii) otherwise effect the purposes of this
Agreement.  If the Company believes that it needs to obtain injunctive relief 
in order to perfect its security interest in the Collateral, Borrower agrees to
consent to such injunctive relief without delay or challenge.

          (e)      Borrower shall not permit or suffer to exist any Lien on any
Collateral, or part thereof, except for the security interest created hereby.

          (f)      Borrower shall not transfer, pledge or otherwise assign the
Pledged Shares and agrees that its right to retain possession of the collateral
pursuant to Section 9 is for convenience only and Borrower shall not take any
action that would restrict or nullify the Company’s rights hereunder.

          (g)      Borrower shall not use any proceeds from the Loan to buy or
carry public company stock.

          Section 13.  No Waiver; Modifications in Writing.  No failure or delay
on the part of the Company in exercising any right, power or remedy hereunder
shall operate as a waiver hereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy.  The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to the Company at law or in equity or otherwise.  No amendment,
modification, supplement, termination or waiver of or to any provision of this
Agreement nor consent to any departure by Borrower shall be effective unless the
same shall be in writing and signed by or on behalf of the Company. Any
amendment, modification or supplement of or to any provision of this Agreement,
any waiver of any provision of this Agreement and any consent to any departure
by Borrower from the terms of any provision of this Agreement shall be effective
only in the specific instance and for the specific purpose for which made or
given.  Except where notice is specifically required by this Agreement or the
Note, no notice to or demand on Borrower in any case shall entitle Borrower to
any other or further notice or demand in similar or other circumstances.

          Section 14.  Security Agreement as Financing Statement. The Company is
authorized to file this Agreement or a photocopy hereof as a financing statement
with respect to any one or more items comprising the Collateral.

          Section 15.  Counterparts.  This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.

          Section 16.  Security Interest Absolute.  All rights of the Company
and security interests hereunder, and all obligations of Borrower hereunder,
shall be absolute and unconditional irrespective of:

          (a)      any lack of validity or enforceability of the Note or any
other agreements or instruments relating thereto;

          (b)      any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Note;

          (c)      any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to departure
from any guaranty, for all or any of the Obligations; or

          (d)      any other circumstance which might otherwise constitute a
defense available to, or a discharge of, Borrower or a third party pledgor.

          Section 17.  Governing Law.  THIS AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REFERENCE TO PRINCIPLES OF
CONFLICTS OF LAW.

 

          Section 18.  Severability Of Provisions.  Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.

          Section 19.  Notices. All written communications provided for
hereunder shall be sent by first class mail or nationwide overnight delivery
service (with charges prepaid) and (a) if to Borrower, addressed to Borrower’s
residence address on the records of the Company or at such other address as
Borrower shall have specified to the Company in writing; and (b) if to the
Company, addressed to it at its executive office address or at such other
address as the Company shall have specified to Borrower in writing.

          Section 20.  Submission to Jurisdiction.  BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED
IN CALIFORNIA OVER ANY ACTION OR PROCEEDING (A) TO ENFORCE OR DEFEND ANY RIGHT
UNDER THIS AGREEMENT OR THE NOTE OR (B) ARISING FROM OR RELATING TO ANY
FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT AND THE NOTE,
AND BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE OR FEDERAL COURT.
BORROWER HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO BORROWER AT
BORROWER’S ADDRESS FOR NOTICES PURSUANT TO SECTION 19, SUCH SERVICE TO BECOME
EFFECTIVE 30 DAYS AFTER SUCH MAILING. A COPY OF ANY SUCH PROCESS SO SERVED SHALL
BE MAILED BY REGISTERED MAIL TO BORROWER AT BORROWER’S ADDRESS PROVIDED IN
SECTION 19, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE
TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. BORROWER
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT THAT HE MAY EFFECTIVELY DO SO,
THE DEFENSE OF AN INCONVENIENT FORUM OR VENUE TO THE MAINTENANCE OF ANY SUCH
ACTION OR PROCEEDING. BORROWER AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION
OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING IN THIS
SECTION 20 SHALL AFFECT THE RIGHT OF ANY OTHER PERSON TO SERVE LEGAL PROCESS IN
ANY OTHER MANNER PERMITED BY APPLICABLE LAW, OR THE RIGHT OF ANY OTHER PERSON TO
BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR THE PROPERTY OF BORROWER IN
THE COURTS OF ANY OTHER JURISDICTION.

 

          Section 21.  Final Agreement of the Parties.  THE NOTE AND THIS
AGREEMENT REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE
MATTERS REFERRED TO THEREIN AND HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES WITH RESPECT TO THE MATTERS
REFERRED TO HEREIN OR IN THE NOTE.

          Section 22.  Headings, etc. The headings, captions and arrangements
used in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.  In this Agreement, unless a clear contrary
intention appears, (i) the words “herein,” “hereof” and “hereunder” and other
words of similar import refer to this Agreement as a whole and not to any
particular Section or other subdivision and (ii) reference to any Section means
such Section of this Agreement.

          Section 23.  Waiver of Protest and Bond.  In the event the Company
seeks to take possession of any or all of the Collateral by injunctive relief or
other judicial process, Borrower hereby irrevocably waives protest any bonds and
any surety or security relating thereto that may be required by applicable law
as an incident to such possession, and waives any demand for possession prior to
the commencement of any such suit or action.

          Section 24.  Benefit.  The Company may assign all or part of its
rights under this Agreement to any holder of an Obligation. Borrower, the
Company and their permitted successors and assigns shall be bound by this
Agreement. They shall be the only Persons entitled to its benefits.

 

[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

          IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.

BORROWER:

Signature: /s/ Sheryle J. Bolton

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

 

Printed Name: Sheryle J. Bolton

THE COMPANY:   SCIENTIFIC LEARNING CORPORATION   By: /s/ Carleton A. Holstrom

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

  Carleton A. Holstrom, on behalf of the
Compensation Committee of the Board of
Directors

 

[SIGNATURE PAGE TO PLEDGE AGREEMENT]

 

EXHIBIT A

ASSIGNMENT SEPARATE FROM CERTIFICATE

          FOR VALUE RECEIVED, ______________________ hereby sells, assigns and
transfers unto ______________________, ______________________ (_______) shares
of the Common Stock of Scientific Learning Corporation (the “Company”) standing
in the undersigned’s name on the books of the Company represented by Certificate
No.(s) ______________________ herewith and do hereby irrevocably constitute and
appoint the Company’s transfer agent to transfer the said stock on the books of
the Company with full power of substitution in the premises.

Dated:  __________

Signature of Borrower: _____________________________

Name of Borrower: ________________________________

  If Applicable:

Additional Signature:________________________________

Name of Signatory:_________________________________

 

EXHIBIT B

UCC-1 FINANCING STATEMENT

  THIS SPACE FOR USE OF FILING OFFICER

 

 

 

FINANCING STATEMENT — FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform
Commercial Code
and will remain effective, with certain exceptions, for 5 years from date of
filing.

A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. #
(optional)   C. RETURN COPY TO:  (Name and Mailing Address)

              Diana R. Sanchez
              Cooley Godward LLP
              3000 El Camino  Real
              Palo Alto, CA  94306

  D. OPTIONAL DESIGNATION (if applicable): : LESSOR/LESSEE  :
CONSIGNOR/CONSIGNEE  : NON-UCC FILING   1. DEBTOR’S EXACT FULL LEGAL NAME -
insert only one debtor name (1a or 1b)            OR 1a. ENTITY’S NAME       1b.
INDIVIDUAL’S LAST NAME FIRST NAME MIDDLE NAME SUFFIX           1c. MAILING
ADDRESS CITY STATE COUNTRY POSTAL CODE           1d. S.S. OR TAX I.D.# OPTIONAL
ADD’NL INFO RE
ENTITY DEBTOR 1e. TYPE OF ENTITY 1f. ENTITY’S STATE OR COUNTRY OF ORGANIZATION
1g. ENTITY’S ORGANIZATION I.D.#, if any
                                           o NONE   2. ADDITIONAL DEBTOR’S EXACT
FULL LEGAL NAME - insert only one debtor name (2a or 2b) OR 2a. ENTITY’s name  
    2b. INDIVIDUAL’S LAST NAME FIRST NAME MIDDLE NAME SUFFIX           2c.
MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE           2d. S.S. OR TAX I.D.#
OPTIONAL
ADD’NL INFO RE
ENTITY DEBTOR 2e. TYPE OF ENTITY 2f. ENTITY’S STATE OR COUNTRY OF ORGANIZATION
2g. ENTITY’S ORGANIZATION I.D.#, if any
                                           o NONE   3. SECURED PARTY’S (ORIGINAL
S/P or ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only one secured party
name (3a or 3b) OR 3a. ENTITY’S NAME
                                         SCIENTIFIC LEARNING CORPORATION   3b.
INDIVIDUAL’S LAST NAME FIRST NAME MIDDLE NAME SUFFIX           3c. MAILING
ADDRESS
          1995 University Avenue, Suite 400 CITY
Berkeley STATE
CA COUNTRY
USA POSTAL CODE
94704   4.  This FINANCING STATEMENT covers the following types or items of
property:

All right, title and interest of Debtor in, to and under the personal property
set forth on EXHIBIT A attached hereto and incorporated herein by reference.

    5.CHECK o
    BOX
    (if applicable) This FINANCING STATEMENT is signed by the Secured Party
instead of the Debtor to perfect a security interest (a) in collateral already
subject to a security interest in another jurisdiction when it was brought into
this state, or when the debtor’s location was changed to this state, or (b) in
accordance with other statutory provisions [additional data may be required]    
7. If filed in Florida (check one)
o Documentary            o Documentary
stamp tax paid                tax not applicable   6. REQUIRED SIGNATURE(S) 8. :
This FINANCING STATEMENT is to be filed [for record]
(or recorded) in the REAL ESTATE RECORDS
Attach Addendum     [if applicable]   By:                           
                                  Title: 9. Check to REQUEST SEARCH
CERTIFICATE(S) on debtor(s)
[ADDITIONAL FEE]
(optional)     o All Debtors    o Debtor 1    o Debtor 2   (1) FILING OFFICER
COPY — NATIONAL FINANCING STATEMENT (FORM UCC1) (TRANS.) (REV. 12/18/95)

Exhibit A
to

UCC-1 Financing Statement

between

SCIENTIFIC LEARNING CORPORATION, as Secured Party

and

______________________________, as Debtor

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

1.                 Borrower hereby pledges, hypothecates, assigns and grants to
the Secured Party a continuing security interest of first priority in all of the
Collateral.

2.       For purposes of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires, the following terms shall have the
following respective meanings:

          “Code” means the Uniform Commercial Code in effect in the State of
California.

          “Collateral” means (a) the Pledged Shares and the certificates
representing the Pledged Shares, and all dividends, cash instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares, (b) all
dividends, distributions and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the Pledged Shares and (c) all proceeds of any of the foregoing (whether such
proceeds arise before or after the commencement of a case under the bankruptcy
laws by or against Borrower as debtor).

           “Pledged Shares” means ________________ shares of Common Stock of the
Company registered in the name of Borrower represented by stock certificate
number(s) __________________________.

 

 

Exhibit

LOAN AGREEMENT

          THIS LOAN AGREEMENT (this “Agreement”), dated as of April 11, 2001, is
executed by Frank M. Mattson (“Borrower”), and SCIENTIFIC LEARNING CORPORATION,
a Delaware corporation (the “Company”).  All capitalized terms that are not
otherwise defined herein shall have the meaning set forth in the Security
Agreement.

RECITALS

          WHEREAS, the Board of Directors of the Company has authorized the
Company to loan up to $275,000 (the “Loan Cap”) to Borrower, which loan will not
be used to buy or carry public company stock (the “Loan”);

          WHEREAS, the parties wish to execute this Agreement to confirm the
Company’s commitment to extend such Loan and to attach the form of agreements to
be used in executing the Loan and extending a security interest to the Company
as collateral for the Loan;

          NOW, THEREFORE, in consideration of the promises made herein and for
other good and valuable consideration, Borrower and the Company hereby agree as
follows:

          1.       Loan.  Subject to the provisions of this Agreement, the
Company agrees, at any time prior to April 15, 2001, to make the Loan to
Borrower pursuant to a secured promissory note substantially in the form of
Exhibit A (the “Note”) and the pledge agreement substantially in the form of
Exhibit B (the “Security Agreement”) within five (5) business days of a written
request from Borrower.  Borrower may request that the amount of the Loan be less
than the Loan Cap.  Unless agreed to in writing by the Company, after
authorization by the Compensation Committee of the Board of Directors, the Loan
Cap shall not be increased.

          2.       Conditions to the Company’s Loan.  The Company’s obligation
to make the Loan described in Section 1 is contingent upon the following:

                    (a)      the Company’s obtaining a satisfactory bank loan to
finance the full amount of the Loan, which bank loan is expected to be
guaranteed by Warburg Pincus . or its affiliates;

                    (b)      the delivery by Borrower of an executed copy of the
Note, the Security Agreement, three undated stock powers with respect to the
certificates representing the Pledged Shares executed in blank by Borrower
substantially in the form attached as an Exhibit to the Security Agreement, one
or more UCC-1 financing statements substantially in the form attached as an
Exhibit to the Security Agreement and such other documents as the Company shall
reasonably request to perfect its security interest in the Collateral;

                    (c)      Borrower shall not have commenced a voluntary
proceeding seeking liquidation, reorganization or other relief with respect to
Borrower or Borrower’s debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official for Borrower or a
substantial part of Borrower’s property nor shall Borrower consent to any such
relief or to the appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against Borrower nor shall
Borrower make a general assignment for the benefit of creditors or generally
fail to pay Borrower’s debts as they become due or shall take any action to
authorize any of the foregoing;

                    (d)      an involuntary proceeding shall not have been
commenced against Borrower seeking liquidation, reorganization or other relief
with respect to Borrower or Borrower’s debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official for Borrower
or a substantial part of his property;

                    (e)      Borrower’s employment by or association with the
Company is terminated for “cause” (as defined in the form of Note attached
hereto as Exhibit A); and

                    (f)      Borrower is employed by, or provides consulting
services to, another company or business that provides neuroscience-based
educational technology products.

          3.       Miscellaneous

                    (a)      Governing Law.  This Agreement shall be construed
and enforced in accordance with, and the rights of the parties shall be governed
by, the internal laws of the State of California, without reference to
principles of conflicts of laws.

                    (b)      Counterparts.  This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

                    (c)      Entire Agreement. This Agreement and the exhibits
hereto constitute the entire agreement between the parties relating to the
subject matter hereof and no party shall be liable or bound to any other party
in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein.

                    (d)      Severability Of Provisions.  Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.

                    (e)      Notices.  All written communications provided for
hereunder shall be sent by first class mail or nationwide overnight delivery
service (with charges prepaid) and (a) if to Borrower, addressed to Borrower’s
residence address on the records of the Company or at such other address as
Borrower shall have specified to the Company in writing; and (b) if to the
Company, addressed to it at its executive office address or at such other
address as the Company shall have specified to Borrower in writing.

                    (f)      Benefit.  The Company may assign all or part of its
rights under this Agreement to any other party.  Borrower may not assign its
rights or obligations hereunder without the Company’s express written consent. 
Borrower, the Company and their permitted successors and assigns shall be bound
by this Agreement.  They shall be the only persons entitled to its benefits.

                    (g)      Expenses.  Each party to this Agreement and the
exhibits shall bear its own expenses and legal fees incurred by it with respect
to this Agreement and all related transactions and agreements.

                    (h)      Amendments.   Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived, only
with the written consent of the Company and Borrower.

                    (i)       Termination.   This Agreement, and all obligations
hereunder, shall terminate and be of no force and effect, after April 15, 2001.

 

[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]

          IN WITNESS WHEREOF, the parties hereto have executed this Loan
Agreement as of the date first above written.

  BORROWER:               Signature: /s/ Frank M. Mattson

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            Printed Name: Frank M. Mattson           THE COMPANY:      
SCIENTIFIC LEARNING CORPORATION               By: /s/ Carleton Holstrom

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

    Carleton Holstrom, on behalf of the
Compensation Committee of the Board of
Directors

 

[SIGNATURE PAGE TO LOAN AGREEMENT]

SECURED PROMISSORY NOTE

 

$236,000.00 April 11, 2001   Oakland, California

 

          FOR VALUE RECEIVED, Frank M. Mattson (“Borrower”), an employee of
Scientific Learning Corporation, a Delaware corporation (“Company,) hereby
unconditionally promises to pay to the order of Company, in lawful money of the
United States of America and in immediately available funds, the principal sum
of Two Hundred Thirty-Six Thousand Dollars ($236,000.00) (the “Loan”) together
with accrued and unpaid interest thereon, due and payable on the dates and in
the manner set forth below.

          It is the intent of the parties that the purpose of this Note is not
for consumer, family or household purposes.

          This Secured Promissory Note is the Note referred to in and is
executed and delivered in connection with that certain Pledge Agreement dated as
of even date herewith and executed and delivered by Borrower in favor of Company
(as the same may from time to time be amended, modified or supplemented or
restated (the “Security Agreement”).  Additional rights of Company are set forth
in the Security Agreement.  All capitalized terms used herein and not otherwise
defined herein shall have the respective meanings given to them in the Security
Agreement.

          1.       Principal Repayment.  The outstanding principal amount of the
Loan shall be due and payable on December 31, 2005 (the “Termination Date”).

