Exhibit 10.5
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                              EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this "Agreement"), made and entered into as of July
29, 2002, by and between HERLEY INDUSTRIES, INC., a Delaware corporation, with
its principal office located at 3061 Industry Drive, Lancaster, Pennsylvania
17603 (together with its successors and assigns permitted under this Agreement,
"Herley") and LEE N. BLATT ("Blatt"), amends and restates in its entirety the
Employment Agreement made and entered into as of October 1, 1998, as amended on
January 26, 1999 and July 30, 1999 between Herley and Blatt (the "Prior
Agreement").
                                   WITNESSETH:
         WHEREAS, Herley has determined that it is in the best interests of
Herley and its stockholders to continue to employ Blatt and to set forth in this
Agreement the obligations and duties of both Herley and Blatt; and
         WHEREAS, Herley wishes to assure itself of the services of Blatt for
the period hereinafter provided, and Blatt is willing to be employed by Herley
for said period, upon the terms and conditions provided in this Agreement;
         NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, Herley and Blatt (individually a "Party" and
together the "Parties" ) agree as follows:

1.       DEFINITIONS.
(a)       "Beneficiary" shall mean the person or persons named by Blatt pursuant
          to Section 17 below or, in the event that no such person is named who
          survives Blatt, his estate.
(b)      "Board" shall mean the Board of Directors of Herley.
(c)      "Cause" shall mean:
                  (i)      Blatt's  conviction of a felony  involving an act or
                           acts of dishonesty on his part and resulting in gain
                           or personal enrichment at the expense of Herley;
                  (ii)     willful and  continued  failure of Blatt to perform
                           his  obligations  under this  Agreement,  resulting
                           in demonstrable material economic harm to Herley, or
                  (iii) a willful and material breach by Blatt of the provisions
of Sections 14 or 15 below to the demonstrable and material detriment of Herley.
                  Notwithstanding the foregoing, in no event shall Blatt's
failure to perform the duties associated with his position caused by his mental
or physical disability constitute Cause for his termination.
                  For purposes of this Section 1(c), no act or failure to act on
the part of Blatt shall be considered "willful" unless it is done, or omitted to
be done, by him in bad faith or without reasonable belief that his action or
omission was in the best interests of Herley. Any act or failure to act based
upon authority given pursuant to a resolution adopted by the Board or based upon
the advice of counsel for Herley shall be conclusively presumed to be done, or
omitted to be done, by Blatt in good faith and in the best interests of Herley.
         (d)      "Change in Control" shall mean the occurrence of any of the
                   following events:
                  (i) the acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934 as amended (the "Exchange Act") (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting
securities of Herley when such acquisition causes such Person to beneficially
own 20 percent or more of the combined voting power of the then outstanding
voting securities of Herley entitled to vote generally in the election of
directors (the "Outstanding Herley Voting Securities"); provided, however, that
for purposes of this subsection (i), the following acquisitions shall not be

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deemed to result in a Change of Control: (A) any acquisition directly from
Herley, (B) any acquisition by Herley, (C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by Herley or any
corporation controlled by Herley or (D) any acquisition pursuant to a
transaction that complies with clauses (A), (B) and (C) of subsection (iii)
below; and provided, further, that if any Person's beneficial ownership of the
Outstanding Herley Voting Securities reaches or exceeds 20 percent as a result
of a transaction described in clause (A) or (B) above, and such Person
subsequently acquires beneficial ownership of additional voting securities of
Herley, such subsequent acquisition shall be treated as an acquisition that
causes such Person to beneficially own 20 percent or more of the Outstanding
Herley Voting Securities; or
                  (ii) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by Herley's stockholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding for
this purpose any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
                  (iii) consummation of a reorganization, merger or
consolidation or sale or other disposition of all or subsequently all of the
assets of Herley or the acquisition of assets of another entity ("Business
Combination"); excluding, however, such a Business Combination pursuant to which
(A) all or substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Herley Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
60 percent of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination in substantially the same proportions
as their ownership, immediately prior to such Business Combination of the
Outstanding Herley Voting Securities, (B) no Person (excluding any employee
benefit plan (or related trust) of Herley or such corporation resulting from
such Business Combination) beneficially owns, directly or indirectly, 20 percent
or more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business Combination and (C)
at least a majority of the members of the board of directors of the corporation
resulting from such Business Combination (including, without limitation, a
corporation that as a result of such transaction owns Herley or all or
substantially all of Herley's assets either directly or through one or more
subsidiaries) were members of the Incumbent Board at the time of the execution
of the initial agreement, or of the action of the Board, providing for such
Business Combination; or
                 (iv) approval by the stockholders of Herley of a complete
                      liquidation or dissolution of the Company.
         (e)     "Code" shall mean the Internal Revenue Code of 1986, as
                 amended from time to time.
         (f)     "Committee" shall mean the Compensation Committee of the Board.
         (g)     "Consulting  Period" shall mean the period specified in Section
                 13 below during which Blatt serves as a consultant to Herley.
         (h) "Disability" shall mean the illness or other mental or physical
disability of Blatt, as determined by a physician acceptable to Herley and
Blatt, resulting in his failure during the Employment Term or the Consulting

