ex10_1.htm


    EXECUTION
      COPY


     

     

     

     

    Nestor,
      Inc.

     

    


    Securities
      Purchase Agreement

     

    


    


    as
      of

     

    July
      23, 2007

     

    


    


    


    


    


    


    


    


    


    


    


    



    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    
      	
               

            	
              TABLE
                OF
                CONTENTS

            


    

     

    
      	
              1.

            	 	
              AGREEMENT
                TO SELL AND PURCHASE.

            	
              1

            
	 	 	 	 
	
               

              2.

            	 	
               

              FEES.

            	
               

              1

            
	 	 	 	 
	
               

              3.

            	 	
               

              CLOSING,
                DELIVERY AND PAYMENT.

            	
               

              2

            
	
               

            	 	
              3.1

            	
              Closing.

            	
              2

            
	 	 	
              3.2

            	
              Delivery.

            	
              2

            
	 	 	 	 
	
               

              4.

            	 	
               

              REPRESENTATIONS
                AND WARRANTIES OF THE
                COMPANY.

            	
               

              2

            
	 	 	
              4.1

            	
              Organization,
                Good Standing and Qualification.

            	
              2

            
	 	 	
              4.2

            	
              Subsidiaries.

            	
              3

            
	 	 	
              4.3

            	
              Capitalization;
                Voting Rights.

            	
              3

            
	 	 	
              4.4

            	
              Authorization;
                Binding Obligations.

            	
              3

            
	 	 	
              4.5

            	
              Liabilities.

            	
              4

            
	 	 	
              4.6

            	
              Agreements;
                Action.

            	
              4

            
	 	 	
              4.7

            	
              Obligations
                to
                Related Parties.

            	
              5

            
	 	 	
              4.8

            	
              Changes.

            	
              6

            
	 	 	
              4.9

            	
              Title
                to
                Properties and Assets; Liens, Etc.

            	
              7

            
	 	 	
              4.10

            	
              Intellectual
                Property.

            	
              7

            
	 	 	
              4.11

            	
              Compliance
                with
                Other Instruments.

            	
              8

            
	 	 	
              4.12

            	
              Litigation.

            	
              8

            
	 	 	
              4.13

            	
              Tax
                Returns and
                Payments.

            	
              8

            
	 	 	
              4.14

            	
              Employees.

            	
              9

            
	 	 	
              4.15

            	
              Registration
                Rights and Voting Rights.

            	
              9

            
	 	 	
              4.16

            	
              Compliance
                with
                Laws; Permits.

            	
              9

            
	 	 	
              4.17

            	
              Environmental
                and Safety Laws.

            	
              10

            
	 	 	
              4.18

            	
              Valid
                Offering.

            	
              10

            
	 	 	
              4.19

            	
              Full
                Disclosure.

            	
              10

            
	 	 	
              4.20

            	
              Insurance.

            	
              10

            
	 	 	
              4.21

            	
              SEC
                Reports.

            	
              11

            
	 	 	
              4.22

            	
              Listing.

            	
              11

            
	 	 	
              4.23

            	
              No
                Integrated
                Offering.

            	
              11

            
	 	 	
              4.24

            	
              Stop
                Transfer.

            	
              11

            
	 	 	 	 
	
               

              5.

            	 	
               

              REPRESENTATIONS
                AND WARRANTIES OF THE
                INVESTORS.

            	
               

              11

            


    


    
      
        
        

      

      
        -i-

        
          

        

      

      
        
        

      

    


    


    
      	 	 	
              5.1

            	
              Requisite
                Power
                and Authority.

            	
              12

            
	 	 	
              5.2

            	
              Investment
                Representations.

            	
              12

            
	 	 	
              5.3

            	
              Investor
                Bears
                Economic Risk.

            	
              12

            
	 	 	
              5.4

            	
              Acquisition
                for
                Own Account.

            	
              13

            
	 	 	
              5.5

            	
              Investor
                Can
                Protect Its Interest.

            	
              13

            
	 	 	
              5.6

            	
              Accredited
                Investor.

            	
              13

            
	 	 	
              5.7

            	
              Legends.

            	
              13

            
	 	 	
              5.8

            	
              Public
                Announcement.

            	
              14

            
	 	 	
              5.9

            	
              No
                Shorting.

            	
              15

            
	
               

              6.

            	 	
               

              COVENANTS
                OF THE COMPANY.

            	
               

              15

            
	 	 	
              6.1

            	
              Listing.

            	
              15

            
	 	 	
              6.2

            	
              Market
                Regulations.

