**N** **ESTOR,
      INC.**








**SECURITIES
      PURCHASE AGREEMENT**








**As
      of**


**January
      31, 2006**







**TABLE
      OF CONTENTS**





1.
            AGREEMENT
                TO SELL AND PURCHASE
            12.
            FEES
            23.
            CLOSING,
                DELIVERY AND PAYMENT
            23.1
            Closing
            23.2
            Delivery
            34.
            REPRESENTATIONS
                AND WARRANTIES OF THE COMPANY
            34.1
            Organization,
                Good Standing and Qualification
            34.2
            Subsidiaries
            34.3
            Capitalization;
                Voting Rights
            34.4
            Authorization;
                Binding Obligations
            44.5
            Liabilities
            54.6
            Agreements;
                Action
            54.7
            Obligations
                to Related Parties
            64.8
            Changes
            74.9
            Title
                to Properties and Assets; Liens, Etc.
            84.10
            Intellectual
                Property
            84.11
            Compliance
                with Other Instruments
            84.12
            Litigation
            94.13
            Tax
                Returns and Payments
            94.14
            Employees
            94.15
            Registration
                Rights and Voting Rights
            104.16
            Compliance
                with Laws; Permits
            104.17
            Environmental
                and Safety Laws
            104.18
            Valid
                Offering
            114.19
            Full
                Disclosure
            114.20
            Insurance
            114.21
            SEC
                Reports
            114.22
            Listing
            114.23
            No
                Integrated Offering
            124.24
            Stop
                Transfer
            12




-i-


5.
            REPRESENTATIONS
                AND WARRANTIES OF THE INVESTORS
            125.1
            Requisite
                Power and Authority
            125.2
            Investment
                Representations
            125.3
            Investor
                Bears Economic Risk
            135.4
            Acquisition
                for Own Account
            135.5
            Investor
                Can Protect Its Interest
            135.6
            Accredited
                Investor
            135.7
            Legends
            135.8
            Public
                Announcement
            155.9
            No
                Shorting
            156.
            COVENANTS
                OF THE COMPANY
            156.1
            Listing
            156.2
            Market
                Regulations
            166.3
            Use
                of Funds
            166.4
            Reissuance
                of Securities
            166.5
            Opinion
            167.
            COVENANTS
                OF THE INVESTORS
            167.1
            Confidentiality
            167.2
            Non-Public
                Information
            167.3
            Sales
                of Securities
            177.4
            Investor
                Questionnaire
            177.5
            No
                Short Sales
            178.
            COVENANTS
                OF THE COMPANY AND INVESTOR REGARDING INDEMNIFICATION
            188.1
            Company
                Indemnification
            188.2
            Investor's
                Indemnification
            188.3
            Procedures
            189.
            REGISTRATION
                RIGHTS
            189.1
            Registration
                Rights Granted
            189.2
            Delay
                In Filing Or Effectiveness Of Registration Statement
            209.3
            Transfer
                of Shares after Registration; Suspension
            219.4
            Indemnification
            2210.
            REPRESENTATIONS
                AND WARRANTIES OF INVESTORS REGARDING COMPANY AFFILIATES
            24




-ii-


11.
            INDEPENDENT
                NATURE OF INVESTORS' OBLIGATIONS AND RIGHTS
            2412.
            MISCELLANEOUS
            2512.1
            Governing
                Law
            2512.2
            Survival
            2512.3
            Entire
                Agreement
            2512.4
            Severability
            2612.5
            Assignment
            2612.6
            Amendment
                and Waiver
            2612.7
            Delays
                or Omissions
            2612.8
            Notices
            2612.9
            Titles
                and Subtitles
            2712.10
            Facsimile
                Signatures; Counterparts
            2712.11
            Broker's
                Fees
            2712.12
            Construction
            27




-iii-


**NESTOR,
      INC.**


**SECURITIES
      PURCHASE AGREEMENT**








**THIS
      SECURITIES PURCHASE AGREEMENT** (the
      " **Agreement** ")
      is
      made and entered into as of January 31, 2006, by and between Nestor, Inc.,
      a
      Delaware corporation (the " **Company** "),
      and
      each of the Investors set forth on the signature page hereof (the " **Investors** ").





**Recitals**





**WHEREAS** ,
      the
      Company has authorized the sale to the Investors of up to $12 million aggregate
      purchase price of shares (the " **Shares** ")
      of the
      Company's common stock, $0.01 par value per share (the " **Common
      Stock** ");





**WHEREAS** , **** in
      connection with the sale of the Shares to the Investors, the Company wishes
      to
      issue Investors warrants to purchase shares of the Company's Common Stock in
      the
      form attached hereto as Exhibit
      A (" **Warrants** ");





**WHEREAS** ,
      Investors desire to purchase the Shares and Warrants on the terms and conditions
      set forth herein; and





**WHEREAS** ,
      the
      Company desires to issue and sell the Shares and Warrants to Investors on the
      terms and conditions set forth herein (the " **Offering** ").





**AGREEMENT**





**NOW,
      THEREFORE** ,
      in
      consideration of the foregoing recitals and the mutual promises,
      representations, warranties and covenants hereinafter set forth and for other
      good and valuable consideration, the receipt and sufficiency of which are hereby
      acknowledged, the parties hereto agree as follows:




**1.**
            **AGREEMENT
                TO SELL AND PURCHASE.******





Pursuant
      to the terms and condition s
      set
      forth in this Agreement, on the Closing Date (as defined in Section 0 ),
      the
      Company agrees to sell to each Investor, and each Investor hereby agrees to
      purchase from the Company (a)
      the
      number of Shares of Common Stock set forth immediately next to such Investor's
      name on the signature page hereunto at the aggregate purchase price immediately
      next to such Investor's name on the signature page hereto (the " **Purchase
      Price** ") 1  and (b)
      Warrants exercisable for the number of shares 2  set
      forth immediately next to such Investor's name on the signature page hereto
      (" **Warrant
      Shares** ").
      Collectively, the Shares, the Warrants and Warrant Shares are referred to as
      the
      " **Securities** ".




____________________


1 Ninety
      percent (90%) of the 10 day Volume Weighted Average Price ( **VWAP** ).





2 Thirty
      percent (30%) of the number of Shares such Investor is purchasing.




1





**2.**
            **FEES****.**





On
      the
      Closing Date:




(a)  The
      Company shall pay to the broker-dealers listed on Exhibit
      B attached
      hereto (each,
      a
      " **Placing
      Broker** ")
      a
      placement or finders fee in an amount equal to six and one-half percent (6.50%)
      of the aggregate Purchase Price paid by those Investors whose names are listed
      opposite such Placing Broker's name on Exhibit
      B .
      The
      foregoing fees are referred to herein as the " **Placement
      Fees** ".




(b)  The
      Company shall pay to those Investors for whom a Placing Broker is not identified
      on Exhibit
      B a cash
      rebate ( **"Investor
      Rebate** ")
      in an
      amount equal to six and one-half percent (6.50%) of the Purchase Price paid
      by
      each such Investor, *provided,
      however* ,
      that
      the Investor Rebate payable to Edward F. Heil (" **Heil** ")
      on his
      investment as set forth on the signature page (the " **Principal
      Investment** ")
      shall
      be reinvested in shares of Common Stock and Warrants on the same terms as his
      Principal Investment. Heil shall be entitled to an Investor Rebate on any
      Investor Rebate so reinvested, which Investor Rebate shall, in turn, be
      reinvested in shares of Common Stock and Warrants on the same terms as the
      Principal Investment, until the amount of the Investor Rebate on any reinvested
      amount is less than the Purchase Price for one share of Common Stock and the
      related Warrant. To the extent the foregoing calculation would result in the
      issuance of any fractional shares of Common Stock or a Warrant for a fractional
      share of Common Stock, such fractional shares or Warrants for fractional shares
      shall be aggregated and rounded down to the nearest whole number of Shares
      and
      Warrants and the Company shall issue the balance of any Investor Rebate which
      cannot be issued in whole shares of Common Stock and Warrants to Heil in
      cash.





(c)  The
      Company shall reimburse KeyBanc Capital Markets, a Division of McDonald
      Investments Inc. (" **KBCM** ")
      for
      its reasonable legal fees for services rendered to the KBCM in preparation
      of
      this Agreement and the Related Agreements, and expenses in connection with
      KBCM's services in placing the Securities.





(d)  Amounts
      required to be paid under this Section 2 will be paid at the Closing (as defined
      in Section 0 )
      out of
      funds held pursuant to an Escrow Agreement dated as of January 26, 2006 among
      the Company, KBCM and Associated Trust Company, N.A., as escrow agent (the
      " **Escrow
      Agreement** ").




**3.**
            **CLOSING,
                DELIVERY AND PAYMENT****.**




**3.1**
            **Closing****.******





Subject
      to the terms and conditions herein, the closing of the transactions contemplated
      hereby (the " **Closing** "),
      shall
      take place on the date hereof, at such time or place as the Company and KBCM
      may
      mutually agree (such date is hereinafter referred to as the " **Closing
      Date** ").


2





**3.2**
            **Delivery****.******





At
      the
      Closing, subject to the terms and conditions hereof, the Company will deliver
      to
      each Investor (a) a certificate for the Shares purchased by such Investor and
      (b) a Warrant for the number of Warrant Shares set forth on the signature page
      hereto against payment of the Purchase Price therefor. Payment of the Purchase
      Price for the Shares and Warrants purchased by each Investor shall be made
      by
      such Investor to the Company in federal or other funds immediately available
      in
      U.S. dollars and shall be made through an escrow agent on terms and instructions
      set forth in the Escrow Agreement. The certificate for the Shares and the
      Warrant shall be registered in the name of each Investor or, if so indicated
      on
      the signature page hereto, in the name of a nominee designed by such Investor.




**4.**
            **REPRESENTATIONS
                AND WARRANTIES OF THE COMPANY****.**





The
      Company hereby represents and warrants to the Investors as of the date of this
      Agreement as set forth below which disclosures are supplemented by, and subject
      to the Company's filings and other filings identifying the Company as issuer
      under the Securities Exchange Act of 1934 (collectively, the " **Exchange
      Act Filings** ").




**4.1**
            **Organization,
                Good Standing and Qualification****.**





The
      Company is a corporation duly organized, validly existing and in good standing
      under the laws of the State of Delaware. The Company has the corporate power
      and
      authority to own and operate its properties and assets, to execute and deliver
      this Agreement, and all other documents to be issued in connection with this
      Agreement, the Escrow Agreement and all other agreements referred to herein
      (collectively, the " **Related
      Agreements** "),
      to
      issue and sell the Shares, to issue and sell the Warrants, to issue and sell
      the
      Warrant Shares upon exercise of the Warrant, to carry out the provisions of
      this
      Agreement and the Related Agreements and to carry on its business as presently
      conducted. The Company is duly qualified and is authorized to do business and
      is
      in good standing as a foreign corporation in all jurisdictions in which the
      nature of its activities and of its properties (both owned and leased) makes
      such qualification necessary, except for those jurisdictions in which failure
      to
      do so has
      not,
      or could not reasonably be expected to have, individually or in the aggregate,
      a
      material adverse effect on the business, assets, liabilities, condition
      (financial or otherwise), properties, operations or prospects of the Company
      and
      its subsidiaries, taken individually and as a whole (a " **Material
      Adverse Effect** ") .




**4.2**
            **Subsidiaries****.******





Except
      as
      disclosed on Schedule 0 ,
      the
      Company does not own or control any equity security or other interest of any
      other corporation, limited partnership or other business entity.




**4.3**
            **Capitalization;
                Voting Rights****.**




(a)  The
      authorized capital stock of the Company, as of December 31, 2005, consists
      of
      30,000,000 shares of Common Stock, par value $0.01 per share, of which
      19,127,065 are issued and outstanding and
      10,000,000 shares of preferred stock, par value $1.00 per share, of which
      180,000 shares are outstanding.


3





(b)  Except
      as
      disclosed on Schedule 0 , other
      than (i) the shares reserved for issuance under the Company's stock option
      plans; and (ii) shares which may be issued pursuant to this Agreement and the
      Warrants, there are no outstanding options, warrants, rights (including
      conversion or preemptive rights and rights of first refusal), proxy or
      stockholder agreements, or arrangements or agreements of any kind for the
      purchase or acquisition from the Company of any of its securities. Except
      as disclosed on Schedule 0 ,
      neither
      the offer, issuance or sale of any of the Shares, the Warrants or the Warrant
      Shares, nor the consummation of any transaction contemplated hereby will result
      in a change in the price or number of any securities of the Company outstanding,
      under anti-dilution or other similar provisions contained in or affecting any
      such securities.




(c)  All
      issued and outstanding shares of the Company's Common Stock (i) have been duly
      authorized and validly issued and are fully paid and nonassessable and (ii)
      were
      issued in compliance with all applicable state and federal laws concerning
      the
      issuance of securities.




(d)  The
      rights, preferences, privileges and restrictions of the shares of the Common
      Stock are as stated in the Company's Certificate of Incorporation (the
      " **Charter** ").
      The
      Shares have been duly authorized by the Company and the Warrant Shares have
      been
      duly and validly reserved for issuance. When issued in compliance with the
      provisions of this Agreement and the Company's Charter, the Securities will
      be
      validly issued, fully paid and nonassessable, and will be free of any liens
      or
      encumbrances; *provided,
      however* ,
      that
      the Securities may be subject to restrictions on transfer under state and/or
      federal securities laws as set forth herein or as otherwise required by such
      laws at the time a transfer is proposed.




**4.4**
            **Authorization;
                Binding Obligations****.**





All
      corporate action on the part of the Company, its officers and directors
      necessary for the authorization of this Agreement and the Related Agreements,
      the performance of all obligations of the Company hereunder at the Closing
      and,
      the authorization, sale, issuance and delivery of the Shares and Warrants has
      been taken or will be taken prior to the Closing. The Agreement and the Related
      Agreements, when executed and delivered and to the extent it is a party thereto,
      will be valid and binding obligations of the Company enforceable in accordance
      with their terms, except (a) as limited by applicable bankruptcy, insolvency,
      reorganization, moratorium or other laws of general application affecting
      enforcement of creditors' rights, and (b) general principles of equity that
      restrict the availability of equitable or legal remedies. The sale of the Shares
      will not be subject to any preemptive rights or rights of first refusal that
      have not been properly waived or complied with. The issuance of the Warrants
      and
      the subsequent exercise of the Warrants for Warrant Shares are not and will
      not
      be subject to any preemptive rights or rights of first refusal that have not
      been properly waived or complied with. The
      Warrants, when executed and delivered in accordance with the terms of this
      Agreement, will be valid and binding obligations of the Company, enforceable
      in
      accordance with their respective terms.


4





**4.5**
            **Liabilities****.**





Except
      as
      set forth in Schedule 0 ,
      the
      Company, to the best of its knowledge, knows of no material contingent
      liabilities, except current liabilities incurred in the ordinary course of
      business and liabilities disclosed in any Exchange Act Filings.




**4.6**
            **Agreements;
                Action****.**





Except
      as
      contemplated by this Agreement or as disclosed in any Exchange Act
      Filings:




(a)  There
      are
      no agreements, understandings, instruments, contracts, proposed transactions,
      judgments, orders, writs or decrees to which the Company is a party or to its
      knowledge by which it is bound which may involve (i) obligations (contingent
      or
      otherwise) of, or payments to, the Company in excess of $50,000 (other than
      obligations of, or payments to, the Company arising from purchase or sale
      agreements entered into in the ordinary course of business), or (ii) the
      transfer or license of any patent, copyright, trade secret or other proprietary
      right to or from the Company (other than licenses arising from the purchase
      or
      sale of "off the shelf" or other standard products), or (iii) provisions
      restricting the development, manufacture or distribution of the Company's
      products or services, or (iv) indemnification by the Company with respect to
      infringements of proprietary rights (other
      than obligations of the Company arising from purchase or sale agreements entered
      into in the ordinary course of business).




