-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JcuOO8J3WOwPyl1GZO3k9dYWRXcORRGfQkZ+Vc0Zop9hl//1U6a6y2M9A6xt7S0V uyG7X58I8/Co56WAyG8rmA== 0001201800-06-000224.txt : 20061013 0001201800-06-000224.hdr.sgml : 20061013 20061013100022 ACCESSION NUMBER: 0001201800-06-000224 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20061012 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Termination of a Material Definitive Agreement ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20061013 DATE AS OF CHANGE: 20061013 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERLEY INDUSTRIES INC /NEW CENTRAL INDEX KEY: 0000047035 STANDARD INDUSTRIAL CLASSIFICATION: SEARCH, DETECTION, NAVIGATION, GUIDANCE, AERONAUTICAL SYS [3812] IRS NUMBER: 232413500 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-05411 FILM NUMBER: 061143419 BUSINESS ADDRESS: STREET 1: 101 NORTH POINTE BOULEVARD CITY: LANCASTER STATE: PA ZIP: 17601-4133 BUSINESS PHONE: 7177358117 MAIL ADDRESS: STREET 1: 101 NORTH POINTE BOULEVARD CITY: LANCASTER STATE: PA ZIP: 17601-4133 FORMER COMPANY: FORMER CONFORMED NAME: HERLEY MICROWAVE SYSTEMS INC DATE OF NAME CHANGE: 19900510 FORMER COMPANY: FORMER CONFORMED NAME: HERLEY INDUSTRIES INC DATE OF NAME CHANGE: 19831103 8-K 1 hrly8koct12-2006.txt 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: October 12, 2006 (Date of earliest event reported) HERLEY INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Delaware 0-5411 23-2413500 (State or other (Commission (IRS Employer jurisdiction of File Number) Identification incorporation) Number) 101 North Pointe Boulevard, Lancaster, Pennsylvania 17601-4133 (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code (717) 735-8117 ____________________________________________________ (Former name or former address, if changed since last report.) 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 (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b) [ ] Pre-commencement communications pursuant to Rule 13e-4c under the Exchange Act (17 CFR 240.13e-4c) Item 1.01 Entry into a Material Definitive Agreement (a) On October 12, 2006, the Company entered into an Administrative Agreement with The OGC Acquisition Integrity Office, Department of Navy. With this agreement, the suspension preventing new contract awards at manufacturing locations in Lancaster, Pennsylvania, Woburn, Massachusetts and Farmingdale, New York since June 8, 2006, has been lifted, and the Company is now able to resume its normal business dealings with both the Department of Defense and prime contractor customers. The Administrative Agreement provides, among other things, for the Company to fully implement its compliance program and requires that the Company disassociate itself from its former Chairman, Lee N. Blatt except as may be required to fulfill the terms of its 2003 indemnification agreement with Mr. Blatt and the 2006 agreement with Mr. Blatt terminating his employment. Item 1.02 Termination of a Material Definitive Agreement Effective October 12, 2006, Lee N. Blatt, co-founder and former Chairman of the Company, left the Company after 41 years of service. The Company and Mr. Blatt entered into an agreement terminating his employment agreement and ending his employee relationship with the Company. The agreement provides that in full satisfaction of all prior, current and future obligations to Mr. Blatt under the employment agreement or otherwise, Mr. Blatt is to receive a lump sum payment in the sum of $3 million, and thereafter the monthly sum of $100,000 commencing on January 1, 2007, and continuing thereafter on the first day of each month for sixty-four (64) consecutive months through April 1, 2012 and the sum of $61,528 on May 1, 2012. Payments are through a non-interest bearing promissory note. Mr. Blatt also is to receive his annual bonus for fiscal 2006 and certain additional benefits under the agreement, including medical reimbursement and insurance. Item 9.01 Financial Statements and Exhibits (d) Exhibits 10.1 Administrative Agreement between the Department of the Navy, on behalf of the Department of Defense, and Herley Industries, Inc. 10.2 Agreement between Herley Industries, Inc. and Lee N. Blatt effective October 12, 2006. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. HERLEY INDUSTRIES, INC. By: /s/ John M. Kelley ----------------------- John M. Kelley President Dated: October 13, 2006 EX-10.1 2 hrly8koct06ex10-1.txt ADMINISTRATIVE AGREEMENT AGREEMENT BETWEEN HERLEY INDUSTRIES, INC. AND THE DEPARTMENT OF THE NAVY 1. This Agreement is entered into between the Department of the Navy, on behalf of the Department of Defense, and Herley. The sole purpose of this Agreement is to evince that Herley is presently responsible to contract with the Federal Government by ensuring that Herley has and will continue a program of acceptable contracting practices and procedures, and by establishing and implementing a program of compliance reviews, audits, and reports. For purpose of this Agreement, Herley shall mean Herley as a body corporate, its predecessors, successors, affiliates, subsidiaries, and/or divisions and all owners, directors, officers, employees and/or consultants of any of the aforesaid entities. 2. This Agreement affects only those causes for suspension that are stated in the Navy's Notice of Suspension dated June 9, 2006, attached hereto as Annex A (hereinafter "the Notice"). Except as provided in paragraph 16, or as otherwise authorized in writing by the Suspending Official, or an appointee thereof (hereinafter collectively "the Navy Suspension Authority"), this Agreement shall not be used for any purpose with regard to any criminal, civil, or administrative charge, claim, or action by or against Herley related to or arising out of any criminal or civil investigation conducted by any component of the Department of Justice or the Department of Defense. 