In order to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder (such
Section and regulations, "409A"), on December 31, 2008, the employment agreements of Michael R. Sayre, President and Chief Executive Officer, John D. Bair, Chief Technology and Innovation Officer, Nicholas J. Tomashot, Chief Financial Officer, Treasurer and Corporate Secretary, Michael Darnell, Vice President, Global Sales and Marketing, and Timothy J. Harper, Vice President, Operations, were amended and restated.

Except as described further below with respect to Mr. Sayre, each of the amended and restated employment agreements is identical as to the following material amendments:

• the agreements have been revised to contain a definition of "Termination" that satisfies the requirements of 409A and to specify the time period during which benefits will be paid to the employees with regard to termination of employment in order to comply with the 6 month distribution delay rule under 409A;

• the term of each employment agreement has been extended to May 1, 2012;

• the time period in which an employee may exercise stock options that become vested on the employee's termination has been extended to one hundred eighty (180) days following the date of the employee's termination (subject to the Company, in its sole discretion, extending such period to up to one (1) year following the date of the employee's termination); and

• the agreements also provide for tax gross-up payments to be made to an employee by the Company in the event an employee is subject to any additional taxes under 409A.

In addition to the material terms described above, Mr. Sayre's annual base salary was revised to $275,000 to reflect his 2008 annual base salary level.

Except as disclosed in this Form 8-K, all other terms and conditions of Mr. Sayre's, Mr. Bair's, Mr. Tomashot's, Mr. Darnell's and Mr. Harper's employment agreements remain the same.

The second amended and restated employment agreements for John D. Bair and Michael R. Sayre are attached as Exhibits 10.1 and 10.2, respectively.

The amended and restated employment agreements for Nicholas J. Tomashot, Michael Darnell, and Timothy J. Harper are attached as Exhibits 10.3, 10.4 and 10.5, respectively.

See Item 1.01 above with respect to amendments to the compensatory arrangements with Mr. Sayre and Mr. Tomashot, the principal executive officer and the principal financial officer of the Company.

(c) Exhibits

Exhibit No.    Descriptions
10.1           Second Amended and Restated Employment Agreement between Pinnacle Data
               Systems, Inc. and Michael R. Sayre, effective December 31, 2008

10.2           Second Amended and Restated Employment Agreement between Pinnacle Data
               Systems, Inc. and John D. Bair, effective December 31, 2008

10.3           Amended and Restated Employment Agreement between Pinnacle Data
               Systems, Inc. and Nicholas J. Tomashot, effective December 31, 2008

10.4           Amended and Restated Employment Agreement between Pinnacle Data
               Systems, Inc. and Michael Darnell, effective December 31, 2008

10.5           Amended and Restated Employment Agreement between Pinnacle Data
               Systems, Inc. and Timothy J. Harper, effective December 31, 2008