EMPLOYMENT AGREEMENT

Exhibit 10.1

EMPLOYMENT AGREEMENT

This Employment Agreement is made as of the 28 th day of July, 2005, by PECO II Global Services, Inc., a Delaware corporation (the “Employer”), John G. Heindel, an individual and resident of the State of New Jersey (the “Employee”), and PECO II, Inc., an Ohio corporation and parent company of the Employer (“PECO”).

For the purposes of this Agreement, the following terms have the meanings specified or referred to in this Section 1.

“Affiliate(s)” – any Person, directly or indirectly controlled by, or under common control with, the Employer or any other referenced Person.

“Agreement”- this Employment Agreement, as amended from time to time.

“Benefits” – as described in Section 4.3.

“Board of Directors” – the board of directors of the Employer.

“Cause” – means the occurrence of any of the following events during the Employment Period: (a) conduct amounting to fraud or dishonesty against the Employer or any Affiliate of the Employer; (b) the Employer’s repeated unreasonable refusal to follow the reasonable directions of the Board of Directors of PECO, which refusal continues for thirty (30) days after written notice of same to the Employee by the Employer; (c) a material breach of this Agreement, which breach shall remain uncured by the Employee for a period of thirty (30) days following written notice of same to the Employee by the Employer; (d) repeated intoxication with alcohol or drugs while on the Employer’s business during regular business hours; (e) a conviction or plea of guilty or nolo contendere to a felony; or (f) the Employee’s failure to observe and comply with the requirements in Section 9 or 10 hereof.

“Change of Control” – As defined and addressed in Section 8.

“Compensation” – Salary and Benefits

“Confidential Information” – any and all:

(a) trade secrets concerning the business and affairs of the Employer or any Affiliate of the Employer, product or service specifications, data, know-how, formulae, compositions, processes, designs, sketches, photographs, graphs, drawings, samples, inventions and ideas, past, current, and planned research and development, current and planned manufacturing, marketing or distribution methods and processes, customer lists, prospective customer lists, current and anticipated customer

requirements, price lists, market studies, business plans, computer software and programs (including object code and source code), computer software and database technologies, systems, structures, and architectures (and related formulae, compositions, processes, improvements, devices, know-how, inventions, discoveries concepts, ideas designs methods and information), and any other information, however documented, that is a “trade secret” either under common law or as such term is defined by statute under the laws of any applicable jurisdiction.

b) information concerning the business and affairs of the Employer or its Affiliates (which includes historical financial statements, financial projections and budgets, historical and projected sales, capital spending budgets and plans, the names and background of key personnel, personnel training and techniques and materials), however documented; and

c) notes, analysis, compilations, studies, summaries, and other material prepared by or for the Employer or Affiliates of the Employer, containing or based, in whole or in part, on any information included in the foregoing.

“Death of Employee”- Employer will, upon commencement of this agreement, purchase a term life insurance policy for a term of not less than two (2) years upon the life of Employee in the amount of $1,000,000 which policy shall be payable $500,000 together with gross up of premiums to the designated beneficiaries of Employee and any balance to Employer, if Employee shall become deceased at any time during the term of this agreement or extensions or renewals thereof as defined in said policy.

“Disability” – as defined in Section 7.3

“Effective Date”-is July 28, 2005. All. references to commencement date herein is defined as the same as effective date.

“Employee Invention” – any idea, invention, technique, modification, process, or improvement (whether patent able or not), and any work of authorship (whether or not copyrights protection may be obtained for it) created, conceived, or developed by the Employee, either solely or in conjunction with others, during the Employment Period, or a period that includes a portion of the Employment Period, that relates in any way to, or is useful in any manner in, the business then being conducted or proposed to be conducted by the Employer, and any such item created by the Employee, either solely or in conjunction with others, following termination of the Employee’s employment with the Employer, that is based upon or uses Confidential Information; provided, however, that any item so created by the Employee that is based upon or uses Confidential Information that the Employee demonstrates was or became generally available to the public, other than as a result of a disclose by the Employee, will not be deemed to be an Employee Invention for any purposes.

