Exhibit 10.5

HARPER EMPLOYMENT AGREEMENT

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This 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 Timothy J. Harper (the
“Associate”), who hereby agree as follows:

BACKGROUND INFORMATION

A. The Company and the Associate are parties to that certain Employment
Agreement dated effective as of April 21, 2008 (the “Prior Agreement”); and

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

PROVISIONS

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

§1. Employment. The Company hereby renews and continues the Associate’s
employment, and the Associate 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 Associate’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 Associate is employed hereunder as the Vice President,
Operations. As such, the Associate shall be responsible for establishing and
supervising the implementation of the business policies, operating programs,
budgets, forecasts, procedures, and direction of the Operations, Logistics and
Supply Chain groups; developing and implementing strategic plans for those
groups and the Company; monitoring and evaluating the effectiveness of those
groups in contributing to the attainment of the Company’s goals and objectives;
and such other services as may be reasonably assigned to him from time to time
by the President and Chief Executive Officer (“CEO”) to whom he reports. The
Associate 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.

(a) Other Board Service. In addition to his responsibilities to the Company,
upon the approval of the Company’s Board of Directors the Associate may sit on
the corporate or advisory boards of other companies, as long as those
responsibilities do not interfere or conflict with Associate’s duties and
responsibilities to the Company, or the performance thereof. Associate may
receive compensation for such services when

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appropriate, as long as such compensation does not create a conflict of interest
for the Associate or the Company. Associate 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 Associate shall be entitled to receive the following compensation:

(a) Salary. An annual minimum base salary of $150,000 (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 Associate shall be entitled to the following fringe benefits:

(a) Vacation. Twenty-three days of paid time off each calendar year. 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
Associate shall be temporarily or permanently unable to perform his duties
hereunder due to a physical or mental condition that prevents Associate from
performing his duties hereunder, the Associate shall nonetheless be entitled to
receive, for a period not to exceed six (6) months from the date of commencement
of such disability, any compensation that the Associate would otherwise be
entitled to pursuant to §4(a), above, during the period of such disability,
subject to the limitations below. Provided, however, that Associate’s disability
be documented by a competent licensed physician selected to examine the
Associate 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 six (6) months, the Associate shall no
longer be entitled

 

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to receive any compensation during the remaining period of such disability. In
the event the Associate is entitled during this six (6) month period to payments
under any disability policy, the Company’s obligation shall only be to
supplement such payments to bring the total amount Associate receives to an
amount equal to his base salary pursuant to §4(a).

(d) Executive Development. The Associate 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 Associate 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) Reimbursements. Each reimbursement of an expense pursuant to §§5(d), or 5(e)
(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
Associate’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 Associate is “Terminated”, or a “Termination” of
the Associate has occurred, upon the Associate’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 Associate may effect his Termination
after a “Change in Control” of the Company (as defined below), provided that
Associate effects such Termination for “Good Reason” (as defined below). If the
Associate effects his Termination pursuant to this provision, he shall be
entitled to the following: (i) a cash amount equal to fifty percent (50%) of his
base salary immediately prior to such Change in Control (A) payable to the
Associate in equal installments over the six (6) 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 Associate 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
Associate’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

 

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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 six (6) months
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 Associate, 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 Associate 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 the Associate 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 Associate 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 Associate without
cause at any time. If the Company Terminates the Associate pursuant to this
provision, the Associate shall be entitled to receive the following: (i) a cash
amount equal to fifty percent (50%) of his base salary immediately prior to such
Termination (A) payable to the Associate in equal installments over the six
(6) 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 Associate 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 Associate’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 six (6) months 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

 

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arrangement; and (iv) the immediate vesting of fifty percent (50%) of the
unvested stock options held by the Associate, 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 Associate. Upon Termination as a
result of the death of the Associate, the Associate’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
Associate is Terminated by the Company due to the long-term disability of
Associate, then Associate 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 Associate, 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 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 (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 Associate. In the event that there is
no long-term or permanent disability policy in effect covering the Associate,
the term “long-term disability” shall mean that because of physical or mental
incapacity, the Associate has 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 Associate Resignation. The Associate 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 Associate effects his Termination
pursuant to this provision, 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 Associate
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.

