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                                                                    Exhibit 10.7


                           INDEMNIFICATION AGREEMENT
                           -------------------------

          THIS AGREEMENT is made and entered into effective as of the ____ day
of _______________, 2000, by and between PECO II, Inc., an Ohio corporation (the
"Corporation"), and _________________________ ("Indemnitee" ), a Director and
Executive Officer of the Corporation.

          WHEREAS, it is essential to the Corporation to retain and attract as
Directors and Executive Officers the most capable persons available; and

          WHEREAS, the substantial increase in corporate litigation subjects
directors and officers to expensive litigation risks at the same time that the
availability of directors' and officers' liability insurance has been severely
limited; and

          WHEREAS, it is now the express policy of the Corporation to indemnify
its Directors and Executive Officers so as to provide them with the maximum
possible protection permitted by law; and

          WHEREAS, in addition, because the statutory indemnification provisions
of the Ohio Revised Code Section 1701.13 expressly provide that they are non-
exclusive, it is the policy of the Corporation to indemnify Directors and
Executive Officers who have entered into settlements of derivative suits or have
paid judgments, fines or penalties therefor, provided they have not breached the
applicable statutory standard of conduct; and

          WHEREAS, Indemnitee does not regard the protection available under the
Corporation's Code of Regulations and insurance, if any, as adequate in the
present circumstances, and considers it necessary and desirable to his service
as a Director and Executive Officer to have maximum protection, and the
Corporation desires Indemnitee to serve in such capacity; and

          WHEREAS, the Ohio Revised Code Section 1701.13(E) provides that
indemnification of the Directors and Executive Officers of the Corporation may
be authorized by agreement, and thereby contemplates that a contract of this
nature may be entered into between the Corporation and Indemnitee with respect
to indemnification of Indemnitee as a Director and Executive Officer of the
Corporation.

          NOW, THEREFORE, for good and valuable consideration, the sufficiency
and adequacy of which is hereby acknowledged, the Corporation and Indemnitee do
hereby agree as follows:

          1.   Agreement to Serve.  Indemnitee agrees to serve or continue to
               -------------------
serve as a Director and/or Executive Officer of the Corporation for so long as
he is duly elected or appointed or until such time as he tenders his resignation
in writing or is otherwise terminated or properly removed from office.

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          2.   Definitions.  As used in this Agreement:
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               (a) The term "Proceeding" shall include any threatened, pending
     or completed action, suit or proceeding, whether brought by or in the right
     of the Corporation or otherwise and whether of a civil, criminal,
     administrative or investigative nature, in which Indemnitee may be or may
     have been involved as a party or otherwise, by reason of the fact that
     Indemnitee is or was a Director and/or Executive Officer of the
     Corporation, by reason of any action taken by him or of any inaction on his
     part while acting as such a Director and/or Executive Officer, or by reason
     of the fact that he is or was serving at the request of the Corporation as
     a director, partner, trustee, officer, employee, member, manager or agent
     of another corporation, domestic or foreign, nonprofit or for profit, a
     limited liability company, or a partnership, joint venture, trust or other
     enterprise, in each case whether or not he is acting or serving in any such
     capacity at the time any liability or expense is incurred for which
     indemnification or reimbursement can be provided under this Agreement.

               (b) The term "Expenses" shall include, without limitation,
     expenses of investigations, judicial or administrative proceedings or
     appeals, attorney's fees and disbursements and any expenses of establishing
     a right to indemnification under Paragraph 9 of this Agreement, but shall
     not include the amount of judgments, fines or penalties against or
     settlements paid by Indemnitee.

               (c) References to "other enterprise"  shall include, without
     limitation, employee benefit plans; references to "fines"  shall include,
     without limitation, any excise tax assessed with respect to any employee
     benefit plan; references to "serving at the request of the Corporation"
     shall include, without limitation, any service as a Director and/or
     Executive Officer of the Corporation which imposes duties on, or involves
     services by, such Director and/or Executive Officer with respect to an
     employee benefit plan, its participants or beneficiaries; and a person who
     acted in good faith and in a manner he reasonably believed to be in the
     best interests of the participants and beneficiaries of an employee benefit
     plan shall be deemed to have acted in a manner "not opposed to the best
     interests of the Corporation"  as referred to in this Agreement.