“Employer” – as defined on the first page of this Agreement and its successors and assigns.

“Employment Period” – the Term of the Employee’s employment under this Agreement, which is defined in Section 2.2.

“Good Reason” - means the occurrence of any of the following events during the Employment Period including renewals and/or extensions: (a) any material change with respect to the diminution and/or reassignment of : (i) title, appointment and authorities as an Executive Officer and/or of Board Position,; and/or (ii) duties, responsibilities and/or reporting relationship of the Employee; or (b) the assignment or relocation of the Employee to a location outside of a fifty (50) mile radius from the Employer’s headquarters or Employee’s residence; or (c) the relocation of Employer’s corporate headquarters to a location outside of a 50 (fifty) mile radius from Employer’s current headquarters in the State of Ohio; or (d) the failure by the Employer to pay the Salary as provided in Section 4.1 or the relocation benefits as provided in Section 4.7 or any amounts otherwise vested and due hereunder or under any plan or policy of the Employer or; or (e) failure to obtain the shareholder approval for the Board of Director position as contemplated by Section 3; or (f) failure to appoint Employee as a Board of Director or failure of Employee to remain a Board of Director at any time during the term of this Agreement (g) change of control as defined in Section 8...

“Non-competition Agreement” – the agreements and covenants of the Employee found in Section 10.2

“Non-competition Period” – during the term and for a period of time equal to one year following the Employee’s termination date of employment from Employer (irrespective of the reason for such termination)

“Person” - any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trusts, association, organization, or governmental body.

“Proprietary Items” – as defined in Section 9.2(a)(iv).

“Salary” – as defined in Section 4.1.

“Stock Options” – as defined in Section 4.4

2.1 Employment. The Employer hereby employs the Employee, effective as of the date hereof, and the Employee accepts employment by the Employer, effective as of the date hereof, upon the terms and conditions set forth in this Agreement.

2.2 Term Subject to the provisions of Section 7, the term of the Employee’s employment under this Agreement shall become effective on the date hereof and continue for two (2) years (the “Term”). This Agreement will renew automatically on the second year anniversary of the effective date of this Agreement subject to any negotiated changes and/or adjustments by the Employee and Employer 90 days prior to the termination of each two-year term unless either party gives 90 days written notice prior to the termination of each two-year term.

2.3 Duties The Employee will be employed as the Chief Executive Officer and President of PECO including such time that Employee is elected as Chairman of the Board in accordance with Section 3. Employee will perform its duties and responsibilities as described in Exhibit A and as otherwise reasonably requested in good faith by the Board of Directors of PECO consistent with such position. The Employee will (a) devote the Employee’s entire business time, energy and skill (vacations and reasonable absences due to illness excepted) to fulfill the duties of his position; (b) use his best efforts to promote the success of the business of the Employer, and (c) cooperate fully with the reasonable requests of the Board of Directors of PECO in the advancement of the best interests of the Employer and its Affiliates. During the Employment Period, the Employee shall not be engaged in or provide services to any other business or enterprise (whether engaged in for profit or not) which interferes with the Employee’s obligations under this Agreement. However, Employee will be allowed to participate as a Board of Director of any outside business or enterprise (whether engaged in for profit or not) provided Employee obtains the approval of the Board of Directors of PECO.

4.1. Salary The Employer shall pay to the Employee an annualized Salary at a rate of $250,000 per calendar year, subject to the provisions of Section 6 (the “Salary”), which Salary shall be payable in equal bi-weekly installments in accordance with the Employer’s customary payroll practices.

4.2 Annual Bonus Plan Employee shall be eligible for an annual cash bonus (“bonus”) of up to a maximum of $250,000 per annum for each year of the term of this Agreement including renewals and/or extensions. This bonus shall be payable by Employer within thirty (30) calendar days of each of the anniversary dates of this Agreement provided that during each year of Employee’s employment, PECO achieves specific revenue and income objectives as mutually agreed with the Board of Directors from time to time.

