PECO II INC
SECURITY AGREEMENT
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>dex101.htm
<DESCRIPTION>SECURITY AGREEMENT
<TEXT>
<HTML><HEAD>
<TITLE>Security Agreement</TITLE>
</HEAD>
 <BODY BGCOLOR="WHITE">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>Exhibit 10.1 </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>SECURITY AGREEMENT </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="2"><B>(Deposit Account(s)) </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>Borrower Grantor </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">This Security Agreement (together with all amendments, supplements and other modifications, this &#147;<B><I>Agreement</I></B>&#148;)
executed in <B>Columbus, OH</B>, as of this <B>15<FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><SUP>th </SUP></FONT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000"></FONT></B><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">day of
<B>October 2004</B>, by <B>PECO II, Inc.</B> (together with its permitted successors and assigns, heirs and personal representatives, &#147;<B><I>Grantor</I></B>&#148;) whose mailing address is <B>1376 State Road 598, Galion, OH 44833-9355 to
NATIONAL CITY BANK</B> (&#147;<B>Bank</B>&#148;), having a banking office at <B>155 East Broad Street, Columbus, OH 43251, Attention: Commercial Loans Division, Locator No. 16-0061.</B> </FONT></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><I>1. Grant of Interest. </I></B>Grantor hereby grants to Bank a security interest in all
of Grantor&#146;s right, title and interest in the following property of Grantor wherever located and whether now existing or hereafter acquired or created (collectively, the &#147;<B><I>Collateral</I></B>&#148;): </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"></FONT><FONT FACE="WINGDINGS" SIZE="2" COLOR="#000000">&#168;</FONT><FONT FACE="Times New Roman" SIZE="2"></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">all Deposit Accounts with Bank
[<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> Bank] in Grantor&#146;s name (and including any
changes in the numbering or designation of the foregoing) with all present and future renewals, replacements, substitutions, increases in value, rollovers, additions thereto, interest and earnings thereon, rights and accessions thereto, whether now
existing or hereafter arising, (collectively, the &#147;<B><I>Deposit</I></B>&#148;) and all Proceeds of the foregoing. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">OR </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><FONT FACE="WINGDINGS">&#120;</FONT></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">a Deposit Account with Bank [National City Bank] in Grantor&#146;s name which is identified as Account Number
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> (and including any changes in the numbering or
designation of the foregoing) with all present and future renewals, replacements, substitutions, increases in value, rollovers, additions thereto, interest and earnings thereon, rights and accessions thereto, whether now existing or hereafter
arising, (the &#147;<B><I>Deposit</I></B>&#148;) and all Proceeds of the foregoing. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">This Collateral secures the full and prompt payment to Bank of all obligations of Grantor to Bank, whether incurred directly or acquired by purchase, pledge, or otherwise and whether participated in whole or in part,
including, without limitation, <I>(i) </I>every such obligation to Bank whether in a joint, several, or joint and several capacity, whether now owing or existing or later arising or created, owed absolutely or contingently, created by loan,
overdraft, guaranty, or other contract, quasi-contract, tort, statute or otherwise, whether for principal, interest, fees, expenses or otherwise and <I>(ii)</I> any and all obligations of Grantor to Bank or to any affiliate of Bank, whether now
owing or existing or later arising or created, owed absolutely or contingently, whether evidenced or acquired (including all renewals, extensions, and modifications thereof or substitutions), under any agreement, device or arrangement designed to
protect Grantor from fluctuations of interest rates, exchange rates or forward rates, including, but not limited to, dollar-denominated or cross-currency exchange agreements, foreign currency exchange agreements, interest rate caps, collars or
floors, forward rate currency or interest rate options, puts, warrants, swaps, swaptions, U.S. Treasury locks and U.S. Treasury options, (collectively the &#147;<B><I>Subject Debt</I></B>&#148;). </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"></FONT><FONT FACE="WINGDINGS" SIZE="2" COLOR="#000000">&#168;</FONT><FONT FACE="Times New Roman" SIZE="2"></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><I>[Withdrawals permitted above dollar limitation&#151;National City accounts only] </I>Anything herein to the contrary notwithstanding, the security interest in the Deposit granted
to Bank by Grantor under this Agreement shall be limited to the sum of <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> and <U>&nbsp;&nbsp;&nbsp;&nbsp;</U>/100 Dollars
($<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>) (the &#147;<B><I>Minimum Amount</I></B>&#148;) <U>plus</U> all expenses, legal and otherwise (including court costs
and reasonable attorney&#146;s fees), paid or incurred by Bank in enforcing this Agreement. Subject to the covenants contained herein and any further restrictions contained in any deposit account control agreement or other agreement relating to
Bank&#146;s Control over the Deposit and in any deposit agreement or other documents governing the Deposit, unless and until an Event of Default occurs or Bank demands payment of any part of the Subject Debt, Grantor may withdraw funds from the
Deposit so long as the total amount of the Deposit does not fall below the Minimum Amount. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><FONT FACE="WINGDINGS">&#120;</FONT></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><I>[No withdrawals]</I> Grantor shall not have the right to withdraw any amount from the Deposit unless Grantor obtains Bank&#146;s prior written consent. </FONT></TD></TR></TABLE>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>



