Exhibit 10.9


    EXHIBIT
      10.9

    
 

    Execution
      Copy

    


    BORROWER/SUBSIDIARY
      PLEDGE AGREEMENT

    


    


    THIS
      BORROWER/SUBSIDIARY PLEDGE AGREEMENT (this “Agreement”)
      is
      made as of the 25th day of May, 2006, by and between Nestor, Inc., a Delaware
      corporation (the “Borrower”),
      Nestor Traffic Systems, Inc., a Delaware corporation (“NTS”),
      and
      CrossingGuard, Inc., a Delaware corporation (“CGI”),
      and
      U.S. Bank National Association, as collateral agent for the Purchasers (as
      that
      term is defined in the Securities Purchase Agreement referred to below)
      (together with its successors and assigns in such capacity, the “Agent”).
      NTS,
      CGI and the Borrower are each referred to herein individually as a “Pledgor” and
      collectively as the “Pledgors.”

    


    Background

    


    On
      May
      24, 2006, the Purchasers and the Agent entered into a Securities Purchase
      Agreement (as amended, extended, supplemented, restated, or otherwise modified
      from time to time, the “Securities
      Purchase Agreement”)
      with
      the Borrower, pursuant to which the Purchasers agreed to purchase the Notes
      from
      the Borrower on the terms and conditions described therein.

    


    One
      of
      the prerequisites to the Purchasers entering into the Securities Purchase
      Agreement is that the Pledgors shall have entered into this Agreement and shall
      have granted to the Agent for the benefit of the Purchasers a security interest
      in the Collateral (as defined below) to secure its obligations under the
      Securities Purchase Agreement and certain related documents and agreements
      as
      more fully set forth below.

    


    NOW,
      THEREFORE, the parties hereto, intending to be legally bound hereby, and in
      consideration of the mutual covenants herein contained and other good and
      valuable consideration receipt of which is hereby acknowledged, agree as
      follows:

    


    
      	1.  	
              DEFINITIONS.

            


    

     

    Capitalized
      terms used but not otherwise defined herein shall have the meanings assigned
      to
      such terms in, or by reference in, the Securities Purchase Agreement or the
      Uniform Commercial Code, as applicable. The following terms shall have the
      following meanings:

    


    “Collateral”
shall
      mean:

    


    (a)  all
      Investment Property, Securities Entitlements and General Intangibles respecting
      ownership and/or other equity interests in each Subsidiary of a Pledgor, but
      in
      any event shall include, include, without limitation, the shares of capital
      stock and other securities of, or issued by, any of the entities listed on
      Schedule
      I
      hereto
      (as the same may be modified from time to time pursuant to the terms hereof),
      and any other shares of capital stock of and/or other equity interests of any
      Subsidiary of a Pledgor obtained in the future by a Pledgor or in which a
      Pledgor shall have any rights, and, in each case, all certificates representing
      such shares and/or equity interests and, in each case, all rights, options,
      warrants, stock, other securities and/or equity interests that may hereafter
      be
      received, receivable or distributed in respect of, or exchanged for, any of
      the
      foregoing (all of the foregoing being referred to herein as the “Pledged
      Securities”)
      and
      all rights of a Pledgor to receive monies due and to become due pursuant thereto
      and all other rights related to the Pledged Securities (all the foregoing being
      referred to herein as “Pledged
      Interests”);

     

    
      
        
        

      

      
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    (b)  all
      rights under the Organizational Documents of any Subsidiary of a Pledgor and
      all
      other agreements related to the Pledged Securities, as such documents and
      agreements may be amended, modified, supplemented and/or restated from time
      to
      time, and all rights of the Pledgors to receive monies due and to become due
      pursuant thereto;

     

    (c)  all
      other
      property which may be delivered to and held by the Agent pursuant to the terms
      hereof of any character whatsoever into which any of the foregoing may be
      converted or which may be substituted for any of the foregoing; and

     

    (d)  all
      Proceeds of the Pledged Securities and Pledged Interests and of such other
      property, including, without limitation, all dividends, interest, cash, notes,
      securities, equity interests or other property at any time and from time to
      time
      acquired, receivable or otherwise distributed in respect of, or in exchange
      for,
      any of or all such Pledged Securities, Pledged Interests or other
      property.

     

    “Event
      of Default”
has
      the
      meaning given to such term in the Notes.

    


    “Law”
shall
      mean all common law and all applicable provisions of constitutions, laws,
      statutes, ordinances, rules, treaties, regulations, permits, licenses,
      approvals, interpretations and order of courts or governmental authorities
      and
      all orders and decrees of all courts and arbitrators.

    


    “Necessary
      Endorsement”
shall
      mean undated stock powers endorsed in blank or other proper instruments of
      assignment duly executed and such other instruments or documents as the Agent
      may reasonably request.

    


    “Organizational
      Documents”
shall
      mean, with
      respect to any Person other than a natural person, the documents by which such
      Person was organized (such as a certificate of incorporation, certificate of
      limited partnership or articles of organization, and including, without
      limitation, any certificates of designation for preferred stock or other forms
      of preferred equity) and which relate to the internal governance of such Person
      (such as bylaws, a partnership agreement or an operating, limited liability
      or
      members agreement).

    


    “Proceeds”
shall
      be used herein as defined in the Uniform Commercial Code but, in any event,
      shall include, but not be limited to, (a) any and all proceeds of any insurance
      (whether or not the Agent is named as the loss payee thereof), indemnity,
      warranty or guaranty payable to a Pledgor or the Agent from time to time with
      respect to any of the Collateral, (b) any and all payments (in any form
      whatsoever, cash and non-cash) made or due and payable to a Pledgor from time
      to
      time in connection with any requisition, confiscation, condemnation, seizure
      or
      forfeiture of all or any part of the Collateral by any governmental authority
      (or any person acting under color of governmental authority), (c) any and all
      amounts received when Collateral is sold, leased, licensed, exchanged, collected
      or disposed of, (d) any rights arising out of Collateral, (e) any dividends
      or
      other distributions associated with the Collateral, and (f) any and all other
      amounts from time to time paid or payable under or in connection with any of
      the
      Collateral.

    


    
      
        
        

      

      
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    “Secured
      Obligations”
shall
      mean, collectively, the
      following obligations of the Grantors, whether now existing or hereafter
      incurred:

     

    (a)  (i)
      the
      payment by the Borrower, as and when due and payable (by scheduled maturity,
      required prepayment, acceleration, demand or otherwise), of all amounts from
      time to time owing by it in respect of the Securities Purchase Agreement, the
      Notes, and the other Transaction Documents, including, without limitation,
      (A)
      all principal of and interest on the Notes (including, without limitation,
      all
      interest that accrues after the commencement of any bankruptcy, reorganization
      or similar proceeding (an “Insolvency
      Proceeding”)
      involving any Grantor, whether or not the payment of such interest is
      unenforceable or is not allowable due to the existence of such Insolvency
      Proceeding), and (B) all fees, commissions, expense reimbursements,
      indemnifications and all other amounts due or to become due under the Securities
      Purchase Agreement or any of the Transaction Documents; and

     

    (b)  the
      due
      performance and observance by each Grantor of all of its other obligations
      from
      time to time existing in respect of any of the Transaction Documents, including
      without limitation, with respect to any conversion or redemption rights of
      the
      Purchasers under the Notes, for so long as they are outstanding.

