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 DANIEL W. LATHAM (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.

2.1  Term.  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.

2.2  Termination.  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.

2.3  Effect 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 One
     Hundred Seventy-Five Thousand Dollars ($175,000) 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.

5.1  Vacation 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.
5.2  Bonuses.  

          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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<PAGE>

               Agreement, the Executive shall receive a bonus
               equal to five percent (5%) of the Company's
               pre-tax profits for said half year but not to
               exceed for such fiscal year as a whole seventy-
               five percent (75%) 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.

5.3  Other 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.

11.1 Amendment 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:  Daniel W. Latham
                                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



DANIEL W. LATHAM ("Executive")

By: /s/ Daniel W. Latham           Date:  September 4, 1997

     List of Inventions Excepted From Section 7 Above:

                            None

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