 

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(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 Associate 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 Associate 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 Associate: (A) a
material diminution in the Associate’s base compensation, (B) a material
diminution in the Associate’s authority, duties, or responsibilities, (C) a
material diminution in the authority, duties, or responsibilities of the
supervisor to whom the Associate is required to report, (D) a material
diminution in the budget over which the Associate retains authority, (E) a
material change in the geographic location at which the Associate 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 Associate 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 Associate
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 Associate’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 Associate must perform the services set forth in this Agreement” means the
primary place of the Associate’s employment with the Company is moved to more
than (30) miles outside the Columbus, Ohio I-270 outerbelt. It is intended that
the Associate’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; Nonsolicitation; Nondisclosure; Ownership of Developments.
In consideration of the substantial base salary and other benefits provided to
the Associate, the Company and the Associate agree as follows:

(a) During the term of the Associate’s employment by the Company, pursuant to
this Agreement or otherwise, and for a period of six (6) months immediately
after Associate’s Termination, the Associate 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 Associate’s
employment by the Company; or

(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 Associate’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

 

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

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

(i) Solicit any of the Company’s associates to leave the employ of the Company;
or

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

(c) The Associate shall not at any time, either during the term of his
employment with the Company or after the Associate’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).

(d) All inventions, discoveries, concepts, improvements, formulas, processes,
devices, methods, innovations, designs, ideas, and product developments
(collectively, the “Developments”) developed or conceived by the Associate,
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 Associate’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 Associate on behalf of the Company within the scope of his employment, and
all of the Associate’s right, title, and interest therein shall be the exclusive
property of the Company. The Associate hereby assigns, transfers, and conveys to
the Company all of his right, title, and interest in and to any and all such
Developments. The Associate 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 Associate 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, 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 Associate for all reasonable expenses the
Associate incurs upon authorization of the Board.

 

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(e) The Associate 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 Associate 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 Associate acknowledges that this section is reasonable
and appropriate in all respects. In the event of any violation or attempted
violation of this section, Associate 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.

(f) 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, associates, or other persons or
entities doing business with the Company.

(g) For purposes of this Agreement, “directly” shall mean and include
participation for the Associate’s own account or as an owner, shareholder,
member, partner, director, officer, Associate, creditor, or agent of any other
person or organization or through the Associate’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).

(h) In the event that a court of competent jurisdiction finally determines that
any provision of this section is unenforceable, the Company and the Associate
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 relating to the employment of the Associate. 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

 

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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 Associate and
no rights or obligations of the Associate 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 Associate is a
specified employee at the time of the Associate’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 Associate’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 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.

 

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§12. Tax Liabilities.

(a) The Associate (or the Associate’s permitted successors in interest as the
case may be) shall be solely responsible for any taxes, penalties, or interest
imposed upon the Associate (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 Associate (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 Associate’s gross income for a taxable year of the
Associate 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 Associate of amounts under §§6(a)(i) or 6(c)(i) (as
the case may be) as follows:

(i) The Company shall make to the Associate a lump sum payment in an amount
equal to sixty percent (60%) of the remaining balance owed to the Associate
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 Associate 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 Associate with
respect to any amounts to be paid to the Associate under this Agreement, the
Company shall make tax gross-up payments (each, a “Gross-Up Payment”) to the
Associate to the extent necessary to reimburse the Associate 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) days of the time that the
Associate 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 Associate receives a tax refund with
respect to a Tax Liabilities payment, the Associate shall pay to the Company a
corresponding amount within ninety (90) days of the Associate’s receipt of such
refund.

 

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§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/ Timothy J. Harper

    By:  

/s/ Hugh C. Cathey

Timothy J. Harper       Hugh C. Cathey         Chairman of the Compensation
Committee

Address:   7117 Rossman Court     Address:   6600 Port Road, Suite 100   Canal
Winchester, OH 43110       Groveport, OH 43125

 

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