(b)  The
      Company has not (i) declared or paid any dividends, or authorized or made any
      distribution upon or with respect to any class or series of its capital stock,
      (ii) incurred any indebtedness for money borrowed or any other liabilities
      individually in excess of $50,000 or, in the case of indebtedness and/or
      liabilities individually less than $50,000, in excess of $100,000 in the
      aggregate, (iii) made any loans or advances to any person not in excess,
      individually or in the aggregate, of $100,000, other than ordinary advances
      for
      travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its
      assets or rights, other than the sale of its inventory in the ordinary course
      of
      business.




(c)  For
      the
      purposes of subsections (a) and (b) above, all indebtedness, liabilities,
      agreements, understandings, instruments, contracts and proposed transactions
      involving the same person or entity (including persons or entities the Company
      has reason to believe are affiliated therewith) shall be aggregated for the
      purpose of meeting the individual minimum dollar amounts of such
      subsections.





(d)  The
      Company maintains disclosure controls and procedures (" **Disclosure
      Controls** ")
      designed to ensure that information required to be disclosed by the Company
      in
      the reports that it files or submits under the Securities Exchange Act of 1934,
      as amended (the " **Exchange
      Act** ")
      is
      recorded, processed, summarized, and reported, within the time periods specified
      in the rules and forms of the Securities and Exchange Commission (" **SEC** ").





(e) The
      Company makes and keeps books, records, and accounts, that, in reasonable
      detail, accurately and fairly reflect the transactions and dispositions of
      the
      Company's assets. The Company maintains internal control over financial
      reporting (" **Financial
      Reporting Controls** ")
      designed by, or under the supervision of, the Company's principal executive
      and
      principal financial officers, and effected by the Company's board of directors,
      management, and other personnel, to provide reasonable assurance regarding
      the
      reliability of financial reporting and the preparation of financial statements
      for external purposes in accordance with generally accepted accounting
      principles (" **GAAP** "),
      including that:


5





transactions
      are executed in accordance with management's general or specific
      authorization;





unauthorized
      acquisition, use, or disposition of the Company's assets that could have a
      material effect on the financial statements are prevented or timely
      detected;





transactions
      are recorded as necessary to permit preparation of financial statements in
      accordance with GAAP, and that the Company's receipts and expenditures are
      being
      made only in accordance with authorizations of the Company's management and
      board of directors;





transactions
      are recorded as necessary to maintain accountability for assets;
      and





the
      recorded accountability for assets is compared with the existing assets at
      reasonable intervals, and appropriate action is taken with respect to any
      differences.





(f)  There
      is
      no weakness in any of the Company's Disclosure Controls or Financial Reporting
      Controls that is required to be disclosed in any of the Exchange Act Filings,
      except as so disclosed.




**4.7**
            **Obligations
                to Related Parties****.**





**T** here
      are
      no obligations of the Company to officers, directors, stockholders or employees
      of the Company other than (a) for payment of salary for services rendered and
      for bonus payments, (b) reimbursement for reasonable expenses incurred on behalf
      of the Company, (c) for other standard employee benefits made generally
      available to all employees (including stock option agreements outstanding under
      any stock option plan approved by the Board of Directors of the Company) and
      (d)
      obligations listed in the Company's financial statements or disclosed in any
      of
      its Exchange Act Filings. Except as described above or disclosed in any Exchange
      Act Filings, none of the officers, directors or, to the best of the Company's
      knowledge, key employees or stockholders of the Company or any members of their
      immediate families, are indebted to the Company, individually or in the
      aggregate, in excess of $50,000 or have any direct or indirect ownership
      interest in any firm or corporation with which the Company is affiliated or
      with
      which the Company has a business relationship, or any firm or corporation which
      competes with the Company, other than passive investments in publicly traded
      companies (representing less than 1% of such company) which may compete with
      the
      Company. **** Except
      as
      described above, no officer, director or stockholder, or any member of their
      immediate families, is, directly or indirectly, interested in any material
      contract with the Company and no agreements, understandings or proposed
      transactions are contemplated between the Company and any such person. Except
      as
      set forth in any Exchange Act Filings, the Company is not a guarantor or
      indemnitor of any indebtedness of any other person, firm or
      corporation.


6





**4.8**
            **Changes****.******





Since
      September 30, 2005, except as disclosed in any Exchange Act Filing or in any
      Schedule to this Agreement or to any of the Related Agreements, there has not
      been:




(a)  Any
      change in the assets, liabilities, financial condition, **** prospects
      or operations of the Company, other than changes in the ordinary course of
      business, none of which individually or in the aggregate has had or is
      reasonably expected to have a Material Adverse Effect ;




(b)  Any
      resignation or termination of any officer, key employee or group of employees
      of
      the Company;




(c)  Any
      material change, except in the ordinary course of business, in the contingent
      obligations of the Company by way of guaranty, endorsement, indemnity, warranty
      or otherwise;




(d) Any
      damage, destruction or loss, whether or not covered by insurance, materially
      and
      adversely affecting the properties, business or prospects or financial condition
      of the Company;




(e)  Any
      waiver by the Company of a valuable right or of a material debt owed to
      it;




(f)  Any
      direct or indirect material loans made by the Company to any stockholder,
      employee, officer or director of the Company, other than advances made in the
      ordinary course of business;




(g) Any
      material change in any compensation arrangement or agreement with any executive
      employee, officer, director or stockholder;




(h) Any
      declaration or payment of any dividend or other distribution of the assets
      of
      the Company;




(i)  Any
      labor
      organization activity related to the Company;




(j)  Any
      debt,
      obligation or liability incurred, assumed or guaranteed by the Company, except
      those for immaterial amounts and for current liabilities incurred in the
      ordinary course of business;




(k) Any
      sale,
      assignment or transfer of any patents, trademarks, copyrights, trade secrets
      or
      other intangible assets;




(l)  Any
      change in any material agreement to which the Company is a party or by which
      it
      is bound which may materially and adversely affect the business, assets,
      liabilities, financial condition, operations or prospects of the
      Company;




(m) Any
      other
      event or condition of any character that, either individually or cumulatively,
      has or may materially and adversely affect the business, assets, liabilities,
      financial condition, prospects **** or
      operations of the Company; or


7





(n) Any
      arrangement or commitment by the Company to do any of the acts described in
      subsection (a) through (m) above.




**4.9**
            **Title
                to Properties and Assets; Liens, Etc.**





Except
      as
      disclosed in any Exchange Act Filings, the Company has good and marketable
      title
      to its properties and assets, and good title to its leasehold estates, in each
      case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other
      than (a) those resulting from taxes which have not yet become delinquent, (b)
      minor liens and encumbrances which do not materially detract from the value
      of
      the property subject thereto or materially impair the operations of the Company,
      and (c) those that have otherwise arisen in the ordinary course of business.
      All
      facilities, machinery, equipment, fixtures, vehicles and other properties owned,
      leased or used by the Company are in good operating condition and repair and
      are
      reasonably fit and usable for the purposes for which they are being used. Except
      as disclosed in any Exchange Act Filings, the Company is in compliance with
      all
      material terms of each lease to which it is a party or is otherwise
      bound.




**4.10**
            **Intellectual
                Property****.**




(a) The
      Company owns or possesses sufficient legal rights to all patents, trademarks,
      service marks, trade names, copyrights, trade secrets, licenses, information
      and
      other proprietary rights and processes necessary for its business as now
      conducted and to the Company's knowledge as presently proposed to be conducted
      (the "Intellectual Property"), without any known infringement of the rights
      of
      others. Except as disclosed in any Exchange Act Filings, there are no
      outstanding options, licenses or agreements of any kind relating to the
      foregoing proprietary rights, nor is the Company bound by or a party to any
      options, licenses or agreements of any kind with respect to the patents,
      trademarks, service marks, trade names, copyrights, trade secrets, licenses,
      information and other proprietary rights and processes of any other person
      or
      entity other than such licenses or agreements arising from the purchase of
      "off
      the shelf" or standard products.




(b) Except
      as
      disclosed in any Exchange Act Filings, the Company has not received any
      communications alleging that the Company has violated any of the patents,
      trademarks, service marks, trade names, copyrights or trade secrets or other
      proprietary rights of any other person or entity, nor is the Company aware
      of
      any basis therefor.




(c) The
      Company does not believe it is or will be necessary to utilize any inventions,
      trade secrets or proprietary information of any of its employees made prior
      to
      their employment by the Company, except for inventions, trade secrets or
      proprietary information that have been rightfully assigned to the
      Company.




**4.11**
            **Compliance
                with Other Instruments****.**





The
      Company is not in violation or default of any term of its Charter or Bylaws,
      or
      of any material provision of any mortgage, indenture, contract, agreement,
      instrument or contract to which it is party or by which it is bound or of any
      judgment, decree, order or writ. The execution, delivery and performance of
      and
      compliance with this Agreement and the Related Agreements to which it is a
      party, and the issuance and sale of the Securities by the Company each pursuant
      hereto, will not, with or without the passage of time or giving of notice,
      result in any such material violation, or be in conflict with or constitute
      a
      default under any such term or provision, or result in the creation of any
      mortgage, pledge, lien, encumbrance or charge upon any of the properties or
      assets of the Company or the suspension, revocation, impairment, forfeiture
      or
      nonrenewal of any permit, license, authorization or approval applicable to
      the
      Company, its business or operations or any of its assets or
      properties.


8





**4.12**
            **Litigation****.**





Except
      as
      set forth on Schedule 0 ,
      there
      is no action, suit, proceeding or investigation pending or, to the Company's
      knowledge, currently threatened against the Company that prevents the Company
      to
      enter into this Agreement or the Related Agreements, or to consummate the
      transactions contemplated hereby or thereby, or which might **** have
      or
      result, in a Material Adverse Effect, or any change in the current equity
      ownership of the Company, nor is the Company aware that there is any basis
      for
      any of the foregoing. The Company is not a party or subject to the provisions
      of
      any order, writ, injunction, judgment or decree of any court or government
      agency or instrumentality. There is no action, suit, proceeding or investigation
      by the Company currently pending or which the Company intends to
      initiate.




**4.13**
            **Tax
                Returns and Payments****.**





The
      Company has timely filed all tax returns (federal, state and local) required
      to
      be filed by it. Except as set forth on Schedule 0 ,
      all
      taxes shown to be due and payable on such returns, any assessments imposed,
      and
      to the Company's knowledge all other taxes due and payable by the Company on
      or
      before the Closing, have been paid or will be paid prior to the time they become
      delinquent. **** Except
      as
      set forth on Schedule 0 ,
      the
      Company has not been advised (a) that any of its returns, federal, state or
      other, have been or are being audited as of the date hereof, or (b) of any
      deficiency in assessment or proposed judgment to its federal, state or other
      taxes. The Company has no knowledge of any liability of any tax to be imposed
      upon its properties or assets as of the date of this Agreement that is not
      adequately provided for.




**4.14**
            **Employees****.******





The
      Company has no collective bargaining agreements with any of its employees.
      There
      is no labor union organizing activity pending or, to the Company's knowledge,
      threatened with respect to the Company. **** Except
      as
      disclosed in the Exchange Act Filings, the Company is not a party to or bound
      by
      any currently effective employment contract, deferred compensation arrangement,
      bonus plan, incentive plan, profit sharing plan, retirement agreement or
      other
      employee compensation plan or agreement. To the Company's knowledge, no employee
      of the Company, nor any consultant with whom the Company has contracted, is
      in
      violation of any term of any employment contract, proprietary information
      agreement or any other agreement relating to the right of any such individual
      to
      be employed by, or to contract with, the Company because of the nature of the
      business to be conducted by the Company; and to the Company's knowledge the
      continued employment by the Company of its present employees, and the
      performance of the Company's contracts with its independent contractors, will
      not result in any such violation. The Company is not aware that any of its
      employees is obligated under any contract (including licenses, covenants or
      commitments of any nature) or other agreement, or subject to any judgment,
      decree or order of any court or administrative agency, that would interfere
      with
      their duties to the Company. The Company has not received any notice alleging
      that any such violation has occurred. Except for employees who have a current
      effective employment agreement with the Company, no employee of the Company
      has
      been granted the right to continued employment by the Company or to any material
      compensation following termination of employment with the Company. The Company
      is not aware that any officer, key employee or group of employees intends to
      terminate his, her or their employment with the Company.


9





**4.15**
            **Registration
                Rights and Voting Rights****.******





Except
      as
      disclosed in Exchange Act Filings, the Company is presently not under any
      obligation, and has not granted any rights, to register any of the Company's
      presently outstanding securities or any of its securities that may hereafter
      be
      issued. To the Company's knowledge, no stockholder of the Company has entered
      into any agreement with respect to the voting of equity securities of the
      Company.




**4.16**
            **Compliance
                with Laws; Permits****.**





To
      its
      knowledge, the Company is not in violation in any material respect of any
      applicable statute, rule, regulation, order or restriction of any domestic
      or
      foreign government or any instrumentality or agency thereof in respect of the
      conduct of its business or the ownership of its properties which violation
      would
      materially and adversely affect the business, assets, liabilities, financial
      condition, operations or prospects of the Company. No governmental orders,
      permissions, consents, approvals or authorizations are required to be obtained
      and no registrations or declarations are required to be filed in connection
      with
      the execution and delivery of this Agreement and the issuance of any of the
      Securities, except such as has been duly and validly obtained or filed, or
      with
      respect to any filings that must be made after the Closing, as will be filed
      in
      a timely manner. The Company has all material franchises, permits, licenses
      and
      any similar authority necessary for the conduct of its business as now being
      conducted by it, the lack of which would materially and adversely affect the
      business, properties, prospects or financial condition of the
      Company.




**4.17**
            **Environmental
                and Safety Laws****.**





The
      Company is not in violation of any applicable statute, law
      or
      regulation relating to the environment or occupational health and safety, except
      for any violations that, individually or in the aggregate, have not had and
      would not reasonably be expected materially and adversely affect the business,
      properties, prospects or financial condition of the Company, and to its
      knowledge, no material expenditures are or will be required in order to comply
      with any such existing statute, law or regulation. No Hazardous Materials (as
      defined below) are used or have been used, stored, or disposed of by the Company
      or, to the Company's knowledge, by any other person or entity on any property
      owned, leased or used by the Company, except for any use, storage or disposal
      that, individually or in the aggregate, have not had and would not reasonably
      be
      expected materially and adversely affect the business, properties, prospects
      or
      financial condition of the Company. For the purposes of the preceding sentence,
      " **Hazardous
      Materials** "
      shall
      mean (a) materials which are listed or otherwise defined as " **hazardous** "
      or
      " **toxic** "
      under
      any applicable local, state, federal and/or foreign laws and regulations that
      govern the existence and/or remedy of contamination on property, the protection
      of the environment from contamination, the control of hazardous wastes, or
      other
      activities involving hazardous substances, including building materials, or
      (b)
      any petroleum products or nuclear materials.


10





**4.18**
            **Valid
                Offering****.**





Assuming
      the accuracy of the representations and warranties of the Investors contained
      in
      this Agreement, the offer, sale and issuance of the Securities will be exempt
      from the registration requirements of the Securities Act of 1933, as amended
      (the " **Securities
      Act** "),
      and
      will have been registered or qualified (or are exempt from registration and
      qualification) under the registration, permit or qualification requirements
      of
      all applicable state securities laws.




**4.19**
            **Full
                Disclosure****.**





All
      disclosure concerning the Company contained in this Agreement, including the
      Schedules to this Agreement, is true and correct and does not contain any untrue
      statement of a material fact or omit to state any material fact necessary in
      order to make the statements made therein, in the light of the circumstances
      under which they were made, not misleading.





**4.20**
            **Insurance****.**





The
      Company has general commercial, product liability, fire and casualty insurance
      policies with coverage customary for companies similarly situated to the Company
      in the same or similar business.