            	
              15

            
	 	 	
              6.3

            	
              Use
                of
                Funds.

            	
              15

            
	 	 	
              6.4

            	
              Reissuance
                of
                Securities.

            	
              16

            
	 	 	
              6.5

            	
              Opinion.

            	
              16

            
	 	 	
              6.6

            	
              Pledge
                of
                Securities.

            	
              16

            
	 	 	
              6.7

            	
              Private
                Placement by Investors.

            	
              16

            
	 	 	
              6.8

            	
              No
                Integrated
                Offerings.

            	
              16

            
	 	 	
              6.9

            	
              Legal
                Compliance.

            	
              17

            
	
               

              7.

            	 	
               

              COVENANTS
                OF THE INVESTORS.

            	
               

              17

            
	 	 	
              7.1

            	
              Confidentiality.

            	
              17

            
	 	 	
              7.2

            	
              Non-Public
                Information.

            	
              17

            
	 	 	
              7.3

            	
              Sales
                of
                Securities.

            	
              17

            
	 	 	
              7.4

            	
              Investor
                Questionnaire.

            	
              17

            
	 	 	
              7.5

            	
              No
                Short
                Sales.

            	
              18

            
	
               

              8.

            	 	
               

              COVENANTS
                OF THE COMPANY AND INVESTOR
                REGARDING  INDEMNIFICATION.

            	
               

              18

            
	 	 	
              8.1

            	
              Company
                Indemnification.

            	
              18

            
	 	 	
              8.2

            	
              Procedures.

            	
              18

            
	 	 	 	 
	
               

              9.

            	 	
               

              REGISTRATION
                RIGHTS.

            	
               

              19

            
	 	 	
              9.1

            	
              Registration
                Rights Granted.

            	
              19

            
	 	 	
              9.2

            	
              Delay
                In Filing
                or Effectiveness of Registration Statement.

            	
              21

            
	 	 	
              9.3

            	
              Transfer
                of
                Shares after Registration; Suspension.

            	
              21

            
	 	 	
              9.4

            	
              Indemnification.

            	
              23

            
	
               

              10.

            	 	
               

              REPRESENTATIONS
                AND WARRANTIES OF INVESTORS REGARDING COMPANY
                AFFILIATES.

            	
               

              25

            


    

    



    
      
        
        

      

      
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              11.

            	 	
              INDEPENDENT
                NATURE OF INVESTORS’ OBLIGATIONS AND
                RIGHTS.

            	
              26

            
	 	 	 	 
	
               

              12.

            	 	
               

              MISCELLANEOUS.

            	
               

              26

            
	 	 	
              12.1

            	
              Governing
                Law.

            	
              26

            
	 	 	
              12.2

            	
              Survival.

            	
              27

            
	 	 	
              12.3

            	
              Entire
                Agreement.

            	
              27

            
	 	 	
              12.4

            	
              Severability.

            	
              27

            
	 	 	
              12.5

            	
              Assignment.

            	
              27

            
	 	 	
              12.6

            	
              Amendment
                and
                Waiver.

            	
              27

            
	 	 	
              12.7

            	
              Delays
                or
                Omissions.

            	
              28

            
	 	 	
              12.8

            	
              Notices.

            	
              28

            
	 	 	
              12.9

            	
              Titles
                and
                Subtitles.

            	
              28

            
	 	 	
              12.10

            	
              Facsimile
                Signatures; Counterparts.

            	
              28

            
	 	 	
              12.11

            	
              Broker’s
                Fees.

            	
              28

            
	 	 	
              12.12

            	
              Construction.

            	
              29

            


    

    


    


    


    



    
      
        
        

      

      
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    Nestor,
      Inc.

     

    Securities
      Purchase Agreement

     

    This
      Securities Purchase Agreement (the “Agreement”) is
      made and entered into as of July 23, 2007, 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 $6 million
      aggregate purchase price of shares (the “Shares”) of the
      Company’s common stock, $0.01 par value per share (the “Common
      Stock”);

     

    Whereas,
      Investors desire to purchase the Shares on the terms and conditions set forth
      herein; and

     

    Whereas,
      the Company desires to issue and sell the Shares 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 conditions set forth in this Agreement, on the Closing Date
      (as
      defined in Section 3), the Company agrees to sell to each Investor, and each
      Investor hereby agrees to purchase from the Company the number of Shares of
      Common Stock set forth immediately next to such Investor’s name on the signature
      page hereto at a price per share of $0.5802, for an aggregate purchase price
      in
      an amount equal to the figure immediately next to such Investor’s name on
Exhibit A hereto (the “Purchase
      Price”) and  the Shares are sometimes referred to as the
“Securities”.

