SEVERANCE BENEFITS AGREEMENT

EXHIBIT 10.12

EXECUTIVE

SEVERANCE BENEFITS AGREEMENT

THIS EXECUTIVE SEVERANCE BENEFITS AGREEMENT (the "AGREEMENT") is

entered into as of the 12TH day of April, 2004 (the "Effective Date"), between

DAN GREY ("EXECUTIVE") and SBE, INC. (the "COMPANY"). This Agreement is intended

to provide Executive with the compensation and benefits described herein upon

the occurrence of specific events. Certain capitalized terms used in this

Agreement are defined in Article 5.

The Company and Executive hereby agree as follows:

ARTICLE 1

SCOPE OF AND CONSIDERATION FOR THIS AGREEMENT

1.1 Executive is currently employed by the Company.

1.2 The Company and Executive wish to set forth the compensation and

benefits that Executive shall be entitled to receive in the event of a

termination of Executive's employment with the Company in the circumstances

described in this Agreement.

1.3 The duties and obligations of the Company to Executive under this

Agreement shall be in consideration for Executive's past services to the

Company, Executive's continued employment with the Company, and, with respect to

the benefits described in Article 2, Executive's execution of a release in

accordance with Section 3.1.

1.4 This Agreement shall supersede any other agreement relating to cash

compensation benefits in the event of Executive's severance from employment with

the Company.

ARTICLE 2

SEVERANCE BENEFITS

2.1 CHANGE IN CONTROL TERMINATION. If Executive's employment terminates

due to a Change in Control Termination, as defined in Section 5.4, Executive

will be entitled to receive the benefits set forth in subsections 2.2(a) through

2.2(c).

2.2 (a) SALARY CONTINUATION. Executive shall continue to receive an

amount equal to six (6) months of Base Salary, as defined in Section 5.1. Such

amount shall be paid in equal monthly installments over the six (6) months

following Executive's Change in Control Termination and shall be subject to all

required tax withholding.

(b) BONUS PAYMENT. Within fifteen (15) days following the last

day of the fiscal quarter during which Executive's Change in Control Termination

occurs. Executive shall receive the pro-rata share of any bonus to which

Executive would have been entitled had Executive's employment with the Company

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continued. The bonus amount paid will be the product of the bonus percentage of

Base Salary derived per the Executive's bonus plan multiplied by Executive's

Base Salary from the beginning of the Fiscal Year through the date of

Executive's Involuntary Termination Without Cause. Such payment shall be subject

to all required tax withholding.

(c) ACCELERATION OF OPTION VESTING. Effective as of the date

of Executive's Change in Control Termination, Executive shall be credited with

full vesting under all options to purchase the Company's Common Stock that

Executive holds on such date. By entering into this Agreement, Executive

acknowledges that Executive understands that such acceleration may result in

some of Executive's incentive stock options being reclassified as nonqualified

stock options, which could result in adverse tax consequences to Executive.

2.3 NON-DUPLICATION OF BENEFITS. Notwithstanding any of the foregoing

to the contrary, to the extent that Executive is eligible to receive severance

benefits under Section 2.2 above due to Executive's Change in Control

Termination, Executive shall not be entitled to receive severance benefits under

Section 2.1 above. Executive shall not be eligible to receive severance benefits

pursuant to this Agreement more than one time.

2.4 MITIGATION. Except as otherwise specifically provided herein,

Executive shall not be required to mitigate damages or the amount of any payment

provided under this Agreement by seeking other employment or otherwise, nor

shall the amount of any payment provided for under this Agreement be reduced by

any compensation earned by Executive as a result of employment by another

employer or by any retirement benefits received by Executive after the date of

Executive's Change in Control Termination.

ARTICLE 3

LIMITATIONS AND CONDITIONS ON BENEFITS

3.1 RELEASE PRIOR TO PAYMENT OF BENEFITS. Upon the occurrence of

Executive's Change in Control Termination that occurs at any time other than

during the six (6) months following the effective date of a Change in Control,

and prior to the payment of any benefits under this Agreement on account of such

termination, Executive shall execute a release (the "Release") in the form (or

in a substantially similar form to that) attached hereto and incorporated herein

as Exhibit A, Exhibit B or Exhibit C, as applicable. Such Release shall

specifically relate to all of Executive's rights and claims in existence at the

time of such execution and shall confirm Executive's obligations under the

Company's standard form of proprietary information and inventions agreement. It

is understood that, as specified in the applicable Release, Executive has a

certain number of calendar days to consider whether to execute such Release, and

Executive may revoke such Release within seven (7) calendar days after he signs

it. If Executive does not execute such Release within the applicable period, or

if Executive revokes such Release within the subsequent seven (7) day period, no

benefits shall be payable under this Agreement, and this Agreement shall be null

and void.

3.2 PARACHUTE PAYMENTS. If any payment or benefit Executive would

receive pursuant to a Change in Control from the Company or otherwise

("Payment") would (i) constitute a "parachute payment" within the meaning of

Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and

(ii) but for this sentence, be subject to the excise tax imposed by Section 4999

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of the Code (the "Excise Tax"), then such Payment shall be reduced to the

Reduced Amount. The "Reduced Amount" shall be either (x) the largest portion of

the Payment that would result in no portion of the Payment being subject to the

Excise Tax or (y) the largest portion, up to and including the total, of the

Payment, whichever amount, after taking into account all applicable federal,

state and local employment taxes, income taxes, and the Excise Tax (all computed

at the highest applicable marginal rate), results in Executive's receipt, on an

after-tax basis, of the greater amount of the Payment notwithstanding that all

or some portion of the Payment may be subject to the Excise Tax. If a reduction

in payments or benefits constituting "parachute payments" is necessary so that

the Payment equals the Reduced Amount, reduction shall occur in the following

order unless Executive elects in writing a different order (provided, however,

that such election shall be subject to Company approval if made on or after the

date on which the event that triggers the Payment occurs): reduction of cash

payments; cancellation of accelerated vesting of stock awards; reduction of

employee benefits. In the event that acceleration of vesting of stock award

compensation is to be reduced, such acceleration of vesting shall be cancelled

in the reverse order of the date of grant of Executive's stock awards unless

Executive elects in writing a different order for cancellation.