**4.21**
            **SEC
                Reports****.******





The
      Company has filed all proxy statements, reports and other documents required
      to
      be filed by it under the Exchange Act (the " **SEC
      Reports** ").
      Each
      SEC Report was, at the time of its filing, in substantial compliance with the
      requirements of its respective form and none of the SEC Reports, nor the
      financial statements (and the notes thereto) included in the SEC Reports, as
      of
      their respective filing dates, contained any untrue statement of a material
      fact
      or omitted to state a material fact required to be stated therein or necessary
      to make the statements therein, in light of the circumstances under which they
      were made, not misleading.




**4.22**
            **Listing.**





The
      outstanding shares of the Company's Common Stock are listed for quotation on
      The
      Nasdaq National Market (" **Nasdaq** ")
      under
      the symbol "NEST". The
      Company has taken no action designed to, or likely to have the effect of,
      terminating the registration of the Common Stock under the Exchange Act or
      delisting the Common Stock from the Nasdaq, nor has the Company received any
      notification that the SEC or the Nasdaq is contemplating terminating such
      registration or listing. The issuance of the Shares and the Warrant Shares
      does
      not require stockholder approval, including, without limitation, pursuant to
      the
      rules of the National Association of Securities Dealers, Inc. (the " **NASD** ").


11





**4.23**
            **No
                Integrated Offering.**





Neither
      the Company, nor any of its affiliates, nor any person acting on its or their
      behalf, has directly or indirectly made any offers or sales of any security
      or
      solicited any offers to buy any security under circumstances that would cause
      the offering of the Securities pursuant to this Agreement to be integrated
      with
      prior offerings by the Company for purposes of the Securities Act which would
      prevent the Company from selling the Securities pursuant to Rule 506 under
      the
      Securities Act, or any applicable exchange-related stockholder approval
      provisions, nor will the Company or any of its affiliates or subsidiaries take
      any action or steps that would cause the offering of the Securities to be so
      integrated with other offerings.




**4.24**
            **Stop
                Transfer.**





The
      Securities are restricted securities as of the date of this Agreement. The
      Company will not issue any stop transfer order or other order impeding the
      sale
      and delivery of any of the Securities at such time as the Securities are
      registered for public sale or an exemption from registration is available,
      except as required by federal securities laws.




**5.**
            **REPRESENTATIONS
                AND WARRANTIES OF THE INVESTORS****.**





Each
      Investor, severally and not jointly, represents and warrants to the Company
      as
      follows:




**5.1**
            **Requisite
                Power and Authority****.******





The
      Investor has all necessary power and authority under all applicable provisions
      of law to execute and deliver this Agreement and the Related Agreements and
      to
      carry out their provisions. All corporate action on Investor's part required
      for
      the lawful execution and delivery of this Agreement and the Related Agreements
      have been or will be effectively taken prior to the Closing. Upon their
      execution and delivery, this Agreement and the Related Agreements will be valid
      and binding obligations of Investor, enforceable in accordance with their
      respective terms, except (a) as limited by applicable bankruptcy, insolvency,
      reorganization, moratorium or other laws of general application affecting
      enforcement of creditors' rights, and (b) as limited by general principles
      of
      equity that restrict the availability of equitable and legal
      remedies.




**5.2**
            **Investment
                Representations****.**





The
      Investor understands that the Securities are being offered and sold pursuant
      to
      an exemption from registration contained in the Securities Act based in part
      upon the Investor's representations contained in the Agreement ,
      including, without limitation, that the Investor is an "accredited investor"
      within the meaning of Regulation D under the Securities Act. The Investor has
      received or has had full access to all the information it considers necessary
      or
      appropriate to make an informed investment decision with respect to the Shares
      and the Warrants to be purchased by it under this Agreement and the Warrant
      Shares acquired by it upon the exercise of the Warrants, respectively. The
      Investor further has had an opportunity to ask questions and receive answers
      from the Company regarding the Company's business, management and financial
      affairs and the terms and conditions of the Offering, and the Securities and
      to
      obtain additional information (to the extent the Company possessed such
      information or could acquire it without unreasonable effort or expense)
      necessary to verify any information furnished to the Investor or to which the
      Investor had access. The Investor has, in connection with its decision to
      purchase the number of Shares and Warrants set forth on the signature page
      hereto, (i) relied only upon the Exchange Act Filings, the representations
      and
      warranties of the Company contained in this Agreement and any other information
      received from the Company pursuant to this Section 0 ;
      (ii)
      has not relied on any information or advice furnished by or on behalf of KBCM
      or
      any other person.


12





**5.3**
            **Investor
                Bears Economic Risk.**





Investor
      has substantial experience in evaluating and investing in private placement
      transactions of securities in companies similar to the Company so that it is
      capable of evaluating the merits and risks of its investment in the Company
      and
      has the capacity to protect its own interests. Investor must bear the economic
      risk of this investment until the Securities are sold pursuant to (i) an
      effective Registration Statement under the Securities Act, or (ii) an exemption
      from registration. At no
      time was the Investor presented with or solicited by any publicly issued or
      circulated newspaper, mail, radio, television or, to the Investor's knowledge,
      any other form of general advertising or solicitation in connection with the
      offer, sale and purchase of the Securities.




**5.4**
            **Acquisition
                for Own Account.**





Investor
      is acquiring the Shares, the Warrants and the Warrant Shares for Investor's
      own
      account for investment only, and not as a nominee or agent and with no present
      intention of distributing any Shares, Warrants or Warrant Shares, or any
      arrangement or understanding with any other person regarding the distribution
      thereof.




**5.5**
            **Investor
                Can Protect Its Interest.**





Investor
      represents that by reason of its, or of its management's, business and financial
      experience, Investor has the capacity to evaluate the merits and risks of its
      investment in the Securities and to protect its own interests in connection
      with
      the transactions contemplated in this Agreement and the Related Agreements. The
      Investor understands that nothing in this Agreement or any other materials
      presented to the Investor in connection with the purchase and sale of Securities
      constitutes legal, tax, accounting or investment advice. The Investor has
      consulted such legal, tax, accounting and investment advisors as it, in its
      sole
      discretion, has deemed necessary or appropriate in connection with its purchase
      of the Securities.




**5.6**
            **Accredited
                Investor.**





Investor
      represents that it is an accredited investor within the meaning of Regulation
      D
      under the Securities Act.




**5.7**
            **Legends.**





The
      Investor acknowledges the following:





(a) The
      certificate evidencing the Shares shall bear substantially the following legend:


13





"THE
      SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED, OR, IF APPLICABLE, STATE SECURITIES LAWS.
      THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, OFFERED FOR SALE,
      PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
      AS
      TO SUCH SHARES UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION
      OF COUNSEL REASONABLY SATISFACTORY TO NESTOR, INC. THAT SUCH REGISTRATION IS
      NOT
      REQUIRED."





(b)  The
      certificate evidencing Warrant Shares shall bear a legend which shall be in
      substantially the following form:





"THE
      SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED, OR IF APPLICABLE, STATE SECURITIES LAWS.
      THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
      THE
      ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
      APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
      NESTOR, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."





(c)  Each
      Warrant shall bear substantially the following legend:





"THIS
      WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
      BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
      STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
      OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
      IN
      THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE
      UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
      LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO NESTOR, INC. THAT
      SUCH
      REGISTRATION IS NOT REQUIRED."





(d)  The
      Investor further acknowledges that, upon receipt of a Suspension Notice (as
      defined below in Section 0 ),
      the
      Investor will refrain from selling any Shares or Warrant Shares pursuant to
      the
      Registration Statement until the Investor receives from the Company copies
      of a
      supplemented or amended Prospectus prepared and filed by the Company with the
      SEC, or until it is advised in writing by the Company that the current
      Prospectus may be used, and has received copies of any additional or
      supplemental filings that are incorporated or deemed incorporated by reference
      in any such Prospectus.


14





**5.8**
            **Public
                Announcement.******





The
      Company confirms that neither it nor any other person acting on its behalf
      has
      provided any of the Investors or their agents or counsel with any information
      that constitutes or might constitute material, nonpublic information other
      than
      the materials terms of the transactions contemplated by this Agreement. The
      Company agrees to timely file a Current Report on Form 8-K in compliance with
      its obligations under the Exchange Act, describing the material terms of the
      transactions contemplated by this Agreement. The Company agrees that, after
      the
      filing of such Form 8-K, none of the Company's communications to any Investor
      will include material, nonpublic information, unless otherwise agreed by the
      Company and such Investor in accordance with law.




**5.9**
            **No
                Shorting**.





Other
      than the transaction contemplated hereunder, the Investor has not directly
      or
      indirectly, nor has any person acting on behalf of or pursuant to any
      understanding with such Investor, executed any disposition, including Short
      Sales (but not including the location and/or reservation of borrowable shares
      of
      Common Stock), in the securities of the Company during the period commencing
      from the time that such Investor first received a term sheet from the Company
      or
      any other person setting forth the material terms of the transactions
      contemplated hereunder until the date hereof (" **Discussion
      Time** ").
      Notwithstanding the foregoing, in the case of an Investor that is a
      multi-managed investment vehicle whereby separate portfolio managers manage
      separate portions of such Investor's assets and the portfolio managers have
      no
      direct knowledge of the investment decisions made by the portfolio managers
      managing other portions of such Investor's assets, the representation set forth
      above shall only apply with respect to the portion of assets managed by the
      portfolio manager that made the investment decision to purchase the Securities
      covered by this Agreement. Other than to other persons party to this Agreement,
      such Investor has maintained the confidentiality of all disclosures made to
      it
      in connection with the transaction contemplated hereby (including the existence
      and terms of the transaction contemplated hereby).




**6.**
            **COVENANTS
                OF THE COMPANY****.**





The
      Company covenants and agrees with each Investor as follows:




**6.1**
            **Listing.**





The
      Company shall maintain the listing of the Shares and Warrant Shares (subject
      to
      official notice of issuance, if applicable) on Nasdaq so long as any other
      shares of Common Stock shall be so listed or traded and will comply in all
      material respects with the Company's reporting, filing and other obligations
      under the bylaws or rules of the NASD and Nasdaq, as applicable.


15





**6.2**
            **Market
                Regulations.**





The
      Company shall notify the SEC, NASD and applicable state authorities, in
      accordance with their requirements, of the transactions contemplated by this
      Agreement, and shall take all other necessary action and proceedings as may
      be
      required and permitted by applicable law, rule and regulation, for the legal
      and
      valid issuance of the Securities to the Investors.




**6.3**
            **Use
                of Funds.**





The
      Company agrees that it will use the proceeds of the sale of the Shares (i)
      to
      prepay that certain promissory note issued by the Company to Heil in the
      original principal amount of $1.25 million due October 26, 2006 and (ii) to
      finance the construction, installation and maintenance of its traffic
      surveillance systems and (iii) for general working capital .




**6.4**
            **Reissuance
                of Securities.**





The
      Company agrees to reissue certificates representing the Securities without
      the
      legends set forth in Section 0 above at
      such time as (a) the holder thereof is permitted to dispose of such Securities
      pursuant to Rule 144(k) under the Securities Act, or (b) upon resale subject
      to
      an effective Registration Statement after such Securities are registered under
      the Securities Act. The Company agrees to cooperate with an Investor in
      connection with all resales pursuant to Rule 144(d) and Rule 144(k) and provide
      legal opinions necessary to allow such resales provided the Company and its
      counsel receive reasonably requested representations from the selling Investor
      and broker, if any.




**6.5**
            **Opinion.**





On
      the
      Closing Date, the Company will deliver to each Investor an opinion from the
      Company's legal counsel substantially in the form set forth in Exhibit
      C hereto.




**7.**
            **COVENANTS
                OF THE INVESTORS****.******





Each
      Investor, severally and not jointly, covenants and agrees with the Company
      as
      follows:




**7.1**
            **Confidentiality.**





The
      Investor agrees that it will not disclose, and will not include in any public
      announcement, the name of the Company, unless expressly agreed to by the Company
      or unless and until such disclosure is required by law or applicable regulation,
      and then only to the extent of such requirement.




**7.2**
            **Non-Public
                Information.******





The
      Investor shall not disclose to any other person (other than to its directors,
      officers, employees, agents, advisors or representatives to the extent necessary
      or advisable in connection with the investment decision to purchase Securities
      hereunder) any information concerning this Agreement or the placement of
      Securities under this Agreement or any nonpublic information disclosed to the
      Investor by or on behalf of the Company in connection with the offer and sale
      of
      Shares under this Agreement, until the Company shall have made a public
      announcement of such information as described in Section 0 above.
      The Investor agrees not to effect any sales in the shares of the Company's
      Common Stock while in possession of material, non-public information regarding
      the Company.


16




**7.3**
            **Sales
                of Securities.**





The
      Investor will not, directly or indirectly, offer, sell, pledge, transfer or
      otherwise dispose of (or solicit offers to buy, purchase or otherwise acquire
      or
      take a pledge of) any of the Securities, except in compliance with the
      Securities Act, applicable state and other securities laws and the respective
      rules and regulations promulgated thereunder. The Investor will deliver a
      prospectus upon any resale of Shares of Warrant Shares whenever such delivery
      is
      required by law.





**7.4**
            **Investor
                Questionnaire.**





The
      Investor will have, on or prior to the Closing Date, furnished to the Company
      a
      fully completed Investor Questionnaire substantially in the form attached hereto
      as Exhibit
      D for use
      in preparation of the Registration Statement, and all of the information
      contained therein will be true and correct in all material respects as of such
      date and as of the Closing Date.





**7.5**
            **No
                Short Sales**





Neither
      the Investor nor any of the Investor's affiliates acting on such Investor's
      behalf or pursuant to any understanding with such Investor will execute any
      Short Sales during the period after the Discussion Time and ending at the time
      that the transactions contemplated by this Agreement are first publicly
      announced as described in Section 0 above.
      Each Investor understands and acknowledges, severally and not jointly with
      any
      other Investor, that the Commission currently takes the position that entering
      into a short sale of the Common Stock "against the box" while holding
      unregistered shares of the Common Stock, followed by coverage of the short
      sale
      with such shares after the Registration Statement has been declared effective
      by
      the Commission, is a violation of Section 5 of the Securities Act, as set forth
      in Item 65, Section 5 under Section A, of the *Manual
      of Publicly Available Telephone Interpretations* ,
      dated
      July 1997, compiled by the Office of Chief Counsel, Division of Corporation
      Finance. Notwithstanding the foregoing, no Investor makes any representation,
      warranty or covenant hereby that it will not engage in Short Sales in the
      securities of the Company after the time that the transactions contemplated
      by
      this Agreement are first publicly announced as described in Section 5.8.
      Notwithstanding the foregoing, in the case of an Investor that is a
      multi-managed investment vehicle whereby separate portfolio managers manage
      separate portions of such Investor's assets and the portfolio managers have
      no
      direct knowledge of the investment decisions made by the portfolio managers
      managing other portions of such Investor's assets, the covenant set forth above
      shall only apply with respect to the portion of assets managed by the portfolio
      manager that made the investment decision to purchase the Securities covered
      by
      this Agreement.


17





**8.**
            **COVENANTS
                OF THE COMPANY AND INVESTOR REGARDING
                INDEMNIFICATION.**




**8.1**
            **Company
                Indemnification.**





The
      Company agrees to indemnify, hold harmless, reimburse and defend each Investor,
      each of such Investor's officers, directors, agents, affiliates, control
      persons, and principal shareholders, against any claim, cost, expense,
      liability, obligation, loss or damage (including reasonable legal fees) of
      any
      nature, incurred by or imposed upon the Investor which results, arises out
      of or
      is based upon (i) any misrepresentation by Company or breach of any warranty
      by
      Company in this Agreement or in any exhibits or schedules attached hereto or
      any
      Related Agreement, or (ii) any breach or default in performance by Company
      of
      any covenant or undertaking to be performed by Company hereunder, or any other
      agreement entered into by the Company and such Investor relating
      hereto.




