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                                                                   EXHIBIT 10.12



                              EMPLOYMENT AGREEMENT

        THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into by and between
VIXEL CORPORATION ("Company"), a Delaware corporation, and JAMES M. MCCLUNEY
("Employee") (collectively, "Parties"), effective as of April 26, 1999 (the
"Effective Date").

                               W I T N E S S E T H

        WHEREAS, the Company desires to employ Employee; and

        WHEREAS, Employee desires to be employed by the Company under the terms
and conditions herein.

        NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:

1. EMPLOYMENT BY THE COMPANY. The Company hereby employs Employee to render
exclusive and full-time services to the Company as a President and Chief
Executive Officer, and will report directly to the Company's Board of Directors.
So long as Employee is employed as the Company's Chief Executive Officer, he
will be entitled to be elected as a Director of the Company. Employee shall have
the responsibilities, duties and authorities that are customarily associated
with such position. The Company may modify Employee's duties and objectives at
their discretion from time to time. Employee's employment shall commence no
later than April 26, 1999. (The date Employee commences providing service as a
President and Chief Executive Officer is referred to herein as the "Start
Date").

2. COMPENSATION. The Company agrees to pay Employee base salary and bonus as
described below.

        2.1 SALARY. The Company will pay Employee at an annual base salary rate
of $300,000 for his first year of employment. Thereafter, the Compensation
Committee of the Company's Board of Directors will review Employee's base salary
rate on an annual basis and make adjustments to such compensation as the Board
or Compensation Committee, in its sole discretion, deems appropriate. Paychecks
will be distributed pursuant to ordinary business practice, and shall be subject
to normal payroll deductions and tax withholdings.

        2.2 INCENTIVE BONUS. The Company will pay Employee an annual incentive
bonus ranging from 0% to 100% of his base salary rate then in effect (the
"Incentive Bonus"), with an on target payout of 50%, based upon performance
criteria to be determined by the Board Compensation Committee. By mutual
agreement between the Employee and the Board, some portion of this amount may be
paid in equity or deferred. If the deferral option is chosen, any subsequent
termination of Employment without Cause shall not affect Employee's entitlement
to such Incentive Bonus, which shall become fully due and payable upon such
termination without Cause. The Incentive Bonus is earned by Employee and vested
if (a) the performance objectives established by the Company's Compensation
Committee for a particular year have been satisfied

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during that year and (b) Employee is employed by the Company as its President
and Chief Executive Officer for the year and during the first quarter of the
following calendar year. The establishment and interpretation of each year's
performance objective and the satisfaction thereof shall be determined by the
Compensation Committee in their sole discretion. If any Incentive Bonus is
earned and vested, it will be paid during the first quarter of the following
calendar year. Nothing in this paragraph shall alter the Employee's or the
Company's Party's right to terminate Employee's employment with the Company at
any time for any reason whatsoever, with or without cause or advance notice.
Employee's first evaluation period for his Incentive Bonus shall be from April
26, 1999 to December 31, 1999, and his bonus will be based on the percentage
determined by the Compensation Committee multiplied by his salary paid or
accrued during such period.

        2.3 STOCK OPTIONS. Subject to approval by the Company's Board of
Directors, the Company will grant to Employee a certain stock option pursuant to
terms established by the Company's Board of Directors.

        2.4 RELOCATION EXPENSES. The Company will reimburse the employee for the
following expenses if incurred by Employee in relocating to Washington to begin
services as an employee of the Company: (a) the following costs incurred by
Employee that are associated with the sale of his current residential dwelling
and the purchase of a residential dwelling for occupancy by Employee and his
immediate family in the - Washington area: (i) reasonable and customary
commissions paid to a licensed real estate agent, (ii) reasonable and customary
mortgage origination fees (points), (iii) reasonable and customary title
insurance, and (iv) reasonable and necessary closing fees, and (b) reasonable
and customary expenses incurred by Employee in transporting his household goods
to the, Washington area. Such expenses will be reimbursed by the Company upon
presentation by Employee of documentation establishing that the expenses were
incurred by Employee, reflecting the reason the expenses were incurred, and
reflecting the date incurred and date paid. This obligation to reimburse
Employee is valid for one year from the start date. The Company agrees to gross
up the amount of any reimbursement due under this paragraph, based on the
federal and applicable state income tax rates in effect for Employee, to
compensate Employee for any amount taxable to Employee as income. The parties
agree that these expenses are expected not to exceed $150,000.000.

        2.5 TEMPORARY HOUSING. For a period beginning on the Start Date and
concluding no later than 6 months thereafter, the Company will pay directly or
reimburse Employee for the reasonable and customary rental costs incurred in
renting temporary housing in the Bothell, Washington area. The reimbursement
shall not exceed $3,000.00 per month of housing provided. The Company agrees
to gross up the amount of any reimbursement due under this paragraph, based on
the federal and applicable state income tax rates in effect for Employee, to
compensate Employee for any amount taxable to Employee as income.

