EMPLOYMENT AGREEMENT



THIS AGREEMENT, is made as of September 4, 1997, provided that the
employment hereunder shall be deemed to have commenced on April 1,
1997, by and between THE DIANA CORPORATION, a Delaware Corporation
(the "Company"), and JAMES J. FIEDLER (the "Executive").

R E C I T A L S

WHEREAS, Executive is willing to be employed by Company, and the
Company is willing to employ the Executive, upon the terms and
conditions set forth in this Agreement.

NOW, THEREFORE, in order to set forth the terms and conditions of
Executive's employment with Company and in consideration of the
covenants and agreements of the parties herein contained, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

1.Employment Services.  Subject to the terms and upon the
conditions hereinafter set forth, the Company hereby employs
Executive as Chairman and Chief Executive Officer. 
Executive accepts such employment and agrees to devote his
full time and use his best efforts to perform his duties
pursuant to this Agreement and to further the business of
the Company.  Executive shall not, without the prior written
consent of the Company as authorized by the Company's Board
of Directors ("Board of Directors"), engage directly or
indirectly in any other business or occupation during his
employment under this Agreement.

2.Term and Termination.

2.1Term.  Subject to Section 2.2 hereof, the employment of
Executive under this Agreement shall be deemed to have
commenced on April 1, 1997 and will continue until the
occurrence of the first of the following:

     a)   March 31, 1998 (i.e. a term of one year);
     b)   Executive's death; or
     c)   Executive's illness, physical or mental disability
          or other incapacity resulting in Executive's
          inability to effectively perform the essential
          functions of his job, with or without reasonable
          accommodation, for a cumulative period of twelve
          (12) weeks during any period of twelve (12)
          consecutive months.

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The term of this Agreement may only be extended by the
written agreement of both the Company (as approved by the
Board of Directors) and the Executive, as provided in
Section 11.1.

2.2Termination.  The employment of Executive under this
Agreement may also be terminated at the option of the Board
of Directors upon the occurrence of any of the following:

     a)   Executive's conduct involving fraud or moral
          turpitude or Executive's dishonesty involving
          Company's business,
     b)   Executive's chronic absence from work other than
          by reason of illness or injury,
     c)   Executive's conviction of any felony,
     d)   Executive's conviction of any misdemeanor which is
          substantially related to Executive's services
          hereunder,
     e)   Executive's continuing use of illegal drugs or
          other illegal substance (whether or not on the
          job) after receiving a written notice from the
          Company to halt such usage or Executive's
          conviction of a crime involving illegal drugs or
          other illegal substance,
     f)   Executive's continuing use of alcohol (whether or
          not on the job) after receiving a written notice
          from the Company to halt such usage or Executive's
          conviction of a crime involving alcohol, which
          impairs Executive's ability to perform Executive's
          duties under this Agreement or has an adverse
          effect (other than an insignificant effect) on the
          reputation of the Company or its relationship with
          any customer or supplier of the Company,
     g)   Executive's illegal conduct either within or
          outside the scope of Executive's employment which
          has an adverse effect (other than an insignificant
          effect) on the reputation of the Company or its
          relationship with any customer or supplier of the
          Company,
     h)   Executive's breach of his obligations under
          Sections 6, 7, 8 or 9 hereof, or
     i)   Executive's breach of any other provision of this
          Agreement.

If the Board of Directors terminates the employment of the
Executive without any such reason as aforesaid, which
Executive agrees the Board of Directors is entitled to do
since Executive serves at the discretion of the Board of
Directors, then Executive shall nevertheless be entitled to
salary and medical benefits only hereunder until the earlier
of (i) the date specified in Section 2.1 and (ii) the first
anniversary of such termination.  In the case of any other
termination of the Executive's employment, the salary and
benefits hereunder will terminate as of the date of such
termination.  Reference is made to Section 11.1 of this
Agreement

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<PAGE>

regarding the authority of the Board of Directors to make
determinations on behalf of the Company for purposes of this
Agreement.