     

    “Uniform
      Commercial Code”
shall
      mean the Uniform Commercial Code in effect on the date hereof and as amended
      from time to time, and as enacted in the State of New York or in any state
      or
      states which, pursuant to the Uniform Commercial Code as enacted in the State
      of
      New York, has jurisdiction with respect to all, or any portion of, the
      Collateral or this Agreement, from time to time. It is the intent of the parties
      that the definitions set forth above should be construed in their broadest
      sense
      so that Collateral will be construed in its broadest sense. Accordingly if
      there
      are, from time to time, proposed changes to defined terms in the Uniform
      Commercial Code that broaden the definitions, they are incorporated herein
      and
      if existing definitions in the Uniform Commercial Code are broader than the
      amended definitions, the existing ones shall be controlling. Similarly, the
      term
“but in any event shall include” shall be construed to mean that each
      specifically enumerated item is included in the defined category whether or
      not
      it would otherwise be so included. For example, where the phrase “as defined in
      the Uniform Commercial Code, but in any event shall include, but not be limited
      to . . .” is used above, it means as defined in the Uniform Commercial Code
      except that if any of the enumerated types of items specified thereafter would
      not fall within the Uniform Commercial Code definition, they shall nonetheless
      be included in the applicable definition for purposes of this
      Agreement.

    


    2.  CREATION
      OF SECURITY INTEREST.

     

    As
      security for the payment and performance in full of the Secured Obligations,
      each Pledgor hereby hypothecates, pledges, assigns, sets over and delivers
      unto
      the Agent, and grants to the Agent, for the benefit of the Purchasers, a
      continuing first priority security interest in all its right, title and interest
      in, to and under the Collateral, to have and to hold the Collateral, together
      with all right, title, interest, powers, privileges and preferences pertaining
      or incidental thereto; subject, however, to the terms, covenants and conditions
      hereinafter set forth.

    


    
      
        
        

      

      
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    3.  DELIVERY
      OF COLLATERAL.

     

    3.1  At
      Time of Execution of Agreement.
      Contemporaneously with the execution of this Agreement or, in any event, prior
      to the Closing Date, the Pledgors shall deliver or cause to be delivered to
      the
      Agent (a) any and all certificates and other instruments representing or
      evidencing the Pledged Securities, (b) any and all certificates and other
      instruments or documents representing any of the other Collateral and (c) all
      other property comprising part of the Collateral, in each case along with the
      Necessary Endorsements. The Pledgors are, contemporaneously with the execution
      hereof, delivering to the Agent, or have previously delivered to the Agent,
      a
      true and correct copy of each Organizational Document governing any of the
      Pledged Securities.

     

    3.2  Subsequent
      Delivery of Collateral.
      If any
      Pledgor shall become entitled to receive or shall receive any securities or
      other property in respect of the Pledged Securities (whether as an addition
      to,
      in substitution of, or in exchange for, such Pledged Securities or otherwise),
      such Pledgor agrees to deliver to the Agent such securities or other property,
      including, without limitation, shares of Pledged Securities or instruments
      representing Pledged Interests acquired after the Closing Date, or any options,
      warrants, rights or other similar property or certificates representing a stock
      dividend, or any distribution in connection with any recapitalization,
      reclassification or increase or reduction of capital, or issued in connection
      with any reorganization of the Pledgor or any Subsidiary of the Pledgor but
      excluding dividends and interest permitted to be retained by the Pledgor under
      Section 5 hereof:

     

    (a)  to
      accept
      the same as the agent of the Purchasers;

     

    (b)  to
      hold
      the same in trust on behalf of and for the benefit of the Purchasers;
      and

     

    (c)  to
      deliver any and all certificates or instruments evidencing the same to the
      Agent
      on or before the close of business on the fifth (5th)
      Business Day following the receipt thereof by such Pledgor, in the exact form
      received together with the Necessary Endorsements, to be held by the Agent
      subject to the terms of this Agreement, as additional Collateral.

     

    4.  REPRESENTATIONS
      AND WARRANTIES OF PLEDGOR.

     

    4.1  Representations
      and Warranties.
      Each
      Pledgor represents and warrants that each representation and warranty set forth
      in the Transaction Documents that relates to or refers to the Pledgor or the
      Collateral (or, in either case, any other term that is used with the same or
      similar meaning) is incorporated herein by reference and is true and correct
      on
      and as of the date hereof. Without limiting the generality of the foregoing,
      each Pledgor further represents and warrants that:

     

    (a)  The
      Pledged Securities are not subject to any Organizational Document, statutory,
      contractual or other restriction governing their issuance, transfer, ownership
      or control which restriction would limit the effectiveness or enforceability
      of
      the pledge and security interest created under this Agreement.

     

    
      
        
        

      

      
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    (b)  The
      capital stock and other equity interests listed on Schedule
      I
      hereto
      represent all of the capital stock and other equity interests of the
      Subsidiaries of the Pledgors held by the Pledgors in any Subsidiary of the
      Pledgors.

     

    (c)  The
      jurisdiction of formation and the chief executive office of the Pledgors and
      the
      other offices or places of business of the Pledgors or any offices where records
      concerning the Collateral are kept are set forth on Schedule
      II
      hereto.
      No Pledgor is known by any other name except the name appearing on the signature
      page hereof.

     

    (d)  Each
      Pledgor has the corporate power to execute, deliver and carry out the terms
      and
      provisions of this Agreement and has taken all necessary corporate action
      (including, without limitation, any consent of stockholders required by Law
      or
      by its Organizational Documents) to authorize the execution, delivery and
      performance of this Agreement. This Agreement constitutes the authorized, valid
      and legally binding obligations of each Pledgor enforceable in accordance with
      its terms, except as such enforceability may be limited by applicable
      bankruptcy, insolvency, moratorium or other similar laws affecting the
      enforcement of creditors’ rights generally and by general principles of
      equity.

     

    (e)  All
      of
      the Pledged Securities are validly issued, fully paid and nonassessable, and
      the
      Pledgors are the legal and beneficial owners of the Pledged Securities as
      reflected on Schedule
      I,
      free
      and clear of any Lien except for the security interests created by this
      Agreement.

     

    (f)  The
      pledge of the Pledged Securities pursuant to this Agreement and the filing
      of
      the necessary financing statements (which filings have been duly made or will
      be
      made substantially simultaneously with the execution of this Agreement) create
      a
      valid and perfected first priority security interest in the Collateral securing
      payment of the Secured Obligations.

     

    (g)  The
      ownership and other equity interests in partnerships and limited liability
      companies (if any) included in the Collateral by their express terms do not
      provide that they are securities governed by Article 8 of the Uniform Commercial
      Code and are not held in a securities account or by any financial
      intermediary.