          2.       Interest Rate.       Borrower further promises to pay
interest on the outstanding principal amount hereof from the date hereof until
payment in full, which interest shall be compounded annually and payable at the
rate of Four and 94/100 (4.94%) per annum or the maximum rate permissible by law
(which under the laws of the State of California shall be deemed to be the laws
relating to permissible rates of interest on commercial loans), whichever is
less.  Interest shall be due and payable on the Termination Date and shall be
calculated on the basis of a 365 day year for the actual number of days elapsed.

          Any principal repayment or interest payment on the Loan hereunder not
paid when due, whether at stated maturity, by acceleration or otherwise, shall
bear interest at Six and 94/100 percent (6.94%) per annum.

          3.       Manner of Payment. Both principal and interest are payable in
immediately available funds in lawful money of the United States of America to
the Company at the principal office of Company unless another place of payment
shall be specified in writing by Company.

 

          4.       Application of Payments.  Payment on this Note shall be
applied first to accrued interest, if any, and thereafter to the outstanding
principal balance hereof.  Borrower may at any time pay the full amount or any
portion of this Note without notice or payment of any penalty, premium or fee. 
Any such prepayment shall be accompanied by payment of any and all accrued and
unpaid interest on the amount prepaid. All payments made on account of the
principal of or interest on this Note shall be recorded in the books and records
of the Company; provided, however, that the failure of the Company to make any
notation or any error therein shall not in any manner affect the obligation of
Borrower to repay this Note in accordance with the terms hereof.  Borrower
agrees that any document submitted by the Company purporting to show the
outstanding principal amount of this Note and all accrued and unpaid interest
hereon shall be conclusive in the absence of manifest error.

          5.       Secured Note.  The full amount of this Note is secured by the
collateral identified and described as security therefor in the Security
Agreement. Borrower shall not, directly or indirectly, create, permit or suffer
to exist, and shall defend the collateral against and take such other action as
is necessary to remove, any lien on or in the collateral, or in any portion
thereof, except as permitted pursuant to the Security Agreement.  To the extent
Borrower is unable to satisfy this Note when due with the collateral described
in the Security Agreement, the Company may hold Borrower personally liable for
this Note or assert any claim against Borrower for the payment of this Note.

          6.       Default.  Each of the following events shall be an “Event of
Default” hereunder:

                    (a)      Borrower shall fail to pay when due the Obligations
or any part thereof and such failure shall have continued for at least five
business days thereafter;

                    (b)      Any representation or warranty made or deemed made
by Borrower in the Security Agreement or in any certificate, report, notice or
financial statement furnished at any time in connection with the Security
Agreement, the Loan or this Note shall be false, misleading or erroneous in any
material respect when made or deemed to have been made;

                    (c)      Borrower shall fail to perform, observe or comply
with any covenant, agreement or term contained in the Security Agreement and
such failure shall continue for a period of ten business days after the earlier
of (i) notice thereof being given by the Company to Borrower or (ii) such
default otherwise becoming known to Borrower;

                    (d)      Borrower shall commence a voluntary proceeding
seeking liquidation, reorganization or other relief with respect to Borrower or
Borrower’s debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official for him or a substantial part of
his property or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against him or shall make a general assignment for the
benefit of creditors or shall generally fail to pay his debts as they become due
or shall take any action to authorize any of the foregoing;

 

                    (e)      an involuntary proceeding shall be commenced
against Borrower seeking liquidation, reorganization or other relief with
respect to Borrower or Borrower’s debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official for Borrower
or a substantial part of his property, and such involuntary proceeding shall
remain undismissed and unstayed for a period of 60 days;

                    (f)      the Security Agreement or this Note shall cease to
be in full force and effect or shall be declared null and void or the validity
or enforceability thereof shall be contested or challenged by Borrower, or
Borrower shall deny any further liability or obligation under the Security
Agreement or this Note;

                    (g)      Borrower’s employment by or association with the
Company is terminated for “cause” (as defined below);

                    (h)      Borrower is employed by, or provides consulting
services to, another company or business that provides neuroscience-based
educational technology products; or

                    (i)       Borrower shall breach any representation or
covenant under the Security Agreement.

          Upon the occurrence of an Event of Default hereunder, all unpaid
principal, accrued interest and other amounts owing hereunder shall, at the
option of Company, and, in the case of an Event of Default pursuant to (d), (e)
or (f) above, automatically, be immediately due, payable and collectible by
Company pursuant to applicable law.  Notwithstanding the foregoing, if an Event
of Default has occurred under (g) or (h) above (together, the “Employment
Defaults”), Borrower shall have 90 days after such event to pay all unpaid
principal, accrued interest and other amounts owing hereunder.   Company shall
have all rights and may exercise any remedies available to it under law,
successively or concurrently.  Borrower expressly acknowledges and agrees that
the Company shall have the right to offset any obligations of Borrower hereunder
against salaries, bonuses or other amounts that may be payable to Borrower by
the Company.

          “Cause” shall be defined to include the following, as determined in
good faith by the Board of Directors in its sole discretion: (i) material breach
of the Company’s policies, (ii) material breach of the Security Agreement or
this Note, (iii) neglect or abandonment of assigned duties, (iv) the commission
of any act of fraud, embezzlement or dishonesty against the Company, (v)
conviction of any felony or any crime of moral turpitude or dishonesty, (vi)
intentional damage to the Company’s property, (vii) any material breach of a
proprietary information and inventions agreement with the Company or
unauthorized use or disclosure of confidential information or trade secrets of
the Company, or (viii) conduct by Borrower which demonstrates unfitness to
serve.

          Waiver. Borrower waives presentment and demand for payment, notice of
dishonor, protest and notice of protest of this Note, and shall pay all costs of
collection when incurred, including, without limitation, reasonable attorneys’
fees, costs and other expenses.

          The right to plead any and all statutes of limitations as a defense to
any demands hereunder is hereby waived to the full extent permitted by law.

 

          7.       Governing Law.  This Note shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.

          8.       Expenses.  Borrower agrees to pay all reasonable costs and
expenses, including, without limitation, reasonable attorneys’ fees and costs of
court, incurred by Company or any other holder of this Note in collecting or
enforcing payment of this Note in accordance with its terms.

          9.       Amendment. This Note may not be changed, amended or modified
except in a writing executed by Borrower and the holder hereof.

          10.     Complete Agreement. This Note and the Security Agreement
represent the final agreement between Borrower and Company with respect to the
matters referred to herein and may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreement of Borrower and Company.  There are
no oral agreements between Borrower and Company with respect to the matters
referred to herein.

          11.     Successors and Assigns.  The provisions of this Note shall
inure to the benefit of and be binding on any successor to Borrower and shall
extend to any holder hereof. Borrower shall not, without the prior written
consent of holder, assign any of its rights or obligations hereunder.

          IN WITNESS WHEREOF, this Note has been executed as of the date first
written above.

BORROWER:

Signature: /s/ Frank M. Mattson

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

  Printed Name: Frank M. Mattson

 

PLEDGE AGREEMENT

             THIS PLEDGE AGREEMENT (this “Agreement”), dated as of April 11,
2001 is executed by Frank M. Mattson (“Borrower”), an individual residing in San
Francisco, California, and SCIENTIFIC LEARNING CORPORATION, a Delaware
corporation (the “Company”).

             WHEREAS, the Company has loaned $236,000 to Borrower which loan
will not be used to buy or carry public company stock;

             WHEREAS, such loan (the “Loan”) is evidenced by a Secured
Promissory Note, dated the date hereof, executed by Borrower and made payable to
the order of the Company (together with all renewals, extensions and
replacements thereof, the “Note”); and

             WHEREAS, the Company was unwilling to make the Loan to Borrower
unless Borrower entered into this Agreement to secure the payment and
performance of the Note by Borrower.

             NOW, THEREFORE, Borrower and the Company hereby agree as follows:

             Section 1.         Definitions.  For purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires,
the following terms shall have the following respective meanings:

             “Code” means the Uniform Commercial Code in effect in the State of
California.

             “Collateral” means (a) the Pledged Shares and the certificates
representing the Pledged Shares, and all dividends, cash instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares, (b) all
dividends, distributions and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the Pledged Shares and (c) all proceeds of any of the foregoing (whether such
proceeds arise before or after the commencement of a case under the bankruptcy
laws by or against Borrower as debtor).

             “Event of Default” means any one or more of the following events:

             (a)         Borrower shall fail to pay when due the Obligations or
any part thereof and such failure shall have continued for at least five
business days;

             (b)         any representation or warranty made or deemed made by
Borrower in this Agreement or in any certificate, report, notice or financial
statement furnished at any time in connection with this Agreement, the Loan or
the Note shall be false, misleading or erroneous in any material respect when
made or deemed to have been made;

             (c)         Borrower shall fail to perform, observe or comply with
any covenant, agreement or term contained in this Agreement and such failure
shall continue for a period of five business days after the earlier of (i)
notice thereof being given by the Company to Borrower or (ii) such default
otherwise becoming known to Borrower;

             (d)         Borrower shall commence a voluntary proceeding seeking
liquidation, reorganization or other relief with respect to Borrower or
Borrower’s debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official for him or a substantial part of
his property or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against him or shall make a general assignment for the
benefit of creditors or shall generally fail to pay his debts as they become due
or shall take any action to authorize any of the foregoing;

             (e)         an involuntary proceeding shall be commenced against
Borrower seeking liquidation, reorganization or other relief with respect to
Borrower or Borrower’s debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official for Borrower or a
substantial part of his property, and such involuntary proceeding shall remain
undismissed and unstayed for a period of 60 days;

             (f)         this Agreement or the Note shall cease to be in full
force and effect or shall be declared null and void or the validity or
enforceability thereof shall be contested or challenged by Borrower, or Borrower
shall deny any further liability or obligation under this Agreement or the Note;
or

             (g)        ninety (90) days after any Employment Default (as
defined in the Note), if any amount then remains outstanding under the Note.

             “Lien” means any lien, mortgage, security interest, tax lien,
pledge, assessment, encumbrance, lease, adverse claim, levy, charge or retained
interest pursuant to a conditional sale or title retention contract, or any
other interest in property designed to secure the repayment of debt or any other
obligation, whether arising by agreement, operation of law or otherwise, or any
contract to give any of the foregoing.

             “Loan” has the meaning specified in the second recital hereof.

             “Note” has the meaning specified in the second recital hereof.

             “Obligations” means all obligations of Borrower to the Company
under or in connection with the Note, regardless of how created, arising or
evidenced and whether direct or indirect, primary or secondary, absolute or
contingent, joint or several or now or hereafter existing or due or to become
due, and all interest accruing thereon, and all attorneys’ fees and other
expenses incurred in the enforcement or collection thereof.

             “Person” means any natural person, partnership, corporation,
business trust, association, company, limited liability company, joint venture,
governmental authority or any other form of business or legal entity.

             “Pledged Shares” means a total of 52,591 shares of Common Stock of
the Company registered in the name of Borrower, 24,926 of which are represented
by stock certificate number SCI 1973 and 27,665 of which are presently held in
street name and  are in the process of being certificated.  Notwithstanding the
foregoing, “Pledged Shares” shall not include any shares of Common Stock of the
Company which have been released from this Agreement pursuant to Section 10.

             “Securities Act” means the Securities Act of 1933, as amended.

             Unless the context otherwise requires, terms defined in the Code
shall have the same meanings when used in this Agreement.

             Section 2.         Pledge.

                           (a)         As security for the prompt and complete
payment and performance when due of all of the Obligations, Borrower hereby
pledges, hypothecates, assigns and grants to the Company a continuing security
interest of first priority in all of the Collateral.

                           (b)         On the date hereof, Borrower shall
deliver to the Company three undated stock powers with respect to the
certificates representing the Pledged Shares duly executed in blank,
substantially in the form of Exhibit A attached hereto, one or more UCC-1
financing statements, substantially in the form of Exhibit B attached hereto,
and such other documents as the Company shall reasonably request to perfect its
security interest in the Collateral.

             As further described in this Agreement, nothing in this Agreement,
the Note or any other agreement shall limit the Company’s right to hold Borrower
personally liable for the Note or assert any claim against Borrower for the
payment of the Note.

             Section 3.         Stock Dividends, etc.  If, while this Agreement
is in effect, Borrower shall become entitled to receive or shall receive any
stock certificate (including, without limitation, any certificate representing a
stock dividend or a distribution in connection with any reclassification,
increase or reduction of capital, or issued in connection with any
reorganization), option or rights (in connection with Borrower’s ownership of
the Collateral, whether as an addition to, in substitution of or in exchange for
any Pledged Shares or any other Collateral), Borrower agrees to accept the same
as the Company’s agent and to hold the same in trust on behalf of and for the
benefit of the Company, subject to the terms of this Agreement, as additional
Collateral.

             Section 4.         Cash Dividends; Voting Rights; Dissolution.

                           (a)         Unless an Event of Default shall have
occurred and be continuing, Borrower shall be entitled, except as provided in
Sections 3 and 5, to receive all dividends and distributions in respect of the
Collateral, to vote the Collateral and to give consents, waivers and
ratifications in respect of the Collateral; provided, however, that no vote
shall be cast or consent, waiver or ratification given or action taken which
would have a material adverse effect on the value or marketability of the
Collateral or be inconsistent with or violate the provisions of this Agreement
and, provided further, that any sums paid upon or in respect of the Collateral
upon the liquidation or dissolution of the issuer thereof shall be paid over to
the Company to be held by it as additional Collateral for the Obligations
subject to the term hereof.

                           (b)         Borrower hereby appoints the Company,
with full power of substitution, effective upon the occurrence of any Event of
Default,  as Borrower’s proxy and attorney-in-fact to vote, give consents and
approvals, call meetings and exercise any other rights with respect to the
Pledged Shares or any other Collateral.  This proxy and power-of-attorney shall
be in full force and effect upon the occurrence of any Event of Default until
the termination of this Agreement and is irrevocable and exclusive and shall not
be terminated or otherwise affected by any action or inaction of Borrower or by
operation of law, by death or disability of Borrower or by the occurrence of any
other event.  Except as set forth in paragraph (a) above, Borrower shall have no
right to vote, give consents or approvals or exercise any other right with
respect to the Pledged Shares or any other Collateral.

             Section 5.         Rights of the Company.

                           (a)         The Company shall have the right to
deliver any stop-order instructions to the Company’s transfer agent in order to
prevent Borrower from making any transfers or pledges of the Pledged Shares in
violation of this Agreement.  The Company shall also have the right to remove
any such stop-order instructions at any time.

                           (b)         Subject to the Company’s obligations
under secured transactions law if the Company has taken possession of the
Collateral, the Company shall not be liable for failure to collect or realize
upon the Obligations secured hereby or any collateral security or guarantee
therefor, or any put thereof, or for any delay in so doing, nor shall the
Company be under any obligation to take any action whatsoever with regard
thereto.

                           (c)         If an Event of Default has occurred and
is continuing, the Company shall notify Borrower in writing requesting immediate
delivery by Borrower to the Company of any and all certificates comprising a
part of the Collateral.  If Borrower delivers such certificate(s), the Company
may transfer or register or have registered in the name of the Company or the
Company’s nominee any and all shares comprising a part of the Collateral, and
the Company or its nominee may thereafter exercise all voting and corporate
rights at any meeting of the Company’s shareholders and any and all rights of
conversion, exchange, subscription or any other rights, privileges or options
pertaining to any shares comprising a part of the Collateral as if it were the
absolute owner thereof, including, without limitation, the right to exchange, at
its discretion, any and all of the Collateral upon the merger, consolidation,
reorganization, recapitalization or other readjustment of the Company or upon
the exercise by Borrower or the Company of any right, privilege or option
pertaining to the Collateral, and, in connection therewith, to deposit and
deliver any and all of the Collateral with any committee, depositary, transfer
agent, registrar or other designated agency upon such terms and conditions as it
may determine, all without liability except to account for property actually
received by it. If Borrower fails to deliver such certificates within three (3)
business days of receipt of the Company’s notice, Borrower agrees that the
Company may complete one or more stock powers in order to transfer to the
Company (or such other individual or entity as the Company determines) the
number of shares necessary to satisfy the Obligations and the Company shall have
such rights described in this Section 5.  The Company shall have no duty to
exercise any of the aforesaid rights, privileges or options, and the Company
shall not be responsible for any failure to do so or delay in so doing.

 

             Section 6.         Remedies.

                           (a)         In the event that an Event of Default
shall have occurred and be continuing, the Company may (i) by notice to
Borrower, declare the Note, or any portion thereof, to be immediately due and
payable, and the same shall thereupon become immediately due and payable,
without any other notice and without demand, presentment, notice of dishonor,
notice of acceleration, notice of intent to accelerate, notice of intent to
demand, protest or other formalities of any kind, all of which are hereby
expressly waived by Borrower to the extent permitted by law and/or (ii) without
demand of performance or other demand, advertisement or notice of any kind to or
upon Borrower or any other Person (all and each of which demands, advertisements
and/or notices are hereby expressly waived to the extent permitted by law),
exercise in respect of the Collateral, in addition to the other rights and
remedies provided for herein or otherwise available to it, all the rights and
remedies of a secured party on default under the Code (whether or not the Code
applies to the affected Collateral), including collecting, receiving,
appropriating and realizing upon the Collateral, or any part thereof, and/or may
forthwith sell, assign, give an option or options to purchase, contract to sell
or otherwise dispose of and deliver the Collateral, or any part thereof, in one
or more parcels at public or private sale or sales, at any exchange, broker’s
board or at any of the Company’s offices or elsewhere upon such terms and
conditions as it may, in its absolute discretion, deem advisable and at such
prices as it may, in its absolute discretion, deem best, for cash or on credit
or for future delivery without the assumption of any credit risk, free of any
right or equity of redemption in Borrower, which right or equity is hereby
expressly waived and released to the extent permitted by law, upon any such sale
or sales, public or private, to purchase the whole or any part of the Collateral
so sold; provided, however, that Borrower shall not be credited with the net
proceeds of any credit sale or future delivery until cash proceeds are actually
received by the Company.

