8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): September 17, 2010 (September 9, 2010)

HERLEY INDUSTRIES, INC.

(Exact name of Registrant as specified in its Charter)

Commission File No. 0-5411

Delaware	23-2413500
(State or other jurisdiction of incorporation)	(IRS Employer Identification Number)
3061 Industry Drive Lancaster, PA	17603
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: 717-397-2777

Former name or former address, if changed since last Report: N/A

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ]	Written communications pursuant to Rule 425 under the Securities Act
[ ]	Soliciting material pursuant to Rule 14a-12 under the Exchange Act
[ ]	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
[ ]	Pre-commencement to communications pursuant to Rule 13e-4(c) under the Exchange Act

Item 5.03:                      Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

(a)            Effective September 9, 2010, Herley Industries, Inc. (the “Company”) approved certain amendments to the Bylaws of the Company (the “Amended and Restated Bylaws”). Apart from non-substantive language and conforming changes and other technical and cross-reference edits, the Bylaws were amended in the manner summarized below:

●  Article I, Section 2 was amended from: “Annual meetings of stockholders shall be held on such date not earlier than September 1 nor later than March 1 of the subsequent year on such day and at such time as shall be designated from time to time by the Board of Directors.  At each annual meeting the stockholders shall elect a Board of Directors by plurality vote and transact such other business as may be properly brought before the meeting.”

into the following:

“Section 2.  Annual Meeting.  Annual meetings of stockholders shall be held on such date not earlier than September 1 nor later than March 1 of the subsequent year on such day and at such time as shall be designated from time to time by the Board of Directors. At each annual meeting, the stockholders shall elect a Board of Directors by plurality vote; provided, however, in an uncontested election, any director nominee who receives more “withheld” votes than “for” votes in such election must immediately submit a resignation letter to the remaining directors upon certification of the stockholder vote, and the remaining directors shall, upon a process managed by the Nominating, Governance and Ethics Committee and excluding the director nominee in question, within 45 days of receiving such resignation letter, determine whether to accept such resignation. The Board of Director’s explanation of its decision shall be promptly disclosed on Form 8-K filed with the Securities and Exchange Commission. An election shall be considered contested if, as of the record date, there are more nominees for election than positions on the Board of Directors to be filled by election at the annual meeting. At the annual meeting, the stockholders shall conduct such other business as may be properly brought before the meeting. Any proposal to amend or repeal this section, which has not previously been approved by the Board of Directors, shall require the approval of the holders of a majority of the outstanding shares of the Company’s common stock.”

●  A new Section 8 was added to Article I, which states:

“Section 8.                      Shareholder Proposals.  Notice of any proposal by a stockholder which the stockholder desires to submit for a vote at the Company’s annual meeting, other than with respect to the nomination of a candidate for election as a director, must be submitted to the Company’s Secretary at the Company’s registered address no later than 120 calendar days prior to the anniversary of the date of the Company’s proxy materials released to stockholders for the previous year’s annual meeting. The notice must include the name and residence address of the notifying stockholder, the number of shares of the Company owned by the notifying stockholder, and a description of the basis for the proposal. A proposal not submitted in the manner or within the time provided herein shall not be included on the agenda for the annual meeting and shall not be deemed to have been submitted on a timely basis. Stockholder proposals, for purposes of this Section 8, do not include stockholder nominations of candidates for director.  A stockholder intending to nominate a candidate for election as director must separately comply with the advance notice provision set forth in the Company’s Certificate of Incorporation in order for such nomination to be properly brought before the meeting.  The foregoing provision applies to all stockholder proposals regardless of whether the stockholder is seeking to have the proposal included in the company’s proxy statement pursuant to Rule 14a-8.”

●  The last sentence of Article II, Section 2 was amended from “Whenever the words ‘whole Board’, ‘entire Board’ or ‘total number of directors’ are used in these By-Laws, such words shall mean the number of directors fixed by the Board and then in effect in accordance with the provisions of the Certificate of Incorporation or these By-Laws.”

into the following:

“At least a majority of the Company’s directors shall be “Independent Directors” (as defined below).”

           ●  Article II, Section 6 was amended from “Unless otherwise restricted by the Certificate of Incorporation, members of the Board of Directors or of any committee designated by the Board may participate in a meeting of the Board or any such committee by means of conference telephone or similar communications equipment whereby all persons participating in the meeting can hear each other.  Participation in any meeting at which one or more members of the Board of Directors or of any committee designated by the Board shall participate by means of conference telephone or similar communications equipment shall be deemed to have been held at the place designated for such meeting, provided that at least one member is at such pace while participating in the meeting.”

into the following:

“Unless otherwise restricted by the Certificate of Incorporation, members of the Board of Directors or of any committee designated by the Board may participate in a meeting of the Board or any such committee by means of conference telephone, videoconference, web conference, or similar communications technology whereby all persons participating in the meeting can hear each other. Participation in any meeting by such means shall constitute presence in person at such meeting.”

●  A new Section 9 was added to Article II, which states:

“Section 9.                      Executive Sessions.  Members of the Board of Directors who are “Independent Directors” shall meet in executive session at least twice a year. No notice of executive sessions need be given.  As used in these By-Laws, an “Independent Director” shall mean a director of the Company who meets all applicable requirements for independence required by the Securities and Exchange Commission and the securities exchange on upon which the Company’s shares are traded.”

●  Article III, titled “Committees”, was substantially revised to incorporate the following Sections:

“Section 2.                      Audit Committee.  There shall be a standing committee of the Board of Directors to be known as the Audit Committee. The members of the Audit Committee shall consist exclusively of Independent Directors. The Audit Committee shall: (i) have complete oversight responsibility for the accounting and financial reporting processes of the Company and for its financial statement audits, (ii) be responsible for appointing, compensating and overseeing the external independent auditor for the Company, (iii) establish procedures for the receipt, retention and treatment of complaints about accounting, internal control, or auditing matters and for the confidential anonymous submissions by employees regarding questionable accounting or auditing issues, (iv) define and on an ongoing basis review with the external independent auditor the scope of audit examinations of the Company, (v) receive the reports of the external independent auditor and meet with the representatives of such auditing firm for the purpose of reviewing and considering questions relating to their examination and such reports, (vi) review the internal accounting and auditing procedures of the Company and the reports of the internal auditors, (vii) directly supervise the work of the internal auditors of the Company who shall report only to the Independent Directors on the Audit Committee and not to any member of the management of the Company, and (viii) perform such other duties as may be deemed necessary from time to time to fulfill its obligations under applicable law and the listing requirements of any stock exchange or over the counter market on which any security of the Company is admitted for trading.

Section 3.                      Nominating, Governance and Ethics Committee. There shall be a standing committee of the Board of Directors to be known as the Nominating, Governance and Ethics Committee. The Nominating, Governance and Ethics Committee shall consist exclusively of Independent Directors. The Nominating, Governance and Ethics Committee shall nominate candidates for election as director and shall make recommendations to the Board of Directors with respect to qualifications of directors.

Section 4.                      Compensation Committee.  There shall be a standing committee of the Board of Directors to be known as the Compensation Committee. The Compensation Committee shall consist exclusively of Independent Directors. The Compensation Committee shall take action and make recommendations to the Board of Directors with respect to the compensation of the executive officers of the Company.”

●  Section 7, Article IV, was amended from “Each officer shall hold his office until his successor is elected and qualified or until his earlier resignation or removal.  Any officer or agent shall be subject to removal with or without cause at any time by the Board of Directors.  Vacancies in any office whether occurring by death, resignation, removal or otherwise, may be filled by the Board of Directors.”

into the following:

“Section 6.                      Removal and Vacancy.  Any officer or agent shall be subject to removal with or without cause at any time by the Board of Directors.  Vacancies in any office whether occurring by death, resignation, removal or otherwise, may be filled by the Board of Directors.”

The preceding descriptions are qualified in their entirety by reference to the text of the Company’s Amended and Restated Bylaws effective as of September 9, 2010. The Amended and Restated Bylaws effective as of September 9, 2010 are attached hereto as Exhibit 3.2.

