SETTLEMENT AGREEMENT AND RELEASE

Brenda Shadwick ("Shadwick") and Butler National Corporation ("Butler"),
Avcon
Industries, Inc., Woodson Avionics, Inc., R F, Inc., Butler National
Service
Corporation, Butler National Services Inc., Butler Temporary Services,
Inc.,
("the Companies") and Clark Stewart ("Stewart") enter into this Settlement
Agreement and Release ("Agreement") under the terms and conditions recited
below:

   I.Recitations

A    On or about June 6, 1994, Shadwick and Butler entered into an
agreement
whereby Shadwick agreed to perform the duties of Associate General Counsel
and
vice President of Governmental Affairs at Butler in Olathe, Kansas.

   B.The agreement provided, in part, that as part of her compensation,
Shadwick would receive stock options or stock having a fair market value as
of
the date of issuance of Twenty-Five Thousand ($25,000.00) per year.

   C.On or about June 24, 1994, Butler issued restricted stock to Shadwick
having a fair market value of Twenty-five Thousand ($25,000.00).

   D.Shadwick was employed by Butler from July 5, 1994 until April 17,
1995,
when she was terminated by Butler.

   E.On October 17, 1995, Shadwick filed a petition in the District Court
of
Johnson County, Kansas styled Brenda Shadwick vs. Butler National
Corporation;
Avcon Industries, Inc.; Woodson Avionics, Inc.; R F., Inc.; Butler National
Service Corporation; Butler National Services Inc.; Butler Temporary
Services,
Inc. and Clark Stewart, and bearing Case No. 96-2333-EEO. In Count I of her
petition, Shadwick alleged that her termination was in breach of the
employment contract. In Count II of her petition, Shadwick
upon the doctrine of promissory estoppel. In Count III of her petition
Shadwick alleged tortious interference with prospective business
relationship. 
In Count W of her petition, Shadwick alleged defamation or defamation by
self-publication; and in Count V of the petition Shadwick alleged
violations
of the Wage Payment Act., K.S.A. 44-315, et seq.  Shadwick sought actual
compensatory and additional statutory damages authorized under K.S.A.
44-315,
et seq. and certain equitable relief, including an award of 

   F.In response to the assertion of Shadwick's claims, Butler initially
asserted a counterclaim alleging fraudulent misrepresentation which was
subsequently dismissed. Butler then asserted an amended counterclaim
alleging
professional negligence, for which it sought damages from Shadwick.

   G.On June 5 1996, the court heard argument on Shadwick's motion to
dismiss
her claims against defendants, and on July 12, 1996, Shadwick's petition
was
dismissed. Butler's claim against Shadwick remains pending in Johnson
County
District Court.

   H.On July 22, 1996, Shadwick caused to be filed in the United States
District Court for the District of Kansas a complaint styled Brenda
Shadwick
V. Butler National Corporation; Avcon Industries, Inc.; Woodson Avionics,
Inc.; R F' Inc.; Butler National Service Corporation; Butler National
Services Inc., Butler Temporary Services, Inc. and Clark Stewart and
bearing Case No.
96-2333-EEO. In Count I of her complaint, Shadwick alleged that Butler
terminated her in breach of her employment contract; in Count II

   I.In response to the assertion of Shadwick's claims in her federal
litigation, defendants asserted a counterclaim against Shadwick alleging
professional negligence and for which damages were sought.

   J.Since the filing of the actions, the parties have engaged in
extensive
written and deposition discovery in both cases, and all parties acknowledge
the anticipation of further extensive discovery and trial preparation.

   K.Because Shadwick and Butler, Companies, and Stewart desire to avoid
the
uncertainties and expense of further continued litigation including the
incurring of additional attorneys' fees, they have agreed to resolve this
matter on the terms and conditions recited below.

    IITermsof the Settlement

   A.Butler, the Companies and Stewart agree to do the following:

   1.Release and discharge Shadwick, her successors, assigns and
attorneys,
as is more fully set forth in paragraph IV.B. below.
 
