EXHIBIT 1
                          FORM OF INVESTOR'S AGREEMENT


                  THIS INVESTOR'S AGREEMENT dated as of the 12th day of
September, 2001 (the "Agreement") by and between NESTOR, INC., a Delaware
corporation having an address of One Richmond Square, Providence, Rhode Island
02906 (the "Company") and NTS INVESTORS, LLC, a Delaware limited liability
company having an address of 2049 Century Park East, 4th Floor, Los Angeles,
California 90067 (the "Investor").


                              W I T N E S S E T H:


                  WHEREAS, the Investor, pursuant to the terms of the Secured
Note Agreement dated January 9, 2001 (the "Note"), by and between the Investor
and Nestor Traffic Systems, Inc., a Delaware corporation ("NTS"), agreed to
invest up to $8,000,000 in NTS, subject to, among other things, the consummation
of a merger of NTS and the Company (the "Merger");

                  WHEREAS, the Merger is being consummated on the date hereof;

                  WHEREAS, the Investor and the Company desire to set forth
their agreement with respect to certain matters relating to the operations of
the Company; and

                  WHEREAS, capitalized terms used and not otherwise defined
herein shall have the meanings ascribed thereto in the Note.

                  NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto hereby agree as follows:

        1.       GRANT OF NONQUALIFIED STOCK OPTION

(a)     CONFIRMATION OF GRANT. The Company hereby evidences and confirms its
        grant of a nonqualified stock option (the "Option") to purchase all or
        any part of an aggregate of One Million (1,000,000) shares (the
        "Shares") of the common stock of the Company, par value $.01 per share
        (the "Common Stock") to the Investor as of the date of this Agreement.
        The Option is a nonqualified stock option which is not intended to be an
        "incentive stock option" within the meaning of Section 422 of the
        Internal Revenue Code of 1986, as amended.

1.2     Number of Shares. This Option shall be for an aggregate of One Million
        (1,000,000) Shares.

1.3     Exercise Price. The exercise price shall be $1.28 per share (the
        "Exercise Price"). The total exercise price for all Shares subject to
        the Option is $1,280,000.

1.4     Term and Exercisability of the Option. The Option shall expire three (3)
        years from the date of this Agreement, and may be exercised prior to its
        expiration at such times and for such number of whole Shares as the
        Investor may determine, up to 100% of the Shares subject to the Option.
        Notwithstanding the foregoing, no exercise shall be effective to the
        extent it would require the delivery of fractional Shares.


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1.5     Exercise of Option. On or after the date hereof, but prior to the
        expiration of the Option in accordance with Paragraph 1.4 above, the
        Option may be exercised in whole or in part by the Investor upon
        delivery of the following to the Company:

(a)     a written notice of exercise which identifies this Agreement and states
        the number of Shares then being purchased;

(b)     cash (or other consideration acceptable to the Company, in its sole
        discretion) in an amount (or, in the case of other consideration, having
        a combined value) equal to the aggregate Exercise Price of the Shares
        then being purchased;

(c)     additional cash or, if acceptable to the Company, in its sole
        discretion, shares of Common Stock previously owned by the Investor (or,
        if acceptable to the Company, in a combination of both) in an amount or
        having a combined value equal to the amount reasonably requested by the
        Company to satisfy the Company's withholding obligations under federal,
        state or other applicable tax laws with respect to the taxable income,
        if any, recognized by the Investor in connection with the exercise of
        this Option (unless the Company and the Investor shall have made other
        arrangements for deductions or withholding, including by the withholding
        of Shares issuable upon exercise of this Option, provided such
        arrangements satisfy the requirements of applicable law); and

(d)     a letter, if requested by the Company, in such form and substance as the
        Company may require, in its sole discretion, setting forth the
        investment intent of the Investor.

                  Notwithstanding the foregoing, the Investor shall take
whatever additional actions, including, without limitation, the furnishing of an
opinion of counsel, and execute whatever additional documents the Company may,
in its sole discretion, deem necessary or advisable in order to carry out or
effect this Agreement or applicable law.

                  Upon satisfaction of the conditions and requirements of
Paragraph 1.5 hereof, the Company shall deliver to Investor a certificate or
certificates for the number of Shares in respect of which the Option shall have
been exercised (less any Shares withheld pursuant to clause (c) of this
Paragraph 1.5).

1.6     Restriction On Transfer. This Option and all rights granted hereunder
        shall not be transferred by the Investor, shall not be assigned, pledged
        or hypothecated in any way, and shall not be subject to execution,
        attachment or similar process. Upon any attempt to transfer this Option,
        or to assign, pledge or hypothecate or otherwise dispose of this Option
        or of any rights granted hereunder contrary to the provisions hereof, or
        upon the levy of any attachment or similar process upon this Option or
        such rights, this Option and such rights shall immediately become null
        and void. The restrictions described in this Section 1.6 shall not apply
        in the event of a distribution of Common Stock or securities convertible
        into or exchangeable for Common Stock to members of the Investor,
        provided that the distributees thereof agree in writing to be bound by
        the terms of this Agreement.