     

    2.           Fees.

     

    Each
      party hereto shall be responsible for its own costs, fees and expenses with
      respect to the transactions contemplated hereby.  The Company shall be
      responsible for all filing and similar fees related to the
      Offering.

     


    
      
        
        

      

      
        
        

        
          

        

      

      
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    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 Investors may mutually agree (such date
      is
      hereinafter referred to as the “Closing Date”).  The
      Closing shall occur, if at all, on or prior to July 31, 2007 (the
“Outside Closing Date”) unless the parties mutually agree in
      writing to a later Closing.

     

    
      	
               

            	
              3.2

            	
              Delivery.

            


    

     

    At
      the
      Closing, subject to the terms and conditions hereof, the Company will deliver
      to
      each Investor a certificate for the Shares purchased by such Investor against
      payment of the Purchase Price therefor.  Payment of the Purchase Price
      for the Shares 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 by wire transfer to the Company.  The certificate for
      the Shares 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, as amended (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 and all other agreements referred to herein
      (collectively, the “Related Agreements”), to issue and sell the
      Shares, 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”).

     


    
      
        
        

      

      
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              4.2

            	
              Subsidiaries.

            


    

     

    Except
      as
      disclosed in its Exchange Act Filings, 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 the date hereof and immediately
      prior to the consummation of the Offering, consists of 50,000,000 shares of
      Common Stock, par value $0.01 per share, of which 20,421,816 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.

     

    (b)           Except
      as disclosed on Schedule 4.3, 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, 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 4.3, neither the offer,
      issuance or sale of any of the 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.  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 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.

     

     

    
      
        
        

      

      
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              4.5

            	
              Liabilities.

            


    

     

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

     

    
      	
               

            	
              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”).

     


    
      
        
        

      

      
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    (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:

     

    i)           transactions
      are executed in accordance with management’s general or specific
      authorization;

     

    ii)           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;

     

    iii)           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;

     

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

     

    v)           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 material 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.

            


    

     

    There
      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.

     

     

    
      
        
        

      

      
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        Table
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              4.8

            	
              Changes. 

            


    

     

    Since
      March 31, 2007, 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;

     


    
      
        
        

      

      
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    (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

     

    (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.

     


    
      
        
        

      

      
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    (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.

     

    
      	
               

            	
              4.12

            	
              Litigation.

            


    

     

    Except
      as
      set forth  in the Exchange Act Filings, 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.  Except as set forth in the Exchange Act
      Filings, 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.  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. 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.  Except as set forth on Schedule 4.13, 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.

     


    
      
        
        

      

      
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              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.

     

    
      	
               

            	
              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.

     

     

    
      
        
        

      

      
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              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.

     

    
      	
               

            	
              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.

     


    
      
        
        

      

      
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              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 Capital Market (“Nasdaq”) under the trading 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 Nasdaq, nor,
      except as disclosed in the Exchange Act Filings, has the Company received any
      notification that the SEC or the Nasdaq is contemplating terminating such
      registration or listing.  The issuance of the Shares does not require
      stockholder approval, including, without limitation, pursuant to the rules
      of
      the National Association of Securities Dealers, Inc. (the
“NASD”).

     

    
      	
               

            	
              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:

     


    
      
        
        

      

      
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              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
      to be purchased by it under this Agreement. 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 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 5.2; (ii) has not relied on any information or
      advice furnished by or on behalf of any other person.

     

    
      	
               

            	
              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.

     


    
      
        
        

      

      
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              5.4

            	
              Acquisition
                for Own
                Account.

            


    

     

    Investor
      is acquiring the 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,
      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:

     

    “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.”


    
      
        
        

      

      
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    (b)           
      The Company shall, immediately prior to a registration statement covering the
      resale of the Securities being declared effective, deliver to its transfer
      agent
      an opinion letter of counsel, opining that at any time such registration
      statement is effective, the transfer agent shall issue, in connection with
      the
      issuance of the Shares, certificates representing such Conversion Shares and
      Shares without the restrictive legend above.  Upon receipt of such
      opinion, the Company shall cause the transfer agent to confirm, for the benefit
      of the holders, that no further opinion of counsel is required in order to
      issue
      such shares without such restrictive legend.