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Period, as the case may be, (i) to perform substantially his applicable material
duties under this Agreement for a period of twelve consecutive months and (ii)
to return to the performance of his duties within 90 days after receiving
written notice of termination.
         (i)      "Employment Term" shall mean the period specified in Section
                  2(b) below.
         (j) "Fiscal Year" shall mean the 52-week period beginning on or about
August 1 and ending on or about the next subsequent July 31, or such other
12-month period as may constitute Herley's fiscal year at any time hereafter.
         (k)     "Good  Reason"  shall  mean,  at any time during the
                 Employment  Term,  in each case  (except for clause (vi) below)
without Blatt's prior written consent or his acquiescence:
(i)      reduction in his then current Salary;
                  (ii) diminution, reduction or other adverse change in the
bonus or incentive compensation opportunities available to Blatt (with respect
to the level of bonus or incentive compensation opportunities, the applicable
performance criteria and otherwise the manner in which bonuses and incentive
compensation are determined) in the aggregate from those available as of the
date hereof in accordance with Section 4(a) below;
                  (iii)    Herley's  failure  to pay Blatt any amounts otherwise
                           vested and due him  hereunder  or under any plan or
                           policy of Herley;
                  (iv) diminution of Blatt's titles, position, authorities or
                  responsibilities, including not serving on the Board; (v)
                  assignment to Blatt of duties incompatible with his position
                  of Chairman; (vi) termination by Blatt of his employment
                  within one year following a Change in Control other than (a)
                  for Cause or (b) by reason of death or Disability; (vii)
                  imposition of a requirement that Blatt report other
                           than directly to the full Board;
                  (viii) a material breach of the Agreement by Herley that is
not cured within 10 business days after written notification by Blatt of such
breach; or (ix) relocation of Herley's corporate headquarters to a location more
than 35 miles from the location first above described.
         (l) "Retirement" shall mean termination of Blatt's employment
subsequent to the date hereof, other than (i) due to death or Disability, (ii)
for Cause or Good Reason or (iii) without Cause.
         (m)     "Salary" shall mean the annual salary provided for in Section 3
                 below, as adjusted from time to time.
         (n)     "Spouse" shall mean, during the Term of Employment and the
                 Consulting Period, the woman who as of any relevant date is
                 legally married to Blatt.
         (o)     "Subsidiary" shall mean any corporation of which Herley owns,
                 directly or indirectly, more than 50 percent of its voting
                 stock.
2.       EMPLOYMENT TERM, POSITIONS AND DUTIES.
         (a) Employment of Blatt. Herley hereby continues to employ Blatt, and
Blatt hereby accepts continued employment with Herley, in the positions and with
the duties and responsibilities set forth below and upon such other terms and
conditions as are hereinafter stated. Blatt shall render services to Herley
principally from his home offices where he has created work space and his
responsibilities do not require attendance at any Herley office. These
responsibilities include, among other things, conducting executive recruiting
tasks and visiting customers, investment banks and potential acquisition
candidates for Herley. Blatt shall also do limited traveling on behalf of Herley
as shall be reasonably required in the course of the performance of his duties
hereunder.
         (b) Employment Term. The Employment Term shall commence as of July 29,
2002 and shall terminate on December 31, 2007, provided that the Employment Term

