SCIENTIFIC LEARNING
CORPORATION 

1999 NON-EMPLOYEE
DIRECTORS’ STOCK OPTION PLAN



Adopted May 17, 1999

Approved By Stockholders May 28, 1999

 Amended October 9, 2002 

Amended February 25, 2003

Approved By Stockholders _____, 2003 

Termination Date: May 17, 2009  




1.    PURPOSE.  



        (a)                  The
purpose of the 1999 Non-Employee Directors’ Stock Option Plan (the           “Plan”)
is to provide a means by which each member of the Board of           Directors of
Scientific Learning Corporation (the “Company”) who is           not at the
time of grant an employee of the Company or of any Affiliate of the           Company, or
a holder or representative of the holder of 10% or more of the           Company’s
capital stock (each such person being hereafter referred to as a           “Non-Employee
Director”) will be given an opportunity to purchase           stock of the Company.  



        (b)                  The
word “Affiliate” as used in the Plan means any parent corporation           or
subsidiary corporation of the Company as those terms are defined in Sections
          424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
          from time to time (the “Code”).  



        (c)                  The
Company, by means of the Plan, seeks to retain the services of persons now
          serving as Non-Employee Directors of the Company, to secure and retain the
          services of persons capable of serving in such capacity, and to provide
          incentives for such persons to exert maximum efforts for the success of the
          Company.  



2.    ADMINISTRATION.  



        (a)                  The
Board of Directors of the Company (the “Board”) shall administer           the
Plan unless and until the Board delegates administration to a committee, as
          provided in subparagraph 2(b).  



        (b)                  The
Board may delegate administration of the Plan to a committee composed of two
          (2) or more members of the Board (the “Committee”). If administration
          is delegated to a Committee, the Committee shall have, in connection with the
          administration of the Plan, the powers theretofore possessed by the Board,
          subject, however, to such resolutions, not inconsistent with the provisions of
          the Plan, as may be adopted from time to time by the Board. The Board may
          abolish the Committee at any time and revest in the Board the administration of
          the Plan.  





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3.    SHARES
SUBJECT TO THE PLAN. 



        (a)                  Subject
to the provisions of paragraph 10 relating to adjustments upon           changes in
stock, the stock that may be sold pursuant to options granted under           the Plan
shall not exceed in the aggregate One Hundred Fifty Thousand (150,000)           shares
of the Company’s common stock. If any option granted under the Plan           shall
for any reason expire or otherwise terminate without having been exercised           in
full, the stock not purchased under such option shall again become available
          for the Plan.  



        (b)                  The
stock subject to the Plan may be unissued shares or reacquired shares,           bought
on the market or otherwise.  



        (c)                  Notwithstanding
any provision herein to the contrary, in the event the Plan is           not approved by
holders of at least two-thirds of the Company’s outstanding           common stock
within twelve months of the date an option is first granted           hereunder following
the October 2002 amendment of the Plan, then, unless an           exemption from
qualification is available with respect to such grant that does           not require
compliance with the provisions of 260.140.45 of the California Code           of
Regulations, any option granted hereunder which (i) followed the October 2002
          amendment of the Plan and (ii) was granted at a time when the total number of
          securities issuable upon exercise of all outstanding options [exclusive of
          rights described in Section 260.140.40 and warrants described in Sections
          260.140.43 and 260.140.44 of the California Code of Regulations, and any
          purchase plan or agreement as described in Section 260.140.42 of the California
          Code of Regulations (provided that the purchase plan or agreement provides that
          all securities will have a purchase price of 100% of the fair value, as
          determined in accordance with Section 260.140.50 of the California Code of
          Regulations, of the security either at the time the person is granted the right
          to purchase securities under the plan or agreement or at the time the purchase
          is consummated)] and the total number of securities called for under any bonus
          or similar plan or agreement exceeded 30% of the Company’s then
outstanding           securities, calculated on an as-converted to common stock basis,
shall be void.  



4.    ELIGIBILITY. 



        Options
shall be granted only to Non-Employee Directors of the Company.  