2.3Effect of Termination.  Executive's obligations in Sections
6, 7, 8, and 9 hereof shall survive the termination of
Executive's employment hereunder for any reason.  However,
if this Agreement is not renewed for at least one additional
year beyond the date specified in Section 2.1(a), then the
additional twelve month period of non-competition (i.e.
after termination of employment) provided in Section 9 shall
not be applicable to Executive.

3.Salary.  During the term of his employment under this
Agreement, as compensation for his services hereunder and in
consideration of the covenants of Executive herein,
Executive shall be entitled to a salary at a rate of Two
Hundred Thousand Dollars ($200,000) per year.  Such salary
will be paid in equal semi-monthly installments or with such
other frequency as Company shall elect (but not less
frequently than semi-monthly) and shall be subject to
withholding and other deductions by reason of federal or
state law.

4.Reimbursement for Expenses.  Company agrees to reimburse
Executive for all reasonable business expenses incurred by
him in connection with the performance of his obligations
under this Agreement, subject to established reimbursement
policies of the Company in effect from time-to-time
regarding expense reimbursement.

5.Fringe Benefits.  Executive shall be entitled to the
following fringe benefits during the term of his employment
under this Agreement.  The Executive understands that he
will recognize income to the extent provided by law in
respect of certain of the benefits hereunder, including
cancellation of indebtedness income, and that these benefits
shall be subject to withholding and other deductions by
reason of federal or state law.

5.1Vacation and Car Allowance.  (a) Executive shall be allowed
four (4) weeks of vacation per year, with full pay and
without loss of any other compensation or benefits, during
the term of this Agreement.  Executive shall coordinate the
schedule of his vacations with other executives and the
personnel of Company and its affiliates so as to avoid any
adverse effects on the Company's operations.

(b)  Executive will receive a car allowance of $600 per month.
5.2Bonuses.  

     a)   With reasonable promptness after the end of each
          half year included in each of the Company's fiscal
          years covered by this

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          Agreement, the Executive shall receive a bonus
          equal to ten percent (10%) of the Company's
          pre-tax profits for said half year but not to
          exceed for such fiscal year as a whole one hundred
          percent (100%) of the amount of Executive's annual
          salary.  The Company's pre-tax profits shall be
          its income after all expenses, adjustments and
          deductions except income taxes, but shall not
          include the effects, if any, of extraordinary
          items and accounting changes, as set forth in its
          consolidated financial statements (audited, if
          applicable) for such half year or year as included
          in its second quarter report on Form 10-Q for such
          fiscal year or in its annual report on Form 10-K
          for such fiscal year as filed with the Securities
          and Exchange Commission (in the absence of such
          filing, to be based on the Company's financial
          statements otherwise prepared).  In any event, the
          sum of the Company's pre-tax profits for the first
          half of such fiscal year and the second half of
          such fiscal year shall not exceed the total for
          such full fiscal year as included in such annual
          report on Form 10-K.  For comparative purposes, in
          the Company's 1996 annual report on Form 10-K/A,
          the amount of such pre-tax profits in fiscal year
          1996 was a loss of $3.365 million (i.e., a
          negative amount) as captioned in the Company's
          consolidated statements of operations as "net
          earnings (loss)", since the Company reflected
          neither taxes nor tax benefit in such year.
     b)   During the term of the Executive's employment
          under this Agreement, with reasonable promptness
          after the end of each month, commencing with the
          month of April 1997, in order to emphasize sales
          revenue growth for Sattel Communications LLC
          ("Sattel"), which is presently an 80% owned
          indirect subsidiary of the Company, Executive
          shall receive a bonus equal to one-half percent
          (0.5%) of the sales revenues of Sattel for such
          month, provided that:  (i) the gross margin of
          Sattel's sales for such month (defined as net
          sales revenues less cost of sales) shall be at a
          level of sixty-two percent (62%) or greater
          (provided that such requirement shall instead be
          fifty-five percent (55%) for months prior to and
          including September 1997), (ii) such bonus based
          on revenues of Sattel shall be payable only as and
          when sales revenues are received by Sattel in the
          form of cash, and (iii) for each fiscal year
          covered by this Agreement, the aggregate amount
          for all months of such bonus based on sales
          revenues of Sattel shall not exceed thirty percent
          (30%) of the amount of Executive's annual salary,
          provided that, if the sales revenues of Sattel for
          such fiscal year as a whole exceed $18 million,
          then such percentage limitation shall instead be
          fifty percent (50%) of the amount of