     

    4.2  Survival
      of Representations and Warranties.
      All the
      foregoing representations and warranties (including, without limitation, those
      incorporated by reference) shall survive the execution and delivery of this
      Agreement and shall continue until this Agreement is terminated as provided
      herein and shall not be affected or waived by any inspection or examination
      made
      by or on behalf of the Agent or any Purchaser.

     

    5.  VOTING;
      DIVIDENDS.

     

    5.1  Rights
      Prior To Default.
      Other
      than during the existence of an Event of Default:

     

    (a)  each
      Pledgor shall be entitled to exercise any and all voting and other consensual
      rights pertaining to the Collateral or any part thereof for any purpose not
      inconsistent with the terms of the Transaction Documents.

     

    
      
        
        

      

      
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    (b)  Subject
      to and limited by the provisions set forth in the Securities Purchase Agreement
      and the other Transaction Documents, each Pledgor shall be entitled to receive
      and retain any and all dividends, interest and other payments paid in respect
      of
      the Collateral, provided, however, that any and all:

     

    (i)  dividends
      or other payments paid or payable other than in cash in respect of, and
      instruments and other property received, receivable or otherwise distributed
      in
      respect of, or in exchange for, any Collateral;

     

    (ii)  dividends
      and other distributions paid or payable in cash in respect of any Collateral
      in
      connection with a partial or total liquidation or dissolution or in connection
      with a reduction of capital, capital surplus or paid-in-surplus;
      and

     

    (iii)  cash
      paid, payable or otherwise distributed in respect of principal of, or in
      redemption of, or exchange for, any Collateral, except as specifically permitted
      by the Securities Purchase Agreement, shall forthwith be delivered to the Agent
      to hold as Collateral and shall, if received by a Pledgor, be received in trust
      for the benefit of the Agent on behalf of the Purchasers, be segregated from
      the
      other property or funds of such Pledgor, and be forthwith delivered to the
      Agent
      as Collateral in the same form as so received (with any Necessary
      Endorsement).

     

    The
      Agent
      shall execute and deliver to the Pledgors all such proxies and other instruments
      as the Pledgors may reasonably request for the purpose of enabling the Pledgors
      to exercise the voting and other rights which they are entitled to exercise
      pursuant to paragraph (i) above and to receive the dividends or interest
      payments which they are authorized to receive and retain pursuant to paragraph
      (ii) above.

     

    5.2  Rights
      Upon Redemption Event.
      Upon the
      occurrence of any event pursuant to which the Pledgor may be entitled to receive
      payment in exchange for the Pledged Securities pursuant to redemption rights,
      a
      put option or otherwise,

     

    (a)  Any
      funds
      payable to holders of the applicable Pledged Securities (a “Redemption
      Payment”)
      shall
      be paid over to the Agent to be held as additional Collateral or, at the option
      of the Agent, applied against the Secured Obligations; and

     

    (b)  If
      a
      Pledgor for any reason receives all or any portion of a Redemption Payment,
      such
      Pledgor shall receive it in trust for the benefit of the Purchasers, shall
      segregate it from other funds of the holder, and shall pay it over to the Agent
      to be held as additional Collateral or, at the option of the Agent, applied
      against the Secured Obligations.

     

    5.3  Rights
      After a Default.
      Upon
      the occurrence and during the continuation of an Event of Default and as more
      fully set forth in Section 10 below:

     

    (a)  Subject
      to Section 11 below, (i) upon notice to a Pledgor by the Agent, all rights
      of
      such Pledgor to exercise the voting and other consensual rights which it would
      otherwise be entitled to exercise pursuant to subsection 5.1 above and (ii)
      all
      rights of such Pledgor to receive the dividends, interest and other payments
      which it would otherwise be authorized to receive and retain pursuant to
      subsection 5.1 above shall cease, and all such rights shall thereupon become
      vested in the Agent who shall have the sole right to exercise such voting and
      other consensual rights and to receive and hold as Collateral such dividends,
      interest and other payments.

     

    
      
        
        

      

      
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    (b)  All
      dividends, interest and other payments which are received by a Pledgor contrary
      to the provisions of paragraph (a) of this subsection 5.3 shall be received
      in
      trust for the benefit of the Agent, shall be segregated from other funds of
      such
      Pledgor and shall forthwith be paid over to the Agent as Collateral in the
      same
      form as so received (with any Necessary Endorsement).

     

    5.4  Liability
      of Agent and of the Purchasers.
      Nothing
      in this Agreement shall be construed to subject the Agent or any Purchaser
      to
      liability as a partner in any Subsidiary of the Pledgor that is a partnership
      or
      as a member in any Subsidiary of the Pledgor that is a limited liability
      company, nor shall the Agent or any Purchaser be deemed to have assumed any
      obligations under any partnership agreement or limited liability company
      agreement, as applicable, of such a Subsidiary or otherwise, unless and until
      the Agent exercises its right to be substituted for the Pledgor as a partner
      or
      member, as applicable, pursuant hereto.

     

    6.  COVENANTS
      OF PLEDGOR.

     

    6.1  Transaction
      Documents; Voting; Sales.
      Each of
      the covenants and agreements which is set forth or incorporated in the
      Transaction Documents and which is applicable to a Pledgor or the Collateral
      subject hereto (or, in either case, any other term that is used with the same
      or
      similar meaning) is incorporated herein by reference and each Pledgor agrees
      to
      perform and abide by each such covenant and agreement. Without limiting the
      generality of the foregoing and in furtherance thereof, each Pledgor shall
      vote
      the Pledged Securities to comply with the covenants and agreements set forth
      in
      the Transaction Documents. Without limiting the generality of the foregoing,
      no
      Pledgor shall sell or otherwise dispose of, or grant any option with respect
      to,
      any of the Collateral, except in connection with a sale or other disposition
      permitted under the provisions of the Securities Purchase Agreement or the
      other
      Transaction Documents.

     

    6.2  Proceeds
      of Collateral Disposition.
      During
      the continuance of an Event of Default, at the Agent’s request, each Pledgor
      having Pledged Securities shall establish and maintain at all times a trust
      account with the Agent, and all Proceeds not required to pay down the Secured
      Obligations in accordance with the Transaction Documents, before or after an
      Event of Default, shall be deposited directly and immediately into such account.
      The Pledgors shall be responsible for all costs and fees arising with respect
      to
      such account at the standard rates. The Pledgors expressly and irrevocably
      authorizes and consents to the ability of the Agent to charge such trust
      account, in its sole discretion, and recover from the funds on deposit therein,
      from time to time and at any time, and apply those funds against any and all
      Secured Obligations.

     

    6.3  Notice
      of Changes in Representations.
      A
      Pledgor shall notify the Agent in advance of any event or condition which would
      cause any representation and warranty set forth in Section 4.1 above to fail
      to
      be true, correct and complete.

     

    
      
        
        

      

      
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    6.4  Defense
      of Title.
      Each
      Pledgor shall defend its and the Agent’s respective title and interest in and to
      the Collateral against all Liens except Permitted Liens.

