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CPU on host spikes to 100% when running a windows 2008 r2 VM terminal server

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I have a Host with the following specs:

Intel S5520SC Motherboard

Dual NIC

Xeon E5645 2.4Ghz 6 Core CPU (1 Processor Socket, 6 Processor Cores per Socket, 12 Logical Processors, Hyperthreading Enabled)

16GB of RAM

4 15k Hard Drives Configure as Raid 5 with a capacity of 1.8TB on an LSI 9260-4i Controller

 

I have 2 Windows Server 2008 R2 VM's Hosted with the following settings:

VM1 Terminal Server

8GB of RAM, 6 CPU's, 250GB HD, Nic2

 

VM2 Database Server

8GB of RAM, 6 CPU's, 1TB HD, Nic2

 

My problem is when more than 6 people log in to my terminal server, the CPU on the host spikes to 100% and it freezes the Database Server (VM2) which causes all the LAN connections to freeze, If i kill the active RDP Sessions on VM1, the host cpu drops back to normal (5%) and everyone locally can access the DB Server normally again.  Does anyone have any recommendations on what could be causing this?  Do I not have my cpu's set properly?  Thanks


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