Separation Agreement

Separation Agreement

by Diana
March 3rd, 1997
                      SEPARATION AGREEMENT


     THIS SEPARATION AGREEMENT is dated as of November 20, 1996 by
and between THE DIANA CORPORATION, a Delaware corporation (the
"Company"), and SYDNEY B. LILLY ("Employee").

                           AGREEMENTS

     In consideration of the mutual agreements which follow, the
Company and Employee agree as follows:

     1.   Date of Separation and Compensation.  Employee's
employment with the Company shall terminate effective only upon
receipt by the Company of the Acknowledgment Form (the
"Acknowledgment Form") set forth on Exhibit A, duly executed by
Employee at least seven days after execution hereof (the "Effective
Date").  Effective as of the Effective Date, Employee shall resign
from each office which he currently holds with the Company and of
each of its subsidiaries; provided, however, Employee shall not
resign as a director of the Company.  Employee acknowledges and
agrees that through the Effective Date, he shall receive the same
compensation and fringe benefits which he is currently receiving
from the Company in accordance with the same terms and conditions
as is currently being applied.  The Amended and Restated Employment
Agreement dated April 2, 1995 by and between the Company and
Employee (the "Employment Agreement") shall terminate as of the
Effective Date.  On the Effective Date, the Company shall pay to
Employee a severance settlement of $72,692.  The Company shall also
reimburse Employee for all costs associated with his relocation to
Las Vegas, Nevada.  The Company shall pay all medical expenses,
including but not limited to medical, dental, hospital,
optometrical, nursing, nursing home and drugs, for the employee and
his spouse from the Effective Date until March 31, 2000 provided
that, insofar as the spouse is concerned, such benefit is
applicable only during the marriage and after the death of the
Employee, provided that they are married at the time of Employee's
death.  

     2.   Stock Options.  The Company agrees that all options to
purchase stock of the Company shall remain exercisable until
December 31, 1997 (April 2, 2000 with respect to the options
granted on April 2, 1995) and shall not be affected by Employee's
termination of employment or the resignations provided in paragraph
1.  The Company and Employee agree that for purposes of such
options and the Employment Agreement, Employee shall not be deemed
to have

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voluntarily terminated employment and shall not be deemed to have
been terminated for cause.  

     3.   Indemnification.  As partial consideration for the
agreements provided herein, Employee and the Company shall execute
the Indemnification Agreement attached as Exhibit B hereto.

     4.   Return of Company Property.  At the Effective Date,
Employee shall deliver to the Company all Company keys, credit
cards, phone cards and all other Company property, documents and
copies thereof then held by Employee.

     5.   Mutual Release.  In consideration of the benefits
provided to Employee under this Agreement, the sufficiency of which
he acknowledges, Employee releases and discharges the Company, its
predecessors, successors and assigns, insurers, officers,
directors, employees and agents, from and against any and all
claims, demands, actions, causes of action, obligations, damages
and/or liabilities, both known or unknown, asserted or unasserted,
that he has or ever had against the Company or any of the other
individuals being released herein by reason of any fact, matter or
thing whatsoever occurring on or prior to the date hereof,
including, but not limited to, claims associated with or pertaining
to Employee's past employment and his termination of employment and
claims for bonuses or other benefits under the Employment Agreement
or otherwise (except as specified in the next sentence). 
Notwithstanding the foregoing, Employee specifically does not
release or discharge and shall be entitled to all benefits under
(i) section 6 of the Employment Agreement, (ii) all stock options
previously granted to the Employee including the rights and
benefits under all applicable stock option agreements and the
Amendment to Stock Option Agreements of even date, and (iii) this
Agreement.

          Without limitation to the foregoing, Employee
specifically releases, waives and forever discharges the
above-listed entities and persons from and against any and all
claims and damages which arise under the Age Discrimination in
Employment Act ("ADEA"), Title VII of the Civil Rights Act of 1964,
the Americans With Disabilities Act, or the Wisconsin Fair
Employment Act, or which arise out of the common law pertaining to
wrongful discharge, breach of contract (express or implied) or
other tort or common law cause of action.

          In consideration of the promises made by Employee herein
and other good and valuable consideration, the sufficiency of which
the Company

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acknowledges, the Company releases and discharges Employee, his
spouse and their heirs, successors and assigns, insurers and agents
from any and all claims, demands, actions, causes of actions,
obligations, damages and/or liabilities, both known or unknown,
asserted or unasserted, that the Company has or ever had against
Employee or any of the other individuals being released herein, by
reason of any fact, matter or thing whatsoever occurring on or
prior to the date hereof, including, but not limited to, claims
associated with or pertaining to Employee's past employment and
services as an officer and director of the Company and his
termination of employment and such services.