5.    NON-DISCRETIONARY
GRANTS AND COMPENSATION. 



        (a)                  Upon
the effectiveness of the registration statement for the initial public           offering
(the “IPO”) of the Company, each person who is then a           Non-Employee
Director, and after the IPO, upon the election to the Board of           Directors of a
new member who is a Non-Employee Director, automatically shall be           granted
options to purchase Five Thousand (5,000) shares of common stock of the           Company
(an “Initial Grant”) on the terms and conditions set forth           herein;
provided, however, that (unless otherwise determined by a majority of
          disinterested Directors) such Initial Grant shall only be granted to
          Non-Employee Directors who have not previously been granted stock options or
had           the opportunity to purchase restricted stock in the Company in connection
with           their service as a Director of the Company.  





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        (b)                  Each
person who is a Non-Employee Director on any anniversary of the IPO
          automatically shall, on such anniversary, be granted an option to purchase Five
          Thousand (5,000) shares of common stock of the Company on the terms and
          conditions set forth herein (an “Annual Grant”).  



6.    OPTION
PROVISIONS. 



        Each
option shall be subject to the following terms and conditions:  



        (a)                  The
term of each option commences on the date it is granted and, unless sooner
          terminated as set forth herein, expires on the date five (5) years from the
date           of grant (“Expiration Date”). If the optionee’s service as
a           Non-Employee Director of the Company or an employee, member of the Board of
          Directors or consultant to the Company or any Affiliate terminates for any
          reason or for no reason, the option shall terminate on the earlier of the
          Expiration Date or the date twelve (12)  months following the date of
          termination of all such service; provided, however, that if such
          termination of service is due to the optionee’s death, the option shall
          terminate on the earlier of the Expiration Date or eighteen (18)  months
          following the date of the optionee’s death.  



        (b)                  The
exercise price of each option shall be equal to one hundred percent (100%)           of
the Fair Market Value of the stock (as such term is defined in subsection           9(d))
subject to such option on the date such option is granted.  



        (c)                  The
optionee may elect to make payment of the exercise price under one of the
          following alternatives:  



                  (i)                  Payment
of the exercise price per share in cash at the time of exercise;  



                  (ii)                  Provided
that at the time of the exercise the Company’s common stock is           publicly
traded and quoted regularly in The Wall Street Journal, payment           by
delivery of shares of common stock of the Company already owned by the
          optionee, held for the period required to avoid a charge to the Company’s
          reported earnings, and owned free and clear of any liens, claims, encumbrances
          or security interest, which common stock shall be valued at its Fair Market
          Value on the date preceding the date of exercise; or  



                  (iii)                  Payment
pursuant to a program developed under Regulation T as promulgated by the
          Federal Reserve Board which results in the receipt of cash (or check) by the
          Company either prior to the issuance of shares of the Company’s common
          stock or pursuant to the terms of irrevocable instructions issued by the
          optionee prior to the issuance of shares of the Company’s common stock.  



                  (iv)                  Payment
by a combination of the methods of payment specified in subparagraph           6(c)(i)
through 6(c)(iii) above.  



        (d)                  An
option shall not be transferable except by will or by the laws of descent and
          distribution and, to the extent provided in the option agreement, to such
          further extent as permitted by Section 260.140.41(d) of Title 10 of the
          California Code of Regulations at the time of the grant of the option, and
shall           be exercisable during the lifetime of the optionee only by the optionee.
If the           option does not provide for transferability, then the option shall not
be           transferable except by will or by the laws of descent and distribution and
shall           be exercisable during the lifetime of the optionee only by the optionee.
          Notwithstanding the foregoing, the optionee may, by delivering written notice
to           the Company, in a form satisfactory to the Company, designate a third party
who,           in the event of the death of the optionee, shall thereafter be entitled to
          exercise the option.  





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        (e)                  The
Initial Grant shall be fully vested at the time of grant.  



        (f)                  The
Annual Grant shall be fully vested at the time of grant.  