<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><I>2.</I></B> <B><I>Representations and Warranties. </I></B>Grantor represents and warrants to Bank as follows:
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><I>(a)</I> <B><I>Existence. </I></B>Grantor&#146;s legal name
is exactly as set forth in the first paragraph of this Agreement. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman"
SIZE="2"><I>(b)</I> <B><I>Ownership. </I></B>Grantor owns all of the presently existing Collateral, free and clear of any and all adverse claims, assignments, attachments, leases, mortgages, security interests or other liens of any kind or nature
(&#147;<B><I>Encumbrances</I></B>&#148;) except those in favor of Bank and those consented to in writing by Bank (collectively, the &#147;<B><I>Permitted Encumbrances</I></B>&#148;). Each Encumbrance granted hereby, when duly and properly perfected,
will be a first priority security interest in the Collateral, prior to all Encumbrances except for Permitted Encumbrances, and will secure the payment of the Subject Debt. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><I>(c)</I> <B><I>Authority; No Consent. </I></B>Grantor has all right, power and authority to enter into and deliver this
Agreement and grant to Bank the Encumbrances on the Collateral. This Agreement is a valid obligation of Grantor, enforceable in accordance with its terms. No consent, authorization, approval or other action of any third party is required for the
grant by Grantor of the Encumbrances hereunder. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><I>3.</I></B>
<B><I>Covenants.</I></B> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><I>(a)</I> <B><I>No Transfer or
Encumbrance. </I></B>Grantor agrees that it will not, without in each case obtaining Bank&#146;s prior written consent, <I>(i) </I>liquidate, transfer or otherwise dispose of all or any part of the Collateral except as otherwise permitted herein, or
<I>(ii) </I>grant any Encumbrances in or permit any Collateral to be or become subject to any Encumbrance except for Permitted Encumbrances. Grantor shall comply with all applicable laws, rules and regulations related to the Collateral. Grantor
agrees to join Bank to take all steps necessary to preserve, protect and defend Bank&#146;s security interest in the Collateral, at Grantor&#146;s expense, as Bank may from time to time require. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I></I></B><I>(b) </I><B>Notice.</B><I> </I>Grantor agrees to give Bank:
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><I>(i)</I> not less than thirty (30)
days&#146; prior written notice of any change in Grantor&#146;s name or the continuing status of Bank&#146;s security interest as the first and prior lien on the Collateral, </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><I>(ii)</I> immediate written notice if any third party claims any Encumbrance on any of the Collateral or
claims that Grantor&#146;s use thereof infringes or unlawfully conflicts with any rights of such party, and </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(<I>iii</I>) from time to time, upon Bank&#146;s request, statements and schedules further identifying and describing the Collateral, in
form and substance satisfactory to Bank. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B><I></I></B><I>(c)
</I><B><I>Further Assurances.</I></B><I> </I>Grantor agrees to execute and deliver from time to time upon request of Bank such other instruments of assignment, conveyance and transfer and take such other action as Bank may reasonably request for the
purpose of perfecting, continuing, amending, protecting or further evidencing the arrangements contemplated hereby or to enable Bank to exercise and enforce its rights and remedies hereunder. Grantor will, at Grantor&#146;s expense, upon each
request of Bank <I>(i)</I> cooperate with Bank in obtaining Control of all Deposit Accounts, and <I>(ii) </I>comply with every other requirement deemed necessary by Bank for the perfection of its security interest in the Collateral. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B><I>4. Remedies. </I></B>If any Event of Default occurs or after demand is made by Bank,
Bank has the right, at its option at any time and from time to time, without notice to Grantor to exercise the following rights and remedies which may be exercised simultaneously: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><I>(a)</I> Bank shall have the right, at any time and from time to time, to give any necessary notice and to surrender the
Deposit to the issuer thereof and obtain payment thereunder, subject to any early withdrawal penalty or other fees imposed by the issuer, when applicable, and to take control of all or any Collateral. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><I>(b)</I> Bank shall have the right, at any time and from time to time, to
sell, transfer or otherwise dispose of, or to attach, execute or levy on, any of the Collateral and to effect transfer of title upon sale or other disposition of all or a part of the Collateral. For this purpose, Grantor irrevocably appoints Bank as
Grantor&#146;s attorney-in-fact to execute endorsements, assignments and instruments in the name of Grantor and each of them (if more than one) as shall be necessary or reasonable. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><I>(c)</I> Bank shall have full power and right to exercise any and all rights and remedies available at law (including,
without limitation, those afforded by the UCC) or in equity to collect, enforce or satisfy any of the </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>



