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                                                                    EXHIBIT 10.7

                              EMPLOYMENT AGREEMENT

         This Employment Agreement (this "AGREEMENT") is made and entered into
effective as of January 6, 2003, by and between Crossroads Systems, Inc., a
Delaware corporation (the "COMPANY"), and Andrea Wenholz, an individual (the
"EXECUTIVE").

                                    RECITALS

         WHEREAS, the Company desires to hire Executive and Executive desires to
become employed by the Company; and;

         WHEREAS, the Company and Executive have determined that it is in their
respective best interest to enter into this Agreement on the terms and
conditions as set forth herein.

                                    AGREEMENT

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:

     1.  EMPLOYMENT TERMS AND DUTIES

         1.1 EMPLOYMENT. The Company hereby agrees to employ Executive, and
Executive hereby accepts employment by the Company, upon the terms and
conditions set forth in this Agreement.

         1.2 DUTIES AND OUTSIDE ACTIVITIES.

             1.2.1 DUTIES. Executive shall serve as Chief Financial Officer and
shall report directly to the Company's Chief Executive Officer. Executive shall
have the authority and perform the duties customarily associated with her title
and office, together with such additional duties of a senior executive nature
and commensurate with her title as may from time to time be assigned by the
Chief Executive Officer. During the term of Executive's employment hereunder,
Executive shall devote her full working time and efforts to the performance of
her duties and the furtherance of the interests of the Company and shall not be
otherwise be employed except for permitted outside activities as set forth in
Section 1.2.2.

             1.2.2 PERMITTED OUTSIDE ACTIVITIES. Executive may serve as a
director or trustee of other organizations or engage in charitable, civic and/or
governmental activities, provided that such service and activities do not
prevent Executive from performing the duties required of Executive under this
Agreement, as determined in the judgment of the Company, and further provided
that Executive obtains written consent for all such activities from the Company,
which consent will not be unreasonably withheld. Executive also may engage in
personal activities, including, without limitation, personal investments,
provided that such activities do not, in the judgment of the Company, impair or
interfere with Executive's ability to perform the duties required of Executive
under this Agreement.

         1.3 TERM. The Company's employment of Executive under this Agreement
shall commence on January 6, 2003 (the "HIRE DATE") and shall continue on an
"at-will" basis. Executive and the Company understand and agree that the
employment relationship between Executive and the Company is "at-will" and may
be terminated at any time, upon written notice to the other party, with or
without cause, at the option of either the Company or Executive and subject to
the provisions of the


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special severance benefit program set forth in that certain letter agreement
between the Company and Executive dated December 18, 2002 attached hereto as
Exhibit A (the "SEVERANCE BENEFIT PLAN"). The time period for which Executive is
actually employed under this Agreement shall be referred to herein as the
"EMPLOYMENT TERM."

         1.4 COMPENSATION AND BENEFITS.

             1.4.1 BASE SALARY. In consideration of the services rendered to the
Company hereunder by Executive and Executive's covenants hereunder and in the
Company's Proprietary Information and Inventions Agreement, the Company shall,
during the Employment Term, pay Executive a base salary in the amount of
$11,666.67 per month ($140,000 annualized) (the "BASE SALARY"), less statutory
deductions and withholdings, payable in accordance with the Company's regular
payroll practices.

             1.4.2 BENEFITS PACKAGE. In addition to the Base Salary, during the
Employment Term, Executive shall be eligible to receive such employee benefits
and holidays as may be in effect from time to time as are afforded to other
executives of the Company.

             1.4.3 VACATION. Executive shall be eligible for the Company's
executive vacation plan.

             1.4.4 EXPENSES. The Company shall, upon receipt from Executive of
supporting receipts to the extent required by applicable income tax regulations
and the Company's reimbursement policies, reimburse Executive for all
out-of-pocket business expenses reasonably incurred by Executive in connection
with her employment hereunder.

         1.5 STOCK OPTION. Subject to approval by the Company's Board of
Directors, the Company shall grant to Executive, in accordance with the terms of
the Crossroads Systems, Inc. 1999 Stock Incentive Plan (the "PLAN"), a
non-statutory stock option to purchase a total of 140,000 shares of the
Company's common stock ("COMMON STOCK") at an exercise price equal to the fair
market of the Common Stock on the Hire Date (the "OPTION"). The Option shall
vest over four (4) years in accordance with the following vesting schedule:
twenty-five percent (25%) of the Option shall become exercisable upon completion
of one year of Service (as defined in the Plan) measured from the Hire Date and
the balance of the Option shall vest in twelve (12) successive equal quarterly
installments upon the completion of each additional quarter of Service during
the three (3)-year period following the first anniversary of the Hire Date.