     

    (c)           The
      legend set forth above shall be removed and the Company shall issue a
      certificate without such legend to the holder of any Security upon which it
      is
      stamped or issue to such holder by electronic delivery at the applicable balance
      account at DTC, if, unless otherwise required by state securities laws, (i)
      the
      sale of such Security is registered under the Securities Act (including
      registration pursuant to Rule 416 thereunder);  (ii) such holder
      provides the Company with an opinion of counsel, in form, substance and scope
      customary for opinions of counsel in comparable transactions, to the effect
      that
      a public sale or transfer of such Security may be made without registration
      under the Securities Act; or (iii) such holder provides the Company with
      reasonable assurances that such Security can be sold under Rule 144(k) or has
      been, or is to be otherwise, sold under Rule 144.  In the event the
      above legend is removed from any Security and thereafter the effectiveness
      of a
      registration statement covering such Security is suspended or the Company
      determines that a supplement or amendment thereto is required by applicable
      securities laws, then upon reasonable advance written notice to such Investor
      the Company may require that the above legend be placed on any such Security
      that cannot then be sold pursuant to an effective registration statement or
      under Rule 144 and such Investor shall cooperate in the replacement of such
      legend.  Such legend shall thereafter be removed when such Security
      may again be sold pursuant to an effective registration statement or under
      Rule
      144.

    


    (d)           The
      Company shall issue irrevocable instructions to its transfer agent, and any
      subsequent transfer agent, to issue certificates or credit shares to the
      applicable balance accounts at Depository Trust Company, registered in the
      name
      of each Investor or its respective nominee(s), for the Shares issued at the
      Closing in a form reasonably acceptable to the Investors (the “Irrevocable
      Transfer Agent Instructions”).  The Company warrants that no
      instruction other than the Irrevocable Transfer Agent Instructions referred
      to
      in this Section 5.7(d), will be given by the Company to its transfer agent,
      and
      that the Securities shall otherwise be freely transferable on the books and
      records of the Company as and to the extent provided in this
      Agreement.

    


    
      	
               

            	
              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 respective 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.

     


    
      
        
        

      

      
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              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 (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.

     

    
      	
               

            	
              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 for
      general working capital.

     


    
      
        
        

      

      
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              6.4

            	
              Reissuance
                of
                Securities.

            


    

     

    The
      Company agrees to reissue certificates representing the Securities without
      the
      legends set forth in Section 5.7 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 B hereto.

     

    
      	
               

            	
              6.6

            	
              Pledge
                of
                Securities.

            


    

     

    The
      Company acknowledges and agrees that the Securities may be pledged by any
      Investor in connection with a bona fide margin agreement or other loan
      or financing arrangement that is secured by the Securities.  The pledge of
      Securities shall not be deemed to be a transfer, sale or assignment of the
      Securities hereunder, and no Investor effecting a pledge of Securities shall
      be
      required to provide the Company with any notice thereof or otherwise make any
      delivery to the Company pursuant to this Agreement or any other Transaction
      Document.  The Company shall execute and deliver such documentation as a
      pledgee of the Securities may reasonably request in connection with a pledge
      of
      the Securities to such pledgee by an Investor, provided that any expenses
      incurred by the Company in connection with any such request shall be the
      exclusive responsibility of the Investor making such request.

     

    
      	
               

            	
              6.7

            	
              Private
                Placement by
                Investors.

            


    

     

    Nothing
      in this Agreement shall be deemed a restriction on any Investor’s right or
      ability to transfer the Securities in a private placement to an accredited
      investor in a manner consistent with federal and state securities
      laws.  The Company will take such actions as are reasonably necessary
      to assist any investor in any such private placement.

     

    
      	
               

            	
              6.8

            	
              No
                Integrated
                Offerings.

            


    

     

    The
      Company shall not make any offers or sales of any security (other than the
      Securities) under circumstances that would require registration of the
      Securities being offered or sold hereunder under the Securities Act or cause
      this offering of the Securities to be integrated with any other offering of
      securities by the Company for purposes of any stockholder approval provision
      applicable to the Company or its securities.

     


    
      
        
        

      

      
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              6.9

            	
              Legal
                Compliance.

            


    

     

    The
      Company shall conduct its business and the business of its Subsidiaries in
      compliance with all laws, ordinances or regulations of governmental entities
      applicable to such businesses, except where the failure to do so would not
      have
      a Material Adverse Effect.

     

    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 the existence, nature, terms,
      conditions or status of the transactions contemplated by this Agreement, and
      will not include in any public announcement, the name of the Company in
      connection with the transactions contemplated by this Agreement, 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 5.8
      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.

     

    
      	
               

            	
              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 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 C 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.

     


    
      
        
        

      

      
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              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 5.8 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 or until the Outside Closing Date if
      the
      Closing has not occurred by such Outside Closing
      Date.  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.

