CROSSROADS SYSTEMS INC
LETTER AGREEMENT TO ANDREA WENHOLZ
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>3
<FILENAME>d04046exv10w5.txt
<DESCRIPTION>LETTER AGREEMENT TO ANDREA WENHOLZ
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.5

                            (CROSSROADS LETTERHEAD)

December 18, 2002

Ms. Andrea Wenholz
9001 Glenlake Drive
Austin, Texas 78730

                  RE:  Severance Benefit Plan
Dear Ms. Wenholz:

         We are pleased to inform you that the Company's Board of Directors has
approved a special severance benefit program for you. The purpose of this letter
agreement is to set forth the terms and conditions of your severance benefits
and to explain the limitations that will govern their overall value.

         Your severance package will become payable should your employment
terminate under certain circumstances including certain terminations following a
substantial change in ownership or control of the Company. To understand the
full scope of your benefits, you should familiarize yourself with the
definitional provisions of Part One of this letter agreement. The benefits
comprising your severance package are detailed in Part Two, and the dollar
limitations on the overall value of your benefit package and other applicable
restrictions are specified in Parts Three and Four, respectively. Part Five
deals with ancillary matters affecting your severance arrangement.


Part One -- DEFINITIONS

         For purposes of this letter agreement, the following definitions will
be in effect:

         BASE SALARY means the monthly rate of base salary in effect for you at
the time of your Involuntary Termination. In the event of your Involuntary
Termination following a Change in Control, Base Salary means the greater of your
monthly base salary immediately prior to the Change in Control or the monthly
rate of base salary in effect at the time of your Involuntary Termination.

         BOARD means the Company's Board of Directors.

         CHANGE IN CONTROL means a change in the ownership or control of the
Company effected through any of the following transactions:


<PAGE>

                  (i) a merger, consolidation or reorganization approved by the
         Company's stockholders, unless securities representing more than fifty
         percent (50%) of the total combined voting power of the voting
         securities of the successor corporation are immediately thereafter
         beneficially owned, directly or indirectly and in substantially the
         same proportion, by the persons who beneficially owned the Company's
         outstanding voting securities immediately prior to such transaction,

                  (ii) any stockholder-approved sale, transfer or other
         disposition of all or substantially all of the Company's assets,

                  (iii) the acquisition, directly or indirectly, by any person
         or related group of persons (other than the Company or a person that
         directly or indirectly controls, is controlled by or is under common
         control with, the Company) of beneficial ownership (within the meaning
         of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of
         securities possessing more than fifty percent (50%) of the total
         combined voting power of the Company's outstanding securities pursuant
         to a tender or exchange offer made directly to the Company's
         stockholders; or (iv) a change in the composition of the Board over a
         period of thirty-six (36) consecutive months or less such that a
         majority of the Board members ceases, by reason of one or more
         contested elections for Board membership, to be comprised of
         individuals who either (A) have been Board members continuously since
         the beginning of such period or (B) have been elected or nominated for
         election as Board members during such period by at least a majority of
         the Board members described in clause (A) who were still in office at
         the time the Board approved such election or nomination.

         CODE means the Internal Revenue Code of 1986, as amended.

         COMMON STOCK means the Company's common stock.

         COMPANY means Crossroads Systems, Inc., a Delaware corporation, or any
successor corporation, whether or not resulting from a Change in Control.

         DISABILITY means your inability to perform the normal and usual duties
of your position with the Company by reason of any physical or medical
impairment which is expected to result in death or continue for a period of
twelve (12) consecutive months or more.


<PAGE>

         FAIR MARKET VALUE means, with respect to the shares of Common Stock
subject to any of your Options, the closing selling price per share of Common
Stock on the date in question, as such price is reported by the National
Association of Securities Dealers on the Nasdaq National Market and published in
The Wall Street Journal. If there is no closing selling price reported for the
Common Stock on the date in question, then the Fair Market Value will be the
closing selling price on the last preceding date for which such report exists.

         HEALTH CARE COVERAGE means the continued coverage to which you and your
eligible dependents may become entitled under the Company's health care plans
pursuant to the severance benefit provisions of Part Two of this letter
agreement.

         INCENTIVE STOCK OPTION means an option which satisfies the requirements
of Code Section 422.