3. By this Agreement, Herley recognizes its corporate responsibility to ensure that Herley fully complies with all federal procurement laws and regulations when contracting, directly or indirectly, with the United States Government. In this regard, all aspects of Herley's corporate and business operations shall be conducted according to the highest code of corporate ethics, generally prevailing lawful and honest behavior, and the guidelines set by the letter and spirit of this Agreement. 4. To fulfill its corporate responsibilities, Herley has begun and shall, in accordance with the schedule set forth in this Agreement, fully implement a Compliance Program by which Herley can and will adhere to lawful and ethical procedures and practices in all areas of and relating to its provision of goods and services as a Government contractor and/or subcontractor. This Compliance Program shall have the following components: A. A WRITTEN CODE OF CONDUCT: Herley has established a written Corporate Code of Business Ethics which provides notice to all employees that the highest standard of business ethics is mandated. A copy of the Corporate Code of Business Ethics is attached as Annex B. The signature of the Navy Suspending Official on this Agreement shall signify acceptance of the current Corporate Code of Business Ethics. 1. The Corporate Code of Business Ethics shall be maintained, reviewed on an annual basis by Herley's Vice President (VP) Administration and Governance and duly appointed legal counsel, and updated as required for compliance with statutory and/or regulatory changes. 2. All Herley directors, officers, employees, and consultants shall be required to sign a certificate stating that they have read the Corporate Code of Business Ethics and agree to abide by its provisions on a yearly basis. B. AN ETHICS AND COMPLIANCE OFFICER: Herley has established and shall, for at least the duration of this Agreement, maintain a position of VP Administration and Governance, designated as the Ethics and Compliance Officer. 1. The Ethics and Compliance Officer reports to and is responsible to the CEO and Board of Directors of Herley. 2. The identification and qualifications of the current Ethics and Compliance Officer are set forth in Annex C. The signature of the Navy Suspending Official on this Agreement shall signify acceptance of the current Ethics and Compliance Officer. 3. Should the current or any subsequently appointed Ethics and Compliance Officer leave the position, that fact shall be reported to the Navy Suspension Authority, in writing, within 10 days of said leaving. A replacement shall be selected by Herley and reported to the Navy Suspension Authority within forty-five calendar days of said leaving. Appointment of a replacement Ethics and Compliance Officer shall be subject to approval by the Navy Suspension Authority, which approval shall be solely within the discretion of the Navy Suspension Authority. Denial by the Navy Suspension Authority of approval of any replacement Ethics and Compliance Officer shall be a "Failure by Herley" as the phrase is used in paragraph 12 of this Agreement. 4. The Ethics and Compliance Officer shall assist Herley and the Governance and Ethics Committee of the Board of Directors in identifying and reporting violations of its Corporate Code of Business Ethics. 5. The Governance and Ethics Committee of the Board of Directors, in conjunction with the Ethics and Compliance Officer, shall investigate all instances of suspected misconduct and shall report in writing the findings to the Board of Directors for management response. Said management response shall be in writing and shall be provided to the Ethics and Compliance Officer within thirty days of the receipt by management of the Ethics and Compliance Officer's report. Both the Governance and Ethics Committee of the Board of Directors and Ethics and Compliance Officer's report and management's response shall be provided to the Navy Suspension Authority in time to be received within ten working days of when said response was created. 6. The Ethics and Compliance Officer shall, within 10 working days after the end of each fiscal quarter (July, October, January and April), prepare and deliver to the Navy Suspension Authority a Quarterly Report, which shall include a synopsis of each instance of suspected and/or confirmed misconduct which became known to the Ethics and Compliance Officer or the Governance and Ethics Committee of the 2 Board of Directors during the fiscal quarter. This synopsis shall be made without regard to the degree to which the Ethics and Compliance Officer has been able, as of the due date of the report, to investigate the misconduct. This synopsis shall include disclosure of any remedial action taken to date. 7. The Quarterly Report shall also include: (1) All instances of disciplinary action for violations of the Corporate Code of Business Ethics, Government Contracts Overview, or Truth In Negotiations Act Policy; (2) all known, ongoing criminal investigations; (3) all known qui tam suits; (4) all known or suspected defective pricing cases; (5) all hotline reports received by the Ethics and Compliance Officer including a description of the complaint and any remedial action taken or planned; (6) a summary of audit findings as required by paragraph 4.E.5.c.; (7) reports of new employee training as required by paragraph 4.F.4; and (8) any other matter which might affect Herley's present responsibility status, including but not limited to actual or potential suspension and/or debarment actions by other Government and quasi-governmental agencies. C. A HOT LINE: Herley has established and shall, for at least the duration of this Agreement, maintain a "hot line" to facilitate the reporting of misconduct by or within Herley. The policies and procedures of this component are fully presented in