The Employee shall have the option to (a) receive his bonus award in cash subject to customary federal and state normal withholding and tax requirements or (b) exercise his right to purchase stock in an equal dollar amount of his bonus award at the market closing price on the date the bonus award is paid or (c) receive 50% (fifty percent) of his bonus award in cash and the remaining 50% of his bonus award in stock by exercising his right to purchase stock at the market closing price on the date the bonus award is paid or (d) defer payment of his bonus award which shall earn and accrue interest at the 10-year treasury bond coupon rate.

4.3 Benefits The Employee will, during the Employment Period, be entitled to participate in such deferred compensation, profit sharing, bonus, life insurance, hospitalization and medical plans or insurance coverage, disability, and other employee benefit plans, programs and policies of the Employer in effect from time to time (collectively, the “Plans”) vacation and holidays (as further provided in Section 6 below), and any other plan which may be made available by the Employer to its employees from time to time in the future, if, and to the extent that, the Employee is eligible under the terms of such Plans. All of the plans, agreements, and undertakings of the Employer set forth above shall be called, collectively, the “Benefits.” Any Benefits hereunder shall be subject to local, state, or federal tax reporting requirements as may be in effect at any time during the Employment Period.

4.4 Stock Options On the effective date of this Agreement, PECO shall grant Employee an Award Agreement (For Non-Qualified Stock Options) (the Award Agreement”) granting to the Employee the right to purchase 500,000 voting common shares of PECO (the “Stock Options”) on the terms and conditions

provided in the PECO II, INC. 2000 Performance Plan, Amendment 1 (approved 4/29/04). Strike Price shall be as of close of business on the effective date of this Agreement. 150,000 shares of this stock option shall vest upon execution of this Agreement, 200,000 shares of this stock option shall vest at the first annual anniversary of execution of this Agreement and 150,000 shares of this stock option shall vest upon the second anniversary of the execution of this Agreement, all options shall remain exercisable for five (5) years from the date of vesting except at termination of employment.

4.5 Restricted Stock Employee shall be granted a restricted stock grant of 100,000 fully vested shares under the terms and conditions of the PECO II, Inc. 2000 Performance Plan, Amendment One (approved 4/29/04). This stock will be issued to Employee upon the occurrence of a triggering event.

A second grant of 100,000 fully vested shares of restricted stock shall be granted to Employee as an incentive grant, this stock will be issued to Employee upon the occurrence of a triggering event..

During the term of this Agreement, Employee’s beneficial ownership of stock acquired and accumulated from grants of stock options and/or restricted stock must reach a threshold of not less than 300,000 shares before Employee can sell any shares beneficially owned by Employee without the knowledge and written consent of the Board of Directors of Employer or as required by law except that Employee may sell at any time, as deemed necessary, any acquired and accumulated stock to pay for any tax liabilities incurred by Employee as a result of grants, issuance or exercise of stock options and/or restricted stock as the case may be. Otherwise Employee shall at all times during this Agreement retain a beneficial ownership of not less than 300,000 shares.

4.6 Performance Review. The Employee shall be given performance reviews during the term of this Agreement [including any renewals and/or extensions] not less or greater than annually by the Board of Directors. At such time, the Board of Directors will make a determination to grant Employee additional cash, stock options, restricted stock, stock equivalent units, stock appreciation rights and/or other stock and performance based incentives on the basis that the Employee has achieved or exceeded the financial objectives and has completed the non-financial objectives. The strike price for any stock based performance award granted to Employee under this Section shall be the market price as of the close of business on date of grant.

4.7 Relocation Benefits PECO’s Relocation Package is being offered as part of this Agreement provided relocation is made to Ohio within six (6) months of the effective date of this Agreement. Employer’s obligations of Employee’s relocation benefits shall include all benefits of PECO’s Relocation Policy, a copy of which is attached hereto. For purposes of this Section only, Employee is collectively defined as Employee and/or Employee’s family.