        2.6 CAR ALLOWANCE. For a period beginning on the Start Date and
concluding no later than 6 months thereafter, the Company will pay directly or
reimburse Employee for normal and customary car rental expenses up to a maximum
of $1,500.00 per month. The expenses covered include only those charged by the
rental agency for use of the car, and do not include



                                       2.
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fuel, maintenance, insurance, or any other expenses. The Company agrees to gross
up the amount of any reimbursement due under this paragraph, based on the
federal and applicable state income tax rates in effect for Employee, to
compensate Employee for any amount taxable to Employee as income. Employee
agrees to indemnify the Company for any losses suffered by the Company
attributable to Employee's use of the rental car, including without limitation
accidents involving the rental car, personal injury or property damage
associated with use of the rental car, theft of the rental car, or deliberate
misconduct involving the rental car. Employee agrees to procure all appropriate
insurance to operate the rental car. In no event will the Company's obligation
to Employee under this paragraph exceed $2,000.00 per month.

        2.7 SAVINGS PLAN. Employee will be eligible to participate in the
Company's 401(k) Savings Plan. A copy of the Plan is available upon Employee's
request. The Plan may be amended or terminated at the sole election of the
Company.

        2.8 BENEFITS. The Company also agrees to provide Employee with benefits
consistent with Company policy and practice for its employees, including paid
vacation in accordance with the Company's policy applicable to other officers,
and participation in the Company's group health, life, and disability insurance
plans for Employee and Employee's dependents. Details about these benefits are
provided in the Company's employee handbook and summary plan descriptions.

3. EMPLOYEE HANDBOOK. By signing this Agreement, Employee acknowledges that he
has received, read and agrees to be bound by, the Company's employee handbook.
Employee agrees to abide by all Company policies and procedures. Employee
acknowledges that nothing in the handbook, or in the Company policies or
procedures constitute a contract of employment. The handbook in no manner alters
the terms set forth herein.

4. ADDITIONAL ACTIVITIES. Employee agrees that during the period of Employee's
employment by the Company, Employee will not, without the Board of Director's
written approval, engage in any employment or business activity other than for
the Company that would adversely affect Employee's ability to perform Employee's
obligations hereunder. As the sole exception and for the period beginning on the
Start Date and concluding no later than 90 days thereafter, Employee may
continue efforts to complete pending projects with Employee's former employer so
long as the activities do not conflict with any obligation Employee owes to the
Company.

5. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT; NONCOMPETITION AND
NONSOLICITATION AGREEMENT. Employee agrees and acknowledges that he has executed
and is bound by the terms of the Company's Proprietary Information and
Inventions Agreement. Concurrently with the execution of this Employment
Agreement, Employee will sign the Noncompetition and Nonsolicitation Agreement
in the form attached as Exhibit B.

6. TERMINATION OF EMPLOYMENT. Employee and the Company each acknowledge that
either Party has the right to terminate Employee's employment with the Company
at any time for any reason whatsoever, with or without cause or advance notice.


                                       3.
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        6.1 TERMINATION FOR CAUSE. The Company shall have the right to terminate
Employee's employment with the Company at any time for cause. "Cause" for
termination shall mean: (i) Employee has committed any material act of
embezzlement, fraud or misconduct; (ii) Employee is convicted of any or pleads
nolo contendere to felony involving moral turpitude; (iii) Employee engages in
competition with the Company or breaches his obligations under this Agreement;
or (iv) Employee causes material damage to Company through intentional
misconduct or gross neglect of the duties customary to his office. No activities
covered by items (iii) and (iv) will be deemed to be "cause" unless the company
has notified Employee of the prohibited activity in writing and Employee has
failed to cease such activity within 15 days. In the event Employee's employment
is terminated at any time with cause, he will not be entitled to severance pay,
severance payments (as defined below), Incentive Bonus, pay in lieu of notice or
any other such compensation. Nothing herein will affect Employee's rights with
respect to any options vested as of the time of termination.

        6.2 TERMINATION WITHOUT CAUSE. The Company shall have the right to
terminate Employee's employment with the Company at any time without cause. In
the event Employee's employment is terminated by the Company without cause, then
the Company will provide the severance benefits described in the subparts below
("Severance Benefits"). Employee will also be entitled to receive any bonus
payments that he elected to defer. In consideration for such Severance Benefits,
Employee shall execute a General Release in the form of Exhibit A that releases
the Company from liability for any and all claims, known or unknown that the
Employee may have at the time of the termination.