   2.Pay to Shadwick and to Steven Sprenger, her attorney, the sum of
Fifty
Thousand and No/100 Dollars ($50,000.00), with delivery of this amount by
check upon execution of this Agreement by Shadwick and delivery of the
executed Agreement to counsel for Butler.

   3.Pay to Shadwick and to Steven Sprenger, her attorney, the additional
sum
of One Hundred Forty-four Thousand and No/100 Dollars ($144,000.00) payable
in
equal monthly installments of Six Thousand and No/100 Dollars ($6,000.00)
per
month for a term of twenty-four (24) months, such term to commence on the
first day of April, 1997.

   4.Butler and Butler Temporary Services, Inc. agree to execute the

promissory note in the full amount of One Hundred Forty-four Thousand and
No/100 Dollars ($144,000.00), attached to this Agreement as Exhibit "A,"
and
to deliver the note upon execution of this Agreement by Shadwick and
delivery
of the executed Agreement to counsel for Butler and the Companies.

   5.Butler agrees to annually provide Shadwick documentation, with a copy
to
her attorney Steve Sprenger, in a form of a 1099 or other form acceptable
to
the Internal Revenue Service, to evidence payment made to Shadwick as
earned
under the note and pursuant to this Agreement.

   6.Deliver to Shadwick letters signed by Stewart in the form acceptable
to
all parties and attached to this Agreement as Exhibit "B and "C."

   7.Cause the issuance of all legal opinions (based on factual
certificates
to be provided by Shadwick as provided below) required pursuant to and in
accordance with Rule 144 of the Securities Act of 1933, to Butler's
transfer
agent in a form sufficient to authorize the transfer of stock delivered to
Shadwick by Butler, if required.

   8.Execute a stipulation for the dismissal of Shadwick's federal
complaint
against all defendants with prejudice, with each party to bear its own
costs,
with statutory attorneys' fees specifically waived.

   9.Execute a stipulation for the dismissal of Butler's federal
counterclaim
with prejudice, with each party to bear its own costs.

  10.Execute a stipulation for the dismissal of Butler's remaining state
court claim with prejudice, with each party to bear its own costs.

  11.Keep the terms of this settlement confidential, except Butler and the
Companies may make such disclosures as required by law.

  12.Butler, the Companies, their officers and employees (excluding Marvin
Eisenbath), and Stewart agree to refrain from making any disparaging
comments
to any person or entity about Shadwick, and further agree not to make any
comments which reflect negatively on her legal abilities and\or her
capabilities or suitability to be involved in any aspect of Indian gaming,
to
any person, company or legal entity involved in Indian gaming, the National
Indian Gaming Commission, the Bureau of Indian Affairs, the Modo

  13.Butler and Butler Temporary Services, Inc. further agree that subject
to
the procedures set forth in this paragraph, any breach of the immediately
preceding paragraph may accelerate their obligation to make the periodic
payments described in paragraph II.A.3. above and under the Promissory Note
attached hereto as Exhibit "k"

   a.In the event Shadwick has a good faith belief that Butler, its
officers
or agents, has violated the provisions of the immediately preceding
paragraph,
notice of such violation shall be given in writing to Butler after which
Butler will have 10 days to respond in writing.

   b.After the 10 day response period and consideration of any response by
Butler, Shadwick may elect to institute legal proceedings in the District
Court of Johnson County, Kansas or the United States District Court for the
District of Kansas to seek a judicial determination of the breach by
Butler.
Butler specifically consents to the personal and subject matter
jurisdiction
of the State Courts of Kansas for the purpose of this Agreement.

   c.Butler's obligation to make periodic payments under this Agreement
and
the Promissory Note attached hereto will not be suspended during the
pendency
of the legal proceeding initiated under this paragraph or any appeal
arising
therefrom.

   d.The prevailing party to Litigation brought under this paragraph is
entitled to its reasonable attorney's fees incurred in the prosecution or
defense of such litigation, as such fees may be determined by the Court.