     

    
      	
               

            	
              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

            	
              Procedures.

            


    

     

    The
      procedures and limitations set forth in Section 9.4 shall apply to the
      indemnifications set forth in Sections 8.1 above.

     


    
      
        
        

      

      
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    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 thirty (30) business days after the earlier of
      (a)
      the date the Company files its Annual Report on Form 10-K for the fiscal year
      ending December 31, 2007 or (b) the last day on which the Company could timely
      file such Annual Report on Form 10-K in accordance with SEC rules (such date,
      the “Filing Deadline Date”), a Registration Statement on Form
      S-3 (the “Registration Statement”) to enable the resale of
      Shares (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);

     

    (b)           use
      its best efforts, subject to receipt of information from the Investors set
      forth
      in Exhibit C, 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;

     


    
      
        
        

      

      
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    (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
      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;

     

    (h)           request
      that the Registration Statement be declared effective by the SEC within five
      (5)
      days after 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

     

    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.

     


    
      
        
        

      

      
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              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 (or if such Registration Statement is declared effective
      the
      Company thereafter fails to maintain the effectiveness of such Registration
      Statement), the Company shall, for each such day, pay each Investor in cash
      (“Registration Delay Payments”) as reasonable compensation 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 Registration Delay Payments shall constitute the
      Investors’ exclusive remedy for monetary damages at law, but not in equity, for
      such events.  Nothing herein shall diminish or limit any Investor’s
      rights to seek equitable relief, including the remedy of specific
      performance.

     

    (b)           Notwithstanding
      the foregoing, no Registration Delay Payments 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 in a
      professional and businesslike manner consistent with best practices before
      the
      Securities and Exchange Commission.  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
      Registration Delay Payments shall be due or payable if all of an Investor’s
      Registrable Securities can be immediately sold without restriction in reliance
      on Rule 144(k).

     

    
      	
               

            	
              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 9 of this Agreement or, in accordance with Section 6.4 of this
      Agreement or as otherwise permitted by law.

     

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

     


    
      
        
        

      

      
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    (1)           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

     

    (2)           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:

     

    (3)           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;

     

    (4)           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;

     

    (5)           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

     

    (6)           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;

     


    
      
        
        

      

      
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    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.

     

    (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.

     


    
      
        
        

      

      
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    (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;
      provided, further, however, that the Selling Stockholder shall be liable under
      Section 9.4(b) for only that amount of a loss, claim, damage or liability as
      does not exceed the net proceeds received by such Selling Stockholder as a
      result of the sale of Registrable Securities pursuant to such Registration
      Statement.

     

    (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 9.4(c) and shall only relieve it from any liability
      which it may have to such indemnified party under this Section 9.4(c) 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 9.4(c)
      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.

     

     

    
      
        
        

      

      
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    (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 9.4
      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 9.4 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 9.4; 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
      net
      amount of proceeds received by such seller from the sale of such Registrable
      Securities  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.

     

    In
      any
      proceeding relating to the Registration Statement filed pursuant to this Section
      9, each party against whom contribution may be sought under this Section 9.4
      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.

            


    

     

    Each
      Investor represents and warrants that no current directors and executive
      officers of the Company (“Company Affiliates”) have any
      interest as a member and/or manager of such Investor or is participating in
      the
      transactions contemplated hereby indirectly through such Investor.

     


    
      
        
        

      

      
        -25-

        
          

        

      

      
        Table
          of Contents

      

    


    


     

    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.

     

    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.

     


    
      
        
        

      

      
        -26-

        
          

        

      

      
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          of Contents

      

    


    


    
      	
               

            	
              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.

     

    
      	
               

            	
              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 12.5, 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.

     


    
      
        
        

      

      
        -27-

        
          

        

      

      
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          of Contents

      

    


    


    
      	
               

            	
              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 Brian R. Haskell, 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.

     

    
      	
               

            	
              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 12.11 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.  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 12.11 being untrue.

     

     

    
      
        
        

      

      
        -28-

        
          

        

      

      
        Table
          of Contents

      

    

     

     

    
      	
               

            	
              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.

     


    
      
        
        

      

      
        -29-

        
          

        

      

      
        Table
          of Contents

      

    


    


    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. Hebborn

            
	
              Name:

            	
              Nigel
                P. Hebborn

            
	
              Title:

            	
              Executive
                Vice President and CFO

            
	
              Address:

            	
              Nestor,
                Inc.