                           (b)         Borrower agrees that, to the extent
notice of sale shall be required by law, at least 10 days’ notice to Borrower of
the time and place of any public sale or of the time after which a private sale
or other intended disposition is to take place shall be commercially reasonable
notification of such matters.

                           (c)         In case the Company shall have instituted
any proceeding to enforce any right, power or remedy under this Agreement by
foreclosure, sale, entry or otherwise, and such proceeding shall have been
discontinued or abandoned for any reason or shall have been determined adversely
to the Company then and in every such case Borrower and the Company shall be
restored to their respective former positions and rights hereunder with respect
to the Collateral and all rights, remedies and powers of the Company shall
continue as if no such proceeding had been instituted.

                           (d)         All rights and remedies of the Company
expressed herein are in addition to all other rights and remedies possessed by
the Company under the Note, at law or in equity.

 

             Section 7.         Sale of Collateral.

                           (a)         If at any time when the Company shall
determine to exercise its right to sell all or any part of the Collateral
pursuant to Section 6 hereof, such Collateral or the part thereof to be sold
shall not, for any reason whatsoever, be effectively registered under the
Securities Act, the Company may, in its sole and absolute discretion, sell such
Collateral or part thereof by private sale in such manner and under such
circumstances as the Company may deem necessary or advisable in order that such
sale may legally be effected without such registration. Without limiting the
generality of the foregoing, in any such event the Company, in its sole and
absolute discretion, (i) may proceed to make such private sale notwithstanding
that a registration statement for the purpose of registering such Collateral or
part thereof shall have been filed under the Securities Act, (ii) may approach
and negotiate with a single possible purchaser to effect such sale and (iii) may
restrict such sale to a purchaser who will represent and agree that such
purchaser is purchasing for its own account, for investment, and not with a view
to the distribution or sale of such Collateral or part thereof.  In the event of
any such sale, the Company shall incur no responsibility or liability for
selling all or any part of the Collateral at a price which the Company, in its
sole and absolute discretion, may in good faith deem reasonable under the
circumstances, notwithstanding the possibility that a substantially higher price
might be realized if the sale were deferred until after registration as
aforesaid.  Borrower agrees that the Company need not sell the Collateral in a
public offering even though it may yield a higher price than the actual method
of sale.

                           (b)         Borrower agrees that a sale of any
Collateral is a public sale pursuant to Section 9-504(3) of the Uniform
Commercial Code if (i) an offer to sell such Collateral has been advertised for
at least one day in each of two consecutive weeks in any newspaper of general
circulation in the San Francisco financial community and such sale is made more
than 10 days after the first such advertisement or (ii) such Collateral is
offered to at least five bona fide offerees who the Company reasonably believes
may be interested in that type of investment.  This shall not constitute an
admission that any such offer is a public offering under securities laws or that
any other method of sale is not a public sale.

             Section 8.         Application of Proceeds.  Any proceeds of
disposition of any Collateral shall be applied:

             first, to the Company’s expenses in enforcing its rights and
remedies, including reasonable attorney’s fees and expenses,

             second, to the satisfaction of the Obligations, in the order and
manner provided in the Note,

             third, to the payment of any other amount required by law, and

             fourth, to Borrower.

             Borrower shall remain liable for any deficiency in the Obligations.

             Section 9.         Possession of Collateral.  For convenience
purposes only, and not to extend any rights to Borrower thereby, Borrower shall
be entitled to hold the Collateral in trust subject to the provisions of this
Agreement, except as from time to time the Collateral may be required for
recordation or for the purpose of enforcing or realizing upon any right or value
represented thereby.  As further described below in Section 12, Borrower’s
possession of the Collateral does not give Borrower the right to transfer the
Collateral or take any other action that would restrict or nullify the Company’s
rights to hold a perfected security interest in the Collateral.  In order to
handle the administrative task of transferring ownership of the Collateral from
Borrower should an Event of Default occur and Borrower fail to provide the
Company with the certificates representing the Collateral, Borrower shall
deliver to the Company three undated stock powers with respect to the
certificates representing the Pledged Shares duly executed in blank,
substantially in the form of Exhibit A attached hereto.

             Section 10.      Release of Collateral.

                           (a)         If the Aggregate Market Value on any date
exceeds the Borrowing Base on such date, then Borrower shall be entitled to
obtain a release of Pledged Shares from this Agreement and the security interest
created hereby so long as, immediately after giving effect to such release, the
Aggregate Market Value is not less than the Borrowing Base.  As used herein, (i)
“Aggregate Market Value” means, as of any date, the aggregate fair market value
of the Pledged Shares on such date, as determined by the Per Share Market Value
on such date, (ii) “Per Share Market Value” means, as of any date, the closing
price per share of Common Stock of the Company as reported in the Wall Street
Journal for the last trading day immediately preceding such date and (iii)
“Borrowing Base” means, as of any date, 120% of the principal balance of the
Note outstanding on such date.

                           (b)         In the event that the Aggregate Market
Value is less than the Borrowing Base, then Borrower shall have no obligation to
pledge additional shares of Common Stock of the Company.

                           (c)         At the request of Borrower, the Company
shall promptly execute and deliver to Borrower all such certificates and other
instruments, including the filing of any amended UCC-1 financing statements, as
shall be necessary or appropriate in order to effectuate any release to which
Borrower has become entitled under this Section 10.

                           (d)         If Borrower wishes to sell Pledged Shares
that Borrower is not entitled to have released under this Section 10 for the
purpose of using the proceeds to pay obligations under the Note, the Company and
Borrower shall cooperate to facilitate the prompt execution of such sales and
delivery to the Company of the proceeds thereof as payment under the Note.

             Section 11.      Representations and Warranties of Borrower. 
Borrower hereby represents and warrants to the Company as follows:

                           (a)         Borrower has the legal capacity necessary
or advisable to enter into and perform this Agreement.

                           (b)         Borrower has duly executed and delivered
this Agreement.

                           (c)         Borrower’s execution, delivery and
performance of this Agreement, and the enforcement by the Company of any of its
rights hereunder, do not and will not breach or constitute a default, give rise
to any right of acceleration or termination or result in or require the creation
of any Lien under any agreement or instrument to which Borrower is a party or by
which Borrower or any of Borrower’s property is bound.

                           (d)         This Agreement is a legal, valid and
binding obligation of Borrower, enforceable against Borrower in accordance with
its terms.

                           (e)         This Agreement creates in favor of the
Company a legal, valid and binding security interest, enforceable in accordance
with its terms, in all the Collateral.

                           (f)         The Company has a first priority security
interest in the Pledged Shares.  No action by the Company is required to perfect
a first priority security interest in favor of the Company in all Collateral.

             Section 12.      Certain Covenants of Borrower.  Borrower covenants
and agrees with the Company that until the Obligations are paid and performed in
full:

                           (a)         Borrower shall promptly notify the
Company of the occurrence or existence of any Event of Default or the occurrence
or existence of any condition or event that, with the giving of notice or lapse
of time or both, would be an Event of Default.

                           (b)         Borrower shall maintain the Collateral
free from any Lien adverse to the Company.

                           (c)         Borrower shall keep accurate records with
respect to the Collateral. If requested by the Company, Borrower shall permit
the Company and its agents and representatives to examine and make copies or
abstracts of such records. If requested by the Company, Borrower shall prepare
and deliver to the Company a statement accurately identifying or describing any
or all Collateral.

                           (d)         Borrower agrees to take any action
(including the execution, delivery, recording, filing, rerecording and refiling
of any financing statements, continuation statements or other documents) that
the Company may reasonably request to (i) perfect, continue, maintain, preserve
and protect the security interest purported to be created hereby as a first
priority security interest in all the Collateral, (ii) enable the Company to
exercise and enforce its rights and remedies or (iii) otherwise effect the
purposes of this Agreement.  If the Company believes that it needs to obtain
injunctive relief  in order to perfect its security interest in the Collateral,
Borrower agrees to consent to such injunctive relief without delay or challenge.

                           (e)         Borrower shall not permit or suffer to
exist any Lien on any Collateral, or part thereof, except for the security
interest created hereby.

                           (f)         Borrower shall not transfer, pledge or
otherwise assign the Pledged Shares and agrees that its right to retain
possession of the collateral pursuant to Section 9 is for convenience only and
Borrower shall not take any action that would restrict or nullify the Company’s
rights hereunder.

                           (g)        Borrower shall not use any proceeds from
the Loan to buy or carry public company stock.

             Section 13.      No Waiver; Modifications in Writing.  No failure
or delay on the part of the Company in exercising any right, power or remedy
hereunder shall operate as a waiver hereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy.  The
remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Company at law or in equity or otherwise. 
No amendment, modification, supplement, termination or waiver of or to any
provision of this Agreement nor consent to any departure by Borrower shall be
effective unless the same shall be in writing and signed by or on behalf of the
Company. Any amendment, modification or supplement of or to any provision of
this Agreement, any waiver of any provision of this Agreement and any consent to
any departure by Borrower from the terms of any provision of this Agreement
shall be effective only in the specific instance and for the specific purpose
for which made or given.  Except where notice is specifically required by this
Agreement or the Note, no notice to or demand on Borrower in any case shall
entitle Borrower to any other or further notice or demand in similar or other
circumstances.

             Section 14.      Security Agreement as Financing Statement. The
Company is authorized to file this Agreement or a photocopy hereof as a
financing statement with respect to any one or more items comprising the
Collateral.

             Section 15.      Counterparts.  This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.

             Section 16.      Security Interest Absolute.  All rights of the
Company and security interests hereunder, and all obligations of Borrower
hereunder, shall be absolute and unconditional irrespective of:

                           (a)         any lack of validity or enforceability of
the Note or any other agreements or instruments relating thereto;

                           (b)         any change in the time, manner or place
of payment of, or in any other term of, all or any of the Obligations, or any
other amendment or waiver of or any consent to any departure from the Note;

                           (c)         any exchange, release or non-perfection
of any other collateral, or any release or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Obligations; or

                           (d)         any other circumstance which might
otherwise constitute a defense available to, or a discharge of, Borrower or a
third party pledgor.

             Section 17.      Governing Law.  THIS AGREEMENT SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED
BY, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REFERENCE TO
PRINCIPLES OF CONFLICTS OF LAW.

             Section 18.      Severability Of Provisions.  Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.

             Section 19.      Notices. All written communications provided for
hereunder shall be sent by first class mail or nationwide overnight delivery
service (with charges prepaid) and (a) if to Borrower, addressed to Borrower’s
residence address on the records of the Company or at such other address as
Borrower shall have specified to the Company in writing; and (b) if to the
Company, addressed to it at its executive office address or at such other
address as the Company shall have specified to Borrower in writing.

             Section 20.      Submission to Jurisdiction.  BORROWER HEREBY
IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED IN CALIFORNIA OVER ANY ACTION OR PROCEEDING (A) TO ENFORCE OR
DEFEND ANY RIGHT UNDER THIS AGREEMENT OR THE NOTE OR (B) ARISING FROM OR
RELATING TO ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS
AGREEMENT AND THE NOTE, AND BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH
STATE OR FEDERAL COURT. BORROWER HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING
BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE
PREPAID, TO BORROWER AT BORROWER’S ADDRESS FOR NOTICES PURSUANT TO SECTION 19,
SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. A COPY OF ANY SUCH
PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO BORROWER AT BORROWER’S
ADDRESS PROVIDED IN SECTION 19, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY
APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF
SERVICE OF PROCESS. BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
THAT HE MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM OR VENUE TO
THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING. BORROWER AGREES THAT A FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW.  NOTHING IN THIS SECTION 20 SHALL AFFECT THE RIGHT OF ANY OTHER
PERSON TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITED BY APPLICABLE LAW, OR
THE RIGHT OF ANY OTHER PERSON TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER
OR THE PROPERTY OF BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.

             Section 21.      Final Agreement of the Parties.  THE NOTE AND THIS
AGREEMENT REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE
MATTERS REFERRED TO THEREIN AND HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES WITH RESPECT TO THE MATTERS
REFERRED TO HEREIN OR IN THE NOTE.

             Section 22.      Headings, etc. The headings, captions and
arrangements used in this Agreement are for convenience only and shall not
affect the interpretation of this Agreement.  In this Agreement, unless a clear
contrary intention appears, (i) the words “herein,” “hereof” and “hereunder” and
other words of similar import refer to this Agreement as a whole and not to any
particular Section or other subdivision and (ii) reference to any Section means
such Section of this Agreement.

             Section 23.      Waiver of Protest and Bond.  In the event the
Company seeks to take possession of any or all of the Collateral by injunctive
relief or other judicial process, Borrower hereby irrevocably waives protest any
bonds and any surety or security relating thereto that may be required by
applicable law as an incident to such possession, and waives any demand for
possession prior to the commencement of any such suit or action.

             Section 24.      Benefit.  The Company may assign all or part of
its rights under this Agreement to any holder of an Obligation. Borrower, the
Company and their permitted successors and assigns shall be bound by this
Agreement. They shall be the only Persons entitled to its benefits.

 

[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]

             IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.

  BORROWER:     Signature:  /s/ Frank M. Mattson        Printed Name: Frank M.
Mattson     THE COMPANY:    SCIENTIFIC LEARNING CORPORATION       By:  /s/
Carleton A. Holstrom   Carleton A. Holstrom, on behalf of the
Compensation Committee of the Board of Directors  

 

EXHIBIT A

ASSIGNMENT SEPARATE FROM CERTIFICATE

             FOR VALUE RECEIVED, ______________________ hereby sells, assigns
and transfers unto ______________________, ______________________ (_______)
shares of the Common Stock of Scientific Learning Corporation (the “Company”)
standing in the undersigned’s name on the books of the Company represented by
Certificate No.(s) ______________________ herewith and do hereby irrevocably
constitute and appoint the Company’s transfer agent to transfer the said stock
on the books of the Company with full power of substitution in the premises.

Dated:  __________

  Signature of Borrower:    ____________________________       Name of Borrower:
________________________________           If Applicable:       Additional
Signature:________________________________       Name of Signatory:  
________________________________    

 

EXHIBIT B

UCC-1 FINANCING STATEMENT

  THIS SPACE FOR USE OF FILING OFFICER

 

 

 

FINANCING STATEMENT — FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform
Commercial Code
and will remain effective, with certain exceptions, for 5 years from date of
filing.

A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. #
(optional)   C. RETURN COPY TO:  (Name and Mailing Address) Diana R. Sanchez
Cooley Godward LLP
3000 El Camino  Real
Palo Alto, CA  94306     

    D. OPTIONAL DESIGNATION (if applicable): : LESSOR/LESSEE  :
CONSIGNOR/CONSIGNEE  : NON-UCC FILING   1. DEBTOR’S EXACT FULL LEGAL NAME -
insert only one debtor name (1a or 1b)        OR 1a. ENTITY’S NAME   1b.
INDIVIDUAL’S LAST NAME FIRST NAME MIDDLE NAME SUFFIX 1c. MAILING ADDRESS  CITY
STATE COUNTRY POSTAL CODE 1d. S.S. OR TAX I.D.# OPTIONAL
ADD’NL INFO RE
ENTITY DEBTOR 1e. TYPE OF ENTITY 1f. ENTITY’S STATE OR COUNTRY OF ORGANIZATION
1g. ENTITY’S ORGANIZATION I.D.#, if any
                                               o NONE 2. ADDITIONAL DEBTOR’S
EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b) OR 2a. ENTITY’s
name    2b. INDIVIDUAL’S LAST NAME  FIRST NAME MIDDLE NAME SUFFIX 2c. MAILING
ADDRESS  CITY STATE COUNTRY POSTAL CODE 2d. S.S. OR TAX I.D.# OPTIONAL
ADD’NL INFO RE
ENTITY DEBTOR 2e. TYPE OF ENTITY 2f. ENTITY’S STATE OR COUNTRY OF ORGANIZATION
2g. ENTITY’S ORGANIZATION I.D.#, if any
       o NONE 3. SECURED PARTY’S (ORIGINAL S/P or ITS TOTAL ASSIGNEE) EXACT FULL
LEGAL NAME - insert only one secured party name (3a or 3b) OR 3a. ENTITY’S NAME
                                         SCIENTIFIC LEARNING CORPORATION   3b.
INDIVIDUAL’S LAST NAME  FIRST NAME MIDDLE NAME SUFFIX 3c. MAILING ADDRESS
                    1995 University Avenue, Suite 400 CITY
Berkeley STATE
CA COUNTRY
USA POSTAL CODE
94704 4.  This FINANCING STATEMENT covers the following types or items of
property:

All right, title and interest of Debtor in, to and under the personal property
set forth on EXHIBIT A attached hereto and incorporated herein by reference.

