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**Nestor      Traffic Systems, Inc.**

**$3,000,000**

**Variable      Rate Senior Notes due May 25, 2011**

**Note      Purchase Agreement**

**Dated:      **
**April      1, 2007**

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**TABLE      OF CONTENTS**

| Section      |   |                                                                                                                                   |  Page |
|---------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------|------------|
| 1.                                    |   | AUTHORIZATION                OF NOTES                                                                                                  |       | 1 |
| 2.                                    |   | SALE                AND PURCHASE OF NOTES                                                                                              |       | 1 |
| 3.                                    |   | CLOSINGS;                EARLY TERMINATION                                                                                             |       | 1 |
| 3.1.                                  |   | Closings.                                                                                                                              |       | 1 |
| 3.2.                                  |   | Early                Termination.                                                                                                      |       | 2 |
| 4.                                    |   | CONDITIONS                TO CLOSING                                                                                                   |       | 2 |
| 4.1.                                  |   | Representations                and Warranties                                                                                          |       | 2 |
| 4.2.                                  |   | Performance;                No Default                                                                                                 |       | 2 |
| 4.3.                                  |   | Compliance                Certificates                                                                                                 |       | 2 |
| 4.4.                                  |   | Purchase                Permitted By Applicable Law, etc.                                                                              |       | 2 |
| 4.5.                                  |   | Sale                of Other Notes                                                                                                     |       | 3 |
| 4.6.                                  |   | Payment                of Special Counsel, Organizational, Research, Administration to Speed                I,                LLC Fees |       | 3 |
| 4.7.                                  |   | Proceedings                and Documents                                                                                               |       | 3 |
| 5.                                    |   | REPRESENTATIONS                AND WARRANTIES OF THE COMPANY                                                                           |       | 3 |
| 5.1.                                  |   | Organization;                Power and Authority                                                                                       |       | 3 |
| 5.2.                                  |   | Authorization,                etc.                                                                                                     |       | 4 |
| 5.3.                                  |   | Disclosure                                                                                                                             |       | 4 |
| 5.4.                                  |   | Organization                and Ownership of Shares of Subsidiaries; Affiliates                                                        |       | 4 |
| 5.5.                                  |   | Financial                Statements                                                                                                    |       | 4 |
| 5.6.                                  |   | Compliance                with Laws, Other Instruments, etc.                                                                           |       | 5 |
| 5.7.                                  |   | Governmental                Authorizations, etc.                                                                                       |       | 5 |
| 5.8.                                  |   | Litigation;                Observance of Agreements, Statutes and Orders                                                               |       | 5 |
| 5.9.                                  |   | Taxes                                                                                                                                  |       | 5 |
| 5.10.                                 |   | Title                to Property; Leases                                                                                               |       | 6 |
| 5.11.                                 |   | Licenses,                Permits, etc.                                                                                                 |       | 6 |
| 5.12.                                 |   | Private                Offering by the Company                                                                                         |       | 6 |
| 5.13.                                 |   | Existing                Indebtedness; Future Liens                                                                                     |       | 6 |
| 5.14.                                 |   | Foreign                Assets Control Regulations, etc.                                                                                |       | 7 |
| 6.                                    |   | REPRESENTATIONS                OF THE PURCHASER                                                                                        |       | 7 |
| 6.1.                                  |   | Purchase                for Investment                                                                                                 |       | 7 |
| 6.2.                                  |   | Accredited                Investor, etc.                                                                                               |       | 7 |
| 7.                                    |   | PAYMENTS                ON NOTES                                                                                                       |       | 8 |
| 7.1.                                  |   | Place                of Payment                                                                                                        |       | 8 |
| 7.2.                                  |   | Calculation                and Timing of Payment.                                                                                      |       | 8 |
| 7.3.                                  |   | Payment                at Maturity.                                                                                                    |       | 9 |
| 7.4.                                  |   | Minimum                Return.                                                                                                         |       | 9 |
| 8.                                    |   | INFORMATION                AS TO COMPANY                                                                                               |       | 9 |
| 8.1.                                  |   | Financial                and Business Information                                                                                      |       | 9 |
| 8.2.                                  |   | Inspection                                                                                                                             |       | 10 |

