Document:

Exhibit 10.1 (T. Klowan Offer Letter)

    EXHIBIT
      10.1

     

    Nestor
      Traffic Systems, Inc.

    42
      Oriental Street

    Providence,
      RI  02908

    May
      1,
      2006

    

    

    Teodor
      Klowan

    286
      Prospect St.

    Franklin,
      MA 02038

    

    Dear
      Ted:

    

    On
      behalf
      of Nestor Traffic Systems, Inc., I am pleased to offer you the position of
      Vice
      President, Corporate Controller and Chief Accounting Officer effective May
      1,
      2006. 

    

    In
      this
      role, you will be compensated at a rate of $5,250.00 semi-monthly, which
      factored over one-year (24 pay-periods) equals $126,000 annually, subject to
      return to $140,000 annually upon completion of Nestor’s cost reduction program.
      In addition, you will be eligible for the following Nestor benefits package:
      

    

      
        	 	
                ·

              	
                Life
                  and AD&D Insurance 

              

      

      
        	 	
                ·

              	
                Long
                  Term Disability Insurance 

              

      

      
        	 	
                ·

              	
                Optional
                  Life Insurance

              

      

      
        	 	
                ·

              	
                You
                  will be entitled to three weeks vacation, accrued at a rate of
                  3.75 days
                  per quarter, commencing on the start of your services to Nestor
                  (February
                  1, 2006)

              

      

      
        	 	
                ·

              	
                You
                  will receive 5 sick days and 2 personal days pro-rated to your
                  date of
                  hire  

              

      

      
        	 	
                ·

              	
                Nestor
                  observes all recognized federal holidays plus provides 1 floating
                  holiday
                  

              

      

    

    

    You
      are
      currently covered under another medical and dental plan and therefore will
      not
      be electing health and dental benefits through Nestor. 

    

    You
      will
      receive reimbursement for 40 hours of annual CPE training as well as
      professional memberships in the AICPA and FEI.

    

    After
      you
      begin working for Nestor Traffic Systems, and upon approval by Nestor’s Board of
      Directors, we will grant you options to purchase 75,000 shares of the common
      stock of our parent company, Nestor, Inc. The exercise price of the options
      will
      be the fair market value of the stock on the day the option is granted. The
      options vest 20% on the date of grant and each of the first four anniversaries
      of the grant date and are subject to the terms of the grant and our 2004 Stock
      Incentive Plan.

    

    You
      will
      be an at will employee of Nestor. Your employment will begin on May 1, 2006
      and
      continue until termination by either party. 

    

    To
      indicate your acceptance of this offer, please sign one copy at the bottom
      and
      return it to Nestor.

    

    Ted,
      I
      look forward to your acceptance of Nestor’s offer of employment and to share in
      some of the exciting times that our organization is experiencing.

    

    
      	
              ACCEPTED

            	 	
              Yours
                truly,

            
	 	 	 
	
              /s/
                Teodor Klowan

            	 	
              /s/
                William B. Danzell

            
	
              Teodor
                Klowan, Jr.

            	 	
              William
                B. Danzell

            
	 	 	
              President
                and CEO

            
	 	 	
              Nestor,
                Inc.

            
	 	 	 
	
              Date:
                May 1, 2006

            	 	
              Date:
                May 1, 2006Exhibit 10.2 Klowan incentive stock option agreement

    EXHIBIT
      10.2

     

    NESTOR,
      INC.

    

    Incentive
      Stock Option Agreement

    Granted
      Under 2004 Stock Incentive Plan

     

    
      	
              1.

            	
              Grant
                of Option.

            

    

     

    This
      agreement evidences the grant by Nestor, Inc. a Delaware corporation (the
“Company”), on May 5, 2006 (the
      “Grant Date”) to Teodor
      Klowan, Jr., an employee of the Company (the “Participant”), of an option to
      purchase, in whole or in part, on the terms provided herein and in the Company’s
      2004 Stock Incentive Plan (the “Plan”), a total of 75,000 shares (the “Shares”)
      of common stock, $.01 par
      value
      per share, of the Company (“Common Stock”) at $3.40 per Share. Unless earlier
      terminated, this option shall expire at 5:00 p.m., Eastern time, on May 5,
      2014
      (the “Final Exercise Date”).