5. CHECK o
BOX This FINANCING STATEMENT is signed by the Secured Party instead of the
Debtor to perfect a security interest (a) in collateral already subject to a
security interest in another jurisdiction when it was brought into this state,
or when the debtor’s (if applicable) location was changed to this state, or (b)
in accordance with other statutory provisions [additional data may be required]
7. If filed in Florida (check one) o Documentary   stamp tax paid o Documentary
tax not applicable 6. REQUIRED SIGNATURE(S) 8. : This FINANCING STATEMENT is to
be filed [for record] (or recorded) in the REAL ESTATE RECORDS
Attach Addendum     [if applicable] By:                                 
                                                             Title: 9. Check to
REQUEST SEARCH CERTIFICATE(S) on debtor(s)
[ADDITIONAL FEE]
(optional)                  o All Debtors    o Debtor 1    o Debtor 2 (1) FILING
OFFICER COPY — NATIONAL FINANCING STATEMENT (FORM UCC1) (TRANS.) (REV. 12/18/95)

 

Exhibit A
to

UCC-1 Financing Statement

between

SCIENTIFIC LEARNING CORPORATION, as Secured Party

and

______________________________, as Debtor

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

1.                       Borrower hereby pledges, hypothecates, assigns and
grants to the Secured Party a continuing security interest of first priority in
all of the Collateral.

2.          For purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, the following terms shall
have the following respective meanings:

             “Code” means the Uniform Commercial Code in effect in the State of
California.

             “Collateral” means (a) the Pledged Shares and the certificates
representing the Pledged Shares, and all dividends, cash instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares, (b) all
dividends, distributions and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the Pledged Shares and (c) all proceeds of any of the foregoing (whether such
proceeds arise before or after the commencement of a case under the bankruptcy
laws by or against Borrower as debtor).

              “Pledged Shares” means ________________ shares of Common Stock of
the Company registered in the name of Borrower represented by stock certificate
number(s) __________________________.

 

LOAN AGREEMENT

          THIS LOAN AGREEMENT (this “Agreement”), dated as of April 11, 2001, is
executed by Steven L. Miller (“Borrower”), and SCIENTIFIC LEARNING CORPORATION,
a Delaware corporation (the “Company”).  All capitalized terms that are not
otherwise defined herein shall have the meaning set forth in the Security
Agreement.

RECITALS

          WHEREAS, the Board of Directors of the Company has authorized the
Company to loan up to $ 1,450,000 (the “Loan Cap”) to Borrower, which loan will
not be used to buy or carry public company stock (the “Loan”);

          WHEREAS, the parties wish to execute this Agreement to confirm the
Company’s commitment to extend such Loan and to attach the form of agreements to
be used in executing the Loan and extending a security interest to the Company
as collateral for the Loan;

          NOW, THEREFORE, in consideration of the promises made herein and for
other good and valuable consideration, Borrower and the Company hereby agree as
follows:

          1.       Loan.  Subject to the provisions of this Agreement, the
Company agrees, at any time prior to April 15, 2001, to make the Loan to
Borrower pursuant to a secured promissory note substantially in the form of
Exhibit A (the “Note”) and the pledge agreement substantially in the form of
Exhibit B (the “Security Agreement”) within five (5) business days of a written
request from Borrower.  Borrower may request that the amount of the Loan be less
than the Loan Cap.  Unless agreed to in writing by the Company, after
authorization by the Compensation Committee of the Board of Directors, the Loan
Cap shall not be increased.

          2.       Conditions to the Company’s Loan.  The Company’s obligation
to make the Loan described in Section 1 is contingent upon the following:

                    (a)      the Company’s obtaining a satisfactory bank loan to
finance the full amount of the Loan, which bank loan is expected to be
guaranteed by Warburg Pincus . or its affiliates;

                    (b)      the delivery by Borrower of an executed copy of the
Note, the Security Agreement, three undated stock powers with respect to the
certificates representing the Pledged Shares executed in blank by Borrower
substantially in the form attached as an Exhibit to the Security Agreement, one
or more UCC-1 financing statements substantially in the form attached as an
Exhibit to the Security Agreement and such other documents as the Company shall
reasonably request to perfect its security interest in the Collateral;

                    (c)      Borrower shall not have commenced a voluntary
proceeding seeking liquidation, reorganization or other relief with respect to
Borrower or Borrower’s debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official for Borrower or a
substantial part of Borrower’s property nor shall Borrower consent to any such
relief or to the appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against Borrower nor shall
Borrower make a general assignment for the benefit of creditors or generally
fail to pay Borrower’s debts as they become due or shall take any action to
authorize any of the foregoing;

                    (d)      an involuntary proceeding shall not have been
commenced against Borrower seeking liquidation, reorganization or other relief
with respect to Borrower or Borrower’s debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official for Borrower
or a substantial part of his property;

                    (e)      Borrower’s employment by or association with the
Company is terminated for “cause” (as defined in the form of Note attached
hereto as Exhibit A); and

                    (f)      Borrower is employed by, or provides consulting
services to, another company or business that provides neuroscience-based
educational technology products.

          3.       Miscellaneous

                    (a)      Governing Law.  This Agreement shall be construed
and enforced in accordance with, and the rights of the parties shall be governed
by, the internal laws of the State of California, without reference to
principles of conflicts of laws.

                    (b)      Counterparts.  This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

                    (c)      Entire Agreement. This Agreement and the exhibits
hereto constitute the entire agreement between the parties relating to the
subject matter hereof and no party shall be liable or bound to any other party
in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein.

                    (d)      Severability Of Provisions.  Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.

                    (e)      Notices.  All written communications provided for
hereunder shall be sent by first class mail or nationwide overnight delivery
service (with charges prepaid) and (a) if to Borrower, addressed to Borrower’s
residence address on the records of the Company or at such other address as
Borrower shall have specified to the Company in writing; and (b) if to the
Company, addressed to it at its executive office address or at such other
address as the Company shall have specified to Borrower in writing.

                    (f)      Benefit.  The Company may assign all or part of its
rights under this Agreement to any other party.  Borrower may not assign its
rights or obligations hereunder without the Company’s express written consent. 
Borrower, the Company and their permitted successors and assigns shall be bound
by this Agreement.  They shall be the only persons entitled to its benefits.

                    (g)      Expenses.  Each party to this Agreement and the
exhibits shall bear its own expenses and legal fees incurred by it with respect
to this Agreement and all related transactions and agreements.

                    (h)      Amendments.   Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived, only
with the written consent of the Company and Borrower.

                    (i)       Termination.   This Agreement, and all obligations
hereunder, shall terminate and be of no force and effect, after April 15, 2001.

 

[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]

          IN WITNESS WHEREOF, the parties hereto have executed this Loan
Agreement as of the date first above written.

  BORROWER:               Signature: /s/ Steven L. Miller

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

            Printed Name: Steven L. Miller           THE COMPANY:      
SCIENTIFIC LEARNING CORPORATION               By: /s/ Carleton Holstrom

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

    Carleton Holstrom, on behalf of the
Compensation Committee of the Board of
Directors

 

[SIGNATURE PAGE TO LOAN AGREEMENT] EXHIBIT A

FORM OF PROMISSORY NOTE

EXHIBIT B

FORM OF SECURITY AGREEMENT

SECURED PROMISSORY NOTE

 

$1,450,000.00 April 11, 2001   Oakland, California

 

          FOR VALUE RECEIVED, Steven L. Miller (“Borrower”), an employee of
Scientific Learning Corporation, a Delaware corporation (“Company,) hereby
unconditionally promises to pay to the order of Company, in lawful money of the
United States of America and in immediately available funds, the principal sum
of One Million Four Hundred Fifty Thousand Dollars ($1,450,000.00) (the “Loan”)
together with accrued and unpaid interest thereon, due and payable on the dates
and in the manner set forth below.

          It is the intent of the parties that the purpose of this Note is not
for consumer, family or household purposes.

          This Secured Promissory Note is the Note referred to in and is
executed and delivered in connection with that certain Pledge Agreement dated as
of even date herewith and executed and delivered by Borrower in favor of Company
(as the same may from time to time be amended, modified or supplemented or
restated (the “Security Agreement”).  Additional rights of Company are set forth
in the Security Agreement.  All capitalized terms used herein and not otherwise
defined herein shall have the respective meanings given to them in the Security
Agreement.

          1.       Principal Repayment.  The outstanding principal amount of the
Loan shall be due and payable on December 31, 2005 (the “Termination Date”).

          2.       Interest Rate.  Borrower further promises to pay interest on
the outstanding principal amount hereof from the date hereof until payment in
full, which interest shall be compounded annually and payable at the rate of
Four and 94/100 percent (4.94%) per annum or the maximum rate permissible by law
(which under the laws of the State of California shall be deemed to be the laws
relating to permissible rates of interest on commercial loans), whichever is
less.  Interest shall be due and payable on the Termination Date and shall be
calculated on the basis of a 365 day year for the actual number of days elapsed.

          Any principal repayment or interest payment on the Loan hereunder not
paid when due, whether at stated maturity, by acceleration or otherwise, shall
bear interest at Six and 94/100 percent (6.94%) per annum.

          3.       Manner of Payment.  Both principal and interest are payable
in immediately available funds in lawful money of the United States of America
to the Company at the principal office of Company unless another place of
payment shall be specified in writing by Company.

          4.       Application of Payments.  Payment on this Note shall be
applied first to accrued interest, if any, and thereafter to the outstanding
principal balance hereof.  Borrower may at any time pay the full amount or any
portion of this Note without notice or payment of any penalty, premium or fee. 
Any such prepayment shall be accompanied by payment of any and all accrued and
unpaid interest on the amount prepaid. All payments made on account of the
principal of or interest on this Note shall be recorded in the books and records
of the Company; provided, however, that the failure of the Company to make any
notation or any error therein shall not in any manner affect the obligation of
Borrower to repay this Note in accordance with the terms hereof.  Borrower
agrees that any document submitted by the Company purporting to show the
outstanding principal amount of this Note and all accrued and unpaid interest
hereon shall be conclusive in the absence of manifest error.

          5.       Secured Note.  The full amount of this Note is secured by the
collateral identified and described as security therefor in the Security
Agreement. Borrower shall not, directly or indirectly, create, permit or suffer
to exist, and shall defend the collateral against and take such other action as
is necessary to remove, any lien on or in the collateral, or in any portion
thereof, except as permitted pursuant to the Security Agreement.  To the extent
Borrower is unable to satisfy this Note when due with the collateral described
in the Security Agreement, the Company may hold Borrower personally liable for
this Note or assert any claim against Borrower for the payment of this Note.

          6.       Default.  Each of the following events shall be an “Event of
Default” hereunder:

          (a)      Borrower shall fail to pay when due the Obligations or any
part thereof and such failure shall have continued for at least five business
days thereafter;

          (b)      Any representation or warranty made or deemed made by
Borrower in the Security Agreement or in any certificate, report, notice or
financial statement furnished at any time in connection with the Security
Agreement, the Loan or this Note shall be false, misleading or erroneous in any
material respect when made or deemed to have been made;

          (c)      Borrower shall fail to perform, observe or comply with any
covenant, agreement or term contained in the Security Agreement and such failure
shall continue for a period of ten business days after the earlier of (i) notice
thereof being given by the Company to Borrower or (ii) such default otherwise
becoming known to Borrower;

          (d)      Borrower shall commence a voluntary proceeding seeking
liquidation, reorganization or other relief with respect to Borrower or
Borrower’s debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official for him or a substantial part of
his property or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against him or shall make a general assignment for the
benefit of creditors or shall generally fail to pay his debts as they become due
or shall take any action to authorize any of the foregoing;

          (e)      an involuntary proceeding shall be commenced against Borrower
seeking liquidation, reorganization or other relief with respect to Borrower or
Borrower’s debts under

any bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official for Borrower or a substantial part of his property, and such
involuntary proceeding shall remain undismissed and unstayed for a period of 60
days;

          (f)      the Security Agreement or this Note shall cease to be in full
force and effect or shall be declared null and void or the validity or
enforceability thereof shall be contested or challenged by Borrower, or Borrower
shall deny any further liability or obligation under the Security Agreement or
this Note;

          (g)      Borrower’s employment by or association with the Company is
terminated for “cause” (as defined below);

          (h)      Borrower is employed by, or provides consulting services to,
another company or business that provides neuroscience-based educational
technology products; or

          (i)       Borrower shall breach any representation or covenant under
the Security Agreement.

          Upon the occurrence of an Event of Default hereunder, all unpaid
principal, accrued interest and other amounts owing hereunder shall, at the
option of Company, and, in the case of an Event of Default pursuant to (d), (e)
or (f) above, automatically, be immediately due, payable and collectible by
Company pursuant to applicable law.  Notwithstanding the foregoing, if an Event
of Default has occurred under (g) or (h) above (together, the “Employment
Defaults”), Borrower shall have 90 days after such event to pay all unpaid
principal, accrued interest and other amounts owing hereunder.  Company shall
have all rights and may exercise any remedies available to it under law,
successively or concurrently.  Borrower expressly acknowledges and agrees that
the Company shall have the right to offset any obligations of Borrower hereunder
against salaries, bonuses or other amounts that may be payable to Borrower by
the Company.

          “Cause” shall be defined to include the following, as determined in
good faith by the Board of Directors in its sole discretion: (i) material breach
of the Company’s policies, (ii) material breach of the Security Agreement or
this Note, (iii) neglect or abandonment of assigned duties, (iv) the commission
of any act of fraud, embezzlement or dishonesty against the Company, (v)
conviction of any felony or any crime of moral turpitude or dishonesty, (vi)
intentional damage to the Company’s property, (vii) any material breach of a
proprietary information and inventions agreement with the Company or
unauthorized use or disclosure of confidential information or trade secrets of
the Company, or (viii) conduct by Borrower which demonstrates unfitness to
serve.

          Waiver. Borrower waives presentment and demand for payment, notice of
dishonor, protest and notice of protest of this Note, and shall pay all costs of
collection when incurred, including, without limitation, reasonable attorneys’
fees, costs and other expenses.

          The right to plead any and all statutes of limitations as a defense to
any demands hereunder is hereby waived to the full extent permitted by law.

          7.       Governing Law.  This Note shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.

          8.       Expenses.  Borrower agrees to pay all reasonable costs and
expenses, including, without limitation, reasonable attorneys’ fees and costs of
court, incurred by Company or any other holder of this Note in collecting or
enforcing payment of this Note in accordance with its terms.

          9.       Amendment. This Note may not be changed, amended or modified
except in a writing executed by Borrower and the holder hereof.

          10.     Complete Agreement. This Note and the Security Agreement
represent the final agreement between Borrower and Company with respect to the
matters referred to herein and may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreement of Borrower and Company.  There are
no oral agreements between Borrower and Company with respect to the matters
referred to herein.

          11.     Successors and Assigns.  The provisions of this Note shall
inure to the benefit of and be binding on any successor to Borrower and shall
extend to any holder hereof. Borrower shall not, without the prior written
consent of holder, assign any of its rights or obligations hereunder.

          IN WITNESS WHEREOF, this Note has been executed as of the date first
written above.

 

 

BORROWER:

Signature: /s/ Steven L. Miller

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

Printed Name: Steven L. Miller

 

PLEDGE AGREEMENT

             THIS PLEDGE AGREEMENT (this “Agreement”), dated as of April 11,
2001 is executed by Steven L. Miller (“Borrower”), an individual residing in
Pacifica, California, and SCIENTIFIC LEARNING CORPORATION, a Delaware
corporation (the “Company”).

             WHEREAS, the Company has loaned $1,450,000 to Borrower which loan
will not be used to buy or carry public company stock;

             WHEREAS, such loan (the “Loan”) is evidenced by a Secured
Promissory Note, dated the date hereof, executed by Borrower and made payable to
the order of the Company (together with all renewals, extensions and
replacements thereof, the “Note”); and

             WHEREAS, the Company was unwilling to make the Loan to Borrower
unless Borrower entered into this Agreement to secure the payment and
performance of the Note by Borrower.

             NOW, THEREFORE, Borrower and the Company hereby agree as follows:

             Section 1.         Definitions.  For purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires,
the following terms shall have the following respective meanings:

                           Code” means the Uniform Commercial Code in effect in
the State of California.

                           “Collateral” means (a) the Pledged Shares and the
certificates representing the Pledged Shares, and all dividends, cash
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Pledged
Shares, (b) all dividends, distributions and other property from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of the Pledged Shares and (c) all proceeds of any of the foregoing
(whether such proceeds arise before or after the commencement of a case under
the bankruptcy laws by or against Borrower as debtor).

                           “Event of Default” means any one or more of the
following events:

             (a)         Borrower shall fail to pay when due the Obligations or
any part thereof and such failure shall have continued for at least five
business days;

             (b)         any representation or warranty made or deemed made by
Borrower in this Agreement or in any certificate, report, notice or financial
statement furnished at any time in connection with this Agreement, the Loan or
the Note shall be false, misleading or erroneous in any material respect when
made or deemed to have been made;

             (c)         Borrower shall fail to perform, observe or comply with
any covenant, agreement or term contained in this Agreement and such failure
shall continue for a period of five business days after the earlier of (i)
notice thereof being given by the Company to Borrower or (ii) such default
otherwise becoming known to Borrower;

 

             (d)         Borrower shall commence a voluntary proceeding seeking
liquidation, reorganization or other relief with respect to Borrower or
Borrower’s debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official for him or a substantial part of
his property or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against him or shall make a general assignment for the
benefit of creditors or shall generally fail to pay his debts as they become due
or shall take any action to authorize any of the foregoing;

             (e)         an involuntary proceeding shall be commenced against
Borrower seeking liquidation, reorganization or other relief with respect to
Borrower or Borrower’s debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official for Borrower or a
substantial part of his property, and such involuntary proceeding shall remain
undismissed and unstayed for a period of 60 days;

             (f)         this Agreement or the Note shall cease to be in full
force and effect or shall be declared null and void or the validity or
enforceability thereof shall be contested or challenged by Borrower, or Borrower
shall deny any further liability or obligation under this Agreement or the Note;
or

             (g)        ninety (90) days after any Employment Default (as
defined in the Note), if any amount then remains outstanding under the Note.