**8.2**
            **Investor's
                Indemnification.******





Each
      Investor, severally and not jointly, agrees to indemnify, hold harmless,
      reimburse and defend the Company and each of the Company's officers, directors,
      agents, affiliates, control persons and principal shareholders, at all times
      against any claim, cost, expense, liability, obligation, loss or damage
      (including reasonable legal fees) of any nature, incurred by or imposed upon
      the
      Company which results, arises out of or
      is
      based upon (i) any misrepresentation by Investor or breach of any warranty
      by
      Investor in this Agreement or in any exhibits or schedules attached hereto
      or
      any Related Agreement; or (ii) any breach or default in performance by Investor
      of any covenant or undertaking to be performed by Investor hereunder, or any
      other agreement entered into by the Company and Investor relating
      hereto.




**8.3**
            **Procedures.**





The
      procedures and limitations set forth in Section 0 shall
      apply to the indemnifications set forth in Sections 0 and 0 above.




**9.**
            **REGISTRATION
                RIGHTS.******




**9.1**
            **Registration
                Rights Granted.******





The
      Company hereby grants the following registration rights to the Investors. The
      Company shall:





(a) prepare
      and file with the Commission, as soon as reasonably practicable, but in no
      event
      later than the date that is five (5) business days after the Company files
      its
      Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (such
      date, the " **Filing
      Deadline Date** "),
      a
      Registration Statement on Form S-3 (the " **Registration
      Statement** ")
      to
      enable the resale of Shares and the Warrant Shares (collectively the
      " **Registrable
      Securities** ")
      by the
      Investors from time to time under the Securities Act (except if the Company
      is
      not then eligible to register for resale the Registrable Securities on Form
      S-3,
      in which case such registration shall be on another appropriate form in
      accordance herewith);


18





(b) use
      its
      best efforts, subject to receipt of information from the Investors set forth
      in Exhibit
      D ,
      to
      cause the Registration Statement to be declared effective under the Securities
      Act as soon as practicable but in no event later than the date (the
      " **Effectiveness
      Deadline Date** ")
      that
      is 60 calendar days after the Filing Deadline;





(c) during
      the period from the date on which the Registration Statement is declared
      effective until the earlier of (i) such time as all Investors may immediately
      sell all of the Shares purchased under this Agreement under Rule 144(b) (without
      giving effect to the volume limitations of Rule 144(e)) and (ii) such time
      as
      all Investors have sold all of the Registrable Securities that the Investors
      purchased under this Agreement (such period, the " **Effectiveness
      Period** "),
      the
      Company shall: (A) use its best efforts to prepare and file with the SEC such
      amendments and supplements to the Registration Statement as may be necessary
      or
      appropriate to keep such Registration Statement current and continuously
      effective (including any amendment or supplement through incorporation by
      reference of any report filed under the Exchange Act); (B) cause the Prospectus
      used in connection with such Registration Statement to be supplemented by any
      required Prospectus supplement, and as so supplemented to be filed pursuant
      to
      Rule 424 (or any similar provisions then in force) under the Securities Act;
      and
      (C) use its best efforts to comply with the provisions of the Securities Act
      applicable to it with respect to the disposition of all securities covered
      by
      such Registration Statement during the Effectiveness Period in accordance with
      the intended methods of disposition by the sellers thereof set forth in such
      Registration Statement, as so amended, or such Prospectus, as so
      supplemented;





(d) as
      soon
      as practicable, but in any event within three business days, give notice to
      each
      Investor when any Prospectus, Prospectus supplement, or the Registration
      Statement or any post-effective amendment to the Registration Statement has
      been
      filed with the SEC and, with respect to a Registration Statement or any
      post-effective amendment, when the same has been declared
      effective;





(e) furnish
      to each Investor such number of copies of the Registration Statement,
      Prospectuses (including Prospectus supplements) and preliminary versions of
      the
      Prospectus filed with the Commission (" **Preliminary
      Prospectuses** ")
      in
      conformity with the requirements of the Securities Act, and such other documents
      as such Investor may reasonably request, in order to facilitate the public
      sale
      or other disposition of all or any of the Shares and Warrant Shares by such
      Investor;





(f) file
      documents required of the Company for normal blue sky clearance in all states
      requiring blue sky clearance; provided that the Company will not be required
      to
      (i) qualify as a foreign corporation or as a dealer in securities in any
      jurisdiction where it would not otherwise be required to qualify but for this
      Agreement or (ii) take any action that would subject it to general service
      of
      process in suits or to taxation in any such jurisdiction where it is not then
      so
      subject;





(g) if
      NASD
      Rule 2710 requires any broker-dealer to make a filing prior to executing a
      sale
      of Shares by an Investor, make an Issuer Filing with the NASD Corporate
      Financing Department pursuant to NASD Rule 2710(b)(10)(A)(i) and respond within
      five trading days to any comments received from NASD in connection therewith,
      and pay the filing fee required in connection therewith;


19





(h) request
      that the Registration Statement be declared effective by the SEC within five
      (5)
      days of receiving a "no comment" letter from the SEC;





(i) advise
      the Investors at the earliest possible moment after the Company shall receive
      notice or obtain knowledge of (i) the issuance of any stop order by the
      Commission delaying or suspending the effectiveness of the Registration
      Statement or (ii) suspension of the qualification (or exemption from
      qualification) of any of the Shares for sale in any jurisdiction in which they
      have been qualified for sale, or, in each case, the initiation of any proceeding
      for that purpose; and promptly use its best efforts to prevent the issuance
      of
      any stop order or suspension or obtain its withdrawal at the earliest possible
      moment if such stop order should be issued or suspension levied;
      and





(j) bear
      all
      fees and expenses (other than fees and expenses of each Investor's legal counsel
      or other advisers, and underwriting discounts, brokerage fees and commissions,
      if any) incurred in connection with the performance by the Company of its
      obligations under paragraphs (a) through (g) and the registration of Registrable
      Securities pursuant to the Registration Statement, whether or not the
      Registration Statement is declared effective.




**9.2**
            **Delay
                In Filing Or Effectiveness Of Registration Statement.**





(a) If
      the
      Registration Statement is not filed by the Company with the SEC on or prior
      to
      the Filing Deadline Date, then for each day following the Filing Deadline Date,
      until but excluding the date the Registration Statement is filed, or if the
      Registration Statement is not declared effective by the SEC by the Effectiveness
      Deadline Date, then for each day following the Effectiveness Deadline Date,
      until but excluding the date the SEC declares the Registration Statement
      effective, the Company shall, for each such day, pay each Investor in cash,
      as
      liquidated damages (" **Liquidated
      Damages** ")
      and
      not as a penalty, an amount equal to 0.0493% of the Purchase Price of each
      Share
      held by such Investor with respect to any such failure and for any such day.
      Such payment shall be made no later than the fifth business day of the calendar
      month next succeeding the month in which such day occurs. Such Liquidated
      Damages shall constitute the Investors' exclusive remedy at law, but not in
      equity, for such events.





(b) Notwithstanding
      the foregoing, no Liquidated Damages shall be due or payable hereunder if the
      Company has filed the Registration Statement with the SEC on or prior to the
      Filing Deadline Date, has received a "comment letter" from the SEC and has
      responded within ten (10) days following the Company's receipt of such comment
      letter, provided that the Company has communicated the SEC's comments to the
      Investors within ten (10) days of the Company's receipt thereof. The Investors
      shall be bound by the provisions of this Agreement (including, without
      limitation, the provisions of Section 7 hereof) with respect to any and all
      non-public information communicated to them pursuant to this Section 0 .
      Furthermore, commencing on the date that that is one-year after the Closing
      Date, no Liquidated Damages shall be due or payable with respect to that portion
      of an Investor's Registrable Securities that can be immediately sold in reliance
      on Rule 144.


20





**9.3**
            **Transfer
                of Shares after Registration; Suspension**.





(a) Each
      Investor agrees that it will not effect any disposition of the Shares, or its
      right to purchase Shares, that would constitute a sale within the meaning of
      the
      Securities Act except as contemplated in the Registration Statement referred
      to
      in Section 0 of this
      Agreement or, in accordance with Section 0 of this
      Agreement or as otherwise permitted by law.





(b) Except
      in
      the event that paragraph (c) below applies, the Company shall:





if
      it
      deems necessary, prepare and file from time to time with the SEC one or more
      post-effective amendments to the Registration Statement or supplements to the
      related Prospectus so that such Registration Statement will not contain an
      untrue statement of a material fact or omit to state a material fact required
      to
      be stated therein or necessary to make the statements therein not misleading,
      and so that, as thereafter delivered to purchasers of the Registrable Securities
      being sold thereunder, such Prospectus will not contain an untrue statement
      of a
      material fact or omit to state a material fact required to be stated therein
      or
      necessary to make the statements therein, in the light of the circumstances
      under which they were made, not misleading (including any amendment or
      supplement through incorporation by reference of any report filed under the
      Exchange Act); and





as
      soon
      as practicable provide to each Investor copies of any documents filed pursuant
      to the preceding Section 9.3(b)(i) (other than any amendment or supplement
      through incorporation by reference of any report filed under the Exchange
      Act).




(c) Subject
      to paragraph (d) below, in the event of:





any
      request by the SEC or any other federal or state governmental authority during
      the Effectiveness Period for amendments or supplements to the Registration
      Statement or related Prospectus or for additional information;





the
      issuance by the SEC or any other federal or state governmental authority of
      any
      stop order suspending the effectiveness of the Registration Statement or the
      initiation of any proceedings for that purpose;





the
      receipt by the Company of any notification with respect to the suspension of
      the
      qualification (or exemption from qualification) of any of the Registrable
      Securities for sale in any jurisdiction in which they have been qualified for
      sale or the initiation of any proceeding for such purpose; or





any
      event
      or circumstance which necessitates the making of any changes in the Registration
      Statement or Prospectus so that, in the case of the Registration Statement,
      it
      will not contain any untrue statement of a material fact or any omission to
      state a material fact required to be stated therein or necessary to make the
      statements therein not misleading, and that in the case of the Prospectus,
      it
      will not contain any untrue statement of a material fact or any omission to
      state a material fact required to be stated therein or necessary to make the
      statements therein, in the light of the circumstances under which they were
      made, not misleading; the Company shall promptly deliver a certificate in
      writing to each Investor (the " **Suspension
      Notice** ")
      to the
      effect of the foregoing and, upon receipt of such Suspension Notice, such
      Investor will refrain from selling any Registrable Securities pursuant to the
      Registration Statement (a " **Suspension** ")
      until
      such Investor receives from the Company copies of a supplemented or amended
      Prospectus prepared and filed by the Company, or until it is advised in writing
      by the Company that the current Prospectus may be used. In the event of any
      Suspension, the Company will use its best efforts to cause the use of the
      Prospectus so suspended to be resumed as soon as practicable after delivery
      of a
      Suspension Notice to the Investor, and the Company shall as soon as practicable
      provide each Investor with copies of any supplemented or amended Prospectus
      or,
      as the case may be, advise each Investor in writing that the current Prospectus
      may be used.


21





(d) In
      addition, subject to compliance with applicable law, the Company shall use
      its
      best efforts to ensure that the Company's transfer agent expeditiously effects
      all sales of Registrable Securities under the Registration Statement that the
      Investor may have from time to time, including the prompt removal of any
      restrictive legends.




**9.4**
            **Indemnification.******




(a) In
      the
      event of a registration of any Registrable Securities under the Securities
      Act
      pursuant to this Agreement, the Company will indemnify and hold harmless each
      Investor, and its officers, directors and each other person, if any, who
      controls the Investor within the meaning of the Securities Act (each, a
      " **Selling
      Stockholder** "),
      against any losses, claims, damages or liabilities, joint or several, to which
      each Selling Stockholder may become subject under the Securities Act or
      otherwise, insofar as such losses, claims, damages or liabilities (or actions
      in
      respect thereof) arise out of or are based upon any untrue statement or alleged
      untrue statement of any material fact contained in any Registration Statement
      under which such Registrable Securities were registered under the Securities
      Act
      pursuant to this Agreement, any preliminary prospectus or final prospectus
      contained therein, or any amendment or supplement thereof, or arise out of
      or
      are based upon the omission or alleged omission to state therein a material
      fact
      required to be stated therein or necessary to make the statements therein not
      misleading, and will reimburse the Selling Stockholder, and each such person
      for
      any reasonable legal or other expenses incurred by them in connection with
      investigating or defending any such loss, claim, damage, liability or action;
      provided, however, that the Company will not be liable in any such case if
      and
      to the extent that any such loss, claim, damage or liability arises out of
      or is
      based upon an untrue statement or alleged untrue statement or omission or
      alleged omission so made in conformity with information furnished by the Selling
      Stockholder or any such person in writing specifically for use in any such
      document or the failure of such Selling Stockholder to comply with its covenants
      and agreements contained herein.




(b) In
      the
      event of a registration of the Registrable Securities under the Securities
      Act
      pursuant to this Agreement, each Investor will indemnify and hold harmless
      the
      Company, and its officers, directors and each other person, if any, who controls
      the Company within the meaning of the Securities Act, against all losses,
      claims, damages or liabilities, joint or several, to which the Company or such
      persons may become subject under the Securities Act or otherwise, insofar as
      such losses, claims, damages or liabilities (or actions in respect thereof)
      arise out of or are based upon any untrue statement or alleged untrue statement
      of any material fact contained in the Registration Statement under which such
      Registrable Securities were registered under the Securities Act pursuant to
      this
      Agreement, any preliminary prospectus or final prospectus contained therein,
      or
      any amendment or supplement thereof, or arise out of or are based upon the
      omission or alleged omission to state therein a material fact required to be
      stated therein or necessary to make the statements therein not misleading or
      the
      failure of such Selling Stockholder to comply with its covenants and agreements
      contained herein, and will reimburse the Company and each such person for any
      reasonable legal or other expenses incurred by them in connection  with
      investigating or defending any such loss, claim, damage, liability or action,
      provided, however, that such Selling Stockholder will be liable in any such
      case
      if and only to the extent that any such loss, claim, damage or liability arises
      out of or is based upon an untrue statement or alleged untrue statement or
      omission or alleged omission so made in conformity with information furnished
      in
      writing to the Company by such Selling Stockholder specifically for use in
      any
      such document or the failure of such Selling Stockholder to comply with its
      covenants and agreements contained herein.


22





(c) Promptly
      after receipt by an indemnified party hereunder of notice of the commencement
      of
      any action, such indemnified party shall, if a claim in respect thereof is
      to be
      made against the indemnifying party hereunder, notify the indemnifying party
      in
      writing thereof, but the omission so to notify the indemnifying party shall
      not
      relieve it from any liability which it may have to such indemnified party other
      than under this Section 0 0 and
      shall only relieve it from any liability which it may have to such indemnified
      party under this Section 0 0 if and
      to the extent the indemnifying party is prejudiced by such omission. In case
      any
      such action shall be brought against any indemnified party and it shall notify
      the indemnifying party of the commencement thereof, the indemnifying party
      shall
      be entitled to participate in and, to the extent it shall wish, to assume and
      undertake the defense thereof with counsel satisfactory to such indemnified
      party, and, after notice from the indemnifying party to such indemnified party
      of its election so to assume and undertake the defense thereof, the indemnifying
      party shall not be liable to such indemnified party under this Section 0 0 for any
      legal expenses subsequently incurred by such indemnified party in connection
      with the defense thereof; if the indemnified party retains its own counsel,
      then
      the indemnified party shall pay all fees, costs and expenses of such counsel,
      provided, however, that, if the defendants in any such action include both
      the
      indemnified party and the indemnifying party and the indemnified party shall
      have reasonably concluded that there may be reasonable defenses available to
      it
      which are different from or additional to those available to the indemnifying
      party or if the interests of the indemnified party reasonably may be deemed
      to
      conflict with the interests of the indemnifying party, the indemnified parties
      shall have the right to select one separate counsel and to assume such legal
      defenses and otherwise to participate in the defense of such action, with the
      reasonable expenses and fees of such separate counsel and other expenses related
      to such participation to be reimbursed by the indemnifying party as
      incurred.