Annex D. Execution of this Agreement by the Navy Suspending Official shall evidence approval of this component by the Navy Suspension Authority. D. WRITTEN CONTRACTING POLICIES AND PROCEDURES: Herley has established written contracting policies and procedures through its Government Contracts Overview and Truth In Negotiations Act Policy. These policies and procedures contain the regulatory standards and acceptable practices for doing business with the Government and/or Government prime contractors, and shall be applied to all of Herley's business dealings involving Government contracts or subcontracts. Copies of the Government Contracts Overview and Truth In Negotiations Act Policy are attached as Annexes E and F respectively. The signature of the Navy Suspending Official on this Agreement shall signify acceptance of the current Government Contracts Overview and Truth In Negotiations Act Policy. 1. The Navy Suspension Authority may, at its sole discretion, approve or disapprove of any subsequent revisions to the Government Contracts Overview and Truth In Negotiations Act Policy. 2. The Navy Suspension Authority approval shall be deemed given if written notice of denial has not been mailed, by USPS Return Receipt Requested service, to Herley by close of business on the fortieth calendar day following receipt by the Navy Suspension Authority of Herley's Audit and Governance Compliance Review Procedures. Failure to gain Navy Suspension Authority approval of the Audit and Governance Compliance Review Procedures Procedure within the time stated in this paragraph shall be a "Failure by Herley" as the phrase is used in paragraph 12. 3 E. WRITTEN AUDIT AND COMPLIANCE REVIEW PROCEDURES. Herley shall establish and, for at least the duration of this Agreement, maintain Audit and Compliance Review Procedures. 1. An outline of Herley's Audit and Compliance Review Procedures is set forth in the attached Annex G. 2. The full version of Herley's revised Audit and Compliance Review Procedures shall be submitted in time to reach the Navy Debarring Authority not later than December 31, 2006, and shall, if approved, replace the outline as Annex G. 3. The Navy Suspension Authority may, at its sole discretion, approve or disapprove of Herley's Audit and Compliance Review Procedures. 4. The Navy Suspension Authority approval shall be deemed given if written notice of denial has not been mailed, by USPS Return Receipt Requested service, to Herley by close of business on the fortieth calendar day following receipt by the Navy Suspension Authority of Herley's Audit and Compliance Review Procedures. Failure to gain Navy Suspension Authority approval of the Audit and Compliance Review Procedures within the time stated in this paragraph shall be a "Failure by Herley" as the phrase is used in paragraph 12 of this Agreement. 5. In addition to any other provision that the Audit and Compliance Review Procedures may have, the Audit and Compliance Review Procedures shall provide for yearly audits of each procedure that is a component of this Compliance Program. a) The audits shall be conducted by the Ethics and Compliance Officer in conjunction with the appropriate Herley management personnel. b) The audits shall begin no earlier than December 1, and shall be completed no later than December 31 of each calendar year during the term of this Agreement. The 2006 audit shall be completed by December 31, 2006, or within 30 days of approval of Herley's Audit and Compliance Review Procedures if such procedures are submitted on or after December 2, 2006. c) A report, which describes and discusses the findings made during the audits, shall be part of the Ethics and Compliance Officer's Quarterly Report for the quarter during which the audits are conducted. F. IMPLEMENT RECURRING, CLASSROOM STYLE TRAINING: Herley shall create and implement a curriculum of classroom style training designed to familiarize each of its directors, officers, employees, and consultants with the concepts and precepts of each component of this Compliance Program. This training shall begin immediately and shall be ongoing, pursuant to the published training schedule. 4 1. The outline of the curriculum to be used for training with regard to each of the components of the Compliance Program is attached hereto as Annex H. The full version of the curriculum shall be submitted in time to reach the Navy Suspension Authority not later than December 31, 2006, and shall if approved, replace the outline as Annex H of this Agreement. 2. The Navy Suspension Authority may approve or disapprove of the curriculum, in whole or in part, at its sole discretion. 3. The Navy Suspension Authority approval shall be deemed given if written notice of denial has not been mailed, by USPS Return Receipt Requested service, to Herley by close of business on the fortieth calendar day following receipt by the Navy Suspension Authority of Herley's Audit and Compliance Review Procedures. Failure to gain Navy Suspension Authority approval of the training curriculum within the time stated in this paragraph shall be a "Failure by Herley" as the phrase is used in paragraph 12 of this Agreement. 4. In addition to any other training they may receive, each director, officer, employee, and/or consultant who misses the training given on the dates indicated on the Schedule, and any director, officer, employee, and/or consultant who joins, is hired by, or contracts with Herley after said training is completed shall be required, within thirty days of their association with Herley, to read the course syllabus and pass a written test on its salient contents. Each person who completes the reading required by this paragraph shall sign a certification that the reading has been completed. Each such certification and the completed test taken by each such person shall be maintained in a clearly identified file by the Ethics and Compliance Officer. In addition, the Ethics and Compliance Officer shall, as part of each Quarterly Report, identify each such person, state the date when the person joined Herley, and state whether the person has successfully met the training requirements stated in this paragraph. 