Document:

Settlement Agreement and Mutual Release

    Exhibit 10.1

    

      SETTLEMENT
        AGREEMENT AND MUTUAL RELEASE

      This
        Settlement Agreement and Mutual Release (the “Settlement Agreement”) is made
        this 24th
        day of
        January, 2007 by and between New Jersey Natural Gas Company (“NJNG” or
“Plaintiff”) and Lumbermens Mutual Casualty Company and its subsidiaries and
        affiliates, including but not limited to, American Motorists Insurance Company,
        American Manufacturers Mutual Insurance Company, and Kemper Indemnity Insurance
        Company, and for and on behalf of the business units and trade names under
        which
        the above companies conduct business, including but not limited to Kemper
        Insurance Companies and Kemper Environmental, (collectively,
“Kemper”).

      RECITALS

      WHEREAS,
        Kemper Indemnity Insurance Company issued two environmental insurance policies
        to NJNG, a Clean-Up Cost Containment Insurance Policy, policy no. 4YY-000953-00
        (the “Cost Cap”), and an Environmental Response, Compensation and Liability
        Insurance Policy, policy no. 4YY-000954-00 (the “ERCLIP”), and 

      WHEREAS,
        NJNG paid Kemper a premium of $2,221,100.00 for the Cost Cap and a premium
        of
        $989,000.00 for the ERCLIP; and 

      WHEREAS,
        NJNG contends that it has exceeded the self-insured retention on both the
        ERCLIP
        and the Cost Cap; and

      WHEREAS,
        NJNG filed a lawsuit in October 2004 against various Kemper entities (the
        “Defendants”) in the Superior Court of New Jersey, Law Division, Ocean County
        under the caption New
        Jersey Natural Gas Company v. Kemper Indemnity Insurance Company, et
        al.,
        No.
        OCN-L-3100-04 (the “Lawsuit”); and 

      WHEREAS,
        Kemper has categorically and consistently denied the allegations contained
        in
        the Lawsuit; and

      WHEREAS,
        on December 18, 2006 after the close of discovery in the Lawsuit, NJNG filed
        a
        Motion for Summary Judgment, and Defendants filed a Motion for Partial Summary
        Judgment; and

      WHEREAS,
        NJNG and Kemper (collectively, the “Parties”) are now mutually desirous of
        resolving all matters in connection with the Policies, including settling
        the
        Lawsuit;

      NOW,
        THEREFORE, in consideration of the premises stated above and the promises
        contained in this Settlement Agreement, the Parties agree as follows:
   

      PAYMENT.
        On or
        before January 26, 2007, Kemper will make a lump-sum payment to NJNG of
        twelve-million-eight-hundred-thousand dollars ($12,800,000.00) (“the Settlement
        Sum”). That payment will be made by wire transfer of immediately-available funds
        to the Marino Tortorella PC attorney trust account as follows:

      Marino
        Tortorella PC Attorney Trust Account

      Account
        No.: 999111701

      For
        further credit to Sub-Acct. No.: 02453 

      Bank
        of
        America

      One
        Newark Center

      Newark,
        NJ 07102

      ABA
        No.:
        026009593 

      SURRENDER
        AND CANCELLATION OF THE POLICIES. Upon
        payment of the Settlement Sum, NJNG hereby agrees to the surrender and
        cancellation of the Policies, in their entirety. Upon payment of the Settlement
        Sum, the Policies shall be void and of no force and effect, and Kemper shall
        have no obligations or liability thereunder.

      NJNG
        RELEASE AND COVENANT.
        In
        consideration for this Settlement Agreement, including but not limited to
        the
        Settlement Sum, NJNG fully, forever, and irrevocably releases and discharges
        Kemper, its predecessors, successors, assigns, divisions, subsidiaries, and
        affiliates, and all of its present and former employees, officers and directors
        from
        and
        against any and all actions, causes of action, suits, claims, charges,
        complaints or rights of any kind that they now have, or may in the future
        have,
        whether known or unknown, related to, arising out of, or that could have
        been
        brought under, or in connection with, the Policies, including the
        Lawsuit.

      KEMPER
        RELEASE AND COVENANT.
        Kemper
        fully, forever, and irrevocably releases and discharges NJNG, together with
        New
        Jersey Resources Corporation, and all of their respective predecessors,
        successors, assigns, divisions, subsidiaries, affiliates, present and former
        employees, officers and directors, from
        and
        against any and all actions, causes of action, suits, claims, charges,
        complaints or rights of any kind that Kemper now has, or in the future may
        have,
        whether known or unknown, related to, arising out of, or that could have
        been
        brought under or in connection with the Policies, including the
        Lawsuit.

      NJNG
        and
        Kemper hereby release each other as a result of anything that has happened
        from
        the beginning of time to the date of this Settlement
        Agreement. Nothing contained in this Settlement Agreement shall affect the
        Parties’ rights to enforce the provisions of this Settlement
        Agreement.