(d) In
      order
      to provide for just and equitable contribution in the event of joint liability
      under the Securities Act in any case in which either (i) the Selling Stockholder
      makes a claim for indemnification pursuant to this Section 0 but it
      is judicially determined (by the entry of a final judgment or decree by a court
      of competent jurisdiction and the expiration of time to appeal or the denial
      of
      the last right of appeal) that such indemnification may not be enforced in
      such
      case notwithstanding the fact that this Section 0 provides
      for indemnification in such case, or (ii) contribution under the Securities
      Act
      may be required on the part of the Selling Stockholder in circumstances for
      which indemnification is provided under this Section 0 ;
      then,
      and in each such case, the Company and the Selling Stockholder will contribute
      to the aggregate losses, claims, damages or liabilities to which they may be
      subject  (after
      contribution from others) in such proportion so that the Selling Stockholder
      is
      responsible only for the portion represented by the percentage that the public
      offering price of its securities offered by the Registration Statement bears
      to
      the public offering price of all securities offered by such Registration
      Statement, provided, however, that, in any such case, (A) the Selling
      Stockholder will not be required to contribute any amount in excess of the
      public offering price of all such securities offered by it pursuant to such
      Registration Statement; and (B) no person or entity guilty of fraudulent
      misrepresentation (within the meaning of Section 10 of the Act) will be entitled
      to contribution from any person or entity who was not guilty of such fraudulent
      misrepresentation.


23





(e) In
      any
      proceeding relating to the Registration Statement filed pursuant to this Section 0 ,
      each
      party against whom contribution may be sought under this Section 0 hereby
      consents to the jurisdiction of any court having jurisdiction over any other
      contributing party, agrees that process issuing from such court may be served
      upon him or it by any other contributing party and consents to the service
      of
      such process and agrees that any other contributing party may join him or it
      as
      an additional defendant in any such proceeding in which such other contributing
      party is a party.




**10.**
            **REPRESENTATIONS
                AND WARRANTIES OF INVESTORS REGARDING COMPANY
                AFFILIATES.**





(a) Silver
      Star Partners I, LLC ( **Silver
      Star** ")
      represents and warrants to the Company that although certain current directors
      and executive officers of the Company (" **Company
      Affiliates** ")
      are
      members and/or managers of Silver Star, (i) such Company Affiliates are not
      participating in the transactions contemplated hereby indirectly through Silver
      Star and (iii) notwithstanding such person's status as a member and/or manager
      of Silver Star, no Company Affiliate, pursuant to any term or provision of
      Silver Star's governing documents, or any agreement, arrangement or
      understanding has or will have any economic or pecuniary interest in the
      Securities purchased by Silver Star or the Silver Star Rebate.





(b) Each
      Investor other than Silver Star represents and warrants that no Company
      Affiliate has any interest as a member and/or manager of such Investor or is
      participating in the transactions contemplated hereby indirectly through such
      Investor.




**11.**
            **INDEPENDENT
                NATURE OF INVESTORS' OBLIGATIONS AND RIGHTS.**





The
      obligations of each Investor under this Agreement are several and not joint
      with
      the obligations of any other Investor, and no Investor shall be responsible
      in
      any way for the performance of the obligations of any other Investor under
      this
      Agreement. The decision of each Investor to purchase the Securities under this
      Agreement has been made by such Investor independently of any other Investor
      and
      independently of any information, materials, statements or opinions as to the
      business, affairs, operations, assets, properties, liabilities, results of
      operations, condition (financial or otherwise) or prospects of the Company
      or
      any of its subsidiaries that may have been made or given by any other Investor
      or by any agent or employee of any other Investor, other than with respect
      to
      investment advisors who provide discretionary investment services to more than
      one Investor, and no Investor or any of its agents or employees shall have
      any
      liability to any other Investor (or any other person) relating to or arising
      from any such information, materials, statements or opinions. Nothing contained
      in this Agreement, and no action taken by any Investor pursuant hereto, shall
      be
      deemed to constitute the Investors as a partnership, an association, a joint
      venture or any other kind of entity, or create a presumption that the Investors
      are in any way acting in concert or as a group with respect to such obligations
      or the transactions contemplated by this Agreement. Each Investor acknowledges
      that no other Investor has acted as agent for such Investor in connection with
      making its investment hereunder and that no other Investor will be acting as
      agent of such Investor in connection with monitoring its investment hereunder.
      Each Investor shall be entitled to independently protect and enforce its rights,
      including without limitation the rights arising out of this Agreement, and
      it
      shall not be necessary for any other Investor to be joined as an additional
      party in any proceeding for such purpose.


24





**12.**
            **MISCELLANEOUS****.**




**12.1**
            **Governing
                Law.**





This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of Delaware, without regard to principles of conflicts of laws. Any action
      brought by either party against the other concerning the transactions
      contemplated by this Agreement shall be brought only in the state courts of
      Delaware or Rhode Island or in the federal courts located in the State of
      Delaware or State of Rhode Island. Both parties and the individuals executing
      this Agreement and other agreements on behalf of the Company agree to submit
      to
      the jurisdiction of such courts and waive trial by jury. In the event that
      any
      provision of this Agreement or any other agreement delivered in connection
      herewith is invalid or unenforceable under any applicable statute or rule of
      law, then such provision shall be deemed inoperative to the extent that it
      may
      conflict therewith and shall be deemed modified to conform to such statute
      or
      rule of law. Any such provision which may prove invalid or unenforceable under
      any law shall not affect the validity or enforceability of any other provision
      of any agreement.




**12.2**
            **Survival****.**





The
      representations, warranties, covenants and agreements made herein shall survive
      any investigation made by the Investors and the closing of the transactions
      contemplated hereby to the extent provided therein. All statements as to factual
      matters contained in any certificate or other instrument delivered by or on
      behalf of the Company pursuant hereto in connection with the transactions
      contemplated hereby shall be deemed to be representations and warranties by
      the
      Company hereunder solely as of the date of such certificate or
      instrument.




**12.3**
            **Entire
                Agreement****.**





This
      Agreement, the exhibits and schedules hereto, the Related Agreements and the
      other documents delivered pursuant hereto constitute the full and entire
      understanding and agreement between the parties with regard to the subjects
      hereof and no party shall be liable or bound to any other in any manner by
      any
      representations, warranties, covenants and agreements except as specifically
      set
      forth herein and therein.


25





**12.4**
            **Severability****.**





In
      case
      any provision of the Agreement shall be invalid, illegal or unenforceable,
      the
      validity, legality and enforceability of the remaining provisions shall not
      in
      any way be affected or impaired thereby.




**12.5**
            **Assignment**.





The
      rights and obligations of each Investor under this Agreement shall be
      automatically assigned by such Investor to any transferee of all or any portion
      of such Investor's Securities in any private transfer of such Securities;
      provided, however, that within two business days prior to the transfer, (a)
      such
      Investor provides the Company notice of the transfer, including the name and
      address of the transferee and the number of Securities transferred; and (b)
      that
      such transferee agrees in writing to be bound by the terms of this Agreement.
      Upon any transfer permitted by this Section 0 ,
      the
      Company shall be obligated to such transferee to perform all of its covenants
      under this Agreement as if such transferee were the Investor.




**12.6**
            **Amendment
                and Waiver****.**




(a) This
      Agreement may be amended or modified only upon the written consent of the
      Company and each Investor.




(b) The
      obligations of the Company and the rights of an Investor under this Agreement
      may be waived only with the written consent of such Investor .





(c) The
      obligations of an Investor and the rights of the Company under this Agreement
      may be waived only with the written consent of the Company.




**12.7**
            **Delays
                or Omissions****.******





It
      is
      agreed that no delay or omission to exercise any right, power or remedy accruing
      to any party, upon any breach, default or noncompliance by another party under
      this Agreement or the Related Agreements, shall impair any such right, power
      or
      remedy, nor shall it be construed to be a waiver of any such breach, default
      or
      noncompliance, or any acquiescence therein, or of or in any similar breach,
      default or noncompliance thereafter occurring. All remedies, either under this
      Agreement or the Related Agreements, by law or otherwise afforded to any party,
      shall be cumulative and not alternative.




**12.8**
            **Notices****.**





All
      notices required or permitted hereunder shall be in writing and shall be deemed
      effectively given: (a) upon personal delivery to the party to be notified,
      (b)
      when sent by telephonically confirmed facsimile if sent during normal business
      hours of the recipient, if not, then on the next business day, (c) five days
      after having been sent by registered or certified mail, return receipt
      requested, postage prepaid, or (d) one day after deposit with a nationally
      recognized overnight courier, specifying next day delivery, with written
      verification of receipt. All communications shall be sent to the Company at
      the
      address as set forth on the signature page hereof, to the Investor at the
      address set forth on the signature page hereto for such Investor, with a copy
      in
      the case of the Company to Benjamin M. Alexander, Esq., at the address of the
      Company or at such other address as the Company or the Investor may designate
      by
      ten days advance written notice to the other parties hereto .


26





**12.9**
            **Titles
                and Subtitles****.**





The
      titles of the sections and subsections of the Agreement are for convenience
      of
      reference only and are not to be considered in construing this
      Agreement.




**12.10**
            **Facsimile
                Signatures; Counterparts****.**





This
      Agreement may be executed by facsimile signatures and in any number of
      counterparts, each of which shall be an original, but all of which together
      shall constitute one instrument.




**12.11**
            **Broker's
                Fees****.**





The
      Company represents and warrants that any agent, broker, investment banker,
      person or firm acting on behalf of or under the authority of the Company that
      is
      or will be entitled to any broker's or finder's fee or any other commission
      directly or indirectly in connection with the transactions contemplated herein
      will be paid by the Company. The Company further agrees to indemnify each
      Investor for any claims, losses or expenses incurred by it as a result of the
      representation in this Section 0 being
      untrue. Each
      Investor represents and warrants that, no agent, broker, investment banker,
      person or firm acting on behalf of or under the authority of such Investor
      is or
      will be entitled to any broker's or finder's fee or any other commission
      directly or indirectly in connection with the transactions contemplated herein,
      except the Placement Fee payable to the Placing Broker for such Investor listed
      on Exhibit
      B .
      Each
      Investor further agrees to indemnify each other party for any claims, losses
      or
      expenses incurred by such other party as a result of the representation in
      this
      Section 0 being
      untrue.




**12.12**
            **Construction.**





Each
      party acknowledges that its legal counsel participated in the preparation of
      this Agreement and, therefore, stipulates that the rule of construction that
      ambiguities are to be resolved against the drafting party shall not be applied
      in the interpretation of this Agreement to favor any party against the
      other.




27





**In
      Witness Whereof** **,** the
      parties hereto have executed the **Securities
      Purchase Agreement** as of
      the date set forth in the first paragraph hereof.




**COMPANY:****NESTOR,
                  INC.**By:/s/
                  Nigel P. HebbornName:
                  Nigel P. HebbornTitle:
                  Executive Vice President and CFOAddress:Nestor,
                  Inc.42
                  Oriental StreetProvidence,
                  RI 02908


28


**INVESTOR
      SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT**





By
      executing this page in the space provided, the undersigned hereby agrees that
      (a) the undersigned is a party, for all purposes, to the Securities Purchase
      Agreement dated as of January 31, 2006 by and among Nestor, Inc. and the persons
      and entities listed as signatories thereto, and (b) upon becoming a party
      thereto, the undersigned will be deemed an "Investor" thereunder and shall
      have
      the benefits of, and shall be subject to the rights and restrictions contained
      in said Securities Purchase Agreement.





IN
      WITNESS WHEREOF, the parties have executed this Agreement as of the date first
      written above.





**Sam
                Belzberg****Investor
                Name**By:/s/
                Sam BelzbergName:___________________________________________Title:____________________________________________Address:_________________________________________________________________________________________Number
                of Shares:56,561Number
                of Warrant Shares:16,968Aggregate
                Purchase Price:$250,000Tax
                Identification Number:____________________________Contact
                Name: _____________________________________Telephone:________________________________________Name
                in which the Shares should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name theShares
                should be registered (ifdifferent):_________________________________________Name
                in which the Warrants should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name the Warrantshould
                be registered (if
                different):_______________________








**INVESTOR
      SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT**





By
      executing this page in the space provided, the undersigned hereby agrees that
      (a) the undersigned is a party, for all purposes, to the Securities Purchase
      Agreement dated as of January 31, 2006 by and among Nestor, Inc. and the persons
      and entities listed as signatories thereto, and (b) upon becoming a party
      thereto, the undersigned will be deemed an "Investor" thereunder and shall
      have
      the benefits of, and shall be subject to the rights and restrictions contained
      in said Securities Purchase Agreement.





IN
      WITNESS WHEREOF, the parties have executed this Agreement as of the date first
      written above.





**Clyde
                J. Berg, as Trustee of the Clyde J. Berg Trust utd
                4/4/95****Investor
                Name**By:/s/
                Clyde J. BergName:Clyde
                J. BergTitle:TrusteeAddress:_________________________________________________________________________________________Number
                of Shares:45,248Number
                of Warrant Shares:13,574Aggregate
                Purchase Price:$200,000Tax
                Identification Number:____________________________Contact
                Name: _____________________________________Telephone:________________________________________Name
                in which the Shares should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name theShares
                should be registered (ifdifferent):_________________________________________Name
                in which the Warrants should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name the Warrantshould
                be registered (if
                different):_______________________







**INVESTOR
      SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT**





By
      executing this page in the space provided, the undersigned hereby agrees that
      (a) the undersigned is a party, for all purposes, to the Securities Purchase
      Agreement dated as of January 31, 2006 by and among Nestor, Inc. and the persons
      and entities listed as signatories thereto, and (b) upon becoming a party
      thereto, the undersigned will be deemed an "Investor" thereunder and shall
      have
      the benefits of, and shall be subject to the rights and restrictions contained
      in said Securities Purchase Agreement.





IN
      WITNESS WHEREOF, the parties have executed this Agreement as of the date first
      written above.





**Neal
                Goldman****Investor
                Name**By:/s/
                Neal GoldmanName:___________________________________________Title:____________________________________________Address:_________________________________________________________________________________________Number
                of Shares:113,122Number
                of Warrant Shares:33,936Aggregate
                Purchase Price:$500,000Tax
                Identification Number:____________________________Contact
                Name: _____________________________________Telephone:________________________________________Name
                in which the Shares should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name theShares
                should be registered (ifdifferent):_________________________________________Name
                in which the Warrants should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name the Warrantshould
                be registered (if
                different):_______________________








**INVESTOR
      SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT**





By
      executing this page in the space provided, the undersigned hereby agrees that
      (a) the undersigned is a party, for all purposes, to the Securities Purchase
      Agreement dated as of January 31, 2006 by and among Nestor, Inc. and the persons
      and entities listed as signatories thereto, and (b) upon becoming a party
      thereto, the undersigned will be deemed an "Investor" thereunder and shall
      have
      the benefits of, and shall be subject to the rights and restrictions contained
      in said Securities Purchase Agreement.





IN
      WITNESS WHEREOF, the parties have executed this Agreement as of the date first
      written above.





**Edward
                F. Heil****Investor
                Name**By:/s/
                Edward F. HeilName:___________________________________________Title:____________________________________________Address:_________________________________________________________________________________________Number
                of Shares:395,927Number
                of Warrant Shares:118,778Aggregate
                Purchase Price:$1,750,000Tax
                Identification Number:____________________________Contact
                Name: _____________________________________Telephone:________________________________________Name
                in which the Shares should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name theShares
                should be registered (ifdifferent):_________________________________________Name
                in which the Warrants should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name the Warrantshould
                be registered (if
                different):_______________________








**INVESTOR
      SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT**





By
      executing this page in the space provided, the undersigned hereby agrees that
      (a) the undersigned is a party, for all purposes, to the Securities Purchase
      Agreement dated as of January 31, 2006 by and among Nestor, Inc. and the persons
      and entities listed as signatories thereto, and (b) upon becoming a party
      thereto, the undersigned will be deemed an "Investor" thereunder and shall
      have
      the benefits of, and shall be subject to the rights and restrictions contained
      in said Securities Purchase Agreement.