<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">Subject Debt and exercise any or all of the rights and remedies in respect of the Collateral, including, without limitation, those provided herein or in any
Related Writing. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">After deducting all expenses incurred in enforcing its rights
in the Collateral, Bank shall have the right to apply the net proceeds of the Collateral to the Subject Debt without notice and with such allocation as to item and maturity as Bank in its sole discretion deems advisable, and shall refund the
surplus, if any, to Grantor. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>5.</B> <B><I>Indemnity; Fees and
Expenses.</I></B> Grantor agrees to indemnify Bank from and against any and all claims, losses, and liabilities arising from or with respect to the Collateral and this Agreement, except claims, losses, or liabilities resulting from Bank&#146;s gross
negligence or willful misconduct. Grantor will reimburse Bank, on demand, for any and all fees, costs, and expenses (including, without limitation, reasonable attorneys&#146; fees) incurred by Bank in <I>(a)</I> custody, preservation, use,
collection or realization of the Collateral, <I>(b)</I> protection or enforcement of its rights in the Collateral or under this Agreement or <I>(c)</I> failure of Grantor to perform or observe any provisions hereof. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>6.</B> <B><I>Bank May Perform.</I></B> If Grantor fails to perform any agreement contained
herein, Bank may itself perform (but is not required to perform) or cause performance of, such agreement, and the expenses of Bank incurred in connection therewith shall be payable by Grantor upon Bank&#146;s demand. If Grantor does not reimburse
Bank, such amounts paid will become part of the Subject Debt and will be secured hereunder. The powers conferred on Bank hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such
powers. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>7.</B> <B><I>Notices.</I></B> Each notice to Grantor shall be in
writing and shall be deemed to have been given or made when sent to Grantor, by certified mail, return receipt requested, or nationally recognized overnight courier service to the address of Grantor set forth herein or at such other address as
Grantor may furnish to Bank from time to time. Every notice to Bank shall be in writing and shall be effective when delivered to Bank at its banking office or at such other address as Bank may furnish to Grantor. Grantor assumes all risks arising
out of or in connection with each notice given hereunder. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>8.</B>
<B><I>Power of Attorney.</I></B> Grantor hereby irrevocably appoints Bank as its attorney-in-fact, with full power of substitution, to do the following: (a) to demand, collect, receive, receipt for, sue and recover all sums of money or other
property which may now or hereafter become due, owing or payable from the Collateral; (b) to execute, sign and endorse any and all claims, instruments, receipts, checks, drafts or warrants issued in payment for the Collateral; (c) to settle or
compromise any and all claims arising under the Collateral, and in the place and stead of Grantor, to execute and deliver its release and settlement for the claim; and (d) to file any claim or claims or to take any action or institute or take part
in any proceedings, either in its own name or in the name of Grantor, or otherwise, which in the discretion of Bank may seem to be necessary or advisable. This power is given as security for the Subject Debt, and the authority hereby conferred is
and shall be irrevocable and shall remain in full force and effect until terminated by Bank. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2"><B>9.</B> <B><I>Definitions.</I></B> As used in this Agreement, the following terms shall have the following meanings: &#147;<B><I>Deposit Account</I></B>&#148; means a demand, time, savings, passbook or similar
account maintained with a bank and does not include Investment Property or accounts evidenced by an Instrument; &#147;<B><I>Event of Default</I></B>&#148; means any event of default as defined and occurring under any Related Writing;
&#147;<B><I>Person</I></B>&#148; means an individual or entity of any kind, including, without limitation, any association, company, cooperative, corporation, partnership, trust, governmental body, or any other form or kind of entity;
&#147;<B><I>Record</I></B>&#148; means information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form; &#147;<B><I>Related Writing</I></B>&#148; means a Record of any
kind that <I>(i)</I> evidences the Subject Debt or pursuant to which any Subject Debt is issued, <I>(ii)</I> evidences any Collateral or any interest therein or Proceeds or Products thereof or which otherwise relates thereto in any manner, or
<I>(iii) </I>is a financial statement, audit report, opinion, notice, certificate or other Record any kind that is furnished to Bank by Grantor or by any officer, partner, employee, agent, auditor or counsel of Grantor; and
&#147;<B><I>UCC</I></B>&#148; means the Uniform Commercial Code as currently in effect in the jurisdiction where the chief executive office of the Bank is located and as the Uniform Commercial Code may hereafter be amended, adopted and effective in
such jurisdiction. All terms used in this Agreement which are defined under the UCC and not otherwise defined herein, including, without limitation, all terms relating to the Collateral, shall have the meaning as set forth in the UCC. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>10.</B> <B><I>General Provisions.</I></B> The provisions of this Agreement shall be
binding upon the successors, assigns, heirs and personal representatives of the parties hereto. If Grantor is more than one Person, those Persons shall be jointly and severally liable for the payment and performance of Grantor&#146;s obligations
under this Agreement. No single or partial exercise of any right, power or privilege shall preclude any further or other </FONT>
</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>