            
	 	
              42
                Oriental Street

            
	 	
              Providence,
                RI  02908

            


    

    


     


    
      
        
        

      

      
        -30-

        
          

        

      

      
        Table
          of Contents

      

    


    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 July 23, 2007
      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. Heil

            
	 	 	 
	
              Name:

            	 	
              Edward
                F. Heil

            
	 	 	 
	
              Title:

            	 	 
	 	 	 
	
              Address:

            	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	
              Number
                of Shares:

            	 	
              4,739,745

            
	 	 	 
	
              Aggregate
                Purchase Price:

            	 	
              $2,750,000

            
	 	 	 
	
              Tax
                Identification Number:

            	 	 
	 	 	 
	
              Contact
                Name:

            	 	 
	 	 	 
	
              Telephone:

            	 	 
	 	 	 
	
              Name
                in which the Shares should be registered (if different):

            	 	 
	 	 	 
	
              Relationship
                between Investor and the person in whose name the Shares should be
                registered (if different):

            	 	 


    

    


     

    


    



    
      
        [Securities
          Purchase Agreement Signature Page]

        
        

      

      
        
        

        
          

        

      

      
        Table
          of Contents

      

    


    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 July 23, 2007
      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.

     

    
      	 	 	
              Sanders
                Morris Harris Group Accredited Investors

            
	 	 	
              Investor
                Name

            
	 	 	 
	
              By:

            	 	
              /s/Don
                Weir

            
	 	 	 
	
              Name:

            	 	
              Don
                Weir

            
	 	 	 
	
              Title:

            	 	 
	 	 	 
	
              Address:

            	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	
              Number
                of Shares:

            	 	
              2,500,000

            
	 	 	 
	
              Aggregate
                Purchase Price:

            	 	
              $1,450,500

            
	 	 	 
	
              Tax
                Identification Number:

            	 	 
	 	 	 
	
              Contact
                Name:

            	 	 
	 	 	 
	
              Telephone:

            	 	 
	 	 	 
	
              Name
                in which the Shares should be registered (if different):

            	 	 
	 	 	 
	
              Relationship
                between Investor and the person in whose name the Shares should be
                registered (if different):

            	 	 


    

    


     

    


    



    
      
        [Securities
          Purchase Agreement Signature Page]

        
        

      

      
        
        

        
          

        

      

      
        Table
          of Contents

      

    


    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 July 23, 2007
      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.

     

    
      	 	 	
              L-J
                Holding, Inc.

            
	 	 	
              Investor
                Name

            
	 	 	 
	
              By:

            	 	
              /s/David
                N. Jordan

            
	 	 	 
	
              Name:

            	 	
              David
                N. Jordan

            
	 	 	 
	
              Title:

            	 	 
	 	 	 
	
              Address:

            	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	
              Number
                of Shares:

            	 	
              646,329

            
	 	 	 
	
              Aggregate
                Purchase Price:

            	 	
              $375,000

            
	 	 	 
	
              Tax
                Identification Number:

            	 	 
	 	 	 
	
              Contact
                Name:

            	 	 
	 	 	 
	
              Telephone:

            	 	 
	 	 	 
	
              Name
                in which the Shares should be registered (if different):

            	 	 
	 	 	 
	
              Relationship
                between Investor and the person in whose name the Shares should be
                registered (if different):

            	 	 


    

    


     

    


    



    
      
        [Securities
          Purchase Agreement Signature Page]

        
        

      

      
        
        

        
          

        

      

      
        Table
          of Contents

      

    


    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 July 23, 2007
      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. James

            
	 	 	 
	
              Name:

            	 	
              Michael
                C. James

            
	 	 	 
	
              Title:

            	 	 
	 	 	 
	
              Address:

            	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	
              Number
                of Shares:

            	 	
              430,886

            
	 	 	 
	
              Aggregate
                Purchase Price:

            	 	
              $250,000

            
	 	 	 
	
              Tax
                Identification Number:

            	 	 
	 	 	 
	
              Contact
                Name:

            	 	 
	 	 	 
	
              Telephone:

            	 	 
	 	 	 
	
              Name
                in which the Shares should be registered (if different):

            	 	 
	 	 	 
	
              Relationship
                between Investor and the person in whose name the Shares should be
                registered (if different):

            	 	 


    

    


     

    


    



    
      
        [Securities
          Purchase Agreement Signature Page]

        
        

      

      
        
        

        
          

        

      

      
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          of Contents

      

    


    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 July 23, 2007
      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.