Item 8.01:                      Other Events.

On September 9, 2010, the Company appointed Howard Eckstein as Senior Vice President.  Mr. Eckstein also served as the Company’s general manager for the Company’s Lancaster, Pennsylvania facility from October 5, 2009 to the present.

Between 1998 and 2004, Mr. Eckstein held engineering, business development and division management positions with the Company.  From 2004 to April 2008, Mr. Eckstein was Vice President of Corporate Business Development for CPI and President of CPI Malibu Division from April 2008 until October 2009. CPI Malibu Division is engaged in the design,  analysis and simulation of radar, telemetry, communications and electronic warfare systems to military agencies and government prime contractors.  There is no relationship between the Company and any of its affiliates, and Mr. Eckstein.

On September 10, 2010, the Compensation Committee (the “Committee”) of the Board of the Company approved and set the base salary of Howard Eckstein, the Company’s Senior Vice President, at $300,000, effective as of April 5, 2010, for fiscal year 2011.  In addition, the Committee approved the payment of a bonus to Mr. Eckstein in the amount of $125,000, and the payment of a bonus to John A. Thonet, Chairman of the Board of Directors of the Company, in the amount of $250,000, both for fiscal year 2010.  Such actions were in accordance with the Company’s standard practices and unanimously recommended and approved by the Committee.  In making its determinations, the Committee sought the advice and guidance of an independent compensation consultant and outside counsel.

The Company does not undertake to report the compensation of any non-reporting person of the Company in the future except to the extent required by law.

In addition, effective September 9, 2010, the Company adopted Corporate Governance Guidelines (the “Guidelines”), which were effective on such date, to enhance the Company’s corporate governance practices.  In general, and without limitation, the Guidelines provide guidance and direction to the Company with respect to:

●  the role and functions of the Board of Directors;

●  Board structure;

●  Board procedural matters, including the expected conduct of Directors;

●  Committee matters;

●  Management development matters and succession planning;

●  a prohibition against Company loans;

●   Board access to management;

●  Board interaction with third parties; and

●  a procedure for handling complaints or reports under the Company’s Corporate Code of Business Ethics.

The Guidelines are not intended to change or interpret any law or regulation, or the articles of incorporation or the Amended and Restated Bylaws of the Company.

The preceding summary description of the Guidelines is qualified in its entirety by reference to the Corporate Governance Guidelines filed with this Current Report on Form 8-K as Exhibit 99.1 and incorporated herein by reference.

Item 9.01:                      Financial Statements and Exhibits

(d)  Exhibits

Exhibit No.	Description
3.2	Amended and Restated Bylaws, effective as of September 9, 2010
99.1	Corporate Governance Guidelines, effective as of September 9, 2010

 SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: September 17, 2010 HERLEY INDUSTRIES, INC. By: _/s/Anello C. Garefino____________ Anello C. Garefino Chief Financial Officer    

EX-3.2

HERLEY PROPRIETARY

Amended  September 9, 2010

AMENDED AND RESTATED BY-LAWS

of

HERLEY INDUSTRIES, INC.

(A Delaware Corporation)

ARTICLE I

STOCKHOLDERS

Section 1.                      Place of Meetings.  Meetings of stockholders shall be held at such place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors.

Section 2.                      Annual Meetings.  Annual meetings of stockholders shall be held on such date not earlier than September 1 nor later than March 1 of the subsequent year on such day and at such time as shall be designated from time to time by the Board of Directors. At each annual meeting, the stockholders shall elect a Board of Directors by plurality vote; provided, however, in an uncontested election, any director nominee who receives more “withheld” votes than “for” votes in such election must immediately submit a resignation letter to the remaining di rectors upon certification of the stockholder vote, and the remaining directors shall, upon a process managed by the Nominating, Governance and Ethics Committee and excluding the director nominee in question, within 45 days of receiving such resignation letter, determine whether to accept such resignation. The Board of Director’s explanation of its decision shall be promptly disclosed on Form 8-K filed with the Securities and Exchange Commission. An election shall be considered contested if, as of the record date, there are more nominees for election than positions on the Board of Directors to be filled by election at the annual meeting. At the annual meeting, the stockholders shall conduct such other business as may be properly brought before the meeting. Any proposal to amend or repeal this section, which has not previously been approved by the Board of Directors, shall require the approval of the holders of a majority of the outstanding shares of the Company’s common stock.

Section 3.                      Special Meetings.  Except as otherwise required by law, special meetings of the stockholders may be called only by the Board of Directors.

Section 4.                      Notice of Meetings.  Written notice of each meeting of the stockholders stating the place, date and hour of the meeting shall be given by or at the direction of the Board of Directors to each stockholder entitled to vote at the meeting at least ten, but not more than sixty, days prior to the meeting.  Notice of any special meeting shall state in general terms the purpose or purposes for which the meeting is called, and no other business shall be transacted thereat except as stated in such notice.

Section 5.                      Quorum; Adjournments of Meetings.  The holders of the issued and outstanding shares of the capital stock of the Company entitled to cast a majority of the votes entitled to be cast by the holders of all classes of capital stock of the Company entitled to vote generally in elections of directors, considered for this purpose as one class, present in person or represented by proxy, shall constitute a quorum for the transaction of business at such meeting; but, if there be less than a quorum, the holders of a majority of the votes entitled to be cast by the holders of all classes of the Company’s capital stock so present o r represented may adjourn the meeting to another time or place, from time to time, until a quorum shall be present, whereupon the meeting may be held, as adjourned, without further notice, except as required by law, and any business may be transacted thereat which might have been transacted at the meeting as originally called.

Section 6.                      Voting.  At any meeting of the stockholders, every registered owner of shares entitled to vote may vote in person or by proxy and, except as otherwise provided by statute, in the Certificate of Incorporation or these By-Laws, shall have one vote for each such share standing in his name on the books of the Company.  Except as otherwise required by statute, the Certificate of Incorporation or these By-Laws, all matters, other than the election of directors, brought before any meeting of the stockholders at which a quorum is present shall be decided by a vote of a majority in interest of the stockholders of the Compan y present in person or by proxy at such meeting and voting thereon.

Section 7.                      Inspectors of Election.  The Board of Directors, or, if the Board shall not have made the appointment, the chairman presiding at any meeting of stockholders, shall have power to appoint one or more persons to act as inspectors of election at the meeting or any adjournment thereof, but no candidate for the office of director shall be appointed as an inspector at any meeting for the election of directors.

Section 8.                      Shareholder Proposals.  Notice of any proposal by a stockholder which the stockholder desires to submit for a vote at the Company’s annual meeting, other than with respect to the nomination of a candidate for election as a director, must be submitted to the Company’s Secretary at the Company’s registered address no later than 120 calendar days prior to the anniversary of the date of the Company’s proxy materials released to stockholders for the previous year’s annual meeting. The notice must include the name and residence address of the notifying stockholder, the number of shares of the Company owned by the notifying stockholder, and a description of the basis for the proposal. A proposal not submitted in the manner or within the time provided herein shall not be included on the agenda for the annual meeting and shall not be deemed to have been submitted on a timely basis. Stockholder proposals, for purposes of this Section 8, do not include stockholder nominations of candidates for director.  A stockholder intending to nominate a candidate for election as director must separately comply with the advance notice provision set forth in the Company’s Certificate of Incorporation in order for such nomination to be properly brought before the meeting.  The foregoing provision applies to all stockholder proposals regardless of whether the stockholder is seeking to have the proposal included in the company’s proxy statement pursuant to Rule 14a-8.

ARTICLE II

BOARD OF DIRECTORS

Section 1.                      General Powers.  Except as provided in the Certificate of Incorporation or these By-Laws, the affairs, business and property of the Company shall be managed and controlled by the Board of Directors.  The Board may exercise all such authority and powers of the Company and do all such lawful acts and things as are not by statute or the Certificate of Incorporation directed or required to be exercised or done by the stockholders.