                           “Lien” means any lien, mortgage, security interest,
tax lien, pledge, assessment, encumbrance, lease, adverse claim, levy, charge or
retained interest pursuant to a conditional sale or title retention contract, or
any other interest in property designed to secure the repayment of debt or any
other obligation, whether arising by agreement, operation of law or otherwise,
or any contract to give any of the foregoing.

                           “Loan” has the meaning specified in the second
recital hereof.

                           “Note” has the meaning specified in the second
recital hereof.

                           “Obligations” means all obligations of Borrower to
the Company under or in connection with the Note, regardless of how created,
arising or evidenced and whether direct or indirect, primary or secondary,
absolute or contingent, joint or several or now or hereafter existing or due or
to become due, and all interest accruing thereon, and all attorneys’ fees and
other expenses incurred in the enforcement or collection thereof.

                           “Person” means any natural person, partnership,
corporation, business trust, association, company, limited liability company,
joint venture, governmental authority or any other form of business or legal
entity.

                           “Pledged Shares” means 323,120 shares of Common Stock
of the Company registered in the name of Borrower represented by stock
certificates numbers SCIL 1960 and SCIL 1980.  Notwithstanding the foregoing,
“Pledged Shares” shall not include any shares of Common Stock of the Company
which have been released from this Agreement pursuant to Section 10.

 

             “Securities Act” means the Securities Act of 1933, as amended.

             Unless the context otherwise requires, terms defined in the Code
shall have the same meanings when used in this Agreement.

             Section 2.         Pledge.

             (a)         As security for the prompt and complete payment and
performance when due of all of the Obligations, Borrower hereby pledges,
hypothecates, assigns and grants to the Company a continuing security interest
of first priority in all of the Collateral.

             (b)         On the date hereof, Borrower shall deliver to the
Company three undated stock powers with respect to the certificates representing
the Pledged Shares duly executed in blank, substantially in the form of Exhibit
A attached hereto, one or more UCC-1 financing statements, substantially in the
form of Exhibit B attached hereto, and such other documents as the Company shall
reasonably request to perfect its security interest in the Collateral.

             As further described in this Agreement, nothing in this Agreement,
the Note or any other agreement shall limit the Company’s right to hold Borrower
personally liable for the Note or assert any claim against Borrower for the
payment of the Note.

             Section 3.         Stock Dividends, etc.  If, while this Agreement
is in effect, Borrower shall become entitled to receive or shall receive any
stock certificate (including, without limitation, any certificate representing a
stock dividend or a distribution in connection with any reclassification,
increase or reduction of capital, or issued in connection with any
reorganization), option or rights (in connection with Borrower’s ownership of
the Collateral, whether as an addition to, in substitution of or in exchange for
any Pledged Shares or any other Collateral), Borrower agrees to accept the same
as the Company’s agent and to hold the same in trust on behalf of and for the
benefit of the Company, subject to the terms of this Agreement, as additional
Collateral.

             Section 4.         Cash Dividends; Voting Rights; Dissolution.

             (a)         Unless an Event of Default shall have occurred and be
continuing, Borrower shall be entitled, except as provided in Sections 3 and 5,
to receive all dividends and distributions in respect of the Collateral, to vote
the Collateral and to give consents, waivers and ratifications in respect of the
Collateral; provided, however, that no vote shall be cast or consent, waiver or
ratification given or action taken which would have a material adverse effect on
the value or marketability of the Collateral or be inconsistent with or violate
the provisions of this Agreement and, provided further, that any sums paid upon
or in respect of the Collateral upon the liquidation or dissolution of the
issuer thereof shall be paid over to the Company to be held by it as additional
Collateral for the Obligations subject to the term hereof.

 

             (b)         Borrower hereby appoints the Company, with full power
of substitution, effective upon the occurrence of any Event of Default,  as
Borrower’s proxy and attorney-in-fact to vote, give consents and approvals, call
meetings and exercise any other rights with respect to the Pledged Shares or any
other Collateral.  This proxy and power-of-attorney shall be in full force and
effect upon the occurrence of any Event of Default until the termination of this
Agreement and is irrevocable and exclusive and shall not be terminated or
otherwise affected by any action or inaction of Borrower or by operation of law,
by death or disability of Borrower or by the occurrence of any other event. 
Except as set forth in paragraph (a) above, Borrower shall have no right to
vote, give consents or approvals or exercise any other right with respect to the
Pledged Shares or any other Collateral.

             Section 5.         Rights of the Company.

             (a)         The Company shall have the right to deliver any
stop-order instructions to the Company’s transfer agent in order to prevent
Borrower from making any transfers or pledges of the Pledged Shares in violation
of this Agreement.  The Company shall also have the right to remove any such
stop-order instructions at any time.

             (b)         Subject to the Company’s obligations under secured
transactions law if the Company has taken possession of the Collateral, the
Company shall not be liable for failure to collect or realize upon the
Obligations secured hereby or any collateral security or guarantee therefor, or
any put thereof, or for any delay in so doing, nor shall the Company be under
any obligation to take any action whatsoever with regard thereto.

             (c)         If an Event of Default has occurred and is continuing,
the Company shall notify Borrower in writing requesting immediate delivery by
Borrower to the Company of any and all certificates comprising a part of the
Collateral.  If Borrower delivers such certificate(s), the Company may transfer
or register or have registered in the name of the Company or the Company’s
nominee any and all shares comprising a part of the Collateral, and the Company
or its nominee may thereafter exercise all voting and corporate rights at any
meeting of the Company’s shareholders and any and all rights of conversion,
exchange, subscription or any other rights, privileges or options pertaining to
any shares comprising a part of the Collateral as if it were the absolute owner
thereof, including, without limitation, the right to exchange, at its
discretion, any and all of the Collateral upon the merger, consolidation,
reorganization, recapitalization or other readjustment of the Company or upon
the exercise by Borrower or the Company of any right, privilege or option
pertaining to the Collateral, and, in connection therewith, to deposit and
deliver any and all of the Collateral with any committee, depositary, transfer
agent, registrar or other designated agency upon such terms and conditions as it
may determine, all without liability except to account for property actually
received by it. If Borrower fails to deliver such certificates within three (3)
business days of receipt of the Company’s notice, Borrower agrees that the
Company may complete one or more stock powers in order to transfer to the
Company (or such other individual or entity as the Company determines) the
number of shares necessary to satisfy the Obligations and the Company shall have
such rights described in this Section 5.  The Company shall have no duty to
exercise any of the aforesaid rights, privileges or options, and the Company
shall not be responsible for any failure to do so or delay in so doing.

 

             Section 6.         Remedies.

             (a)         In the event that an Event of Default shall have
occurred and be continuing, the Company may (i) by notice to Borrower, declare
the Note, or any portion thereof, to be immediately due and payable, and the
same shall thereupon become immediately due and payable, without any other
notice and without demand, presentment, notice of dishonor, notice of
acceleration, notice of intent to accelerate, notice of intent to demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by Borrower to the extent permitted by law and/or (ii) without demand of
performance or other demand, advertisement or notice of any kind to or upon
Borrower or any other Person (all and each of which demands, advertisements
and/or notices are hereby expressly waived to the extent permitted by law),
exercise in respect of the Collateral, in addition to the other rights and
remedies provided for herein or otherwise available to it, all the rights and
remedies of a secured party on default under the Code (whether or not the Code
applies to the affected Collateral), including collecting, receiving,
appropriating and realizing upon the Collateral, or any part thereof, and/or may
forthwith sell, assign, give an option or options to purchase, contract to sell
or otherwise dispose of and deliver the Collateral, or any part thereof, in one
or more parcels at public or private sale or sales, at any exchange, broker’s
board or at any of the Company’s offices or elsewhere upon such terms and
conditions as it may, in its absolute discretion, deem advisable and at such
prices as it may, in its absolute discretion, deem best, for cash or on credit
or for future delivery without the assumption of any credit risk, free of any
right or equity of redemption in Borrower, which right or equity is hereby
expressly waived and released to the extent permitted by law, upon any such sale
or sales, public or private, to purchase the whole or any part of the Collateral
so sold; provided, however, that Borrower shall not be credited with the net
proceeds of any credit sale or future delivery until cash proceeds are actually
received by the Company.

             (b)         Borrower agrees that, to the extent notice of sale
shall be required by law, at least 10 days’ notice to Borrower of the time and
place of any public sale or of the time after which a private sale or other
intended disposition is to take place shall be commercially reasonable
notification of such matters.

             (c)         In case the Company shall have instituted any
proceeding to enforce any right, power or remedy under this Agreement by
foreclosure, sale, entry or otherwise, and such proceeding shall have been
discontinued or abandoned for any reason or shall have been determined adversely
to the Company then and in every such case Borrower and the Company shall be
restored to their respective former positions and rights hereunder with respect
to the Collateral and all rights, remedies and powers of the Company shall
continue as if no such proceeding had been instituted.

             (d)         All rights and remedies of the Company expressed herein
are in addition to all other rights and remedies possessed by the Company under
the Note, at law or in equity.

 

             Section 7.         Sale of Collateral.

             (a)         If at any time when the Company shall determine to
exercise its right to sell all or any part of the Collateral pursuant to Section
6 hereof, such Collateral or the part thereof to be sold shall not, for any
reason whatsoever, be effectively registered under the Securities Act, the
Company may, in its sole and absolute discretion, sell such Collateral or part
thereof by private sale in such manner and under such circumstances as the
Company may deem necessary or advisable in order that such sale may legally be
effected without such registration. Without limiting the generality of the
foregoing, in any such event the Company, in its sole and absolute discretion,
(i) may proceed to make such private sale notwithstanding that a registration
statement for the purpose of registering such Collateral or part thereof shall
have been filed under the Securities Act, (ii) may approach and negotiate with a
single possible purchaser to effect such sale and (iii) may restrict such sale
to a purchaser who will represent and agree that such purchaser is purchasing
for its own account, for investment, and not with a view to the distribution or
sale of such Collateral or part thereof.  In the event of any such sale, the
Company shall incur no responsibility or liability for selling all or any part
of the Collateral at a price which the Company, in its sole and absolute
discretion, may in good faith deem reasonable under the circumstances,
notwithstanding the possibility that a substantially higher price might be
realized if the sale were deferred until after registration as aforesaid. 
Borrower agrees that the Company need not sell the Collateral in a public
offering even though it may yield a higher price than the actual method of sale.

             (b)         Borrower agrees that a sale of any Collateral is a
public sale pursuant to Section 9–504(3) of the Uniform Commercial Code if (i)
an offer to sell such Collateral has been advertised for at least one day in
each of two consecutive weeks in any newspaper of general circulation in the San
Francisco financial community and such sale is made more than 10 days after the
first such advertisement or (ii) such Collateral is offered to at least five
bona fide offerees who the Company reasonably believes may be interested in that
type of investment.  This shall not constitute an admission that any such offer
is a public offering under securities laws or that any other method of sale is
not a public sale.

             Section 8.         Application of Proceeds.  Any proceeds of
disposition of any Collateral shall be applied:

             first, to the Company’s expenses in enforcing its rights and
remedies, including reasonable attorney’s fees and expenses,

             second, to the satisfaction of the Obligations, in the order and
manner provided in the Note,

             third, to the payment of any other amount required by law, and

             fourth, to Borrower.

             Borrower shall remain liable for any deficiency in the Obligations.

 

             Section 9.         Possession of Collateral.  For convenience
purposes only, and not to extend any rights to Borrower thereby, Borrower shall
be entitled to hold the Collateral in trust subject to the provisions of this
Agreement, except as from time to time the Collateral may be required for
recordation or for the purpose of enforcing or realizing upon any right or value
represented thereby.  As further described below in Section 12, Borrower’s
possession of the Collateral does not give Borrower the right to transfer the
Collateral or take any other action that would restrict or nullify the Company’s
rights to hold a perfected security interest in the Collateral.  In order to
handle the administrative task of transferring ownership of the Collateral from
Borrower should an Event of Default occur and Borrower fail to provide the
Company with the certificates representing the Collateral, Borrower shall
deliver to the Company three undated stock powers with respect to the
certificates representing the Pledged Shares duly executed in blank,
substantially in the form of Exhibit A attached hereto.

             Section 10.      Release of Collateral.

             (a)         If the Aggregate Market Value on any date exceeds the
Borrowing Base on such date, then Borrower shall be entitled to obtain a release
of Pledged Shares from this Agreement and the security interest created hereby
so long as, immediately after giving effect to such release, the Aggregate
Market Value is not less than the Borrowing Base.  As used herein, (i)
“Aggregate Market Value” means, as of any date, the aggregate fair market value
of the Pledged Shares on such date, as determined by the Per Share Market Value
on such date, (ii) “Per Share Market Value” means, as of any date, the closing
price per share of Common Stock of the Company as reported in the Wall Street
Journal for the last trading day immediately preceding such date and (iii)
“Borrowing Base” means, as of any date, 120% of the principal balance of the
Note outstanding on such date.

             (b)         In the event that the Aggregate Market Value is less
than the Borrowing Base, then Borrower shall have no obligation to pledge
additional shares of Common Stock of the Company.

             (c)         At the request of Borrower, the Company shall promptly
execute and deliver to Borrower all such certificates and other instruments,
including the filing of any amended UCC-1 financing statements, as shall be
necessary or appropriate in order to effectuate any release to which Borrower
has become entitled under this Section 10.

             (d)         If Borrower wishes to sell Pledged Shares that Borrower
is not entitled to have released under this Section 10 for the purpose of using
the proceeds to pay obligations under the Note, the Company and Borrower shall
cooperate to facilitate the prompt execution of such sales and delivery to the
Company of the proceeds thereof as payment under the Note.

             Section 11.      Representations and Warranties of Borrower.
 Borrower hereby represents and warrants to the Company as follows:

             (a)         Borrower has the legal capacity necessary or advisable
to enter into and perform this Agreement.

             (b)         Borrower has duly executed and delivered this
Agreement.

 

             (c)         Borrower’s execution, delivery and performance of this
Agreement, and the enforcement by the Company of any of its rights hereunder, do
not and will not breach or constitute a default, give rise to any right of
acceleration or termination or result in or require the creation of any Lien
under any agreement or instrument to which Borrower is a party or by which
Borrower or any of Borrower’s property is bound.

             (d)         This Agreement is a legal, valid and binding obligation
of Borrower, enforceable against Borrower in accordance with its terms.

             (e)         This Agreement creates in favor of the Company a legal,
valid and binding security interest, enforceable in accordance with its terms,
in all the Collateral.

             (f)         The Company has a first priority security interest in
the Pledged Shares.  No action by the Company is required to perfect a first
priority security interest in favor of the Company in all Collateral.

             Section 12.      Certain Covenants of Borrower.  Borrower covenants
and agrees with the Company that until the Obligations are paid and performed in
full:

             (a)         Borrower shall promptly notify the Company of the
occurrence or existence of any Event of Default or the occurrence or existence
of any condition or event that, with the giving of notice or lapse of time or
both, would be an Event of Default.

             (b)         Borrower shall maintain the Collateral free from any
Lien adverse to the Company.

             (c)         Borrower shall keep accurate records with respect to
the Collateral. If requested by the Company, Borrower shall permit the Company
and its agents and representatives to examine and make copies or abstracts of
such records. If requested by the Company, Borrower shall prepare and deliver to
the Company a statement accurately identifying or describing any or all
Collateral.

             (d)         Borrower agrees to take any action (including the
execution, delivery, recording, filing, rerecording and refiling of any
financing statements, continuation statements or other documents) that the
Company may reasonably request to (i) perfect, continue, maintain, preserve and
protect the security interest purported to be created hereby as a first priority
security interest in all the Collateral, (ii) enable the Company to exercise and
enforce its rights and remedies or (iii) otherwise effect the purposes of this
Agreement.  If the Company believes that it needs to obtain injunctive relief 
in order to perfect its security interest in the Collateral, Borrower agrees to
consent to such injunctive relief without delay or challenge.

             (e)         Borrower shall not permit or suffer to exist any Lien
on any Collateral, or part thereof, except for the security interest created
hereby.

             (f)         Borrower shall not transfer, pledge or otherwise assign
the Pledged Shares and agrees that its right to retain possession of the
collateral pursuant to Section 9 is for convenience only and Borrower shall not
take any action that would restrict or nullify the Company’s rights hereunder.

 

             (g)        Borrower shall not use any proceeds from the Loan to buy
or carry public company stock.

             Section 13.      No Waiver; Modifications in Writing.  No failure
or delay on the part of the Company in exercising any right, power or remedy
hereunder shall operate as a waiver hereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy.  The
remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Company at law or in equity or otherwise. 
No amendment, modification, supplement, termination or waiver of or to any
provision of this Agreement nor consent to any departure by Borrower shall be
effective unless the same shall be in writing and signed by or on behalf of the
Company. Any amendment, modification or supplement of or to any provision of
this Agreement, any waiver of any provision of this Agreement and any consent to
any departure by Borrower from the terms of any provision of this Agreement
shall be effective only in the specific instance and for the specific purpose
for which made or given.  Except where notice is specifically required by this
Agreement or the Note, no notice to or demand on Borrower in any case shall
entitle Borrower to any other or further notice or demand in similar or other
circumstances.

