EXHIBIT 10.2

BAIR EMPLOYMENT AGREEMENT

SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This Second Amended and Restated Employment Agreement (“Agreement”) is made as
of this 31st day of December, 2008, at Groveport, Ohio, between Pinnacle Data
Systems, Inc., an Ohio corporation (the “Company”), and John D. Bair (the
“Employee”), who hereby agree as follows:

BACKGROUND INFORMATION

A. The Company and the Employee are parties to that certain Amended and Restated
Employment Agreement dated effective as of March 20, 2006 (the “First Amended
Employment Agreement”). The First Amended Employment Agreement amended and
restated in its entirety that certain Employment Agreement dated effective as of
January 1, 2005, by and between the Company and the Employee; and

B. This Agreement, as of the date hereof, hereby amends and restates the First
Amended Employment Agreement in its entirety.

PROVISIONS

NOW, THEREFORE, in consideration of the foregoing Background Information, all of
which is agreed to by the Company and Employee, and the promises and covenants
set forth below, the Company and Employee voluntarily agree as follows:

§1. Employment. The Company hereby renews and continues the Employee’s
employment, and the Employee hereby accepts such employment renewal and
continuation by the Company, on the terms and subject to the conditions set
forth in this Agreement.

§2. Term of Employment. The term of the Employee’s employment as renewed
pursuant to this Agreement shall begin as of the date of this Agreement and
shall continue until May 1, 2012, or until terminated pursuant to §6 of this
Agreement.

§3. Services. The Employee is employed hereunder as the Chief Technology and
Innovation Officer of the Company or in such other position of similar
significance as the Board of Directors and Employee shall agree. As such, the
Employee shall be responsible for maintaining active oversight of developments
in the Company’s key markets; helping the Company identify new business
opportunities; and performing such other services as may be reasonably assigned
to him from time to time by the Chief Executive Officer. The Employee shall
report to the Chief Executive Officer and shall devote his best efforts and full
business time, attention, energy, and skill to the Company’s business and to the
performance of his duties hereunder and he shall have such authority to act on
behalf of the Company as is necessary to carry out the foregoing duties and
which is ordinarily incident to the office of Chief Technology and Innovation
Officer.

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(a) Other Board Service. In addition to his responsibilities to the Company,
upon the approval of the Company’s Board of Directors the Employee may sit on
the corporate or advisory boards of other companies, as long as those
responsibilities do not interfere or conflict with Employee’s duties and
responsibilities to the Company, or the performance thereof. Employee may
receive compensation for such services when appropriate, as long as such
compensation does not create a conflict of interest for the Employee or the
Company. Employee may also attend to outside investments and serve as a
director, trustee or officer of, or otherwise participate in educational,
welfare, social, religious, civic and other organizations

§4. Compensation. During the term of his employment pursuant to this Agreement,
the Employee shall be entitled to receive the following compensation:

(a) Salary. An annual minimum base salary of $230,000 (or any higher amount
determined by the Board or the Compensation Committee). The base salary will be
payable in accordance with the Company’s general payroll policies for payment of
compensation to salaried personnel.

(b) Bonus. An incentive cash bonus based upon factors and formulae deemed
appropriate by the Board or the Compensation Committee for each fiscal period
ending during the term of employment under this Agreement (quarterly and/or
yearly as determined by the Board or Compensation Committee). The bonus factors
and formulae for all periods of each fiscal year will be determined by the Board
or the Compensation Committee no later than February 28th of that year, or will
remain unchanged from the prior quarterly or yearly period of bonus calculation
until so determined.

§5. Fringe Benefits. During the term of employment pursuant to this Agreement,
the Employee shall be entitled to the following fringe benefits:

(a) Vacation. Five weeks (25 days) of paid vacation each year. Three weeks of
vacation shall be mandatory. All earned vacation must be used or forfeited by
February 15 of the year following the year for which it was earned.

(b) Stock Options. Stock options in such quantities and at such exercise prices
as shall be established by the Board of Directors or an option committee. The
options shall be granted pursuant to and be subject to the terms of the Pinnacle
Data Systems, Inc. 2005 Equity Incentive Plan, as amended, or any subsequent
plan adopted by the Company.