5. In addition to any other training, each Herley director, officer, employee, and consultant shall be informed of any change to any component of this Compliance Program, which took place since the next previous training session. 6. Herley has contracted with Professor Ralph Nash to review the Ethics and Training Programs and make a report of his Conclusions and Recommendations. This Report will be submitted directly to the Navy Suspension Authority with a copy to the VP Administration and Governance not later than December 31, 2006. Herley will incorporate any suggested changes or improvements made by Professor Nash into its Programs. 5. Herley further agrees to: A. Complete all compliance actions identified by this Agreement on or before the date stated in this Agreement. 5 B. Act in good faith and adhere to the policies and procedures described in paragraph 4 of this Agreement in all of its dealings with the Government. C. Hire an outside entity to survey/interview Herley's employees about the organizational culture related to ethics, specifically the atmosphere on reporting misconduct within Herley on or before December 31, 2006. Herley will provide a report of the survey/interview results to the Navy Suspension Authority on or before January 31, 2007. D. Include an ethics and compliance component in the performance evaluation criteria of management level employees. Herley's Executive Performance Appraisal - Ethics, is attached as Annex I. E. Herley's management shall, within ten (10) working days after the end of each fiscal quarter prepare and provide a report to the Navy Suspending Official, or his designee, describing Herley's implementation of this Agreement. F. Allow designated representatives of the Navy Suspension Authority to interview Herley personnel and to examine Herley's financial books, records, and other company documents for the purpose of evaluating Herley's compliance with the terms of this Agreement. Such materials described above shall be made available by Herley after reasonable notice for inspection, audit and/or reproduction, provided, however, the Navy Suspension Authority shall not be entitled to examine documents properly subject to the attorney-client or attorney work product privileges, nor to copy: (1) Documents containing technical data or computer software, except in accordance with government contract data rights provisions, or (2) Documents containing trade secrets, or (3) Financial records. G. In addition to the reports made pursuant to paragraphs 4.B. and 5.E., disclose, within 30 calendar days of its alleged occurrence, to the Department of Defense and to the prime Government customer if such customer is not a DoD component, all instances in which there are reasonable grounds to suspect that Herley, its directors, officers, employees, consultants, suppliers and/or Government personnel have violated Federal laws or regulations relating to U.S. Government procurements. Further, Herley shall take immediate corrective measures to remedy the matter disclosed, and to notify the Department of Defense, and the prime Government customer, if the matter relates to a non-DoD contract, of the corrective action taken and Herley's opinion regarding any impact the matter may have on the Government. H. Cooperate fully with any investigation by the Department of Justice or the Department of Defense in connection with any matter not subject of the Indictment of which Herley knows or learns in the future. I. Upon a conviction or civil judgment of Herley for violation of any Federal criminal statute, take appropriate disciplinary action against all responsible individuals. J. Upon an indictment of, or the entering of a guilty plea or plea of nolo contendere by any director, officer, employee or consultant of Herley for violation of any criminal statute, which violation occurred in connection 6 with the individual's performance of duties for or on behalf of Herley, immediately remove the director, officer, employee or consultant from active status with the Company relating to any dealings with the U.S. Government. K. Upon an unappealed conviction of, or after an unsuccessful appeal by any director, officer, employee or consultant of Herley for violation of any criminal statute, which violation occurred in connection with the individual's performance of duties for or on behalf of Herley, take prompt action to terminate the employment of such officer, employee or consultant, or as appropriate to remove such director from the Herley Board of Directors in recognition of Title 10, U.S.C. ss. 2408. L. Treat all costs associated with the termination, severance and/or removal of any director, officer, employee or consultant of Herley under paragraph K, above, as unallowable for Federal Government Contract purposes. 6. During the term of this Agreement, Herley shall not knowingly employ, engage or accept the services of an individual who is listed by a Federal Agency as debarred, suspended, or otherwise ineligible for Federal contracting. Reasonable inquiry shall be made into the suspension/debarment status of any potential employee or consultant prior to the offer of employment or engagement of services. Further, Herley shall promptly terminate the employment of or contract for services with any individual who was suspended or debarred as of the effective date of their association with Herley. Moreover, Herley shall immediately remove such individual from responsibility for or involvement with Government contract matters until the resolution of any question there might be regarding their suspension or debarment status as of the time of their association with Herley. 