Section 2.                      Number of Directors.  The number of directors of the Company shall not be less than three nor more than twelve, and may be changed from time to time by action of not less than a majority of the members of the Board then in office.  At least a majority of the Company’s directors shall be “Independent Directors” (as defined below).

Section 3.                      First Meeting.  The first meeting of each newly elected Board of Directors, of which no notice shall be necessary, shall be held immediately following the annual meeting of stockholders or any adjournment thereof at the place the annual meeting of stockholders was held at which such directors were elected, or at such other place as a majority of the members of the newly elected Board who are then present shall determine, for the election or appointment of officers for the ensuing year and the transaction of such other business as may be brought before such meeting.

Section 4.                      Regular Meeting.  Regular meetings of the Board of Directors, other than the first meeting, may be held without notice at such times and places as the Board of Directors may from time to time determine.

Section 5.                      Special Meetings.  Special meetings of the Board of Directors may be called by order of the Chairman of the Board, the Vice Chairman of the Board or any two directors.  Notice of the time and place of each special meeting shall be given by or at the direction of the person or persons calling the meeting by mailing the same at least two days before the meeting or by telephoning, e-mailing or delivering personally the same at least twenty-four hours before the meeting to each director.  Except as otherwise specified in the notice thereof, or as required by statute, the Certificate of Incorporation or these By-Laws, any and all business may be transacted at any special meeting.

Section 6.                      Attendance by Communication Equipment.  Unless otherwise restricted by the Certificate of Incorporation, members of the Board of Directors or of any committee designated by the Board may participate in a meeting of the Board or any such committee by means of conference telephone, videoconference, web conference, or similar communications technology whereby all persons participating in the meeting can hear each other. Participation in any meeting by such means shall constitute presence in person at such meeting.

Section 7.                      Quorum; Vote. A majority of the directors then in office shall constitute a quorum, for the transaction of business, but less than a quorum may adjourn any meeting to another time or place from time to time until a quorum shall be present, whereupon the meeting may be held, as adjourned, without further notice.  Except as otherwise required by statute, the Certificate of Incorporation or these By-Laws, all matters coming before any meeting of the Board of Directors at which a quorum is present shall be decided by the vote of a majority of the directors present at the meeting.

Section 8.                      Compensation.  A director or member of a committee may serve the Company in any other capacity and receive compensation therefor.  Each director or member of a committee, other than directors who are officers or employees of the Company, may receive for his services as director or member of a committee, compensation (whether in the form of attendance fees, fixed remuneration, or otherwise) in such amount as may be fixed from time to time by the Board of Directors, in addition to reimbursement of traveling or like expenses.

Section 9.                      Executive Sessions.  Members of the Board of Directors who are “Independent Directors” shall meet in executive session at least twice a year. No notice of executive sessions need be given.  As used in these By-Laws, an “Independent Director” shall mean a director of the Company who meets all applicable requirements for independence required by the Securities and Exchange Commission and the securities exchange on upon which the Company’s shares are traded.

ARTICLE III

COMMITTEES

Section 1.                      Executive Committee.  The Board of Directors may, by resolution passed by a majority of the directors then in office, designate from among its members an Executive Committee to consist of three or more members.  The Board may also designate one or more of its members as alternates to serve as a member or members of the Executive Committee in the absence of a regular member or members.  Except as provided in Section 4 of this Article III, the Executive Committee shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Company, a nd the Executive Committee may authorize the seal of the Company to be affixed to all papers which may require it.

Section 2.                      Audit Committee.  There shall be a standing committee of the Board of Directors to be known as the Audit Committee. The members of the Audit Committee shall consist exclusively of Independent Directors. The Audit Committee shall: (i) have complete oversight responsibility for the accounting and financial reporting processes of the Company and for its financial statement audits, (ii) be responsible for appointing, compensating and overseeing the external independent auditor for the Company, (iii) establish procedures for the receipt, retention and treatment of complaints about accounting, internal control, or auditing matters and for the confidential anonymous submissions by employees regarding questionable accounting or auditing issues, (iv) define and on an ongoing basis review with the external independent auditor the scope of audit examinations of the Company, (v) receive the reports of the external independent auditor and meet with the representatives of such auditing firm for the purpose of reviewing and considering questions relating to their examination and such reports, (vi) review the internal accounting and auditing procedures of the Company and the reports of the internal auditors, (vii) directly supervise the work of the internal auditors of the Company who shall report only to the Independent Directors on the Audit Committee and not to any member of the management of the Company, and (viii) perform such other duties as may be deemed necessary from time to time to fulfill its obligations under applicable law and the listing requirements of any stock exchange or over the counter market on which any security of the Co mpany is admitted for trading.

Section 3.                      Nominating, Governance and Ethics Committee. There shall be a standing committee of the Board of Directors to be known as the Nominating, Governance and Ethics Committee. The Nominating, Governance and Ethics Committee shall consist exclusively of Independent Directors. The Nominating, Governance and Ethics Committee shall nominate candidates for election as director and shall make recommendations to the Board of Directors with respect to qualifications of directors.

Section 4.                      Compensation Committee.  There shall be a standing committee of the Board of Directors to be known as the Compensation Committee. The Compensation Committee shall consist exclusively of Independent Directors. The Compensation Committee shall take action and make recommendations to the Board of Directors with respect to the compensation of the executive officers of the Company.

Section 5.                      Other Committees.  The Board of Directors, acting by a majority of the directors then in office, may also appoint from among its own members or otherwise such other committees as the Board may determine, to have such powers and duties as shall from time to time be prescribed by the Board and which, in the discretion of the Board, may be designated as committees of the Board; provided, however, that if an audit committee, nominating committee or compensation committee is formed, each such committee shall contain only Independent Directors (as such term is defined in Article V,  Section 1).

Section 6.                      Quorum and Discharge.  A majority of the members then serving on the committee shall constitute a quorum for the transaction of business of any committee and may fix its rules of procedure.  The Board of Directors may discharge any committee member either with or without cause at any time.

Section 7.                      Powers of Committees.  No committee designated or appointed by the Board of Directors shall have the power or authority of the Board in reference to (a) amending the Certificate of Incorporation, (b) adopting an agreement of merger or consolidation, (c) recommending to the stockholders the sale, lease or exchange of all or substantially all of the Company’s property and assets, (d) recommending to the stockholders a dissolution of the Company or a revocation of a dissolution, (e) amending the By-Laws of the Company, (f) declaring dividends, (g) designating committees, (h) filling vacancies among committee members or (i ) removing officers.  The Executive Committee, or another committee specifically formed for such purpose, shall have the power and authority of the Board to authorize the issuance of shares of capital stock of the Company of any class or any series of any class.

Section 8.                      Committee Meetings.  Regular meetings of any committee designated or appointed by the Board of Directors shall be held at such times and places and on such notice, if any, as the committee may from time to time determine.  Special meetings of any committee designated or appointed by the Board may be called by order of the Chairman of the Board, Vice Chairman of the Board, Chairman of the committee or any two members of any such committee.  Notice shall be given of the time and place of each special meeting by mailing the same at least two days before the meeting or by telephoning, e-mailing or delivering personally the same at least twenty-four hours before the meeting to each committee member.  Except as otherwise specified in the notice thereof or as required by law, the Certificate of Incorporation or these By-Laws, any and all business may be transacted at any regular or special meeting of a committee. The Secretary of the Company shall keep the minutes of the meetings of all committees designated or appointed by the Board of Directors and shall be the custodian of all Company records.

ARTICLE IV

OFFICERS

Section 1.                      Number and Designation.  The Board of Directors shall elect as executive officers a Chairman of the Board, a President, one or more Vice Presidents, a Secretary and a Treasurer, and there may be one or more Vice Chairmen of the Board, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as the Board of Directors may deem necessary.  The Chairman of the Board and the Vice Chairmen of the Board shall be elected from among the directors.  Any two offices, other than Chairman and Vice Chairman, and President and Vice President, may be held by one person, but in any case where the By-Laws or resolutions of the Board of Directors provide for the signature of the incumbents of two or more officers of the Company upon the certificates of stock, notes, checks or other instruments or documents issued by the Company, no one person shall sign in more than one capacity.  The executive officers shall be elected annually by the Board of Directors at its first meeting following the annual election of directors, but in the event of the failure of the Board so to elect any executive officer, such executive officer may be elected at any subsequent meeting of the Board of Directors.  The Board of Directors may at any meeting elect additional Vice Presidents.  Each officer shall hold office until the first meeting of the Board of Directors following the next annual election of directors and until his successor shall have been duly elected and qualified, except in the event of the earlier termination of his term of office through death, resignation, removal or otherwise.  Any vacancy in an executive office may be filled for the unexpired portion of the term of such office by the Board of Directors at any regular or special meeting.