(c) Disability Payments. If at any time during the term of employment the
Employee shall be temporarily or permanently unable to perform his duties
hereunder due to a physical or mental condition that prevents the Employee from
performing his duties hereunder, the Employee shall nonetheless be entitled to
receive, for a period not to exceed one (1) year from the date of commencement
of such disability, any compensation that the Employee would otherwise be
entitled to pursuant to §4(a), above,

 

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during the period of such disability, subject to the limitations below.
Provided, however, that Employee’s disability be documented by a competent
licensed physician selected to examine the Employee at the request of the
disinterested Board of Directors, which examination expense shall be borne by
the Company. In the event said disability shall continue for a period greater
than one (1) year, the Employee shall no longer be entitled to receive any
compensation during the remaining period of such disability. In the event the
Employee is entitled during this one (1) year period to payments under any
disability policy, the Company’s obligation shall only be to supplement such
payments to bring the total amount Employee receives to an amount equal to his
base salary pursuant to §4(a).

(d) Executive Development. The Employee is encouraged to attend personal
executive development or experiential learning seminars that also benefit the
Company during each year of the employment term.

(e) Other Fringe Benefits. The Employee shall be entitled to such other fringe
benefits and perquisites as may be provided generally for the Company’s
executive management pursuant to written policies established or changed from
time to time by the Board.

(f) Life Insurance. Payment of life insurance premiums on a $500,000 face amount
whole life insurance policy the Employee has with State Farm insuring the life
of the Employee, with the beneficiaries to be designated by the Employee.

(g) Technical Development. The Employee shall be entitled to attend a technical
development seminar or training of his choice for up to three days during each
year of the employment term.

(h) Reimbursements. Each reimbursement of an expense pursuant to §§5(d), 5(e),
5(f), or 5(g) (or any other provision of this Agreement) shall be made (within
sixty (60) days of such expense’s incurrence) upon the presentation of expense
vouchers or reports in accordance with the standard procedures of the Company
with respect to expense items, as may be modified from time to time by the Board

§6. Termination of Employment. Notwithstanding and in lieu of any termination,
severance, income continuation, or similar policies of the Company, the
Employee’s service relationship with respect to the Company may be Terminated
(as hereinafter defined) in accordance with the following provisions. For
purposes of this Agreement, the Employee is “Terminated”, or a “Termination” of
the Employee has occurred, upon the Employee’s “separation from service” with
respect to the Company, as defined in Treas. Reg. § 1.409A-1(h), or in any
successor regulations, and taking into account, among other things, the
definition of “service recipient” and “employer” set forth in Treas. Reg. §
1.409A-1(h)(3).

(a) Following a Change in Control. The Employee may effect his Termination after
a “Change in Control” of the Company (as defined below), provided that Employee
effects such Termination for “Good Reason” (as defined below). If the

 

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Employee effects his Termination pursuant to this provision, he shall be
entitled to the following: (i) a cash amount equal to his base salary
immediately prior to such Change in Control (A) payable to the Employee in equal
installments over the twelve (12) calendar months immediately following the
calendar month during which such Termination occurs, in accordance with the
Company’s general payroll policies for payment of compensation to salaried
personnel, provided, however, that (B) for each such installment payment (I) if
the Employee is a “specified employee” (as such term is defined in Treas. Reg. §
1.409A-1(i)) at the time of such Termination, then, in accordance with the
“six-month delay rule” defined in Treas. Reg. § 1.409A-1(c)(3)(v), the payment
date of such installment payment shall be delayed (if there would be a delay) to
the date that is six months after the date of Termination or, if earlier, the
date that is the seventh (7th) day following the Employee’s date of death, but
(II) the foregoing delay shall be inapplicable to such installment payment to
the extent such installment payment is excluded from the six-month delay rule by
virtue any of the exceptions described under Treas. Reg. § 1.409A-1(b)
(including without limitation any of the “separation pay plan” exceptions set
forth in Treas. Reg. § 1.409A-1(b)(9)), or is otherwise excluded under Internal
Revenue Code (“Code”) section 409A from the application of the six-month delay
rule requirements; (ii) fringe benefits for one (1) year following the date of
Termination; (iii) any bonus earned and/or accrued through the date of
Termination, payable at the time such compensation is due and payable under the
applicable arrangement; and (iv) the immediate vesting of one hundred percent
(100%) of the unvested stock options held by the Employee, with each immediately
vesting option becoming exercisable on the date of Termination and continuing to
be exercisable for a period of one hundred eighty (180) days following the date
of Termination (subject to the Company, in its sole discretion, extending such
period to up to one (1) year following the date of Termination), provided that,
for each such option, the provisions of this item (iv) shall be effective only
to the extent such provisions would not cause such option to provide for a
“deferral of compensation” as such term is defined under Treas. Reg. §
1.409A-1(b).