      PRESERVATION
        OF RIGHTS AGAINST THIRD PARTIES.
         Except
        as
        expressly provided in this Settlement
        Agreement,
        neither
        the existence of this Settlement
        Agreement
        nor any
        action taken pursuant to its terms shall be construed in any way to prejudice
        the interest or rights of the Parties against any person not included
        in this
        Settlement
        Agreement,
        including but not limited to their respective insurers
        or
        reinsurers, as the case may be,
        and all
        such rights are hereby preserved.

      This
        Settlement Agreement is not intended to and shall not be construed so as
        to
        deprive NJNG of any right that it may have against any person not included
        in
        this Settlement Agreement. Specifically, and only by way of example, Kenneth
        Ayers is released by this Settlement Agreement in, and only in, his capacity
        as
        an agent or employee of Kemper, but this Settlement Agreement does not release
        Kenneth Ayers in any other capacity, including but not limited to his capacity
        as an agent of NJNG or an employee of Willis North America, Willis of New
        York,
        Inc., or Willis Carroon Corporation of New York (collectively, “Willis”). The
        Parties agree that Ayers and Willis may be sued in separate litigation, by
        Order
        of the Honorable Edward M. Oles, J.S.C., without violating the entire
        controversy doctrine.

      AUTHORITY
        TO SETTLE In
        further consideration of the foregoing, the Parties warrant and represent
        that
        they have the sole and complete right and authority to settle, compromise,
        release and discharge all claims, causes of action, suits or demands covered
        by
        this Settlement Agreement, that they have made no assignment of any claim,
        cause
        of action, suit or demand covered by this Settlement Agreement, and that
        no
        person, firm, corporation, estate, or any other entity has been subrogated
        to
        any such claims, causes of action, suits, or demands. 

      ACKNOWLEDGEMENT
        OF NON-RELIANCE.
        In
        executing this Settlement Agreement, the Parties represent and acknowledge
        that
        they do not rely, and have not relied upon any representation or statement
        not
        set forth in this Settlement Agreement.

      GOVERNING
        LAW AND JURISDICTION.
        This
        Settlement Agreement is governed by the laws of the State of New Jersey
        regardless of the laws that might otherwise apply under the applicable
        principles of conflict of laws. Any dispute or litigation arising out of
        or
        relating to the Settlement Agreement will be resolved in the courts of New
        Jersey or in the United States District Court for the District of New Jersey,
        and the Parties hereby consent to the sole jurisdiction of those
        courts.

      SUCCESSORS.
        This
        Settlement Agreement is binding upon, inures to the benefit of, and is
        enforceable by and against the Parties, their administrators, agents,
        beneficiaries, devisees, distributees, executors, heirs, permitted assigns,
        personal representatives and successors, including any corporate successor,
        whether created by merger, stock sale or asset acquisition.

      COUNTERPARTS.
        This
        Settlement Agreement may be executed in any number of counterparts, each
        of
        which shall be deemed to be an original, but all of which together shall
        constitute one agreement. The signature of any party to any counterpart is
        deemed to be a signature to, and may be appended to, any other
        counterpart.

      NO
        ADMISSION.
        This
        Settlement Agreement is not, and shall not be construed as or deemed to be
        evidence of, an admission of any kind by the Parties.

      DISMISSAL
        OF LAWSUIT.
        At the
        time of the execution of this Settlement Agreement, and in exchange for the
        consideration provided herein (and as a condition to such consideration),
        counsel for the Parties shall execute a Stipulation of Dismissal With Prejudice
        And Without Costs in the form annexed hereto as Exhibit A (the “Stipulation of
        Dismissal”). Counsel for NJNG shall promptly file the Stipulation of Dismissal
        after the Settlement Sum has been deposited in the Marino Tortorella PC attorney
        trust account as provided herein.

      CONFIDENTIALITY.
        NJNG and
        Kemper will keep the terms of this Settlement Agreement confidential and
        will
        not disclose such terms to any person other than their attorneys, legal
        advisors, tax advisors, accountants, tax preparers, paid financial advisors,
        or
        reinsurers, unless compelled to do so by statute, the Illinois Department
        of
        Insurance or any other state or federal agency, regulatory body or department,
        or by court order other legal process, or in response to other administrative
        or
        governmentally-imposed reporting or disclosure obligations. Notwithstanding
        the
        foregoing, NJNG is permitted to disclose the terms of this Settlement Agreement
        and Mutual Release to the New Jersey Board of Public Utilities (the “BPU”) and
        to the Public Advocate of New Jersey as may be required in the ordinary course
        of BPU regulatory proceedings, in connection with a BPU audit or as part
        of
        NJNG's reporting requirements. In the event of a breach of the covenant of
        confidentiality, the non-breaching party will be entitled to recover its
        actual
        damages and injunctive relief. NJNG and Kemper acknowledge that irreparable
        harm
        will result from a breach of the covenant of confidentiality and they consent
        to
        the entry of injunctive relief without the showing of harm and without any
        requirement of a bond or other form of security.

      BREACH.
        If any
        party breaches any term or provision of the Settlement Agreement, including
        but
        not limited to the confidentiality provision, the non-breaching party shall
        be
        entitled to all remedies available at law or equity.

