EXHIBIT 10.11

January 1, 2005

Mr. Dan Grey
2305 Camino Ramon, Suite 200
San Ramon, CA 94583

RE:   EMPLOYMENT TERMS

Dear Dan:

SBE,  Inc.  (the  "Company")  is  pleased  to offer  you the  position  of Chief
Executive Officer on the following terms.

You shall  have  such  responsibilities  and  duties  as are  determined  by the
Company's  Board of Directors  (the  "Board").  You will continue to work at our
facility located at 2305 Camino Ramon,  Suite 200, San Ramon, CA 94583. You will
be expected to abide by Company policies and procedures,  and to comply with the
Company's employee handbooks and manuals.

Your base salary will be $200,000 per year, less payroll deductions and required
withholdings,  paid  semi-monthly.  You will also  continue  to be  eligible  to
participate in the Company's Management Incentive Program ("MIPS").

You will continue to be eligible for the standard  Company  benefits  offered to
other employees,  including but not limited to health,  dental,  vision,  profit
sharing,  401K,  life  insurance and  disability  insurance  under the Company's
plans. The Company may change its benefits from time to time in its discretion.

Subject to  approval by the Board,  the Company  shall grant you a new option to
purchase  100,000  shares of the Company's  common stock,  at an exercise  price
equal to the fair  market  value of the  stock as of the  closing  price the day
before the grant date, which shall be January 1, 2005 (the "Option"). The Option
will vest over four  years  with 25%  vesting  on  January  1, 2006 and  monthly
thereafter,  and will be  subject to the  further  terms and  conditions  of the
governing  stock option  issuance  document and the Company's  1996 Stock Option
Plan, as amended.

Your employment  relationship  continues to be "at will," at the pleasure of the
Board, which means both you and the Company may terminate your employment at any
time,  with or without cause or advance notice.  Your employment  at-will status
can only be modified in a written  agreement signed by you and a duly authorized
member of the Board.

This letter, together with your Proprietary Information and Inventions Agreement
("Proprietary Information Agreement") and Executive Severance Benefits Agreement
dated April 12, 2004 ("Severance  Agreement"),  forms the complete and exclusive
statement  of your  employment  agreement  with the  Company.  The terms in this
letter supersede any other agreements,  promises or representations  made to you
by anyone, whether oral or written, regarding its subject matters, other than as
contained in the Proprietary Information Agreement and Severance Agreement.

<PAGE>

Mr. Dan Grey
January 1, 2005
Page 2


This letter agreement cannot be changed except in a written  agreement signed by
you and a duly authorized member of the Board.

Please  sign  and  date  this  letter  and  return  it to me  at  your  earliest
convenience  to  continue  your  employment  with the  Company  under  the terms
described above.

We look forward to your favorable reply.

Sincerely,


/s/ John Reardon
---------------------------
John Reardon
Duly Authorized Member of the Board


Accepted:

/s/ Dan Grey                                         January 1, 2005
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Dan Grey                                             Date