IN
      WITNESS WHEREOF, the parties have executed this Agreement as of the date first
      written above.





**Iroquois
                Master Fund Ltd.****Investor
                Name**By:/s/
                Joshua SilvermanName:Joshua
                SilvermanTitle:Authorized
                SignatoryAddress:_________________________________________________________________________________________Number
                of Shares:33,937Number
                of Warrant Shares:10,181Aggregate
                Purchase Price:$150,001.54Tax
                Identification Number:____________________________Contact
                Name: _____________________________________Telephone:________________________________________Name
                in which the Shares should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name theShares
                should be registered (ifdifferent):_________________________________________Name
                in which the Warrants should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name the Warrantshould
                be registered (if
                different):_______________________







**INVESTOR
      SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT**





By
      executing this page in the space provided, the undersigned hereby agrees that
      (a) the undersigned is a party, for all purposes, to the Securities Purchase
      Agreement dated as of January 31, 2006 by and among Nestor, Inc. and the persons
      and entities listed as signatories thereto, and (b) upon becoming a party
      thereto, the undersigned will be deemed an "Investor" thereunder and shall
      have
      the benefits of, and shall be subject to the rights and restrictions contained
      in said Securities Purchase Agreement.





IN
      WITNESS WHEREOF, the parties have executed this Agreement as of the date first
      written above.





**Kuekenhof
                Equity Fund, L.P.****Investor
                Name**By:/s/
                Michael C. JamesName:Michael
                C. JamesTitle:General
                PartnerAddress:_________________________________________________________________________________________Number
                of Shares:56,561Number
                of Warrant Shares:16,968Aggregate
                Purchase Price:$250,000Tax
                Identification Number:____________________________Contact
                Name: _____________________________________Telephone:________________________________________Name
                in which the Shares should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name theShares
                should be registered (ifdifferent):_________________________________________Name
                in which the Warrants should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name the Warrantshould
                be registered (if
                different):_______________________







**INVESTOR
      SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT**





By
      executing this page in the space provided, the undersigned hereby agrees that
      (a) the undersigned is a party, for all purposes, to the Securities Purchase
      Agreement dated as of January 31, 2006 by and among Nestor, Inc. and the persons
      and entities listed as signatories thereto, and (b) upon becoming a party
      thereto, the undersigned will be deemed an "Investor" thereunder and shall
      have
      the benefits of, and shall be subject to the rights and restrictions contained
      in said Securities Purchase Agreement.





IN
      WITNESS WHEREOF, the parties have executed this Agreement as of the date first
      written above.





**Levene
                Ass. A Partnership****Investor
                Name**By:/s/
                Eunice R. LeveneName:Eunice
                R. LeveneTitle:General
                PartnerAddress:_________________________________________________________________________________________Number
                of Shares:28,280Number
                of Warrant Shares:8,484Aggregate
                Purchase Price:$125,000Tax
                Identification Number:____________________________Contact
                Name: _____________________________________Telephone:________________________________________Name
                in which the Shares should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name theShares
                should be registered (ifdifferent):_________________________________________Name
                in which the Warrants should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name the Warrantshould
                be registered (if
                different):_______________________







**INVESTOR
      SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT**





By
      executing this page in the space provided, the undersigned hereby agrees that
      (a) the undersigned is a party, for all purposes, to the Securities Purchase
      Agreement dated as of January 31, 2006 by and among Nestor, Inc. and the persons
      and entities listed as signatories thereto, and (b) upon becoming a party
      thereto, the undersigned will be deemed an "Investor" thereunder and shall
      have
      the benefits of, and shall be subject to the rights and restrictions contained
      in said Securities Purchase Agreement.





IN
      WITNESS WHEREOF, the parties have executed this Agreement as of the date first
      written above.





**Susan
                Moffit****Investor
                Name**By:/s/
                Susan MoffitName:
                ___________________________________________Title:
                ____________________________________________Address:_________________________________________________________________________________________Number
                of Shares:5,656Number
                of Warrant Shares:1,696Aggregate
                Purchase Price:$25,000Tax
                Identification Number:____________________________Contact
                Name: _____________________________________Telephone:________________________________________Name
                in which the Shares should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name theShares
                should be registered (ifdifferent):_________________________________________Name
                in which the Warrants should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name the Warrantshould
                be registered (if
                different):_______________________







**INVESTOR
      SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT**





By
      executing this page in the space provided, the undersigned hereby agrees that
      (a) the undersigned is a party, for all purposes, to the Securities Purchase
      Agreement dated as of January 31, 2006 by and among Nestor, Inc. and the persons
      and entities listed as signatories thereto, and (b) upon becoming a party
      thereto, the undersigned will be deemed an "Investor" thereunder and shall
      have
      the benefits of, and shall be subject to the rights and restrictions contained
      in said Securities Purchase Agreement.





IN
      WITNESS WHEREOF, the parties have executed this Agreement as of the date first
      written above.





**Wallace
                L. Mossop, III, as trustee of the Wallace L. Mossop III Trust dtd
                2/3/00****Investor
                Name**By:/s/
                Wallace L. Mossop IIIName:Wallace
                L. Mossop IIITitle:TrusteeAddress:_________________________________________________________________________________________Number
                of Shares:28,280Number
                of Warrant Shares:8,484Aggregate
                Purchase Price:$125,000Tax
                Identification Number:____________________________Contact
                Name: _____________________________________Telephone:________________________________________Name
                in which the Shares should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name theShares
                should be registered (ifdifferent):_________________________________________Name
                in which the Warrants should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name the Warrantshould
                be registered (if
                different):_______________________








**INVESTOR
      SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT**





By
      executing this page in the space provided, the undersigned hereby agrees that
      (a) the undersigned is a party, for all purposes, to the Securities Purchase
      Agreement dated as of January 31, 2006 by and among Nestor, Inc. and the persons
      and entities listed as signatories thereto, and (b) upon becoming a party
      thereto, the undersigned will be deemed an "Investor" thereunder and shall
      have
      the benefits of, and shall be subject to the rights and restrictions contained
      in said Securities Purchase Agreement.





IN
      WITNESS WHEREOF, the parties have executed this Agreement as of the date first
      written above.





**Nite
                Capital, L.P.****Investor
                Name**By:/s/
                Keith A. GoodmanName:KeithA.
                GoodmanTitle:Manger
                of General PartnerAddress:_________________________________________________________________________________________Number
                of Shares:45,248Number
                of Warrant Shares:13,574Aggregate
                Purchase Price:$200,000Tax
                Identification Number:____________________________Contact
                Name: _____________________________________Telephone:________________________________________Name
                in which the Shares should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name theShares
                should be registered (ifdifferent):_________________________________________Name
                in which the Warrants should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name the Warrantshould
                be registered (if
                different):_______________________







**INVESTOR
      SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT**





By
      executing this page in the space provided, the undersigned hereby agrees that
      (a) the undersigned is a party, for all purposes, to the Securities Purchase
      Agreement dated as of January 31, 2006 by and among Nestor, Inc. and the persons
      and entities listed as signatories thereto, and (b) upon becoming a party
      thereto, the undersigned will be deemed an "Investor" thereunder and shall
      have
      the benefits of, and shall be subject to the rights and restrictions contained
      in said Securities Purchase Agreement.





IN
      WITNESS WHEREOF, the parties have executed this Agreement as of the date first
      written above.





**RAQ,
                LLC****Investor
                Name**By:/s/
                Lindsay A. Rosenwald, M.D.Name:Lindsay
                A. Rosenwald, M.D.Title:Managing
                MemberAddress:_________________________________________________________________________________________Number
                of Shares:56,561Number
                of Warrant Shares:16,968Aggregate
                Purchase Price:$250,000Tax
                Identification Number:____________________________Contact
                Name: _____________________________________Telephone:________________________________________Name
                in which the Shares should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name theShares
                should be registered (ifdifferent):_________________________________________Name
                in which the Warrants should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name the Warrantshould
                be registered (if
                different):_______________________











**INVESTOR
      SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT**





By
      executing this page in the space provided, the undersigned hereby agrees that
      (a) the undersigned is a party, for all purposes, to the Securities Purchase
      Agreement dated as of January 31, 2006 by and among Nestor, Inc. and the persons
      and entities listed as signatories thereto, and (b) upon becoming a party
      thereto, the undersigned will be deemed an "Investor" thereunder and shall
      have
      the benefits of, and shall be subject to the rights and restrictions contained
      in said Securities Purchase Agreement.





IN
      WITNESS WHEREOF, the parties have executed this Agreement as of the date first
      written above.





**Wilson
                G. & Ellen M. Saville, JTWROS****Investor
                Name**By:/s/
                Wilson G. Saville /s/ Ellen M. SavilleName:
                ___________________________________________Title:
                ____________________________________________Address:_________________________________________________________________________________________Number
                of Shares:28,280Number
                of Warrant Shares:8,484Aggregate
                Purchase Price:$125,000Tax
                Identification Number:____________________________Contact
                Name: _____________________________________Telephone:________________________________________Name
                in which the Shares should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name theShares
                should be registered (ifdifferent):_________________________________________Name
                in which the Warrants should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name the Warrantshould
                be registered (if
                different):_______________________











**INVESTOR
      SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT**





By
      executing this page in the space provided, the undersigned hereby agrees that
      (a) the undersigned is a party, for all purposes, to the Securities Purchase
      Agreement dated as of January 31, 2006 by and among Nestor, Inc. and the persons
      and entities listed as signatories thereto, and (b) upon becoming a party
      thereto, the undersigned will be deemed an "Investor" thereunder and shall
      have
      the benefits of, and shall be subject to the rights and restrictions contained
      in said Securities Purchase Agreement.





IN
      WITNESS WHEREOF, the parties have executed this Agreement as of the date first
      written above.





**Silver
                Star Partners I, LLC****Investor
                Name**By:/s/
                William B. DanzellName:William
                B. DanzellTitle:PresidentAddress:_________________________________________________________________________________________Number
                of Shares:220,589Number
                of Warrant Shares:66,176Aggregate
                Purchase Price:$975,003.38Tax
                Identification Number:____________________________Contact
                Name: _____________________________________Telephone:________________________________________Name
                in which the Shares should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name theShares
                should be registered (ifdifferent):_________________________________________Name
                in which the Warrants should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name the Warrantshould
                be registered (if
                different):_______________________








**INVESTOR
      SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT**





By
      executing this page in the space provided, the undersigned hereby agrees that
      (a) the undersigned is a party, for all purposes, to the Securities Purchase
      Agreement dated as of January 31, 2006 by and among Nestor, Inc. and the persons
      and entities listed as signatories thereto, and (b) upon becoming a party
      thereto, the undersigned will be deemed an "Investor" thereunder and shall
      have
      the benefits of, and shall be subject to the rights and restrictions contained
      in said Securities Purchase Agreement.





IN
      WITNESS WHEREOF, the parties have executed this Agreement as of the date first
      written above.





**Martin
                L. Solomon****Investor
                Name**By:/s/
                Martin L. SolomonName:
                ___________________________________________Title:
                ____________________________________________Address:_________________________________________________________________________________________Number
                of Shares:56,561Number
                of Warrant Shares:16,968Aggregate
                Purchase Price:$250,000Tax
                Identification Number:____________________________Contact
                Name: _____________________________________Telephone:________________________________________Name
                in which the Shares should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name theShares
                should be registered (ifdifferent):_________________________________________Name
                in which the Warrants should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name the Warrantshould
                be registered (if
                different):_______________________











**INVESTOR
      SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT**





By
      executing this page in the space provided, the undersigned hereby agrees that
      (a) the undersigned is a party, for all purposes, to the Securities Purchase
      Agreement dated as of January 31, 2006 by and among Nestor, Inc. and the persons
      and entities listed as signatories thereto, and (b) upon becoming a party
      thereto, the undersigned will be deemed an "Investor" thereunder and shall
      have
      the benefits of, and shall be subject to the rights and restrictions contained
      in said Securities Purchase Agreement.





IN
      WITNESS WHEREOF, the parties have executed this Agreement as of the date first
      written above.








**TCMP3
                Partners****Investor
                Name**By:/s/
                Steven E. SlawsonName:Steven
                E. SlawsonTitle:
                PrincipleAddress:_________________________________________________________________________________________Number
                of Shares:67,000Number
                of Warrant Shares:20,100Aggregate
                Purchase Price:$296,140Tax
                Identification Number:____________________________Contact
                Name: _____________________________________Telephone:________________________________________Name
                in which the Shares should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name theShares
                should be registered (ifdifferent):_________________________________________Name
                in which the Warrants should beregistered
                (if different):_______________________________Relationship
                between the Investor andthe
                person in whose name the Warrantshould
                be registered (if
                different):_______________________







**EXHIBIT
      A to Securities Purchase**


**Agreement**





THIS
      WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
      BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
      AND
      THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
      OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
      REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN OPINION OF
      COUNSEL REASONABLY SATISFACTORY TO NESTOR, INC. THAT SUCH REGISTRATION IS NOT
      REQUIRED.








Right
      to
      Purchase [* ]
      Shares
      of Common Stock of Nestor, Inc. (subject to adjustment as provided
      herein)





**COMMON
      STOCK PURCHASE WARRANT**





No.
                2006-1
            
            Issue
                Date: January 31, 2006





NESTOR,
      INC., a corporation organized under the laws of the State of Delaware (the
      " **Company** "),
      hereby certifies that, for value received, [Investor Name], or assigns (the
      " **Holder** "),
      is
      entitled, subject to the terms set forth below, to purchase from the Company
      from and after the Issue Date of this Warrant and at any time or from time
      to
      time before 5:00 p.m., New York time, through January 31, 2009 (three (3) years
      after the Issue Date) (the " **Expiration
      Date** "),
      up to
      [*] fully paid and nonassessable shares of Common Stock (as hereinafter
      defined), $.01 par value per share, of the Company, at the Purchase Price (as
      defined below). The number and character of such shares of Common Stock and
      the
      Purchase Price are subject to adjustment as provided herein. Capitalized terms
      used but not otherwise defined shall have them in the Securities Purchase
      Agreement dated the date hereof by and among the Company and the Investors
      named
      therein, including Holder.





As
      used
      herein the following terms, unless the context otherwise requires, have the
      following respective meanings:





(a)  The
      term
      "Company" shall include Nestor, Inc. and any corporation which shall succeed
      or
      assume the obligations of Nestor, Inc. hereunder.





(b)  The
      term
      "Common Stock" includes (a) the Company's Common Stock, $.01 par value per
      share, as authorized on the date of the Securities Purchase Agreement referred
      to in Section 9 hereof, and (b) any other securities into which or for which
      any
      of the securities described in (a) may be converted or exchanged pursuant to
      a
      plan of recapitalization, reorganization, merger, sale of assets or
      otherwise.





(c)  The
      term
      "Other Securities" refers to any stock (other than Common Stock) and other
      securities of the Company or any other person (corporate or otherwise) which
      the
      holder of the Warrant at any time shall be entitled to receive, or shall have
      received, on the exercise of the Warrant, in lieu of or in addition to Common
      Stock, or which at any time shall be issuable or shall have been issued in
      exchange for or in replacement of Common Stock or Other Securities pursuant
      to
      Section 4 or otherwise.





(d)  The
      term
      "Purchase Price" shall mean [ ŧ  :]


_____________


* Based
      on
      the price per Share determined as follows: thirty percent (30%) of the number
      of
      Shares such Investor is purchasing.