         INVOLUNTARY TERMINATION means (i) the involuntary termination of your
employment with the Company other than a Termination for Cause or (ii) your
voluntary resignation within six (6) months following (A) a change in your
position with the Company which materially reduces your duties and
responsibilities or the level of management to which you report, (B) a reduction
in your level of compensation (including Base Salary, fringe benefits and target
bonus under any corporate-performance based bonus or incentive programs) by more
than fifteen percent (15%) with the exception of compensation reductions that
are applied to all executive officers of the Company or (C) a relocation of your
principal place of employment by more than fifty (50) miles.

         An Involuntary Termination will not be deemed to occur in the event
your employment terminates by reason of your death or Disability or a
Termination for Cause.

         OPTION means any outstanding option you hold under the Plan at the time
of your Involuntary Termination. For purposes of this Agreement, your Options
will be divided into two (2) separate categories as follows:

         Acquisition-Accelerated Options: any outstanding Option (or installment
thereof) which automatically accelerates, pursuant to the acceleration
provisions of the agreement evidencing that Option, upon a Change in Control.

         Severance-Accelerated Options: any outstanding Option (or installment
thereof) which, pursuant to Part Two of this letter agreement, accelerates upon
an Involuntary Termination.

         OPTION PARACHUTE PAYMENT means, with respect to any
Acquisition-Accelerated Option or any Severance-Accelerated Option, the portion
of that Option deemed to be a parachute payment under Code Section 280G and the
Treasury Regulations issued thereunder. The portion of such Option which is
categorized as an


<PAGE>

Option Parachute Payment will be calculated in accordance with the valuation
provisions established under Code Section 280G and the applicable Treasury
Regulations and will include an appropriate dollar adjustment to reflect the
lapse of your obligation to remain in the Company's employ as a condition to the
vesting of the accelerated installment. In no event, however, will the Option
Parachute Payment attributable to any Acquisition-Accelerated Option or
Severance-Accelerated Option (or accelerated installment) exceed the spread (the
excess of the Fair Market Value of the accelerated option shares over the option
exercise price payable for those shares) existing at the time of acceleration.

         OTHER PARACHUTE PAYMENT means any payment in the nature of compensation
(other than the benefits to which you become entitled under Part Two of this
letter agreement) which are made to you in connection with the Change in Control
and which accordingly qualify as parachute payments within the meaning of Code
Section 280G(b)(2) and the Treasury Regulations issued thereunder. Your Other
Parachute Payment will include (without limitation) the Present Value, measured
as of the Change in Control, of the Stock Bonus Parachute Payment and the
aggregate Option Parachute Payment attributable to your Acquisition-Accelerated
Options (if any).

         PARACHUTE PAYMENT means any payment or benefit provided you under Part
Two of this letter agreement (other than the Option Parachute Payment
attributable to your Severance-Accelerated Options) which is deemed to
constitute a parachute payment within the meaning of Code Section 280G(b)(2) and
the Treasury Regulations issued thereunder.

         PLAN means (i) the Company's 1996 Stock Option/Stock Issuance Plan,
(ii) the Company's 1999 Stock Incentive Plan, as amended or restated from time
to time, and (ii) any successor stock incentive plan subsequently implemented by
the Company.

         PRESENT VALUE means the value, determined as of the date of the Change
in Control, of any payment in the nature of compensation to which you become
entitled in connection with the Change in Control or your subsequent Involuntary
Termination, including (without limitation) the Option Parachute Payment
attributable to your Severance-Acceleration Options, the additional benefits to
which you become entitled under Part Two of this letter agreement, the Stock
Bonus Parachute Payment attributable to your Stock Bonus and the Option
Parachute Payment attributable to your Acquisition-Accelerated Options. The
Present Value of each such payment will be determined in accordance with the
provisions of Code Section 280G(d)(4), utilizing a discount rate equal to one
hundred twenty percent (120%) of the applicable Federal rate in effect at the
time of such determination, compounded semi-annually to the effective date of
the Change in Control.


<PAGE>

         SEVERANCE PERIOD means the number of months for which you will receive
severance payments pursuant to Paragraph A.2 of Part Two of this letter
agreement.

         STOCK BONUS means the stock bonus payment you become entitled to upon a
Change in Control as described in Paragraph B of Part Two of this letter
agreement.

         STOCK BONUS PARACHUTE PAYMENT means, with respect to the Stock Bonus
payment, the portion of those shares deemed to be a parachute payment under Code
Section 280G and the Treasury Regulations issued thereunder. The amount of such
parachute payment will be calculated in accordance with the valuation provisions
established under Code Section 280G and the applicable Treasury Regulations and
will include an appropriate dollar adjustment to reflect the lapse of your
obligation to remain in the Company's employ as a condition to the vesting of
the stock.