     

    
      	 	 	
              W.L.
                Mossop, Jr. NC Wennerstrom Trustees for the

              W.
                L. Mossop Trust U/A 5/9/74

            
	 	 	
              Investor
                Name

            
	 	 	 
	
              By:

            	 	
              /s/W.
                L. Mossop, Jr. and /s/NC Wennerstrom

            
	 	 	 
	
              Name:

            	 	
              W.
                L. Mossop, Jr. and NC Wennerstrom

            
	 	 	 
	
              Title:

            	 	
              Trustees

            
	 	 	 
	
              Address:

            	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	
              Number
                of Shares:

            	 	
              43,089

            
	 	 	 
	
              Aggregate
                Purchase Price:

            	 	
              $25,000

            
	 	 	 
	
              Tax
                Identification Number:

            	 	 
	 	 	 
	
              Contact
                Name:

            	 	 
	 	 	 
	
              Telephone:

            	 	 
	 	 	 
	
              Name
                in which the Shares should be registered (if different):

            	 	 
	 	 	 
	
              Relationship
                between Investor and the person in whose name the Shares should be
                registered (if different):

            	 	 


    

    


     

    


    



    
      
        [Securities
          Purchase Agreement Signature Page]

        
        

      

      
        
        

        
          

        

      

      
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          of Contents

      

    


    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 July 23, 2007
      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.

     

    
      	 	 	
              Terry
                U. Mossop

            
	 	 	
              Investor
                Name

            
	 	 	 
	
              By:

            	 	
              /s/Terry
                U. Mossop

            
	 	 	 
	
              Name:

            	 	 
	 	 	 
	
              Title:

            	 	 
	 	 	 
	
              Address:

            	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	
              Number
                of Shares:

            	 	
              172,354

            
	 	 	 
	
              Aggregate
                Purchase Price:

            	 	
              $100,000

            
	 	 	 
	
              Tax
                Identification Number:

            	 	 
	 	 	 
	
              Contact
                Name:

            	 	 
	 	 	 
	
              Telephone:

            	 	 
	 	 	 
	
              Name
                in which the Shares should be registered (if different):

            	 	 
	 	 	 
	
              Relationship
                between Investor and the person in whose name the Shares should be
                registered (if different):

            	 	 


    

    


     

    


    



    
      
        [Securities
          Purchase Agreement Signature Page]

        
        

      

      
        
        

        
          

        

      

      
        Table
          of Contents

      

    


    EXHIBIT
      A

    


    
      	
              Name
                of Purchaser

            	
              Principal
                Amounts of Notes to be Purchased

            	
              Number
                of Shares

            
	
              Edward
                F. Heil

            	
              $2,750,000

            	
              4,739,745

               

            
	
              Sanders
                Morris Harris Group, Inc.

            	
              $1,450,500

            	
              2,500,000

               

            
	
              L-J
                Holding, Inc.

            	
              $375,000

            	
              646,329

               

            
	
              Kuekenhof
                Equity Fund, L.P.

            	
              $250,000

            	
              430,886

               

            
	
              W.
                L. Mossop, Jr. NC Wennerstrom Trustees for the W. L. Mossop Trust
                U/A
                5/9/74

            	
              $25,000

            	
              43,089

            
	
              Terry
                U. Mossop

            	
              $100,000

            	
              172,354

               

            


    

    



    
      
        A-1

        
        

      

      
        
        

        
          

        

      

      
        Table
          of Contents

      

    


    


    


    Schedule
      4.3

    


    Schedule
      of Convertible Common Stock Instruments & Rights

    


     

    
      
        	
                Security

              	 	
                Shares
                  Reserved

              	 	 	
                Post-Deal

                Ex.
                  Price

              	 
	
                7%
                  Senior Convertible Notes Principal ($3.60)

              	 	 	6,344,444	(a)	 	$	3.60	(b)
	 	 	 	 	 	 	 	 	 
	
                7%
                  Senior Convertible Notes Warrants ($4.35)

              	 	 	
                1,982,639

              	 	 	$	
                3.49

              	 
	 	 	 	 	 	 	 	 	 
	
                5%
                  Senior Convertible Notes Principal ($3.60)

              	 	 	
                791,667

              	 	 	$	3.60	(b)
	 	 	 	 	 	 	 	 	 
	
                5%
                  Senior Convertible Notes Warrants ($4.35)

              	 	 	
                163,793

              	 	 	$	
                4.35

              	 
	 	 	 	 	 	 	 	 	 
	
                Cohen
                  Warrants ($3.60)

              	 	 	
                198,264

              	 	 	$	
                2.93

              	 
	 	 	 	 	 	 	 	 	 
