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
	Target Award

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

(Max % of Base Salary Awarded
 on
Overachievement)

	CEO	50%	100%
	

	VP, Sales K-12	50%	100%
	

	CFO	35%	70%
	

	Chief Ed. Officer, Other VPs	30%	60%
	

	Directors	20%	30%
	

	Managers	10%	15%
	





	




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: 









	
	Hurdle Level (Minimum for

Payment of Bonus)
	Target Level (100%

Goal Achievement)
	Max. Overachievement Level

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

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







	 



	SLC Confidential	Page 1 of 4





	


















	





*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  









	
	Booked Sales Goal
	Operating Cash Flow

Goal
	Individual Goals

	
	% of Bonus

Oppty.
	% Base Salary Paid

at 100% Achievement
	% of Bonus

Oppty.
	% Base Salary Paid

at 100% Achievement
	% of Bonus

Oppty.
	% Base Salary Paid at

100% Achievement

	CEO	30	15	40	20	30	15
	

	VP Sales K-12	50	25	20	10	30	15
	

	CFO	30	10	40	14	30	10
	

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

	Directors*	30	6	40	8	30	6
	

	Managers*	30	3	40	4	30	3
	





	




*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.  





	 



	SLC Confidential	Page 2 of 4





	



















	• 	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. 









	 



	SLC Confidential	Page 3 of 4





	


















	




% of Base Salary
Available as Bonus at Specified Levels of Achievement of Goals 










		% of Base Salary Available as Bonus
	

		Booked Sales	Operating Cash Flow	Individual Goals	Total
	

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

	         CEO	7.5	15	30	10	20	40	7.5	15	30	25	50	100
	

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

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

	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.  










	 



	SLC Confidential	Page 4 of 4