     

    6.5  Additional
      Pledgor.
      At any
      time after the date of this Agreement, if Nestor Interactive, Inc.
      (“NII”)
      ceases
      to be inactive or has significant assets other than net operating losses, it
      shall become a Pledgor hereunder and the Borrower shall cause NII to signify
      its
      acceptance of the terms hereof by execution and delivery to the Agent of a
      counterpart of this Agreement, as then in effect.

     

    7.  FURTHER
      ASSURANCES.

     

    Each
      Pledgor agrees that at any time and from time to time, at the expense of the
      Pledgors and their Subsidiaries, the Pledgors will, and will cause their
      Subsidiaries to, promptly execute and deliver all further instruments and
      documents, and take all further action, that may be necessary or desirable,
      or
      that the Agent may request, in order to perfect and protect any security
      interest granted or purported to be granted hereby or to enable the Agent to
      exercise and enforce its rights and remedies hereunder with respect to any
      Collateral or to otherwise carry out the purposes of this
      Agreement.

    


    8.  AGENT
      APPOINTED ATTORNEY-IN-FACT; MAY PERFORM CERTAIN DUTIES.

     

    8.1  Appointment
      as Attorney-in-fact.
      Effective upon the occurrence of an Event of Default, and so long as such Event
      of Default is continuing, each Pledgor hereby appoints the Agent as its true
      and
      lawful agent, proxy and attorney-in-fact for the purpose of carrying out this
      Agreement and taking any action and executing any instrument which the Agent
      may
      deem necessary or advisable to accomplish the purposes hereof including, without
      limitation, the execution on behalf of such Pledgor of any financing or
      continuation statement with respect to the security interest created hereby
      and
      the endorsement of any drafts or orders which may be payable to such Pledgor
      in
      respect of, arising out of, or relating to any or all of the Collateral. This
      power shall be valid until the termination of the security interests created
      hereunder, any limitation under law as to the length or validity of a proxy
      to
      the contrary notwithstanding. This appointment is irrevocable and coupled with
      an interest and any proxies heretofore given by a Pledgor to any other Person
      are revoked. The designation set forth herein shall be deemed to amend and
      supersede any inconsistent provision in the Organizational Documents to which
      each Pledgor or any Subsidiary of a Pledgor is subject or to which any is a
      party.

     

    8.2  Filing
      of Financing Statements and Preservation of Interests.
      Each
      Pledgor hereby authorizes the Agent, and appoints the Agent as its
      attorney-in-fact, to file in such office or offices as the Agent deems necessary
      or desirable such financing and continuation statements and amendments and
      supplements thereto (or similar documents required by any laws of any applicable
      jurisdiction), and such other documents as the Agent may require to perfect,
      preserve and protect the security interests granted herein all without signature
      (except to the extent such signature is required under the laws of any
      applicable jurisdiction) and ratifies all such actions taken by the
      Agent.

     

    
      
        
        

      

      
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    8.3  Registration
      of Securities.
      Each
      Pledgor and each Subsidiary of a Pledgor shall register the pledge of the shares
      included in the Collateral in the name of the Agent on the books of such Pledgor
      or such Subsidiary. Upon the occurrence of an Event of Default, each Pledgor
      and
      each Subsidiary of a Pledgor shall at the direction of the Agent register the
      shares included in the Collateral in the name of the Agent on the books of
      such
      Pledgor and such Pledgor’s Subsidiaries. 

     

    8.4  Performance
      of Pledgor’s Duties.
      In
      furtherance, and not by way of limitation, of the foregoing subsections 8.1
      and
      8.2, if (at any time either before or after the occurrence of an Event of
      Default) a Pledgor fails to perform any agreement contained herein, the Agent
      may (but under no circumstance is obligated to) perform such agreement and
      any
      expenses incurred shall be payable by such Pledgor and its Subsidiaries;
      provided, however, that nothing herein shall be deemed to relieve a Pledgor
      from
      fulfilling any of its obligations hereunder.

     

    8.5  Acts
      May Be Performed By Agents and Employees.
      Any act
      of the Agent to be performed pursuant to this Section 8 or elsewhere in this
      Agreement may be performed by agents or employees of the Agent.

     

    9.  STANDARD
      OF CARE.

     

    9.1  In
      General.
      No act
      or omission of any Purchaser (or agent or employee of any of the foregoing)
      shall give rise to any defense, counterclaim or offset in favor of the Pledgors
      or any claim or action against any such Purchaser (or agent or employee
      thereof), in the absence of gross negligence or willful misconduct of such
      Purchaser (or agent or employee thereof) as determined in a final, nonappealable
      judgment of a court of competent jurisdiction. The Agent shall be deemed to
      have
      exercised reasonable care in the custody and preservation of the Collateral
      in
      its possession if the Collateral is accorded treatment substantially equal
      to
      that which the Agent accords to other collateral it holds, it being understood
      that it has no duty to take any action with respect to calls, conversions,
      exchanges, maturities, tenders or other matters relative to any Collateral
      or to
      preserve any rights of any parties and shall only be liable for losses which
      are
      a result of its gross negligence or willful misconduct as determined in a final,
      nonappealable judgment of a court of competent jurisdiction.

     

    9.2  Reliance
      on Advice of Counsel.
      In
      taking any action under this Agreement, the Agent shall be entitled to rely
      upon
      the advice of counsel of the Agent’s choice and shall be fully protected in
      acting on such advice whether or not the advice rendered is ultimately
      determined to have been accurate. 

     

    9.3  No
      Obligation To Act.
      The
      Agent shall be entitled to act or to refrain from acting (and shall be fully
      protected in so acting or refraining from acting) upon the written instructions
      of the Required Holders and such instructions shall be binding upon all the
      Purchasers; provided,
      however,
      that the
      Agent shall not be under any obligation to exercise any of the rights or powers
      vested in it by this Agreement or any Security Document in the manner so
      requested unless, if so requested by the Agent, it shall have been provided
      indemnity from the Borrower satisfactory to it against the costs, expenses
      and
      liabilities which may be incurred by it in compliance with or in performing
      such
      request or direction. No provisions of this Agreement or any Security Document
      shall otherwise be construed to require the Agent to expend or risk its own
      funds or take any action that could in its judgment cause it to incur any cost,
      expenses or liability for which it is not specifically indemnified hereunder
      or
      under the Securities Purchase Agreement. No provision of this Agreement or
      of
      any Security Document shall be deemed to impose any duty or obligation on the
      Agent to perform any act or acts or exercise any right, power, duty or
      obligation conferred or imposed on it, in any jurisdiction in which it shall
      be
      illegal, or in which the Agent shall be unqualified or incompetent, to perform
      any such act or acts or to exercise any such right, power, duty or obligation
      or
      if such performance or exercise would constitute doing business by the Agent
      in
      such jurisdiction or impose a tax on the Agent by reason thereof.

     

    
      
        
        

      

      
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    9.4  Action
      by Agent.
      Absent
      written instructions from the Required Holders at a time when an Event of
      Default shall have occurred and be continuing, the Agent shall have no
      obligation to take any actions under the Security Documents.