     

    It
      is
      intended that the option evidenced by this agreement shall be an incentive
      stock
      option as defined in Section 422 of the Internal Revenue Code of 1986, as
      amended, and any regulations promulgated thereunder (the “Code”). Except as
      otherwise indicated by the context, the term “Participant”, as used in this
      option, shall be deemed to include any person who acquires the right to exercise
      this option validly under its terms.

     

    
      	
              2.

            	
              Vesting
                Schedule.

            

    

     

    Subject
      to Section 8 hereof, this option will become exercisable (“vest”) as to 20% of
      the original number of Shares upon the Grant Date, May 5, 2006, and as to an
      additional 20% of the original number of Shares at the end of each successive
      one-year period following the first anniversary of the Grant Date until the
      fourth anniversary of the Grant Date.

     

    The
      right
      of exercise shall be cumulative so that to the extent the option is not
      exercised in any period to the maximum extent permissible it shall continue
      to
      be exercisable, in whole or in part, with respect to all Shares for which it
      is
      vested until the earlier of the Final Exercise Date or the termination of this
      option under Section 3 hereof or the Plan.

     

    
      	
              3.

            	
              Exercise
                of Option.

            

    

     

    (a) Form
      of Exercise.
      Each
      election to exercise this option shall be in writing, signed by the Participant,
      and received by the Company at its principal office, accompanied by this
      agreement, and payment in full (i) in cash, (ii) by (A) delivery of an
      irrevocable and unconditional undertaking by a creditworthy broker to deliver
      promptly to the Company sufficient funds to pay the exercise price and any
      required tax withholding or (B) delivery by the Participant to the Company
      of a
      copy of irrevocable and unconditional instructions to a creditworthy broker
      to
      deliver promptly to the Company cash or a check sufficient to pay the exercise
      price and any required tax withholding, (iii) if the fair market value of a
      share of Common Stock as determined by (or in a manner approved by) the Board
      in
      good faith ("Fair Market Value") is greater than the per share exercise price,
      by surrender of this Option in which event the Company shall issue to the
      Participant a number of shares of Common Stock equal to the product of the
      number of Shares as to which this Option is being exercised multiplied by the
      quotient of the difference between the Fair Market Value less the per share
      exercise price divided by the Fair Market Value, or (iv) by any combination
      of
      the above permitted forms of payment. The Participant may purchase less than
      the
      number of shares covered hereby, provided that no partial exercise of this
      option may be for any fractional share or for fewer than one hundred whole
      shares.

     

    
      
        1

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (b) Continuous
      Relationship with the Company Required.
      Except
      as otherwise provided in this Section 3, this option may not be exercised
      unless the Participant, at the time he or she exercises this option, is, and
      has
      been at all times since the Grant Date, an employee or officer of, the Company
      or any parent or subsidiary of the Company as defined in Section 424(e) or
      (f)
      of the Code (an “Eligible Participant”).

     

    (c) Termination
      of Relationship with the Company.
      If the
      Participant ceases to be an Eligible Participant for any reason, then, except
      as
      provided in paragraphs (d) and (e) below, the right to exercise this option
      shall terminate three
      months after such cessation (but in no event after the Final Exercise Date),
      provided that
      this
      option shall be exercisable only to the extent that the Participant was entitled
      to exercise this option on the date of such cessation (except as limited by
      Section 8 hereof). Notwithstanding the foregoing, if the Participant, prior
      to
      the Final Exercise Date, violates the non-competition or confidentiality
      provisions of any employment contract, confidentiality and nondisclosure
      agreement or other agreement between the Participant and the Company, the right
      to exercise this option shall terminate immediately such violation.

     

    (d) Exercise
      Period Upon Death or Disability.
      If the
      Participant dies or becomes disabled (within the meaning of
      Section 22(e)(3) of the Code) prior to the Final Exercise Date while he or
      she is an Eligible Participant and the Company has not terminated such
      relationship for “cause” as specified in paragraph (e) below, this option shall
      be exercisable, within the period of one year following the date of death or
      disability of the Participant, by the Participant (or in the case of death
      by an
      authorized transferee), provided that
      this
      option shall be exercisable only to the extent that this option was exercisable
      by the Participant on the date of his or her death or disability, and further
      provided that this option shall not be exercisable after the Final Exercise
      Date.