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**TABLE      OF CONTENTS (Cont'd)**

| Section  |   |                                                                        |  Page |
|---------------|--------|-----------------------------------------------------------------------------|------------|
| 9.            |   | PREPAYMENT                OF THE NOTES                                      |       | 10 |
| 9.1.          |   | Optional                Prepayments                                         |       | 10 |
| 9.2.          |   | Maturity;                Surrender, etc.                                    |       | 10 |
| 10.           |   | AFFIRMATIVE                COVENANTS                                        |       | 11 |
| 10.1.         |   | Compliance                with Law                                          |       | 11 |
| 10.2.         |   | Insurance                                                                   |       | 11 |
| 10.3.         |   | Maintenance                of Properties                                    |       | 11 |
| 10.4.         |   | Payment                of Taxes and Claims                                  |       | 11 |
| 10.5.         |   | Corporate                Existence, etc.                                    |       | 12 |
| 10.6.         |   | Keeping                of Records and Books of Account                      |       | 12 |
| 10.7.         |   | Additional                Assurances                                        |       | 12 |
| 10.8.         |   | Obtaining                and Maintaining Speed Units.                       |       | 12 |
| 11.           |   | NEGATIVE                COVENANTS                                           |       | 13 |
| 11.1.         |   | Liens                                                                       |       | 13 |
| 12.           |   | EVENTS                OF DEFAULT                                            |       | 13 |
| 13.           |   | REMEDIES                ON DEFAULT, ETC.                                    |       | 15 |
| 13.1.         |   | Acceleration                                                                |       | 15 |
| 13.2.         |   | Other                Remedies                                               |       | 15 |
| 13.3.         |   | Rescission                                                                  |       | 15 |
| 13.4.         |   | No                Waivers or Election of Remedies, Expenses, etc.           |       | 16 |
| 14.           |   | EXCHANGE;                SUBSTITUTION OF NOTES                              |       | 16 |
| 14.1.         |   | Transfer                and Exchange of Notes                               |       | 16 |
| 14.2.         |   | Replacement                of Notes                                         |       | 17 |
| 15.           |   | EXPENSES,                ETC.                                               |       | 17 |
| 15.1.         |   | Transaction                Expenses                                         |       | 17 |
| 15.2.         |   | Survival                                                                    |       | 17 |
| 16.           |   | SURVIVAL                OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT |       | 18 |
| 17.           |   | AMENDMENT                AND WAIVER.                                        |       | 18 |
| 17.1.         |   | Requirements                                                                |       | 18 |
| 17.2.         |   | Solicitation                of Holders of Notes                             |       | 18 |
| 17.3.         |   | Binding                Effect, etc.                                         |       | 19 |
| 17.4.         |   | Notes                held by Company, etc.                                  |       | 19 |
| 18.           |   | NOTICES                                                                     |       | 19 |
| 19.           |   | REPRODUCTION                OF DOCUMENTS                                    |       | 20 |
| 20.           |   | CONFIDENTIAL                INFORMATION                                     |       | 20 |

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**TABLE      OF CONTENTS      (Cont'd)**

| **Section**  |   |                                             |  **Page** |
|-------------------|--------|--------------------------------------------------|----------------|
| 21.               |   | SUBSTITUTION                OF PURCHASER         |           | 21 |
| 22.               |   | MISCELLANEOUS                                    |           | 21 |
| 22.1.             |   | Successors                and Assigns            |           | 21 |
| 22.2.             |   | Payments                Due on Non-Business Days |           | 21 |
| 22.3.             |   | Severability                                     |           | 21 |
| 22.4.             |   | Construction                                     |           | 22 |
| 22.5.             |   | Counterparts                                     |           | 22 |
| 22.6.             |   | Governing                Law                     |           | 22 |
| 22.7.             |   | Headings                                         |           | 22 |
| 22.8.             |   | Integration                                      |           | 22 |
| 22.9.             |   | Waiver                of Jury Trial              |           | 22 |

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**TABLE        OF SCHEDULES AND EXHIBITS**

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**Variable      Rate Senior Notes due May 25, 2011**

| TO: | Note                Purchaser |
|-----|-------------------------------|

Delaware      corporation (the “**Company**”),      a      wholly owned subsidiary of Nestor, Inc. (“**Nestor**”)      agrees      with you as follows:

**1.**  **Authorization      of Notes**

**Notes**
***Exhibit 1***
***Schedule B***
**Schedule**
**Exhibit**

**2.**
**Sale      and Purchase of Notes**

**3.**
**Closing**
**s;      Early Termination**

**Closing**
April,      1      2007 or      on      such other Business Day thereafter as may be agreed upon by the Company and      you      (the“**Initial      Closing Date**”);      and

**Second      Closing Date**

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**4.**
**Conditions      to Closing**

*Officer’s      Certificate*

*Secretary’s      Certificate*

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***Schedule A***
**Purchasers**

**5.**
**Representations      and Warranties of the Company**

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***Schedule***
***5.10***

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**6.**
**Representations      of the Purchaser**

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**7.**
**Payments      on Notes**

