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SCIENTIFIC LEARNING CORPORATION2003
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. At January 31, 2003, the total number of participants
was 22. The regional sales directors (K-12 and private sector) are included in
sales incentive compensation plans and are therefore excluded from this Plan.

TARGET INCENTIVE AWARDS

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

Title

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Target Award
(% of Base Salary Awarded at 100%
Achievement of Goals)

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Max Award
(Max % of Base Salary Awarded
on Overachievement)

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CEO 50% 100%

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VP, Sales K-12 50% 100%

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CFO 35% 70%

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Chief Ed. Officer, Other VPs 30% 60%

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Directors 20% 30%

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Managers 10% 15%

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TRIGGER

A condition to the payment of any bonuses under the Plan is that the Company
achieves an operating profit (according to GAAP) for 2003. For example, even if
an individual achieves his/her individual goals and the Company achieves the
booked sales goal, if the Company records an operating loss for 2003, no bonuses
will be paid under the Plan. If shared or individual goal accomplishment would
call for payment of bonuses, but payment of the full bonus attributable to those
goals would cause the operating profit condition not to be met, then the only
bonus to be paid for such goals will be such lesser bonus as will still permit
accomplishment of the operating profit trigger.

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 2003 Plan are:

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Hurdle Level (Minimum for
Payment of Bonus)

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Target Level (100%
Goal Achievement)

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Max. Overachievement Level

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Booked sales* $33 million $35 million $45 million

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Operating cash flow $2 million $2.5 million $4 million

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*Booked sales for the VP Sales for the K-12 sector is defined as booked sales in
the K-12 sector. His goal levels for booked sales in the K-12 sector are: Hurdle
level (minimum achievement for bonus payment): $26 million; target level (100%
achievement): $31 million; maximum overachievement level: $40 million. For all
other participants, booked sales are total Company booked sales.

Individual Goals

Individual goal performance under the 2003 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.

WEIGHTING OF SHARED AND INDIVIDUAL GOALS

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Booked Sales Goal

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Operating Cash Flow
Goal

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Individual Goals

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% of Bonus
Oppty.

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% Base Salary Paid
at 100% Achievement

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% of Bonus
Oppty.

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% Base Salary Paid
at 100% Achievement

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% of Bonus
Oppty.

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% Base Salary Paid at
100% Achievement

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CEO 30 15 40 20 30 15

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VP Sales K-12 50 25 20 10 30 15

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CFO 30 10 40 14 30 10

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Chief Ed Off., other VPs 30 9 40 12 30 9

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Directors* 30 6 40 8 30 6

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Managers* 30 3 40 4 30 3

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*For managers and directors, 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. SCALING AND OVER ACHIEVEMENT

Hurdles

Provided that the trigger has been satisfied, the bonus payout starts for each
goal when the specified hurdle level for that goal is achieved:

•     Booked sales goal: $33 million (94% of target level) •     Operating cash
flow goal: $2 million (80% of target level) •     Individual goals: 80%

Scaling

Once the hurdle for the goal has been achieved, and provided that the trigger
has been satisfied:

• At the hurdle level, 50% of that goal’s portion of the target level is earned.

• At 100% of the goal, then all of that goal’s target level is earned.

• Between the hurdle level and 100% achievement of the goal, the portion of the
award earned is scaled ratably.

Over Achievement

• 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.

 

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• The maximum overachievement bonus is paid at the following levels of
overachievement:

  •     Booked sales goal $45 million   •     Operating cash flow goal $4
million   •     Individual goals 200% achievement

• Between 100 % achievement and the maximum bonus overachievement level, each
goal’s portion of the bonus is scaled ratably.

The attached chart shows the impact at particular levels of the hurdles, scaling
and overachievement calculations.

TIMING

Awards are made in February, following the completion of the annual audit for
the prior year. Plan participants must be employed at employed at Scientific
Learning when the bonus awards are made to receive an award. Participants hired
during the plan year will be eligible for a pro-rated award (unless otherwise
agreed to, in writing, when the participant is hired).

COMPENSATION COMMITTEE DISCRETION

The Compensation Committee has discretion to pay bonuses 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 BONUS AT SPECIFIED LEVELS OF ACHIEVEMENT OF GOALS

% of Base Salary Available as Bonus

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Booked Sales Operating Cash Flow 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 7.5 15 30 10 20 40 7.5 15 30 25 50 100

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    VP Sales K-12 12.5 25 50 5 10 20 7.5 15 30 25 50 100

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         CFO 5.25 10.5 21 7 14 28 5.25 10.5 21 17.5 35 70

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Chief Ed Officer, other VPs 4.5 9 18 6 12 24 4.5 9 18 15 30 60

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      Directors* 3 6 9 4 8 12 3 6 9 10 20 30

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      Managers* 1.5 3 4.5 2 4 6 1.5 3 4.5 5 10 15

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

 

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