   e.If Shadwick is the prevailing party under this paragraph, Butler's
obligations to make any remaining payments under this Agreement and the
Promissory Note are accelerated and due 10 days after entry of a final,
non-appealable judgment with interest at the rate of 10% per annum from the
date of final judgment until paid in

   B.Shadwick agrees to do the following:

   1.Release and discharge Butler and the Companies, their present and
former officers, agents, successors, assigns, other employees and attorneys
of
Butler and the Companies, as is more fully set forth in paragraph IV.A.
below;

   2.Release and discharge Stewart, his successors and assigns and
attorneys,
as is more fully set forth in paragraph IV.A. below.

   3.Execute a stipulation for the dismissal of Shadwick's federal
complaint,
with prejudice, with each party to bear its own costs with statutory
attorneys' fees specifically waived.

   4.Execute a stipulation for the dismissal of Butler's federal
counterclaim, with prejudice, with each party to bear its own costs.

   5.Execute a stipulation for the dismissal of Butler's remaining state
court claim, with prejudice, each party to bear its own costs, with
statutory
attorneys' fees specifically waived.

   6.Deliver to Butler appropriate certificates to facilitate and
effectuate
the sale of Butler stock in accordance with Rule 144 of the Securities Act
of
1933, if required.

   7.Provide written lien waivers in a form satisfactory to Butler, the
Companies and Stewart from Paul C. Sprenger, Bradley S. Russell and the
firm
of Wallace, Saunders, Austin, Brown and Enochs, Chartered, the firm of
Peterson and Sprenger, P.C. and David M. Peterson.

   8.Shadwick shall not, at anytime or in any manner, directly or
indirectly,
use or disclose to any party any confidential information learned or
obtained
by her while an employee of Butler.  As used herein, the term "confidential
information" means information disclosed or known by Shadwick as a
consequence
of her employment with Butler, and not generally known in the Indian Gaming
industry, and that relates to Butler's services or knowledge, research,
marketing and strategy. Shadwick further agrees to deli

   9.Shadwick agrees to keep the terms of this settlement confidential,
except Shadwick may make such disclosures as required by law, and may
disclose
the letter marked as Exhibit C to this Agreement only to malpractice
insurance
carriers and bar authorities as she may be required for insurance and bar
admission purposes.

  10.Shadwick agrees to  refrain from making any disparaging comments to
any
person or entity about Butler, the Companies or their officers, or
employees,
and further agrees to refrain from making any disparaging comments about
Butler, the Companies, and their officers or employees which reflects
negatively upon it or them, or upon their individual or collective
abilities,
capabilities, or suitability to be involved in any aspect of Indian
gaming.,
to any person or entity, including without limitation, any c

  11.Shadwick further agrees that subject to the procedures set forth in
this paragraph, any breach of the immediately preceding paragraph
terminates the
Butler's obligation to make the periodic payments described in paragraph
II.A.3. above and under the Promissory Note attached hereto as Exhibit "A."

   a.In the event Butler has a good faith belief that Shadwick has
violated
the provisions of the immediately preceding paragraph, notice of such
violation shall be given in writing to Shadwick after which Shadwick will
have
10 days to respond in writing.

   b.After the 10 day response period and consideration of any response by
Shadwick, Butler may elect to institute legal proceedings in the District
Court of Johnson County, Kansas to seek a judicial determination of
Shadwick's
breach.  Shadwick specifically consents to the personal and subject matter
jurisdiction of the District Court of Johnson County, Kansas for the
purposes
of this Agreement. Nothing in this sub-paragraph is intended to limit
Shadwick's right under federal law to remove any such action to

   c.Butler's obligations to make the periodic payments under this
Agreement
and the Promissory Note attached hereto to Shadwick and her counsel are
suspended during the pendency of any legal proceeding or appeal arising
therefrom. However, Butler will be required to continue to make those
periodic
payments to an interest bearing escrow account in a federally insured
institution under an escrow agreement which will cause those funds to be
transmitted to the prevailing party in litigation brought under this pa

   d.If Butler is the prevailing party under this paragraph, the
obligation
of Butler and Butler Temporary Services, Inc.'s to make any remaining
payments
under this Agreement and the Promissory Note are terminated and the Note is
discharged.

   e.The prevailing party in litigation brought under this paragraph is
entitled to its reasonable attorney's fees incurred in the prosecution or
defense of such litigation, as such fees may be determined by the Court.