4.7 Automobile: Employee shall be granted a $750.00 per month car allowance during the term of this agreement or any extensions thereof, and Employee shall be furnished such tax forms relative to the value and Employee shall be responsible to make such adjustments on his personal income tax return based on business use.

The Employer will furnish the Employee with office space, equipment, supplies, computer and facsimile equipment, telephone and such other facilities, support staff and personnel as the Employer deems necessary or appropriate for the performance of the Employee’s duties under this Agreement. The Employer will reimburse the Employee for reasonable business expenses incurred by him on behalf of the Employer in the performance of his duties; provided, that Employee furnishes to Employer documentation of such expenses as is required by the Internal Revenue Service, as well as such other documentation as the Employer may reasonably request. The Employee must file authorization requests, to the extent required by the Employer’s employment policies and, in all instances, expense reports with respect to such expenses in accordance with the Employer’s policies.

The Employee will be entitled to four (4) weeks paid vacation each calendar year during the Employment Period. Such vacation will be taken in accordance with the vacation policies of the Employer in effect from time to time. The Employee must take vacation at such time or times as mutually agreed by the Employee and the Employer. The Employee will also be entitled to the paid holidays as set forth in the Employer’s policies. Vacation days and holidays during any calendar year that are not used by the Employee during such calendar year may not be used in subsequent calendar year, nor will the Employee be paid for unused vacation or holidays.

7.     Termination

(a) Death: Disability In the event of the Employee’s death or disability, his employment with the Employer shall be deemed terminated as of the end of the month in which such death occurs or such Disability is determined.. Upon the Employee’s death or disability, compensation including Salary and all company benefits will continue for a period of 90 (ninety) days and the Employee’s stock options will immediately vest 100% and. may be exercised

at any time within ninety (90) days from date of termination of employment. All other rights, duties and obligations of the parties hereunder shall thereupon cease, except for the Employee’s obligations under Section 9 and Section 10 hereof (in the case of a termination due to disability), and the Employer’s obligations under Section 4.6 and Section 7.2(a) and 7.2(b) hereof, as the case may be.

(b) By the Employer for Cause The Employee’s employment with the Employer may be terminated for Cause as defined in Section 1 and if determined by the Board of Directors. Upon written notice of Employee’s termination from the Employer to the Employee, all rights, obligations and duties of the parties hereunder shall immediately cease (including, but not limited to, the payment by the Employer of all Compensation), except for the Employee’s obligations under Section 9 and Section 10 hereof.

(c) By the Employer Without Cause The Employer may terminate the Employee’s employment without Cause at any time upon not less than (90) days advance written notice. Upon expiration of such notice period all rights, obligations and duties of the parties hereunder shall immediately cease, except for the Employee’s obligations under Section 9 and Section 10 hereof and the Employer’s obligations under Section 7.2(c). The Employer may accelerate the effective date of such termination if, in lieu of such notice, and in addition to the payments required by Section 7.2(c) below, Employer continues to pay cash compensation to Employee for a period equivalent to that payment required in change of control defined in Section 8. In addition thereto, any and all options granted to and not yet awarded to in Employee shall immediately vest 100% (one hundred percent) and may be exercised at any time within ninety (90) days from date of termination of employment.

(d) Voluntary Termination without Good Reason By Employee. The Employee may terminate his employment with the Employer without Good Reason upon not less than ninety (90) days advance written notice to the Employer; provided, however, that after the receipt of such notice, the Employer may, in its discretion accelerate the effective date of such termination at any time by written notice to the Employee. Upon the effective date of any such termination, all rights, obligations and duties of the parties hereunder shall immediately cease, except for the Employee’s obligations under Section 9 and Section 10 hereof and the Employer’s obligation for payment of compensation to Employee shall be as set forth in Section 7.2(d)..