     

    (e) Discharge
      for Cause.
      If the
      Participant, prior to the Final Exercise Date, is discharged by the Company
      for
“cause” (as defined below), the right to exercise this option shall terminate
      immediately upon the effective date of such discharge. “Cause” shall mean
      willful misconduct by the Participant or willful failure by the Participant
      to
      perform his or her responsibilities to the Company (including, without
      limitation, breach by the Participant of any provision of any employment,
      consulting, advisory, nondisclosure, non-competition or other similar agreement
      between the Participant and the Company), as determined by the Company, which
      determination shall be conclusive. The Participant shall be considered to have
      been discharged for “Cause” if the Company determines, within 30 days after the
      Participant’s resignation, that discharge for cause was warranted.

     

    
      	
              4.

            	
              Agreement
                in Connection with Public Offering.

            

    

     

    The
      Participant agrees, in connection with the initial underwritten public offering
      of the Company’s securities pursuant to a registration statement under the
      Securities Act, (i) not to sell, make short sale of, loan, grant any options
      for
      the purchase of, or otherwise dispose of any shares of Common Stock held by
      the
      Participant (other than those shares included in the offering) without the
      prior
      written consent of the Company or the underwriters managing such initial
      underwritten public offering of the Company’s securities for a period of 180
      days from the effective date of such registration statement, and (ii) to execute
      any agreement reflecting clause (i) above as may be requested by the Company
      or
      the managing underwriters at the time of such offering.

     

    
      	
              5.

            	
              Withholding.

            

    

     

    No
      Shares
      will be issued pursuant to the exercise of this option unless and until the
      Participant pays to the Company, or makes provision satisfactory to the Company
      for payment of, any federal, state or local withholding taxes required by law
      to
      be withheld in respect of this option. If the Company exercises its right to
      pay
      to the Participant the Cash Value in lieu of issuing Common Stock to the
      Participant, the Company shall withhold such taxes from the payment to the
      Participant.

    
      
        2

        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    
      	
              6.

            	
              Nontransferability
                of Option.

            

    

     

    This
      option may not be sold, assigned, transferred, pledged or otherwise encumbered
      by the Participant, either voluntarily or by operation of law, except by will
      or
      the laws of descent and distribution, and, during the lifetime of the
      Participant, this option shall be exercisable only by the
      Participant.

     

    
      	
              7.

            	
              Provisions
                of the Plan.

            

    

     

    This
      option is subject to the provisions of the Plan, a copy of which is furnished
      to
      the Participant with this option. 

     

    
      	
              8.

            	
              Limitation
                on First Exercise.

            

    

     

    Notwithstanding
      any other provisions of the Plan, no option granted hereunder can be exercised
      earlier than the earlier to occur of (i) the fourth anniversary of the date
      hereof and (ii) the date that the Participant dies, becomes disabled (within
      the
      meaning of Section 22(e)(3) of the Code) or ceases to be an Eligible
      Participant for any reason, except as provided in
      paragraphs 3(e).

     

    

     

    IN
      WITNESS WHEREOF, the Company has caused this option to be executed under its
      corporate seal by its duly authorized officer. This option shall take effect
      as
      a sealed instrument.

     

    

      
        	
                Dated:
                  May 5, 2006

              	
                NESTOR,
                  INC.

              
	 	 
	
                By:

              	
                 
                  /s/ Nigel P. Hebborn

              
	 	
                Name:
                  Nigel P. Hebborn

              
	 	
                Title:
                  Treasurer and Chief Financial
                  Officer

              

      

    

    
 

     

    PARTICIPANT’S
      ACCEPTANCE

     

    The
      undersigned hereby accepts the foregoing option and agrees to the terms and
      conditions thereof. The undersigned hereby acknowledges receipt of a copy of
      the
      Company’s 2004 Stock Incentive Plan.

     

    

      
        	 	
                NESTOR,
                  INC.

              
	 	 
	
                By:

              	
                 
                  /s/ Teodor Klowan, Jr.

              
	 	
                Name:
                  Teodor Klowan, Jr.

              
	 	
                Address:
                  286 Prospect Street

              
	 	
                Franklin,
                  MA 02038

              

      

    

    

    

    

    
      
        3

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