     

    10.  DEFAULT.

     

    10.1  Certain
      Rights Upon Default.
      In
      addition to any other rights accorded to the Agent and the Purchasers hereunder,
      upon the occurrence and during the continuation of an Event of Default:


     

    (a)  The
      Agent
      shall be entitled to receive any interest, cash dividends or other payments
      on
      the Collateral and, at the Agent’s option, to exercise in the Agent’s discretion
      all voting rights pertaining thereto as more fully set forth in Section 5 above.
      Without limiting the generality of the foregoing, the Agent shall have the
      right
      (but not the obligation) to exercise all rights with respect to the Collateral
      as if it were the sole and absolute owner thereof, including, without
      limitation, to vote and/or to exchange, at its sole discretion, any or all
      of
      the Collateral in connection with a merger, reorganization, consolidation,
      recapitalization or other readjustment concerning or involving the Collateral
      or
      the Pledgors or any Subsidiary of a Pledgor.

     

    (b)  Each
      Pledgor and each Subsidiary of a Pledgor shall take any action necessary or
      required or requested by the Agent in order to allow it fully to enforce the
      security interest in the Collateral hereunder and to realize thereon to the
      fullest extent possible, including, but not limited to, the filing of any claims
      with any court, liquidator, trustee, guardian, receiver or other like person
      or
      party.

     

    (c)  The
      Agent
      shall have all of the rights of a Purchaser under the Uniform Commercial Code
      and any other applicable law including the right to sell on such terms as it
      may
      deem appropriate any or all of the Collateral at one or more public or private
      sales upon at least five (5) Business Days written notice to the Pledgors of
      the
      time and place of any public sale and of the date on which the Collateral will
      first be offered for sale in the case of any private sale. The Agent shall
      have
      the right to bid thereat or purchase any part or all the Collateral in its
      own
      or a nominee’s name. The Agent shall have the right to apply the proceeds of the
      sale, after deduction for any costs and expenses of sale (including any
      liabilities incurred in connection therewith including reasonable attorneys’
fees and allocated costs of attorneys who are employees of the Agent), to the
      payment of the Secured Obligations, and to pay any remaining proceeds to the
      applicable Pledgor or its successors or assigns or to whomsoever may lawfully
      be
      entitled to receive the same or as a court of competent jurisdiction may direct,
      without further notice to or consent of such Pledgor and without regard to
      any
      equitable principles of marshalling or other like equitable doctrines. Each
      Pledgor hereby acknowledges and agrees that the notice provided for above is
      reasonable and expressly waives any rights it may have of equity of redemption,
      stay or appraisal with respect to the Collateral.

     

    
      
        
        

      

      
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    (d)  For
      purposes hereof, a written agreement to purchase the Collateral or any portion
      thereof shall be treated as a sale thereof; the Agent shall be free to carry
      out
      such sale pursuant to such agreement, and the applicable Pledgor shall not
      be
      entitled to the return of the Collateral or any portion thereof, notwithstanding
      the fact that after the Agent shall have entered into such an agreement, any
      and
      all Events of Default shall have been remedied and the Obligations paid in
      full.

     

    (e)  The
      Agent
      shall have the right, with full power of substitution either in the Agent’s name
      or the name of any Pledgor, to ask for, demand, sue, collect and receive any
      and
      all moneys due or to become due under and by virtue of the Collateral and to
      settle, compromise, prosecute or defend any action, claim or proceeding with
      respect thereto, provided, however, that nothing herein shall be construed
      as
      requiring the Agent to take any action, including, without limitation, requiring
      or obligating the Agent to make any inquiry as to the nature or sufficiency
      of
      any payment received, or to present or file any claim or notice, or to take
      any
      action with respect to the Collateral or any part thereof or the moneys due
      or
      to become due in respect thereof or any property covered thereby.

     

    (f)  The
      Agent
      shall be entitled to the appointment of a receiver or trustee for all or any
      part of the businesses of a Pledgor or a Subsidiary of a Pledgor, which receiver
      shall have such powers as may be conferred by law or the appointing
      authority.

     

    10.2  Agent
      May Exercise Less Than All Rights.
      Each
      Pledgor hereby acknowledges and agrees that the Agent is not required to
      exercise all remedies and rights available to it equally with respect to all
      of
      the Collateral, and the Agent may select less than all of the Collateral with
      respect to which the remedies as determined by the Agent may be exercised.
      

     

    10.3  Duties
      of Pledgors and Subsidiaries of the Pledgors With Respect to
      Transferee.
      In the
      event that, upon an occurrence of an Event of Default, the Agent shall sell
      all
      or any of the Collateral to another party or parties (herein called
“Transferee”)
      or
      shall purchase or retain all or any of the Collateral, each Pledgor and each
      Subsidiary of such Pledgor shall:

     

    (a)  Deliver
      to the Agent or Transferee, as the case may be, the articles of incorporation,
      bylaws, minute books, stock certificate books, corporate seals, deeds, leases,
      indentures, agreements, evidences of indebtedness, books of account, financial
      records and all other Organizational Documents and records of such Pledgor
      and
      each Subsidiary of such Pledgor;

     

    (b)  Use
      its
      best efforts to obtain resignations of the persons then serving as officers
      and
      directors of such Pledgor and each Subsidiary of such Pledgor, if so requested;
      and

     

    (c)  Use
      its
      best efforts to obtain any approvals that are required by any governmental
      or
      regulatory body in order to permit the sale of the Collateral to the Transferee
      or the purchase or retention of the Collateral by the Agent and allow the
      Transferee or the Agent to continue the business of the issuer.

     

    
      
        
        

      

      
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    11.  SECURITIES
      LAW PROVISION.

     

    Each
      Pledgor recognizes that the Agent may be limited in its ability to effect a
      sale
      to the public of all or part of the Collateral by reason of certain prohibitions
      in the Securities Act of 1933, as amended, or other federal or state securities
      laws (collectively, the “Securities
      Laws”),
      and
      may be compelled to resort to one or more sales to a restricted group of
      purchasers who may be required to agree to acquire the Collateral for their
      own
      account, for investment and not with a view to the distribution or resale
      thereof. Each Pledgor agrees that sales so made may be at prices and on terms
      less favorable than if the Collateral were sold to the public, and that the
      Agent has no obligation to delay the sale of any Collateral for the period
      of
      time necessary to register the Collateral for sale to the public under the
      Securities Laws. Each Pledgor and each Subsidiary thereof shall cooperate with
      the Agent in its attempts to satisfy any requirements under the Securities
      Laws
      (including without limitation registration thereunder if requested by the Agent)
      applicable to the sale of the Collateral by the Agent.

    


    12.  SECURITY
      INTEREST ABSOLUTE; WAIVERS BY PLEDGORS.

     

    12.1  Absolute
      Nature of Security Interest.
      All
      rights of the Agent hereunder, the grant of the security interest in the
      Collateral and all obligations of each Pledgor hereunder, shall be absolute
      and
      unconditional irrespective of (a) any lack of validity or enforceability of
      any
      of the terms of the Transaction Documents or any other instrument or document
      relating hereto or thereto, (b) any change in the amount, time, manner or place
      of payment of, or in any other term of, all or any of the Secured Obligations,
      or any other amendment or waiver of any terms related thereto, (c) any exchange,
      release or nonperfection of any other collateral, or any release or amendment
      or
      waiver of any guaranty, or (d) any other circumstance which might otherwise
      constitute a defense available to, or a discharge of, a Pledgor or any other
      Person in respect of the Secured Obligations or in respect of this Agreement
      or
      any other Transaction Document or any obligations hereunder or
      thereunder.

