EXHIBIT 10.39
                                                                   -------------



                               NESTOR, INC.


                        Incentive Stock Option Agreement
                     Granted Under 2004 Stock Incentive Plan

1.   Grant of Option.
     ---------------

     This agreement evidences the grant by Nestor,  Inc. a Delaware  corporation
(the "Company"),  on March 29, 2005 (the "Grant Date") to Benjamin M. Alexander,
an employee of the Company (the  "Participant"),  of an option to  purchase,  in
whole or in part, on the terms  provided  herein and in the Company's 2004 Stock
Incentive Plan (the "Plan"),  a total of 135,000 shares (the "Shares") of common
stock,  $.01 par value per share, of the Company  ("Common  Stock") at $5.95 per
Share. Unless earlier terminated, this option shall expire at 5:00 p.m., Eastern
time, on March 29, 2013 (the "Final Exercise Date").

     It is intended  that the option  evidenced  by this  agreement  shall be an
incentive stock option as defined in Section 422 of the Internal Revenue Code of
1986, as amended,  and any regulations  promulgated  thereunder (the "Code"), to
the extent permitted by the Code. Except as otherwise  indicated by the context,
the term "Participant",  as used in this option,  shall be deemed to include any
person who acquires the right to exercise this option validly under its terms.

                     15,000                March 1, 2006

                     20,000                March 1, 2007

                     25,000                March 1, 2008

                     30,000                March 1, 2009

                     35,000                March 1, 2010


2. Vesting Schedule.
   -----------------

     This  option will become  exercisable  ("vest") as to 10,000  Shares on the
date  hereof,  as to an  additional  15,000  Shares on March 1,  2006,  as to an
additional  20,000 Shares on March 1, 2007, as to an additional 25,000 Shares on
March 1, 2008, as to an  additional  30,000 Shares on March 1, 2009 and as to an
additional 35,000 Shares on March 1, 2010; provided,  however,  that following a
change in  control  of the  Company  (as such term is  defined  in that  certain
Employment  Agreement  between  the  Participant  and the  Company  of even date
herewith (the  "Employment  Agreement")),  this option shall become  immediately
exercisable  with respect to 100% of the original  number of Shares upon (a) the
termination  by  the  Company  of  the  Participant's  employment,  unless  such
termination  is for Cause  (as  defined  the  Employment  Agreement)  or (b) the
resignation  of the  Participant  for Good Reason (as defined in the  Employment
Agreement)  and further  provided,  that without  respect to whether a change in
control  has  occurred,   upon  (a)  the  termination  by  the  Company  of  the


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Participant's  employment,  unless such termination is for Cause (as defined the
Employment  Agreement) or (b) the resignation of the Participant for Good Reason
(as defined in the Employment  Agreement),  this option shall become immediately
exercisable for such Shares as for which this option would have been exercisable
had such termination or resignation occurred three years after the date thereof.

     The right of exercise  shall be cumulative so that to the extent the option
is not  exercised  in any  period to the  maximum  extent  permissible  it shall
continue to be exercisable,  in whole or in part, with respect to all Shares for
which  it is  vested  until  the  earlier  of the  Final  Exercise  Date  or the
termination of this option under Section 3 hereof or the Plan.

3.   Exercise of Option.
     -------------------

     (a) FORM OF  EXERCISE.  Each  election to exercise  this option shall be in
writing, signed by the Participant, and received by the Company at its principal
office,  accompanied by this agreement, and payment in full (i) in cash, (ii) by
(A) delivery of an irrevocable and  unconditional  undertaking by a creditworthy
broker to deliver  promptly to the Company  sufficient funds to pay the exercise
price and any required tax withholding or (B) delivery by the Participant to the
Company  of  a  copy  of  irrevocable  and   unconditional   instructions  to  a
creditworthy  broker  to  deliver  promptly  to  the  Company  cash  or a  check
sufficient to pay the exercise price and any required tax withholding,  (iii) if
the fair  market  value of a share of  Common  Stock as  determined  by (or in a
manner  approved  by) the Board in good faith ("Fair  Market  Value") is greater
than the per share  exercise  price,  by surrender of this Option in which event
the Company  shall issue to the  Participant  a number of shares of Common Stock
equal to the  product of the  number of Shares as to which this  Option is being
exercised  multiplied by the quotient of the difference  between the Fair Market
Value less the per share  exercise  price divided by the Fair Market  Value,  or
(iv) by any combination of the above permitted forms of payment. The Participant
may purchase  less than the number of shares  covered  hereby,  provided that no
partial  exercise  of this option may be for any  fractional  share or for fewer
than one hundred whole shares.