               (a) The Company shall pay Employee severance in the amount of one
year's salary at the rate in effect at time of termination less all required
deductions and withholdings ("Severance Payments"), payable in the normal
payroll cycle. In addition, the vesting of Employee's stock options will
continue for one year following the termination without cause provided that
Employee is in compliance with and continues to act in compliance with all the
obligations imposed on him pursuant to the Proprietary Information and
Inventions Agreement referred to in paragraph 5 above.

               (b) Should Employee timely elect to continue coverage pursuant to
COBRA, the Company agrees to reimburse Employee for the COBRA premiums he pays
in order to maintain health insurance coverage for a period of one year after
termination of employment that is substantially equivalent to that he received
immediately prior to the termination. Employee is responsible to provide to the
Company documentation establishing that he paid the COBRA premium and reflecting
the extent of the coverage. The Company's obligation to provide COBRA
reimbursement under this paragraph shall cease on the earlier of (i) one year
after the termination of employment or (ii) if Employee obtains employment, then
the date any waiting period for insurance coverage through the new employer
expires.

        6.3 VOLUNTARY TERMINATION. Employee may voluntarily terminate his
employment with the Company at any time, after which no further compensation
will be paid to Employee. In the event Employee voluntarily terminates his
employment, he will be entitled to receive any



                                       4.
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bonus payments that he has elected to defer, but he will not be entitled to
severance pay, Severance Payments, Incentive Bonus, pay in lieu of notice or any
other such compensation.

7. NOTICES. All notices, requests, consents and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if personally delivered or delivered by registered or certified
mail (return receipt requested), or private overnight mail (delivery confirmed
by such service), to the following addresses, or to such other address as either
Party shall designate by notice in writing to the other in accordance herein: if
to the Company: to the Chairman of the Board at his or her personal or business
address; if to Employee: at such address provided to the Company by him.

8. ARBITRATION. To ensure rapid and economical resolution of any and all
disputes directly or indirectly arising out of or in any way connected with
Employee's employment with the Company or the termination of that employment,
with the sole exception of disputes which arise under Employee's Proprietary
Information and Inventions Agreement, (collectively, the "Arbitrable Claims"),
the Company and Employee each agree that any and all such disputes, whether of
law or fact of any nature whatsoever, shall be resolved by final and binding
arbitration under the procedures set forth in Exhibit C to this Agreement and
the then existing American Arbitration Association ("AAA") arbitration
procedures (except insofar as they are inconsistent with the procedures set
forth in Exhibit C). The Arbitrable Claims shall include, but not be limited to:
any and all such claims related to salary, bonuses, commissions, stock, stock
options, or any other ownership interests in the Company, vacation pay, fringe
benefits, expense reimbursements, severance benefits, or any other form of
compensation; claims pursuant to any federal, state or local law or cause of
action including, but not limited to, the federal Civil Rights Act of 1964, as
amended; the federal Age Discrimination in Employment Act of 1967, as amended
("ADEA"); the federal Americans with Disabilities Act of 1990; state and federal
common law; tort law; contract law; wrongful discharge; discrimination; fraud;
defamation; emotional distress; and breach of the implied covenant of good faith
and fair dealing. Employee and the Company acknowledge and agree that any and
all rights they may otherwise have to resolve such Arbitrable Claims by jury
trial, by a court, or in any forum other than the AAA, are hereby expressly
waived.

9. GENERAL.

        9.1 ENTIRE AGREEMENT. This Agreement and the Company's Proprietary
Information and Inventions Agreement set forth the complete, final and exclusive
embodiment of the entire agreement between Employee and the Company with respect
to the subject matter therein. This Agreement is entered into without reliance
upon any promise, warranty or representation, written or oral, other than those
expressly contained herein, and it supersedes any other such promises,
warranties, representations or agreements. This Agreement may not be amended or
modified except in a written instrument signed by Employee and a duly authorized
officer or director of the Company.

        9.2 SEVERABILITY. If a court of competent jurisdiction determines that
any term or provision of this Agreement is invalid or unenforceable, then the
remaining terms and provisions



                                       5.
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shall be unimpaired. Such court shall have the authority to modify or replace
the invalid or unenforceable term or provision with a valid and enforceable term
or provision which most accurately represents the Parties' intention with
respect to the invalid or unenforceable term or provision.

        9.3 SUCCESSORS AND ASSIGNS. This Agreement shall bind the heirs,
personal representatives, successors, assigns, executors and administrators of
each Party, and inure to the benefit of each Party, its heirs, successors and
assigns. Because of the unique and personal nature of Employee's duties under
this Agreement, Employee may not delegate the performance of his duties under
this Agreement.

        9.4 APPLICABLE LAW. This Agreement shall be deemed to have been entered
into and shall be construed and enforced in accordance with the laws of the
State of Washington as applied to contracts made and to be performed entirely
within Washington.

