EMPLOYMENT AGREEMENT


      AGREEMENT made as of the 1st day of February 1999 by and between Acme
Electric Corporation, a New York corporation having an office at 400 Quaker
Road,  East  Aurora,  New York, (the "Company") and Mr.  Nicola  T.  Arena,
residing  at  550  Lake  Forest  Drive, S.E.,  Pinehurst,  North  Carolina,
("Executive").

                           W I T N E S S E T H:

      WHEREAS,  Executive  is  Vice President and General  Manager  of  the
Company's Power Distribution Products Division; and

      WHEREAS,  the  Company believes that it is in its  best  interest  to
assure  the  continued  service of Executive on the  terms  and  conditions
hereinafter set forth; and

      WHEREAS, Executive is desirous of receiving assurances that, should a
"change  in  control" as hereinafter defined take place at the Company,  he
will  be  provided  with  security  as to his  position,  compensation  and
benefits.

      NOW, THEREFORE, in consideration of the premises and mutual agreement
hereinafter contained, the parties hereto agree as follows:

     1.   The Company hereby employs Executive and Executive hereby accepts
employment  with the Company as Vice President and General Manager  of  the
Power  Distribution Products Division upon the terms and conditions  herein
contained.

      2A.   The  initial Term shall be for a period commencing on the  date
hereof and terminating two years from the date of commencement or two years
from its most recent extension date, whichever is later.

           At  the  end  of each month during the Term, the Term  shall  be
automatically continued and extended for one additional month, unless on or
before  fifteen  days prior to the end of any month during  the  Term,  the
Company  shall give to Executive or Executive shall give to the  Company  a
notice  not  to  extend.   Then, in such event,  the  Term  as  theretofore
automatically extended shall be deemed further extended for one  additional
month, and thereafter there shall be no further automatic extensions.   (As
an  example,  should the Company or Executive give to  the  other  party  a
written  notice not to extend on November 15, 1999, the Agreement would  be
deemed  extended  to, and would expire on, December 31, 2001.)   "Term"  as
used  in  this  Agreement shall be deemed to mean the period of  employment
from the date hereof through February 1, 2001, or as automatically extended
pursuant to this Paragraph 2A.

      2B.   Should  the  Company  breach this  Agreement  pursuant  to  the
provisions  of  Paragraphs  8A, 8B, 8C and 9  herein,  Executive  shall  be
entitled to the following:
           a.   Payments in an amount equal to the base salary payable each
     year  of  the  then remaining Term of the Agreement,  with  such  base
     salary  to be in an amount equal to Executive's base salary in  effect
     prior  to such breach, plus bonus each year of the remaining  Term  of
     the  Agreement.   The  bonus amount each year will  be  equal  to  the
     average  of Executive's greatest two out of the previous three  years'
     bonuses, or 20% of base salary, whichever is greater.
           b.    Company paid full medical, dental and disability insurance
     benefits and life insurance benefits comparable to those enjoyed prior
     to  such  breach, which shall extend for the duration  of  Executive's
     life or until he accepts other full-time employment.
           c.    The  continuation  over the then remaining  Term  of  this
     Agreement,  in  such  amounts  and in a manner  consistent  with  that
     provided  immediately  prior  to  such  breach,  of  contributions  in
     Executive's  behalf based on his base salary to the Company's  Pension
     Plan for Salaried Employees.
           d.    Payments made pursuant to this Paragraph 2B shall be  made
     monthly  from the date the Company breached this Agreement  throughout
     the then remaining Term of the Agreement, or at Executive's option  in
     a  lump  sum  within thirty (30) days of notification of such  breach.
     Such lump sum shall be an amount equal to the discounted present value
     of  the  payments which were to be paid over the Term specified herein
     discounted at a rate of 5% per annum.
     
      2C.  "Change in Control" as used in this Agreement shall mean any one
of the following:
           a.    An acquisition of 35% or more of the beneficial ownership,
     directly  or indirectly, of the Company's then outstanding  stock,  or
     merger or consolidation by or with another person, entity or group;
           b.   A tender offer or tender offers for the Company's stock  in
     which  35%  or  more of the then outstanding stock of the  Company  is
     tendered or purchased by a person, single entity or affiliated group;
           c.   A reclassification of securities or recapitalization of the
     Company which, directly or indirectly, disproportionately increases or
     decreases the outstanding shares of any class of equity securities  of
     the Company by 35% or more;
          d.   A sale, lease, exchange, mortgage, pledge, transfer or other
     disposition of all or substantially all the assets of the Company;
           e.   A change in control shall be deemed to have occurred if  at
     any  time less than 51% of the members of the Board of Directors shall
     be  persons  who were either nominated for election by  the  Board  of
     Directors or were elected by the Board of Directors.
     