(b) By Company, For Cause. The Company may Terminate the Employee immediately
upon the occurrence of cause (as defined below) or at any time thereafter. For
purposes of this Agreement, “cause” shall mean that at least one of the
following behaviors by Employee occurs: dishonesty, conviction of a crime (other
than minor traffic offenses), habitual drunkenness, the use of illegal drugs,
embezzlement, material conflict of interest, material violation of Company
policy, willful insubordination, or neglect of duty. If the Company Terminates
the Employee pursuant to this provision, he shall be entitled to receive only
his base salary through the date of Termination.

(c) By Company, Without Cause. The Company may Terminate the Employee without
cause at any time, upon giving not less than sixty (60) days advance written
notice to the Employee prior to the date of Termination. If the Company
Terminates the Employee pursuant to this provision, the Employee shall be
entitled to receive the following: (i) a cash amount equal to his base salary
immediately prior to such Termination (A) payable to the Employee in equal
installments over the twelve (12) calendar months immediately following the
calendar month during which such

 

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Termination occurs, in accordance with the Company’s general payroll policies
for payment of compensation to salaried personnel, provided, however, that
(B) for each such installment payment (I) if the Employee is a specified
employee at the time of such Termination, then, in accordance with the six-month
delay rule, the payment date of such installment payment shall be delayed to the
date that is six months after the date of Termination or, if earlier, the date
that is the seventh (7th) day following the Employee’s date of death, but (II)
the foregoing delay shall be inapplicable to such installment payment to the
extent such installment payment is excluded from the six-month delay rule by
virtue any of the exceptions described under Treas. Reg. § 1.409A-1(b)
(including without limitation any of the separation pay plan exceptions set
forth in Treas. Reg. § 1.409A-1(b)(9)), or is otherwise excluded under Code
section 409A from the application of the six-month delay rule requirements;
(ii) fringe benefits for one (1) year following the date of Termination;
(iii) any bonus earned and/or accrued through the date of Termination, payable
at the time such compensation is due and payable under the applicable
arrangement; and (iv) the immediate vesting of fifty percent (50%) of the
unvested stock options held by the Employee, on a first granted, first vested
basis, with each immediately vesting option becoming exercisable on the date of
Termination and continuing to be exercisable for a period of one hundred eighty
(180) days following the date of Termination (subject to the Company, in its
sole discretion, extending such period to up to one (1) year following the date
of Termination), provided that, for each such option, the provisions of this
item (iv) shall be effective only to the extent such provisions would not cause
such option to provide for a “deferral of compensation” as such term is defined
under Treas. Reg. § 1.409A-1(b).

(d) Upon Death or Long-Term Disability of Employee. Upon Termination as a result
of the death of the Employee, the Employee’s estate shall be entitled to the
following: (i) his base salary to the date of Termination and (ii) any bonus
earned and/or accrued through the date of Termination, payable at the time such
compensation is due and payable under the applicable arrangement. If the
Employee is Terminated by the Company due to the long-term disability of
Employee, then Employee shall be entitled to (iii) any amounts due to him under
a long-term disability policy of the Company, (iv) any disability payments due
to him pursuant to §5(c), (v) any bonus earned and/or accrued through the date
of Termination, payable at the time such compensation is due and payable under
the applicable arrangement, and (vi) the immediate vesting of fifty percent
(50%) of the unvested stock options held by the Employee, on a first granted,
first vested basis, with each immediately vesting option becoming exercisable on
the date of Termination and through a period of one year following the date of
Termination, provided that, for each such option, the provisions of this item
(vi) shall be effective only to the extent such provisions would not cause such
option to provide for a “deferral of compensation” as such term is defined under
Treas. Reg. § 1.409A-1(b). For purposes of this Agreement, the term “long-term
disability” shall have the same meaning as long-term disability or other similar
term used in any long-term or permanent disability policy provided by the
Company and covering the Employee. In the event that there is no long-term or
permanent disability policy in effect covering the Employee, the term “long-term
disability” shall mean that because of physical or mental incapacity, the
Employee has