<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px">
<FONT FACE="Times New Roman" SIZE="2">exercise thereof or of any other right, power or privilege, as each such right, power or privilege may be exercised either independently or concurrently with
others and as often and in such order as Bank may deem expedient. This Agreement contains the entire security agreement between Grantor and Bank and may be in addition to other security agreements executed by Grantor in favor of Bank. If any one or
more of the provisions hereof should be invalid, illegal or unenforceable in any respect, the finding shall only affect the provisions found to be void and the remaining provisions shall not be impaired. No course of dealing in respect of, nor any
omission or delay in the exercise of, any right, power or privilege by Bank under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any further or other exercise thereof or of any other
right, power or privilege, as each such right, power or privilege may be exercised either independently or concurrently with others and in such order as Bank may deem expedient. The provisions of this Agreement may be modified, altered or amended
only by written agreement signed by Bank and Grantor. Each right, power or privilege is in addition to and not in limitation of any other rights, powers and privileges that Bank may otherwise have or acquire by operation of law (including, without
limitation, the right of offset), by other contract or otherwise. This Agreement shall be governed by the law (excluding conflict of laws rules) of the jurisdiction in which Bank&#146;s banking office is located. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>11.</B> <B><I>Defeasance.</I></B> Bank&#146;s security interest in the Collateral shall
remain in effect in accordance with this Agreement until the Subject Debt has been fully satisfied and shall not be affected by the lapse of time or by the fact that there may be a time or times when no Subject Debt is outstanding. If and when
Bank&#146;s security interest shall have terminated in accordance with the provisions of this Agreement, Grantor agrees to pay to Bank, on demand, an amount equal to all reasonable costs and expenses incurred by Bank in terminating its security
interests. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>12.</B> <B><I>Jurisdiction and Venue; Waiver of Jury
Trial.</I></B> Any action, claim, counterclaim, crossclaim, proceeding, or suit arising under or in connection with this Agreement (each an &#147;<B><I>Action</I></B>&#148;) may be brought in any federal or state court located in the city in which
Bank&#146;s banking office is located. Grantor hereby unconditionally submits to the jurisdiction of any such court with respect to each such Action and hereby waives any objection Grantor may now or hereafter have to the venue of any such Action
brought in any such court. GRANTOR HEREBY, AND EACH HOLDER OF THE SUBJECT DEBT OR ANY PART THEREOF, KNOWINGLY AND VOLUNTARILY WAIVES JURY TRIAL IN RESPECT OF ANY ACTION, CLAIM, COUNTERCLAIM, CROSSCLAIM, PROCEEDING OR SUIT, WHETHER AT LAW OR IN
EQUITY, WHETHER SOUNDING IN TORT, CONTRACT, OR OTHERWISE AT ANY TIME ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER RELATED WRITING, THE ADMINISTRATION, ENFORCEMENT, OR NEGOTIATION OF THIS AGREEMENT OR ANY OTHER RELATED WRITING, OR
THE PERFORMANCE OF ANY OBLIGATION IN RESPECT OF THIS AGREEMENT OR ANY OTHER RELATED WRITING. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">This Agreement is executed as of the date first written above, with the intent to be legally bound hereby. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P><DIV ALIGN="right">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0">