A-1




1. Exercise
      of Warrant .





1.1. Number
      of Shares Issuable upon Exercise .
      From
      and after the date hereof through and including the Expiration Date, the holder
      hereof shall be entitled to receive, upon exercise of this Warrant in whole
      in
      accordance with the terms of subsection 1.2 or upon exercise of this Warrant
      in
      part in accordance with subsection 1.3, shares of Common Stock of the Company,
      subject to adjustment pursuant to Section 4.





1.2. Full
      Exercise .
      This
      Warrant may be exercised in full by the holder hereof by delivery of an original
      or fax copy of the form of subscription attached as Exhibit A hereto (the
      " **Subscription
      Form** ")
      duly
      executed by such Holder, to the Company at its principal office or at the office
      of its warrant agent (as provided hereinafter), accompanied by payment, in
      cash,
      wire transfer, or by certified or official bank check payable to the order
      of
      the Company, in the amount obtained by multiplying the number of shares of
      Common Stock for which this Warrant is then exercisable by the Purchase Price
      then in effect.





1.3. Partial
      Exercise .
      This
      Warrant may be exercised in part (but not for a fractional share) by surrender
      of this Warrant in the manner and at the place provided in subsection 1.2 except
      that the amount payable by the holder on such partial exercise shall be the
      amount obtained by multiplying (a) the number of shares of Common Stock
      designated by the holder in the Subscription Form by (b) the Purchase Price
      then
      in effect. On any such partial exercise, the Company, at its expense, will
      forthwith issue and deliver to or upon the order of the holder hereof a new
      Warrant of like tenor, in the name of the holder hereof or as such holder (upon
      payment by such holder of any applicable transfer taxes) may request, the number
      of shares of Common Stock for which such Warrant may still be
      exercised.





1.4. Fair
      Market Value .
      Fair
      Market Value of a share of Common Stock as of a particular date (the
      " **Determination
      Date** ")
      shall
      mean:





(a)  If
      the
      Company's Common Stock is traded on an exchange or is quoted on the National
      Association of Securities Dealers, Inc. Automated Quotation (" **NASDAQ** ")
      National Market System or the NASDAQ SmallCap Market, then the average closing
      or last sale price, respectively, reported for the ten business days immediately
      preceding the Determination Date.





(b)  If
      the
      Company's Common Stock is not traded on an exchange or on the NASDAQ National
      Market System or the NASDAQ SmallCap Market but is traded on the NASD OTC
      Bulletin Board, then the mean of the average of the closing bid and asked prices
      reported for the ten business days immediately preceding the Determination
      Date.





(c)  If
      the
      Company's Common Stock is not publicly traded, then as the Holder and the
      Company agree or in the absence of agreement by arbitration in accordance with
      the rules then standing of the American Arbitration Association, before a single
      arbitrator to be chosen from a panel of persons qualified by education and
      training to pass on the matter to be decided.





1.5. Company
      Acknowledgment .
      The
      Company will, at the time of the exercise of the Warrant, upon the request
      of
      the holder hereof acknowledge in writing its continuing obligation to afford
      to
      such holder any rights to which such holder shall continue to be entitled after
      such exercise in accordance with the provisions of this Warrant. If the holder
      shall fail to make any such request, such failure shall not affect the
      continuing obligation of the Company to afford to such holder any such rights.








ŧ The
      10 day Volume Weighted Average Price (VWAP).


A-2





1.6. Trustee
      for Warrant Holders .
      In the
      event that a bank or trust company shall have been appointed as trustee for
      the
      Company pursuant to Subsection 3.2, such bank or trust company shall have all
      the powers and duties of a warrant agent (as hereinafter described) and shall
      accept, in its own name for the account of the Company or such successor person
      as may be entitled thereto, all amounts otherwise payable to the Company or
      such
      successor, as the case may be, on exercise of this Warrant pursuant to this
      Section 1.





2.1 Delivery
      of Stock Certificates, etc. on Exercise .
      The
      Company agrees that the shares of Common Stock purchased upon exercise of this
      Warrant shall be deemed to be issued to the holder hereof as the record owner
      of
      such shares as of the close of business on the date on which this Warrant shall
      have been surrendered and payment made for such shares as aforesaid. As soon
      as
      practicable after the exercise of this Warrant in full or in part, and in any
      event within 7 days thereafter, the Company at its expense (including the
      payment by it of any applicable issue taxes) will cause to be issued in the
      name
      of and delivered to the holder hereof, or as such holder (upon payment by such
      holder of any applicable transfer taxes) may direct in compliance with
      applicable Securities Laws, a certificate or certificates for the number of
      duly
      and validly issued, fully paid and nonassessable shares of Common Stock (or
      Other Securities) to which such holder shall be entitled on such exercise,
      plus,
      in lieu of any fractional share to which such holder would otherwise be
      entitled, cash equal to such fraction multiplied by the then Fair Market Value
      of one full share, together with any other stock or other securities and
      property (including cash, where applicable) to which such holder is entitled
      upon such exercise pursuant to Section 1 or otherwise.




2.2. Payment
      of Purchase Price.





(a)  Payment
      may be made either in (i) cash or by certified or official bank check payable
      to
      the order of the Company equal to the applicable aggregate Purchase Price,
      (ii)
      by delivery of the Warrant, Common Stock and/or Common Stock receivable upon
      exercise of the Warrant in accordance with Section (b) below, or (iii) by a
      combination of any of the foregoing methods, for the number of Common Shares
      specified in such form (as such exercise number shall be adjusted to reflect
      any
      adjustment in the total number of shares of Common Stock issuable to the holder
      per the terms of this Warrant) and the holder shall thereupon be entitled to
      receive the number of duly authorized, validly issued, fully-paid and
      non-assessable shares of Common Stock (or Other Securities) determined as
      provided herein.





(b)  Notwithstanding
      any provisions herein to the contrary, if the Fair Market Value of one share
      of
      Common Stock is greater than the Purchase Price (at the date of calculation
      as
      set forth below), in lieu of exercising this Warrant for cash, the holder may
      elect to receive shares equal to the value (as determined below) of this Warrant
      (or the portion thereof being cancelled) by surrender of this Warrant at the
      principal office of the Company together with the properly endorsed Subscription
      Form in which event the Company shall issue to the holder a number of shares
      of
      Common Stock computed using the following formula:





X=Y
      ( A-B )


A




Where  X=  the
      number of shares of Common Stock to be issued to the holder





Y=  the
      number of shares of Common Stock purchasable under the Warrant or, if only
      a
      portion of the Warrant is being exercised, the portion of the Warrant being
      exercised (at the date of such calculation)


A-3





A=  the
      Fair
      Market Value of one share of the Company's Common Stock (at the date of such
      calculation)





B=  Purchase
      Price (as adjusted to the date of such calculation)





3. Adjustment
      for Reorganization, Consolidation, Merger, etc .





3.1.  Reorganization,
      Consolidation, Merger, etc .
      In case
      at any time or from time to time, the Company shall (a) effect a reorganization,
      (b) consolidate with or merge into any other person, or (c) transfer all or
      substantially all of its properties or assets to any other person under any
      plan
      or arrangement contemplating the dissolution of the Company, then, in each
      such
      case, as a condition to the consummation of such a transaction, proper and
      adequate provision shall be made by the Company whereby the holder of this
      Warrant, upon the exercise hereof as provided in Section 1 at any time after
      the
      consummation of such reorganization, consolidation or merger or the effective
      date of such dissolution, as the case may be, shall receive, in lieu of the
      Common Stock (or Other Securities) issuable on such exercise prior to such
      consummation or such effective date, the stock and other securities and property
      (including cash) to which such holder would have been entitled upon such
      consummation or in connection with such dissolution, as the case may be, if
      such
      holder had so exercised this Warrant, immediately prior thereto, all subject
      to
      further adjustment thereafter as provided in Section 4.





3.2.  Continuation
      of Terms .
      Upon
      any reorganization, consolidation, merger or transfer (and any dissolution
      following any transfer) referred to in this Section 3, this Warrant shall
      continue in full force and effect and the terms hereof shall be applicable
      to
      the shares of stock and other securities and property receivable on the exercise
      of this Warrant after the consummation of such reorganization, consolidation
      or
      merger or the effective date of dissolution following any such transfer, as
      the
      case may be, and shall be binding upon the issuer of any such stock or other
      securities, including, in the case of any such transfer, the person acquiring
      all or substantially all of the properties or assets of the Company, whether
      or
      not such person shall have expressly assumed the terms of this Warrant as
      provided in Section 4.





4. Extraordinary
      Events Regarding Common Stock .
      In the
      event that the Company shall (a) issue additional shares of the Common Stock
      as
      a dividend or other distribution on outstanding Common Stock, (b) subdivide
      its
      outstanding shares of Common Stock, or (c) combine its outstanding shares of
      the
      Common Stock into a smaller number of shares of the Common Stock, then, in
      each
      such event, the Purchase Price shall, simultaneously with the happening of
      such
      event, be adjusted by multiplying the then Purchase Price by a fraction, the
      numerator of which shall be the number of shares of Common Stock outstanding
      immediately prior to such event and the denominator of which shall be the number
      of shares of Common Stock outstanding immediately after such event, and the
      product so obtained shall thereafter be the Purchase Price then in effect.
      The
      Purchase Price, as so adjusted, shall be readjusted in the same manner upon
      the
      happening of any successive event or events described herein in this Section
      4.
      The number of shares of Common Stock that the holder of this Warrant shall
      thereafter, on the exercise hereof as provided in Section 1, be entitled to
      receive shall be increased or decreased to a number determined by multiplying
      the number of shares of Common Stock that would otherwise (but for the
      provisions of this Section 4) be issuable on such exercise by a fraction of
      which (a) the numerator is the Purchase Price that would otherwise (but for
      the
      provisions of this Section 4) be in effect, and (b) the denominator is the
      Purchase Price in effect on the date of such exercise.





5. Certificate
      as to Adjustments .
      In each
      case of any adjustment or readjustment in the shares of Common Stock (or Other
      Securities) issuable on the exercise of the Warrant, the Company at its expense
      will promptly cause its Chief Financial Officer or other appropriate designee
      to
      compute such adjustment or readjustment in accordance with the terms of the
      Warrant and prepare a certificate setting forth such adjustment or readjustment
      and showing in detail the facts upon which such adjustment or readjustment
      is
      based, including a statement of (a) the consideration received or receivable
      by
      the Company for any additional shares of Common Stock (or Other Securities)
      issued or sold or deemed to have been issued or sold, (b) the number of shares
      of Common Stock (or Other Securities) outstanding or deemed to be outstanding,
      and (c) the Purchase Price and the number of shares of Common Stock to be
      received upon exercise of this Warrant, in effect immediately prior to such
      adjustment or readjustment and as adjusted or readjusted as provided in this
      Warrant. The Company will forthwith mail a copy of each such certificate to
      the
      holder of the Warrant and any Warrant agent of the Company (appointed pursuant
      to Section 10 hereof).


A-4




6. Reservation
      of Stock, etc. Issuable on Exercise of Warrant; Financial
      Statements .
      The
      Company will at all times reserve and keep available, solely for issuance and
      delivery on the exercise of the Warrant, all shares of Common Stock (or Other
      Securities) from time to time issuable on the exercise of the Warrant. This
      Warrant entitles the holder hereof to receive copies of all financial and other
      information distributed or required to be distributed to the holders of the
      Company's Common Stock.





7. Assignment;
      Exchange of Warrant .
      Subject
      to compliance with applicable Securities laws, this Warrant, and the rights
      evidenced hereby, may be transferred by any registered holder hereof (a
      " **Transferor** ")
      with
      respect to any or all of the Shares. On the surrender for exchange of this
      Warrant, with the Transferor's endorsement in the form of Exhibit B attached
      hereto (the " **Transferor
      Endorsement Form** ")
      and
      together with evidence reasonably satisfactory to the Company demonstrating
      compliance with applicable Securities Laws, which shall include, without
      limitation, a legal opinion from the Transferor's counsel that such transfer
      is
      exempt from the registration requirements of federal securities laws, the
      Company at its expense but with payment by the Transferor of any applicable
      transfer taxes) will issue and deliver to or on the order of the Transferor
      thereof a new Warrant of like tenor, in the name of the Transferor and/or the
      transferee(s) specified in such Transferor Endorsement Form (each a
      " **Transferee** "),
      calling in the aggregate on the face or faces thereof for the number of shares
      of Common Stock called for on the face or faces of the Warrant so surrendered
      by
      the Transferor.





8. Replacement
      of Warrant .
      On
      receipt of evidence reasonably satisfactory to the Company of the loss, theft,
      destruction or mutilation of this Warrant and, in the case of any such loss,
      theft or destruction of this Warrant, on delivery of an indemnity agreement
      or
      security reasonably satisfactory in form and amount to the Company or, in the
      case of any such mutilation, on surrender and cancellation of this Warrant,
      the
      Company at its expense will execute and deliver, in lieu thereof, a new Warrant
      of like tenor.





9. Registration
      Rights .
      The
      Holder of this Warrant has been granted certain registration rights by the
      Company. These registration rights are set forth in a Securities Purchase
      Agreement entered into by the Company and the Investors, including the Holder.





10. Warrant
      Agent .
      The
      Company may, by written notice to the each holder of the Warrant, appoint an
      agent for the purpose of issuing Common Stock (or Other Securities) on the
      exercise of this Warrant pursuant to Section 1, exchanging this Warrant pursuant
      to Section 7, and replacing this Warrant pursuant to Section 8, or any of the
      foregoing, and thereafter any such issuance, exchange or replacement, as the
      case may be, shall be made at such office by such agent.





11. Transfer
      on the Company's Books .
      Until
      this Warrant is transferred on the books of the Company, the Company may treat
      the registered holder hereof as the absolute owner hereof for all purposes,
      notwithstanding any notice to the contrary.





12. Notices,
      etc .
      All
      notices and other communications from the Company to the holder of this Warrant
      shall be mailed by first class registered or certified mail, postage prepaid,
      at
      such address as may have been furnished to the Company in writing by such holder
      or, until any such holder furnishes to the Company an address, then to, and
      at
      the address of, the last holder of this Warrant who has so furnished an address
      to the Company.


A-5





13. Miscellaneous .
      This
      Warrant and any term hereof may be changed, waived, discharged or terminated
      only by an instrument in writing signed by the party against which enforcement
      of such change, waiver, discharge or termination is sought. This Warrant shall
      be governed by and construed in accordance with the laws of State of Delaware
      without regard to principles of conflicts of laws. Any action brought concerning
      the transactions contemplated by this Warrant shall be brought only in the
      state
      courts of Delaware or Rhode Island or in the federal courts located in the
      State
      of Delaware or the Sate of Rhode Island. The individuals executing this Warrant
      on behalf of the Company agree to submit to the jurisdiction of such courts
      and
      waive trial by jury. The prevailing party shall be entitled to recover from
      the
      other party its reasonable attorney's fees and costs. In the event that any
      provision of this Warrant is invalid or unenforceable under any applicable
      statute or rule of law, then such provision shall be deemed inoperative to
      the
      extent that it may conflict therewith and shall be deemed modified to conform
      with such statute or rule of law. Any such provision which may prove invalid
      or
      unenforceable under any law shall not affect the validity or enforceability
      of
      any other provision of this Warrant. The headings in this Warrant are for
      purposes of reference only, and shall not limit or otherwise affect any of
      the
      terms hereof. The invalidity or unenforceability of any provision hereof shall
      in no way affect the validity or enforceability of any other provision. The
      Company acknowledges that legal counsel participated in the preparation of
      this
      Warrant and, therefore, stipulates that the rule of construction that
      ambiguities are to be resolved against the drafting party shall not be applied
      in the interpretation of this Warrant to favor any party against the other
      party.







[THIS
      SPACE INTENTIONALLY LEFT BLANK]


A-6





IN
      WITNESS WHEREOF, the Company has executed this Warrant under seal as of the
      date
      first written above.