      ENTIRE
        AGREEMENT.
        This
        Settlement Agreement constitutes the entire agreement between the Parties,
        and
        supersedes and is in full substitution for all prior and contemporaneous
        oral
        and written agreements. Any provision not contained herein does not affect
        and
        is not effective to change, construe, define, extend, interpret, or limit
        any
        provision of this Settlement Agreement. 

      SEVERABILITY.
        All
        rights and obligations under the Settlement Agreement may be exercised or
        performed only to the extent that such exercise or performance does not violate
        any applicable law. All rights and obligations are limited to the extent
        necessary to ensure that they do not render the Settlement Agreement, or
        any
        provision hereof, invalid or unenforceable under any applicable law. If any
        provision of the Settlement Agreement is held invalid or unenforceable, the
        validity and enforceability of all other provisions shall not be
        affected.

      HEADINGS
        AND CAPTIONS.
        The
        headings and captions contained herein are inserted only as a matter of
        convenience, and do not construe, define, extend, interpret, or limit any
        provision of this Settlement Agreement.

      FACSIMILE
        OR E-MAIL DELIVERY.
        This
        Settlement Agreement shall be deemed to have been executed when the Parties
        sign
        and exchange Counterparts hereof, which may be accomplished by facsimile,
        e-mail
        or in person in accordance with the convenience of the Parties. This Settlement
        Agreement is not binding and shall be of no force and effect whatsoever unless
        and until it is executed by all Parties in one document or in Counterparts
        as
        set forth above. 

      IN
        WITNESS WHEREOF, the parties have executed this Settlement Agreement on the
        24th
        day of
        January, 2007, effective as of the date first above written.

      
        	
                 

                MARINO
                  TORTORELLA PC

                Attorneys
                  for Plaintiff New Jersey

                Natural
                  Gas Company

                 

                 

                 

                 

                By:   
                   /s/
                  Kevin H. Marino

                         
                  Kevin H. Marino

              	
                 

                BOLLINGER,
                  RUBERRY & GARVEY

                Attorneys
                  for Lumbermens Mutual Casualty Company, American Motorists Insurance
                  Company, Kemper Indemnity Insurance Company, and American Manufacturers
                  Mutual Insurance Company 

                 

                 

                 

                By  
                  /s/
                  Edward F. Ruberry

                          Edward
                  F. Ruberry

              
	 	 
	 	 

      

      

        
           

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

          
            	
                    NEW
                      JERSEY NATURAL GAS COMPANY,

                     

                    Plaintiff,

                    -against-

                     

                    KEMPER
                      INDEMNITY INSURANCE

                    COMPANY,
                      KEMPER INSURANCE

                    COMPANIES,
                      AMERICAN MOTORISTS INSURANCE COMPANY, KEMPER ENVIRONMENTAL,
                      KEMPER
                      INDEMNITY and XYZ INSURANCE COMPANIES 1-10 as fictitious
                      defendants,

                     

                    Defendants.

                  	
                     

                     

                    SUPERIOR
                      COURT OF NEW JERSEY

                    OCEAN
                      COUNTY: LAW DIVISION

                     

                    DOCKET
                      NO. OCN-L-3100-04

                     

                     

                    Civil
                      Action

                     

                     

                    STIPULATION
                      OF DISMISSAL WITH PREJUDICE AND WITHOUT
                      COSTS

                  

          

          

          The
            matters in controversy in this action having been amicably adjusted by
            and
            between the parties hereto, it is hereby stipulated and agreed that this
            action
            be dismissed with prejudice and without costs in favor of or against
            any party.

           

          
            	
                     

                    MARINO
                      TORTORELLA PC

                    Attorneys
                      for Plaintiff New Jersey

                    Natural
                      Gas Company

                     

                     

                    By:_______________________________

                    Kevin
                      H. Marino

                  	
                     

                    BOLLINGER,
                      RUBERRY & GARVEY

                    Attorneys
                      for Lumbermens Mutual Casualty Company, American Motorists
                      Insurance
                      Company, and American Manufacturers Mutual Insurance Company
                      

                     

                     

                    By:_______________________________

                    Edward
                      F. RuberryKlowan Employment Agreement

    EXHIBIT
      10.1

    
 

    EMPLOYMENT
      AGREEMENT

     

    THIS
      EMPLOYMENT AGREEMENT (the “Agreement”), made as of this 1st day of February
      2007, is entered into by Nestor, Inc. a Delaware corporation (the “Company”),
      and Teodor Klowan, Jr. (the “Employee”).

     

    The
      Company desires to employ the Employee, and the Employee desires to be employed
      by the Company. In consideration of the mutual covenants and promises contained
      in this Agreement, and other good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged by the parties to this Agreement,
      the parties agree as follows:

     

    1. Term
      of Employment.
      The
      Company hereby agrees to employ the Employee, and the Employee hereby accepts
      employment with the Company, upon the terms set forth in this Agreement, for
      the
      period commencing on the date hereof (the “Commencement Date”) and ending on
      December 31, 2008 (such period, the “Initial Employment Period” and as it may be
      extended, the “Employment Period”), unless sooner terminated in accordance with
      the provisions of Section 4. On December 31, 2008, if not previously
      terminated, this Agreement shall automatically renew and the Employment Period
      be extended until December 31, 2009 unless the Company shall elect not to so
      extend the Employment Period and shall have given written notice to the Employee
      of such election on or before October 1, 2008.