<TR>
<TD WIDTH="7%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="77%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="14%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Grantor:</FONT></P></TD></TR>
<TR>
<TD HEIGHT="16" COLSPAN="5"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="5"><FONT FACE="Times New Roman" SIZE="2"><B>PECO II, Inc.</B></FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom" STYLE="BORDER-BOTTOM:1px solid #000000"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" STYLE="BORDER-BOTTOM:1px solid #000000"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">/s/ Sandra A. Frankhouse</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">(SEAL)</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Name:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Sandra A. Frankhouse</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Title:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Chief Financial Officer</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
</TABLE></DIV> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>



<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>LOAN SETTLEMENT STATEMENT </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"
ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>AND BORROWER&#146;S AUTHORIZATION </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
FACE="Times New Roman" SIZE="2">Borrower: <B>PECO II, Inc.</B> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Principal
Amount of Note: <B>$3,500,000.00</B> </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Note dated: <B>October 15, 2004</B>
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In connection with the above referenced loan transaction, <B>NATIONAL CITY
BANK</B> has incurred or will incur the following expenses: </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="80%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="86%"></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD></TD>
<TD></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>Origination Fee</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2"><B>$</B></FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>5,000.00</B></FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">TOTAL:</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2"><B>$</B></FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>5,000.00</B></FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Please pay the above charges in the
following manner (Check One): </FONT></P> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"><FONT FACE="WINGDINGS">&#120;</FONT></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Check in the above amount attached hereto. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"></FONT><FONT FACE="WINGDINGS" SIZE="2" COLOR="#000000">&#168;</FONT><FONT FACE="Times New Roman" SIZE="2"></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Please debit my Account Number 982338667 and send copy of Debit Advice to above Borrower. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:-6px"><FONT
SIZE="1">&nbsp;</FONT></P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2"></FONT><FONT FACE="WINGDINGS" SIZE="2" COLOR="#000000">&#168;</FONT><FONT FACE="Times New Roman" SIZE="2"></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Please deduct the above charges from the proceeds of the loan. </FONT></TD></TR></TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">In addition, <B>NATIONAL CITY BANK</B> is authorized to deduct from the proceeds of the above referenced note the following amounts to be paid to the following:
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="80%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">

<TR>
<TD WIDTH="81%"></TD>
<TD VALIGN="bottom" WIDTH="6%"></TD>
<TD></TD>
<TD></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2"><B>Undisbursed</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2"><B>$</B></FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>3,500,000.00</B></FONT></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:3.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">TOTAL</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2"><B>$</B></FONT></TD>
<TD VALIGN="bottom" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>3,500,000.00</B></FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE ALIGN="right" COLOR="#000000"></TD>
<TD VALIGN="bottom"><HR SIZE="3" NOSHADE COLOR="#000000"></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0">

<TR>
<TD WIDTH="2%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="40%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="34%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="21%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2">Borrower: <B>PECO II, Inc.</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="bottom" NOWRAP> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></P></TD>
<TD VALIGN="bottom" STYLE="BORDER-BOTTOM:1px solid #000000"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" STYLE="BORDER-BOTTOM:1px solid #000000"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">/s/ Sandra A. Frankhouse</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">It</FONT><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><SUB></SUB></FONT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">s:
<B>Chief Financial Officer</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Date:&nbsp;<B>October&nbsp;15,&nbsp;2004</B></FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2"><B>Sandra A. Frankhouse</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>Acknowledgement
</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0">

<TR>
<TD WIDTH="2%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="40%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="34%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="21%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT FACE="Times New Roman" SIZE="2">Bank: <B>NATIONAL CITY BANK</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="bottom" NOWRAP> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></P></TD>
<TD VALIGN="bottom" STYLE="BORDER-BOTTOM:1px solid #000000"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" STYLE="BORDER-BOTTOM:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">/s/ Tom D. Peoples</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">It</FONT><FONT FACE="Times New Roman" SIZE="1" COLOR="#000000"><SUB></SUB></FONT><FONT FACE="Times New Roman" SIZE="2" COLOR="#000000">s:
<B>VP</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">Date:&nbsp;<B>October&nbsp;15,&nbsp;2004</B></FONT></TD></TR>
<TR>
<TD VALIGN="top"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2"><B>Tom D. Peoples</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>