     

    12.2  No
      Duty To Marshal Assets.
      The
      Agent shall have no obligation to marshal any assets in favor of the Pledgors
      or
      any other Person or against or in payment of any or all of the
      Obligations.

     

    12.3  Waiver
      with Right of Subrogation, Etc.
      The
      Pledgors acknowledge that until all the Obligations shall have been indefeasibly
      paid in full, the Pledgors shall have no right (and hereby waive any such right)
      of subrogation, reimbursement, or indemnity whatsoever, in respect of any
      Pledgor and any Subsidiary of a Pledgor, arising out of remedies exercised
      by
      the Agent hereunder.

     

    12.4  Compliance
      with Organizational Documents.
      To the
      extent that the grant of the security interest in the Collateral and the
      enforcement of the terms hereof require the consent, approval or action of
      any
      partner, member, shareholder or other equity owner, as applicable, of any
      Subsidiary of a Pledgor or compliance with any provisions of the Organizational
      Documents of any Subsidiary of such Pledgor, such Pledgor hereby grants such
      consent and approval and waive any such noncompliance with the terms of said
      documents.

     

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

    12.5  Waivers.
      Each
      Pledgor hereby waives notice of acceptance of this Agreement. Each Pledgor
      further waives presentment and demand for payment of any of the Secured
      Obligations, protest and notice of dishonor or default with respect to any
      of
      the Secured Obligations, and all other notices to which such Pledgor might
      otherwise be entitled, except as otherwise expressly provided in this Agreement
      or any of the other Transaction Documents. Each Pledgor (to the extent that
      it
      may lawfully do so) covenants that it shall not at any time insist upon or
      plead, or in any manner claim or take the benefit of, any stay, valuation,
      appraisal or redemption now or at any time hereafter in force that, but for
      this
      waiver, might be applicable to any sale made under any judgment, order or decree
      based on this Agreement or any other Transaction Document; and each Pledgor
      (to
      the extent that it may lawfully do so) hereby expressly waives and relinquishes
      all benefit of any and all such laws and hereby covenants that it will not
      hinder, delay or impede the execution of any power in this Agreement or in
      any
      other Transaction Document delegated to the Agent, but that it will suffer
      and
      permit the execution of every such power as though no such law or laws had
      been
      made or enacted. 

     

    12.6  Acknowledgment
      Regarding Waivers. EACH
      PLEDGOR’S WAIVERS UNDER THIS SECTION 12 HAVE BEEN MADE VOLUNTARILY,
      INTELLIGENTLY AND KNOWINGLY AND AFTER SUCH PLEDGOR HAS BEEN APPRISED AND
      COUNSELED BY ITS ATTORNEY AS TO THE NATURE THEREOF AND ITS POSSIBLE ALTERNATIVE
      RIGHTS.

     

    13.  NON-WAIVER
      AND NON-EXCLUSIVE REMEDIES.

     

    13.1  Non-Exclusive
      Remedies.
      No
      remedy or right herein conferred upon, or reserved to the Agent is intended
      to
      be to the exclusion of any other remedy or right, but each and every such remedy
      or right shall be cumulative and shall be in addition to every other remedy
      or
      right given hereunder or under any other Transaction Document or under
      law.

     

    13.2  Delay
      and Non-Waiver.
      No delay
      or omission by the Agent to exercise any remedy or right hereunder shall impair
      any such remedy or right or shall be construed to be a waiver of any Event
      of
      Default, or an acquiescence therein, nor shall it affect any subsequent Event
      of
      Default of the same or of a different nature.

     

    14.  NO
      IMPLIED WAIVERS.
      No
      failure or delay on the part of the Agent in exercising any right, power or
      privilege under this Agreement or the other Transaction Documents and no course
      of dealing between a Pledgor, on the one hand, and the Agent or the Purchasers,
      on the other hand, shall operate as a waiver of any such right, power or
      privilege. No single or partial exercise of any right, power or privilege under
      this Agreement or the other Transaction Documents precludes any other or further
      exercise of any such right, power or privilege or the exercise of any other
      right, power or privilege. The rights and remedies expressly provided in this
      Agreement and the other Transaction Documents are cumulative and not exclusive
      of any rights or remedies which the Agent or the Purchasers would otherwise
      have. No notice to or demand on the Pledgors in any case shall entitle the
      Pledgors to any other or further notice or demand in similar or other
      circumstances or shall constitute a waiver of the right of the Agent or the
      Purchasers to take any other or further action in any circumstances without
      notice or demand. Any waiver that is given shall be effective only if in writing
      and only for the limited purposes expressly stated in the applicable
      waiver.

     

    
      
        
        

      

      
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    15.  EFFECT
      OF PLEDGE ON CERTAIN SHAREHOLDER RIGHTS.

     

    If
      any of
      the Collateral subject to this Agreement consists of nonvoting equity or
      ownership interests (regardless of their class, designation, preference or
      rights) or other instruments that may be converted into voting equity ownership
      interests upon the occurrence of certain events (including, without limitation,
      upon the transfer of all or any of the other stock or assets of the issuer),
      it
      is agreed that the pledge of such equity or ownership interests pursuant to
      this
      Agreement or the enforcement of any of the Agent’s rights hereunder shall not be
      deemed to be the type of event which would trigger such conversion rights
      notwithstanding any provisions in the Organizational Documents or agreements
      of
      the issuer or any Pledgor to the contrary.

    


    16.  CONTINUING
      SECURITY INTEREST; HEIRS AND ASSIGNS.

     

    This
      Agreement shall create a continuing security interest in the Collateral and
      shall (a) remain in full force and effect until terminated pursuant to Section
      16 below, (b) be binding upon each Pledgor, its successors and assigns and
      (c)
      inure to the benefit of the Agent, the Purchasers and their respective
      successors, transferees and assigns provided, however, that no Pledgor shall
      be
      permitted to transfer any of its obligations hereunder except as otherwise
      permitted by the Securities Purchase Agreement.

    


    17.  TERMINATION
      OF AGREEMENT; RELEASE OF COLLATERAL.

     

    17.1  Termination
      of Agreement.
      At such
      time as all the Secured Obligations in respect of the Notes have been
      indefeasibly paid in full (including the conversion in full of the Notes),
      then
      this Agreement shall terminate and the Collateral shall be released pursuant
      to
      subsection 17.2.

     

    17.2  Duties
      of Agent With Respect To Release of Collateral.
      When
      this Agreement terminates pursuant to subsection 17.1 above, the Agent shall
      reassign and deliver to the Pledgors, or to such Person or Persons as the
      Pledgors shall designate, against receipt, such of the Collateral (if any)
      as
      shall not have been sold or otherwise applied by the Agent pursuant to the
      terms
      hereof and shall still be held by it hereunder, together with appropriate
      instruments of reassignment and release, all without any recourse to, or
      warranty whatsoever by, the Agent, at the sole cost and expense of the
      Pledgors.