        (g)                  The
Company may require any optionee, or any person to whom an option is
          transferred under subparagraph 6(d), as a condition of exercising any such
          option: (i) to give written assurances satisfactory to the Company as to
          the optionee’s knowledge and experience in financial and business matters;
          and (ii) to give written assurances satisfactory to the Company stating
          that such person is acquiring the stock subject to the option for such
          person’s own account and not with any present intention of selling or
          otherwise distributing the stock. These requirements, and any assurances given
          pursuant to such requirements, shall be inoperative if (i) the issuance of
          the shares upon the exercise of the option has been registered under a then
          currently-effective registration statement under the Securities Act of 1933, as
          amended (the “Securities Act”), or (ii) as to any particular
          requirement, a determination is made by counsel for the Company that such
          requirement need not be met in the circumstances under the then applicable
          securities laws. The Company may require any optionee to provide such other
          representations, written assurances or information that the Company shall
          determine is necessary, desirable or appropriate to comply with applicable
          securities laws as a condition of granting an option to the optionee or
          permitting the optionee to exercise the option. The Company may, upon advice of
          counsel to the Company, place legends on stock certificates issued under the
          Plan as such counsel deems necessary or appropriate in order to comply with
          applicable securities laws, including, but not limited to, legends restricting
          the transfer of the stock.  



        (h)                  Notwithstanding
anything to the contrary contained herein, an option may not be           exercised
unless the shares issuable upon exercise of such option are then           registered
under the Securities Act or, if such shares are not then so           registered, the
Company has determined that such exercise and issuance would be           exempt from the
registration requirements of the Securities Act.  



7.    COVENANTS
OF THE COMPANY. 



        (a)                  During
the terms of the options granted under the Plan, the Company shall keep
          available at all times the number of shares of stock required to satisfy such
          options.  



        (b)                  The
Company shall seek to obtain from each regulatory commission or agency           having
jurisdiction over the Plan such authority as may be required to issue and           sell
shares of stock upon exercise of the options granted under the Plan; provided however, that
this undertaking shall not require the Company to           register under the Securities
Act either the Plan, any option granted under the           Plan, or any stock issued or
issuable pursuant to any such option. If, after           reasonable efforts, the Company
is unable to obtain from any such regulatory           commission or agency the authority
which counsel for the Company deems necessary           for the lawful issuance and sale
of stock under the Plan, the Company shall be           relieved from any liability for
failure to issue and sell stock upon exercise of           such options.  





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8.    USE
OF PROCEEDS FROM STOCK. 



        Proceeds
from the sale of stock pursuant to options granted under the Plan shall constitute
general funds of the Company.  



9.    MISCELLANEOUS. 



        (a)                  Neither
an optionee nor any person to whom an option is transferred under           subparagraph
6(d) shall be deemed to be the holder of, or to have any of the           rights of a
holder with respect to, any shares subject to such option unless and           until such
person has satisfied all requirements for exercise of the option           pursuant to
its terms.  



        (b)                  Nothing
in the Plan or in any instrument executed pursuant thereto shall confer           upon
any Non-Employee Director any right to continue in the service of the           Company
or any Affiliate in any capacity or shall affect any right of the           Company, its
Board or shareholders or any Affiliate, to remove any Non-Employee           Director
pursuant to the Company’s Bylaws and the provisions of Delaware           general
corporation law.  



        (c)                  In
connection with each option made pursuant to the Plan, it shall be a           condition
precedent to the Company’s obligation to issue or transfer shares           to a
Non-Employee Director, or to evidence the removal of any restrictions on
          transfer, that such Non-Employee Director make arrangements satisfactory to the
          Company to insure that the amount of any federal, state or local withholding
tax           required to be withheld with respect to such sale or transfer, or such
removal           or lapse, is made available to the Company for timely payment of such
tax.  



        (d)                  As
used in this Plan, “Fair Market Value” means, as of any date, the
          value of the common stock of the Company determined as follows:  



                  (i)                  If
the common stock is listed on any established stock exchange or a national
          market system, including without limitation the Nasdaq National Market or The
          Nasdaq SmallCap, or is quoted on the OTC Bulletin Board, the Fair Market Value
          of a share of common stock shall be the closing sales price for such stock (or
          the closing bid, if no sales were reported) as quoted on such system, exchange
          or board (or the exchange with the greatest volume of trading in common stock)
          on the last market trading day prior to the day of determination, as reported
in The Wall Street Journal or such other source as the Board deems reliable;
          or  





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                  (ii)                  In
the absence of an established market for the common stock, the Fair Market
          Value shall be determined in good faith by the Board and to the extent that the
          Company is subject to Section 260.140.50 of Title 10 of the California Code of
          Regulations (“Section 260.140.50”) at the time the option is granted,
          in a manner consistent with Section 260.140.50.  