Section 2(a).                      The Chairman of the Board.  The Chairman of the Board shall be an officer of the Company.   The Chairman of the Board: (i) may execute contracts and other instruments in the name of the Company, and appoint and discharge agents and employees;  (ii) shall preside at all meetings of the stockholders and of the Board of Directors; (iii) shall chair the Executive Committee; and  (iv) shall have such other powers and perform such other duties as the Board of Directors may from time to time prescribe.

Section 2(b).                      Chief Executive Officer.  The Chief Executive Officer shall have, subject to the Board of Directors, the Chairman of the Board and the Vice Chairman of the Board, general direction, supervision and management of the business and affairs of the Company.  The Chief Executive Officer: (i) may execute contracts and other instruments in the name of the Company, and appoint and discharge agents and employees; and  (ii) shall have such other powers and perform such other duties as the Board of Directors may from time to time prescribe.

Section 2(c).                      Vice Chairman of the Board.  The Vice Chairman of the Board, if there is one, shall have such of the powers and duties as may be delegated by the Chairman of the Board.  The Vice Chairman of the Board, or if more than one, the Vice Chairmen of the Board: (i) to the extent empowered by the Board, shall perform the duties of the Chairman of the Board in the absence of the Chairman of the Board, or in the event of his inability to act; (ii) shall have such other powers and perform such other duties as the Board of Directors may from time to time prescribe; and (iii) may also execute contracts and other instruments in the name of the Company, and appoint and discharge agents and employees.

Section 2(d).                      President.  The President shall be the Chief Operations Officer of the Company, and, subject to the Board of Directors, the Chairman of the Board and the Vice Chairman of the Board shall direct the operations of the Company.  The President: (i) shall have such other powers and perform such other duties as the Board of Directors may from time to time prescribe; (ii) may also execute contracts and other instruments in the name of the Company, and appoint and discharge agents and employees; and (iii) except as herein otherwise provided, shall perform all other duties incident to the office of President.

Section 2(e).                      Vice Presidents.  Whenever there is more than one Vice President, the Board of Directors shall decide upon the order of their seniority and may designate one or more to be executive Vice Presidents.  In the absence or inability to act of the President, or if the office of President be vacant, the Vice Presidents, in order of seniority, subject to the right of the Board of Directors from time to time to extend or confine such powers and duties, may exercise all the powers of the President.  Each Vice President shall have such other powers and shall perform such other duties as may be assigned to him by the Board of Directors.

Section 3.                      Treasurer.  The Treasurer, subject to the right of the Board of Directors from time to time to extend or confine his powers and duties or assign them to others, shall have general supervision over the care and custody of the funds and securities of the Company and shall deposit the same or cause the same to be deposited in the name of the Company in such bank or banks, trust company or trust companies, and in such safe deposit company or companies or invested in securities of such money market fund or funds, as the Board of Directors or the executive committee may designate, shall have supervision over the accounts of all re ceipts and disbursements of the Company, shall, whenever required by the Board, render or cause to be rendered financial statements of the Company, shall have the powers and perform the duties usually incident to the office of Treasurer, and shall have such other powers and perform such other duties as may be assigned to him by the Board of Directors.

Section 4.                      Secretary.  The Secretary, subject to the right of the Board of Directors from time to time to extend or confine his powers and duties or to assign them to others, shall act as Secretary of all meetings of the stockholders and of the Board of Directors at which he is present, shall have supervision over the giving and serving of notices of the Company, shall be the custodian of the corporate records and of the corporate seal of the Company, shall be empowered to affix the corporate seal to documents, execution of which, on behalf of the Company, under its seal, is duly authorized, and when so affixed may attest the same, sha ll exercise the powers and perform the duties usually incident to the office of Secretary, and shall exercise such other powers and perform such other duties as may be assigned to him by the Board of Directors.  The Secretary shall, if the law so provides, be sworn to the faithful discharge of his duties.

Section 5.                      Other Officers.  The Assistant Secretaries, the Assistant Treasures and all other officers shall hold office during the pleasure of the Board of Directors and shall exercise such powers and perform such duties as may be assigned to each by the Board of Directors.

Section 6.                      Removal and Vacancy.  Any officer or agent shall be subject to removal with or without cause at any time by the Board of Directors.  Vacancies in any office whether occurring by death, resignation, removal or otherwise, may be filled by the Board of Directors.

Section 7.                      Power to Vote Stock.  Unless otherwise ordered by the Board of Directors, the Chairman of the Board and the Vice Chairman each shall have full power and authority on behalf of the Company to attend and to vote at any meeting of stockholders of any corporation in which the Company may hold stock, and may exercise on behalf of the Company any and all of the rights and powers incident to the ownership of such stock at any such meeting and shall have power and authority to execute and deliver proxies, waivers and consents on behalf of the Company in connection with the exercise by the Company of the rights and powers incident to the ownership of such stock.  The Board of Directors from time to time, may confer like powers upon any other person or persons.

ARTICLE V

POLICY REGARDING CORPORATE OPPORTUNITY

AND AFFILIATE TRANSACTIONS

Section 1.                      Definitions.  For the purpose of this Article, the following terms have the meanings set forth below:

“Affiliate” means, with respect to a particular Person, (i) any Person that, directly or indirectly is in control of, is controlled by, or is under common control with, such particular Person, (ii) any Person who is a director, officer or general partner (A) of such particular Person, (B) of any Subsidiary of such particular Person, (C) of any Person described in clause (i) above, (iii) any trust or estate in which such particular Person, or the spouse of any relative of such Person, or any relative of such spouse, has a beneficial interest or as to which such particular Person, or the spouse of any relative of such Person, or any relative of such spouse, serves as trustee or in a similar fiduciary capacity, or (iv) the spouse of any relative of such particular Person, or any relative of such spouse.  For purposes of this definition, (i) “control” of a Person shall mean the power, direct or indirect, (A) to vote 10% or more of the securities having ordinary voting power for the election of directors of such Person or (B) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise; and the terms “controlling” and “controlled by” have meanings correlative to the foregoing and (ii) a “relative” of a Person shall mean an ancestor, descendant or sibling of such Person.

“Independent Director” means a director of the Company who (i) is not an employee or Affiliate of the Company or any of its Subsidiaries (other than by reason of his status as a director of the Company or one or more of its Subsidiaries) and (ii) has no material business or professional relationship with the Company or any Subsidiary of the Company, or any of their Affiliates.  For purposes of this definition, a “material business or professional relationship” means any business or professional relationship with the Company or a Subsidiary of the Company of any of the types described in, and which exceeds any applicable disclosure threshold set forth in, Item 404(b) of Regulat ion S-K.

“Person” means any individual, corporation, partnership, joint venture, incorporated or unincorporated association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof or other entity of any kind.

Section 2.                      Corporate Opportunity.  In the event any corporate opportunity is presented to any director or officer of the Company or any Subsidiary or any Affiliates of such director or officer to acquire or to enter into any business transaction involving any type of business conducted by the Company or that would be significant to the Company, i.e., Flight Instrumentation Components and Systems and related products or systems, such director or officer shall submit such opportunity to the Board of Directors for their review and consideration by appropriate notice in writing promptly after presentation of the opportunity to such directo r or officer and such director or officer shall take no action with respect to such opportunity until the first to occur of (i) a decision by the Board of Directors not to pursue the opportunity so presented by such director or officer and approval of the Board of Directors of such director’s or officer’s participation in such opportunity or (ii) the expiration of thirty (30) days after receipt by the Board of Directors of the notice from such director or officer to the Board of Directors described such opportunity.