7. During the term of this Agreement, Herley shall not knowingly enter into any subcontract or other business relationship relating to Federal Government contracts with any individual or business entity listed as debarred, suspended, or otherwise ineligible for contracting by a Federal Agency (hereinafter "listed contractor") without prior approval by the Navy Suspension Authority. A. Herley shall make reasonable inquiry into the listed contractor status of each prospective business associate. B. Whenever the inquiry required by the preceding paragraph 7.A reveals that the prospective business associate is a listed contractor, Herley shall submit a notice to the Navy Suspension Authority in form and content as specified in FAR 9.405-2(b). C. Herley shall also give written notice of the prohibition effected by paragraph 7 to each prospective business associate. 8. Herley expressly agrees and represents that Lee N. Blatt is not a director, officer, employee or consultant of Herley and that Herley will not conduct any business with Mr. Blatt during the term of this Agreement except as may be required to defend itself against the Indictment, to fulfill the terms of its Indemnification Agreement with Mr. Blatt dated May 21, 2003, or to fulfill the terms of its Agreement with Mr. Blatt dated September 27, 2006. Further, Herley 7 expressly agrees and represents that Mr. Blatt will not beneficially own, directly or indirectly, any Herley stock during the term of this Agreement, unless such shares are placed in a voting trust approved in advance by the Navy Suspension Authority. Failure by Herley to implement and enforce the provisions of this paragraph throughout the term of this Agreement to the sole satisfaction of the Navy Suspension Authority shall be a "Failure by Herley" as the phrase is used in paragraph 12 of this Agreement 9. In addition to those costs stated in paragraphs 5.L and 10, Herley agrees that the costs described below shall be unallowable for United States Government contract purposes and shall not be charged directly or indirectly to any such contract or subcontract: A. All costs of performing the actions set forth in this Agreement accomplished by Herley subsequent to its learning of the investigation that resulted in the suspension. B. All costs of legal services whether performed by in-house or private counsel, administrative and clerical services, services of accountants and consultants, salaries and wages of employees, officers, and directors, travel, and any costs directly related to the aforesaid, incurred in the implementation of and/or continued compliance with the terms of this Agreement. C. The Navy agrees that if its policy with respect to cost allowability is changed in the future, the Navy Suspension Authority will consider amending this Agreement to incorporate the revised policy. 10. Within thirty days of the effective date of this Agreement, Herley will remit the sum of $5,000, made payable to the Treasury of the United States, as and for final payment of those investigative and administrative costs incurred, or to be incurred, by the Government because of the costs of investigating the charges made in the Indictment to the extent necessary to determine the administrative remedies necessary for the protection of the Government under FAR 9.4, and of monitoring, reviewing, enforcing, and administering this Agreement. 11. Except as provided in paragraph 16, the execution of this Agreement by the Navy in no way waives any criminal, civil, contractual, or administrative remedy or right that the Government may have for the acts described in the Notice, or for any other conduct that would give rise to such remedies. 12. Failure by Herley to meet any of its obligations under the terms or spirit of this Agreement, not cured to the reasonable satisfaction of the Navy Suspension Authority within 20 working days, or as otherwise permitted by the Navy Suspension Authority after receipt by Herley of written notice of such failure, shall constitute a cause for debarment subject to the procedures established by the Federal Acquisition Regulation and any other applicable statute or regulation. 13. By execution of this Agreement, Herley releases the United States, its employees, agents, and instrumentalities, in both official and person capacities, of any and all liability arising out of or otherwise related to this Agreement. Further, Herley agrees not to file any claim against the United States, its employees, agents, and instrumentalities, in both official and personal capacities, in any forum or jurisdiction, with regard to any matter arising out of or otherwise related to this Agreement. 8 14. By execution of this Agreement, Herley avers that any adverse action taken or to be taken against any Herley director, officer, employee, consultant, or agent, with regard to any matter arising out of or related to the facts and circumstances set forth in the Notice, are the result solely of Herley's initiatives and decisions, and are not the result of any action by or on behalf of the United States, its employees, agents or instrumentalities. 15. Herley agrees to indemnify the Government against, and hold the Government harmless from, any and all claims, liabilities, obligations, and causes of action of whatsoever kind or nature for injury to, or death of, any person, and for any injury or damage to or destruction of any property, arising out of or as a result of the facts which form the basis for this Agreement, even if the Government's liability to any person arises out of the acts or omissions of the Government, its employees, agents, invitees, or representatives of any other description whatsoever. 