 

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not performed his duties under this Agreement for six months or longer. In any
event, Termination due to long-term disability may not be effected by the
Company until at least one year from the date of commencement of such
disability.

(e) By Voluntary Employee Resignation. The Employee may effect his Termination
at any time, upon giving not less than thirty (30) days advance written notice
prior to the date of Termination. If the Employee effects his Termination
pursuant to this provision, then he shall be entitled to receive the following:
(i) his base salary and fringe benefits through the date of Termination;
(ii) any bonus earned and/or accrued through the date of Termination, payable at
the time such compensation is due and payable under the applicable arrangement;
and (iii) the retention of the right to exercise any vested stock options in
accordance with the plan under which the options were issued. If the Employee
resigns without giving at least thirty (30) days notice, he shall not be
entitled to any portion of the bonus described in item (ii), above.

(f) Change in Control Defined. For purposes of this Agreement, a Change in
Control shall be deemed to occur:

(i) When any “person” as defined in §3(a)(9) of the Securities Exchange Act of
1934 (the “Exchange Act”) and as used in §§13(d) and 14(d) thereof, including a
“group” as defined in §13(d) of the Exchange Act, but excluding the Company and
any subsidiary and any employee benefit plan sponsored or maintained by the
Company or any subsidiary (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the “beneficial owner” (as defined in
Rule 13d-3 under the Exchange Act, as amended from time to time), of securities
of the Company representing 30% or more of the combined voting power of the
Company’s then outstanding securities;

(ii) When, during any period of 24 consecutive months during the existence of
this Agreement, the individuals who, at the beginning of such period, constitute
the Board (the “Incumbent Directors”) cease for any reason other than death to
constitute at least a majority thereof; provided, however, that a director who
was not a director at the beginning of such 24-month period shall be deemed to
have satisfied such 24-month requirement (and be an Incumbent Director) if such
director was elected by, or on the recommendation of or with the approval of, at
least two-thirds of the directors who then qualified as Incumbent Directors
either actually (because they were directors at the beginning of such 24-month
period) or by prior operation of this paragraph; or

(iii) Upon the occurrence of a transaction requiring shareholder approval for
the acquisition of the Company by an entity other than the Company or a
subsidiary through purchase of assets, by merger, or otherwise.

(g) Good Reason Defined. For purposes of this Agreement, the Employee shall be
deemed to have effected his Termination for “Good Reason” if:

(i) Within six (6) months after a Change in Control of the Company, one (1) of
the following conditions arises without the consent of the Employee: (A) a
material diminution in the Employee’s base compensation, (B) a material
diminution in the Employee’s authority, duties, or responsibilities, (C) a
material diminution in the authority, duties, or responsibilities of the
supervisor to whom the Employee is required to report, (D) a material diminution
in the budget over which the Employee retains authority, (E) a material change
in the geographic location at which the Employee must perform the services set
forth in this Agreement, or (F) any other action or inaction that constitutes a
material breach by the Company of the terms of this Agreement;

 

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(ii) Within ninety (90) days of the initial existence of any of the foregoing
conditions, the Employee provides notice to the Company of the existence of such
condition and, upon such notice, the Company does not remedy such condition
within thirty (30) days of the date of such notice; and

(iii) After the expiration of such thirty (30) day remedy period, the Employee
effects his Termination by no later than the later of (A) the thirtieth
(30th) day following the end of such thirty (30) day remedy period and (B) the
end of the six (6) month period described in §6(g)(i).

