Scientific Learning (SCIL)

Chief Executive Officer Compensation

In March 2005 and March 2006, the Committee reviewed all forms of Mr. Bowen’s compensation, including base salary, cash bonus potential, stock ownership, stock options and the potential change of control and severance benefits under Mr. Bowen’s Employment Agreement, which is discussed in detail under the heading Employment Agreement above. This review took into account the performance of the Company under Mr. Bowen’s leadership; Mr. Bowen’s individual performance, experience and expertise; and pay practices in the Company’s comparative groups.

Base Salary. Mr. Bowen’s 2004 base salary was the salary originally set when Mr. Bowen joined the Company as its Chief Executive Officer in June 2002. As a result, in March 2005 the Committee determined that Mr. Bowen’s base salary was significantly below the median comparative level. In light of the Company’s significant growth since Mr. Bowen joined the Company, the pay practices in the Company’s comparative groups, Mr. Bowen’s level of responsibility, his extensive prior experience in K-12 education and his breadth of knowledge, in March 2005 the Committee determined that Mr. Bowen’s salary should be increased by 9%. The Committee set Mr. Bowen’s base salary at $300,000, effective April 1, 2005. In March 2006, the Committee determined that, in light of the Company’s disappointing sales performance in 2005 and to control costs, Mr. Bowen’s base salary, like the salaries of the other executive officers, would not be increased for 2006.

Cash Incentive Compensation. For 2005, Mr. Bowen was eligible for cash incentive compensation under the 2005 Management Incentive Plan discussed above. Because of his level of responsibility, a greater proportion of Mr. Bowen’s total potential cash compensation is incentive-based than is the case for most of the other executive officers. As discussed above, the Company did not meet its financial goals under the 2005 Plan. Because of the Company’s disappointing sales performance in 2005, Mr. Bowen recommended to the Committee that he not be paid any bonus based on his individual achievement under the 2005 Plan. The Committee agreed with this recommendation, so that Mr. Bowen received no cash incentive compensation for the 2005 year.

Long-Term Equity Incentives. In 2002 when he joined the Company, Mr. Bowen and the Committee agreed that equity incentives would constitute a significant part of his compensation package. At that time, Mr. Bowen was granted options to purchase a total of 1,773,190 shares. Of these options, 423,190 shares, approximately 24%, were granted in a fully vested option with an exercise price at a 15% discount to the then-current market value and an exercise term of only one year. The Committee intended this option to encourage Mr. Bowen to promptly acquire a substantial ownership stake in the Company. Mr. Bowen was also granted an option to purchase 100,000 shares in a fully vested option and 500,000 shares in an option that vests over four years, both with an exercise price at the then-current market value and the Company’s standard ten-year exercise term. Of these options, Mr. Bowen has exercised and holds 773,190 shares. Options for an additional 750,000 shares, 42% of the total options then granted, were granted with a vesting schedule that accelerates upon the achievement of certain target levels of market price for the Company’s common stock. These target levels range from $7.50 to $20.00 per share, significantly in excess of the Company’s per share price at the time Mr. Bowen was hired and still in excess of the Company’s per share price on March 20, 2006, so that none of these options have yet vested. This option is intended to provide additional motivation for Mr. Bowen to substantially increase stockholder value and to make significant compensation conditioned on achieving such an increase. If the stock price targets are not met, the option will vest after seven years, if Mr. Bowen still then remains employed by the Company.

In the March 2005 comprehensive compensation review, the Committee granted Mr. Bowen an additional option for 50,000 shares. Like the options granted to the other executive officers at the time, this option vests in monthly installments over four years. Because it was granted at the fair market value of the underlying stock on the date of grant, the option only has value for Mr. Bowen if the stock price appreciates after the grant. The Committee granted this option after evaluating the Company’s significant growth, particularly in booked sales and cash flow, since Mr. Bowen joined the Company, the pay practices in the Company’s comparative groups, and the advice of its consultant. In March 2006, the Committee determined not to grant Mr. Bowen a restricted stock unit award based on, among other factors, its determination that Mr. Bowen’s existing equity compensation already provided sufficient long-term incentive.

23.

Chief Executive Officer Compensation

                In March 2005, the Committee reviewed all forms of Mr. Bowen’s compensation, including base salary, cash bonus potential, stock ownership, stock options and the potential change of control and severance benefits under Mr. Bowen’s Employment Agreement, which is discussed in detailed under the heading Employment Agreement above. This review took into account the performance of the Company under Mr. Bowen’s leadership; Mr. Bowen’s individual performance, experience and expertise; and pay practices in the Company’s comparative groups.

                Base Salary.  Mr. Bowen’s 2004 base salary was the salary originally set when Mr. Bowen joined the Company as its Chief Executive Officer in June 2002 and as a result, Mr. Bowen’s base salary was significantly below the median comparative level. In light of the Company’s significant growth, particularly in booked sales and cash flow, since Mr. Bowen joined the Company, the pay practices in the Company’s comparative groups, Mr. Bowen’s level of responsibility, his extensive prior experience in K-12 education and his breadth of knowledge, the Committee determined that Mr. Bowen’s salary should be increased by 9%. The Committee set Mr. Bowen’s base salary at $300,000, effective April 1, 2005.

                Cash Incentive Compensation. Mr. Bowen’s cash incentive compensation was paid under the 2004 Management Incentive Plan discussed above. Because of his level of responsibility, a greater proportion of Mr. Bowen’s total potential cash compensation is incentive-based than is the case for most of the other executive officers. The assessment of Company performance was made as described above. The Committee determined that overall Mr. Bowen should be paid 100% of his target bonus, which equals 50% of his 2004 base salary, or $137,500.

                Long-Term Equity Incentives.  In 2002 when he joined the Company, Mr. Bowen and the Committee agreed that equity incentives would constitute a significant part of his compensation package. At that time, Mr. Bowen was granted options to purchase a total of 1,773,190 shares. Of these options, 423,190 shares, approximately 24%, were granted in a fully vested option with an exercise price at a 15% discount to then-current market and an exercise term of only one year. The Committee intended this option to encourage Mr. Bowen to promptly acquire a substantial