     

    2. Title;
      Capacity.
      The
      Employee shall serve as Chief Accounting Officer and Corporate Controller of
      the
      Company or in such other position as the Company’s Board of Directors (the
“Board”) or its Chief Executive Officer may determine from time to time. The
      Employee shall be based at the Company’s headquarters in Rhode Island or at such
      place or places in the continental United States as the Board and the Employee
      shall mutually determine. The Employee shall be subject to the supervision
      of,
      and shall have such authority as is delegated to the Employee by, the Board
      or
      the Chief Executive Officer of the Company.

     

    The
      Employee hereby accepts such employment and agrees to undertake the duties
      and
      responsibilities inherent in such position and such other duties and
      responsibilities as the Board or the Chief Executive Officer shall from time
      to
      time reasonably assign to the Employee. The Employee agrees to devote his entire
      business time, attention and energies to the business and interests of the
      Company during the Employment Period. The Employee agrees to abide by the rules,
      regulations, instructions, personnel practices and policies of the Company
      and
      any changes therein which may be adopted from time to time by the
      Company.

     

    3. Compensation
      and Benefits.

     

    3.1 Salary.
      The
      Company shall pay the Employee, in periodic installments in accordance with
      the
      Company’s customary payroll practices, an annual base salary $125,000. Such
      salary shall be subject to increase but not decrease thereafter as determined
      by
      the Board and shall be reviewed at least annually by the Board.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

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    3.2 Bonus.
      The
      Compensation Committee, in its sole discretion, may award the Employee bonuses
      during the term hereof.

     

    3.3 Equity
      Incentive.
      Options
      to purchase shares of Company stock previously granted to Employee by the
      Company and currently outstanding shall be amended to provide that after a
      Change in Control Event (as defined in
      Schedule A
      hereto),
      all restrictions on the exercise thereof shall lift and such options shall
      vest
      upon (a) the termination by the Company of the Employee’s employment, unless
      such termination is for Cause (as defined in Section 4.2) or (b) the resignation
      of Employee for Good Reason (as defined in Section 4.3).

     

    3.4 Fringe
      Benefits.
      The
      Employee shall be entitled to participate in all bonus and benefit programs
      that
      the Company establishes and makes available to its employees, if any, to the
      extent that Employee’s position, tenure, salary, age, health and other
      qualifications make him eligible to participate. 

     

    3.5 Reimbursement
      of Expenses.
      The
      Company shall reimburse the Employee for all reasonable travel, entertainment
      and other expenses incurred or paid by the Employee in connection with, or
      related to, the performance of his duties, responsibilities or services under
      this Agreement, in accordance with policies and procedures, and subject to
      limitations, adopted by the Company from time to time.

     

    3.6 Withholding.
      All
      salary, bonus and other compensation payable to the Employee shall be subject
      to
      applicable withholding taxes.

     

    4. Termination
      of Employment Period.
      The
      employment of the Employee by the Company pursuant to this Agreement shall
      terminate upon the occurrence of any of the following:

     

    4.1 Expiration
      of the Employment Period;

     

    4.2 At
      the
      election of the Company, for Cause (as defined below), immediately upon written
      notice by the Company to the Employee, which notice shall identify the Cause
      upon which the termination is based. For the purposes of this Section 4.2,
“Cause” shall mean (a) a good faith finding by the Company that
      (i) the Employee has failed in any material respect to perform his
      reasonably assigned duties for the Company and has failed to remedy such failure
      within 10 days following written notice from the Company to the Employee
      notifying him of such failure, or (ii) the Employee has engaged in
      dishonesty, gross negligence or misconduct with respect to the Company, or
      (b) the conviction of the Employee of, or the entry of a pleading of guilty
      or nolo contendere by the Employee to, any crime involving moral turpitude
      or
      any felony;

     

    4.3 At
      the
      election of the Employee, for Good Reason (as defined below), immediately upon
      written notice by the Employee to the Company, which notice shall identify
      the
      Good Reason upon which the termination is based. For the purposes of this
      Section 4.3, “Good Reason” for termination shall mean (i) a material adverse
      change in the Employee’s authority, duties or compensation without the prior
      consent of the Employee or (ii) a material breach by the Company of the terms
      of
      this Agreement, which breach is not remedied by the Company within 10 days
      following written notice from the Employee to the Company notifying it of such
      breach.

