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                                                                   EXHIBIT 10.12


John Middleton                                                           Page 1
February 19, 2001

                                February 19, 2001




Mr. John Middleton
Vice President, Engineering
Crossroads Systems, Inc.



         Re:  Severance Agreement and General Release

Dear John:



         In connection with the resignation of your employment as Vice
President, Engineering of Crossroads Systems, Inc. ("Crossroads" or the
"Company"), the Company is offering you a severance package in exchange for your
agreement to release the Company from any and all claims. The details of the
severance package and release are explained below. We encourage you to review
this document carefully and to discuss it with an attorney.

         In consideration of the mutual promises contained herein and certain
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:

         SEVERANCE.

         The Company agrees to provide you with the following severance package
in exchange for your agreement to release the Company from any and all claims as
set forth below.

o        Your last day of employment shall be January 31, 2001;

o        The Company shall provide to you, seven (7) days after this agreement
         is signed by both parties, 6 months' pay, calculated at your base
         compensation of $149,000 per year, less statutory deductions and
         withholdings;

o        You were issued initial option grants (the "Option") to purchase 45,000
         shares of common stock (the "Option Shares") at an exercise price of
         $0.10 granted pursuant to the Company's 1996 Stock Option/Stock
         Issuance Plan on February 1, 1997. You were also issued an option (the
         "Option") to purchase 15,000 shares of common stock (the "Option
         Shares") at an exercise price of $0.233 granted pursuant to the
         Company's 1996 Stock Option/Stock Issuance Plan on May 13, 1998. You
         were also issued a second option (the "Option") to purchase 22,500
         shares of common stock (the "Option Shares") at an exercise price of
         $0.833 granted pursuant to the Company's 1996 Stock Option/Stock
         Issuance Plan on March 17, 1999. You purchased certain of these shares
         in advance of vesting pursuant to a Promissory Note, identified below.
         You were also issued a third option (the "Option") to purchase 10,000
         shares of common stock (the "Option Shares") at an exercise price of
         $39.875 granted pursuant to the Company's 1999 Stock Option/Stock
         Issuance Plan on May 17, 2000. You were also issued a fourth option
         (the "Option") to purchase 50,000 shares of common stock (the "Option
         Shares") at an exercise price of $4.5625 granted pursuant to the
         Company's 1999 Stock Option/Stock Issuance Plan on July 31, 2000. To
         the extent outstanding but not otherwise vested, certain of these
         Options Shares shall automatically accelerate as to a part of the
         Option so that the total number of vested Option Shares for which the
         Option shall be


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         exercisable after taking such acceleration into account shall be equal
         to the number of Option Shares in which you would have vested under the
         normal vesting/exercise schedule in effect for the Option had you
         completed service through July, 2001 for a total number of vested
         shares of 32,344. You will be subject to compliance with all applicable
         requirements of law relating thereto (including, but not limited to,
         Rule 144 promulgated under the Securities Act of 1933, as amended) and
         with all applicable regulations of any stock exchange (or the Nasdaq
         National Market, if applicable) on which the Common Stock may be listed
         for trading as of the date hereof;

o        You will continue to be liable for the Promissory Note of Twenty-Two
         Thousand Two Hundred and Fifty Dollars ($22,250), plus interest,
         pursuant to the terms of Exhibit B attached hereto. Actual repayment
         amounts are located on Exhibit D (factored in to this calculation,
         among other things, is the purchase in advance of vesting and
         interest). Repayment of the above Promissory Note in full, including
         all principal and interest, shall be within thirty (30) days following
         resignation;

o        The Company shall provide to you continued access to your cell phone
         for 90 days following resignation, and you agree that any usage by you
         will be consistent to as if you'd remain an active employee;

o        The Company shall give to you the laptop currently in your possession;

o        The Company shall continue to provide PricewaterhouseCoopers financial
         services support through the end of the Crossroads fiscal year; and


YOUR AGREEMENT.