      3.    Except  as  otherwise herein provided during the  Term  of  the
Agreement, the Company shall employ Executive as Vice President and Manager
of  its Power Distribution Products Division and he shall serve the Company
in  such capacities, performing the normal duties of those positions  in  a
corporation  in  the  Company's business,  subject  at  all  times  to  the
direction  and  control  of the Board of Directors of  the  Company,  shall
devote  his time, attention, skill and energy to the business, welfare  and
affairs  of  the  Company  and shall use his best efforts  to  promote  the
interests  of  the Company, it being understood that the  conduct  of  such
duties does not require his attendance at the offices of the Company during
any particular fixed periods.

      4A.  The Company shall pay and Executive shall accept as compensation
for all services to be rendered hereunder and during the Term a base salary
determined by the Board of Directors of the Company pursuant to its  normal
procedure  for  setting  yearly  salaries  for  officers  of  the   Company
(currently, $134,000 per annum).  Such payments hereunder shall be  payable
in  accordance with the prevailing salary payroll practices of the  Company
and  subject  to  such deductions as are agreed to by  Executive.   Nothing
contained  in this Agreement shall be deemed to prevent the Company  during
the  Term  hereof from giving bonuses or other additional consideration  to
Executive  from  time to time as determined by the Board of  Directors  or,
except  as  otherwise specifically provided herein, prevent Executive  from
receiving  benefits  in accordance with any benefit plan  or  program  made
available by the Company to its salaried employees.

     4B.  The Company shall reimburse Executive for all expenses reasonably
incurred  by  him  in connection with his performance of  services  to  the
Company,  including entertainment and travel.  Executive shall be  entitled
to receive or participate in all other fringe benefits, such as medical and
hospital  plans, management incentive plan and pension plan, stock  options
under  the  then  existing  corporate  stock  option  plan,  and  use   and
maintenance of an automobile of a type and in a manner consistent with  the
practices prevailing at the time of the execution of this Agreement.

      4C.   Notwithstanding  anything herein to the contrary,  the  Company
shall  not be obligated to pay any portion of any amount otherwise  payable
to Executive pursuant to this Agreement if the Company could not reasonably
deduct  such portion in accordance with the Internal Revenue Code  then  in
effect.

      5A.   Executive acknowledges that during the course of his employment
hereunder  he will acquire, possess and become exposed to confidential  and
proprietary information and materials of the Company.  Accordingly,  during
his  employment  hereunder  and  for  a  period  of  eighteen  (18)  months
thereafter,  he shall not, for any reason whatever, except in  the  regular
authorized  course  of  the  Company's business under  appropriate  secrecy
provisions, directly or indirectly, use or exploit or disclose  or  divulge
to  anyone  (who is not authorized to receive the same), without the  prior
written  permission of the Company, any proprietary information, including,
but  not  limited  to, trade secrets, know-how, data,  materials  or  other
knowledge relating to or pertaining to the business of the Company,  unless
the  same  (i)  has been published and/or has become a part of  the  public
domain  other than by acts of omission by Executive; (ii) has been lawfully
furnished  or made known to Executive by a third party without  restriction
on  disclosure or use; and (iii) was in Executive's possession at the  time
he  first  became  associated with the Company  and  was  not  acquired  by
Executive either directly or indirectly from the Company.

      5B.  All documents, records, prototypes or other tangible embodiments
or evidence of the discoveries, trade secrets, information, know-how, data,
materials or other knowledge previously referred to, which may at any  time
be  acquired  by  or  come  into the possession  of  Executive  during  his
employment hereunder (except materials excluded in Subparagraph A  hereof),
are  the sole and exclusive property of the Company and must be surrendered
to  the  Company, without demand therefor, upon termination of  Executive's
employment hereunder, or upon the request by the Company at any other time;
and,  in  addition,  prior to such termination of employment  or  upon  the
reasonable request by the Company at any other time, Executive will prepare
materials to accurately and adequately describe, set forth or embody any of
the foregoing and deliver the same to the Company in order to accomplish or
complete  the transfer of any and all of the foregoing to the  Company  and
shall  be reimbursed by the Company for all of his reasonable out-of-pocket
expenses in connection therewith.

      5C.   Executive  agrees to execute all documents and to take all such
other  action  as the Company may reasonably require (being reimbursed  for
all  of his reasonable out-of-pocket expenses in this connection) in  order
to  assign  to the Company any and all rights to any materials prepared  by
him during and in connection with his employment hereunder.