        9.5 FORUM. Any controversy arising out of or relating to this Agreement
or the breach thereof, or any claim or action to enforce this Agreement or
portion thereof, or any controversy or claim requiring interpretation of this
Agreement must be brought in a forum located within the State of Washington. No
such action may be brought in any forum outside the State of Washington. Any
action brought in contravention of this paragraph by one party is subject to
dismissal at any time and at any stage of the proceedings by the other, and no
action taken by the other in answering, defending, counterclaiming, appealing or
otherwise shall be construed as a waiver of this right to immediate dismissal. A
party bringing an action in contravention of this paragraph shall be liable to
the other party for the costs, expenses and attorney's fees incurred in
successfully dismissing the action or successfully transferring the action to a
forum located within the State of Washington.

        9.6 HEADINGS. The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.

        9.7 COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, all of which together shall
constitute one and the same instrument.

        IN WITNESS WHEREOF, the Parties have duly authorized and caused this
Agreement to be executed as follows:

                                       VIXEL CORPORATION, a Delaware corporation

                                       By: /s/ Kurtis L. Adams
Employee: /s/ JAMES M. MCCLUNEY            ---------------------------
         ------------------------
           James M. McCluney
                                       Title: CFO
Date: 6/21/99 effective 4/26/99               -------------------------
      ---------------------------      Date: 6/21/99, effective 4/26/99
                                             --------------------------


                                       6.
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                                    EXHIBIT C

                              ARBITRATION PROCEDURE

        1. The Parties agree that any dispute that arises in connection with
this Agreement or the termination of this Agreement shall be resolved by binding
arbitration in the manner described below.

        2. A Party intending to seek resolution of any dispute under the
Agreement by arbitration shall provide a written demand for arbitration to the
other Party, which demand shall contain a brief statement of the issues to be
resolved.

        3. The arbitration shall be conducted by the American Arbitration
Association ("AAA"). At the request of either Party, subject to paragraph 10
below regarding judicial enforcement of the decree or judgment of an award
rendered by the arbitrator, arbitration proceedings will be conducted in the
utmost secrecy and, in such case, all documents, testimony and records shall be
received, heard and maintained by the arbitrator(s) in secrecy under seal,
available for inspection only by the Parties to the arbitration, their
respective attorneys, and their respective expert consultants or witnesses who
shall agree, in advance and in writing, to receive all such information
confidentially and to maintain such information in secrecy, and make no use of
such information except for the purposes of the arbitration, unless compelled by
legal process.

        4. The arbitrator(s) is required to disclose any circumstances that
might preclude the arbitrator from rendering an objective and impartial
determination.

        5. The Party demanding arbitration shall promptly request that AAA
conduct a scheduling conference within fifteen (15) days of the date of that
Party's written demand for arbitration or on the first available date thereafter
on the arbitrator's calendar. The arbitration hearing shall be held within
thirty (30) days after the scheduling conference or on the first available date
thereafter on the arbitrator's calendar. Nothing in this paragraph shall prevent
a Party from at any time seeking temporary equitable relief, from AAA or any
court of competent jurisdiction, to prevent irreparable harm pending the
resolution of the arbitration.

        6. Discovery shall be conducted as follows: (a) prior to the arbitration
any Party may make a written demand for lists of the witnesses to be called and
the documents to be introduced at the hearing; (b) the lists must be served
within fifteen days of the date of receipt of the demand, or one day prior to
the arbitration, whichever is earlier; and (c) each Party may take no more than
two depositions (pursuant to the procedures of Washington law) with a maximum of
five hours of examination time per deposition, and no other form of
pre-arbitration discovery shall be permitted.

        7. It is the intent of the Parties that the Federal Arbitration Act
("FAA") shall apply to the enforcement of this provision unless it is held
inapplicable by a court with jurisdiction over the dispute, in which event
Washington law with regard to arbitration shall apply.




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        8. The arbitrator(s) shall apply Washington law, and shall be able to
decree any and all relief of an equitable nature, including but not limited to
such relief as a temporary restraining order, a preliminary injunction, a
permanent injunction, or replevin of Company property. The arbitrator(s) shall
also be able to award actual, general or consequential damages, but shall not
award any other form of damage (e.g., punitive damages).

        9. The arbitrator(s) shall render a written award setting forth the
reasons for the arbitration decision. The decree or judgment of an award
rendered by the arbitrator may be entered and enforced in any court having
jurisdiction over the Parties. The award of the arbitrator(s) shall be final and
binding upon the Parties without appeal or review except as permitted by the
FAA, or if the FAA is not applicable, as permitted by Washington law.

        10. The Parties agree that the arbitration procedures set forth in this
Exhibit C shall be superseded and replaced by any change the Company makes to
its arbitration procedures that are generally applicable to its employees,
provided that any such change is no more restrictive on the Employee than the
procedures set forth herein.