16. In recognition of the actions by and covenants of Herley set forth herein, the Navy, on behalf of the Department of Defense, will terminate Herley's suspension and will not debar Herley based upon the facts and for those causes set forth in the Notice; provided, however, the Navy retains the right to take appropriate administrative action, if necessary, 1) upon learning additional facts relating to the Indictment that have not been released by the U.S. Attorney as of the date of this Agreement or are currently subject to Rule 6(e) of the Federal Rules of Criminal Procedure, or 2) in the event of any conviction, guilty plea, or plea of nolo contendere resulting from the pending Indictment. 17. This Agreement is a public document and may be distributed by the Navy throughout the Executive Branch of the Government and to other interested parties in accordance with the requirements of the Privacy Act and the Freedom of Information Act. 18. Modification to this Agreement may be made but shall have no effect until the terms of the Modification are expressly incorporated in a writing, which has been executed by both parties. Neither party shall seek or accept the benefit of a judicial or quasi-judicial order directing the other to execute a writing, which would, if executed, modify this Agreement. 19. For purposes of interpretation of this Agreement or any part hereof by any court of competent jurisdiction (or any other judicial or quasi-judicial body), this Agreement shall be deemed to have been drafted equally by all parties hereto. 20. This Agreement shall become effective on the date of the last signature hereto and shall continue hereafter for a period of three (3) years or until settlement or adjudication of the Indictment, whichever is later, unless shortened or extended by written Agreement of the parties. In addition, should Herley for any reason cease to be in full compliance with the letter and spirit of this Agreement, this Agreement shall be extended for a period of three years following reestablishment of full compliance as determined by the Navy Suspension Authority. 9 21. This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, oral or written, with respect to the subject matter hereof. This Agreement shall inure to the benefit of, and be binding upon, the parties and their respective successors and assigns. October 11, 2006 /s/ Myron Levy - ------------------- ----------------------------------------------------- Date Myron Levy Chairman and Chief Executive Officer Herley Industries, Inc. October 11, 1006 /s/ John M. Kelley - ------------------- ----------------------------------------------------- Date John M. Kelley President Herley Industries, Inc. October 11, 2006 /s/ K. J. Purcell - ------------------- ----------------------------------------------------- Date Kevin J. Purcell, CPA Vice President, Chief Financial Officer Herley Industries, Inc. October 11, 2006 /s/ Charles L. Pourciau, Jr. - ------------------- ------------------------------------------------------ Date Charles L. Pourciau, Jr. Vice President Administration and Governance Herley Industries, Inc. October 12, 2006 /s/ Mark O. Wilkoff - ------------------- ------------------------------------------------------ Date Mark O. Wilkoff Suspending and Debarring Official Department of the Navy EX-10.2 3 hrly8koct06ex10-2.txt AGREEMENT AGREEMENT AGREEMENT made as of this 27 day of September, 2006 by and between HERLEY INDUSTRIES, INC., a Delaware corporation, with its principal office located at 101 North Pointe Boulevard, Lancaster, Pennsylvania 17601 (the "Company") and LEE N. BLATT, residing at 734 Yokum Pond Road, Becket, Massachusetts 01223 ("Blatt"). WHEREAS, Blatt, a founder of the Company, has been its Chairman for approximately 41 years; and WHEREAS, the Company and Blatt entered into an employment agreement dated as of July 29, 2002, as modified on December 3, 2003 (the "Employment Agreement") which amended and restated in its entirety his prior employment agreements; and WHEREAS, on June 6, 2006 the Company and Blatt were indicted on multiple charges in connection with three government contracts completed in October 2002 aggregating revenue of approximately $3.9 million (the "Indictment"); and WHEREAS, on June 8, 2006, as a result of the Indictment, Blatt voluntarily resigned his positions as Chairman and director of the Company; and WHEREAS, on June 9, 2006 the U.S. Government as a consequence of the Indictment, suspended the Company from engaging in any new business with the U.S. Government in its principal manufacturing facilities located in Lancaster, Pennsylvania, Farmingdale, New York and Woburn, Massachusetts ("Manufacturing Facilities"); and WHEREAS, the Company has been negotiating with the U.S. Government for purposes of entering into an administrative order removing these suspensions ("Administrative Order") in order to enable the Manufacturing Facilities to enter into new contracts with the U.S. Government; and WHEREAS, as a condition to entering into the Administrative Order, the U.S. Government has mandated that the Company terminate its employee relationship with Blatt; and WHEREAS, under the Employment Agreement, the only basis for termination by the Company would be "without cause" which would result in an immediate lump sum payment to Blatt of $9,461,528 in addition to other substantial benefits; and WHEREAS, after negotiations between the Company's Compensation Committee and Blatt, Blatt has agreed to terminate the Employment Agreement on terms more beneficial to the Company than otherwise mandated under its terms, including a long-term payout without interest. WHEREAS, this agreement shall be effective only upon the effective date of the Administrative Order ("Effective Date"). NOW, THEREFORE, based upon the mutual covenants contained herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, the Company and Blatt agree as follows: 1. In full satisfaction of all prior, current and future obligations to Blatt