         TERMINATION FOR CAUSE means the Company's termination of your
employment for any of the following reasons: (i) your commission of any act of
fraud, embezzlement or dishonesty, (ii) your unauthorized use or disclosure of
any confidential information or trade secrets of the Company, (iii) any
intentional misconduct by you, whether by omission or commission, which has an
adverse effect upon the Company's business or affairs as determined in the sole
discretion of the Company's Board of Directors, (iv) your breach of that certain
Employment Agreement between you and the Company effective January 6, 2003; (v)
your breach of the Company's Confidentiality, Proprietary Information and
Inventions Agreement, (vi) your continued failure to perform the major duties,
functions and responsibilities of your position after written notice from the
Company identifying the deficiencies in your performance and a reasonable cure
period of not less than thirty (30) days or (vii) a material breach of your
fiduciary duties as an officer of the Company.

         PART TWO - TERMINATION/CHANGE IN CONTROL BENEFITS

         Your benefits under this Part Two will in all events be subject to the
benefit limitations of Part Three and the restrictive covenants of Part Four of
this letter agreement and will be in lieu of all other severance benefits to
which you might otherwise be entitled upon termination of your employment.

         A. SEVERANCE BENEFITS UPON AN INVOLUNTARY TERMINATION PRIOR TO A CHANGE
IN CONTROL.

         Should your employment with the Company terminate by reason of an
Involuntary Termination at any time prior to and not in connection with a Change
in Control, you will become entitled to receive the following severance
benefits, provided you execute and deliver to the Company, at the time of such
Involuntary Termination, a General Release in substantially the form of attached
Exhibit 1:

<PAGE>


         1. ACCELERATED VESTING OF OUTSTANDING OPTIONS UPON AN INVOLUNTARY
TERMINATION.

         Each outstanding Option which you hold at the time of your Involuntary
Termination, to the extent not otherwise exercisable for all the shares of
Common Stock subject to that Option as fully vested shares, will immediately
vest and become exercisable for the number of additional shares in which you
would have vested had you remained in the Company's employ for a period of
twelve (12) months following the Involuntary Termination. Each such accelerated
Option will remain exercisable until the earlier of (x) the expiration of the
option term or (y) the end of the six (6)-month period following the date of
your Involuntary Termination. Any Options not exercised prior to the expiration
of the applicable post-service exercise period will lapse and cease to remain
exercisable. As a result of the extension of the post-termination exercise
periods for Options outstanding on the date of this agreement, those Options, to
the extent designated as Incentive Options, will no longer be treated as
Incentive Options for Federal tax purposes; instead, such Options will be
treated as Non-Statutory Options for Federal tax purposes and accordingly you
will recognize ordinary income upon exercise of such Options. All such income
will be subject to applicable income and employment withholding taxes.

         2. SEVERANCE PAYMENT.

         Following your Involuntary Termination, you will receive severance
payments from the Company equal to your monthly rate of Base Salary [for a
period of one (1) month plus an additional month for each completed quarter of
service to the Company measured from January 6, 2003 (the date of your hire) up
to a maximum of twelve (12) months]. The salary continuation payments shall be
paid to you in equal installments following your Involuntary Termination in
accordance with the Company's normal payroll practices and subject to all
applicable withholding taxes. The payments will immediately terminate in the
event you fail to abide by the restrictive covenants set forth in Part Four of
this letter agreement.

         3. HEALTH CARE COVERAGE.

         The Company will, at its expense, continue to provide you and your
eligible dependents with the Company's paid portion of health care coverage
under the Company's medical/dental plan until the earlier of (i) the expiration
of that number of months equal to the Severance Period measured from the first
day of the first month following the effective date of your Involuntary
Termination or (ii) the first date that you are covered under another employer's
health benefit program which provides substantially the same level of benefits
without exclusion for pre-existing medical conditions. Such Health Care Coverage
will be in lieu of any other


<PAGE>

continued health care coverage to which you or your dependents would otherwise
be entitled at your own cost under Code Section 4980B by reason of your
termination of employment.


         B. ACCELERATED VESTING OF STOCK BONUS UPON A CHANGE IN CONTROL

         In accordance with the terms of the 2003 Stock Bonus Plan specified in
the letter dated January 6, 2003 (the "Stock Bonus Letter"), immediately
following the effective date of a Change in Control (as such term is defined in
the Stock Bonus Letter), you will be entitled to receive the shares of Common
Stock under your stock bonus grant. This payment will be made provided you
remain an employee of the Company through the effective date of such Change in
Control. Upon the Change in Control, you will recognize taxable income equal to
the fair market value of the shares which vest at such time; all such income
will be subject to the applicable income and employment withholding taxes.

