<PAGE>
                                                                   EXHIBIT 10.26

Alexander Frey
388 Waycliff N
Wayzata, MN 55391



Dear Sandy:

This letter amends your 10/03/96 Employment Agreement/Offer Letter which set
forth your beginning compensation levels and has been approved by the
Compensation Committee of the Board of Directors. Except as expressly, set forth
herein, this letter does not in any way alter or amend the Employee Agreement
signed by you on 06/03/96.

In recognition of your current level of contribution, I am pleased to inform you
that your base salary will be increased to $170,000.00 (the "Base Amount"),
effective February 1, 2002. This base salary may be increased or decreased from
time to time by our Board of Directors, but may not be decreased below the Base
Amount. In addition, the amount of the annual bonus which you will be eligible
to receive if you satisfy your annual performance objectives will be determined
from time to time by the Board of Directors, will not be less than 25% of your
base salary in effect from time to time. In addition, Tricord will make the
following severance benefits available to you, if the following conditions are
satisfied:

         1.       Tricord terminates your employment without "cause", as that
                  term is defined in the Company's 1998 Stock Incentive Plan; or

         2.       You terminate your employment for "good reason" which is
                  defined as a significant reduction in your responsibilities, a
                  reduction in your base salary or requiring you to be based
                  more than 30 miles from where your office is located prior to
                  a Change in Control of the Company; and

         3.       You sign a full release of claims against Tricord in the form
                  designated by the Company.

The total amount of severance benefits which will be paid to you if the above
listed conditions are satisfied is a lump sum amount equal to such amount as is
determined from time to time by the Board of Directors, which shall not be an
amount less than the amount equal to 6 months of your then current base salary.
This offer is in lieu of, and not in addition to, any severance offers
previously extended to you by Tricord.

Nothing in this letter should be construed to create any contract rights to
continued employment, or to any set level of compensation. Your employment
status continues to be as an "at will" employee. Further, in addition to
permitted changes to your salary as set forth above, the percentage used to
calculate your bonus amount and the number of months of severance you may


<PAGE>



receive may be increased or decreased by Tricord from time to time in its sole
discretion, but never below 25% and 6 months, respectively. Provided, however,
that, in the event you satisfy the conditions of the severance offer described
above PRIOR TO a decision by Tricord to change and/or eliminate Tricord's offer
of severance benefits to you, you will be paid the severance benefits described
above unless you and Tricord reach an agreement to the contrary.

The terms of your Offer Letter/Employment Agreement and this letter amendment
shall be governed by and construed in accordance with the laws of the State of
Minnesota, without regard to conflict of law provisions that would defer to the
laws of another jurisdiction. The rights and obligations of you and Tricord
shall be governed by and determined in accordance with such laws.

We are confident that you will make a significant contribution to the success
and growth of Tricord in the coming year.

Sincerely,


/s/ Keith Thorndyke
Keith Thorndyke
President and CEO

Acknowledged and Agreed:

/s/ Alexander Frey
------------------------------
Alexander Frey