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shall extend for additional one-year periods annually each January 1, unless
this agreement is terminated under the provisions of Section 10 below. In no
event, however, shall the Employment Term extend beyond December 31, 2010.
         (c)      Titles and Duties.
                  (i) Until the date of termination of his employment hereunder,
Blatt shall be employed as Chairman of the Board, reporting to the full Board.
In his capacity as Chairman of the Board, Blatt shall have the customary powers,
responsibilities and authorities of chairmen of corporations of the size, type
and nature of Herley including, without limitation, authority, in conjunction
with the Board as appropriate, to hire and terminate other employees of Herley.
                  (ii) During the Employment Term, Herley shall uses its best
efforts to secure the election of Blatt to the Board and to the chairmanship
thereof. During the Employment Term, if the Board forms an executive or similar
committee, Blatt shall serve thereon.
         (d)      Time and Effort.
                  (i) Blatt agrees to devote his best efforts and abilities, and
such of his business time and attention as is reasonably necessary, to the
affairs of Herley in order to carry out his duties and responsibilities under
this Agreement.
                  (ii) Notwithstanding the foregoing, nothing shall preclude
Blatt from (A) serving on the boards of a reasonable number of trade
associations, charitable organizations and/or businesses not in competition with
Herley, (B) engaging in charitable activities and community affairs and (C)
managing his personal investments and affairs; provided, however, that, such
activities do not materially interfere with the proper performance of his duties
and responsibilities specified in Section 2 (c) above. 3. SALARY. (a) Initial
Salary. Blatt shall receive from Herley a Salary, payable in accordance with the
regular payroll practices of Herley, in a minimum amount of $736,868. (b)
Cost-of-Living Increase. During the Employment Term Blatt's Salary shall be
increased semiannually by an amount equal to the change in the cost of living
index since the prior semiannual adjustment , as reported in the "Consumer Price
Index, New York and Northeastern New Jersey, All Items, Series ID CUURA101SA0"
published by the United States Department of Labor, Bureau of Labor Statistics
(or, if such index is no longer published, a successor or comparable index that
is published), using June 30, 2002 as the base year of computation. Such amount
shall be calculated and paid to Blatt in a single sum on or before the first day
of the second month following the applicable calendar half year, and thereafter
his Salary shall be adjusted to include the amount of any such increase. The
first calculation and payment shall be made with respect to the six month period
from and after August 1, 2002. If Blatt's employment shall terminate during any
such six-month period, the cost-of-living increase provided in this Section 3(b)
shall be prorated accordingly. (c) Salary Increase. Any amount to which Blatt's
Salary is increased, as provided in Section 3(b) above or otherwise, shall not
thereafter be reduced without his consent, and the term "Salary" as used in this
Agreement shall refer to his Salary as thus increased.
         4.       ANNUAL BONUS.
         Not later than one hundred twenty (120) days after the end of the
fiscal year of the Company and each subsequent fiscal year of the Company ending
during employment term, the Company shall pay to Employee, as incentive
compensation an amount equal to four (4%) percent of the Consolidated Pretax
Earnings of the Company. For purposes hereof, the term "Consolidated Pretax
Earnings" of the Company shall mean, with respect to any fiscal year, the
consolidated income, if any, of the Company for such fiscal year as set forth in
the audited, consolidated financial statements (the "Financial Statements") of
the Company and its subsidiaries included in its Annual Report to stockholders
for such fiscal year, before deduction of taxes based on income or of the
incentive compensation to be paid to Employee for such fiscal year under this
Agreement as defined in this clause 4.

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         5.       LONG-TERM INCENTIVE.
         During the Employment Term, Blatt shall be eligible for an award under
any long-term incentive compensation plan established by Herley for the benefit
of Blatt or, in the absence thereof, under any such plan established for the
benefit of members of the senior management of Herley.