        (e)                  To
the extent required by Section 260.140.46 of Title 10 of the California Code           of
Regulations, the Company shall deliver financial statements to Participants           at
least annually. This Section 14 shall not apply to key Employees whose duties
          in connection with the Company assure them access to equivalent information.  



10.    ADJUSTMENTS
UPON CHANGES IN STOCK. 



        (a)                  If
any change is made in the stock subject to the Plan, or subject to any option
          granted under the Plan (through merger, consolidation, reorganization,
          recapitalization, stock dividend, dividend in property other than cash, stock
          split, liquidating dividend, combination of shares, exchange of shares, change
          in corporate structure or other transaction not involving the receipt of
          consideration by the Company), the Plan and outstanding options will be
          appropriately adjusted in the class(es) and maximum number of shares subject to
          the Plan and the class(es) and number of shares and price per share of stock
          subject to outstanding options. The Board shall make such adjustments, and the
          determination of the Board shall be final, binding and conclusive. (The
          conversion of any convertible securities of the Company shall not be treated as
          a “transaction not involving the receipt of consideration by the
          Company.”)  



        (b)                  In
the event of: (1) a dissolution, liquidation, or sale of all or substantially
          all of the assets of the Company; (2) a merger or consolidation in which
          the Company is not the surviving corporation; or (3) a reverse merger in
          which the Company is the surviving corporation but the shares of the
          Company’s common stock outstanding immediately preceding the merger are
          converted by virtue of the merger into other property, whether in the form of
          securities, cash or otherwise, then (i) any surviving or acquiring corporation
          shall assume any options outstanding under the Plan or shall substitute similar
          options (including an option to acquire the same consideration paid to the
          shareholders in the transaction described in this subparagraph 10(b)) for those
          outstanding under the Plan, or (ii) in the event any surviving corporation or
          acquiring corporation refuses to assume such options or to substitute similar
          options for those outstanding under the Plan, then such options shall be
          terminated if not exercised prior to such event.  



        (c)                  In
the event of the acquisition by any person, entity or group within the           meaning
of Section 13(d) or 14(d) of the Exchange Act, or any comparable           successor
provisions (excluding any employee benefit plan, or related trust,           sponsored or
maintained by the Company or any Affiliate of the Company) of the           beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the           Exchange Act,
or comparable successor rule) of securities of the Company           representing at
least fifty percent (50%) of the combined voting power entitled           to vote in the
election of directors, then, with respect to options held by           persons whose
continuous service has not terminated, the vesting of such options           (and, if
applicable, the time during which such options may be exercised) shall           be
accelerated immediately upon the happening of such event.  





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11.    AMENDMENT
OF THE PLAN. 



        (a)                  The
Board at any time, and from time to time, may amend the Plan and/or some or           all
outstanding options granted under the Plan. However, except as provided in
          paragraph 10 relating to adjustments upon changes in stock, no amendment shall
          be effective unless approved by the shareholders of the Company to the extent
          shareholder approval is necessary for the Plan to satisfy the requirements of
          Rule 16b-3 under the Exchange Act or any Nasdaq or securities exchange listing
          requirements.  



        (b)                  Rights
and obligations under any option granted before any amendment of the Plan           shall
not be impaired by such amendment unless (i) the Company requests the           consent
of the person to whom the option was granted and (ii) such person           consents in
writing.  



12.    TERMINATION
OR SUSPENSION OF THE PLAN. 



        (a)                  The
Board may suspend or terminate the Plan at any time. Unless sooner           terminated,
the Plan shall terminate ten (10) years after the date adopted by           the Board. No
options may be granted under the Plan while the Plan is suspended           or after it
is terminated.  



        (b)                  Suspension
or termination of the Plan shall not impair rights and obligations           under any
option granted while the Plan is in effect, except with the consent of           the
person to whom the option was granted.  



13.    EFFECTIVE
DATE OF PLAN; CONDITIONS OF EXERCISE. 



        (a)                     The
Plan shall become effective on the same day that the Company’s initial
          public offering of shares of common stock becomes effective, subject to the
          condition subsequent that the shareholders of the Company approve the Plan.  



        (b)                     No
option granted under the Plan shall be exercised or exercisable unless and
          until the condition of subparagraph 13(a) above has been met.  





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