         C. ACCELERATED VESTING OF OUTSTANDING OPTIONS UPON AN INVOLUNTARY
TERMINATION IN CONNECTION WITH A CHANGE IN CONTROL.

         Should your employment with the Company terminate by reason of an
Involuntary Termination (i) immediately prior to and in connection with, (ii)
upon or (iii) within the twelve (12) months following a Change in Control,
provided you execute and deliver to the Company, at the time of such Involuntary
Termination, a General Release in substantially the form of attached Exhibit 1,
each outstanding Option which you hold upon the effective date of your
Involuntary Termination, to the extent not otherwise exercisable for all the
shares of Common Stock subject to that Option as fully vested shares, will
immediately vest in full and become exercisable. Each such accelerated Option
will remain exercisable until the earlier of (x) the expiration of the option
term or (y) the end of the six (6)-month period following the date of your
Involuntary Termination. Any Options not exercised prior to the expiration of
the applicable post-service exercise period will lapse and cease to remain
exercisable. As a result of the extension of the post-termination exercise
periods for Options outstanding on the date of this agreement, those Options, to
the extent designated as Incentive Options, will no longer be treated as
Incentive Options for Federal tax purposes; instead, such Options will be
treated as Non-Statutory Options for Federal tax purposes and accordingly you
will recognize ordinary income upon exercise of such Options. All such income
will be subject to applicable income and employment withholding taxes.

<PAGE>

                      Part Three -- LIMITATION ON BENEFITS

         1. BENEFIT LIMIT.

         The aggregate Present Value (measured as of the Change in Control) of
the benefits to which you become entitled under Part Two at the time of your
Involuntary Termination, namely, the salary continuation payments, the Option
Parachute Payment attributable to your Severance-Accelerated Options and your
Health-Care Coverage, will in no event exceed in amount the dollar amount (the
"Benefit Limit") which yields you the greatest after-tax amount of benefits
under Part Two of this letter agreement after taking into account any excise tax
imposed under Code Section 4999 on the payments and benefits which are provided
you under Part Two or which constitute Other Parachute Payments.

         The Stock Bonus Parachute Payment and the Option Parachute Payment
attributable to the accelerated vesting of your Acquisition-Accelerated Options
(if any) at the time of the Change in Control shall also be subject to the
Benefit Limit.

         For purposes of applying the Benefit Limit to your benefits under Part
Two, the value of your non-competition covenant under Part Four of this letter
agreement shall be determined through independent appraisal by a
nationally-recognized independent accounting firm acceptable to both you and the
Company and obtained solely at the Company's cost, and a portion of your Part
Two benefits shall, to the extent of such appraised value, be specifically
allocated as reasonable compensation for your non-competition covenant.


         2. RESOLUTION PROCEDURE.

         In the event there is any disagreement between you and the Company as
to whether one or more payments to which you become entitled in connection with
either the Change in Control or your subsequent Involuntary Termination
constitute Parachute Payments, Option Parachute Payments or Other Parachute
Payments or as to the determination of the Present Value of any of those
payments, such dispute will be resolved as follows:

                  (i) In the event temporary, proposed or final Treasury
         Regulations in effect at the time under Code Section 280G (or
         applicable judicial decisions) specifically address the status of any
         such payment or the method of valuation therefor, the characterization
         afforded to such payment by the Regulations (or such decisions) will,
         together with the applicable valuation methodology, be controlling.


<PAGE>
                  (ii) In the event Treasury Regulations (or applicable judicial
         decisions) do not address the status of any payment in dispute, the
         matter will be submitted for resolution to independent tax counsel
         mutually acceptable to you and the Company ("Independent Counsel"). The
         resolution reached by Independent Counsel will be final and
         controlling; provided, however, that if in the judgment of Independent
         Counsel the status of the payment in dispute can be resolved through
         the obtainment of a private letter ruling from the Internal Revenue
         Service, a formal and proper request for such ruling will be prepared
         and submitted by Independent Counsel, and the determination made by the
         Internal Revenue Service in the issued ruling will be controlling. All
         expenses incurred in connection with the retention of Independent
         Counsel and (if applicable) the preparation and submission of the
         ruling request will be shared equally by you and the Company.