	
                Cohen
                  Warrants ($4.35)

              	 	 	
                49,566

              	 	 	$	
                3.49

              	 
	 	 	 	 	 	 	 	 	 
	
                January
                  2006 Warrants ($4.91)

              	 	 	
                371,339

              	 	 	$	
                4.91

              	 
	 	 	 	 	 	 	 	 	 
	
                November
                  2004 Note Warrant ($5.21)

              	 	 	
                60,000

              	 	 	$	
                5.21

              	 
	 	 	 	 	 	 	 	 	 
	
                Laurus
                  May 2005 Note Warrant ($6.69)

              	 	 	
                60,000

              	 	 	$	
                6.69

              	 
	
                Laurus
                  May 2005 Note Warrant ($7.28)

              	 	 	
                23,000

              	 	 	$	
                7.28

              	 
	
                Laurus
                  May 2005 Note Warrant ($8.44)

              	 	 	
                17,000

              	 	 	$	
                8.44

              	 
	 	 	 	 	 	 	 	 	 
	
                Series
                  B Preferred Stock conversion right

              	 	 	
                18,000

              	 	 	$	
                10.00

              	 


      




    Anti-Dilution
      Provisions:

    
      	
              1.

            	
              Senior
                Convertible Notes – Full Ratchet adjustment right through May 25, 2009,
                weighted average dilution adjustment
                thereafter.

            


    

    


    
      	
              2.

            	
              Warrants
                – Weighted Average anti-dilution adjustment
                rights.

            


    

    


    
      	
               

            	
              (a)

            	
              Pursuant
                to the 7% Senior Secured Convertible Notes, the company is required
                to
                reserve 120% of shares for issuance on conversion of the Notes &
                Warrants.  Based on the current conversion rate on the Notes
                & Warrants, an additional 1,747,741 shares are
                reserved.

            


    

    
      	
               

            	
              (b)

            	
              Waiver
                of anti-dilution rights on Senior Note principal obtained for current
                transaction.

            


    

    


     


    
      
        Schedule
          4.3

        
        

      

      
        
        

        
          

        

      

      
        Table
          of Contents

      

    


    SCHEDULE
      4.13

     

    TAX
      RETURNS AND PAYMENTS

     

    The
      Company has received notice from
      the Los Angeles County Tax Assessor’s office that the office calculated the
      value of all equipment, leaseholds and inventory located in Los Angeles County
      from 2003 through 2006.  The Company estimates that its tax exposure
      to Los Angeles County may be as high as $100,000.00, though the Company believes
      that the liability will be lower.  The Company has reserved $30,000.00
      in the second quarter of 2007 against this potential exposure.

    



    
      
        Schedule
          4.13

        
        

      

      
        
        

        
          

        

      

      
        Table
          of Contents

      

    


    EXHIBIT
      B
      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 6.5 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 has 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 50,000,000 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, will be validly issued, 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 is 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 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.


    
      
        
        

      

      
        B-1

        
          

        

      

      
        Table
          of Contents

      

    


    


    


    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 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.

    


     

    


     


    
      
        
        

      

      
        B-2

        
          

        

      

      
        Table
          of Contents

      

    


    EXHIBIT
      C
      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 July 23, 2007 (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” or 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 Brian R. Haskell, 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.

     

    
      
        
        

      

      
        C-1

        
          

        

      

      
        Table
          of Contents

      

    

     

    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:1

            


    

     

     (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”2, 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 are to be offered for the account of the undersigned in
                the
                Registration Statement.

            


    

     

    State
      any
      exceptions here:

     

     

     

    
      

       

        
          	
                  1

                	
                  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.

                


        

      

       

        
          	
                  2

                	
                  Defined
                    in Appendix A to this
                    questionnaire.

                


        

      



     

     

    
      
        
        

      

      
        C-2

        
          

        

      

      
        Table
          of Contents

      

    

     

     

    
      	
               

            	
              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.

     

     

     

    
      
        
        

      

      
        C-3

        
          

        

      

      
        Table
          of Contents

      

    

     

     

     

    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:  _____________,
      2007

     

    


     

    
      	 	
              Name
                of Selling Securityholder:

            
	
              By:

            	 
	
              Name:

            	 
	
              Title:

            	 
	 	 


    

    


     

    


     

     


    
      
        
        

      

      
        C-4

        
          

        

      

      
        Table
          of Contents

      

    


    


    Appendix
      A to EXHIBIT C

    


    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.

    


     

    


    



    
      
        
        

      

      
        C-5

        
          

        

      

      
        Table
          of Contents