     

    
      
        
        

      

      
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    4.4 Upon
      the
      death or disability of the Employee. As used in this Agreement, the term
“disability” shall mean the inability of the Employee, due to a physical or
      mental disability, for a period of 90 days, whether or not consecutive, during
      any 360-day period to perform the services contemplated under this Agreement,
      with or without reasonable accommodation as that term is defined under state
      or
      federal law. A determination of disability shall be made by a physician
      satisfactory to both the Employee and the Company, provided that
      if the
      Employee and the Company do not agree on a physician, the Employee and the
      Company shall each select a physician and these two together shall select a
      third physician, whose determination as to disability shall be binding on all
      parties;

     

    4.5 At
      the
      election of either party, upon not less than 30 days’ prior written notice of
      termination.

     

    5. Effect
      of Termination.

     

    5.1 At-Will
      Employment.
      If the
      Employment Period expires pursuant to Section 1 hereof, then, unless the Company
      notifies the Employee to the contrary, the Employee shall continue his
      employment on an at-will basis following the expiration of the Employment
      Period. Such at-will employment relationship may be terminated by either party
      at any time and shall not be governed by the terms of this
      Agreement.

     

    5.2 Payments
      Upon Termination.
      

     

    (a) In
      the
      event the Employee’s employment is terminated pursuant to Section 4.1, Section
      4.2 or by the Employee pursuant to Section 4.5, the Company shall pay to the
      Employee the compensation and benefits otherwise payable to him under Section
      3
      through the last day of his actual employment by the Company.

     

    (b) In
      the
      event the Employee’s employment is terminated by the Employee pursuant to
      Section 4.3 or by the Company pursuant to Section 4.5, the Company shall
      continue to pay to the Employee his salary as in effect on the date of
      termination and continue to provide to the Employee the other benefits owed
      to
      him under Section 3.4 (to the extent such benefits can be provided to
      non-employees, or to the extent such benefits cannot be provided to
      non-employees, then the cash equivalent thereof) until the date one year after
      the date of termination and for the purposes of the vesting of options to
      purchase common stock granted to the Employee pursuant to Section 3.3, the
      Employee shall be deemed to be employed by the Company until the date one year
      after the date of termination. The payment to the Employee of the amounts
      payable under this Section 5.2(b) (i) shall be contingent upon the execution
      by
      the Employee of a release in a form reasonably acceptable to the Company and
      (ii) shall constitute the sole remedy of the Employee in the event of a
      termination of the Employee’s employment in the circumstances set forth in this
      Section 5.2(b). 

     

    
      
        
        

      

      
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    (c) In
      the
      event the Employee’s employment is terminated pursuant to Section 4.4, the
      Company shall continue to pay to the Employee (or his estate) his salary as
      in
      effect on the date of termination and the amount of the annual bonus paid to
      him
      for the fiscal year immediately preceding the date of termination (payable
      in
      annualized monthly installments) and, if such termination was on account of
      disability, continue to provide to the Employee the other benefits owed to
      him
      under Section 3.4 (to the extent such benefits can be provided to non-employees,
      or to the extent such benefits cannot be provided to non-employees, then the
      cash equivalent thereof) until the date one year after the date of termination
      and for the purposes of the vesting of options to purchase common stock granted
      to the Employee pursuant to Section 3.3, the Employee shall be deemed to be
      employed by the Company until the date one year after the date of termination.
      The amounts payable to the Employee under this Section 5.2(c) shall be reduced
      by the aggregate amount of all insurance proceeds paid to the Employee or his
      beneficiaries pursuant to insurance policies paid for by the
      Company.

     

    5.3 Survival.
      The
      provisions of Sections 5.2, 6 and 7 shall survive the termination of this
      Agreement.

     

    6. Non-Competition
      and Non-Solicitation.

     

    6.1 Restricted
      Activities.
      While
      the Employee is employed by the Company and for a period of one year after
      the
      termination or cessation of such employment for any reason, the Employee will
      not directly or indirectly:

     

    (a) Engage
      in
      any business or enterprise (whether as owner, partner, officer, director,
      employee, consultant, investor, lender or otherwise, except as the holder of
      not
      more than 1% of the outstanding stock of a publicly-held company) that develops,
      manufactures, markets, licenses, sells or provides any product or service that
      competes with any product or service developed, manufactured, marketed,
      licensed, sold or provided, or planned to be developed, manufactured, marketed,
      licensed, sold or provided, by the Company while the Employee was employed
      by
      the Company; or

     

    (b) Either
      alone or in association with others (i) solicit, or permit any organization
      directly or indirectly controlled by the Employee to solicit, any employee
      of
      the Company to leave the employ of the Company, or (ii) solicit for
      employment or permit any organization directly or indirectly controlled by
      the
      Employee to solicit for any person who was employed by the Company at any time
      during the term the Employee’s employment with the Company; provided,
      that
      this clause (ii) shall not apply to the solicitation, hiring or engagement
      of
      any individual whose employment with the Company has been terminated for a
      period of six months or longer.

     

    6.2 Extension.
      If the
      Employee violates the provisions of Section 6.1, the Employee shall continue
      to
      be bound by the restrictions set forth in Section 6.1 until a period of two
      years has expired without any violation of such provisions.

     

    6.3 Interpretation.
      If any
      restriction set forth in Section 6.1 is found by any court of competent
      jurisdiction to be unenforceable because it extends for too long a period of
      time or over too great a range of activities or in too broad a geographic area,
      it shall be interpreted to extend only over the maximum period of time, range
      of
      activities or geographic area as to which it may be enforceable.