NESTOR,
                INC.By:Nigel
                P. HebbornChief
                Financial OfficerWitness:




A-7


Exhibit
      A


to
      Warrant





FORM
      OF
      SUBSCRIPTION


(To
      be
      signed only on exercise of Warrant)





TO:
      Nestor, Inc.





The
      undersigned, pursuant to the provisions set forth in the attached Warrant
      (No.________), hereby irrevocably elects to purchase (check applicable
      box):





___ ___________________
      shares of the Common Stock covered by such Warrant; or





___ the
      maximum number of shares of Common Stock covered by such Warrant pursuant to
      the
      cashless exercise procedure set forth in Section 2.





The
      undersigned herewith makes payment of the full purchase price for such shares
      at
      the price per share provided for in such Warrant, which is $_______________.
      Such payment takes the form of (check applicable box or boxes):





___ $_______________in
      lawful money of the United States; and/or





___ the
      cancellation of such portion of the attached Warrant as is exercisable for
      a
      total of ___________shares of Common Stock (using a Fair Market Value of $______
      per share for purposes of this calculation); and/or





___ the
      cancellation of such number of shares of Common Stock as is necessary, in
      accordance with the formula set forth in Section 2, to exercise this Warrant
      with respect to the maximum number of shares of Common Stock purchaseable
      pursuant to the cashless exercise procedure set forth in Section 2.





The
      undersigned requests that the certificates for such shares be issued in the
      name
      of, and delivered to _____________________________________ whose address is
      _____________________________________.




The
      undersigned represents and warrants that all offers and sales by the undersigned
      of the securities issuable upon exercise of the within Warrant shall be made
      pursuant to registration of the Common Stock under the Securities Act of 1933,
      as amended (the "Securities Act") or pursuant to an exemption from registration
      under the Securities Act.





Dated:(Signature
                must conform to name of holder as specified on the face of the Warrant)(Address)




A-8


**Exhibit
      B**


**to
      Warrant**





FORM
      OF
      TRANSFEROR ENDORSEMENT


(To
      be
      signed only on transfer of Warrant)





For
      value
      received, the undersigned hereby sells, assigns, and transfers unto the
      person(s) named below under the heading "Transferees" the right represented
      by
      the within Warrant to purchase the percentage and number of shares of Common
      Stock of Nestor, Inc. to which the within Warrant relates specified under the
      headings "Percentage Transferred" and "Number Transferred," respectively,
      opposite the name(s) of such person(s) and appoints each such person Attorney
      to
      transfer its respective right on the books of Nestor, Inc. with full power
      of
      substitution in the premises.


Transferees
              Percentage
                Transferred
              Number
                Transferred








Dated:
            
            ,(Signature
                must conform to name of holder as specified on the face of the
                warrant)








Signed
      in
      the presence of:








(Name)
            
            (address)





ACCEPTED
                AND AGREED:
            
            (address)[TRANSFEREE]




(Name)




A-9


EXHIBIT
      B
      to Securities Purchase


Agreement





**PLACING
      BROKERS**




**Placing
                  Broker Name**
              **Investor
                  Name**Keybanc
                  Capital Markets


B-1


EXHIBIT
      C
      to Securities Purchase


Agreement





**OPINION
      OF COUNSEL TO THE COMPANY**








The
      opinion of Hinckley, Allen & Snyder LLP, counsel to the Company, to be
      delivered pursuant to Section 0 of this
      Agreement shall be substantially to the effect that:





1.  The
      Company has been duly incorporated and is validly existing and in good standing
      as a corporation under the laws of the State of Delaware, with the requisite
      corporate power and authority to own and lease its properties and conduct its
      business as described in the Exchange Act Filings, and to execute, deliver
      and
      perform its obligations under the Agreement, the Escrow Agreement and the
      Warrants.





2.  The
      Agreement, the Escrow Agreement and the Warrants have been duly authorized
      by
      all necessary corporate action by the Company, and each has been executed and
      delivered by the Company and constitutes the valid and binding obligation of
      the
      Company, enforceable against the Company in accordance with its
      terms.





3.  The
      authorized capital stock of the Company consists of 30,000,000 shares of common
      stock, par value $.01 per share, and 10,000,000 shares of preferred stock,
      par
      value $1.00 per share.





4.  The
      Shares to be received by the Investors pursuant to the Agreement have been
      duly
      authorized and, upon issuance and delivery against payment therefor in
      accordance with the terms of the Agreement and the Escrow Agreement, will be
      validly issued, fully paid and nonassessable. The Warrant Shares, when issued
      pursuant to and in accordance with the terms of the Agreement and the Warrant
      and upon delivery, shall be validly issued and outstanding, fully paid and
      nonassessable.





5.  To
      the
      knowledge of such counsel, except as set forth in the Agreement or in Exchange
      Act Filings, the sale of the Shares and the Warrants and the subsequent exercise
      of the Warrant for Warrant Shares are not subject to any preemptive right or
      right of first refusal that has not been properly waived or with which the
      Company has not complied..





6.  The
      execution and delivery of the Agreement and the Escrow Agreement and the
      consummation of the transactions contemplated thereby (including, but not
      limited to, the issuance of the Shares, the sale of the Securities and the
      fulfillment of the terms of the Agreement) will not (a) violate or conflict
      with
      the Certificate of Incorporation or By-laws of the Company or violate any
      statute, rule or regulation normally applicable to transactions of the type
      contemplated by the Agreement or, to such counsel's knowledge, violate any
      order
      of any court, regulatory body, administrative agency or other governmental
      body
      applicable to the Company, any of its subsidiaries or any of the properties
      of
      the Company or any of its subsidiaries.


C-1





7.  To
      the
      knowledge of such counsel, there is no approval, consent, order, authorization,
      designation, declaration or filing by or with any court, regulatory body,
      administrative agency or other governmental body necessary in connection with
      the execution and delivery by the Company of the Agreement and the Escrow
      Agreement and the consummation of the transactions contemplated thereby that
      has
      not been obtained and is not in full force and effect, except any such approval,
      consent, authorization, designation, declaration, or filing required by any
      securities or Blue Sky statute of any state in connection with the offer and
      sale of the Securities, or by any U.S. federal or securities statute with
      respect to the Company's obligations under Section 9 of the Agreement.





8.  Assuming
      the accuracy of the representations and warranties of the Investors contained
      in
      the Agreement and the proper filing by the Company with the SEC of Form D
      describing the sale of the Securities, the offer, sale and issuance of the
      Securities by the Company to the Investors pursuant to the Agreement will be
      exempt from the registration requirements of the Securities Act.





9.  To
      such
      counsel's knowledge, there is not pending against the Company before any court
      or administrative agency or overtly threatened in writing any action, proceeding
      or investigation that questions the validity of the Agreement or any of the
      transactions contemplated thereby.





10. To
      such
      counsel's knowledge and except as set forth in Schedules to the Agreement or
      the
      Exchange Act Filings, there are no legal or governmental actions, suits or
      proceedings, pending or threatened, to which the Company or any of its
      subsidiaries is a party or to which any of the property or assets of the Company
      or any of its subsidiaries is subject that, if determined adversely to the
      Company or any of its subsidiaries, would, individually or in the aggregate,
      have a Material Adverse Effect.




C-2


EXHIBIT
      D
      to


Securities
      Purchase Agreement





NESTOR,
      INC.





INVESTOR
      QUESTIONNAIRE








This
      Questionnaire requests information necessary to prepare a Registration Statement
      (the "Registration Statement") for the registration and resale under Rule 415
      of
      the Securities Act of 1933, as amended (the "Securities Act"), of certain shares
      of common stock of Nestor, Inc. (the "Company"), par value $.01 per share (the
      "Common Stock"), to be filed by the Company with the Securities and Exchange
      Commission (the "Commission"), in accordance with the terms of the Securities
      Purchase Agreement dated as of January 31, 2006 (the "Purchase Agreement"),
      between the Company and the undersigned beneficial owner (the "Selling
      Securityholder") of shares of Common Stock purchased pursuant to the Purchase
      Agreement (the "Shares") and the shares of Common Stock issuable upon exercise
      of the Warrants purchased pursuant to the Purchase Agreement (the "Warrant
      Shares" and together with the Shares, the "Registrable Securities"). All
      capitalized terms not otherwise defined herein shall have the respective
      meanings ascribed thereto in the Purchase Agreement.





In
      order
      to sell or otherwise dispose of any Registrable Securities pursuant to the
      Registration Statement, you generally will be required to be named as a selling
      securityholder in the related prospectus, deliver a prospectus to purchasers
      of
      the Registrable Securities and be bound by the provisions of the Purchase
      Agreement (including certain indemnification provisions, as described below).
      If
      you do not complete this Questionnaire and deliver it to the Company as provided
      below you will not be named as a selling securityholder in the prospectus and
      therefore will not be permitted to sell any Shares pursuant to the Registration
      Statement. Please complete and deliver this Questionnaire to Benjamin M.
      Alexander, Esq., General Counsel of the Company, as soon as possible and in
      any
      event no later than Closing Date (as defined in the Purchase
      Agreement).





Certain
      legal consequences arise from being named as a selling securityholder in the
      Registration Statement and the related prospectus. Accordingly, holders and
      beneficial owners of Shares are advised to consult their own securities law
      counsel regarding the consequences of being named or not being named as a
      selling securityholder in the Registration Statement and the related
      prospectus.





The
      Selling Securityholder, by signing and returning this Questionnaire, understands
      that it will be bound by the terms and conditions of this Questionnaire and
      the
      Purchase Agreement.





Pursuant
      to the Purchase Agreement, the undersigned has agreed to indemnify and hold
      harmless the Company, each of its directors, each of its officers who has signed
      the Registration Statement and each person, if any, who controls the Company
      within the meaning of the Securities Act, from and against certain losses
      arising in connection with statements concerning the undersigned made in the
      Registration Statement or the related prospectus in reliance upon the
      information provided in this Questionnaire.


D-1





The
      undersigned hereby provides the following information to the Company and
      represents and warrants that such information is accurate and
      complete:





QUESTIONNAIRE





1.
            (a)
                Full Legal Name of Selling Securityholder:3










(b)
      Except as set forth below in this Item 1(b), the undersigned does not hold
      any
      or all of the Shares on behalf of another person or entity.





State
      any
      exceptions here:










2.
            Beneficial
                Ownership:





Immediately
      after the Closing, there will be no equity securities of the Company of which
      the undersigned will be the "beneficial owner" 4 ,
      except
      as set forth below in this Item 2. The disclosure indicates the amount of equity
      securities which the undersigned beneficially owns, which it has a right to
      acquire within 60 days after the Closing Date, and as to which it has sole
      voting power, shared voting power, sole investment power or shared investment
      power.










3.
            Except
                as set forth below in this Item 3, the undersigned wishes that all
                of the
                _________ Shares that the undersigned purchased pursuant to the Purchase
                Agreement and all of the ________ Warrant Shares issuable upon exercise
                of
                the Warrants the undersigned purchase pursuant to the Purchase Agreement
                are to be offered for the account of the undersigned in the Registration
                Statement.





State
      any
      exceptions here:














3 If
          this Questionnaire is being completed by or on behalf of a person other
          than an
          individual, the entity on whose behalf the Questionnaire is being completed
          should be stated.
 4 Defined
          in Appendix A to this questionnaire.




D-2


4.
            Relationships
                with the Company:





Except
      as
      set forth below, neither the undersigned nor any of its affiliates, officers,
      directors or principal equity holders (5% or more) has held any position or
      office or has had any other material relationship with the Company (or its
      predecessors or affiliates) during the past three years.





State
      any
      exceptions here:










5.
            Plan
                of Distribution:




Except
      as
      set forth below, the undersigned (including its donees or pledgees) intends
      to
      distribute the Registrable Securities pursuant to the Registration Statement
      only as follows (if at all): Such Registrable Securities may be sold from time
      to time directly by the undersigned or, alternatively, through underwriters,
      broker-dealers or agents. If the Registrable Securities are sold through
      underwriters, broker-dealers or agents, the Selling Securityholder will be
      responsible for underwriting discounts or commissions or agent's commissions.
      Such Registrable Securities may be sold in one more or transactions at fixed
      prices, at prevailing market prices at the time of sale, at varying prices
      determined at the time of sale, or at negotiated prices. Such sales may be
      effected in transactions (which may involve block transactions) (a) on any
      national securities exchange or quotation service on which the Registrable
      Securities may be listed or quoted at the time of sale, (b) in the
      over-the-counter market, (c) in transactions otherwise than on such exchanges
      or
      services or in the over-the-counter market, or (d) through the writing of
      options. Under the Purchase Agreement the undersigned may ***not*** sell
      Registrable Securities short.





State
      any
      exceptions here:










Note:
      In
      no event will such method(s) of distribution take the form of an underwritten
      offering of the Shares without the prior agreement of the
      Company.


D-3





The
      undersigned acknowledges that it understands its obligation to comply with
      the
      provisions of the Securities Exchange Act of 1934, as amended, and the rules
      thereunder relating to stock manipulation, particularly Regulation M thereunder
      (or any successor rules or regulations), in connection with any offering of
      the
      Shares pursuant to the Registration Statement. The undersigned agrees that
      neither it nor any person acting on its behalf will engage in any transaction
      in
      violation of such provisions.





In
      accordance with the undersigned's obligation under the Purchase Agreement,
      the
      undersigned agrees to promptly notify the Company of any inaccuracies or changes
      in the information provided herein that may occur subsequent to the date hereof
      at any time while the Registration Statement remains effective.





By
      signing below, the undersigned consents to the disclosure of the information
      contained herein in its answers to Items 1 through 6 above and the inclusion
      of
      such information in the Registration Statement and the related prospectus.
      The
      undersigned understands that such information will be relied upon by the Company
      in connection with the preparation or amendment of the Registration Statement
      and the related prospectus.





IN
      WITNESS WHEREOF, the undersigned, by authority duly given, has caused this
      Questionnaire to be executed and delivered either in person or by its duly
      authorized agent.





Dated:
      _ ____ ,
      2006





Name
      of
      Selling Securityholder:








By:Name:Title:




D-4





Appendix
      A to EXHIBIT D








You
      are
      the "beneficial owner" of a security if you directly or indirectly, through
      any
      contract, arrangement, understanding, relationship, or otherwise, have or share:
      (i) voting power which includes the power to vote, or to direct the voting
      of,
      such security, or (ii) investment power which includes the power to dispose,
      or
      to direct the disposition of, such security. You are deemed the beneficial
      owner
      of a security if you, directly or indirectly, create or use a trust, proxy,
      power of attorney, pooling arrangement or any other contract, arrangement,
      or
      device with the purpose or effect of divesting yourself of beneficial ownership
      of a security or preventing the vesting of such beneficial ownership. Finally,
      you are deemed to be the beneficial owner of a security if you have the right
      to
      acquire beneficial ownership of such security at any time within sixty days,
      including but not limited to any right to acquire (a) through the exercise
      of
      any option, warrant or right, or (b) through the conversion of a security,
      or
      (c) pursuant to the power to revoke a trust, discretionary account, or similar
      arrangement, or (d) pursuant to the automatic termination of a trust,
      discretionary account or similar arrangement. If you have acquired any security
      or power specified in (a), (b), (c) or (d) above, with the purpose or effect
      of
      changing or influencing the control of the issuer, or in connection with or
      as a
      participant in any transaction having such purpose or effect, then immediately
      upon such acquisition you are deemed to be the beneficial owner of the
      securities which may be acquired through the exercise or conversion of such
      security or power.





All
      securities of the same class that are beneficially owned by you, regardless
      of
      the form which such beneficial ownership takes, must be aggregated in
      calculating the number of shares beneficially owned by you.





The
      above
      definition is broad and although you may not actually have or share voting
      or
      investment power with respect to securities owned by persons in your family
      or
      living in your home, you should include such shares in your beneficial ownership
      disclosure, and then, as appropriate, disclaim beneficial ownership of such
      securities.








D-5