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1.7     No Limitation on Rights of the Company.

(a)     The grant of this Option shall not in any way affect the right or power
        of the Company to make adjustments, reclassifications, or changes in its
        capital or business structure or to merge, consolidate, dissolve,
        liquidate, sell, or transfer all or any part of its business or assets.

(b)     (i) Upon changes in the outstanding Common Stock by reason of a stock
        dividend, stock split, reverse stock split, subdivision,
        recapitalization, reclassification, merger, consolidation (where the
        Company is a surviving corporation), combination or exchange of shares
        of Common Stock, separation, or reorganization, or in the event of an
        extraordinary dividend, "spin-off," liquidation, other substantial
        distribution of assets of the Company or acquisition of property or
        stock or other change in capital of the Company, or the issuance by the
        Company of shares of its capital stock without receipt of full
        consideration therefor, or rights or securities exercisable, convertible
        or exchangeable for shares of such capital stock, or any similar change
        affecting the Company's capital structure, the aggregate number, class
        and kind of shares of stock under this Option and the exercise price per
        share applicable to this Option shall be appropriately adjusted by the
        Company in its discretion to preserve the benefits or potential benefits
        intended to be made available under the Option or otherwise necessary to
        reflect any such change.

(ii)    Fractional shares of Common Stock resulting from any adjustment in the
        Option pursuant to Section 1.7(b)(i) shall be aggregated until, and
        eliminated at, the time of exercise of the Option. Notice of any
        adjustment shall be given by the Company to the Investor and such
        adjustment (whether or not such notice is given) shall be effective and
        binding.

(iii)   In the event of (A) a stock sale, merger, consolidation, combination,
        reorganization or other transaction (other than through a public
        offering of Common Stock) resulting in less than fifty percent (50%) of
        the combined voting power of the surviving or resulting entity being
        owned by the stockholders of the Company immediately prior to such
        transaction, or (B) the liquidation or dissolution of the Company in
        connection with the sale or other disposition of all or substantially
        all of the assets or business of the Company (other than in the case of
        Section 1.7(b)(i) above) (in each case a "Change in Control"):

(1)     In its discretion, and on such terms and conditions as it deems
        appropriate, the Company may provide by resolution adopted prior to the
        occurrence of the Change in Control, that the Option shall be adjusted
        by substituting for Common Stock subject to the Option, stock or other
        securities of the surviving corporation or any successor corporation to
        the Company, or a parent or subsidiary thereof, or that may be issuable
        by another corporation that is a party to the transaction resulting in
        the Change in Control, whether or not such stock or other securities are
        publicly traded, in which event the aggregate exercise price shall
        remain the same and the amount of shares or other securities subject to
        the Option shall be the amount of shares or other securities which could
        have been purchased on the closing date or expiration date of such
        transaction with the proceeds which would have been received by the
        Investor if the Option had been exercised in full (or with respect to a
        portion of such Option, as determined by the Committee, in its
        discretion) prior to such transaction or expiration date and the
        Investor exchanged all of such shares in the transaction.


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(2)     In its discretion, and on such terms and conditions as it deems
        appropriate, the Company may provide by resolution adopted prior to the
        occurrence of the Change in Control, that the Option shall be converted
        into a right to receive cash on or following the closing date or
        expiration date of the transaction resulting in the Change in Control in
        an amount equal to the highest value of the consideration to be received
        in connection with such transaction for one share of Common Stock, or,
        if higher, the highest fair market value of the Common Stock during the
        thirty (30) consecutive business days immediately prior to the closing
        date or expiration date of such transaction, less the per share exercise
        price of the Option, multiplied by the number of shares of Common Stock
        subject to the Option, or a portion thereof.

(3)     The Company may, in its discretion, provide that the Option cannot be
        exercised after such a Change in Control.

1.8     Rights as a Shareholder. The Investor shall have the rights of a
        shareholder with respect to the Shares covered by the Option only upon
        becoming the holder of record of those Shares.

1.9     Compliance with Applicable Law. Notwithstanding anything herein to the
        contrary, the Company shall not be obligated to cause to be issued or
        delivered any certificates for Shares pursuant to the exercise of the
        Option, unless and until the Company is advised by its counsel that the
        issuance and delivery of such certificates is in compliance with all
        applicable laws, regulations of governmental authority, and the
        requirements of any exchange upon which Shares are traded. The Company
        shall in no event be obligated to register any securities pursuant to
        the Securities Act of 1933 (as now in effect or as hereafter amended)
        (the "1933 Act") or to take any other action in order to cause the
        issuance and delivery of such certificates to comply with any such law,
        regulation or requirement. The Company may require, as a condition of
        the issuance and delivery of such certificates and in order to ensure
        compliance with such laws, regulations, and requirements, that the
        Investor make such covenants, agreements, and representations as the
        Company, in its sole discretion, considers necessary or desirable.