             Section 14.      Security Agreement as Financing Statement. The
Company is authorized to file this Agreement or a photocopy hereof as a
financing statement with respect to any one or more items comprising the
Collateral.

             Section 15.      Counterparts.  This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.

             Section 16.      Security Interest Absolute.  All rights of the
Company and security interests hereunder, and all obligations of Borrower
hereunder, shall be absolute and unconditional irrespective of:

             (a)         any lack of validity or enforceability of the Note or
any other agreements or instruments relating thereto;

             (b)         any change in the time, manner or place of payment of,
or in any other term of, all or any of the Obligations, or any other amendment
or waiver of or any consent to any departure from the Note;

             (c)         any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to departure
from any guaranty, for all or any of the Obligations; or

             (d)         any other circumstance which might otherwise constitute
a defense available to, or a discharge of, Borrower or a third party pledgor.

             Section 17.      Governing Law.  THIS AGREEMENT SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED
BY, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REFERENCE TO
PRINCIPLES OF CONFLICTS OF LAW.

 

             Section 18.      Severability Of Provisions.  Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.

             Section 19.      Notices. All written communications provided for
hereunder shall be sent by first class mail or nationwide overnight delivery
service (with charges prepaid) and (a) if to Borrower, addressed to Borrower’s
residence address on the records of the Company or at such other address as
Borrower shall have specified to the Company in writing; and (b) if to the
Company, addressed to it at its executive office address or at such other
address as the Company shall have specified to Borrower in writing.

             Section 20.      Submission to Jurisdiction.  BORROWER HEREBY
IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED IN CALIFORNIA OVER ANY ACTION OR PROCEEDING (A) TO ENFORCE OR
DEFEND ANY RIGHT UNDER THIS AGREEMENT OR THE NOTE OR (B) ARISING FROM OR
RELATING TO ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS
AGREEMENT AND THE NOTE, AND BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH
STATE OR FEDERAL COURT. BORROWER HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING
BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE
PREPAID, TO BORROWER AT BORROWER’S ADDRESS FOR NOTICES PURSUANT TO SECTION 19,
SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. A COPY OF ANY SUCH
PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO BORROWER AT BORROWER’S
ADDRESS PROVIDED IN SECTION 19, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY
APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF
SERVICE OF PROCESS. BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
THAT HE MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM OR VENUE TO
THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING. BORROWER AGREES THAT A FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW.  NOTHING IN THIS SECTION 20 SHALL AFFECT THE RIGHT OF ANY OTHER
PERSON TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITED BY APPLICABLE LAW, OR
THE RIGHT OF ANY OTHER PERSON TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER
OR THE PROPERTY OF BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.

             Section 21.      Final Agreement of the Parties.  THE NOTE AND THIS
AGREEMENT REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE
MATTERS REFERRED TO THEREIN AND HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES WITH RESPECT TO THE MATTERS
REFERRED TO HEREIN OR IN THE NOTE.

 

             Section 22.      Headings, etc. The headings, captions and
arrangements used in this Agreement are for convenience only and shall not
affect the interpretation of this Agreement.  In this Agreement, unless a clear
contrary intention appears, (i) the words “herein,” “hereof” and “hereunder” and
other words of similar import refer to this Agreement as a whole and not to any
particular Section or other subdivision and (ii) reference to any Section means
such Section of this Agreement.

             Section 23.      Waiver of Protest and Bond.  In the event the
Company seeks to take possession of any or all of the Collateral by injunctive
relief or other judicial process, Borrower hereby irrevocably waives protest any
bonds and any surety or security relating thereto that may be required by
applicable law as an incident to such possession, and waives any demand for
possession prior to the commencement of any such suit or action.

             Section 24.      Benefit.  The Company may assign all or part of
its rights under this Agreement to any holder of an Obligation. Borrower, the
Company and their permitted successors and assigns shall be bound by this
Agreement. They shall be the only Persons entitled to its benefits.

 

[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

             IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.

  BORROWER:       Signature:  /s/ Steven L. Miller

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

      Printed Name: Steven L. Miller       THE COMPANY:       SCIENTIFIC
LEARNING CORPORATION       By: /s/ Carleton A. Holstrom

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

  Carleton A. Holstrom, on behalf of the
Compensation Committee of the Board of
Directors

 

[SIGNATURE PAGE TO PLEDGE AGREEMENT]

EXHIBIT A

ASSIGNMENT SEPARATE FROM CERTIFICATE

             For Value Received, ___________ hereby sells, assigns and transfers
unto ___________, ___________ (____) shares of the Common Stock of Scientific
Learning Corporation (the “Company”) standing in the undersigned’s name on the
books of the Company represented by Certificate No.(s) ___________ herewith and
do hereby irrevocably constitute and appoint the Company’s transfer agent to
transfer the said stock on the books of the Company with full power of
substitution in the premises.

Dated:  _____

  Signature of Borrower:__________________       Name of Borrower:
____________________       If Applicable:       Additional
Signature:___________________       Name of Signatory: ____________________

 

 

EXHIBIT B

UCC-1 FINANCING STATEMENT

    THIS SPACE FOR USE OF FILING OFFICER

 

 

FINANCING STATEMENT — FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform
Commercial Code
and will remain effective, with certain exceptions, for 5 years from date of
filing.

A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. #
(optional)   C. RETURN COPY TO:  (Name and Mailing Address)

              Diana R. Sanchez
              Cooley Godward LLP
              3000 El Camino  Real
              Palo Alto, CA  94306

  D. OPTIONAL DESIGNATION (if applicable): : LESSOR/LESSEE  :
CONSIGNOR/CONSIGNEE  : NON-UCC FILING   1. DEBTOR’S EXACT FULL LEGAL NAME -
insert only one debtor name (1a or 1b)            OR 1a. ENTITY’S NAME       1b.
INDIVIDUAL’S LAST NAME FIRST NAME MIDDLE NAME SUFFIX           1c. MAILING
ADDRESS CITY STATE COUNTRY POSTAL CODE           1d. S.S. OR TAX I.D.# OPTIONAL
ADD’NL INFO RE
ENTITY DEBTOR 1e. TYPE OF ENTITY 1f. ENTITY’S STATE OR COUNTRY OF ORGANIZATION
1g. ENTITY’S ORGANIZATION I.D.#, if any
                                           o NONE   2. ADDITIONAL DEBTOR’S EXACT
FULL LEGAL NAME - insert only one debtor name (2a or 2b) OR 2a. ENTITY’s name  
    2b. INDIVIDUAL’S LAST NAME FIRST NAME MIDDLE NAME SUFFIX           2c.
MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE           2d. S.S. OR TAX I.D.#
OPTIONAL
ADD’NL INFO RE
ENTITY DEBTOR 2e. TYPE OF ENTITY 2f. ENTITY’S STATE OR COUNTRY OF ORGANIZATION
2g. ENTITY’S ORGANIZATION I.D.#, if any
                                           o NONE   3. SECURED PARTY’S (ORIGINAL
S/P or ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only one secured party
name (3a or 3b) OR 3a. ENTITY’S NAME
                                         SCIENTIFIC LEARNING CORPORATION   3b.
INDIVIDUAL’S LAST NAME FIRST NAME MIDDLE NAME SUFFIX           3c. MAILING
ADDRESS
          1995 University Avenue, Suite 400 CITY
Berkeley STATE
CA COUNTRY
USA POSTAL CODE
94704   4.  This FINANCING STATEMENT covers the following types or items of
property:

All right, title and interest of Debtor in, to and under the personal property
set forth on Exhibit A attached hereto and incorporated herein by reference.

    5.CHECK o
    BOX
    (if applicable) This FINANCING STATEMENT is signed by the Secured Party
instead of the Debtor to perfect a security interest (a) in
collateral already subject to a security interest in another jurisdiction when
it was brought into this state, or when the debtor’s
location was changed to this state, or (b) in accordance with other statutory
provisions [additional data may be required]     7. If filed in Florida (check
one)
o Documentary            o Documentary
stamp tax paid                tax not applicable   6. REQUIRED SIGNATURE(S) 8. :
This FINANCING STATEMENT is to be filed [for record]
(or recorded) in the REAL ESTATE RECORDS
Attach Addendum                                             [if applicable]  
By:                                                              Title: 9. Check
to REQUEST SEARCH CERTIFICATE(S) on debtor(s)
[ADDITIONAL FEE]
(optional)                 o All Debtors    o Debtor 1    o Debtor 2   (1)
FILING OFFICER COPY — NATIONAL FINANCING STATEMENT (FORM UCC1) (TRANS.) (REV.
12/18/95)

Exhibit A
to

UCC-1 Financing Statement

between

SCIENTIFIC LEARNING CORPORATION, as Secured Party

and

______________________________, as Debtor

 

1.                       Borrower hereby pledges, hypothecates, assigns and
grants to the Secured Party a continuing security interest of first priority in
all of the Collateral.

2.          For purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, the following terms shall
have the following respective meanings:

             “Code” means the Uniform Commercial Code in effect in the State of
California.

             “Collateral” means (a) the Pledged Shares and the certificates
representing the Pledged Shares, and all dividends, cash instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares, (b) all
dividends, distributions and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the Pledged Shares and (c) all proceeds of any of the foregoing (whether such
proceeds arise before or after the commencement of a case under the bankruptcy
laws by or against Borrower as debtor).

              “Pledged Shares” means                       shares of Common
Stock of the Company registered in the name of Borrower represented by stock
certificate number(s) __________________________.

 

LOAN AGREEMENT

          THIS LOAN AGREEMENT (this “Agreement”), dated as of April 11, 2001, is
executed by James A. Mills (“Borrower”), and SCIENTIFIC LEARNING CORPORATION, a
Delaware corporation (the “Company”).  All capitalized terms that are not
otherwise defined herein shall have the meaning set forth in the Security
Agreement.

RECITALS

          WHEREAS, the Board of Directors of the Company has authorized the
Company to loan up to $30,000 (the “Loan Cap”) to Borrower, which loan will not
be used to buy or carry public company stock (the “Loan”);

          WHEREAS, the parties wish to execute this Agreement to confirm the
Company’s commitment to extend such Loan and to attach the form of agreements to
be used in executing the Loan and extending a security interest to the Company
as collateral for the Loan;

          NOW, THEREFORE, in consideration of the promises made herein and for
other good and valuable consideration, Borrower and the Company hereby agree as
follows:

          1.       Loan.  Subject to the provisions of this Agreement, the
Company agrees, at any time prior to April 15, 2001, to make the Loan to
Borrower pursuant to a secured promissory note substantially in the form of
Exhibit A (the “Note”) and the pledge agreement substantially in the form of
Exhibit B (the “Security Agreement”) within five (5) business days of a written
request from Borrower.  Borrower may request that the amount of the Loan be less
than the Loan Cap.  Unless agreed to in writing by the Company, after
authorization by the Compensation Committee of the Board of Directors, the Loan
Cap shall not be increased.

          2.       Conditions to the Company’s Loan.  The Company’s obligation
to make the Loan described in Section 1 is contingent upon the following:

                    (a)      the Company’s obtaining a satisfactory bank loan to
finance the full amount of the Loan, which bank loan is expected to be
guaranteed by Warburg Pincus . or its affiliates;

                    (b)      the delivery by Borrower of an executed copy of the
Note, the Security Agreement, three undated stock powers with respect to the
certificates representing the Pledged Shares executed in blank by Borrower
substantially in the form attached as an Exhibit to the Security Agreement, one
or more UCC-1 financing statements substantially in the form attached as an
Exhibit to the Security Agreement and such other documents as the Company shall
reasonably request to perfect its security interest in the Collateral;

                    (c)      Borrower shall not have commenced a voluntary
proceeding seeking liquidation, reorganization or other relief with respect to
Borrower or Borrower’s debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official for Borrower or a
substantial part of Borrower’s property nor shall Borrower consent to any such
relief or to the appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against Borrower nor shall
Borrower make a general assignment for the benefit of creditors or generally
fail to pay Borrower’s debts as they become due or shall take any action to
authorize any of the foregoing;

                    (d)      an involuntary proceeding shall not have been
commenced against Borrower seeking liquidation, reorganization or other relief
with respect to Borrower or Borrower’s debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official for Borrower
or a substantial part of his property;

                    (e)      Borrower’s employment by or association with the
Company is terminated for “cause” (as defined in the form of Note attached
hereto as Exhibit A); and

                    (f)      Borrower is employed by, or provides consulting
services to, another company or business that provides neuroscience-based
educational technology products.

          3.       Miscellaneous

                    (a)      Governing Law.  This Agreement shall be construed
and enforced in accordance with, and the rights of the parties shall be governed
by, the internal laws of the State of California, without reference to
principles of conflicts of laws.

                    (b)      Counterparts.  This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

                    (c)      Entire Agreement. This Agreement and the exhibits
hereto constitute the entire agreement between the parties relating to the
subject matter hereof and no party shall be liable or bound to any other party
in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein.

                    (d)      Severability Of Provisions.  Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.

                    (e)      Notices.  All written communications provided for
hereunder shall be sent by first class mail or nationwide overnight delivery
service (with charges prepaid) and (a) if to Borrower, addressed to Borrower’s
residence address on the records of the Company or at such other address as
Borrower shall have specified to the Company in writing; and (b) if to the
Company, addressed to it at its executive office address or at such other
address as the Company shall have specified to Borrower in writing.

                    (f)      Benefit.  The Company may assign all or part of its
rights under this Agreement to any other party.  Borrower may not assign its
rights or obligations hereunder without the Company’s express written consent. 
Borrower, the Company and their permitted successors and assigns shall be bound
by this Agreement.  They shall be the only persons entitled to its benefits.

                    (g)      Expenses.  Each party to this Agreement and the
exhibits shall bear its own expenses and legal fees incurred by it with respect
to this Agreement and all related transactions and agreements.

                    (h)      Amendments.   Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived, only
with the written consent of the Company and Borrower.

                    (i)       Termination.   This Agreement, and all obligations
hereunder, shall terminate and be of no force and effect, after April 15, 2001.

 

[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]

          IN WITNESS WHEREOF, the parties hereto have executed this Loan
Agreement as of the date first above written.

  BORROWER:               Signature: /s/ James A. Mills

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

            Printed Name: James A. Mills           THE COMPANY:       SCIENTIFIC
LEARNING CORPORATION               By: /s/ Carleton Holstrom

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

    Carleton Holstrom, on behalf of the
Compensation Committee of the Board of
Directors

 

[SIGNATURE PAGE TO LOAN AGREEMENT]

EXHIBIT A

FORM OF PROMISSORY NOTE

EXHIBIT B

FORM OF SECURITY AGREEMENT

 

SECURED PROMISSORY NOTE

 

$28,383.00 April 11, 2001   Oakland, California

 

          FOR VALUE RECEIVED, James A. Mills  (“Borrower”), an employee of
Scientific Learning Corporation, a Delaware corporation  (“Company,) hereby
unconditionally promises to pay to the order of Company, in lawful money of the
United States of America and in immediately available funds, the principal sum
of Twenty-Eight Thousand Three Hundred Eighty-Three Dollars ($28,383.00) (the
 “Loan”) together with accrued and unpaid interest thereon, due and payable on
the dates and in the manner set forth below.

          It is the intent of the parties that the purpose of this Note is not
for consumer, family or household purposes.

          This Secured Promissory Note is the Note referred to in and is
executed and delivered in connection with that certain Pledge Agreement dated as
of even date herewith and executed and delivered by Borrower in favor of Company
(as the same may from time to time be amended, modified or supplemented or
restated (the  “Security Agreement ”).  Additional rights of Company are set
forth in the Security Agreement.  All capitalized terms used herein and not
otherwise defined herein shall have the respective meanings given to them in the
Security Agreement.

          1.       Principal Repayment.  The outstanding principal amount of the
Loan shall be due and payable on December 31, 2005 (the “Termination Date”).

          2.       Interest Rate.       Borrower further promises to pay
interest on the outstanding principal amount hereof from the date hereof until
payment in full, which interest shall be compounded annually and payable at the
rate of Four and 94/100 percent (4.94%) per annum or the maximum rate
permissible by law (which under the laws of the State of California shall be
deemed to be the laws relating to permissible rates of interest on commercial
loans), whichever is less.  Interest shall be due and payable on the Termination
Date and shall be calculated on the basis of a 365 day year for the actual
number of days elapsed.

          Any principal repayment or interest payment on the Loan hereunder not
paid when due, whether at stated maturity, by acceleration or otherwise, shall
bear interest at Six and 94/100 percent (6.94%) per annum.

          3.       Manner of Payment. Both principal and interest are payable in
immediately available funds in lawful money of the United States of America to
the Company at the principal office of Company unless another place of payment
shall be specified in writing by Company.

 

          4.       Application of Payments.  Payment on this Note shall be
applied first to accrued interest, if any, and thereafter to the outstanding
principal balance hereof.  Borrower may at any time pay the full amount or any
portion of this Note without notice or payment of any penalty, premium or fee. 
Any such prepayment shall be accompanied by payment of any and all accrued and
unpaid interest on the amount prepaid. All payments made on account of the
principal of or interest on this Note shall be recorded in the books and records
of the Company; provided, however, that the failure of the Company to make any
notation or any error therein shall not in any manner affect the obligation of
Borrower to repay this Note in accordance with the terms hereof.  Borrower
agrees that any document submitted by the Company purporting to show the
outstanding principal amount of this Note and all accrued and unpaid interest
hereon shall be conclusive in the absence of manifest error.