         6.       EQUITY OPPORTUNITY.
         During the Employment Term, Blatt shall be eligible to receive grants
of options to purchase shares of Herley's stock and awards of shares of Herley's
stock, either or both as determined by the Committee, under and in accordance
with the terms of applicable plans of Herley and related option and award
agreements. It is the intention of Herley to grant stock options to Blatt during
the Employment Term. Also, to the extent permitted by any such plan, Blatt shall
be eligible during any Consulting Period to receive grants of options and awards
of shares of Herley's stock in the same manner.
         7.       EXPENSE REIMBURSEMENT; CERTAIN OTHER COSTS.
         During the Employment Term and any Consulting Period, Blatt shall be
entitled to prompt reimbursement by Herley for all reasonable out-of-pocket
expenses incurred by him in performing services under this Agreement. In
addition, Blatt shall be entitled to payment by Herley of all reasonable costs
and expenses, including attorneys' and consultants' fees and disbursements,
incurred by him in connection with adoption of this Agreement and any related
compensatory arrangements that Herley adopts solely for his benefit.
         8.       PERQUISITES.
         During the Employment Term and any Consulting Period, Herley shall
         provide Blatt with the following perquisites: (a) an office of a size
         and with furnishings and other appointments, and exclusive personal
         secretarial and other assistance, at least equal to that provided to
         Blatt by Herley as of the date hereof; and (b) use of an automobile and
         payment of related expenses on the same
terms as in effect on the date hereof or, if more favorable to Blatt, as made
available generally to other executive officers of Herley and its affiliates at
any time thereafter.
         9.       EMPLOYEE BENEFIT PLANS.
         (a) General. During the Employment Term, Blatt shall be entitled to
participate in all employee benefit plans and programs made available to
Herley's senior executives or to its employees generally, as such plans or
programs may be in effect from time to time, including, without limitation,
pension and other retirement plans, profit-sharing plans, savings and similar
plans, group life insurance, accidental death and dismemberment insurance,
travel accident insurance, hospitalization insurance, surgical insurance, major
and excess major medical insurance, dental insurance, short-term and long-term
disability insurance, sick leave (including salary continuation arrangements),
holidays, vacation (not less than six weeks in any calendar year) and any other
employee benefit plans or programs that may be sponsored by Herley from time to
time, including plans that supplement the above-listed types of plans, whether
funded or unfunded.
         (b) Medical Care Reimbursement and Insurance. During the Employment
Term and Consulting Period, Herley shall reimburse Blatt for 100 percent of any
medical expenses incurred by him for himself and his Spouse that are not
reimbursed by insurance or otherwise. Herley shall provide Blatt and his Spouse,
during his lifetime, with life insurance (for which Blatt shall receive an
allowance of $56,000 annually, which shall be paid semi-annually by Herley on
August 1 and February 1) hospitalization insurance, surgical insurance, major
and excess major medical insurance and dental insurance in accordance with the
most favorable plans, policies, programs and practices of Herley and its
Subsidiaries made available generally to other senior executive officers of
Herley and its Subsidiaries as in effect from time to time.
         (c) Disability Benefit. In consideration of the benefit payable to

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Blatt in the event of termination of his employment due to Disability, as
provided in Section 10(d) below, or, if applicable, in the event of termination
of Blatt's consulting services due to Disability during the Consulting Period,
as provided in Section 13(d) below, Herley shall not be obligated to provide
Blatt with long-term disability insurance. If Herley elects to provide Blatt
with such insurance, he shall be the owner of any individual policies obtained
and shall pay the premiums thereon; provided, however, that Herley shall
reimburse Blatt for any premiums that he pays.
         10.      TERMINATION OF EMPLOYMENT.
         (a) Voluntary Termination and Termination by Mutual Agreement. Blatt
may terminate his employment voluntarily at any time after December 31, 2002 in
accordance with the provisions of Section 10(g). If he does so, except for Good
Reason, his entitlement shall be the same as if Herley had terminated his
employment for Cause. The Parties may terminate this Agreement by mutual
agreement at any time. If they do so, Blatt's entitlements shall be as the
Parties mutually agree.
         (b) General. Notwithstanding anything to the contrary herein, in the
event of termination of Blatt's employment under this Agreement, he or his
Beneficiary, as the case may be, shall be entitled to receive (in addition to
payments and benefits under, and except as specifically provided in, subsections
(c) through (h) below, as applicable):
                  (i)      his Salary through the date of termination;
                  (ii)     any unused vacation from prior years;
                  (iii)    any annual or special bonus awarded but not yet paid
                           to him;
                  (iv)     any other compensation or benefits, including without
limitation long-term incentive compensation described in Section 5 above,
benefits under equity grants and awards described in Section 6 above and
employee benefits under plans described in Section 9 above, that have vested
through the date of termination or to which he may then be entitled in
accordance with the applicable terms and conditions of each grant, award or
plan; and
                  (v) reimbursement in accordance with Sections 9(a) and (b)
above of any business and medical expenses incurred by Blatt or his Spouse, as
applicable, through the date of termination but not yet paid to him.
         (c) Termination due to Death. In the event that Blatt's employment is
terminated due to his death, his Beneficiary shall be entitled, in addition to
the compensation and benefits specified in Section 10(b), to his Salary payable
for the remainder of the Employment Term at the rate in effect immediately
before such termination.
         (d) Termination due to Disability. In the event of Disability, Herley
or Blatt may terminate Blatt's employment. If Blatt's employment is terminated
due to Disability, he shall be entitled, in addition to the compensation and
benefits specified in Section 10(b), to his Salary payable for the remainder of
the Employment Term at the rate in effect immediately before such termination,
offset by any long-term disability insurance benefit that Herley may have
elected to provide for him.
         (e) Termination by Herley for Cause. Herley may terminate Blatt's
employment hereunder for Cause only upon written notice to Blatt not less than
30 days prior to any intended termination, which notice shall specify the
grounds for such termination in reasonable detail. Cause shall in no event be
deemed to exist except upon a finding reflected in a resolution approved by a
majority (excluding Blatt) of the members of the Board (whose findings shall not
be binding upon or entitled to any deference by any court, arbitrator or other
decision-maker ruling on this Agreement) at a meeting of which Blatt shall have
been given proper notice and at which Blatt (and his counsel) shall have a
reasonable opportunity to present his case.
In the event that Blatt's employment is terminated for Cause, he shall be