1.10    No Obligation to Exercise Option. The granting of the Option shall
        impose no obligation upon the Investor to exercise the Option.


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1.11    Investment Representation. The Investor is acquiring the Option for its
        own account and not with a present intention to make any sale,
        disposition, distribution or other transfer of the Option or the Common
        Stock underlying the Option in a manner that will violate any applicable
        securities laws and understands that neither the Option nor the Common
        Stock underlying the Option has been registered under the 1933 Act or
        under the securities laws of any state. The granting of the Option was
        directly communicated to the Investor in such a manner that it had the
        opportunity to ask questions and receive answers concerning the Company
        that it has deemed necessary and advisable for purposes of determining
        whether or not to acquire the Option which it is being granted
        hereunder. The Investor is sophisticated in financial matters and is
        able to evaluate the risks and benefits of its investment in the Company
        and is able to bear the economic risk of its investment in the Company.
        The Investor acknowledges that it has evaluated the risks and merits of
        its investment in the Company solely with respect to its own interests.

        2.       INTERPRETATION OF THIS AGREEMENT

2.1     Governing Law. Except to the extent preempted by Federal law, this
        Agreement shall be governed by and construed in accordance with the laws
        of the State of California applicable to contracts made and to be
        performed entirely within such State (without giving effect to the
        principle of conflicts of laws).

2.2     Section Headings. The headings of the sections and subsections of this
        Agreement are inserted for convenience only and shall not be deemed to
        constitute a part thereof.

        3.       MISCELLANEOUS

3.1      Notices.

(a)     All communications under this Agreement shall be in writing and shall be
        delivered by hand or facsimile or mailed by overnight courier or by
        registered or certified mail, postage prepaid:

(i)      if to the Company, to:

                  Nestor, Inc.
                  One Richmond Square
                  Providence, Rhode Island 02906
                  Attention: Mr. David Fox
                  Facsimile: (401) 331-7309



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                  With a copy to:
                  Baer Marks & Upham LLP
                  805 Third Avenue
                  New York, New York 10022
                  Attn:  Joel M. Handel, Esq.
                  Facsimile: (212) 702-5941

or at such other address or facsimile number as it may have furnished in writing
to the Investor;

(ii)     if to the Investor, to:
                  NTS Investors, LLC
                  2049 Century Park East
                  4th Floor
                  Los Angeles, California 90067
                  Attn.:  David A. Polak
                  Facsimile:  (___) __________

                     with a copy to:

                  Weinstein, Boldt, Halhide & Camel
                  1801 Century Park East
                  Suite 2200
                  Los Angeles, California 90067-2336
                  Attn:  David J. Camel, Esq.
                  Facsimile:  (310) 552-7938

or at such other address or facsimile number as may have been furnished to the
Company in writing;

         (iii)       Any notice so addressed shall be deemed to be given: if
                     delivered by hand or facsimile (with confirmation of
                     transmission), on the date of such delivery; if mailed by
                     courier, when received; and if mailed by registered or
                     certified mail, when received.

         (iv)        Reproduction of Documents. This Agreement and all documents
                     relating thereto, including, without limitation, any
                     consents, waivers and modifications which may hereafter be
                     executed may be reproduced by the Investor and the Company
                     by any photographic, photostatic, microfilm, microcard,
                     miniature photographic or other similar process and the
                     Investor may destroy any original document so reproduced.
                     The parties hereto agree and stipulate that any such
                     reproduction shall be admissible in evidence as the
                     original itself in any judicial or administrative
                     proceeding (whether or not the original is in existence and
                     whether or not such reproduction was made by the Investor
                     in the regular course of business) and that any
                     enlargement, facsimile or further reproduction of such
                     reproduction shall likewise be admissible in evidence.

     3.2        Successors and Assigns. This Agreement shall inure to the
                benefit of and be binding upon the successors and assigns of
                each of the parties.

     3.3        Entire Agreement; Amendment and Waiver. This Agreement
                constitutes the entire understanding of the parties hereto and
                supersedes all prior understanding among such parties with
                respect to the subject matter herein. This Agreement may be
                amended, and the observance of any term of this Agreement may be
                waived, with (and only with) the written consent of each of the
                parties hereto.

     3.4        Severability. In the event that any part or parts of this
                Agreement shall be held illegal or unenforceable by any court or
                administrative body of competent jurisdiction, such
                determination shall not effect the remaining provisions of this
                Agreement which shall remain in full force and effect.

     3.5        Counterparts; Facsimile Signatures. This Agreement may be
                executed in one or more counterparts, each of which shall be
                deemed an original and all of which together shall be considered
                one and the same agreement. Delivery of an executed counterpart
                of this Agreement by facsimile transmission shall be as
                effective as delivery of a manually executed counterpart
                thereof.

         IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first set forth above.


COMPANY:                                         INVESTOR:

NESTOR, INC.                                     NTS INVESTORS, LLC


By:  _______________________                     By: ________________________
     Name:                                            David A. Polak
     Title:                                           Manager