          This waiver does not cover rights or claims arising from
matters first occurring after its execution.

     6.   Breach of Agreement.  In the event of any breach of this
Agreement by any signing party, the non-breaching party shall be
entitled to recover any damages, costs and expenses it may incur,
including actual attorneys' fees, costs and expenses in preparing
the defense, defending against or pursuing an action to enforce the
terms of this Agreement, or establishing or maintaining the
applicability or validity of this Agreement or any provision
thereof.

     7.   Applicable Dates for Signing Agreement.  It is
acknowledged by the Company and Employee that Employee has 21
calendar days from the date he first receives this Agreement to
review it and decide whether to sign it.  It is further
acknowledged that Employee has an additional seven calendar days
after he had signed this Agreement to revoke it as to the waiver
and/or release of any claim or claims alleging age discrimination
by contacting the Company in person or in writing.  If the
Effective Date does not occur within 10 days after execution
hereof, this Agreement shall be of no force and effect and shall
terminate without liability of any party hereto.

     8.   Right to Consult Attorney and Acknowledgment of Parties. 
The parties acknowledge that they have read the foregoing
Agreement, understand its contents, have signed the Agreement as
their free and voluntary act and acknowledge that prior to signing
the Agreement they had the opportunity to discuss any terms in the
Agreement with each other and that any questions asked have been
answered to their satisfaction.  Employee also acknowledges that he
has been advised by the Company to consult, and has consulted, with
an attorney of his choice, at his own expense, to review the
Agreement before signing it.

     9.   Severability.  If any portion of this Agreement is held
to be invalid or unenforceable for any reason, the parties agree
that such invalidity or

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unenforceability shall not affect the other provisions of this
Agreement and that the remaining covenants, terms and conditions or
portions thereof shall remain in full force and effect, and any
court of competent jurisdiction may so modify or amend the
objectionable provisions so as to make it valid, reasonable and
enforceable.

     10.  Counterparts.  This Agreement may be executed in
counter-parts, each of which shall be deemed an original but both
of which together shall constitute one and the same agreement.

     11.  Specific Performance.  The parties acknowledge and agree
that breach of the provisions of this Agreement by the Company
would cause irreparable damage to the Employee and that monetary
damages alone would not provide the Employee with adequate remedies
for such breach.  Therefore, if any controversy arises concerning
Company's obligations under this Agreement, such obligations may be
specifically enforced by an injunction order or an order of
specific performance issued by a court of competent jurisdiction. 
Such remedy shall be cumulative and nonexclusive and shall be in
addition to any other remedy to which the Employee may be entitled.

     12.  Governing Law.  This Agreement shall be governed and
construed in accordance with the laws of the State of Wisconsin
(regardless of the laws that might be applicable under principles
of conflicts of laws).  

     Employee acknowledges that he first received a copy of this
Agreement on November 20, 1996.

     This Agreement is executed as of November 20, 1996.

                                   /s/ Sydney B. Lilly

                                   THE DIANA CORPORATION

                                   BY /s/ Richard Y. Fisher
                                   Its President

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                            EXHIBIT A


                  SEVEN-DAY RIGHT TO REVOCATION
                       ACKNOWLEDGMENT FORM

     I, Sydney B. Lilly, acknowledge that The Diana Corporation has
tendered a Separation Agreement offer which I voluntarily agreed to
accept on November 20, 1996.

     By this writing, I certify that seven calendar days have
elapsed since my voluntary acceptance of the above-referenced offer
and that I have voluntarily chosen not to revoke my acceptance of
the above-referenced Separation Agreement.

     Signed this 28th day of November, 1996, at Milwaukee,
Wisconsin.

                                   /s/ Sydney B. Lilly




                            EXHIBIT A


                    INDEMNIFICATION AGREEMENT


      INDEMNIFICATION AGREEMENT between The Diana Corporation, a
Delaware corporation (the "Company"), and Sydney B. Lilly, an
officer and/or director of the Company (the "Indemnitee"), dated as
of November 26, 1996.

      WHEREAS, the Indemnitee has served, is serving or may serve as
an officer or director of the Company; and

      WHEREAS, the Amended and Restated Certificate of Incorporation
(the "Certificate of Incorporation") and the Bylaws of the Company
provide for certain indemnification of the officers and directors
of the Company.