      6A.    Executive agrees that, during his employment hereunder  for  a
period  of  eighteen  (18)  months  after  termination  of  his  employment
hereunder  for  whatever reason (except in the event  such  termination  is
caused  by (a) a material breach of this Agreement by the Company,  or  (b)
the Company's bankruptcy (as defined in Paragraph 14 hereof)), he shall not
(without the prior written consent of the Company) (i) solicit as a  client
or  customer in competition with the Company any persons or entities  which
were, during his employment hereunder, clients or customers of the Company,
(ii)  enter into any business arrangements with any of the foregoing  which
could  be reasonably deemed to be materially competitive with or materially
injurious  to any business in which the Company is engaged at the  time  of
such  termination,   or (iii) solicit, or be instrumental  in  any  way  in
causing,  any  other person to leave the employ of the Company.   Executive
further agrees that he shall not (without the prior written consent of  the
Company) for a period of eighteen (18) months after the termination of  his
employment hereunder for any reason (except in the event the termination is
caused  by  a  breach  of  this  Agreement by  the  Company),  directly  or
indirectly,  individually or as a director, partner, employee,  officer  or
agent,  engage in any employment, performance of services or other activity
on  behalf  of any company if such employment, performance of  services  or
other  activity can be reasonably deemed to be materially competitive  with
or  materially injurious to any business in which the Company is engaged at
the time of such termination.

      6B.   For  purposes only of determining whether services by Executive
during  the  aforesaid eighteen (18) month period after his termination  of
employment  hereunder shall be "materially competitive with  or  materially
injurious  to  the  Company" within the meaning of this  paragraph,  either
party  may  initiate  arbitration proceedings to  make  such  determination
pursuant to Paragraph 13 hereof.

      6C.   If Executive commits a material breach of any of the provisions
of  Paragraph 5A, 5B, 5C or 6A, the Company shall have the right and remedy
to  have  such provisions specifically enforced by any court having  equity
jurisdiction,  since  any  such  breach or  threatened  breach  will  cause
irreparable  injury to the Company and money damages will  not  provide  an
adequate  remedy  to the Company.  The initiation of, or participation  in,
any  such  proceeding  shall  not constitute a waiver  of  the  arbitration
provisions of Paragraph 10.

     7.   During the Term, Executive will not directly or indirectly engage
in  the business of, or own or control any interest in (except as a passive
investor owning less than ten percent (10%) of the equity securities  of  a
publicly-owned company), or act as a director, officer or employee  of,  or
consultant  to, any individual, partnership, joint venture, corporation  or
other business entity directly or indirectly engaged anywhere in the United
States  in  any  business competing with the business  carried  on  by  the
Company or any of its subsidiaries.

      8A.   It  is specifically understood and agreed that the Company  may
terminate  this Agreement and its obligations to Executive hereunder  prior
to  a  change  in  control,  and  that, further,  this  Agreement  and  its
obligations to Executive hereunder shall terminate in the event that  prior
to  a  change  in control there is a change or re-assignment of Executive's
position  or  the voluntary retirement by Executive from active  employment
with  the  Company.  Notwithstanding the foregoing, at any time during  the
Term  of  this  Agreement, after a change of control has taken  place,  any
termination  or  notice of termination shall be deemed  a  breach  of  this
Agreement  and a notice not to extend, and the provisions of  Paragraph  2B
above  shall apply so as to have the effect of fixing the Term as  provided
herein and terminating Executive's employment with the Company.

      8B.  At any time during the Term of this Agreement, after a change in
control  has  taken  place, should the Company reduce the  compensation  or
benefits then being paid to Executive, it shall be deemed a breach of  this
Agreement  and a notice not to extend, and the provisions of  Paragraph  2B
above  shall apply so as to have the effect of fixing the Term as  provided
herein and terminating Executive's employment with the Company.

      8C.  At any time during the Term of this Agreement, after a change in
control has taken place, should the Company change Executive's position  or
duties  without  his written consent, it shall be deemed a breach  of  this
Agreement  and a notice not to extend, and the provisions of  Paragraph  2B
above  shall apply so as to have the effect of fixing the Term as  provided
herein and terminating Executive's employment with the Company.

     9.   In the event that during Executive's lifetime and during the Term
of  this  Agreement, after a change in control has taken place, the Company
defaults  as  to  any payment under this Agreement or  fails  to  make  any
payments  provided for in this Agreement and fails to cure such default  or
make  such  payment within ten (10) days after written notice  thereof,  or
written  demand therefor, or in the event that the Company terminates  this
Agreement  for cause and it is ultimately determined that such  termination
was  wrongful,  Executive  may  elect to treat  such  default  or  wrongful
termination as a breach of this Agreement and shall he entitled to  recover
all  of  his expenses, including reasonable attorneys' fees, in prosecuting
or defending any actions or proceedings arising out of, or in any other way
relating  to, the matters referred to in this paragraph, and the provisions
of Paragraph 2B of this Agreement shall apply.