***Schedule A***

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*Payment      after Initial Closing.*
**Qualifying      Citation**

*Payment      after the Second Closing.*

**8.**
**Information      as to Company**

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**9.**
**Prepayment      of the Notes**

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**10.**
**Affirmative      Covenants**

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**11.**
**Negative      Covenants**

**Permitted      Liens**

**12.**
**Events      of Default**

**Event      of Default**

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**13.**
**Remedies      on Default, Etc.**

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**14.**
**Exchange;      Substitution of Notes**

***Exhibit 1***

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**15.**
**Expenses,      Etc.**

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**16.**
**Survival      of Representations and Warranties; Entire Agreement**

**17.**
**Amendment      and Waiver.**

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**18.**
**Notices**

***Schedule A***

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**19.**
**Reproduction      of Documents**

**20.**
**Confidential      Information**

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**21.**
**Substitution      of Purchaser**

**22.**
**Miscellaneous**

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**Nestor      Traffic Systems, Inc.**

**Note      Purchaser**
**s**

**HG      Investments, LLC**

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**Nestor      Traffic Systems, Inc.**

**Note      Purchaser**
**s**

**Foundation      Partners I, LLC**

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**Nestor      Traffic Systems, Inc.**

**Note      Purchaser**
**s**

**Silver      Star Partners I, LLC**

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**Nestor        Traffic Systems, Inc.**

**Note        Purchaser**
**s**

**Kuekenhof        Equity Fund, L.P.**

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|  **Name                of Purchaser** |  **Principal                Amount of Notes to be Purchased** |  **Payment                Wire Transfer Instructions** |  **Notice                of Payment and Confirmation of Wire Transfer                Address**                                                                          |  **All                Other Notices**                                                                                                                                   |
|--------------------------------------------|--------------------------------------------------------------------|-------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| HG                Investments, LLC         | $250,000                                                           |                                                        | Mr.                Gary Hewitt7030                Hayvenhurst AvenueVan                Nuys, CA 91406                                                                        | Mr.                Gary Hewitt7030                Hayvenhurst AvenueVan                Nuys, CA 91406                                                                        |
| Foundation                Partners I, LLC  | $750,000                                                           |                                                        | c/o                Danzell Investment Management, Ltd.2                Corpus ChristiThe                Professional Building; Suite 300Hilton                Head, SC 29928 | c/o                Danzell Investment Management, Ltd.2                Corpus ChristiThe                Professional Building; Suite 300Hilton                Head, SC 29928 |
| Silver                Star Partners I, LLC | $250,000                                                           |                                                        | c/o                Danzell Investment Management, Ltd.2                Corpus ChristiThe                Professional Building; Suite 300Hilton                Head, SC 29928 | c/o                Danzell Investment Management, Ltd.2                Corpus ChristiThe                Professional Building; Suite 300Hilton                Head, SC 29928 |
| Kuekenhof                Equity Fund, L.P. | $250,000                                                           |                                                        | c/o                Kuekenhof Capital Management, LLC22                Church Street, Suite 5Ramsey,                NY 07446                                                  | c/o                Kuekenhof Capital Management, LLC22                Church Street, Suite 5Ramsey,                NY 07446                                                  |

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**SCHEDULE      B**

**DEFINED      TERMS**

**Affiliate**

**Applicable      Laws**

**Business      Day**

**Capital      Lease**

**Citation      Payment**

**Closing**

**Closing      Dates**

**Code**

**Company**

**Confidential      Information**

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**Contract**

**Current      Report**

**Default**

**Event      of Default**

**Exchange      Act**

**GAAP**

**Governmental      Authority**

**Guaranty**

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**holder**

**Indebtedness**

**Initial      Closing Date**

**Knowledge**

**Lien**

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**Material**

**Material      Adverse Effect**

**Maturity      Date**

**New      Contract**

**Notes**

**Note      Year**

**Officer’s      Certificate**

**Permitted      Liens**

**Person**

**Preferred      Stock**

**Priority      Indebtedness**

**property**
**properties**

**Purchasers**

**Qualifying      Citation**

**Report**

**Required      Holders**

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**Required      Hours**

**Responsible      Officer**

**Second      Closing Date**

**Securities      Act**

**Security      Agreement**

**Security      Documents**

**SEC**

**Senior      Financial Officer**

**Speed      Unit**

**Subsidiary**

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**Swaps**

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**[FORM      OF NOTE]**

**Act**

**Nestor      Traffic Systems, Inc.**

[   ]

**Company**

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**Note      Purchase Agreement**

**[The      Remainder of this Page is Intentionally Blank.]**

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**Nestor      Traffic Systems, Inc.**

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**Schedule      5.10**

**Title      to Assets**