Section 3.                      Affiliate Transactions.  The Company shall not, and shall not permit any Subsidiary of the Company to, directly or indirectly, enter into any transaction (including without limitation the purchase, sale, lease or exchange of any property or the rendering of any service) with an officer or director of the Company or of any Subsidiary or an Affiliate of any such officer or director (an “Affiliate Transaction”), unless such transaction shall have been unanimously approved by the Independent Directors and such resolution provides that such Affiliate Transaction complies with the requirements of this Article V.

Section 4.                      Investment Policy.  The Company shall establish an investment policy for the investing of available cash.  Cash held by the Company, to the extent not immediately necessary to fulfill the Company’s needs, shall be invested in certain high-quality short term securities, the choice of which shall be at the reasonable discretion of the treasurer or other chief financing officer of the Company.

Section 5.                      Amendment of this Article.  This Article may only be amended or repealed by approval of the holders of two-thirds of the outstanding shares of the Company’s common stock.

ARTICLE VI

CAPITAL STOCK

Section 1.                      Certificates for Stock.  Certificates or stock of the Company shall be in such form as the Board of Directors may from time to time prescribe and shall be signed by the Chairman of the Board or a Vice Chairman of the Board or the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary.

Section 2.                      Transfer of Stock.  Shares of capital stock of the Company shall be transferable on the books of the Company only by the holder of record thereof, in person or by duly authorized attorney, upon surrender and cancellation of certificates for a like number of shares, with an assignment or power of transfer endorsed thereon or delivered therewith, duly executed, and with such proof of the authenticity of the signature and of authority to transfer, and of payment of transfer taxes, as the Company or its agents may require.

Section 3.                      Ownership of Stock.  The Company shall be entitled to treat the holder of record of any share or shares of stock as the owner thereof in fact and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by law.

ARTICLE VII

MISCELLANEOUS

Section 1.                      Corporate Seal.  The seal of the Company shall be circular in form and shall contain the name of the Company and the year and State of Incorporation.

Section 2.                      Fiscal Year.  The Board of Directors shall have power to fix, and from time to time to change, the fiscal year of the Company.

ARTICLE VIII

AMENDMENT

The Board of Directors shall have the power to make, alter or repeal the By-Laws of the Company subject to the power of the stockholders to alter or repeal the By-Laws made or altered by the Board of Directors.

ARTICLE IX

INDEMNIFICATION

The Company may indemnify any director, officer, employee or agent of the Company to the full extent permitted by law.

EX-99.1

Herley Industries, Inc.

 (the “Company”)

Corporate Governance Guidelines

(September 9, 2010)

Mission of the Board of Directors.  The responsibility of the Company’s Board of Directors (the “Board”) is to review and regularly monitor the effectiveness of the Company’s fundamental operating, financial and other business plans, policies and decisions, including the execution of its strategies and objectives. The Board seeks to preserve and enhance stockholder value over the long term.

The Board believes that its objectives will be best served by following the fundamental corporate governance principles described in this document and the charters of its various committees. Collectively, these principles demonstrate the Board’s accountability and its desire that the Company achieve superior and sustainable business results.

In fulfilling its responsibilities, the Board will consider legal, public policy and ethical standards, the interests of its stockholders and, as appropriate, the interest of its debt-holders, customers, employees, suppliers and the communities in which the Company operates.

These guidelines are not intended to change or interpret any law or regulation, or the articles of incorporation or by-laws of the Company.

1.Role and Functions of the Board of Directors»

.  The primary responsibility of the Board is to employ, monitor and, if applicable, terminate the Chief Executive Officer.  In addition, the Board shall seek to understand the Company’s operations and exercise judicious oversight of management consistent with efforts to preserve and enhance stockholder value.  To fulfill its role, the Board and/or a Board committee must perform the following primary functions:

1.1oversee the conduct of the Company’s business to evaluate whether the business is being effectively and efficiently managed;

1.2review and, where appropriate, approve the Company’s major financial objectives, plans and actions;

1.3review and, where appropriate, approve major changes in, and determinations of, other major issues respecting the appropriate auditing and accounting principles and practices to be used in the preparation of the Company’s financial statements;

1.4assess major risk factors relating to the Company and its performance, and review measures to address and mitigate such risks;

1.5oversee the development and execution of the Company’s strategic plan;

1.6evaluate regularly (at least annually), and monitor on a continuous basis, the performance and approve the compensation of the Chairman of the Board and the Chief Executive Officer and, in conjunction with the Chairman of the Board and the Chief Executive Officer, evaluate regularly (at least annually), and monitor on a continuous basis, the performance of other principal senior executives (including the Company’s Chief Operating Officer, Chief Financial Officer and any executive receiving annual compensation of $200,000 or more); and

1.7plan, in writing, for succession of the Chairman of the Board and the Chief Executive Officer and monitor management’s succession planning for other key executives.

In discharging these obligations, directors may rely on the honesty and integrity of their fellow directors and the Company’s executives and its outside advisors and auditors.  The directors shall have the benefit of (i) reasonable liability insurance on their behalf; (ii) the benefits of indemnification to the fullest extent permitted by law under the Company’s articles of incorporation, by-laws and any indemnification agreements; and (iii) exculpation as provided by state law and the Company’s charter.

The Board may discharge its responsibilities either directly or by delegating them to its committees; provided, however, that (i) the Board may not delegate any of its responsibilities which, under applicable law or the Company’s certificate of incorporation, may not be delegated to a committee of the Board and (ii) notwithstanding any delegation of authority, the Board shall not be permitted to delegate the ultimate responsibility with respect to delegated matters.  The Board and each Board committee shall have the full power and authority to hire, at the expense of the Company, independent financial, accounting, legal or other advisors, as necessary to fulfill their duties, without consulting or obtaining the approval of any officer of the Company.

The Board shall promote policies within the Company that encourage a culture of ethical conduct, openness, honesty, fairness and accountability.  The Chairman, in concert with the Board of Directors, shall exert leadership which establishes an appropriate “tone at the top” for the Company.  These policies also apply to the Board and to relationships among and between the Board, stockholders and employees.  The Board should periodically review and amend these policies, if needed.

The Board recognizes that the actual management of the business and affairs of the Company is to be conducted by the Chairman of the Board, the Chief Executive Officer and other executive officers under their supervision and that, in performing the management function, the Chairman of the Board and Chief Executive Officer and other executive officers are obliged to act in a manner that is consistent with the oversight functions and powers of the Board and the standards of the Company and to execute any specific plans, instructions or directions of the Board.

2.Structure of the Board

2.1Size, Term and Majority Vote.

2.1.1 Size.  As of the date of the adoption of these Guidelines, the Board presently has authorized four (4) directors.  This size is satisfactory under current circumstances, however, it is the intention of the Board that the number of directors will be adjusted upward, from time to time in the future, to reflect the plans and the changing of corporate governance needs of the Company.  During 2010, the Company shall seek to recruit an additional qualified and independent director and, if such candidate is identified and is willing to serve, the Company shall increase the size of its Board to five members and appoint such candidate to the Board on or before the date of its next annual shareholders’ meeting.  The Board believes that it should generally consist of no fewer than four (4) and no more than nine (9) directors.  This range permits diversity of experience without hindering effective discussion or diminishing individual accountability.  In nominating new directors in the future, the Company, in the ordinary course of its communications with significant institutional shareholders, may obtain on a confidential basis, views from such shareholders concerning Board member selection and qualifications, including such issues as the experience or expertise of candidates, in the context of evaluation of candidates, and will consider those views, provided that the determination of candidates’ qualifications and selection of candidates for nomination shall remain within the discretion of the Nominating, Governance and Ethics Committee.  In exercising such discretion, the Nomina ting, Governance and Ethics Committee may consider differences of viewpoints, professional experience, education and skills, as well as ethnicity, gender and national origin.