For purposes of §6(g)(i)(A), a “material diminution in the Employee’s base
compensation” means a reduction of two percent (2%) or more from the level of
such compensation immediately prior to the applicable Change in Control. For
purposes of §6(g)(i)(E), a “material change in the geographic location at which
the Employee must perform the services set forth in this Agreement” means the
primary place of the Employee’s employment with the Company is moved to more
than (30) miles outside the Columbus, Ohio I-270 outerbelt. It is intended that
the Employee’s Termination for Good Reason constitute an “involuntary separation
from service” with respect to the Company, as such term is defined in Treas.
Reg. § 1.409A-1(n), and, in particular, a “separation from service for good
reason” that satisfies the safe harbor set forth in Treas. Reg. §
1.409A-1(n)(2)(ii), and the foregoing provisions are to be interpreted and
applied in a manner consistent with such intent.

§7. Noncompetition; Nondisclosure; Ownership of Developments. In consideration
of the substantial base salary and other benefits provided to the Employee, the
Company and the Employee agree as follows:

(a) During the term of the Employee’s employment by the Company, pursuant to
this Agreement or otherwise, and for a period of one (1) year immediately after
the Employee’s Termination, the Employee shall not:

(i) Engage in or participate in any business that directly competes with the
business of the Company within the United States and within any other country in
which the Company has engaged in business during the term of the Employee’s
employment by the Company; or

 

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(ii) Sell or perform the same or similar services or products as then provided
by the Company to, or solicit, any of the Company’s present customers or
accounts or persons or businesses which were customers or accounts within three
years preceding the Employee’s Termination; or

(iii) Promote or assist, financially or otherwise, any person, firm,
association, corporation, or other entity which directly competes with the
Company; or

(iv) Otherwise enter into or engage in any business which directly competes with
the business carried on by the Company; or

(v) Solicit any of the Company’s employees to leave the employ of the Company;
or

(vi) Seek to employ any of the Company’s employees (other than on behalf of the
Company).

(b) The Employee shall not at any time, either during the term of his employment
with the Company or after the Employee’s Termination for whatever reason:

(i) Disclose to anyone (except to the extent necessary as a benefit to the
Company in the performance of his duties) any trade secrets or confidential
information (as defined below).

(c) All inventions, discoveries, concepts, improvements, formulas, processes,
devices, methods, innovations, designs, ideas, and product developments
(collectively, the “Developments”) developed or conceived by the Employee,
solely or jointly with others, whether or not patentable or copyrightable, at
any time during the term of his employment with the Company or within one year
after the Employee’s Termination for any reason, whether or not during normal
working hours, and which relate in any way to the actual or planned business
activities of the Company shall be considered to be developed or conceived by
the Employee on behalf of the Company within the scope of his employment, and
all of the Employee’s right, title, and interest therein shall be the exclusive
property of the Company. The Employee hereby assigns, transfers, and conveys to
the Company all of his right, title, and interest in and to any and all such
Developments. Employee shall disclose fully, as soon as practicable and in
writing, all Developments to the Board. At any time and from time to time, upon
the request of the Company, the Employee shall execute and deliver to the
Company any and all instruments, documents, and papers, give evidence, and do
any and all other acts which, in the opinion of counsel for the Company, are or
may be necessary or desirable to document such transfer or to enable the Company
to file and prosecute applications for,

 

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and to acquire, maintain, and enforce, any and all patents, trademark
registrations, or copyrights under United States or foreign law with respect to
any such Developments or to obtain any validation, reissuance, continuance, or
renewal of any such patent, trademark, or copyright. The Company will be
responsible for the preparation of any such instruments, documents, and papers
and for the prosecution of any such proceedings and will reimburse the Employee
for all reasonable expenses the Employee incurs upon authorization of the Board.

(d) The Employee understands that this section is an essential element of this
Agreement and that the Company would not have entered into this Agreement
without this section being included in it. The Employee has consulted with his
legal counsel and has been fully advised concerning the reasonableness and
propriety of this section in the specific context of the operations and business
of the Company, and the Employee acknowledges that this section is reasonable
and appropriate in all respects. In the event of any violation or attempted
violation of this section, the Employee specifically acknowledges and agrees
that the Company’s remedy at law will be inadequate, that the Company, its
business, and business relationships will suffer irreparable injury and,
therefore, that the Company shall be entitled to injunctive relief upon such
breach in addition to any other remedy to which it may be entitled, either at
law or in equity, without the necessity of proof of actual damage.

