EXHIBIT 10.2

Scientific Learning Corporation
2005 Management Incentive Plan

Purpose

To provide significant cash awards to participants for the achievement and
over-achievement of Scientific Learning’s collective financial goals, as well as
each participant’s individual goals and overall performance in adding value for
shareholders, customers and employees.

Participants

All members of the Leadership Team, director-level employees and selected
manager-level employees. The total number of participants at March 2005 is
approximately 35 persons. The regional sales directors (K-12 and private sector)
who are included in sales incentive compensation plans are excluded from this
Plan.

Target Incentive Awards

Intended to deliver market average incentive compensation at 100% achievement of
goals. Awards increase for overachievement.

 

Title Target Award
(% of Base Salary Awarded at 100%
Achievement of Goals) Max Award
(Max % of Base Salary Awarded  
on Overachievement)

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CEO 50% 100% VP, Sales K-12 50% 100% CFO 40% 80% Chief Ed. Officer, Other VPs
30% 60% Directors 20% 30% Managers 10% 15%

  Goals

All participants in the Plan will have shared Company financial goals and
individual goals closely related to the individual’s own area of responsibility.

Shared Goals

Shared goals for the 2005 Plan are:

 

    Hurdle Level
(Minimum for
Payment of Bonus)   Target Level
(100% Goal
Achievement)   Max. Overachievement
Level      

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  Operating Cash Flow*   $   5.4 million   $   7.5 million   $   8.5 million  
Booked sales   $ 45.0 million   $ 48.7 million   $ 52.5 million                
 

  * Operating cash flow is defined as GAAP cash flow from operating and
investing activities, excluding repayment of management loans and accrued
interest.    

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Individual Goals

Individual goal performance under the 2005 Plan is based on both the following.

    • Achievement of agreed-upon individual goals closely related to the
individual’s area of responsibility. These goals will be agreed in writing
between the participant and his/her manager.     • Contribution to adding value
for shareholders, customers and employees.     • Hurdle level for individual
goals is 80%. Maximum overachievement level is 200%.

 

Weighting of Shared Goals and Individual Performance 

 

  Goal   % of Target Award
Allocated to Goal    

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    Operating cash flow   30%     Booked sales   40%     Individual performance
  30%  

 

*For managers and director-level employees, the CEO has discretion to allocate
the bonus opportunity differently among the various goals to reflect the
priorities and responsibilities of that particular person.

Hurdles and Scaling

The bonus payout starts for each goal when the specified hurdle level for that
goal is achieved. At the hurdle level, 50% of that goal’s portion of the target
award is earned. At 100% of the goal, then 100% of that goal’s target award is
earned. Between the hurdle level and 100% achievement of the goal, the portion
of the award earned is scaled ratably.

Overachievement

 

• Officers can double their bonus through overachievement and directors and
managers can increase their bonus by 50% through overachievement.   • The
overachievement potential is divided among the goals in the same percentage as
the bonus for achievement.   • The maximum overachievement award is paid at the
maximum overachievement levels specified above.   • Between 100% achievement and
the maximum bonus overachievement level, each goal’s portion of the award is
scaled ratably.

 

Illustration

The attached chart illustrates, for particular positions, the percentage of base
salary payable for each goal, at the hurdle, 100% and maximum overachievement
levels.

Timing

Awards will be paid in the first quarter of 2006, following the completion of
the 2005 audit. Plan participants must be employed at Scientific Learning in a
position that is eligible for an award under this Plan when the awards are paid
in order to receive an award. Participants hired or promoted in to a MIP
eligible position prior to October 1, 2005 will be eligible for a pro-rated
award (unless otherwise agreed to, in writing, at the time of the employment
action).

Compensation Committee Discretion

The Compensation Committee has discretion to pay awards to reflect achievement
even if specific goals are not met, and to interpret the terms of the Plan.

 

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% of Base Salary Available as MIP Award at Specified Levels of Achievement of
Goals

 

  % of Base Salary Available as Bonus    

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     Operating Income    Booked Sales    Individual Goals    Total     

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    At
Hurdle   100%   Max
Over   At
Hurdle   100%   Max
Over   At
Hurdle   100%   Max
Over   At
Hurdle   100%   Max
Over    

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         CEO
  VP Sales K-12 7.5 % 15 % 30 % 10 % 20 % 40 % 7.5 % 15 % 30 % 25 % 50 % 100 %
       CFO 6 % 12 % 24 % 8 % 16 % 32 % 6 % 12 % 24 % 20 % 40 % 80 % Chief Ed
Officer,
    other VPs 4.5 % 9 % 18 % 6 % 12 % 24 % 4.5 % 9 % 18 % 15 % 30 % 60 %
    Directors* 3 % 6 % 9 % 4 % 8 % 12 % 3 % 6 % 9 % 10 % 20 % 30 %     Managers*
1.5 % 3 % 4.5 % 2 % 4 % 6 % 1.5 % 3 % 4.5 % 5 % 10 % 15 %

 

* Subject to adjustment by the CEO, as described above.

 

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