          3.   Indemnity in Third-Party Proceedings.  The Corporation shall
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indemnify Indemnitee in accordance with the provisions of this Paragraph 3 if
Indemnitee is a party to or threatened to be made a party to or otherwise
involved in any Proceeding (other than a Proceeding by or in the right of the
Corporation to procure a judgment in its favor) by reason of the fact that
Indemnitee is or was a Director and/or Executive Officer of the Corporation, or
is or was serving at the request of the Corporation as a director, partner,
trustee, officer, employee, member, manager or agent of another corporation,
domestic or foreign, nonprofit or for profit, a limited liability company, or a
partnership, joint venture, trust or other enterprise, against all Expenses,
judgments, settlements, fines and penalties, actually and reasonably incurred by
Indemnitee in connection with the defense or settlement of such Proceeding, but
only if Indemnitee acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the

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Corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe that his conduct was unlawful. The termination of any such Proceeding
by judgment, order of court, settlement, conviction or upon a plea of nolo
contendere, or its equivalent, shall not, of itself, create a presumption that
Indemnitee did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation, and
with respect to any criminal proceeding, that such person had reasonable cause
to believe that his conduct was unlawful.

          4.   Indemnity for Expenses in Proceedings By Or In the Right of the
               ---------------------------------------------------------------
Corporation.  The Corporation shall indemnify Indemnitee in accordance with the
------------
provisions of this Paragraph 4 if Indemnitee is a party to or threatened to be
made a party to or otherwise involved in any Proceeding by or in the right of
the Corporation to procure a judgment in its favor by reason of the fact that
Indemnitee is or was a Director and/or Executive Officer of the Corporation, or
is or was serving at the request of the Corporation as a director, partner,
trustee, officer, employee, member, manager or agent of another corporation,
domestic or foreign, nonprofit or for profit, a limited liability company, or a
partnership, joint venture, trust or other enterprise, against all Expenses
actually and reasonably incurred by Indemnitee in connection with the defense or
settlement of such Proceeding, but only if he acted in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation.

          5.   Indemnity for Amounts Paid in Settlement in Proceedings By Or In
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the Right of the Corporation.  The Corporation shall indemnify Indemnitee in
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accordance with the provisions of this Paragraph 5 if Indemnitee is a party to
or threatened to be made a party to any Proceeding by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that
Indemnitee is or was a Director and/or Executive Officer of the Corporation, or
is or was serving at the request of the Corporation as a director, partner,
trustee, officer, employee, member, manager or agent of another corporation,
domestic or foreign, nonprofit or for profit, a limited liability company, or a
partnership, joint venture, trust or other enterprise, against all amounts
actually and reasonably paid in settlement by Indemnitee in connection with any
such Proceeding, but only if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation.

          6.   Indemnity for Amounts Paid for Judgments in Proceedings By Or In
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the Right of the Corporation.  The Corporation shall indemnify Indemnitee in
-----------------------------
accordance with the provisions of this Paragraph 6 if Indemnitee is a party to
or threatened to be made a party to any Proceeding by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that
Indemnitee is or was a Director and/or Executive Officer of the Corporation, or
is or was serving at the request of the Corporation as a director, partner,
trustee, officer, employee, member, manager or agent of another corporation,
domestic or foreign, nonprofit or for profit, a limited liability company, or a
partnership, joint venture, trust or other enterprise, against all judgments,
fines and penalties, actually and reasonably incurred by Indemnitee in
connection with any such Proceeding, but only if he acted in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation.

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          7.   Indemnification of Expenses of Successful Party.  Notwithstanding
               ------------------------------------------------
any other provision of this Agreement, to the extent that Indemnitee has been
successful on the merits or otherwise in defense of any Proceeding or in defense
of any claim, issue or matter therein, including dismissal without prejudice,
Indemnitee shall be indemnified against all Expenses incurred in connection
therewith.

          8.   Advances of Expenses.  Any Expenses incurred by or on behalf of
               ---------------------
Indemnitee pursuant to Paragraphs 3 or 4 in any Proceeding shall be paid by the
Corporation in advance upon the written request of Indemnitee if Indemnitee
shall undertake to (a) repay such amount to the extent that it is proved by
clear and convincing evidence in a court that Indemnitee's action involved an
act or omission undertaken with deliberate intent to cause injury to the
Corporation or with reckless disregard for the best interests of the
Corporation, and (b) reasonably cooperate with the Corporation concerning the
act, suit or proceeding giving rise to the Expenses.