     (b) CONTINUOUS RELATIONSHIP WITH THE COMPANY REQUIRED.  Except as otherwise
provided  in this  Section 3 or as provided in the  Employment  Agreement,  this
option  may not be  exercised  unless  the  Participant,  at the  time he or she
exercises  this option,  is, and has been at all times since the Grant Date,  an
employee or officer of, the Company or any parent or  subsidiary  of the Company
as defined in Section 424(e) or (f) of the Code (an "Eligible Participant").

     (c) TERMINATION OF RELATIONSHIP WITH THE COMPANY. If the Participant ceases
to be an  Eligible  Participant  for any  reason,  then,  except as  provided in
paragraphs  (d) and (e) below or as provided in the  Employment  Agreement,  the
right to exercise this option shall  terminate three months after such cessation
(but in no event after the Final Exercise Date), PROVIDED THAT this option shall
be exercisable  only to the extent that the Participant was entitled to exercise
this  option  on  the  date  of  such.  Notwithstanding  the  foregoing,  if the
Participant,  prior to the Final Exercise Date,  violates the non-competition or
confidentiality  provisions  of any  employment  contract,  confidentiality  and
nondisclosure  agreement  or other  agreement  between the  Participant  and the
Company,  the right to exercise  this option shall  terminate  immediately  such
violation.

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     (d) EXERCISE PERIOD UPON DEATH OR DISABILITY.  If the  Participant  dies or
becomes  disabled  (within the meaning of Section 22(e)(3) of the Code) prior to
the Final  Exercise  Date  while he or she is an  Eligible  Participant  and the
Company  has not  terminated  such  relationship  for  "cause" as  specified  in
paragraph (e) below, this option shall be exercisable,  within the period of one
year  following  the date of  death or  disability  of the  Participant,  by the
Participant (or in the case of death by an authorized transferee), PROVIDED THAT
this  option  shall be  exercisable  only to the  extent  that this  option  was
exercisable  by the  Participant  on the date of his or her death or disability,
and further  provided that this option shall not be exercisable  after the Final
Exercise Date.

     (e) DISCHARGE FOR CAUSE.  If the  Participant,  prior to the Final Exercise
Date, is discharged by the Company for "cause" (as defined below),  the right to
exercise this option shall terminate immediately upon the effective date of such
discharge.  "Cause" shall mean willful  misconduct by the Participant or willful
failure by the Participant to perform his or her responsibilities to the Company
(including,  without  limitation,  breach by the Participant of any provision of
any employment,  consulting, advisory,  nondisclosure,  non-competition or other
similar agreement between the Participant and the Company), as determined by the
Company,  which  determination  shall be conclusive.  The  Participant  shall be
considered to have been discharged for "Cause" if the Company determines, within
30 days  after  the  Participant's  resignation,  that  discharge  for cause was
warranted.

4.   Agreement in Connection with Public Offering.
     ---------------------------------------------

     The Participant agrees, in connection with the initial  underwritten public
offering of the Company's securities pursuant to a registration  statement under
the Securities Act, (i) not to sell, make short sale of, loan, grant any options
for the purchase of, or otherwise  dispose of any shares of Common Stock held by
the Participant  (other than those shares included in the offering)  without the
prior written consent of the Company or the  underwriters  managing such initial
underwritten  public  offering of the Company's  securities  for a period of 180
days from the effective date of such registration statement, and (ii) to execute
any agreement  reflecting clause (i) above as may be requested by the Company or
the managing underwriters at the time of such offering.

5.   Withholding.
     ------------

     No Shares will be issued pursuant to the exercise of this option unless and
until the Participant  pays to the Company,  or makes provision  satisfactory to
the  Company  for  payment of, any  federal,  state or local  withholding  taxes
required by law to be withheld in respect of this option.

6.   Nontransferability of Option.
     -----------------------------

     This option may not be sold,  assigned,  transferred,  pledged or otherwise
encumbered by the Participant, either voluntarily or by operation of law, except
by will or the laws of descent and distribution, and, during the lifetime of the
Participant, this option shall be exercisable only by the Participant.

                                      -3-
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7.   Provisions of the Plan.
     -----------------------

     This option is subject to the  provisions  of the Plan,  a copy of which is
furnished to the Participant with this option.

     IN WITNESS WHEREOF, the Company has caused this option to be executed under
its corporate seal by its duly authorized officer. This option shall take effect
as a sealed instrument.

                     [Signatures appear on following page.]




                                      -4-
<PAGE>






                                      NESTOR, INC.


Dated: March 29, 2005                 By:   /s/ William B. Danzesll
                                          --------------------------------------
                                                Name:   William B. Danzell
                                                Title:  Chief Executive Officer







                            PARTICIPANT'S ACCEPTANCE

     The undersigned hereby accepts the foregoing option and agrees to the terms
and conditions thereof. The undersigned hereby acknowledges receipt of a copy of
the Company's 2004 Stock Incentive Plan.



                                      PARTICIPANT: /s/ Benjamin M. Alexander
                                                  ------------------------------
                                                   Benjamin M. Alexander















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