         1.6 BONUS PLAN. Executive will be eligible to participate in the
Company's bonus plans as may be in effect from time to time and as afforded to
other executives of the Company.

         1.7 TERMINATION AND SEVERANCE.

             1.7.1 TERMINATION. Executive's employment and this Agreement may be
terminated at any time, upon written notice to the other party, with or without
cause, at the option of either the Company or Executive subject to the
provisions set forth in the Severance Benefit Plan.

             1.7.2 SEVERANCE BENEFITS. Executive shall be entitled to the
severance benefits set forth in the Severance Benefit Plan.



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             1.7.3 WARN ACT OFFSET. In the event that Executive's Involuntary
Termination (as defined in the Severance Benefit Plan) is covered by the Worker
Adjustment Retraining Notification Act ("WARN") at the time of Executive's
termination, or is deemed to be covered by WARN retrospectively within 90 days
after Executive's termination, the amount of any severance benefit Executive is
entitled to receive pursuant to the Severance Benefit Plan shall be reduced by
an amount equal to any payments the Company is required to provide Executive
under WARN or by the amount of pay Executive receives during any portion of
WARN's 60-day notice period where Executive does not perform any work for the
Company.

     2.  PROTECTION OF COMPANY'S PROPRIETARY INFORMATION AND INVENTIONS.

         This Agreement, and Executive's employment hereunder, is contingent
upon Executive's execution of the Company's Confidentiality, Proprietary
Information and Inventions Agreement, attached hereto as Exhibit B and
incorporated herein by this reference, before Executive begins working for the
Company. The Confidentiality, Proprietary Information and Inventions Agreement
survives the termination of this Agreement, the Employment Term and/or the
Executive's employment with the Company.

     3.  REPRESENTATIONS AND WARRANTIES BY EXECUTIVE

         Executive represents and warrants to the Company that (i) this
Agreement is valid and binding upon and enforceable against her in accordance
with its terms, (ii) Executive is not bound by or subject to any contractual or
other obligation that would be violated by her execution or performance of this
Agreement, including, but not limited to, any non-competition agreement
presently in effect, and (iii) Executive is not subject to any pending or, to
Executive's knowledge, threatened claim, action, judgment, order, or
investigation that could adversely affect her ability to perform her obligations
under this Agreement or the business reputation of the Company. Executive has
not entered into, and agrees that she will not enter into, any agreement either
written or oral in conflict herewith.

     4.  MISCELLANEOUS

         4.1 NOTICES. All notices, requests, and other communications hereunder
must be in writing and will be deemed to have been duly given only if (i)
delivered personally against written receipt, (ii) delivered by facsimile
transmission with answer back confirmation, (iii) mailed (postage prepaid by
certified or registered mail, return receipt requested), (iv) delivered by
overnight courier to the parties, or (v) delivered by electronic communication
(as set forth below) at the following addresses, facsimile numbers, or
electronic mail addresses:

                  If to the Executive, to:

                           Andrea Wenholz
                           9001 Glenlake Drive
                           Austin, Texas  78730
                           Electronic Mail Address: awenholz@austin.rr.com



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               If to the Company, to:

                       Crossroads Systems, Inc.
                       8300 North MoPac Expressway
                       Austin, Texas 78759
                       Facsimile:  512-349-0304
                       Attn: Compensation Committee of the Board of Directors

All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section 4.1, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section 4.1, be deemed given upon receipt, and (iii) if
delivered by mail in the manner described above to the address as provided in
this Section 4.1, be deemed given upon receipt (in each case regardless of
whether such notice, request, or other communication is received by any other
person to whom a copy of such notice, request or other communication is to be
delivered pursuant to this Section). An electronic communication ("ELECTRONIC
NOTICE") shall be deemed written notice for purposes of this Section 4.1 if sent
with return receipt requested to the electronic mail address specified by the
receiving party, in a signed writing in a nonelectronic form. Electronic Notice
shall be deemed received at the time the party sending Electronic Notice
receives verification of receipt by the receiving party. Any party receiving
Electronic Notice may request and shall be entitled to receive the notice on
paper, in a nonelectronic form ("NONELECTRONIC NOTICE") which shall be sent to
the requesting party within ten (10) days of receipt of the written request for
Nonelectronic Notice. Any party from time to time may change its address,
facsimile number, electronic mail address, or other information for the purpose
of notices to that party by giving written notice specifying such change to the
other parties hereto.