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<PAGE>

          Executive's annual salary, and if the sales
          revenues of Sattel for such fiscal year as a whole
          exceed $25 million, then such percentage
          limitation shall instead be one hundred percent
          (100%) of the amount of Executive's annual salary. 
          The Company may delay or limit the payment of any
          bonus pursuant to this Section 5.2(b) until such
          time as these requirements are met.  If for any
          reason an excess bonus is paid, for example
          because sales revenues in a previous month are
          reversed, due to a refund, then the Company shall
          be entitled to a corresponding refund of bonus
          and/or a credit against a future bonus, as
          appropriate.

     With respect to both paragraphs a) and b) above, (i)
     the amounts of pre-tax profits of the Company and sales
     revenues of Sattel shall be calculated based on
     generally accepted accounting principles consistently
     applied, except as specifically mentioned above and
     (ii) such provisions have been agreed to in
     contemplation of the Company's fiscal year ending on or
     about March 31, 1998, and it is understood that such
     provisions might be continued unchanged, or might be
     amended or deleted or replaced with other provisions,
     according to the mutual agreement of the parties, in
     connection with the extension, if any, of this
     Agreement.  See Sections 2.1 and 11.1 of this
     Agreement.

5.3Other Fringe Benefits.  Executive may receive such other
additional fringe benefits, if any, as the Board of
Directors may from time-to-time make available to Executive
at the Board of Directors' sole discretion.  The parties
understand that the Company is in the process of arranging a
new equity financing, for which the efforts of the Executive
have been substantial, in the amount of $3.5 million or
greater.  Subject to the closing of such additional equity
financing, Executive shall be entitled to the following:

     a)   Executive has a $300,000 note payable to the
          Company.  On the date of this Agreement (or, if
          later, on the date such $3.5 million financing
          condition is met), a portion of such note will be
          forgiven in the amount of $100,000 of the unpaid
          principal, and interest on such forgiven portion. 
          Thereafter, if this Agreement shall be renewed for
          an additional year or years, pursuant to Sections
          2.1 and 11.1 hereof, the Company agrees that
          additional portions of such note in the principal
          amounts of $100,000 and $100,000, respectively,
          will be forgiven at the dates that are twelve (12)
          months and twenty-four (24) months, respectively,
          after the date of this Agreement.  Such three
          scheduled instances of forgiveness are each
          subject to the conditions (i) that the Executive
          remains as an employee of the Company at each such
          forgiveness date and (ii)

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<PAGE>

          that the Company shall not be, or be rendered as a
          consequence of such forgiveness, bankrupt or
          insolvent at such respective dates.

     b)   The Company notes that the Class B units of Sattel
          are convertible (the holders thereof having both
          the right and the obligation to convert the same
          into shares of the Company's common stock) upon,
          among other things, Sattel achieving cumulative
          pre-tax profits of at least $15 million over four
          consecutive quarters in the future.  Such
          conversion is at a rate of 500 shares of the
          Company's common stock for each Class B unit,
          subject to adjustment.  At such time as, among
          other things, a majority of the Class B units are
          so converted, then the Class A units of Sattel
          shall also be converted on the same terms as the
          Class B units, except with a possible upwards
          adjustment to reflect the priority of distribution
          associated with the Class A units.  The Company
          will waive the foregoing condition that Sattel
          achieve cumulative pre-tax profits of at least $15
          million over four consecutive quarters in order
          for the Class B units, and the Class A units, to
          be convertible.  Instead, the Company will
          establish terms permitting, but not requiring, the
          Class B units to be converted at the election of
          the holders following the date such $3.5 million
          financing is achieved as referred to above or at
          any time thereafter.  The Class A units will also
          become convertible, on the same terms as the Class
          B units, at the option of the holders, at such
          time as a majority of the Class B units have
          actually been converted by the holders thereof or
          at any time thereafter.  These new terms for
          conversion will apply only to holders of the Class
          A and B units who are currently (or were as of
          June 30, 1997) directors, officers or employees of
          the Company and its subsidiaries.  As to all other
          holders, the previously existing terms and
          conditions shall remain unchanged.  The Executive
          will be entitled to participate therein on the
          same basis as all other holders of the Class B
          units or Class A units, according to the units
          held by the Executive.  The Company does not
          contemplate that any demand registration rights
          under federal or state securities laws will be
          applicable to any such conversion, and such
          securities, including the shares of the Company's
          common stock issuable upon conversion, will only
          be available for resale in accordance with
          applicable securities laws and exemptions
          thereunder, including Rule 144 under the
          Securities Act of 1933, as amended.  However, as
          soon as reasonably practicable, but not earlier
          than the time the Company becomes current in its
          reporting under the Securities Exchange Act of
          1934, the Company intends to file a registration
          statement on Form S-8 to

