Exhibit 10.3

 

2006 Executive Bonus Program

 

Each executive officer of Network Engines, Inc. (the “Company”) has the
opportunity to earn quarterly performance bonuses, based on his or her
performance and the achievement of specific goals. Under the Executive Bonus
Program, the Compensation Committee of the Board of Directors selects, reviews
and/or approves individual objectives for each executive that directly
contribute to overall Company performance objectives.  The Compensation
Committee and Chief Executive Officer assign a specific dollar value to each
objective and evaluates each executive’s performance against those selected
goals, generally on a quarterly basis. The Company will pay to each of the
executive officers, on a quarterly basis, a percentage of their annual base
salaries if the executive achieves selected targets for the quarter.

 

The Compensation Committee has approved the following guidelines for the
Executive Bonus Program:

 

•                  The Chief Executive Officer of the Company (“CEO”), with
approval from the Compensation Committee, will designate an executive as a
participant in the Executive Bonus Program.

 

•                  Participants must be full time employees for the entire
period, either a quarter or the entire fiscal year, depending on the bonus
component.

 

•                  The CEO and/or the Compensation Committee reserve the right
to modify the fiscal 2006 program to reflect substantial changes in business
conditions.

 

•                  Quarterly bonus payments will be paid at the rates defined in
individual plans based on the actual performance compared to targeted
performance for specified parameters. Quarterly bonus payments are only payable
to certain maximum amounts for each specified parameter.  Where appropriate,
quarterly performance for metrics such as revenue, contribution margin and
operating income will be measured on the better of performance for the specific
quarter or the cumulative year-to-date performance at the end of that quarter.

 

•                  The Compensation Committee and CEO will approve any
Management Based Objective (“MBO”) bonus opportunities and the CEO will
determine if a participant has achieved/partially achieved such qualitative
bonuses.

 

•                  Bonus components related to Company financial performance
will be based on appropriate documents and reports filed with the SEC and/or as
included in internal financial reports provided to the Board of Directors by the
CFO. The CEO/CFO, with Compensation Committee approval, may modify such targets,
for example to eliminate non cash/non-recurring charges/credits.

 

•                  Sales, contribution margin and other financial metrics for
purposes of the Executive Bonus Program are defined in advance by the CFO and
CEO. The CFO and/or CEO, with approval of the Compensation Committee, will
determine the definition of operating metrics for purposes of executive bonuses.

 

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This Executive Bonus Program and payments made to eligible participants are
subject to approval and/or modification by the Compensation Committee.

 

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