         By signing this Agreement and accepting the severance as outlined
above, you agree to waive, release, and forever discharge Crossroads and its
parents, successors, assigns, divisions, subsidiaries, affiliates, partners,
officers, directors, executives, investors, shareholders, managers, supervisors,
employees, agents, attorneys and representatives (the "Released Parties" or
"Releasees"), from any and all claims, demands, and causes of action which you
have or claim to have, whether known or unknown, of whatever nature, which
exists or may exist as of the date of your execution of this Agreement.
"Claims," "demands," and "causes of action" include, but are not limited to,
claims based on contract, fraud, equity, tort, discrimination, harassment,
retaliation, personal injury, constructive discharge, emotional distress, public
policy, wage, and hour law, defamation, claims for debts, accounts, attorneys'
fees, compensatory damages, punitive damages, and/or liquidated damages, claims
for vesting or accelerated vesting of options to purchase the Company's Common
Stock, and any and all claims arising under the Americans with Disabilities Act,
the Family and Medical Leave Act, or any other federal or state statute
governing employment, including but not limited to Title VII of the Civil Rights
Act of 1964, the Age Discrimination in Employment Act, 29 U.S.C. Section 621 et
seq., as such statutes may have been or may be amended from time to time.

         You represent that you do not presently have on file, and agree that
you will not hereafter file, any claims, charges, grievances or complaints
against the Company and/or the Released Parties in or with any administrative,
state, federal or governmental entity, agency, board or court, or before any
other tribunal or panel or arbitrators, public or private, based upon any
actions or omissions by the Company and/or the Released Parties occurring prior
to the date of your execution of this Agreement.

         Finally, you represent and agree that you are the sole and lawful owner
of all rights, title and interest in and to all released matters, claims and
demands arising out of or in any way related to your employment with Crossroads
and/or the resignation thereof.


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ACCEPTANCE OF AGREEMENT:

         You have twenty-one (21) days to consider this Agreement and you may
revoke this Agreement at any time during the first seven (7) days following your
execution of this Agreement by delivering written notice of revocation to the
Company's Vice President of Human Resources, Allen Sockwell, no later than five
(5:00) p.m. on the seventh (7th) day after execution. You received this
Agreement on January 29, 2001. The settlement offer contained in this Agreement
will automatically expire if this Agreement, fully executed by you, is not
received by the Company's Vice President of Human Resources, Allen Sockwell, on
or before February 21, 2001.

         This Agreement will become effective, irrevocable and fully enforceable
upon the expiration of seven (7) days following the date of your execution of
this Agreement (the "Effective Date"), provided that you have timely executed
this Agreement and you have not exercised your right to revoke this Agreement.

OTHER IMPORTANT TERMS:

o        Nothing in this Agreement shall constitute or be treated as an
         admission of any wrongdoing or liability on the part of the Company
         and/or the Released Parties.

o        You are advised to consult with an attorney of your choosing prior to
         entering into this Agreement.

o        This Agreement is binding on your representatives, heirs, executors,
         administrators, successors and assigns.

o        The Company agrees that, under the Company's Bylaws and Delaware
         General Corporation Lawss.145, the Company shall indemnify and pay your
         defense costs in connection with In re Crossroads Systems, Inc.
         Securities Litigation, U.S. District Court, Western District of Texas,
         Austin Division, Master File No. A-00-CA-457 ("In re Crossroads Systems
         Securities Litigation"). Such indemnification and payment of defense
         costs shall also apply to any subsequently filed actions that arise out
         of, or are based on, the alleged events, transactions, acts, omissions
         or claims or claims at issue in In re Crossroads Systems Securities
         Litigation ("Related Actions") or that are covered by the Indemnity
         Agreement between the Company and John Middleton (Indemnitee), dated
         October 1, 1999 (the "Indemnity Agreement"). Unless there is an actual
         conflict between the parties, the Company shall have the right to
         select your counsel in In re Crossroads Systems Securities Litigation
         and all Related Actions or actions covered by the Indemnity Agreement.
         In consideration of the Company's payment of your defense costs, you
         agree to repay any such amounts if it shall ultimately be determined
         that you are not entitled to be indemnified by the Company under the
         Company's Bylaws, Delaware law or the Indemnity Agreement.