          5.       Secured Note.  The full amount of this Note is secured by the
collateral identified and described as security therefor in the Security
Agreement. Borrower shall not, directly or indirectly, create, permit or suffer
to exist, and shall defend the collateral against and take such other action as
is necessary to remove, any lien on or in the collateral, or in any portion
thereof, except as permitted pursuant to the Security Agreement.  To the extent
Borrower is unable to satisfy this Note when due with the collateral described
in the Security Agreement, the Company may hold Borrower personally liable for
this Note or assert any claim against Borrower for the payment of this Note.

          6.       Default.  Each of the following events shall be an “Event of
Default” hereunder:

                    (a)      Borrower shall fail to pay when due the Obligations
or any part thereof and such failure shall have continued for at least five
business days thereafter;

                    (b)      Any representation or warranty made or deemed made
by Borrower in the Security Agreement or in any certificate, report, notice or
financial statement furnished at any time in connection with the Security
Agreement, the Loan or this Note shall be false, misleading or erroneous in any
material respect when made or deemed to have been made;

                    (c)      Borrower shall fail to perform, observe or comply
with any covenant, agreement or term contained in the Security Agreement and
such failure shall continue for a period of ten business days after the earlier
of (i) notice thereof being given by the Company to Borrower or (ii) such
default otherwise becoming known to Borrower;

                    (d)      Borrower shall commence a voluntary proceeding
seeking liquidation, reorganization or other relief with respect to Borrower or
Borrower’s debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official for him or a substantial part of
his property or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against him or shall make a general assignment for the
benefit of creditors or shall generally fail to pay his debts as they become due
or shall take any action to authorize any of the foregoing;

                    (e)      an involuntary proceeding shall be commenced
against Borrower seeking liquidation, reorganization or other relief with
respect to Borrower or Borrower’s debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official for Borrower
or a substantial part of his property, and such involuntary proceeding shall
remain undismissed and unstayed for a period of 60 days;

                    (f)      the Security Agreement or this Note shall cease to
be in full force and effect or shall be declared null and void or the validity
or enforceability thereof shall be contested or challenged by Borrower, or
Borrower shall deny any further liability or obligation under the Security
Agreement or this Note;

                    (g)      Borrower’s employment by or association with the
Company is terminated for “cause” (as defined below);

                    (h)      Borrower is employed by, or provides consulting
services to, another company or business that provides neuroscience-based
educational technology products; or

                    (i)       Borrower shall breach any representation or
covenant under the Security Agreement.

          Upon the occurrence of an Event of Default hereunder, all unpaid
principal, accrued interest and other amounts owing hereunder shall, at the
option of Company, and, in the case of an Event of Default pursuant to (d), (e)
or (f) above, automatically, be immediately due, payable and collectible by
Company pursuant to applicable law.  Notwithstanding the foregoing, if an Event
of Default has occurred under (g) or (h) above (together, the “Employment
Defaults”), Borrower shall have 90 days after such event to pay all unpaid
principal, accrued interest and other amounts owing hereunder.   Company shall
have all rights and may exercise any remedies available to it under law,
successively or concurrently.  Borrower expressly acknowledges and agrees that
the Company shall have the right to offset any obligations of Borrower hereunder
against salaries, bonuses or other amounts that may be payable to Borrower by
the Company.

          “Cause” shall be defined to include the following, as determined in
good faith by the Board of Directors in its sole discretion: (i) material breach
of the Company’s policies, (ii) material breach of the Security Agreement or
this Note, (iii) neglect or abandonment of assigned duties, (iv) the commission
of any act of fraud, embezzlement or dishonesty against the Company, (v)
conviction of any felony or any crime of moral turpitude or dishonesty, (vi)
intentional damage to the Company’s property, (vii) any material breach of a
proprietary information and inventions agreement with the Company or
unauthorized use or disclosure of confidential information or trade secrets of
the Company, or (viii) conduct by Borrower which demonstrates unfitness to
serve.

          Waiver. Borrower waives presentment and demand for payment, notice of
dishonor, protest and notice of protest of this Note, and shall pay all costs of
collection when incurred, including, without limitation, reasonable attorneys’
fees, costs and other expenses.

          The right to plead any and all statutes of limitations as a defense to
any demands hereunder is hereby waived to the full extent permitted by law.

          7.       Governing Law.  This Note shall be governed by, and construed
and enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.

          8.       Expenses.  Borrower agrees to pay all reasonable costs and
expenses, including, without limitation, reasonable attorneys’ fees and costs of
court, incurred by Company or any other holder of this Note in collecting or
enforcing payment of this Note in accordance with its terms.

          9.       Amendment. This Note may not be changed, amended or modified
except in a writing executed by Borrower and the holder hereof.

          10.     Complete Agreement. This Note and the Security Agreement
represent the final agreement between Borrower and Company with respect to the
matters referred to herein and may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreement of Borrower and Company.  There are
no oral agreements between Borrower and Company with respect to the matters
referred to herein.

          11.     Successors and Assigns.  The provisions of this Note shall
inure to the benefit of and be binding on any successor to Borrower and shall
extend to any holder hereof. Borrower shall not, without the prior written
consent of holder, assign any of its rights or obligations hereunder.

          IN WITNESS WHEREOF, this Note has been executed as of the date first
written above.

BORROWER:

Signature: /s/ James A. Mills

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

  Printed Name: James A. Mills

 

PLEDGE AGREEMENT

          THIS PLEDGE AGREEMENT (this “Agreement”), dated as of April 11, 2001
is executed by James A. Mills(“Borrower”), an individual residing in Walnut
Creek, California, and SCIENTIFIC LEARNING CORPORATION, a Delaware corporation
(the “Company”).

          WHEREAS, the Company has loaned $28,383.00 to Borrower which loan will
not be used to buy or carry public company stock;

          WHEREAS, such loan (the “Loan”) is evidenced by a Secured Promissory
Note, dated the date hereof, executed by Borrower and made payable to the order
of the Company (together with all renewals, extensions and replacements thereof,
the “Note”); and

          WHEREAS, the Company was unwilling to make the Loan to Borrower unless
Borrower entered into this Agreement to secure the payment and performance of
the Note by Borrower.

          NOW, THEREFORE, Borrower and the Company hereby agree as follows:

          Section 1.    Definitions.  For purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires, the
following terms shall have the following respective meanings:

                    “Code” means the Uniform Commercial Code in effect in the
State of California.

                    “Collateral” means (a) the Pledged Shares and the
certificates representing the Pledged Shares, and all dividends, cash
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Pledged
Shares, (b) all dividends, distributions and other property from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of the Pledged Shares and (c) all proceeds of any of the foregoing
(whether such proceeds arise before or after the commencement of a case under
the bankruptcy laws by or against Borrower as debtor).

                    “Event of Default” means any one or more of the following
events:

          (a)      Borrower shall fail to pay when due the Obligations or any
part thereof and such failure shall have continued for at least five business
days;

          (b)      any representation or warranty made or deemed made by
Borrower in this Agreement or in any certificate, report, notice or financial
statement furnished at any time in connection with this Agreement, the Loan or
the Note shall be false, misleading or erroneous in any material respect when
made or deemed to have been made;

          (c)      Borrower shall fail to perform, observe or comply with any
covenant, agreement or term contained in this Agreement and such failure shall
continue for a period of five business days after the earlier of (i) notice
thereof being given by the Company to Borrower or (ii) such default otherwise
becoming known to Borrower;

          (d)      Borrower shall commence a voluntary proceeding seeking
liquidation, reorganization or other relief with respect to Borrower or
Borrower’s debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official for him or a substantial part of
his property or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against him or shall make a general assignment for the
benefit of creditors or shall generally fail to pay his debts as they become due
or shall take any action to authorize any of the foregoing;

          (e)      an involuntary proceeding shall be commenced against Borrower
seeking liquidation, reorganization or other relief with respect to Borrower or
Borrower’s debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official for Borrower or a substantial
part of his property, and such involuntary proceeding shall remain undismissed
and unstayed for a period of 60 days;

          (f)      this Agreement or the Note shall cease to be in full force
and effect or shall be declared null and void or the validity or enforceability
thereof shall be contested or challenged by Borrower, or Borrower shall deny any
further liability or obligation under this Agreement or the Note; or

          (g)      ninety (90) days after any Employment Default (as defined in
the Note), if any amount then remains outstanding under the Note.

                    “Lien” means any lien, mortgage, security interest, tax
lien, pledge, assessment, encumbrance, lease, adverse claim, levy, charge or
retained interest pursuant to a conditional sale or title retention contract, or
any other interest in property designed to secure the repayment of debt or any
other obligation, whether arising by agreement, operation of law or otherwise,
or any contract to give any of the foregoing.

                    “Loan” has the meaning specified in the second recital
hereof.

                    “Note” has the meaning specified in the second recital
hereof.

                    “Obligations” means all obligations of Borrower to the
Company under or in connection with the Note, regardless of how created, arising
or evidenced and whether direct or indirect, primary or secondary, absolute or
contingent, joint or several or now or hereafter existing or due or to become
due, and all interest accruing thereon, and all attorneys’ fees and other
expenses incurred in the enforcement or collection thereof.

                    “Person” means any natural person, partnership, corporation,
business trust, association, company, limited liability company, joint venture,
governmental authority or any other form of business or legal entity.

                    “Pledged Shares” means 6,325 shares of Common Stock of the
Company registered in the name of Borrower represented by stock certificate
number SCI 2065.  Notwithstanding the foregoing, “Pledged Shares” shall not
include any shares of

Common Stock of the Company which have been released from this Agreement
pursuant to Section 10.

                             “Securities Act” means the Securities Act of 1933,
as amended.

                              Unless the context otherwise requires, terms
defined in the Code shall have the same meanings when used in this Agreement.

          Section 2.    Pledge.

          (a)      As security for the prompt and complete payment and
performance when due of all of the Obligations, Borrower hereby pledges,
hypothecates, assigns and grants to the Company a continuing security interest
of first priority in all of the Collateral.

          (b)      On the date hereof, Borrower shall deliver to the Company
three undated stock powers with respect to the certificates representing the
Pledged Shares duly executed in blank, substantially in the form of Exhibit A
attached hereto, one or more UCC-1 financing statements, substantially in the
form of Exhibit B attached hereto, and such other documents as the Company shall
reasonably request to perfect its security interest in the Collateral.

          As further described in this Agreement, nothing in this Agreement, the
Note or any other agreement shall limit the Company’s right to hold Borrower
personally liable for the Note or assert any claim against Borrower for the
payment of the Note.

          Section 3.    Stock Dividends, etc.  If, while this Agreement is in
effect, Borrower shall become entitled to receive or shall receive any stock
certificate (including, without limitation, any certificate representing a stock
dividend or a distribution in connection with any reclassification, increase or
reduction of capital, or issued in connection with any reorganization), option
or rights (in connection with Borrower’s ownership of the Collateral, whether as
an addition to, in substitution of or in exchange for any Pledged Shares or any
other Collateral), Borrower agrees to accept the same as the Company’s agent and
to hold the same in trust on behalf of and for the benefit of the Company,
subject to the terms of this Agreement, as additional Collateral.

          Section 4.    Cash Dividends; Voting Rights; Dissolution.

          (a)      Unless an Event of Default shall have occurred and be
continuing, Borrower shall be entitled, except as provided in Sections 3 and 5,
to receive all dividends and distributions in respect of the Collateral, to vote
the Collateral and to give consents, waivers and ratifications in respect of the
Collateral; provided, however, that no vote shall be cast or consent, waiver or
ratification given or action taken which would have a material adverse effect on
the value or marketability of the Collateral or be inconsistent with or violate
the provisions of this Agreement and, provided further, that any sums paid upon
or in respect of the Collateral upon the liquidation or dissolution of the
issuer thereof shall be paid over to the Company to be held by it as additional
Collateral for the Obligations subject to the term hereof.

          (b)      Borrower hereby appoints the Company, with full power of
substitution, effective upon the occurrence of any Event of Default,  as
Borrower’s proxy and attorney-in-fact

to vote, give consents and approvals, call meetings and exercise any other
rights with respect to the Pledged Shares or any other Collateral.  This proxy
and power-of-attorney shall be in full force and effect upon the occurrence of
any Event of Default until the termination of this Agreement and is irrevocable
and exclusive and shall not be terminated or otherwise affected by any action or
inaction of Borrower or by operation of law, by death or disability of Borrower
or by the occurrence of any other event.  Except as set forth in paragraph (a)
above, Borrower shall have no right to vote, give consents or approvals or
exercise any other right with respect to the Pledged Shares or any other
Collateral.

          Section 5.    Rights of the Company.

          (a)      The Company shall have the right to deliver any stop-order
instructions to the Company’s transfer agent in order to prevent Borrower from
making any transfers or pledges of the Pledged Shares in violation of this
Agreement.  The Company shall also have the right to remove any such stop-order
instructions at any time.

          (b)      Subject to the Company’s obligations under secured
transactions law if the Company has taken possession of the Collateral, the
Company shall not be liable for failure to collect or realize upon the
Obligations secured hereby or any collateral security or guarantee therefor, or
any put thereof, or for any delay in so doing, nor shall the Company be under
any obligation to take any action whatsoever with regard thereto.

          (c)      If an Event of Default has occurred and is continuing, the
Company shall notify Borrower in writing requesting immediate delivery by
Borrower to the Company of any and all certificates comprising a part of the
Collateral.  If Borrower delivers such certificate(s), the Company may transfer
or register or have registered in the name of the Company or the Company’s
nominee any and all shares comprising a part of the Collateral, and the Company
or its nominee may thereafter exercise all voting and corporate rights at any
meeting of the Company’s shareholders and any and all rights of conversion,
exchange, subscription or any other rights, privileges or options pertaining to
any shares comprising a part of the Collateral as if it were the absolute owner
thereof, including, without limitation, the right to exchange, at its
discretion, any and all of the Collateral upon the merger, consolidation,
reorganization, recapitalization or other readjustment of the Company or upon
the exercise by Borrower or the Company of any right, privilege or option
pertaining to the Collateral, and, in connection therewith, to deposit and
deliver any and all of the Collateral with any committee, depositary, transfer
agent, registrar or other designated agency upon such terms and conditions as it
may determine, all without liability except to account for property actually
received by it. If Borrower fails to deliver such certificates within three (3)
business days of receipt of the Company’s notice, Borrower agrees that the
Company may complete one or more stock powers in order to transfer to the
Company (or such other individual or entity as the Company determines) the
number of shares necessary to satisfy the Obligations and the Company shall have
such rights described in this Section 5.  The Company shall have no duty to
exercise any of the aforesaid rights, privileges or options, and the Company
shall not be responsible for any failure to do so or delay in so doing.

          Section 6.    Remedies.

          (a)      In the event that an Event of Default shall have occurred and
be continuing, the Company may (i) by notice to Borrower, declare the Note, or
any portion thereof, to be immediately due and payable, and the same shall
thereupon become immediately due and payable, without any other notice and
without demand, presentment, notice of dishonor, notice of acceleration, notice
of intent to accelerate, notice of intent to demand, protest or other
formalities of any kind, all of which are hereby expressly waived by Borrower to
the extent permitted by law and/or (ii) without demand of performance or other
demand, advertisement or notice of any kind to or upon Borrower or any other
Person (all and each of which demands, advertisements and/or notices are hereby
expressly waived to the extent permitted by law), exercise in respect of the
Collateral, in addition to the other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the Code (whether or not the Code applies to the affected
Collateral), including collecting, receiving, appropriating and realizing upon
the Collateral, or any part thereof, and/or may forthwith sell, assign, give an
option or options to purchase, contract to sell or otherwise dispose of and
deliver the Collateral, or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange, broker’s board or at any of the
Company’s offices or elsewhere upon such terms and conditions as it may, in its
absolute discretion, deem advisable and at such prices as it may, in its
absolute discretion, deem best, for cash or on credit or for future delivery
without the assumption of any credit risk, free of any right or equity of
redemption in Borrower, which right or equity is hereby expressly waived and
released to the extent permitted by law, upon any such sale or sales, public or
private, to purchase the whole or any part of the Collateral so sold; provided,
however, that Borrower shall not be credited with the net proceeds of any credit
sale or future delivery until cash proceeds are actually received by the
Company.

          (b)      Borrower agrees that, to the extent notice of sale shall be
required by law, at least 10 days’ notice to Borrower of the time and place of
any public sale or of the time after which a private sale or other intended
disposition is to take place shall be commercially reasonable notification of
such matters.

          (c)      In case the Company shall have instituted any proceeding to
enforce any right, power or remedy under this Agreement by foreclosure, sale,
entry or otherwise, and such proceeding shall have been discontinued or
abandoned for any reason or shall have been determined adversely to the Company
then and in every such case Borrower and the Company shall be restored to their
respective former positions and rights hereunder with respect to the Collateral
and all rights, remedies and powers of the Company shall continue as if no such
proceeding had been instituted.

          (d)      All rights and remedies of the Company expressed herein are
in addition to all other rights and remedies possessed by the Company under the
Note, at law or in equity.

          Section 7.    Sale of Collateral.