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<PAGE>

          cover such conversion to the extent registration
          on such form for such conversion is then
          available.  Additionally, in case registration on
          such form for such purpose is not reasonably
          practicable or available, the Company will give
          appropriate consideration to allowing a piggy-back
          registration.

6.Definitions.  As used in this Agreement, the following words
have the meanings specified:

     a)   "Proprietary Ideas" means ideas, suggestions,
          inventions and work relating in any way to the
          business and activities of Company which may be
          subjects of protection under applicable laws,
          including common law, including patents,
          copyrights, trade secrets, trademarks, service
          marks or other intellectual property rights.
     b)   "Inventions" means inventions, designs,
          discoveries, improvements and ideas, whether or
          not patentable, including without limitation,
          novel or improved products, processes, machines,
          software, promotional and advertising materials,
          business data processing programs and systems, and
          other manufacturing and sales techniques, which
          either (a) relate to (i) the business of Company
          as conducted from time-to-time or (ii) the
          Company's actual or demonstrably anticipated
          research or development, or (b) result from any
          work performed by Executive for Company.
     c)   "Confidential Information" means Proprietary Ideas
          and also information related to Company's
          business, whether or not in written or printed
          form, not generally known in the trade or industry
          of which Executive has or will become informed
          during the period of employment by the Company,
          which may include but is not limited to product
          specifications, manufacturing procedures, methods,
          equipment, compositions, technology, formulas,
          trade secrets, know-how, research and development
          programs, sales methods, customer lists, mailing
          lists, customer usages and requirements, software
          and other confidential technical or business
          information and data; provided, however, that
          Confidential Information shall not include any
          information which is in the public domain by means
          other than disclosure by Executive.
     d)   As used in Sections 6, 7, 8, and 9 only, the term
          "Company" shall include all entities affiliated
          with the Company.

7.Disclosure and Assignment of Inventions.  Executive agrees
to disclose to the Company (and, if requested to do so, to
provide a written description thereof to the Company), and
hereby assigns to Company all of Executive's rights in and
to, any Inventions conceived or reduced to practice at any
time during Executive's

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<PAGE>

employment by Company, either solely or jointly with others
and whether or not developed on Executive's own time or with
Company's resources.  Executive agrees that Inventions first
reduced to practice within one (1) year after termination of
Executive's employment by Company shall be treated as if
conceived during such employment unless Executive can
establish specific events giving rise to the conception
which occurred after such employment.  Further, Executive
disclaims and will not assert any rights in Inventions as
having been made, conceived or acquired prior to employment
by Company except such as are specifically listed at the
conclusion of this Agreement.  Executive shall cooperate
with Company and shall execute and deliver such documents
and do such other acts and things as Company may request, at
Company's expense, to obtain and maintain letters patent or
registrations covering any Inventions and to vest in Company
all rights therein free of all encumbrances and adverse
claims.

