AMENDMENT NUMBER 1
                                       TO
                    AGREEMENT BETWEEN HERLEY INDUSTRIES, INC.
                         AND THE DEPARTMENT OF THE NAVY


1. Background.  On 11 June 2007, Herley  Industries,  Inc. (Herley) notified the
Department  of the Navy  Suspending  and  Debarring  Official  (SDO) that it had
reason to believe one or more Herley  employees  at its  Lancaster  facility had
falsified  test results on  components  delivered to the United States Air Force
under a contract with the Boeing Company (Boeing).  Herley, in coordination with
Boeing,  conducted an investigation  into the issue. The investigation  revealed
that three Herley  employees  were  directly  involved in  falsifying  test data
provided to the Air Force under  contract  FA8107-05-C-0003.  The SDO  suspended
Herley  Industries,  Inc.  effective  26 June 2007  pending  the  outcome of the
investigation.  Upon conclusion of its  investigation,  Herley terminated two of
the  employees  for cause  effective 20 July 2007.  Herley  suspended  the third
employee  without pay for a period of 30 working  days  effective  23 July 2007,
with a return  to  active  employment  on 4  September  2007  under a six  month
probationary  period.  During this probationary  period,  any infraction will be
cause for termination.

2.  Modifications.  The  Agreement  Between  Herley  Industries,  Inc.  and  the
Department of the Navy dated October 12, 2006 (the  "Administrative  Agreement")
regarding the present responsibility of Herley Industries, Inc. to contract with
the Federal Government is amended to reflect the following:

     a. The first sentence of Paragraph 2 is amended to read:

     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 and the Navy's Notice of Suspension  dated June 26, 2007,  attached
     hereto as Annex J. (hereinafter "the Notices")

     b. Each use of the term "Notice" in the Administrative Agreement is amended
     to read "Notices."

     c. In addition to the access to information  provided under  Paragraph 5.F,
     Herley  expressly  agrees  to allow the  Federal  Government  to  conduct a
     thorough Quality  Management  System Audit, or to participate  jointly with
     any  of   Herley's   prime   contractors   to   conduct   such  an   audit.
     Government-designated  participants  may include  the Joint Audit  Planning
     Committee,  Department of the Navy,  Department of the Air Force,  NASA, or
     any other  agency/entity  for whom Herley  provides goods or services.  The
     Navy  Suspension  Authority will notify Herley if the Government  elects to
     conduct or participate in such an audit.


     d. Paragraph 12 is amended to include the following as its last sentence:

     Subsequent to giving  notice to Herley of a failure  under this  Agreement,
     the Navy Suspension  Authority may suspend Herley in whole or in part if he
     deems it necessary for the protection of the Government pending the outcome
     of an  investigation  or  pending  the  curing of any  failure  to the Navy
     Suspension Authority's reasonable satisfaction.

     e. The term of the  Administrative  Agreement is extended by one year.  The
     first  sentence of Paragraph 20 is amended to strike  "three (3) years" and
     replace with "four (4) years."

     f. The following is added as a new Paragraph 22:

     22. Herley  expressly  represents that no one within Herley was aware of or
     participated in the test data falsification that formed the basis of the 26
     June 2007 suspension  other than the three Herley  employees  identified to
     the Navy on 25 July  2007.  Should the Navy  learn of  participation  in or
     contemporaneous  knowledge  of the test  data  falsification  by any  other
     Herley  employee(s)  or  representative(s),  this  failure to identify  all
     individuals  involved shall constitute a cause for debarment subject to the
     procedures  established by the Federal Acquisition Regulation and any other
     applicable statute or regulation.  Such failure shall not be subject to the
     cure notice provisions of Paragraph 12 but shall  immediately  constitute a
     cause for debarment.

     g.  Herley  expressly   represents  that  it  will  implement  all  actions
     identified in its Action Plan -Administrative Agreement dated 20 July 2007,
     and that it will implement all actions on or before the dates  indicated in
     the Action Plan (if applicable).

3. All other terms and conditions of the Administrative Agreement remain in full
force and effect.



4.       Authorizing Signatures.


/s/ Myron Levy                                   8/14/07
-----------------------------------------        -------
Myron Levy                                       Date
Chairman and Chief Executive Officer
Herley Industries, Inc.


/s/ Jeffrey L. Markel                            8/14/07
-----------------------------------------        -------
Jeffrey L. Markel
Chief Operating Officer
Herley Industries, Inc.


/s/ Charles L. Pourciau, Jr.                     8/14/07
-----------------------------------------        -------
Charles L. Pourciau, JR
Vice President Administration and Governance
Herley Industries, Inc.


/s/ Mark O. Wilkoff                              8/15/07
-----------------------------------------        -------
Mark O. Wilkoff
Suspending and Debarring Official
Department of the Navy