          (a)      If at any time when the Company shall determine to exercise
its right to sell all or any part of the Collateral pursuant to Section 6
hereof, such Collateral or the part thereof to be sold shall not, for any reason
whatsoever, be effectively registered under the Securities Act, the Company may,
in its sole and absolute discretion, sell such Collateral or part thereof by
private sale in such manner and under such circumstances as the Company may deem
necessary or advisable in order that such sale may legally be effected without
such registration. Without limiting the generality of the foregoing, in any such
event the Company, in its sole and absolute discretion, (i) may proceed to make
such private sale notwithstanding that a registration statement for the purpose
of registering such Collateral or part thereof shall have been filed under the
Securities Act, (ii) may approach and negotiate with a single possible purchaser
to effect such sale and (iii) may restrict such sale to a purchaser who will
represent and agree that such purchaser is purchasing for its own account, for
investment, and not with a view to the distribution or sale of such Collateral
or part thereof.  In the event of any such sale, the Company shall incur no
responsibility or liability for selling all or any part of the Collateral at a
price which the Company, in its sole and absolute discretion, may in good faith
deem reasonable under the circumstances, notwithstanding the possibility that a
substantially higher price might be realized if the sale were deferred until
after registration as aforesaid.  Borrower agrees that the Company need not sell
the Collateral in a public offering even though it may yield a higher price than
the actual method of sale.

          (b)      Borrower agrees that a sale of any Collateral is a public
sale pursuant to Section 9-504(3) of the Uniform Commercial Code if (i) an offer
to sell such Collateral has been advertised for at least one day in each of two
consecutive weeks in any newspaper of general circulation in the San Francisco
financial community and such sale is made more than 10 days after the first such
advertisement or (ii) such Collateral is offered to at least five bona fide
offerees who the Company reasonably believes may be interested in that type of
investment.  This shall not constitute an admission that any such offer is a
public offering under securities laws or that any other method of sale is not a
public sale.

          Section 8.    Application of Proceeds.  Any proceeds of disposition of
any Collateral shall be applied:

          first, to the Company’s expenses in enforcing its rights and remedies,
including reasonable attorney’s fees and expenses,

          second, to the satisfaction of the Obligations, in the order and
manner provided in the Note,

          third, to the payment of any other amount required by law, and

          fourth, to Borrower.

          Borrower shall remain liable for any deficiency in the Obligations.

          Section 9.    Possession of Collateral.  For convenience purposes
only, and not to extend any rights to Borrower thereby, Borrower shall be
entitled to hold the Collateral in trust subject to the provisions of this
Agreement, except as from time to time the Collateral may be required for
recordation or for the purpose of enforcing or realizing upon any right or value
represented

thereby.  As further described below in Section 12, Borrower’s possession of the
Collateral does not give Borrower the right to transfer the Collateral or take
any other action that would restrict or nullify the Company’s rights to hold a
perfected security interest in the Collateral.  In order to handle the
administrative task of transferring ownership of the Collateral from Borrower
should an Event of Default occur and Borrower fail to provide the Company with
the certificates representing the Collateral, Borrower shall deliver to the
Company three undated stock powers with respect to the certificates representing
the Pledged Shares duly executed in blank, substantially in the form of Exhibit
A attached hereto.

          Section 10.  Release of Collateral.

          (a)      If the Aggregate Market Value on any date exceeds the
Borrowing Base on such date, then Borrower shall be entitled to obtain a release
of Pledged Shares from this Agreement and the security interest created hereby
so long as, immediately after giving effect to such release, the Aggregate
Market Value is not less than the Borrowing Base.  As used herein, (i)
“Aggregate Market Value” means, as of any date, the aggregate fair market value
of the Pledged Shares on such date, as determined by the Per Share Market Value
on such date, (ii) “Per Share Market Value” means, as of any date, the closing
price per share of Common Stock of the Company as reported in the Wall Street
Journal for the last trading day immediately preceding such date and (iii)
“Borrowing Base” means, as of any date, 120% of the principal balance of the
Note outstanding on such date.

          (b)      In the event that the Aggregate Market Value is less than the
Borrowing Base, then Borrower shall have no obligation to pledge additional
shares of Common Stock of the Company.

          (c)      At the request of Borrower, the Company shall promptly
execute and deliver to Borrower all such certificates and other instruments,
including the filing of any amended UCC-1 financing statements, as shall be
necessary or appropriate in order to effectuate any release to which Borrower
has become entitled under this Section 10.

          (d)      If Borrower wishes to sell Pledged Shares that Borrower is
not entitled to have released under this Section 10 for the purpose of using the
proceeds to pay obligations under the Note, the Company and Borrower shall
cooperate to facilitate the prompt execution of such sales and delivery to the
Company of the proceeds thereof as payment under the Note.

          Section 11.  Representations and Warranties of Borrower.  Borrower
hereby represents and warrants to the Company as follows:

          (a)      Borrower has the legal capacity necessary or advisable to
enter into and perform this Agreement.

          (b)      Borrower has duly executed and delivered this Agreement.

          (c)      Borrower’s execution, delivery and performance of this
Agreement, and the enforcement by the Company of any of its rights hereunder, do
not and will not breach or constitute a default, give rise to any right of
acceleration or termination or result in or require the

creation of any Lien under any agreement or instrument to which Borrower is a
party or by which Borrower or any of Borrower’s property is bound.

          (d)      This Agreement is a legal, valid and binding obligation of
Borrower, enforceable against Borrower in accordance with its terms.

          (e)      This Agreement creates in favor of the Company a legal, valid
and binding security interest, enforceable in accordance with its terms, in all
the Collateral.

          (f)      The Company has a first priority security interest in the
Pledged Shares.  No action by the Company is required to perfect a first
priority security interest in favor of the Company in all Collateral.

          Section 12.  Certain Covenants of Borrower.  Borrower covenants and
agrees with the Company that until the Obligations are paid and performed in
full:

          (a)      Borrower shall promptly notify the Company of the occurrence
or existence of any Event of Default or the occurrence or existence of any
condition or event that, with the giving of notice or lapse of time or both,
would be an Event of Default.

          (b)      Borrower shall maintain the Collateral free from any Lien
adverse to the Company.

          (c)      Borrower shall keep accurate records with respect to the
Collateral. If requested by the Company, Borrower shall permit the Company and
its agents and representatives to examine and make copies or abstracts of such
records. If requested by the Company, Borrower shall prepare and deliver to the
Company a statement accurately identifying or describing any or all Collateral.

          (d)      Borrower agrees to take any action (including the execution,
delivery, recording, filing, rerecording and refiling of any financing
statements, continuation statements or other documents) that the Company may
reasonably request to (i) perfect, continue, maintain, preserve and protect the
security interest purported to be created hereby as a first priority security
interest in all the Collateral, (ii) enable the Company to exercise and enforce
its rights and remedies or (iii) otherwise effect the purposes of this
Agreement.  If the Company believes that it needs to obtain injunctive relief 
in order to perfect its security interest in the Collateral, Borrower agrees to
consent to such injunctive relief without delay or challenge.

          (e)      Borrower shall not permit or suffer to exist any Lien on any
Collateral, or part thereof, except for the security interest created hereby.

          (f)      Borrower shall not transfer, pledge or otherwise assign the
Pledged Shares and agrees that its right to retain possession of the collateral
pursuant to Section 9 is for convenience only and Borrower shall not take any
action that would restrict or nullify the Company’s rights hereunder.

          (g)      Borrower shall not use any proceeds from the Loan to buy or
carry public company stock.

          Section 13.  No Waiver; Modifications in Writing.  No failure or delay
on the part of the Company in exercising any right, power or remedy hereunder
shall operate as a waiver hereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy.  The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to the Company at law or in equity or otherwise.  No amendment,
modification, supplement, termination or waiver of or to any provision of this
Agreement nor consent to any departure by Borrower shall be effective unless the
same shall be in writing and signed by or on behalf of the Company. Any
amendment, modification or supplement of or to any provision of this Agreement,
any waiver of any provision of this Agreement and any consent to any departure
by Borrower from the terms of any provision of this Agreement shall be effective
only in the specific instance and for the specific purpose for which made or
given.  Except where notice is specifically required by this Agreement or the
Note, no notice to or demand on Borrower in any case shall entitle Borrower to
any other or further notice or demand in similar or other circumstances.

          Section 14.  Security Agreement as Financing Statement. The Company is
authorized to file this Agreement or a photocopy hereof as a financing statement
with respect to any one or more items comprising the Collateral.

          Section 15.  Counterparts.  This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.

          Section 16.  Security Interest Absolute.  All rights of the Company
and security interests hereunder, and all obligations of Borrower hereunder,
shall be absolute and unconditional irrespective of:

          (a)      any lack of validity or enforceability of the Note or any
other agreements or instruments relating thereto;

          (b)      any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Note;

          (c)      any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to departure
from any guaranty, for all or any of the Obligations; or

          (d)      any other circumstance which might otherwise constitute a
defense available to, or a discharge of, Borrower or a third party pledgor.

          Section 17.  Governing Law.  THIS AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REFERENCE TO PRINCIPLES OF
CONFLICTS OF LAW.

          Section 18.  Severability Of Provisions.  Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.

          Section 19.  Notices. All written communications provided for
hereunder shall be sent by first class mail or nationwide overnight delivery
service (with charges prepaid) and (a) if to Borrower, addressed to Borrower’s
residence address on the records of the Company or at such other address as
Borrower shall have specified to the Company in writing; and (b) if to the
Company, addressed to it at its executive office address or at such other
address as the Company shall have specified to Borrower in writing.

          Section 20.  Submission to Jurisdiction.  BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED
IN CALIFORNIA OVER ANY ACTION OR PROCEEDING (A) TO ENFORCE OR DEFEND ANY RIGHT
UNDER THIS AGREEMENT OR THE NOTE OR (B) ARISING FROM OR RELATING TO ANY
FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT AND THE NOTE,
AND BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE OR FEDERAL COURT.
BORROWER HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO BORROWER AT
BORROWER’S ADDRESS FOR NOTICES PURSUANT TO SECTION 19, SUCH SERVICE TO BECOME
EFFECTIVE 30 DAYS AFTER SUCH MAILING. A COPY OF ANY SUCH PROCESS SO SERVED SHALL
BE MAILED BY REGISTERED MAIL TO BORROWER AT BORROWER’S ADDRESS PROVIDED IN
SECTION 19, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE
TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. BORROWER
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT THAT HE MAY EFFECTIVELY DO SO,
THE DEFENSE OF AN INCONVENIENT FORUM OR VENUE TO THE MAINTENANCE OF ANY SUCH
ACTION OR PROCEEDING. BORROWER AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION
OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING IN THIS
SECTION 20 SHALL AFFECT THE RIGHT OF ANY OTHER PERSON TO SERVE LEGAL PROCESS IN
ANY OTHER MANNER PERMITED BY APPLICABLE LAW, OR THE RIGHT OF ANY OTHER PERSON TO
BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR THE PROPERTY OF BORROWER IN
THE COURTS OF ANY OTHER JURISDICTION.

          Section 21.  Final Agreement of the Parties.  THE NOTE AND THIS
AGREEMENT REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE
MATTERS REFERRED TO THEREIN AND HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN

ORAL AGREEMENTS BETWEEN THE PARTIES WITH RESPECT TO THE MATTERS REFERRED TO
HEREIN OR IN THE NOTE.

          Section 22.  Headings, etc. The headings, captions and arrangements
used in this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.  In this Agreement, unless a clear contrary
intention appears, (i) the words “herein,” “hereof” and “hereunder” and other
words of similar import refer to this Agreement as a whole and not to any
particular Section or other subdivision and (ii) reference to any Section means
such Section of this Agreement.

          Section 23.  Waiver of Protest and Bond.  In the event the Company
seeks to take possession of any or all of the Collateral by injunctive relief or
other judicial process, Borrower hereby irrevocably waives protest any bonds and
any surety or security relating thereto that may be required by applicable law
as an incident to such possession, and waives any demand for possession prior to
the commencement of any such suit or action.

          Section 24.  Benefit.  The Company may assign all or part of its
rights under this Agreement to any holder of an Obligation. Borrower, the
Company and their permitted successors and assigns shall be bound by this
Agreement. They shall be the only Persons entitled to its benefits.

 

[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]

          IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.

  BORROWER:           Signature: /s/ James A. Mills

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

        Printed Name: James A. Mills       THE COMPANY:       SCIENTIFIC
LEARNING CORPORATION           By:        /s/ Carleton A. Holstrom

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

      Carleton A. Holstrom, on behalf of the
Compensation Committee of the Board of
Directors  

EXHIBIT A

ASSIGNMENT SEPARATE FROM CERTIFICATE

          FOR VALUE RECEIVED, ______________________ hereby sells, assigns and
transfers unto ______________________, ______________________ (_______) shares
of the Common Stock of Scientific Learning Corporation (the “Company”) standing
in the undersigned’s name on the books of the Company represented by Certificate
No.(s) ______________________ herewith and do hereby irrevocably constitute and
appoint the Company’s transfer agent to transfer the said stock on the books of
the Company with full power of substitution in the premises.

Dated:  __________

  Signature of Borrower:

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

        Name of Borrower:

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

          If Applicable:         Additional Signature:

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

        Name of Signatory:

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

 

EXHIBIT B

UCC-1 FINANCING STATEMENT

 

    THIS SPACE FOR USE OF FILING OFFICER

 

 

 

FINANCING STATEMENT — FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform
Commercial Code
and will remain effective, with certain exceptions, for 5 years from date of
filing.

A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. #
(optional)   C. RETURN COPY TO:  (Name and Mailing Address)

              Diana R. Sanchez
              Cooley Godward LLP
              3000 El Camino  Real
              Palo Alto, CA  94306

  D. OPTIONAL DESIGNATION (if applicable): : LESSOR/LESSEE  :
CONSIGNOR/CONSIGNEE  : NON-UCC FILING   1. DEBTOR’S EXACT FULL LEGAL NAME -
insert only one debtor name (1a or 1b)            OR 1a. ENTITY’S NAME       1b.
INDIVIDUAL’S LAST NAME FIRST NAME MIDDLE NAME SUFFIX           1c. MAILING
ADDRESS CITY STATE COUNTRY POSTAL CODE           1d. S.S. OR TAX I.D.# OPTIONAL
ADD’NL INFO RE
ENTITY DEBTOR 1e. TYPE OF ENTITY 1f. ENTITY’S STATE OR COUNTRY OF ORGANIZATION
1g. ENTITY’S ORGANIZATION I.D.#, if any
                                           o NONE   2. ADDITIONAL DEBTOR’S EXACT
FULL LEGAL NAME - insert only one debtor name (2a or 2b) OR 2a. ENTITY’s name  
    2b. INDIVIDUAL’S LAST NAME FIRST NAME MIDDLE NAME SUFFIX           2c.
MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE           2d. S.S. OR TAX I.D.#
OPTIONAL
ADD’NL INFO RE
ENTITY DEBTOR 2e. TYPE OF ENTITY 2f. ENTITY’S STATE OR COUNTRY OF ORGANIZATION
2g. ENTITY’S ORGANIZATION I.D.#, if any
                                           o NONE   3. SECURED PARTY’S (ORIGINAL
S/P or ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only one secured party
name (3a or 3b) OR 3a. ENTITY’S NAME
                                         Scientific Learning Corporation   3b.
INDIVIDUAL’S LAST NAME FIRST NAME MIDDLE NAME SUFFIX           3c. MAILING
ADDRESS
          1995 University Avenue, Suite 400 CITY
Berkeley STATE
CA COUNTRY
USA POSTAL CODE
94704   4.  This FINANCING STATEMENT covers the following types or items of
property:

All right, title and interest of Debtor in, to and under the personal property
set forth on Exhibit A attached hereto and incorporated herein by reference.

    5.CHECK o
    BOX
    (if applicable) This FINANCING STATEMENT is signed by the Secured Party
instead of the Debtor to perfect a security interest (a) in
collateral already subject to a security interest in another jurisdiction when
it was brought into this state, or when the debtor’s
location was changed to this state, or (b) in accordance with other statutory
provisions [additional data may be required]     7. If filed in Florida (check
one)
o Documentary            o Documentary
stamp tax paid                tax not applicable   6. REQUIRED SIGNATURE(S) 8. :
This FINANCING STATEMENT is to be filed [for record]
(or recorded) in the REAL ESTATE RECORDS
Attach Addendum                                            [if applicable]  
By:                                                              Title: 9. Check
to REQUEST SEARCH CERTIFICATE(S) on debtor(s)
[ADDITIONAL FEE]
(optional)                 o All Debtors    o Debtor 1    o Debtor 2   (1)
FILING OFFICER COPY — NATIONAL FINANCING STATEMENT (FORM UCC1) (TRANS.) (REV.
12/18/95)

Exhibit A
to

UCC-1 Financing Statement

between

SCIENTIFIC LEARNING CORPORATION, as Secured Party

and

______________________________, as Debtor

 

1.       Borrower hereby pledges, hypothecates, assigns and grants to the
Secured Party a continuing security interest of first priority in all of the
Collateral.

2.       For purposes of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires, the following terms shall have the
following respective meanings:

          “Code” means the Uniform Commercial Code in effect in the State of
California.

          “Collateral” means (a) the Pledged Shares and the certificates
representing the Pledged Shares, and all dividends, cash instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares, (b) all
dividends, distributions and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the Pledged Shares and (c) all proceeds of any of the foregoing (whether such
proceeds arise before or after the commencement of a case under the bankruptcy
laws by or against Borrower as debtor).

           “Pledged Shares” means                       shares of Common Stock
of the Company registered in the name of Borrower represented by stock
certificate number(s) __________________________.