8.Confidential Information.  Except as required by law or
regulatory agencies, Executive shall not disclose to Company
or induce Company to use any secret or confidential
information belonging to persons not affiliated with
Company, including any former employer of Executive.  In
addition to all duties of loyalty imposed on Executive by
law, Executive shall maintain Confidential Information in
strict confidence and secrecy and shall not at any time,
during or at any time after termination of employment with
Company, directly or indirectly, use or disclose to others
any Confidential Information, or use it for the benefit of
any person or entity (including Executive) other than
Company, without the prior written consent of any duly
authorized officer of Company (except for disclosures to
persons acting on Company's behalf with a need to know such
information).  Executive shall carefully preserve any
documents, records and tangible data relating to Inventions
or Confidential Information coming into Executive's
possession and shall deliver the same and any copies thereof
to Company upon request and, in any event, upon termination
of Executive's employment by Company.

9.Non-Competition.  

     a)   At all times during Executive's employment by the
          Company (whether pursuant to this Agreement or
          otherwise) and, to the fullest extent permitted by
          applicable law, for a period of twelve (12) months
          following the termination of such employment,
          Executive will not, in any capacity whatsoever, in
          any state in the United States or in any other
          country, directly or indirectly, participate in or
          assist in the ownership, management, operation or
          control of, or have any beneficial interest in, or
          provide employment, consulting or other services
          for, any corporation, partnership, association or
          other person or entity ("Competitive

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<PAGE>

          Business") which is engaged in the development,
          manufacture, marketing, distribution, service
          and/or sale of voice or data switching equipment,
          and which directly competes or is planning to
          directly compete with the Company's products or
          services (including products and services under
          development).  If the business is multi-faceted,
          this restriction shall apply to only that part of
          the business which is competitive to Company.
     b)   In furtherance of the foregoing, but as an
          independent obligation of Executive, Executive
          agrees that he will not, to the fullest extent
          permitted by applicable law, during the one-year
          period following termination of his employment
          with Company, be connected in any way with the
          solicitation of any then current or potential
          customers or suppliers of Company if such
          solicitation is likely to result in a loss of
          business for Company.
     c)   In furtherance of the foregoing, but as an
          independent obligation of the Executive, Executive
          agrees that, to the fullest extent permitted by
          applicable law, during the one year following
          termination of his employment with the Company, he
          will not solicit for employment, employ or engage
          as a consultant any person who had been an
          employee of the Company at any time in the
          one-year period prior to termination of
          Executive's employment with Company.
     d)   In the event the covenants set forth in this
          Section 9 are found to be unenforceable or invalid
          by reason of being overly broad, the parties
          hereto intend that such covenants shall be limited
          to such scope, geographic area and duration as
          shall make such covenants valid and enforceable.

10.Government Laws, Regulations and Contracts.  Executive
agrees to comply, and to do all things necessary for Company
to comply, with all federal, state, local and foreign laws
and regulations and government contracts which may be
applicable to the business and operations of Company.

11.Miscellaneous.

11.1Amendment and Modification.  Company (by action of its Board
of Directors) and Executive may amend, modify and supplement
this Agreement only in such manner as may be agreed upon by
Company and Executive in writing.  This provision shall be
applicable to any extension of the term of this Agreement as
provided in Section 2.1.  All determinations, waivers,
consents, approvals or other acts on the part of the Company
that are permitted or required by this Agreement shall
similarly require the approval of the Board of Directors.

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<PAGE>

11.2 Entire Agreement.  This instrument embodies the entire
     agreement between the parties hereto with respect to
     the employment relationship created hereby and
     supersedes and discharges any prior agreements
     pertaining to employment between Executive and the
     Company.  There have been and are no agreements,
     representations or warranties between the parties other
     than those set forth or provided for herein relating to
     such employment relationship.

11.3 Assignment.  This Agreement shall not be assigned by
     either party without the written consent of the other
     party.  Inasmuch as this Agreement contemplates the
     provision of personal services by the Executive,
     ordinarily this Agreement shall not be assignable by
     the Executive.  This Agreement shall not be assigned by
     the Company except with the prior written consent of
     the Executive, which he shall not unreasonably
     withhold.  Any attempted assignment without such
     written consent shall be null and void and without
     legal effect.