2.1.2Term.  The Board recognizes that a classified structure previously offered several advantages, such as promoting Board continuity and stability, encouraging directors to take a long-term perspective, and reducing the Company’s vulnerability to coercive takeover tactics.  The Board recognizes, however, that a classified structure may appear to reduce directors’ immediate accountability to stockholders, since such a structure does not enable stockholders to express a view on each director’s performance by means of an annual vote.  The Board also believes that annual elections for all directors is consistent with the Company’s ongoing effort to adopt “best practices” in corporate governance.  In view of the considerations described above, the Board of Directors, in 2008, unanimously determined that it was in the best interest of the Company and its stockholders to eliminate a classified Board structure.   This change to the Board structure was approved by the stockholders in 2010 and is now the policy of the Company.

2.1.3Majority Vote. The Company has adopted a by-law provision that, in uncontested director elections, a director receiving more “withheld” votes than “for” votes must immediately submit a resignation letter to the Board of Directors.   Absent unusual circumstances, it is the policy of the Board that such a resignation letter shall normally be accepted.

2.1.4Nomination Procedures for Directors.  

(a)The Nominating, Governance and Ethics Committee shall consider all candidates as recommended by a stockholder (or group of stockholders) who owns at least 5% of the Company’s outstanding common stock and who continues to own such shares through the date of the applicable meeting (an “Eligible Stockholder”);

(b)An Eligible Stockholder wishing to recommend a candidate must submit the following not less than 90 calendar days prior to the anniversary of the date the proxy was released to the stockholders in connection with the previous year’s annual meeting: (1) a recommendation that identifies the candidate and provides contact information; (2) the written consent of the candidate to serve as a director of the Company, if elected; and (2) documentation establishing that the stockholder making the recommendation is an Eligible Stockholder;

(c)Upon timely receipt of the required documents, the Corporate Secretary will determine if the stockholder submitting the recommendation is an Eligible Stockholder based on such documents. The Corporate Secretary will inform the stockholder of his or her determination; and

(d)If the candidate is to be evaluated by the Nominating, Governance and Ethics Committee, the Corporate Secretary will request a resume, a completed director and officer questionnaire, a completed statement regarding conflicts of interest, a waiver of liability for background check from the candidate and such other information as the Nominating, Governance and Ethics Committee deems necessary or desirable. To evaluate the candidate and consider such candidate for nomination by the Board, such documents must be received at least 30 days prior to the annual meeting for the Nominating, Governance and Ethics Committee to evaluate the candidate and consider such candidate for nomination by the Board. Failure to provide the required i nformation in a timely manner may cause the candidate not to be considered.

2.2Mix of Inside and Independent Directors.  The Board shall be composed of a majority of independent directors.

2.2.1Independent Director Defined.  An “independent director” means a person who fully complies with applicable legal and stock exchange requirements for serving as such, as determined by the Board.  The Board, in making this determination, may add its own enhanced standards of independence to the legal and stock exchange requirements for independence.  Each director’s status under this definition shall be reviewed annually by the Nominating Governance and Ethics Committee, with such Committee being fully and promptly informed as to any developments that might affect the director’s independence. 
60;Each director has an affirmative obligation to inform the Board of any material changes in his or her circumstances, of any relationships that may impact his or her designation by the Board as “independent,” or of any relationships that may create the appearance of a lack of independence.  All independent directors shall only receive directors’ fees as their compensation for Board and/or Board committee service.  The payment of consulting, advisory or other compensatory fees to a director from the Company or one of its affiliates  may negate the director’s independence under applicable NASDAQ independence standards.

2.2.2Management Directors.   The Company’s Chief Executive Officer may be a director; however, as set forth in Section 2.9, it is the policy of the Company that the offices of Chairman of the Board and Chief Executive Officer shall be filled by different individuals.  Other members of management shall not  be considered for Board membership other than in unusual and special circumstances; in such case, the circumstances shall be described in appropriate public disclosures.

2.2.3Charitable Contributions.  Charitable contributions of $25,000 or less made on behalf of the Company shall be approved by the Chairman of the Board.  Charitable contributions exceeding $25,000 in any calendar year to any organization, including an organization which a director is affiliated with in a fiduciary, officer, board or fundraising role, shall be subject to the prior approval of the Nominating,Governance and Ethics Committee; in the case of contributions to director-affiliated organizations, the Committee shall consider the effect of any such contribution on the applicable director’s independence.

2.3Board Membership Criteria. The Nominating, Governance and Ethics Committee is responsible for recommending to the Board the types of skills and characteristics required of directors, based on the needs of the Company from time to time.  This assessment will include issues of relevant experience, intelligence, independence, commitment, compatibility with the Chairman of the Board and the Chief Executive Officer and the Board culture, prominence, understanding of the Company’s business and other factors deemed relevant.  A director must possess personal and professional integrity, have good business judgment, relevant experience and skills and be an e ffective director in conjunction with the full Board in collectively serving the long-term interests of the Company’s stockholders.   Directors must be committed to devoting sufficient time and energy to diligently perform their duties as directors.  The Nominating, Governance and Ethics Committee will confer with the full Board as to the criteria it intends to apply before a search for a new director is commenced.

2.4New Director Candidates. The Board will nominate new directors only from candidates identified, screened and approved by the Nominating, Governance and Ethics Committee.  Any invitation to join the Board shall be extended by the Chairman of the Nominating, Governance and Ethics Committee, or by the Chairman of the Board after approval by the full Board.

2.5Directors Who Materially Change Their Job Responsibility.  Individual directors who retire from their principal occupation, take a new position with a different employer or organization, or materially change the responsibility they held when they were elected to the Board (or now hold, as to present directors) shall promptly notify the Nominating, Governance and Ethics Committee. While such directors will not necessarily be required to leave the Board, the Nominating, Governance and Ethics Committee should, however, review the continued appropriateness of such director’s ongoing Board membership under these circumstances.

2.6Term of Board Service»

.  The Company believes that directors should be knowledgeable and experienced about the Company and that the Company and its stockholders both benefit from Board continuity and stability and by allowing directors to focus on long-term business strategies and results.  Thus, although term limits for Board membership are not necessary; no director should have an expectation of permanent membership.  As an alternative to term limits, the Nominating, Governance and Ethics Committee will formally review each director’s continuation on the Board annually.  This procedure will also allow each director the opportunity to conveniently confirm his or her desire to continue as a member of the Board.

2.7Retirement Age.  The Company has not adopted a maximum age beyond which an individual would not be eligible to serve as a director.  Rather, the age of a potential director, and particularly the potential impact of an individual’s age on such individual’s ability to meet the skills and characteristics required of directors, shall be but one of the factors considered in assessing candidates for Board service.

2.8Board Compensation. Management should report periodically to the Compensation Committee about the status of Board compensation in relation to compensation paid by other comparable companies.  Director fees and benefits should be determined with appropriate reference to the fees and benefits for directors of comparable companies.  A significant portion of each director’s compensation should be in the form of Company equity; at least one-third of non-management directors’ annual retainer shall be paid in stock, stock options, or other equity awards and the preferred form of stock compensation shall be grants of restricted stock, vesting in annua l installments over a term of three years.  Other than in connection with new appointments to the Board, director options shall be granted on a pre-determined set date. Changes in Board compensation, if any, should come at the suggestion of the Compensation Committee.

2.9Board Chairman/Chief Executive Officer. The Board believes that the Company is best served by different individuals serving in the offices of Chairman and Chief Executive Officer.

2.10Other Directorships.  Independent directors are encouraged to limit the number of other boards on which they serve, taking into account potential Board attendance and their participation and effectiveness on the Board.  The Nominating, Governance and Ethics Committee will generally not consider individuals who serve on a large number of public company boards for director candidacy.  Independent directors and the Chairman of the Board and the Chief Executive Officer should also advise the Chairman of the Board and the Chai rman of the Nominating, Governance and Ethics Committee in advance of accepting an invitation to serve on another board of a public company.  No director should serve on a board of a company which is a competitor of the Company (as determined by the Company’s Board of Directors).   Executive officers may serve on the boards of other companies upon notification to the Chairman of the Board  and the Board of Directors.  Notification to the Nominating, Governance and Ethics Committee is required before any executive officer, including the Chief Executive Officer, accepts any directorship with any public company.