     

    
      
        
        

      

      
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    6.4 Equitable
      Remedies.
      The
      restrictions contained in this Section 6 are necessary for the protection
      of the business and goodwill of the Company and are considered by the Employee
      to be reasonable for such purpose. The Employee agrees that any breach of this
      Section 6 is likely to cause the Company substantial and irrevocable damage
      which is difficult to measure. Therefore, in the event of any such breach or
      threatened breach, the Employee agrees that the Company, in addition to such
      other remedies which may be available, shall have the right to obtain an
      injunction from a court restraining such a breach or threatened breach and
      the
      right to specific performance of the provisions of this Section 6 and the
      Employee hereby waives the adequacy of a remedy at law as a defense to such
      relief.

     

    7. Proprietary
      Information and Developments.

     

    7.1 Proprietary
      Information.

     

    (a) The
      Employee agrees that all information, whether or not in writing, of a private,
      secret or confidential nature concerning the Company’s business, business
      relationships or financial affairs (collectively, “Proprietary Information”) is
      and shall be the exclusive property of the Company. By way of illustration,
      but
      not limitation, Proprietary Information may include inventions, products,
      processes, methods, techniques, formulas, compositions, compounds, projects,
      developments, plans, research data, clinical data, financial data, personnel
      data, computer programs, customer and supplier lists, and contacts at or
      knowledge of customers or prospective customers of the Company. The Employee
      will not disclose any Proprietary Information to any person or entity other
      than
      employees of the Company or use the same for any purposes (other than in the
      performance of his duties as an employee of the Company) without written
      approval by an officer of the Company, either during or after his employment
      with the Company, unless and until such Proprietary Information has become
      public knowledge without fault by the Employee.

     

    (b) The
      Employee agrees that all files, letters, memoranda, reports, records, data,
      sketches, drawings, laboratory notebooks, program listings, or other written,
      photographic, or other tangible material containing Proprietary Information,
      whether created by the Employee or others, which shall come into his custody
      or
      possession, shall be and are the exclusive property of the Company to be used
      by
      the Employee only in the performance of his duties for the Company. All such
      materials or copies thereof and all tangible property of the Company in the
      custody or possession of the Employee shall be delivered to the Company, upon
      the earlier of (i) a request by the Company or (ii) termination of his
      employment. After such delivery, the Employee shall not retain any such
      materials or copies thereof or any such tangible property.

     

    (c) The
      Employee agrees that his obligation not to disclose or to use information and
      materials of the types set forth in paragraphs (a) and (b) above, and his
      obligation to return materials and tangible property, set forth in
      paragraph (b) above, also extends to such types of information, materials
      and tangible property of customers of the Company or suppliers to the Company
      or
      other third parties who may have disclosed or entrusted the same to the Company
      or to the Employee.

     

    
      
        
        

      

      
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    7.2 Developments.

     

    (a) The
      Employee will make full and prompt disclosure to the Company of all inventions,
      improvements, discoveries, methods, developments, software, and works of
      authorship, whether patentable or not, which are created, made, conceived or
      reduced to practice by him or under his direction or jointly with others during
      his employment by the Company, whether or not during normal working hours or
      on
      the premises of the Company (all of which are collectively referred to in this
      Agreement as “Developments”).

     

    (b) The
      Employee agrees to assign and does hereby assign to the Company (or any person
      or entity designated by the Company) all his right, title and interest in and
      to
      all Developments and all related patents, patent applications, copyrights and
      copyright applications. However, this paragraph (b) shall not apply to
      Developments which do not relate to the business or research and development
      conducted or planned to be conducted by the Company at the time such Development
      is created, made, conceived or reduced to practice and which are made and
      conceived by the Employee not during normal working hours, not on the Company’s
      premises and not using the Company’s tools, devices, equipment or Proprietary
      Information. The Employee understands that, to the extent this Agreement shall
      be construed in accordance with the laws of any state which precludes a
      requirement in an employee agreement to assign certain classes of inventions
      made by an employee, this paragraph (b) shall be interpreted not to apply
      to any invention which a court rules and/or the Company agrees falls within
      such
      classes. The Employee also hereby waives all claims to moral rights in any
      Developments.

     

    (c) The
      Employee agrees to cooperate fully with the Company, both during and after
      his
      employment with the Company, with respect to the procurement, maintenance and
      enforcement of copyrights, patents and other intellectual property rights (both
      in the United States and foreign countries) relating to Developments. The
      Employee shall sign all papers, including, without limitation, copyright
      applications, patent applications, declarations, oaths, formal assignments,
      assignments of priority rights, and powers of attorney, which the Company may
      deem necessary or desirable in order to protect its rights and interests in
      any
      Development. The Employee further agrees that if the Company is unable, after
      reasonable effort, to secure the signature of the Employee on any such papers,
      any executive officer of the Company shall be entitled to execute any such
      papers as the agent and the attorney-in-fact of the Employee, and the Employee
      hereby irrevocably designates and appoints each executive officer of the Company
      as his agent and attorney-in-fact to execute any such papers on his behalf,
      and
      to take any and all actions as the Company may deem necessary or desirable
      in
      order to protect its rights and interests in any Development, under the
      conditions described in this sentence.