(e) As used in this Agreement, the terms “trade secrets” and “confidential
information” shall mean any information which is not generally known to the
public, and include without limitation any information relating to the Company’s
business operations and structure, sales methods, practices and techniques,
technical know-how, Developments, advertising, marketing methods and practices,
and the Company’s relationships with suppliers, employees, or other persons or
entities doing business with the Company.

(f) For purposes of this Agreement, “directly” shall mean and include
participation for the Employee’s own account or as an owner, shareholder,
member, partner, director, officer, employee, creditor, or agent of any other
person or organization or through the Employee’s spouse or other family
relation, but shall not include a passive investment of not more than two
percent of the outstanding stock of a company whose shares are then being
regularly traded in open-market brokerage transactions (either on a stock
exchange or over-the-counter).

(g) In the event that a court of competent jurisdiction finally determines that
any provision of this section is unenforceable, the Company and the Employee
agree that such court shall have jurisdiction to reform this Agreement and such
provision so that it is enforceable to the maximum extent permitted by law, and
the parties agree to abide by such court’s determination.

§8. General. This document contains the entire Agreement between the parties and
supersedes any prior discussions, negotiations, representations, or agreements
between them

 

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relating to the employment of the Employee. No additions or other changes to
this Agreement shall be made or be binding on either party unless made in
writing and signed by each party to this Agreement. Any notice or other
communication required or desired to be given to any party under this Agreement
shall be in writing and shall be deemed given when either delivered personally
to that party or deposited in the United States mail, first-class postage
prepaid, addressed to that party at the address set forth below its or his name
below. Any party may change the address to which notices and other
communications are to be given by giving the other parties notice of such
change. All questions concerning the validity, intention, or meaning of this
Agreement or relating to the rights and obligations of the parties with respect
to performance hereunder shall be construed and resolved under the laws of Ohio.
If and to the extent that any court of competent jurisdiction determines that it
is impossible or violative of any legal prohibition to construe any provision of
this Agreement consistently with any law, legal prohibition, or public policy
and consequently holds that provision to be invalid or prohibited, such holding
shall in no way affect the validity of the other provisions of this Agreement,
which shall remain in full force and effect. No failure by any party to insist
upon strict compliance with any term of this Agreement, to exercise any option,
to enforce any right, or to seek any remedy upon any default of any other party
shall affect, or constitute a waiver of, the first party’s right to insist upon
such strict compliance, exercise that option, enforce that right, or seek that
remedy with respect to that default or any prior, contemporaneous, or subsequent
default; nor shall any custom or practice of the parties at variance with any
provision of this Agreement affect, or constitute a waiver of, any party’s right
to demand strict compliance with all provisions of this Agreement. The captions
of the various sections of this Agreement are not part of the context of this
Agreement, but are only labels to assist in locating those sections, and shall
be ignored in construing this Agreement. This Agreement shall be personal to the
Employee and no rights or obligations of the Employee under this Agreement may
be assigned by him.

§9. Installment Payment Designation. In accordance with Treas. Reg. §§
1.409A-2(b)(2)(iii) and (iv), for purposes of this Agreement any series of
installment payments is to be treated as a right to a series of separate
payments.

§10. Six-Month Delay Rule. Notwithstanding anything to the contrary contained in
this Agreement, for each payment under this Agreement (a) if the Employee is a
specified employee at the time of the Employee’s Termination, then, in
accordance with the six-month delay rule, the payment date of such payment shall
be delayed (if there would be a delay) to the date that is six months after the
date of Termination or, if earlier, the date that is the seventh (7th) day
following the Employee’s date of death, but (b) the foregoing delay shall be
inapplicable to such payment to the extent such payment is excluded from the
six-month delay rule by virtue any of the exceptions described under Treas. Reg.
§ 1.409A-1(b) (including without limitation any of the separation pay plan
exceptions set forth in Treas. Reg. § 1.409A-1(b)(9)), or is otherwise excluded
under Code section 409A from the application of the six-month delay rule
requirements.