  IIIAcknowledgments

   1.Shadwick specifically acknowledges that by entering into this
Agreement,
Butler, the Companies, and Stewart are not admitting any liability as to
any
claim which she has or might have against Butler, the Companies, or
Stewart,
their present and former officers, agents and parties affiliated or related
to
them, specifically including the matters raised in her federal judicial
complaint, and further acknowledges that Butler, the Companies and Stewart
deny that any cause for liability has arisen.

   2.Butler, the Companies and Stewart specifically acknowledge that by
entering into this Agreement, Shadwick is not admitting any liability as to
any claim which they have or might have against Shadwick, specifically
including the matters raised in their federal counterclaim and remaining
state
court claim, and further acknowledge that Shadwick denies that any cause
for
liability has arisen.

   3.Shadwick specifically acknowledges and agrees that she is responsible
for any and all federal, state and local taxes on the amount of the
settlement
proceeds earned and paid to her under the provisions of this Agreement and
Note, and that any taxes and penalties or interest which may apply to that
amount do not constitute a diminution of the settlement proceeds in this
matter. Shadwick further acknowledges and agrees that she releases and
holds
harmless Butler, the Companies and Stewart for any claim for

   4.The parties acknowledge that this Agreement represents a negotiation
of
the parties hereto and that all disputes which arise out of the enforcement
of
this Agreement shall be governed by the laws of the State of Kansas.


   5.Butler, the Companies and Stewart represent that the balance sheet
attached to this Agreement as Exhibit D is an accurate statement of the
unconsolidated assets, liabilities and shareholders' equity of Butler
National
Corporation (without subsidiaries) as of January 31, 1997.

  Iv.Release

   A.In consideration of the recitations and agreements listed above,
Shadwick forever discharges Stewart, Butler, the Companies, and their
affiliated and related companies, and present and former officers, agents,
successors, assigns and attorneys from any and all claims that she may have
against any and all of them including, but not limited to, any claim or
demand
for damages or attorneys fees which she may have or hereafter on account of
the acts alleged in her complaint or which could have been alleged i

   1.All claims made under the employment contract;

   2.All claims made under the Kansas Wage Payment Act, K.S.A. 44-315, et
seq.

   3.Claims under the Civil Rights Act of 1991, as amended.

   4.Claims under the Reconstruction Era Civil Rights Act, 42 U.S.C. 
1981,
1982, 1983 and 1985.

   5.Claims under the Age Discrimination and Employment Act of 1967, as
amended.

   6.Claims under the Americans with Disabilities Act.

   7.Claims under the Family and Medical Leave Act and any applicable
state
family and medical leave statute.

   8.Common law claims of intentional or negligent infliction of emotional
distress.

   9.Common law claims of breach of express or implied contract or
wrongful
termination, defamation, invasion of privacy, breach of the covenant of
good
faith and fair dealing, wrongful discharge in violation of public policy or
promissory estoppel.

  10.Claims of discrimination brought under any federal, state or local
statute or ordinance prohibiting discrimination of any kind or type.

  11.Any and all claims of any type which Shadwick may have made by virtue
of
her employment by Butler or the termination of that employment, and the
prosecution and defense of the litigation referenced herein and pending in
Johnson County District Court and the United States District Court for the
District of Kansas.

   B.In consideration of the recitations and agreements listed above,
Stewart, Butler, the Companies, and their affiliated and related companies,
present and former officers, agents, successors and assigns forever
discharge Shadwick from any and all claims they may have against her arising 
from her employment with Butler or termination therefrom, including without
limitation its claim for professional negligence and any claim or demand for 
damage which they may have on account of the acts alleged.