     

    7.3 United
      States Government Obligations.
      The
      Employee acknowledges that the Company from time to time may have agreements
      with other parties or with the United States Government, or agencies thereof,
      which impose obligations or restrictions on the Company regarding inventions
      made during the course of work under such agreements or regarding the
      confidential nature of such work. The Employee agrees to be bound by all such
      obligations and restrictions which are made known to the Employee and to take
      all appropriate action necessary to discharge the obligations of the Company
      under such agreements.

     

    
      
        
        

      

      
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    7.4 Equitable
      Remedies.
      The
      restrictions contained in this Section 7 are necessary for the protection
      of the business and goodwill of the Company and are considered by the Employee
      to be reasonable for such purpose. The Employee agrees that any breach of this
      Section 7 is likely to cause the Company substantial and irrevocable damage
      which is difficult to measure. Therefore, in the event of any such breach or
      threatened breach, the Employee agrees that the Company, in addition to such
      other remedies which may be available, shall have the right to obtain an
      injunction from a court restraining such a breach or threatened breach and
      the
      right to specific performance of the provisions of this Section 7 and the
      Employee hereby waives the adequacy of a remedy at law as a defense to such
      relief.

     

    8. Other
      Agreements.
      The
      Employee represents that his performance of all the terms of this Agreement
      and
      the performance of his duties as an employee of the Company do not and will
      not
      breach any agreement with any prior employer or other party to which the
      Employee is a party (including without limitation any nondisclosure or
      non-competition agreement). Any agreement to which the Employee is a party
      relating to nondisclosure, non-competition or non-solicitation of employees
      or
      customers is listed on Schedule
      B
      attached
      hereto.

     

    9. Miscellaneous.

     

    9.1 Notices.
      Any
      notices delivered under this Agreement shall be deemed duly delivered four
      business days after it is sent by registered or certified mail, return receipt
      requested, postage prepaid, or one business day after it is sent for
      next-business day delivery via a reputable nationwide overnight courier service,
      in each case to the address of the recipient set forth in the introductory
      paragraph hereto. Either party may change the address to which notices are
      to be
      delivered by giving notice of such change to the other party in the manner
      set
      forth in this Section 9.1.

     

    9.2 Pronouns.
      Whenever the context may require, any pronouns used in this Agreement shall
      include the corresponding masculine, feminine or neuter forms, and the singular
      forms of nouns and pronouns shall include the plural, and vice
      versa.

     

    9.3 Entire
      Agreement.
      This
      Agreement constitutes the entire agreement between the parties and supersedes
      all prior agreements and understandings, whether written or oral, relating
      to
      the subject matter of this Agreement; provided, however, that it is acknowledged
      and agreed by the Company and the Employee that stock option grants made by
      the
      Company to the Employee on or prior to the date hereof are not superseded hereby
      and each such grant remains in full force and effect in accordance with its
      terms.

     

    9.4 Amendment.
      This
      Agreement may be amended or modified only by a written instrument executed
      by
      both the Company and the Employee.

     

    9.5 Governing
      Law.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of Rhode Island (without reference to the conflicts of laws provisions
      thereof). Any action, suit or other legal proceeding arising under or relating
      to any provision of this Agreement shall be commenced only in a court of the
      State of Rhode Island (or, if appropriate, a federal court located within Rhode
      Island), and the Company and the Employee each consents to the jurisdiction
      of
      such a court. The Company and the Employee each hereby irrevocably waive any
      right to a trial by jury in any action, suit or other legal proceeding arising
      under or relating to any provision of this Agreement.

     

    
      
        
        

      

      
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    9.6 Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of both parties and
      their respective successors and assigns, including any corporation with which,
      or into which, the Company may be merged or which may succeed to the Company’s
      assets or business, provided, however, that the obligations of the Employee
      are
      personal and shall not be assigned by him. Notwithstanding the foregoing, if
      the
      Company is merged with or into a third party which is engaged in multiple lines
      of business, or if a third party engaged in multiple lines of business succeeds
      to the Company’s assets or business, then for purposes of Section 6.1(a), the
      term “Company” shall mean and refer to the business of the Company as it existed
      immediately prior to such event and as it subsequently develops and not to
      the
      third party’s other businesses.

     

    9.7 Waivers.
      No
      delay or omission by the Company in exercising any right under this Agreement
      shall operate as a waiver of that or any other right. A waiver or consent given
      by the Company on any one occasion shall be effective only in that instance
      and
      shall not be construed as a bar or waiver of any right on any other
      occasion.

     

    9.8 Captions.
      The
      captions of the sections of this Agreement are for convenience of reference
      only
      and in no way define, limit or affect the scope or substance of any section
      of
      this Agreement.

     

    9.9 Severability.
      In case
      any provision of this Agreement shall be invalid, illegal or otherwise
      unenforceable, the validity, legality and enforceability of the remaining
      provisions shall in no way be affected or impaired thereby.

     

    

     

    [Signatures
      appear on following page.]