                  (iii) In the event Treasury Regulations (or applicable
         judicial decisions) do not address the appropriate valuation
         methodology for any payment in dispute, the Present Value thereof will,
         at the Independent Counsel's election, be determined through an
         independent third-party appraisal, and the expenses incurred in
         obtaining such appraisal will be shared equally by you and the Company.

         3. STATUS OF BENEFITS.

                  A. No benefits shall be provided you under Part Two of this
         letter agreement (including the accelerated vesting of your outstanding
         Options, the salary continuation payments and the Company-paid Health
         Care Coverage) until the Present Value of the Option Parachute Payment
         attributable to both your Severance-Accelerated Options and your
         Acquisition-Accelerated Options and the Stock Bonus Payment has been
         determined and the status of any payments in dispute under Paragraph 2
         above has been resolved in accordance therewith. The post-service
         exercise period in effect for your Options shall be stayed and shall
         not run until the resolution process hereunder is completed.

                  B. Once the requisite determinations under Paragraph 2 have
         been made, then to the extent the aggregate Present Value, measured as
         of the Change in Control, of (i) the Option Parachute Payment
         attributable to your Severance-Accelerated Options (or installments
         thereof) plus (ii) the Parachute Payment attributable to your other
         benefit entitlements under Part Two of this letter agreement would,
         when added to the Present Value of all your Other Parachute Payments
         (including the Stock Bonus Parachute Payment and the Option Parachute
         Payment attributable to your Acquisition-Accelerated Options), exceed
         the Benefit Limit, first your salary continuation payments will be
         reduced and then the period of your Company-paid Health Care Coverage
         will be shortened, to the extent necessary to assure that such Benefit
         Limit is not exceeded. To the extent such Benefit


<PAGE>

         Limit is still exceeded following such reductions, then the number of
         shares for which your Options are to vest on an accelerated basis
         pursuant to Part Two (based on the amount of the Option Parachute
         Payment attributable to each Option) shall be reduced to the extent
         necessary to eliminate such excess.


                   PART FOUR -- SPECIAL RESTRICTIVE COVENANTS

         1. CESSATION OF BENEFITS.

         Your entitlement to your salary continuation payments and Company-paid
Health Care Coverage under this letter agreement will immediately cease, should
you:


                  (a) render, anywhere in the United States, any services or
         provide any advice or assistance to any Competing Business, whether as
         an employee, consultant, partner, principal, agent, representative,
         equity holder or in any other capacity, without the express prior
         written consent of the Company. However, nothing in Part Four, subpart
         1(a) will limit your making any passive investment representing an
         interest of less than two percent (2%) of an outstanding class of
         publicly-traded securities of any corporation or other enterprise;

                  (b) solicit customers, clients, suppliers, agents or other
         persons or entities under contract or otherwise associated or doing
         business with the Company and/or its controlled affiliates to reduce or
         alter any such association or business with the Company and/or its
         controlled affiliates on behalf of any Competing Business; and/or

                  (c) solicit any employee or contractor of the Company and/or
         its controlled affiliates to (i) alter or reduce such relationship with
         the Company, and/or (ii) accept employment, or enter into any
         consulting arrangement, with any person other than Company and/or its
         controlled affiliates.

         A COMPETING BUSINESS shall mean the five (5) companies designated by
the Company on the list attached hereto as Exhibit 2. The Company may revise
Exhibit 2 at any time by adding names to, or subtracting names from, such list;
provided, however, that the Company must comply with the following requirements
in making any changes to Exhibit 2: 1) absent your express written consent, any
such change to Exhibit 2 must be made at least ninety days before termination of
your employment for any reason; 2) any change must be made in writing and either
personally delivered to you or sent to your last known address by certified mail
return receipt requested; and 3) the Company can never include more than five
(5) company names on Exhibit 2. (Thus, if


<PAGE>

Exhibit 2 contains five (5) company names and the Company adds one or more
company names to Exhibit 2, then it must delete a like number. If the Company
publishes a version of Exhibit 2 with more than five (5) names, then such list
will not be binding and the last version of Exhibit 2 with five (5) Company
names will be binding.)


                           PART FIVE -- MISCELLANEOUS

         1. AMENDMENT AND TERMINATION.

         This letter agreement may only be amended by written instrument signed
by you and an authorized officer of the Company. This letter agreement shall
remain in effect through December 31, 2003 or any earlier termination of your
employment with the Company. Provided you continue in the Company's employ, this
letter agreement shall automatically be renewed for successive one (1)-year
terms, beginning January 1, 2004, unless the Company provides you with written
notice of termination of this letter agreement at least thirty (30) days prior
to the start of any such one (1)-year renewal period. Once a Change in Control
occurs, this letter agreement may not be terminated at any time prior to the
expiration of the twelve (12)-month period following the effective date of that
Change of Control, and no subsequent termination of this letter agreement shall
adversely affect your right to receive any benefits to which you may have
previously become entitled hereunder in connection with your Involuntary
Termination following that Change in Control.