2.11Leadership.  In fulfilling their duties, individual directors shall exert their leadership in a restrained manner consistent with the Company’s practices and with then current best practices in corporate governance.

3.BOARD PROCEDURAL MATTERS

3.1Selection of Chairman.   Subject to Section 2.9 above, the Board should be free to elect a Chairman in any manner that it deems best for the Company from time to time.  The Chairman will conduct all regular sessions of the Board and, with input from the Chief Executive Officer and the Board Secretary, as appropriate, set the agenda for Board meetings, subject to the right of each Board member to suggest the inclusion of item(s) on any agenda.

3.2Board Meetings.

3.2.1Agenda.  The Chairman of the Board will establish and distribute in advance the agenda for each Board meeting.  All directors are encouraged to suggest potential items for the agenda up to 48 hours prior to the date of each meeting.  An overall agenda for the full Board and each Committee should be disseminated each year as soon as reasonably practicable following the annual meeting of stockholders.

3.2.2Frequency of Meetings.  The Board will generally meet monthly, with frequency of meetings dependent on matters which require the attention of the Board. In addition, special meetings may be called from time to time as determined by the needs of the business.  At least annually, the Board will consider devoting an extended meeting to a review of the Company’s long term strategic and business plans.

3.2.3Executive Sessions of Independent Directors. The independent directors shall meet in executive sessions in connection with regularly-scheduled meetings, as appropriate.  Such sessions shall be chaired by a lead director, if one has been designated, and, when appropriate, conclude with a discussion with the remaining directors.  The lead director shall be selected by the independent directors.

3.2.4Governance Decisions. Decisions on matters of corporate governance will be made with the approval of a majority of the  directors.

3.2.5Attendance of Non-Directors at Board Meetings. Attendance of any non-director at any Board meeting is subject to the discretion of the Board. Subject to such discretion, the Board encourages management to bring officers and managers into Board meetings from time to time, when such officers and managers can provide additional insight into the matters being discussed and/or have potential as future members of senior management.  Board approval should be sought if the Chairman of the Board wishes to add additional personnel as attendees at Board meetings on a regular basis.  Any person, other than a director, an officer  or c ounsel, who attends a Board meeting shall be formally bound by a confidentiality or non-disclosure agreement enforceable by law, and shall understand that information discussed at a Board meeting constitute material non-public information  for the purpose of compliance with Rule 10b-5 promulgated under the Securities Exchange Act of 1934.

3.2.6Conduct of Meetings. The Chairman of the Board shall conduct Board meetings on the assumption that each director has carefully reviewed all Board materials, and fairly facilitate open, candid, and respectful discussions.  The focus at Board meetings should be strategic and be on “big picture” items.

3.2.7Conflicts of Interest. Each director is required to disclose to the Board (or the Audit Committee) any financial interest or personal interest that he or she has in any contract or transaction that is being considered by the Board (or Audit Committee) for approval.  After such disclosure and responding to any questions the Board may have, the interested director shall leave the meeting while the remaining directors discuss and vote on such matter. The Company’s Audit Committee shall be directly responsible for considering all related party transactions, and determining whether such transactions are fair to the Company and on terms reaso nably available to or from unrelated third parties. In considering such related party transactions, the Audit Committee shall have the sole authority and the full power of the Board to accept or reject such transactions and shall have sole authority to retain such independent legal or other experts as it deems necessary.

3.3Information Provided to the Board; Communications.

3.3.1Pre-Meeting. Information that is important to the matters that will be discussed at Board meetings shall be distributed as far in advance of the meeting as possible so that Board meeting time can be conserved for substantive discussion.

3.3.2Between Meetings. The Chairman of the Board and the Chief Executive Officer should continue to advise the Board candidly of any significant developments between meetings, through a suitable method of communication.

3.3.3Communications. Candid, regular discussion between the directors and the Chairman of the Board, and among directors, is encouraged. The Chairman of the Board shall make full use of the Board’s talents to the extent feasible and appropriate by conferring with directors about Company matters within the directors’ areas of expertise.

3.4Counsel and Advisors.  The Board and each of its Committees may retain outside legal counsel and other advisors at their discretion and at the expense of the Company.

3.5Expectations of Directors.

3.5.1Attendance; Availability.  Each director shall make every reasonable effort to attend each meeting of the Board and any Committee of which the director is a member, and to be reasonably available to management and the other directors for consultation between meetings.  In particular, directors should attend sufficient meetings to avoid falling below the attendance level that would require disclosure in the Company’s annual proxy statement.  A director whose participation falls below the attendance level that would require disclosure in the Company’s proxy statement for two years will be subject to review by the Nominating, Governance and Ethics Committee for continued membership on the Board.Directors also are expected to devote an adequate amount of time and effort to discharge properly their responsibilities.

3.5.2Review of Materials.  Directors should carefully review information distributed to them prior to Board and Committee meetings. If directors have questions either about the materials distributed or Company operations generally that are not likely to be of general interest or relevance to the entire Board, those issues should be discussed by the director with the Chairman of the Board and/or management between Board meetings.

3.5.3Corporate Opportunities. Directors shall make business opportunities relating to the Company’s business available to the Company before pursuing the opportunity for the director’s own or another’s account.

3.5.4Stock Ownership. Directors should be stockholders, and the Board believes that each director should develop a meaningful ownership position in the Company over time.  Thus, as a guideline, the Board suggests that each director, within three years of becoming a director (or within three years of adoption of these Guidelines, as applicable), own stock in the Company in an amount that is at least equal to two years’ annual Board equity retainer fees.

3.5.5Orientation and Education.  When a new director joins the Board, management will provide an orientation program to enable the new director promptly to gain an understanding of the Company and its industry.  The Board, through the Nominating, Governance and Ethics Committee,and the Company’s management will work together to develop and provide appropriate continuing education programs to assist directors in developing and maintaining skills necessary or appropriate for the performance of their responsibili ties.  All directors are encouraged to receive annual director education in subjects relevant to the duties of a director, including the study of corporate governance best practices or ethics.  This education may be as a result of a program planned by the Company or by the director attending a pre-approved seminar, with expenses paid by the Company in accordance the approved Director Expense Policy.  Additionally, each director is expected to take steps reasonably necessary to be adequately informed about the Company and external matters affecting it and to enable the director to function effectively on the Board and on the Committees on which the director serves.  Management shall distribute promptly to directors any analyst or investment banking research reports they receive about the Company.

3.6 Board Evaluations; Assessing the Board’s Performance.  The Board shall conduct a self-evaluation annually. The Nominating, Governance and Ethics Committee shall be responsible for establishing the evaluation criteria and implementing the process for such evaluation.  There shall be regular, candid discussions between the Chairman of the Board and the directors, individually and/or as a group, about how best to maximize each director’s contribution to the Board.  The Chairman of the Board should periodically discuss the Board’s performance and the contributions made by directors, with a view to making fu ll and productive use of directors’ talents and improving the performance of the Board. This discussion should be about the Board’s contribution as a whole and specifically reference areas in which the Board and/or management believes a better contribution could be made.  The purpose of these discussions is to increase the overall effectiveness of the Board, not to target individual directors.  If it appears, however, to the Chairman of the Board  that a particular director’s contribution to the Board is not consistent with the Company’s needs at the time, or the director is disruptive to the smooth functioning of the Board as a whole, he should feel free to hold appropriate discussions with that director and make recommendations (up to and including the removal of the director from the Board) to the Nominating, Governance and Ethics Committee or to the Board as whole, as appropriate.

4.COMMITTEE MATTERS

4.1Number, Titles and Charters of Committees. The current standing Board Committees are (a) Audit, (b) Compensation and (c) Nominating, Governance and Ethics.    This structure meets the Company’s present needs.  The Board may, from time to time, establish or maintain additional committees of the Board.  The committees shall have written charters that set forth the committee’s structure, membership qualifications, purposes, responsibilities, and procedures for appointing and removing committee members.  The charters also shall provide that each committee annually evaluates its performance.  Each Committee s hould review its charter and activities annually, with the assistance of inside or outside counsel and advisers, as appropriate, to make certain that they are consistent with then-current sound governance practices and legal requirements.