     

    
      
        
        

      

      
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    THE
      EMPLOYEE ACKNOWLEDGES THAT HE/SHE HAS CAREFULLY READ THIS AGREEMENT AND
      UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.

     

    IN
      WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
      day
      and year set forth above. 

     

    
      	 	
              NESTOR,
                INC.

            
	 	 
	 	
              By:
                /s/William B. Danzell

            
	 	
              William
                B. Danzell

            
	 	
              President
                and Chief Executive Officer

            
	 	 
	 	 
	 	
              EMPLOYEE

            
	 	 
	 	
              /s/
                Ted Klowan, Jr.

            
	 	
              Teodor
                Klowan, Jr.

            

    

    

     

    

     

    
      
        
        

      

      
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    SCHEDULE
      A

     

    Change
      in
      Control Definition

     

    A
“Change
      in Control Event” shall mean:

     

    
      	 	
              (i)

            	
              the
                acquisition by an individual, entity or group (within the meaning
                of
                Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of
                beneficial ownership of any capital stock of the Company if, after
                such
                acquisition, such Person beneficially owns (within the meaning of
                Rule
                13d-3 promulgated under the Exchange Act) 30% or more of either (x)
                the
                then-outstanding shares of common stock of the Company (the “Outstanding
                Company Common Stock”) or (y) the combined voting power of the
                then-outstanding securities of the Company entitled to vote generally
                in
                the election of directors (the “Outstanding Company Voting Securities”);
                provided,
                however,
                that for purposes of this subsection (i), the following acquisitions
                shall
                not constitute a Change in Control Event: (A) any acquisition directly
                from the Company (excluding an acquisition pursuant to the exercise,
                conversion or exchange of any security exercisable for, convertible
                into
                or exchangeable for common stock or voting securities of the Company,
                unless the Person exercising, converting or exchanging such security
                acquired such security directly from the Company or an underwriter
                or
                agent of the Company), (B) any acquisition by any employee benefit
                plan
                (or related trust) sponsored or maintained by the Company or any
                corporation controlled by the Company, (C) any acquisition by any
                corporation pursuant to a Business Combination (as defined below)
                which
                complies with clauses (x) and (y) of subsection (iii) of this definition,
                or (D) any acquisition by Silver Star Partners I, LLC or its affiliates
                (each such party is referred to herein as an “Exempt Person”) of any
                shares of capital stock of the Company;
                or

            

    

     

    
      	 	
              (ii)

            	
              such
                time as the Continuing Directors (as defined below) do not constitute
                a
                majority of the Board (or, if applicable, the Board of Directors
                of a
                successor corporation to the Company), where the term “Continuing
                Director” means at any date a member of the Board (x) who was a member of
                the Board on the date hereof or (y) who was nominated or elected
                subsequent to such date by at least a majority of the directors who
                were
                Continuing Directors at the time of such nomination or election or
                whose
                election to the Board was recommended or endorsed by at least a majority
                of the directors who were Continuing Directors at the time of such
                nomination or election; provided,
                however,
                that there shall be excluded from this clause (y) any individual
                whose
                initial assumption of office occurred as a result of an actual or
                threatened election contest with respect to the election or removal
                of
                directors or other actual or threatened solicitation of proxies or
                consents, by or on behalf of a person other than the Board;
                or

            

    

     

     

    
      
        
        

      

      
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              (iii)

            	
              the
                consummation of a merger, consolidation, reorganization, recapitalization
                or share exchange involving the Company or a sale or other disposition
                of
                all or substantially all of the assets of the Company (a “Business
                Combination”), unless, immediately following such Business Combination,
                each of the following two conditions is satisfied: (x) all or
                substantially all of the individuals and entities who were the beneficial
                owners of the Outstanding Company Common Stock and Outstanding Company
                Voting Securities immediately prior to such Business Combination
                beneficially own, directly or indirectly, more than 50% of the
                then-outstanding shares of common stock and the combined voting power
                of
                the then-outstanding securities entitled to vote generally in the
                election
                of directors, respectively, of the resulting or acquiring corporation
                in
                such Business Combination (which shall include, without limitation,
                a
                corporation which as a result of such transaction owns the Company
                or
                substantially all of the Company’s assets either directly or through one
                or more subsidiaries) (such resulting or acquiring corporation is
                referred
                to herein as the “Acquiring Corporation”) in substantially the same
                proportions as their ownership of the Outstanding Company Common
                Stock and
                Outstanding Company Voting Securities, respectively, immediately
                prior to
                such Business Combination and (y) no Person (excluding Exempt Persons,
                the
                Acquiring Corporation or any employee benefit plan (or related trust)
                maintained or sponsored by the Company or by the Acquiring Corporation)
                beneficially owns, directly or indirectly, 30% or more of the
                then-outstanding shares of common stock of the Acquiring Corporation,
                or
                of the combined voting power of the then-outstanding securities of
                such
                corporation entitled to vote generally in the election of directors
                (except to the extent that such ownership existed prior to the Business
                Combination).

            

    

     

    
      
        
        

      

      
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    SCHEDULE
      B

     

    Prior
      Agreements

     

    

     

    None.

     

    
      
        
        

      

      
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