§11. Limited Application with Respect to 2008. With respect to amendments
adopted as part of this Agreement effecting a change in the time and/or form of
payment, in accordance with Internal Revenue Service (“IRS”) Notice 2006-79 (as
modified and superseded by IRS

 

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Notice 2007-86) such amendments shall apply only to amounts that would otherwise
be payable in 2008 and shall not cause amounts to be paid in 2008 that would not
otherwise be payable in 2008.

§12. Tax Liabilities.

(a) The Employee (or the Employee’s permitted successors in interest as the case
may be) shall be solely responsible for any taxes, penalties, or interest
imposed upon the Employee (or his successors in interest) in connection with
this Agreement. In no event shall the Company, or any of the Company’s
affiliates, or any employees or other agents of the Company or of any of the
Company’s affiliates, be required to indemnify the Employee (or his successors
in interest) for, or otherwise be required to pay, any such liabilities. In
connection with any payments hereunder, the Company shall have the right to
deduct from such payments amounts that the Company, in the Company’s sole
discretion, determines are sufficient to satisfy any federal, state, local, or
other tax withholding requirements related thereto.

(b) Notwithstanding §12(a), if any of the amounts described in §§6(a)(i) or
6(c)(i) are includible in the Employee’s gross income for a taxable year of the
Employee by virtue of the operation of Code section 409A(a)(1)(A) then, to the
extent permissible under Treas. Reg. § 1.409A-3(j)(4)(vii), the Company shall
accelerate payment to the Employee of amounts under §§6(a)(i) or 6(c)(i) (as the
case may be) as follows:

(i) The Company shall make to the Employee a lump sum payment in an amount equal
to sixty percent (60%) of the remaining balance owed to the Employee under
§§6(a)(i) or 6(c)(i) at the time of such lump sum payment.

(ii) The Company shall make such lump sum payment (within ninety (90) days after
the end of such taxable year) upon documentation to the Company’s satisfaction
of such inclusion in gross income.

(iii) A lump sum payment made under this §§12(b) shall reduce correspondingly
the amount of remaining installments owed to the Employee under §§6(a)(i) or
6(c)(i) (as the case may be). Such reduction shall be applied to such remaining
installments proportionately.

(c) Notwithstanding §12(a), the Company hereby agrees that, in the event that
the “additional tax” referred to under Code section 409A(a)(1)(B) (or any
comparable additional tax referred to under state, local, or other tax law)
(collectively, “Additional Tax Liabilities”) is imposed upon the Employee with
respect to any amounts to be paid to the Employee under this Agreement, the
Company shall make tax gross-up payments (each, a “Gross-Up Payment”) to the
Employee to the extent necessary to reimburse the Employee for any Additional
Tax Liabilities and for any tax liabilities resulting from any Gross-Up Payments
(together with Additional Tax Liabilities, the “Tax Liabilities”). The Company
shall make each Gross-Up Payment (within ninety (90)

 

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days of the time that the Employee remits the related Tax Liabilities payment to
the corresponding taxing authority) upon documentation to the Company’s
satisfaction of such Tax Liabilities payment. In the event that the Employee
receives a tax refund with respect to a Tax Liabilities payment, the Employee
shall pay to the Company a corresponding amount within ninety (90) days of the
Employee’s receipt of such refund.

§13. Construction of Agreement. Notwithstanding anything to the contrary
contained in this Agreement, (a) it is intended that the provisions of this
Agreement (i) comply with Code section 409A, any regulations promulgated
thereunder, administrative pronouncements interpreting Code section 409A and
such regulations, and Code section 409A transition rules set forth in IRS Notice
2007-86 and any other applicable Code section 409A transition guidance, and/or
(ii) not provide for the “deferral of compensation” as such term is defined
under Treas. Reg. § 1.409A-1(b) and (b) such provisions shall be interpreted and
applied in a manner consistent with such intent.

[Signatures on next page.]

 

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      PINNACLE DATA SYSTEMS, INC.

/s/ John D. Bair

    By:  

/s/ Hugh C. Cathey

John D. Bair       Hugh C. Cathey, Chairman of the         Compensation
Committee

Address:   3204 Amity Road     Address:   6600 Port Road, Suite 100   Hilliard,
OH 43026       Groveport, OH 43125

 

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