         2. TERMINATION FOR CAUSE.

         Should your employment cease by reason of a Termination for Cause, then
the Company will only be required to pay you (i) any unpaid compensation earned
for services previously rendered through the date of such termination and (ii)
any accrued but unpaid vacation benefits or sick days, and no benefits will be
payable to you under Part Two of this letter agreement.


         3. DEATH.

         Should you die before receipt of one or more salary continuation
payments to which you become entitled under this letter agreement, then those
payments will be made to the executors or administrators of your estate. Should
you die before you exercise all your outstanding Options as accelerated
hereunder, then such Options may be exercised, within twelve (12) months after
your death, by the executors or administrators of your estate or by persons to
whom the Options are transferred pursuant to your will or in accordance with the
laws of inheritance. In no event, however, may any such Option be exercised
after the specified expiration date of the option term.


<PAGE>

         4. INDEMNIFICATION.

         The indemnification provisions for Officers and Directors under the
Company By-Laws will (to the maximum extent permitted by law) be extended to
you, during the period following your Involuntary Termination, with respect to
any and all matters, events or transactions occurring or effected during your
period of employment with the Company.

         5. MISCELLANEOUS.

         This letter agreement will be binding upon the Company, its successors
and assigns (including, without limitation, the surviving entity in any Change
in Control) and is to be construed and interpreted under the laws of the State
of Texas. This letter agreement supersedes all prior agreements between you and
the Company relating to the subject of severance benefits payable upon an
Involuntary Termination, and you will not be entitled to any other severance
benefits upon such a termination other than those that are provided in this
letter agreement. If any provision of this letter agreement as applied to you or
the Company or to any circumstance should be adjudged by a court of competent
jurisdiction to be void or unenforceable for any reason, the invalidity of that
provision will in no way affect (to the maximum extent permissible by law) the
application of such provision under circumstances different from those
adjudicated by the court, the application of any other provision of this letter
agreement, or the enforceability or invalidity of this letter agreement as a
whole. Should any provision of this letter agreement become or be deemed
invalid, illegal or unenforceable in any jurisdiction by reason of the scope,
extent or duration of its coverage, then such provision will be deemed amended
to the extent necessary to conform to applicable law so as to be valid and
enforceable or, if such provision cannot be so amended without materially
altering the intention of the parties, then such provision will be stricken and
the remainder of this letter agreement will continue in full force and effect.

         6. GENERAL CREDITOR STATUS.

         All cash payments to which you become entitled hereunder will be paid,
when due, from the general assets of the Company, and no trust fund, escrow
arrangement or other segregated account will be established as a funding vehicle
for such payment. Accordingly, your right (or the right of the personal
representatives or beneficiaries of your estate) to receive such cash payments
hereunder will at all times be that of a general creditor of the Company and
will have no priority over the claims of other general creditors.



<PAGE>

         7. AT WILL EMPLOYMENT.

         Nothing in this letter agreement is intended to provide you with any
right to continue in the employ of the Company (or any subsidiary) for any
period of specific duration or interfere with or otherwise restrict in any way
your rights or the rights of the Company (or any subsidiary), which rights are
hereby expressly reserved by each, to terminate your employment at any time and
for any reason, with or without cause.











                            [SIGNATURE PAGE FOLLOWS]




         Please indicate your agreement with the foregoing terms and conditions
of your severance package (including, without limitation, the conversion of any
Incentive Options into Non-Statutory Options) by signing the Acceptance section
of the enclosed copy of this letter and returning it to the Company.

                                              Very truly yours,

                                              CROSSROADS SYSTEMS, INC.


                                    By:
                                       ----------------------------------------

                                    Title:
                                          -------------------------------------





<PAGE>


                                   ACCEPTANCE

         I hereby agree to all the terms and provisions of the foregoing letter
agreement governing the special benefits to which I may become entitled in the
event my employment should terminate under certain prescribed circumstances
including certain terminations following a substantial change in control or
ownership of the Company.



                       Signature:
                                 ----------------------------------------------

                       Dated:
                             --------------------------------------------------

                       Address














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