<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><B>FORM OF CONFIRMATION FOR DEMAND LINE OF CREDIT </B></FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" ALIGN="center">

<TR>
<TD WIDTH="9%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD WIDTH="30%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD WIDTH="7%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD WIDTH="48%"></TD></TR>
<TR>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><B>Borrower:</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>PECO II, Inc.</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>1376 State Route
598</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px"><FONT FACE="Times New Roman" SIZE="2"><B>Galion, OH 44833-9355</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><B>Lender:</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>National City Bank</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>Columbus - Corporate
Banking LOC 0018</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>155 East Broad Street</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px"><FONT FACE="Times New Roman" SIZE="2"><B>Columbus,
OH 43251</B></FONT></P></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">Borrower has executed and delivered to
National City Bank (<B>&#147;Lender&#148;</B>) a Promissory Note (<B>&#147;Note&#148;</B>) in the amount of $ Three Million Five Hundred Thousand and 00/100 dollars ($3,500,000.00) (<B>&#147;Demand Line&#148;</B>) </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">This form will confirm that the Lender has agreed, subject to the statutory and other
requirements by which it is governed and the terms and conditions which are set forth in this form as well as those set forth in the Note, to provide to the Borrower the Demand Line in the amount set forth above. The terms and provisions of the
Demand Line including, without limitation, the interest rate and the minimum advance amounts, are set forth in the Note. The Note, together with this form, must be executed by the Borrower prior to the Lender considering making any advances to the
Borrower. This Demand Line will be reviewed from time to time by the Lender to allow the Lender to determine whether or not it should be continued. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2"><B>Advances made under the Demand Line, if any, shall be made at the sole discretion of the Lender and shall be due and payable on demand. </B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">The Lender shall have the right to demand repayment of the entire amount outstanding under
the Demand Line at any time and for any reason without any prior notice to the Borrower. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">In extending the Demand Line to Borrower, Lender expects that Borrower will provide the information described in this form. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">UBorrower&#146;s Financial Statements. Borrower shall furnish to the Lender </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">within <B>Forty Five (45) days</B> after the end of each fiscal Quarter of Borrower, the balance sheet of the Borrower as of the end of such fiscal <B>Quarter</B>
[commencing with the fiscal Quarter ending <U></U>Sept 30, 04 together with statements of cash flow, income and surplus reconciliation prepared for the Borrower and on a comparative basis with the prior year, in accordance with generally accepted
accounting principles consistently applied, in form and detail satisfactory to the Lender, and certified as having been Audited by an independent certified public accountant selected by the Borrower and satisfactory to the Lender. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">Lender&#146;s granting of any advance under the Demand Line or making any
other accommodation to Borrower in the absence of the financial information to be provided pursuant to this form shall not constitute a waiver of Lender&#146;s rights to require delivery of such information, and shall not preclude the exercise of
any right, power or remedy granted to Lender under the Note and any related writings or provided by law. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">THE BORROWER ACKNOWLEDGES THAT THIS FORM AND THE NOTE DO NOT CONSTITUTE A COMMITMENT BY THE LENDER TO MAKE ANY ADVANCES TO THE BORROWER OR HONOR THE
BORROWER&#146;S REQUEST FOR AN ADVANCE. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">If you agree that the
above accurately reflects the understanding of the Borrower and the Lender, please so indicate by signing below. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0">

<TR>
<TD WIDTH="7%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="92%"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2"><B>BORROWER</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px; margin-left:1.00em; text-indent:-1.00em"><FONT
FACE="Times New Roman" SIZE="2">PECO II, Inc.</FONT></P></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></P></TD>
<TD VALIGN="bottom" STYLE="BORDER-BOTTOM:1px solid #000000"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" STYLE="BORDER-BOTTOM:1px solid #000000"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">/s/ Sandra A. Frankhouse</FONT></P></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Printed Name: Sandra A. Frankhouse</FONT></P></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT FACE="Times New Roman" SIZE="2">Its: Chief Financial Officer.</FONT></P></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>


</BODY></HTML>

</TEXT>
</DOCUMENT>