     

    17.3  Release
      of Certain Collateral.
      Effective upon the closing of a sale or other disposition of any Collateral
      and
      the application of proceeds in conformity with the provisions of the Securities
      Purchase Agreement, and receipt by the Agent of a certification to such effect
      from an authorized officer of the Borrower, the security interest in the assets
      which are the subject of the sale or other disposition (the “Sold
      Collateral”)
      shall
      terminate. The Agent shall thereupon reassign and deliver to the applicable
      Pledgors, or to such Person as such Pledgors shall designate, against receipt,
      the Sold Collateral, together with appropriate instruments or reassignment
      and
      release, all without any recourse to, or warranty whatsoever by, the Agent,
      at
      the sole cost and expense of such Pledgors.

     

    
      
        
        

      

      
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    18.  PAYMENT
      OF COSTS AND EXPENSES; INDEMNITIES.
      Without
      limiting any other cost reimbursement or expense reimbursement provisions in
      the
      Transaction Documents,

     

    18.1  Payment
      of Costs and Expenses.
      Upon
      demand, the Pledgors shall pay to the Agent the amount of any and all reasonable
      expenses incurred by the Agent and the Purchasers hereunder or in connection
      herewith, including, without limitation, reasonable fees of counsel to the
      Agent
      and the Purchasers and those other expenses that may be incurred in connection
      with (a) the administration of this Agreement (b) the custody or preservation
      of, or the sale of, collection from, or other realization upon, any of the
      Collateral, (c) the exercise or enforcement of any of the rights of the Agent
      or
      the Purchasers hereunder or (d) the failure of the Pledgors to perform or
      observe any of the provisions hereof.

     

    18.2  Fees.
      Each
      Pledgor shall, upon demand, pay to the Agent such reasonable fees (in addition
      to its expenses) for its services as the Agent as may be agreed upon from time
      to time between the Agent and the Pledgors.

     

    18.3  Indemnification.
      Each
      Pledgor shall indemnify, reimburse and hold harmless all Indemnitees from and
      against any and all losses, claims, liabilities, damages, penalties, suits,
      costs and expenses, of any kind or nature, (including fees relating to the
      cost
      of investigating and defending any of the foregoing) imposed on, incurred by
      or
      asserted against such Indemnitee in any way related to or arising from or
      alleged to arise from this Agreement or the Collateral except any such losses,
      claims, liabilities, damages, penalties, suits, costs and expenses which result
      from the gross negligence or willful misconduct of the Indemnitee as determined
      by a final nonappealable decision of a court of competent
      jurisdiction.

     

    18.4  Taxes.
      Each
      Pledgor shall pay to the Agent, upon demand, the amount of any taxes which
      the
      Agent may have been required to pay by reason of the security interests
      established pursuant to this Agreement (including any applicable transfer
      taxes).

     

    18.5  Additional
      Obligations.
      Any
      amounts payable pursuant to this Section 18 shall be additional Secured
      Obligations secured hereby.

     

    19.  MISCELLANEOUS
      PROVISIONS.

     

    19.1  Governing
      Law.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of New York (excluding the laws applicable to conflicts or choice of
      law).

     

    19.2  Specific
      Performance.
      Each
      Pledgor hereby authorizes the Agent and the Purchasers to demand specific
      performance of this Agreement at any time when a Pledgor shall have failed
      to
      comply with any provision hereof, and each Pledgor hereby irrevocably waives
      any
      defense based on the adequacy of a remedy at law which might be asserted as
      a
      bar to the remedy of specific performance hereof in any action brought
      therefor.

     

    
      
        
        

      

      
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    19.3  Successors
      and Assigns.
      Except
      as otherwise provided in the Securities Purchase Agreement, the Agent may assign
      or transfer this Agreement and any or all rights or obligations hereunder
      without the consent of the Pledgors and without prior notice. No Pledgor shall
      assign or transfer this Agreement or any rights or obligations hereunder without
      the prior written consent of the Agent or as expressly provided in the
      Securities Purchase Agreement. The rights and privileges of the Agent and the
      Purchasers under this Agreement shall inure to the benefit of their respective
      successors, assigns and participants. All promises, covenants and agreements
      of
      each Pledgor contained in this Agreement shall be binding upon personal
      representatives, heirs, successors and assigns of such Person. Notwithstanding
      the foregoing, if there is any assignment of any obligations by operation of
      law
      or in contravention of the terms of this Agreement or otherwise, then all
      covenants, agreements, representations and warranties made herein or pursuant
      hereto by or on behalf of a Pledgor shall bind the successors and assigns of
      such Pledgor, jointly and severally (if applicable), together with the
      pre-existing Pledgor whether or not such new Pledgor shall execute a joinder
      to
      this Agreement.

     

    19.4  Amendments
      and Waivers.
      This
      Agreement represents the entire agreement between the parties with respect
      to
      the transactions contemplated herein and, except as expressly provided herein,
      shall not be affected by reference to any other documents. The
      Purchasers holding 75% of the total outstanding principal balance of the Notes
      (the “Required
      Holders”)
      shall
      have the right to direct the Agent, from time to time, to consent to any
      amendment, modification or supplement to or waiver of any provision of this
      Agreement and to release any Collateral from any lien or security interest
      held
      by the Agent; provided,
      however,
      that
      (i) no such direction shall require the Agent to consent to the modification
      of
      any provision or portion thereof which (in the sole judgment of the Agent)
      is
      intended to benefit the Agent, (ii) the Agent shall have the right to decline
      to
      follow any such direction if the Agent shall determine in good faith that the
      directed action is not permitted by the terms of this Agreement or may not
      lawfully be taken and (iii) no such direction shall waive or modify any
      provision of this Agreement the waiver or modification of which requires the
      consent of all Purchasers unless all Purchasers consent thereto. The Agent
      may
      rely on any such direction given to it by the Required Holders and shall be
      fully protected in relying thereon, and shall under no circumstances be liable,
      except in circumstances involving the Agent's gross negligence or willful
      misconduct as shall have been determined in a final nonappealable judgment
      of a
      court of competent jurisdiction, to any holder of the Notes or any other person
      or entity for taking or refraining from taking action in accordance with any
      direction or otherwise in accordance with this Agreement.

     

    19.5  Notices
      and Communications.
      Any
      notice contemplated herein or required or permitted to be given hereunder shall
      be made in the manner set forth in the Securities Purchase Agreement and
      delivered at the addresses set forth on the signature pages to this Agreement,
      or to such other address as any party hereto may have last specified by written
      notice to the other party or parties.

     

    19.6  Headings;
      Counterparts.
      Headings to this Agreement are for purposes of reference only and shall not
      limit or otherwise affect the meaning hereof. This Agreement may be executed
      in
      any number of counterparts, each of which shall be an original, and all of
      which, taken together, shall constitute one instrument. Delivery of a photocopy
      or telecopy of an executed counterpart of a signature page to this Agreement
      shall be as effective as delivery of a manually executed counterpart of such
      signature page.