         4.2 AUTHORIZATION TO BE EMPLOYED. This Agreement, and Executive's
employment hereunder, is subject to Executive providing the Company with legally
required proof of Executive's authorization to be employed in the United States
of America.

         4.3 ENTIRE AGREEMENT. This Agreement, and the attached exhibits,
supersede all prior discussions and agreements among the parties with respect to
the subject matter hereof and contain the sole and entire agreement between the
parties hereto with respect thereto.

         4.4 SURVIVAL. The respective rights and obligations of the parties,
including but not limited to Sections 1.7.2, 1.7.3, 2, 4.1, and 4.5, 4.7, 4.9,
4.10, 4.12, 4.13, and 4.14 shall survive the termination of this Agreement, the
Employment Term and/or the Employee's employment with the Company.

         4.5 WAIVER. Any term or condition of this Agreement may be waived at
any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition. No waiver by any
party hereto of any term or condition of this Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of the same or any
other term or condition of this Agreement on any future occasion. All remedies,
either under this Agreement or by law or otherwise afforded, will be cumulative
and not alternative.

         4.6 AMENDMENT. This Agreement may be amended, supplemented, or modified
only by a written instrument duly executed by or on behalf of each party hereto.

         4.7 RECOVERY OF ATTORNEY'S FEES. In the event of any litigation arising
from or relating to this Agreement, the prevailing party in such litigation
proceedings shall be entitled to recover,



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from the non-prevailing party, the prevailing party's reasonable costs and
attorney's fees, in addition to all other legal or equitable remedies to which
it may otherwise be entitled.

         4.8 TAX AND LEGAL ADVICE. Executive has had an opportunity to consult
with her legal counsel and tax and other advisors regarding the preparation of
this Agreement and the Severance Benefit Plan. Executive understands that
Brobeck, Phleger & Harrison LLP has acted solely as legal counsel for the
Company with respect to the preparation of this Agreement and the Severance
Benefit Plan and has not acted as legal counsel for Executive.

         4.9 NO THIRD PARTY BENEFICIARY. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and the
Company's successors or assigns, and it is not the intention of the parties to
confer third-party beneficiary rights upon any other person.

         4.10 NO ASSIGNMENT; BINDING EFFECT. This Agreement shall inure to the
benefit of any successors or assigns of the Company. Executive shall not be
entitled to assign her obligations under this Agreement.

         4.11 HEADINGS. The headings used in this Agreement have been inserted
for convenience of reference only and do not define or limit the provisions
hereof.

         4.12 SEVERABILITY. The Company and Executive intend all provisions of
this Agreement to be enforced to the fullest extent permitted by law.
Accordingly, if a court of competent jurisdiction determines that the scope
and/or operation of any provision of this Agreement is too broad to be enforced
as written, the Company and Executive intend that the court should reform such
provision to such narrower scope and/or operation as it determines to be
enforceable. If, however, any provision of this Agreement is held to be illegal,
invalid, or unenforceable under present or future law, and not subject to
reformation, then (i) such provision shall be fully severable, (ii) this
Agreement shall be construed and enforced as if such provision was never a part
of this Agreement, and (iii) the remaining provisions of this Agreement shall
remain in full force and effect and shall not be affected by illegal, invalid,
or unenforceable provisions or by their severance.

         4.13 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS
EXECUTED AND PERFORMED IN SUCH STATE WITHOUT GIVING EFFECT TO CONFLICTS OF LAWS
PRINCIPLES.

         4.14 JURISDICTION. With respect to any suit, action, or other
proceeding arising from (or relating to) this Agreement, the Company and
Executive hereby irrevocably agree to the exclusive personal jurisdiction and
venue of the United States District Court for the Western District of Texas (and
any Texas State Court within Travis County, Texas).

         4.15 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by facsimile, each of which will be deemed an original, but all
of which together will constitute one and the same instrument.



                [SIGNATURE PAGE TO EMPLOYMENT AGREEMENT FOLLOWS]




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         IN WITNESS WHEREOF, the parties hereto have caused this Employment
Agreement to be executed on the date first written above.


                                "COMPANY"

                                CROSSROADS SYSTEMS, INC.



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

                                Name:
                                     ------------------------------------------

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




                                "EXECUTIVE"

                                NAME


                                -----------------------------------------------
                                Executive's Signature

                                -----------------------------------------------
                                Address

                                -----------------------------------------------
                                Address





EXHIBIT A: Severance Benefit Plan
EXHIBIT B: Confidentiality, Proprietary Information and Inventions Agreement





               [SIGNATURE PAGE TO EMPLOYMENT AGREEMENT AGREEMENT]