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                                                                    Exhibit 10.3

                              NETWORK ENGINES, INC.


                        Incentive Stock Option Agreement
                     Granted Under 1999 Stock Incentive Plan
                     ---------------------------------------

1.    Grant of Option.
      ---------------

      This agreement evidences the grant by Network Engines, Inc., a Delaware
corporation (the "Company") on ________________ to _________________, 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 1999 Stock
Incentive Plan (the "Plan"), a total of ______ shares of common stock, $.01 par
value per share, of the Company ("Common Stock") (the "Shares") at $ per Share.
Unless earlier terminated, this option shall expire on (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.
      ----------------
      This option will become exercisable ("vest") as to 25% of the original
                                                         ---
number of Shares on the first anniversary of the date of the grant of the option
(the "Grant Date") and as to an additional 6.25% of the original number of
                                           -----
Shares at the end of each successive full three-month period following the first
anniversary of the Grant Date until the fourth anniversary of the Grant Date.
This option shall expire upon, and will not be exercisable after, the Final
Exercise 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.


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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 as follows:

            (i) in cash or by check, payable to the order of the Company;

            (ii) delivery of an irrevocable and unconditional undertaking by a
creditworthy broker to deliver promptly to the Company sufficient funds to pay
the exercise price, or 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;

            (iii) (A) by delivery of shares of Common Stock owned by the
Participant valued at their fair market value as determined by the Board in good
faith, which Common Stock was owned by the Participant at least six months prior
to such delivery, or (B) by payment of such other lawful consideration as the
Board may determine; or

            (iv) 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.

      (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 date of grant of this option, an employee, officer or
director of, or consultant or advisor to, 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 or such other period of time as may be
determined by the Board (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.
Notwithstanding the foregoing, if the Participant, prior to the Final Exercise
Date,


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violates the non-competition, non- disclosure, nonsolicitation or
confidentiality provisions of any employment contract, confidentiality,
nondisclosure or nonsolicitation agreement or other agreement between the
Participant and the Company, the right to exercise this option shall terminate
immediately upon written notice to the Participant from the Company describing
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, 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, nonsolicitation,
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.    Right of First Refusal.
      ----------------------

      (a) If the Participant proposes to sell, assign, transfer, pledge,
hypothecate or otherwise dispose of, by operation of law or otherwise
(collectively, "transfer") any Shares acquired upon exercise of this option,
then the Participant shall first give written notice of the proposed transfer
(the "Transfer Notice") to the Company. The Transfer Notice shall name the
proposed transferee and state the number of such Shares the Participant proposes
to transfer (the "Offered Shares"), the price per share and all other material
terms and conditions of the transfer.


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      (b) For 30 days following its receipt of such Transfer Notice, the Company
shall have the option to purchase all (but not less than all) of the Offered
Shares at the price and upon the terms set forth in the Transfer Notice. In the
event the Company elects to purchase all of the Offered Shares, it shall give
written notice of such election to the Participant within such 30-day period.
Within 10 days after his receipt of such notice, the Participant shall tender to
the Company at its principal offices the certificate or certificates
representing the Offered Shares, duly endorsed in blank by the Participant or
with duly endorsed stock powers attached thereto, all in a form suitable for
transfer of the Offered Shares to the Company. Upon receipt of such certificate
or certificates, the Company shall deliver or mail to the Participant a check in
payment of the purchase price for the Offered Shares; provided that if the terms
                                                      -------- ----
of payment set forth in the Transfer Notice were other than cash against
delivery, the Company may pay for the Offered Shares on the same terms and
conditions as were set forth in the Transfer Notice.

      (c) At and after the time at which the Offered Shares are required to be
delivered to the Company for transfer to the Company pursuant to subsection (b)
above, the Company shall not pay any dividend to the Participant on account of
such Shares or permit the Participant to exercise any of the privileges or
rights of a stockholder with respect to such Offered Shares, but shall, in so
far as permitted by law, treat the Company as the owner of such Offered Shares.

      (d) If the Company does not elect to acquire all of the Offered Shares,
the Participant may, within the 30-day period following the expiration of the
option granted to the Company under subsection (b) above, transfer the Offered
Shares to the proposed transferee, provided that such transfer shall not be on
                                   -------- ----
terms and conditions more favorable to the transferee than those contained in
the Transfer Notice. Notwithstanding any of the above, all Offered Shares
transferred pursuant to this Section 4 shall remain subject to the right of
first refusal set forth in this Section 4 and such transferee shall, as a
condition to such transfer, deliver to the Company a written instrument
confirming that such transferee shall be bound by all of the terms and
conditions of this Section 4.

      (e) The following transactions shall be exempt from the provisions of this
Section 4:

            (i) any transfer of Shares to or for the benefit of any spouse,
child or grandchild of the Participant, or to a trust for their benefit;


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            (ii) any transfer pursuant to an effective registration statement
filed by the Company under the Securities Act of 1933, as amended (the
"Securities Act"); and

            (iii) any transfer of the Shares pursuant to the sale of all or
substantially all of the business of the Company;

provided, however, that in the case of a transfer pursuant to clause (1) above,
--------  -------
such Shares shall remain subject to the right of first refusal set forth in this
Section 4 and such transferee shall, as a condition to such transfer, deliver to
the Company a written instrument confirming that such transferee shall be bound
by all of the terms and conditions of this Section 4.

      (f) The Company may assign its rights to purchase Offered Shares in any
particular transaction under this Section 4 to one or more persons or entities.

      (g) The provisions of this Section 4 shall terminate upon the earlier of
the following events:

            (1) the closing of the sale of shares of Common Stock in an
underwritten public offering pursuant to an effective registration statement
filed by the Company under the Securities Act; or

            (2) the sale of all or substantially all of the capital stock,
assets or business of the Company, by merger, consolidation, sale of assets or
otherwise.

      (h) The Company shall not be required (a) to transfer on its books any of
the Shares which shall have been sold or transferred in violation of any of the
provisions set forth in this Section 4, or (b) to treat as owner of such Shares
or to pay dividends to any transferee to whom any such Shares shall have been so
sold or transferred.

5.    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


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agreement reflecting clause (i) above as may be requested by the Company or the
managing underwriters at the time of such offering.

6.    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.

7.    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.

8.    Disqualifying Disposition.
      -------------------------

      If the Participant disposes of Shares acquired upon exercise of this
option within two years from the date of grant of the option or one year after
such Shares were acquired pursuant to exercise of this option, the Participant
shall notify the Company in writing of such disposition within 15 days thereof.

9.    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.


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      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.

                              NETWORK ENGINES, INC.


Dated:                        By:________________________________________

                                    Name: ___________________________________
                                    Title:___________________________________


                            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 1999 Stock Incentive Plan.

                        PARTICIPANT:

                        [Name]

                        ______________________________

                        Address: _____________________

                                 _____________________


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