      NOW, THEREFORE, in consideration of the foregoing and of other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company has agreed to the
covenants set forth herein for the purpose of further securing to
the Indemnitee the indemnification provided by the Certificate of
Incorporation and the Bylaws:

      Section 1.  In the event that the Indemnitee was or is made a
party or is threatened to be made a party to or is involved in any
action, suit, or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that the Indemnitee or a person of whom the
Indemnitee is the legal representative is or was a director,
officer or employee of the Company or is or was serving at the
request of the Company as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee
benefit plans, whether the basis of such actual or threatened
proceeding is alleged action in any official capacity as a
director, officer, employee or agent or in any other capacity while
serving as a director, officer, employee or agent, the Indemnitee
shall be indemnified and held harmless by the Company to the
fullest extent authorized by the General Corporation Law of the
State of Delaware (the "GCL") as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Company to provide broader
indemnification rights than said law permitted the Company to
provide prior to such amendment), against all expense, liability
and loss (including, without limitation, attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid
or to be paid in settlement) reasonably incurred or suffered by the
Indemnitee in connection therewith and such indemnification shall
continue as to the Indemnitee if the Indemnitee ceases to be a
director, officer, employee or agent and shall inure to the benefit
of the Indemnitee's heirs, executors

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and administrators; provided, however, that except as provided in
Section 2 of this Agreement with respect to proceedings seeking to
enforce rights to indemnification, the Company shall indemnify the
Indemnitee in connection with a proceeding (or part thereof)
initiated by the Indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Company.

      Section 2.  If a claim under Section 1 of this Agreement is
not paid in full by the Company within thirty days after a written
claim has been received by the Company, the Indemnitee may at any
time thereafter bring suit against the Company to recover the
unpaid amount of the claim and, if successful in whole or in part,
the Indemnitee shall be entitled to be paid also the expense of
prosecuting such claim.  It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses
incurred in defending any actual or threatened proceeding in
advance of its final disposition where the required undertaking, if
any is required, has been tendered to the Company) that the
Indemnitee has not met the standards of conduct which make it
permissible under the GCL for the Company to indemnify the
Indemnitee for the amount claimed, but the burden of proving such
defense shall be on the Company.  Neither the failure of the
Company (including its Board of Directors, independent legal
counsel or stockholders) to have made a determination prior to the
commencement of such action that indemnification of the Indemnitee
is proper in the circumstances because the Indemnitee has met the
applicable standard of conduct set forth in the GCL, nor an actual
determination by the Company (including its Board of Directors,
independent legal counsel or stockholders) that the Indemnitee has
not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the Indemnitee has not met
the applicable standard of conduct.

      Section 3.  Following any "change in control" of the Company
of the type required to be reported under Item 1 of Form 8-K
promulgated under the Securities Exchange Act of 1934, as amended,
any determination as to entitlement to indemnification shall be
made by independent legal counsel selected by the Indemnitee, which
such independent legal counsel shall be retained by the Board of
Directors on behalf of the Company.

      Section 4.  The right to indemnification and the payment of
expenses incurred in defending any actual or threatened proceeding
in advance of its final disposition conferred in this Agreement
shall not be exclusive of any other right which the Indemnitee may
have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of
stockholders or disinterested directors or otherwise.

      Section 5.  The Company shall maintain in full force and
effect for a period of at least six years following the date of
this Agreement, fiduciary liability and

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directors and officers liability insurance policies in an amount
not less than $10,000,000 (or, if such amount is not reasonably
available, such other lower amount as is available to the Company
on reasonable terms) covering the Company, any Company subsidiary
or any of such parties' current or former directors, officers,
employees or agents, which will include coverage of Indemnitee for
all actions previously taken or to be taken in connection with his
services to the Company and its subsidiaries.  In the event that
the Company maintains insurance, whether pursuant to the foregoing
provision or otherwise, to protect itself and any director or
officer of the Company against any expenses, liability or loss,
such insurance shall cover the Indemnitee to at least the same
extent as any other director or officer of the Company.

      Section 6.  The right to indemnification conferred by this
Agreement shall include the right to be paid by the Company the
expenses incurred in defending any actual or threatened proceeding
in advance of its final disposition; provided, however, that if the
GCL requires, the payment of such expenses incurred by the
Indemnitee in the Indemnitee's capacity as a director or officer
(and not in any other capacity in which service was or is rendered
by the Indemnitees while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the
final disposition of any actual or threatened proceeding, shall be
made only upon delivery to the Company of an undertaking by or on
behalf of the Indemnitee, to repay all amounts so advanced if it
shall ultimately be determined that the Indemnitee is not entitled
to be indemnified under this Agreement or otherwise.

      IN WITNESS WHEREOF, the Company and the Indemnitee have
executed this Indemnification Agreement in duplicate on the day and
year first above written.

                                   THE DIANA CORPORATION

                                   By:  /s/ Richard Y. Fisher
                                            President

                                   
                                   /s/ Sydney B. Lilly
                                   Signature of Officer or Director

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