o        The Parties agree to cooperate with each other, their agents and
         attorneys in connection with In re Crossroads Systems Securities
         Litigation and Related Actions or actions covered by the Indemnity
         Agreement . Said cooperation shall include, but is not limited to,
         providing such information and materials that the parties or their
         attorneys may reasonably require in such actions, including the
         appearance at depositions, hearings, administrative proceedings, and
         trial if requested. The parties agree that said cooperation shall be
         provided at no charge or cost to the other.

o        You are personally responsible for the payment of all federal, state
         and local taxes that are due, or may be due, for any payments and other
         consideration received by you under this Agreement. You agree to
         indemnify the Company and hold the Company harmless, from any and all
         taxes, penalties and/or other assessments that the Company is, or may
         become, obligated to pay on account of any payments and other
         consideration made to you under this Agreement.


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o        The terms and existence of this Agreement are strictly confidential and
         may not be disclosed to any other person or entity, with the exception
         of your immediate family members and legal and financial advisors,
         unless otherwise ordered by a court of competent jurisdiction.

o        During the term of this Agreement and for a period of one (1) year
         after, you will not, directly or indirectly, individually or on behalf
         of any other person, firm, partnership, corporation, or business entity
         of any type, hire, solicit, assist or in any way encourage any current
         employee or consultant of the Company or any subsidiary of the Company
         to terminate his or her employment relationship or consulting
         relationship with the Company or subsidiary.

o        For a period of one (1) year after the date of your resignation from
         the Company, for any reason, you will not, directly or indirectly, (i)
         compete in the State of Texas, or in any other State of the United
         States, or in any country in the world where the Company engages in
         business, or proposes to engage in business, on the date of the
         resignation of your employment with the Company, or (ii) participate in
         the ownership, management, operation, financing, or control of, or be
         employed by or consult for or otherwise render services to, any person,
         corporation, firm, or other entity that competes in the State of Texas,
         or in any other State of the United States, or in any country in the
         world with the Company in the conduct of the business of the Company as
         conducted and as proposed to be conducted on the date of resignation of
         your employment. Notwithstanding the foregoing, you are permitted to
         own up to 5% of any class of securities of any corporation that is
         traded on a national securities exchange or through Nasdaq.

o        Certain obligations set forth in the Company's Proprietary Information
         and Inventions Agreement, signed by you upon your initial start date
         with Crossroads, a copy of which is attached hereto as Exhibit C and
         incorporated herein by this reference, continue beyond the resignation
         of your employment.

o        Each party agrees not to disparage or in any way criticize either you
         or the Company and/or its officers, managers, supervisors, employees,
         investors, products, services, or technology at any time in the future.
         Nothing contained in this Section is intended to prevent you from
         testifying truthfully in any legal proceeding.

o        This Agreement, and any agreements or documents referred to herein,
         constitute an integrated, written contract, expressing the entire
         agreement between the Company and you with respect to the subject
         matter hereof. In this regard, you represent and warrant that you are
         not relying on any promises or representations that do not appear in
         this Agreement. This Agreement can be amended or modified only by a
         written agreement, signed by you and the Company.

o        This Agreement shall, in all respects, be interpreted, enforced and
         governed under the laws of the State of Texas applicable to contracts
         executed and performed in Texas without giving effect to conflicts of
         law principles.

o        You agree that if any provision or portion of any provision of this
         Agreement is held to be invalid or unenforceable or to be contrary to
         public policy or any law, for any reason, the remainder of the
         Agreement shall not be affected thereby.

o        This Agreement may be executed in separate counterparts and by
         facsimile, and each such counterpart shall be deemed an original with
         the same effect as if the Company and you signed the same document.

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         We wish you the best in the future. Please do not hesitate to contact
me if you have any questions or comments regarding the severance offer contained
in this letter.

                                                CROSSROADS SYSTEMS, INC.

                                                By:
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                                                Its:
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John Middleton


By:
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Date:
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