The accounting firm engaged by the Company for general audit purposes

as of the day prior to the effective date of the Change in Control shall perform

the foregoing calculations. If the accounting firm so engaged by the Company is

serving as accountant or auditor for the individual, entity or group effecting

the Change in Control, the Company shall appoint a nationally recognized

accounting firm to make the determinations required hereunder. The Company shall

bear all expenses with respect to the determinations by such accounting firm

required to be made hereunder.

The accounting firm engaged to make the determinations hereunder shall

provide its calculations, together with detailed supporting documentation, to

the Company and Executive within fifteen (15) calendar days after the date on

which Executive's right to a Payment is triggered (if requested at that time by

the Company or Executive) or such other time as requested by the Company or

Executive. If the accounting firm determines that no Excise Tax is payable with

respect to a Payment, either before or after the application of the Reduced

Amount, it shall furnish the Company and Executive with an opinion reasonably

acceptable to Executive that no Excise Tax will be imposed with respect to such

Payment. Any good faith determinations of the accounting firm made hereunder

shall be final, binding and conclusive upon the Company and Executive.

3.3 CERTAIN REDUCTIONS AND OFFSETS. Notwithstanding any other provision

of this Agreement to the contrary, any benefits payable to Executive under this

Agreement shall be reduced by any severance benefits payable by the Company to

such individual under any other policy, plan, program or arrangement, including,

without limitation, a contract between Executive and any entity. Furthermore, to

the extent that any federal, state or local laws, including, without limitation,

so-called "plant closing" laws, require the Company to give advance notice, make

a payment of any kind or provide any benefits to Executive because of

Executive's involuntary termination due to a layoff, reduction in force, plant

or facility closing, sale of business, change in control, or any other similar

event or reason, the payments and other benefits payable under this Agreement

shall be reduced by the full amount and extent of such notice, payment and/or

benefits. The benefits provided under this Agreement are intended to satisfy any

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and all statutory obligations that may arise out of Executive's involuntary

termination of employment for the foregoing reasons, and the parties shall so

construe and enforce the terms of the Agreement.

ARTICLE 4

OTHER RIGHTS AND BENEFITS

Nothing in the Agreement shall prevent or limit Executive's continuing or future

participation in any benefit, bonus, incentive or other plans, programs,

policies or practices provided by the Company and for which Executive may

otherwise qualify, nor shall anything herein limit or otherwise affect such

rights as Executive may have under other agreements with the Company except as

provided in Section 1.4 above. Except as otherwise expressly provided herein,

amounts which are vested benefits or which Executive is otherwise entitled to

receive under any plan, policy, practice or program of the Company at or

subsequent to the effective date of a Change in Control shall be payable in

accordance with such plan, policy, practice or program.

ARTICLE 5

DEFINITIONS

For purposes of the Agreement, the following terms are defined as

follows:

5.1 "BASE SALARY" means Executive's annual base salary as in effect on

the date of his termination.

5.2 "BOARD" means the Board of Directors of the Company.

5.3 "CHANGE IN CONTROL" means:

(a) the sale of all or substantially all of the Company's

assets to a single purchaser or a group of related purchasers;

(b) the sale, exchange or other disposition, in a single

transaction, of more than fifty percent (50%) of the Company's outstanding

capital stock; or

(c) a merger or consolidation of the Company in a transaction

following which the Company's stockholders receive less than fifty percent (50%)

of the outstanding voting shares of the surviving entity.

5.4 "CHANGE IN CONTROL TERMINATION" means an Involuntary Termination

Without Cause or a Voluntary Termination for Good Reason, effective as of

Executive's termination date, either of which occurs within six (6) months

following the effective date of a Change in Control.

5.5 "COMPANY" means SBE, Inc. or, following a Change in Control, the

surviving entity resulting from such transaction.

5.6 "INVOLUNTARY TERMINATION WITHOUT CAUSE" means Executive's dismissal

or discharge for reasons other than Cause, effective as of Executive's

termination date. For this purpose, "Cause" means that, in the reasonable

determination of the Company, Executive has

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(a) been convicted of or pled guilty or nolo contendere to a

felony or any crime involving moral turpitude or dishonesty;

(b) participated in a fraud or act of dishonesty against the

Company,

(c) willfully and materially breached a Company policy;

(d) intentionally damaged the Company's property;

(e) willfully and materially breached Executive's Proprietary

Information and Inventions Agreement with the Company;

(f) engaged in conduct that demonstrates gross unfitness to

serve; or

(g) failed to perform Executive's job duties in a satisfactory

manner, including, but not limited to, by engaging in willful misconduct,

neglecting Executive's job duties, refusing to comply with any lawful directive

of the Company, or failing to meet expected performance standards.

Notwithstanding the foregoing, Cause shall not exist based on conduct described

in clause (c), (f) or (g) unless the conduct described in such clause, if

capable of cure, has not been cured within thirty (30) days