7.2 Termination Pay. Effective upon the termination of the Employment Period, the Employer will be obligated to pay the Employee (or, in the event of his death, his designated beneficiary) only such compensation as is provided in 7.1 or this Section 7 for each of the specifically described methods or events of termination or as otherwise required by law. For purposes of this Section 7.2, the Employee’s designated beneficiary will be such individual beneficiary or trust, located at such address, as the Employee may designate by notice to the Employer from time to time or, if the Employee fails to give notice to the Employer of such a beneficiary, the Employee’s estate.

8.     Change of Control –

(b) Employee Inventions Each Employee Invention will belong exclusively to the Employer. The Employee acknowledges that all of the Employee’s writing, works of authorship, and other Employee Inventions are works made for hire and the property of the Employer, including any copyrights, patents, or other intellectual property rights pertaining thereto. If it is determined that any such works are not works made for hire, the Employee hereby assigns to the Employer all of the Employee’s right, title, and interest, including all rights of copyright, patent, and other intellectual property rights, to or in such Employee Inventions. The Employee covenants that he will promptly:

The parties mutually agree that any disagreements relative to this agreement or terms thereof shall be submitted to arbitration under the rules of arbitration of the Ohio Revised Code (ORC 2711.01 et seq.) with each party appointing an arbitrator of their choice and each of the arbitrators appointing a third arbitrator for a panel which will make a binding decision relative to such disputes.

All of the parties involved herein shall agree in advance and in writing to receive and maintain all such information and secrecy except as may be limited by written agreement among them or as required by law.

(a)during the Non-competition Period as defined in Section 1, (i) solicit business from, or compete with the Employer or any of its Affiliates for the business of, any customer of the Employer or any of its Affiliates in the same or similar business as the business conducted by the Employer or any of its Affiliates; (ii) own, operate, control, finance, manage, advise, be employed or engaged by, perform any services for, invest in or otherwise become associated in any capacity with, any business, company, partnership, organization, proprietorship, or other entity, whose activities compete in whole or in part with the activities of the

Employer or any of its Affiliates in any geographical area in which the Employer or any of its Affiliates conducted or conducts its business; provided that any such business is in or is any way related to the communications business (a “Competitive Business”); or (iii) engage in any practice the purpose or effect of which is to intentionally evade the provisions of this covenant; provided, however, that the Employee may purchase or otherwise acquire up to (but not more than) three percent (3%) of any class of securities of any Competitive Business (but without otherwise participating in the activities of such Competitive Business) if such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934; or

(b) whether for the Employee’s own account or the account of any other person (i) solicit or induce, directly or indirectly, whether or not for consideration, any employee or agent of the Employer to terminate his or her relationship with the Employer; or (ii) induce or attempt to induce any supplier or contractor of the Employer to terminate or adversely change its relationship with the Employer or otherwise interfere with any relationship between the Employer and any of its suppliers or contractors.

11.7 Entire Agreement Amendments This Agreement, as it may be amended from time to time, contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior employment arrangements (as the same may have been amended from time to time) and other agreements or understandings, oral or written, between the parties hereto with respect to the subject matter hereof, including but not limited to the Prior Agreement. This Agreement may not be amended orally, but only by an agreement in writing signed by the parties hereto.

11.8 Governing Law This Agreement shall be governed by and construed under Ohio law, without regard to conflict of laws principles.

11.9 Section Headings: Constructions The section headings in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to “Section” or “Sections” refer to the corresponding Section or Sections of this Agreement unless otherwise

specified. All words used in this Agreement will be construed to be of such gender or number as the circumstances required. Unless otherwise expressly provided, the word “including” does not limit the preceding words or terms.

11.10 Severability If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.

11.11 Counterparts This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.

11.12 PECO Guarantee. PECO hereby guarantees to the Employee the complete payment and performance of the obligations of the Employer under this Agreement.

IN WITNESS WHEREOF, the parties have executed and delivered this Employment Agreement as of the effective date first written above.