11.4 Binding Effect; Specific Performance.  Subject to
     Section 11.3 hereof, this Agreement shall be binding
     upon and inure to the benefit of the respective parties
     hereto and their successors, assigns, heirs, executors,
     administrators and personal representatives.  The
     parties hereto shall be entitled, at their option, to
     the remedy of specific performance to the fullest
     extent permitted by applicable law in enforcing the
     provisions of this Agreement.

11.5 Arbitration.  Any dispute, controversy or claim arising
     out of or relating to this Agreement, or the breach
     hereof, or the employment relationship hereunder, shall
     be settled by binding arbitration in Los Angeles,
     California administered by the American Arbitration
     Association under its Commercial Arbitration Rules, and
     judgment on the award rendered by the arbitrators may
     be entered in any court having jurisdiction thereof.

11.6 Agreement Severable; Waiver.  This is a severable
     Agreement and in the event that any part of this
     Agreement shall be held to be unenforceable, all other
     parts of this Agreement shall remain valid and fully
     enforceable as if the unenforceable part or parts had
     not been included herein.  No waiver of any provision
     of this Agreement shall be binding unless executed in
     writing by the party to be bound hereby.  No waiver of
     a breach of any of the provisions of this Agreement
     shall be deemed to be or shall constitute a waiver of a
     breach of any other provision of this Agreement,
     whether or not similar, nor shall such waiver
     constitute a continuing waiver of such breach unless
     otherwise expressly provided.  No failure or delay in
     exercising any right, power or remedy hereunder shall
     operate as a waiver thereof, nor shall any single or
     partial exercise of any such right, power or remedy
     preclude any other or further exercise thereof or the
     exercise of any other right, power or remedy.

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<PAGE>

11.7 Notices.  For purposes of this Agreement, notices and
     all other communications provided for in the Agreement
     shall be in writing and shall be deemed to have been
     duly given when actually delivered to the recipient or
     when mailed by United States certified or registered
     mail, return receipt requested, postage prepaid,
     addressed as follows:

          If to Executive, to:  James J. Fiedler
                                26025 Mureau Rd.
                                Calabasas, CA 91302

          If to Company, to:    The Diana Corporation
                                Attn:  Board of Directors
                                26025 Mureau Rd.
                                Calabasas, CA 91302

     or to such other address as either party may have
     furnished to the other in writing in accordance
     herewith except that notices of a change of address
     shall be effective only upon receipt.

11.8 Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND
     CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
     CALIFORNIA, WITHOUT REFERENCE TO THE CHOICE OF LAW
     PRINCIPLES THEREOF.

EXECUTIVE ACKNOWLEDGES HAVING READ, EXECUTED AND RECEIVED A
COPY OF THIS AGREEMENT, INCLUDING THE FOLLOWING NOTICE, AND
AGREES THAT, WITH RESPECT TO THE SUBJECT MATTER HEREOF, IT
CONSTITUTES EXECUTIVE'S ENTIRE AGREEMENT WITH COMPANY,
SUPERSEDING ANY PREVIOUS ORAL OR WRITTEN COMMUNICATIONS,
REPRESENTATIONS, UNDERSTANDINGS OR AGREEMENTS WITH THE
COMPANY OR ANY OF ITS OFFICIALS OR REPRESENTATIVES.

Notwithstanding anything to the contrary in Section 7
hereof, this Agreement does not apply to an Invention for
which no equipment, supplies, facility, or trade secret
information of the Company was used and which was developed
entirely on Executive's own time, unless (a) the Invention
relates (i) to the business of the Company as conducted from
time-to-time or (ii) to the Company's actual or demonstrably
anticipated research or development, or (b) the Invention
results from any work performed by the Executive for the
Company.

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<PAGE>

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


THE DIANA CORPORATION ("Company")

By: /s/ Jack E. Donnelly           Date:  September 4, 1997



JAMES J. FIEDLER ("Executive")

By: /s/ James J. Fiedler           Date:  September 4, 1997

     List of Inventions Excepted From Section 7 Above:

                            None

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