     

    
      
        
        

      

      
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    19.7  Severability.
      Every
      provision of this Agreement is intended to be severable. If any of the
      provisions or terms of this Agreement shall for any reason be held to be invalid
      or unenforceable such invalidity or unenforceability shall not affect any of
      the
      other terms hereof, but this Agreement shall be construed as if such invalid
      or
      unenforceable term had never been contained herein. Any such invalidity or
      unenforceability of any term or provision in this Agreement in a particular
      jurisdiction shall not be deemed to render a provision invalid or unenforceable
      in any other jurisdiction.

     

    19.8  Relationship
      with Securities Purchase Agreement.
      To the
      extent that any provision of this Agreement is inconsistent with any provision
      of the Securities Purchase Agreement, the terms of the Securities Purchase
      Agreement shall control.

     

    19.9  Consent
      to Jurisdiction, Service and Venue; Waiver of Jury Trial. For
      the
      purpose of any action that may be brought in connection with this Agreement,
      each Pledgor hereby consents to the jurisdiction and venue of the courts of
      the
      State of New York or of any federal court located in such state and waives
      personal service of any and all process upon it and consents that all such
      service of process be made by certified or registered mail directed to such
      Pledgor at the address provided for in Section 19.5 (Notices and
      Communications). Service so made shall be deemed to be completed upon actual
      receipt at the address specified in said section. Each Pledgor waives the right
      to contest the jurisdiction and venue of the courts located in the county of
      New
      York, State of New York on the ground of inconvenience or otherwise and,
      further, waives any right to bring any action or proceeding against (a) the
      Agent in any court outside the county of New York, State of New York, or (b)
      any
      Purchaser other than in a state within the United States designated by such
      Purchaser. The provisions of this Section shall not limit or otherwise affect
      the right of the Agent or any Purchaser to institute and conduct an action
      in
      any other appropriate manner, jurisdiction or court.

     

    NO
      PARTY
      TO THIS AGREEMENT, NOR ANY ASSIGNEE, SUCCESSOR, HEIR OR PERSONAL REPRESENTATIVE
      OF THE FOREGOING SHALL SEEK A JURY TRIAL IN ANY PROCEEDING BASED UPON OR ARISING
      OUT OF THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT RELATING TO SUCH
      INDEBTEDNESS OR THE RELATIONSHIP BETWEEN OR AMONG SUCH PERSONS OR ANY OF THEM.
      NO SUCH PERSON WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION
      IN
      WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.

    


    EXCEPT
      AS PROHIBITED BY LAW, EACH PARTY HERETO WAIVES ANY RIGHTS IT MAY HAVE TO CLAIM
      OR RECOVER IN ANY LITIGATION REFERRED TO IN THIS SECTION, ANY SPECIAL,
      EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES. EACH
      PARTY TO THIS AGREEMENT (a) CERTIFIES THAT NEITHER THE AGENT NOR ANY
      REPRESENTATIVE, OR ATTORNEY OF THE AGENT NOR ANY PURCHASER HAS REPRESENTED,
      EXPRESSLY OR OTHERWISE, THAT THE AGENT OR SUCH PURCHASER WOULD NOT, IN THE
      EVENT
      OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (b) ACKNOWLEDGES THAT
      IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND EACH OTHER TRANSACTION
      DOCUMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS HEREIN.
      THE PROVISIONS OF THIS SECTION HAVE BEEN FULLY DISCLOSED TO THE PARTIES AND
      THE
      PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NO PARTY HAS IN ANY WAY AGREED
      WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF THIS SECTION
      WILL
      NOT BE FULLY ENFORCED IN ALL INSTANCES.

    


    



    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

        
        

      

    



    


    IN
      WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
      and
      delivered by their respective authorized officers on the date first above
      written.

    


    


    
      	
              PLEDGOR:

            	 
	 	
              NESTOR,
                INC.

            
	 	 
	 	
              By:/s/Nigel
                P. Hebborn

            
	 	
              Name:
                Nigel P. Hebborn

            
	 	
              Title: 
                CFO

            
	 	 
	 	
              Notice
                Information

            
	 	
              42
                Oriental Street

            
	 	
              Providence,
                RI 02908

            
	 	
              Phone
                No.: 401-274-5658x738

            
	 	
              Fax
                No. 401-274-5707

            
	 	
              Attention:
                 Benjamin
                M. Alexander, Esq.

            
	 	 
	 	 
	
              PLEDGOR:

            	 
	 	
              NESTOR
                TRAFFIC SYSTEMS, INC.

            
	 	 
	 	
              By:/s/Nigel
                P. Hebborn

            
	 	
              Name:
                Nigel P. Hebborn

            
	 	
              Title:
                CFO

            
	 	 
	 	
              Notice
                Information

            
	 	
              42
                Oriental Street

            
	 	
              Providence,
                RI 02908

            
	 	
              Phone
                No.: 401-274-5658x738

            
	 	
              Fax
                No. 401-274-5707

            
	 	
              Attention:
                 Benjamin
                M. Alexander, Esq.

            
	 	 
	 	 
	
              PLEDGOR:

            	 
	 	
              CROSSINGGUARD,
                INC.

            
	 	 
	 	
              By:/s/Nigel
                P. Hebborn

            
	 	
              Name:
                Nigel P. Hebborn

            
	 	
              Title: 
                CFO

            
	 	 
	 	
              Notice
                Information

            
	 	
              42
                Oriental Street

            
	 	
              Providence,
                RI 02908

            
	 	
              Phone
                No.: 401-274-5658x738

            
	 	
              Fax
                No. 401-274-5707

            
	 	
              Attention:
                 Benjamin
                M. Alexander, Esq.

            
	 	 
	
              [Signature
                Page to Borrower/Subsidiary Pledge Agreement]

            
	 	 


    

     

    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    

    
      	
              AGENT:

            	
              U.S.
                BANK NATIONAL ASSOCIATION
                in
                its capacity as Agent

            
	 	 
	 	
              By:/s/Arthur
                L. Blakeslee

            
	 	
              Name:
                Arthur L. Blakeslee

            
	 	
              Title: 
                Vice President

            
	 	 
	 	
              Notice
                Information

            
	 	
              U.S.
                Bank National Association

            
	 	
              Corporate
                Trust Services

            
	 	
              225
                Asylum Street, 23rd
                Floor

            
	 	
              Hartford,
                CT 06103

            
	 	
              Telephone:
                (860) 241-6859

            
	 	
              Facsimile:
                (860) 241-6881

            
	 	
              Attention:
                Arthur Blakeslee

            
	 	 
	 	 


    

     

     

     

     

     

     

     

     

     

     

    
      [Signature
        Page to Borrower/Subsidiary Pledge Agreement]

    

    



    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

        
        

      

    



    


    Schedule
      I

    


    Pledged
      Securities

    


    


    


    


    


    



    
      
        
        

      

      
        -20-

        
          

        

      

      
        
        

        
        

      

    



    Schedule
      II

    


    Locations
      of Pledgors

     

     

    
      
        
        

      

      
        -21-