          9.   Right of Indemnitee to Indemnification Upon Application;
               --------------------------------------------------------
Procedure Upon Application. Any indemnification under Paragraphs 3, 4, 5, 6 and
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7 shall be made no later than thirty (30) days after receipt by the Corporation
of the written request of Indemnitee therefor, unless a determination is made
within said thirty-day period by (a) the Board of Directors by a majority vote
of a quorum consisting of Directors who were not parties to such Proceeding, or
(b) independent legal counsel, agreed to by the Corporation, in a written
opinion (which counsel shall be appointed if such a quorum is not obtainable),
that the Indemnitee has not met the relevant standards for indemnification set
forth in Paragraphs 3, 4, 5, 6 or 7. Such independent legal counsel shall not be
an attorney, or a firm having associated with it an attorney, who has been
retained by or who has performed services for the Corporation, or any person to
be indemnified within the past five years.

               The right to indemnification or advances as provided by this
Agreement shall be enforceable by Indemnitee in any court of competent
jurisdiction. There shall exist in such action a rebuttable presumption that
Indemnitee has met the applicable standard(s) of conduct and is therefore
entitled to indemnification pursuant to this Agreement, and the burden of
proving that the relevant standards have not been met by Indemnitee shall be on
the Corporation. Neither the failure of the Corporation (including its Board of
Directors or independent legal counsel) prior to the commencement of such action
to have made a determination that indemnification is proper in the circumstances
because Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Corporation (including its Board of Directors or
independent legal counsel) that Indemnitee has not met such applicable standard
of conduct, shall (a) constitute a defense to the action, (b) create a
presumption that Indemnitee has not met the applicable standard of conduct, or
(c) otherwise alter the presumption in favor of Indemnitee referred to in the
preceding sentence. Indemnitee" s Expenses reasonably incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such action shall also be indemnified by the Corporation.

          10.  Allowance for Compliance with SEC Requirements.  Indemnitee
               -----------------------------------------------
acknowledges that the Securities and Exchange Commission (the "SEC") has
expressed the opinion

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that indemnification of directors and officers from liabilities under the
Securities Act of 1933 (the "Act") is against public policy as expressed in
the Act and is, therefore, unenforceable. Indemnitee hereby acknowledges and
agrees that it will not be a breach of this Agreement for the Corporation to
undertake with the Commission in connection with the registration for sale of
any shares or other securities of the Corporation from time to time that, in the
event a claim for indemnification against such liabilities (other than the
payment by the Corporation of expenses incurred or paid by a Director or
Executive Officer of the Corporation in the successful defense of any action,
suit or proceeding) is asserted in connection with such Shares or other
securities being registered, the Corporation will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of competent jurisdiction on the question of whether or not such indemnification
by it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue. Indemnitee further agrees that such
submission to a court of competent jurisdiction shall not be a breach of this
Agreement.

          11.  Indemnification Hereunder Not Exclusive.  The indemnification
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provided by this Agreement shall not be deemed exclusive of any other rights to
which Indemnitee may be entitled under the Articles of Incorporation or the Code
of Regulations of the Corporation, any agreement, any vote of shareholders or
disinterested Directors, the Ohio General Corporation Laws or otherwise, both as
to action in his or her official capacities and as to action in another capacity
while holding such offices.

               The indemnification under this Agreement shall continue as to
Indemnitee even though he or she may have ceased to be a Director and/or
Executive Officer and shall inure to the benefit of the heirs, executors and
personal representatives of Indemnitee.

          12.  Partial Indemnification.  If Indemnitee is entitled under any
               ------------------------
provision of this Agreement to indemnification by the Corporation for some
claims, issues or matters, but not as to other claims, issues or matters, or for
some or a portion of the Expenses, judgments, fines or penalties actually and
reasonably incurred by him or amounts actually and reasonably paid in settlement
by him in the investigation, defense, appeal or settlement of any Proceeding,
but not for the total amount thereof, the Corporation shall nevertheless
indemnify Indemnitee for the portion of such claims, issues or matters or
Expenses, judgments, fines, penalties or amounts paid in settlement to which
Indemnitee is entitled.