under the Employment Agreement or otherwise, whether accrued or otherwise (except for rights of, or obligations to, Blatt or his affiliates in connection with his or their ownership of the Company's equity securities "Ownership Rights") the parties hereby agree as follows: (a) On the Effective Date, Blatt shall receive a lump sum payment in the sum of $3,000,000.00 and shall thereafter receive the monthly sum of $100,000.00 commencing on January 1, 2007 and continuing thereafter on the first day of each month for sixty-four (64) consecutive months through April 1, 2012 and the sum of $61,528.00 on May 1, 2012,, as more fully set forth in the non-interest bearing promissory note annexed hereto as "Exhibit A" and incorporated by reference herein ("Promissory Note"). (b) Blatt shall receive his annual bonus for the fiscal year ended July 31, 2006 in accordance with the terms of paragraph 4 of the Employment Agreement. (c) Blatt shall continue to receive medical care reimbursement and insurance, including life insurance payments, in accordance with the terms of paragraphs 9(b) and 10(f)(ii)(C) of the Employment Agreement. (d) With respect to any outstanding options previously issued to Blatt, it is hereby acknowledged that all of such options are currently vested and exercisable and that such options shall continue to be exercisable by him or, following his death, by his designated beneficiaries, on or before the expiration date of the specific option, i.e., all five (5) year options shall be exercisable on or before five years from date of grant and all ten (10) year options shall be exercisable on or before ten years from date of grant. 2. In the event of a "change of control" of the Company as defined in paragraph 1(d) of the Employment Agreement, all remaining payments under the Promissory Note shall immediately become due and payable. 3. (a) Blatt covenants, represents and agrees that the provisions of paragraph 14 of the Employment Agreement shall survive this agreement and continue in full force and effect. (b) Blatt covenants, represents and agrees that during the period he receives payments hereunder and for a period of one year thereafter, and provided the Company is not in breach of this agreement, he shall abide by and fully comply with the provisions of paragraph 15 of the Employment Agreement, which is hereby modified by deleting subsection (c)(i) thereof. 2 (c) The provisions of Paragraphs 16 (Remedies/Sanctions), 17 (Beneficiaries/References), 19 (Indemnification and Liability Insurance) and 21 (Assignability; Binding Nature) of the Employment Agreement shall survive this agreement and are fully incorporated by reference herein and made applicable to the provisions therein. (d) The provisions of Paragraph 12 (Parachutes) of the Employment Agreement shall survive this agreement and are fully incorporated by reference herein and made applicable to all or any portion of the payments to be made to Blatt under this agreement and/or any other payments and benefits that Blatt receives or is entitled to receive from the Company. (e) The provisions of the Indemnification Agreement between the Company and Blatt made and entered into on May 21, 2003 (the "Indemnification Agreement") shall survive this agreement and shall apply to Blatt after termination of his employment with the Company, and are fully incorporated by reference herein. 4. (a) Subject only to the performance of and compliance by the Company with the provisions of this agreement, and except for the Company's continuing indemnification obligations under applicable law, the Employment Agreement and the Indemnification Agreement, Blatt hereby waives, remits, releases and forever discharges the Company, its past, present and future Board members, officers, directors, stockholders, employees, agents, attorneys, subsidiaries, servants, successors, insurers, affiliates and their successors and assignees, from any and all manner of action, claims, liens, demands, liabilities, causes of action, charges, complaints, suits (judicial, administrative, or otherwise), damages, debts, demands, obligations of any other nature, past or present, known or unknown, whether in law or in equity, whether founded upon contract (expressed or implied), tort (including, but not limited to, defamation), statute or regulation (State, Federal or local), common law and/or any other theory or basis, from the beginning of the world to the date hereof, including, but not limited to, any claim that Blatt has asserted, now asserts or could have asserted. This includes, but is not limited to, claims for compensation or benefits, tortious claims arising out of the consulting relationship, claims of an expressed or implied contract of employment, claims under the Family and Medical Leave Act, claims arising under Federal, State or local laws prohibiting employment or other discrimination or claims growing out of any legal restrictions on the Company's rights to terminate its employees, including without limitation any claims arising under Title VII of the United States Code, and the Age Discrimination in Employment Act. It is expressly understood by Blatt that among the various rights and claims being waived by him in this release are those arising under the Age Discrimination in Employment Act of 1967 (29 U.S.C. Sec. 621, et seq.). (b) Subject only to the performance of, and compliance with, the provisions of this agreement, and except as prohibited under applicable law, the Company, hereby waives, remits, releases and forever discharges Blatt and his successors and assignees, from any and all manner of action, claims, liens, demands, liabilities, causes of action, charges, complaints, suits (judicial, administrative, or otherwise), damages, debts, demands, obligations of any other 3 nature, past or present, known or unknown, whether in law or in equity, whether founded upon contract (expressed or implied), tort (including, but not limited to, defamation), statute or regulation (State, Federal or local), common law and/or any other theory or basis, from the beginning of the world to the date hereof. 