      10.  Any controversy, claim or dispute arising out of or relating  to
this  Agreement, including without limitation, any claim for breach of this
Agreement, shall be settled by arbitration in accordance with the Rules  of
the  American Arbitration Association (AAA) obtaining at the time  of  such
proceeding, except that the authority of the arbitrators shall  be  limited
to  the interpretation and enforcement of the terms and conditions of  this
Agreement  and the arbitrators shall set forth in writing the  reasons  for
their  decisions.   Judgment  upon any award rendered  by  the  arbitrators
pursuant hereto may be entered in any court having jurisdiction thereof and
thereafter  enforced.   Either  party shall  have  the  right  to  initiate
arbitration  proceedings.   Any arbitration  shall  take  place  under  the
auspices  of  the AAA in Pinehurst, North Carolina or such  other  city  as
Executive  shall  select.   There shall be three arbitrators.   Each  party
shall  appoint  one  arbitrator.   If either  party  fails  to  appoint  an
arbitrator within five (5) days from the date upon which the notice of  the
initiating  party of its intention to arbitrate is received  by  the  other
party  to  such  proceedings, the AAA shall make the appointment  for  that
party.   The  two  arbitrators appointed in the manner provided  for  above
shall appoint a third arbitrator, mutually acceptable to them.  If the  two
arbitrators  first  appointed cannot, for any reason, agree  upon  a  third
arbitrator, or an acceptable person is unable to act, the AAA shall appoint
the third arbitrator in accordance with its rules.

      11.   Executive  may terminate this Agreement prior to  the  date  of
expiration  of  the  Term hereinabove set forth by written  notice  to  the
Company  if  the  Company  shall  file a petition  in  bankruptcy,  make  a
voluntary  assignment for the benefit of creditors, file a petition  or  an
answer  seeking  an  arrangement with creditors or take  advantage  of  any
insolvency  law,  or  if  the  Company  applies  for  or  consents  to  the
appointment  of a receiver or trustee of all or a substantial part  of  its
assets,  or an order, judgment or decree shall be entered in any  court  of
competent  jurisdiction appointing a receiver of all or a substantial  part
of  its  assets, and such order, judgment or decree shall continue unstayed
and in effect for any consecutive period of ninety (90) days.

     12.  This Agreement and all rights hereunder are personal to Executive
and  shall  not  be assignable; provided, however, that all of  Executive's
rights  under  the  Agreement shall inure to  the  benefit  of  his  heirs,
distributees,  personal  representatives  or  designees  or   other   legal
representatives,  as  the  case may be.  Any person,  firm  or  corporation
succeeding   to   the   business  of  the  Company  by  merger,   purchase,
consolidation or otherwise, shall assume by contract or operations  of  law
the  obligations  of  the Company hereunder; provided,  however,  that  the
Company shall, notwithstanding such assumption or assignment, remain liable
and  responsible for fulfilling the obligations of the Company  under  this
Agreement.

           This  Agreement  supersedes and replaces  any  and  all  present
written  or  oral agreements of employment between the parties hereto,  and
all  such agreements are hereby deemed canceled, revoked and of no  further
force or effect.

     13.  Without in any way implying that any provisions hereof is invalid
or  unenforceable, the validity or unenforceability of any provision hereof
shall  in  no  way  affect  the  validity or enforceability  of  any  other
provision.

      14.   This  Agreement  constitutes the whole  agreement  between  the
parties hereto, and there are no terms other than those stated herein.   No
variation hereof shall be deemed valid unless in writing and signed by  the
parties hereto, and no discharge of the terms hereof shall be deemed  valid
unless by full performance by the parties hereto or by a writing signed  by
the  parties  hereto.   No  waiver by either party  of  any  provisions  or
condition  of  this Agreement to be performed by them should  be  deemed  a
waiver of any other provisions of this Agreement.

      15.   Any  notice, statement, report, request or demand  required  or
permitted to be given by this Agreement shall be in writing, and  shall  be
sufficient  if  addressed  and  sent  by  certified  mail,  return  receipt
requested,  to  the parties at the addresses set forth above,  or  at  such
other  place  that either party may designate by notice to  the  other  and
shall be deemed given when so mailed.

      16.   This  Agreement  has  been made in, and  shall  be  interpreted
according to the laws of, the State of New York.  The parties hereto submit
to the jurisdiction of  the courts of the New York Supreme Court, County of
Erie,  for the purpose of any actions or proceedings which may be  required
to  enforce  the  provisions of this Agreement or  an  award  made  in  any
arbitration proceeding initiated hereunder.

      IN  WITNESS  WHEREOF, the parties have hereunto set their  respective
hands  and  seals causing these presents to be executed as of the  day  and
year first above written.

Witnessed:


Karen H. McLellen                  /s/
                                   Nicola T. Arena


Witnessed:                         ACME ELECTRIC CORPORATION


Cora M. Martin                     By: /s/
                                       Robert J. McKenna
                                       Chairman & CEO