          13.  Reimbursement to Corporation by Indemnitee; Limitation on Amounts
               -----------------------------------------------------------------
Paid by Corporation.  To the extent Indemnitee has been indemnified by the
--------------------
Corporation hereunder and later receives payments from any insurance carrier
covering the same Expenses, judgments, fines, penalties or amounts paid in
settlement so indemnified by the Corporation hereunder, Indemnitee shall
immediately reimburse the Corporation hereunder for all such amounts received
from the insurer.

               Notwithstanding anything contained herein to the contrary,
Indemnitee shall not be entitled to recover amounts under this Agreement which,
when added to the amount of indemnification payments made to, or on behalf of,
Indemnitee, under the Articles of Incorporation

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or Code of Regulations of the Corporation, in the aggregate exceed the Expenses,
judgments, fines, penalties and amounts paid in settlement actually and
reasonably incurred by Indemnitee ("Excess Amounts"). To the extent the
Corporation has paid Excess Amounts to Indemnitee, Indemnitee shall be obligated
to immediately reimburse the Corporation for such Excess Amounts.

          14.  Continuation of Rights and Obligations.  All rights and
               ---------------------------------------
obligations of the Corporation and Indemnitee hereunder shall continue in full
force and effect despite the subsequent amendment or modification of the
Corporation's Articles of Incorporation or Code of Regulations, as such are in
effect on the date hereof, and such rights and obligations shall not be affected
by any such amendment or modification, any resolution of Directors or
shareholders of the Corporation, or by any other corporate action which
conflicts with or purports to amend, modify, limit or eliminate any of the
rights or obligations of the Corporation and/or Indemnitee hereunder.

          15.  Amendment and Modification.  This Agreement may only be amended,
               ---------------------------
modified or supplemented by the written agreement of the Corporation and
Indemnitee.

          16.  Assignment.  This Agreement shall not be assigned by the
               -----------
Corporation or Indemnitee without the prior written consent of the other party
thereto, except that the Corporation may freely assign its rights and
obligations under this Agreement to any subsidiary for whom Indemnitee is
serving as a director and/or officer thereof; provided, however, that no
permitted assignment shall release the assignor from its obligations hereunder.
Subject to the foregoing, this Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, executors, successors and assigns, including, without
limitation, any successor to the Corporation by way of merger, consolidation
and/or sale or disposition of all or substantially all of the shares of the
Corporation.

          17.  Saving Clause.  If this Agreement or any portion thereof shall be
               --------------
invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify Indemnitee as to Expenses, judgments,
fines, penalties and amounts paid in settlement with respect to any Proceeding
to the full extent permitted by any applicable portion of this Agreement that
shall not have been invalidated or by any other applicable law.

          18.  Counterparts.  This Agreement may be executed in two or more
               -------------
fully or partially executed counterparts each of which shall be deemed an
original binding the signer thereof against the other signing parties, but all
counterparts together shall constitute one and the same instrument. Executed
signature pages may be removed from counterpart agreements and attached to one
or more fully executed copies of this Agreement.

          19.  Notice.  Indemnitee shall, as a condition precedent to his right
               -------
to be indemnified under this Agreement, give to the Corporation notice in
writing as soon as practicable of any claim made against him for which indemnity
will or could be sought under this Agreement. Notice to the Corporation shall be
directed to the Corporation at its headquarters located at 1376 State Route 598,
Galion, Ohio 44833-0910, Attention: President (or such other address as the
Corporation shall designate in writing to Indemnitee). Notice shall be deemed
received three (3)

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days after the date postmarked if sent by prepaid mail, properly addressed.

          20.  Applicable Law.  This Agreement shall be governed by and
               ---------------
construed in accordance with the laws of the State of Ohio.

          IN WITNESS WHEREOF, the parties hereby have caused this Agreement to
be duly executed and signed effective as of the day and year first above
written.


                                  PECO II, INC.

                                  By______________________________________

                                  Its:____________________________________



                                  DIRECTOR/EXECUTIVE OFFICER

                                  ________________________________________


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