4.2Independence of Committees.  All members of the Audit, Compensation and Nominating, Governance and Ethics Committees will be independent directors as determined by the Board in accordance with the aforementioned independence criteria.  The Company shall use its best efforts to include at least one “financial expert” (within the meaning of the rules of the Securities and Exchange Commission and the NASDAQ Stock Market) on the Audit Committee.

4.3Assignment and Rotation of Committee Members.  The Chairman of the Board is responsible, after consideration of the desires of individual directors, for recommending the assignment of directors to various Committees.   Each independent director is expected to serve at all times on at least one, and preferably multiple, Committees.  Consideration will be given to rotating Committee assignments periodically, but rotation should not be mandated, as there may be reasons, at a given point in time, to maintain an individual director’s Committee membership.

4.4Committee Chairs. The Audit, Compensation and Nominating,  Governance and Ethics Committees shall be chaired by independent directors, and all Chairs of Board Committees shall be selected by the Chairman of the Board.  Each Committee Chair should normally have had previous service on the applicable Committees.

4.5Frequency and Length of Committee Meetings.  Each Committee Chair, in consultation with Committee members, will determine the frequency and length of each Committee’s meetings.

4.6Committee Agenda. Each Committee Chair, in conjunction with the appropriate members of the Committee and management, will develop the Committee agenda.  Each Committee will issue annually a schedule of proposed meeting dates and agenda items for the upcoming year (to the degree these items can be foreseen).  These agendas will be shared with the Board.

4.7Attendance at Committee Meetings. Attendance of non-Committee persons at Committee meetings will be at the pleasure of the Committee.  Committees should regularly meet in executive session.

4.8Minutes and Reports. Minutes of each Committee meeting or action will be kept and distributed to the Board; in appropriate cases, the Chairman of a Committee may request that separate resolutions of the Committee be signed by each member of the Committee.  Each Committee will report regularly to the Board on substantive matters considered by the Committee.

4.9Term of Committee Service. Formal term limits for Committee membership are not necessary; however, no Committee member should have an expectation of permanent membership.

4.10Self Evaluation.  Each Committee shall be responsible for annually conducting a self-evaluation.  The Nominating, Governance and Ethics Committee shall be responsible for monitoring the processes and evaluation criteria established by each Committee.  The results of such evaluation will be reported to the full Board.

4.11Advisors.  Each committee shall have the full power and authority to hire independent legal, financial or other advisors as it may deem necessary, without consulting with or obtaining the pre-approval of any Company officer or the Board.

4.12Oversight Policies.

(a) The Company’s CEO and CFO shall be responsible for ensuring that the Company’s accounting policies, including compliance with the requirements of Generally Accepted Accounting Principles (“GAAP”) or of International Financial Reporting Standards (“IFRS”), as currently in effect or as amended, and as implemented and utilized throughout the Company. The CFO shall report to the Board or the Audit Committee on a quarterly basis on compliance with GAAP and/or IFRS.

(b) The Company will also establish a policy that all complaints received by the Company regarding accounting, internal accounting controls, or auditing matters and all the confidential, anonymous submissions by any Company employee regarding questionable accounting, internal accounting controls, or auditing matters shall be brought to the attention of the Audit Committee.

5.MANAGEMENT DEVELOPMENT MATTERS; SUCCESSION PLANNING

5.1Evaluation and Compensation of the Chairman of the Board and the Chief Executive Officer.  The Compensation Committee should develop with the Chairman of the Board and the Chief Executive Officer, and discuss with the Board, appropriate criteria upon which the Chairman of the Board and the Chief Executive Officer’s compensation and performance will be evaluated annually.  The Compensation Committee will recommend to the full Board the Chief Executive Officer’s compensation level based on this evaluation and should meet in executive session to discuss its determinations as to the Chairman of the Board’s and the Chief Executive OfficerR 17;s compensation and overall performance, and, in executive session in which the Chairman of the Board and the Chief Executive Officer participates, in order to discuss the compensation and overall performance of other executive officers.  In fulfilling its duties, the Compensation Committee, as it deems desirable, may engage the services of one or more independent compensation consultants and shall consider potential issues under Section 162(m) of the Internal Revenue Code of 1986, as amended.  The Committee shall seek, within 90 days of the end of the Company’s fiscal year, to (i) conduct annual reviews of the Chairman of the Board, the Chief Executive Officer, the Chief Financial Officer and other executives receiving annual compensation of $200,000 or more and (ii) arrange for payment of bonuses attributable to such fiscal year.

5.2Succession Planning and Management Development.  There shall be an annual report to the Board by the Chairman of the Board and the Chief Executive Officer on succession planning and management development, both short term and long term. The Compensation Committee should monitor issues associated with the Chairman of the Board and the Chief Executive Officer succession and management development and regularly report to the Board on them.  This monitoring process and reporting should include issues associated with preparedness for the possibility of an emergency situation involving senior management, the long-term growth and development of the senior manage ment team and identifying the Chairman of the Board’s and the Chief Executive Officer’s successors.

6.OTHER MATTERS

6.1Policy Against Company Loans. Neither the Company nor any of its subsidiaries shall provide loans, loan guarantees, or otherwise directly or indirectly extend credit to any executive officer of the Company or any director of the Company.  Payment advances or reimbursement for expenses will not be deemed a violation of the foregoing policy.

6.2Board Access to Management. Directors are encouraged to keep themselves informed with regard to the Company and its operations.  Directors shall have full and free access to Company officers and employees.  Any meetings or contacts that a director wishes to initiate may be arranged through the Chairman of the Board and the Chief Executive Officer, the Board Secretary or directly by the director.  Directors shall use their judgment to ensure that any such contact is not disruptive to the Company’s business operations and shall, to the extent that it is not inappropriate, copy the Chairman of the Board and the Chief Execut ive Officer on any written communications between a director and a Company officer or employee.  The Board shall approve any director’s request to have senior Company officers and other personnel regularly attend the Board meetings.  Directors will also have access to the Company’s independent advisors following consultation with the Chairman of the Board and the Chief Executive Officer, to the extent not inappropriate.  As a goal of the Company, when feasible, a team consisting of at least two directors with appropriate members of management, each as determined by the Chairman, shall personally visit, on annual basis, (i) each division or subsidiary of the Company and (ii) significant customers of the Company identified by the Chairman.

6.3Board Interaction With Third Parties.  Management should coordinate all contacts with outside constituencies, such as the press, customers, investors, analysts or the financial community. The Company, when dealing with the financial markets, media outlets and other third parties, shall communicate only through authorized spokesmen and representatives of the Company, including directors and members of management, shall comply with applicable policies adopted by the Company, whether under Regulation FD promulgated by the Securities and Exchange Commission or otherwise.  If an individual director intends to meet or otherwise substantively communicate with th ese constituencies about Company matters, this should generally be done only after consulting with the Chairman of the Board and the Chief Executive Officer.

6.4Reports of Irregularities.  Complaints or reports under the Company’s Corporate Code of Business Ethics received by the Company, through its Hotline or otherwise, shall be submitted to the Chairman of the Nominating, Governance and Ethics Committee and legal counsel who shall then refer such complaint or report to the appropriate body or party within the Company.  As set forth in Section 4.12(b), any reports of concerns regarding accounting, internal auditing controls or other irregularities or concerns, whether financial or otherwise, shall be brought to the attention of the Chairman of the Audit Committee.  These reports are confidential and may be anonymous if made using the Anonymous Reporting Hotline maintained by the Company. The Board shall be notified of these reports at every Board meeting or sooner, if necessary.

6.5Amendments of Guidelines. The Nominating, Governance and Ethics Committee will review these Guidelines at least annually to ensure that they remain suitable for the needs of the Company.  The Nominating, Governance and Ethics Committee will recommend any needed changes to the Board.

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