5. The Company and Blatt respectively represent and warrant that each is fully authorized and empowered to enter into this agreement and that the performance of its or his obligations, as the case may be, under this agreement will not violate any agreement between such party and any other person, firm or organization. The Company represents and warrants that this agreement has been duly authorized by all necessary corporate action and is valid, binding and enforceable in accordance with its terms. 6. Except to the extent otherwise provided herein, this agreement contains the entire understanding and agreement between the Company and Blatt concerning the subject matter hereof and supersedes any prior agreements, whether written or oral, between the parties concerning the subject matter hereof, including without limitation the Employment Agreement. 7. No provision in this agreement may be amended unless such amendment is agreed to in writing and signed by both Blatt and an authorized officer of the Company. No waiver by either party of any breach by the other party of any condition or provision contained in this agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same or any prior or subsequent time. Any waiver must be in writing and signed by the party to be charged with the waiver. No delay by either party in exercising any right, power or privilege hereunder shall operate as a waiver thereof. 8. In the event that any provision or portion of this agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. 9. This agreement shall be governed by and construed and interpreted in accordance with the laws of New York, without regard to its governing conflicts of law principles. 10. Any notice given to either party including notice under the Promissory Note, shall be in writing and shall be deemed to have been given when delivered either personally, by overnight delivery service (such as Federal Express) or sent by certified or registered mail postage prepaid, return receipt requested, duly addressed to the party concerned at the address indicated below or to such changed address as the party may subsequently give notice of. 4 If to Herley or the Board: Herley Industries, Inc. 101 North Pointe Boulevard Lancaster, Pennsylvania 17601-4133 Fax No. 717-297-9503 Attn: Mr. Myron Levy, Chairman and Chief Executive Officer With a copy to: Beckman, Lieberman & Barandes, LLP 116 John Street, Suite 1313 New York, New York 10038 Attn: David H. Lieberman, Esq. Fax No. 212-608-9687 If to Blatt: 734 Yokum Pond Road Becket, Massachusetts 01223 And to: 741 North Arrowhead Trail Vero Beach, FL 32963 11. The headings of the sections contained in this agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this agreement. 12. This agreement may be executed in counterparts, each of which when so executed and delivered shall be an original, but all such counterparts together shall constitute one and the same instrument. IN WITNESS WHEREOF, the undersigned have executed this agreement as of September 27, 2006. HERLEY INDUSTRIES, INC. By: /s/ John Kelley --------------------------------- John Kelley, President /s/ Lee N. Blatt --------------------------------- Lee N. Blatt Exhibit "A" PROMISSORY NOTE $6,461,528.00 Lancaster, Pennsylvania September ___, 2006 FOR VALUE RECEIVED, the undersigned, HERLEY INDUSTRIES, INC. (the "Company") promises to pay to LEE N. BLATT, or his assigns ("Blatt"), at 734 Yokum Pond Road, Becket, Massachusetts 01223, or at such other place as the holder of this Note may designate in writing from time to time, the principal sum of SIX MILLION, FOUR HUNDRED SIXTY ONE THOUSAND, FIVE HUNDRED AND TWENTY EIGHT DOLLARS ($6,461,528.00). 1. The Company shall pay this Note, without interest, in monthly installments of ONE HUNDRED THOUSAND DOLLARS ($100,000.00) commencing on January 1, 2007 and continuing thereafter on the 1st day of each month for sixty-four (64) consecutive months through April 1, 2012 and one monthly installment of SIXTY ONE THOUSAND, FIVE HUNDRED AND TWENTY EIGHT DOLLARS ($61,528.00) on May 1, 2012. Notwithstanding the foregoing, this Note shall immediately become due and payable, without notice, in the event of a "change in control" of the Company as defined under paragraph 1(d) of the Employment Agreement between the Company and Blatt dated as of July 29, 2002, as modified on December 3, 2003. 2. Under this Note, failure of the Company to pay any amount due and payable within thirty days after written demand is received by the Company shall constitute a default. Upon default, Blatt (a) may declare this Note immediately due and payable in full; and (b) be entitled to exercise against the Company any and all rights and remedies that may otherwise be available to him hereunder and at law or in equity. 3. By his acceptance of this Note, Blatt represents and warrants that he is acquiring this Note for investment, and not with a view to the distribution of the Note. 4. This Note shall be governed by and construed in accordance with the laws of the State of New York, excluding therefrom any principles of conflicts of law; this Note may not be amended or modified except pursuant to a written instrument executed by each of Blatt (or his assigns upon his death) and the Company. 5. The Company shall have the right to prepay this Note at any time or from time to time, in whole or in part, without penalty. 6. This Note is subject to and governed by the terms and conditions of the Agreement by and between the Company and Blatt dated as of September ___, 2006. HERLEY INDUSTRIES, INC. By: ---------------------- John Kelley, President -----END PRIVACY-ENHANCED MESSAGE-----