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entitled only to the compensation and benefits specified in Section 10(b).
         (f)      Termination Without Cause or by Blatt for Good Reason.
                  (i) Termination without Cause shall mean termination of
Blatt's employment by Herley and shall exclude termination (A) due to death,
Disability or Cause, (B) by Blatt voluntarily or (C) by mutual written agreement
of Blatt and Herley. Herley shall provide Blatt 15 days' prior written notice of
termination by it without Cause, and Blatt shall provide Herley 15 days' prior
written notice of his termination for Good Reason.
                  (ii) In the event of termination by Herley of Blatt's
employment without Cause or of termination by Blatt of his employment for Good
Reason, he shall be entitled, in addition to the compensation and benefits
specified in Section 10(b), to:
                    (A)  a lump-sum payment equal to the Salary payable to him
                         for the remainder of the Employment Term at the rate in
                         effect immediately before such termination;

                    (B)  a lump sum payment equal to the annual bonuses for the
                         remainder of the Employment Term (including a prorated
                         bonus for any partial Fiscal Year) equal to the average
                         of the three highest annual bonuses awarded to him
                         during the ten Fiscal Years preceding the Fiscal Year
                         of termination;
                    (C)  continued medical reimbursement for the remainder of
                         the Employment Term and thereafter the lifetime medical
                         benefits described in Section 9(b) above;

                    (D)  continued participation in all employee benefit plans
                         or programs available to Herley employees generally in
                         which Blatt was participating on the date of
                         termination of his employment until the end of the
                         Employment Term; provided; however, that (x) if Blatt
                         is precluded from continuing his participation in any
                         employee benefit plan or program as provided in this
                         clause (D), he shall be entitled to the after-tax
                         economic equivalent of the benefits under the plan or
                         program in which he is unable to participate until the
                         end of the Employment Term, and (y) the economic
                         equivalent of any benefit foregone shall be deemed to
                         be the lowest cost that Blatt would incur in obtaining
                         such benefit on an individual basis; and

                    (E)  other benefits in accordance with applicable plans and
                         programs of the Company. (iii) Prior written consent by
                         Blatt to any of the events described in Section 1(k)
                         above shall be deemed a waiver by him of his right to
                         terminate for Good Reason under this Section 10(f)
                         solely by reason of the events set forth in such
                         waiver.

         (g) Voluntary Termination by Blatt. At any time after December 31,
2002, Blatt shall have the right, upon 60 days' prior written notice,
voluntarily to terminate his employment without Good Reason, in which event his
employment shall cease and the Employment Term shall terminate as of the date
stated in such notice, and the Consulting Period shall begin on the next
succeeding business day, and he shall be entitled to receive compensation and
benefits as if Herley had terminated his employment for Cause, as provided in
Section 10(e).
         (h) Change in Control. Notwithstanding anything to the contrary in this
Section 10, termination of Blatt's employment within the one-year period

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following a Change in Control for any reason other than Cause, death or
Disability, shall be governed by Section 10(f). In the event of any such
termination, Blatt shall be entitled to compensation and benefits in accordance
with the provisions of Section 10(f)(ii).
         11.      NO DUTY TO MITIGATE.
         Blatt shall not be required to mitigate damages or the amount of any
payment provided for under this Agreement by seeking other employment or
otherwise, nor will any payment hereunder be subject to offset in the event
Blatt does receive compensation for services from any other source. 12.
PARACHUTES.
         (a) Application. If all, or any portion, of the payments provided under
this Agreement, and/or any other payments and benefits that Blatt receives or is
entitled to receive from Herley, a Subsidiary or any other person, whether or
not under an existing plan, arrangement or other agreement, constitutes an
excess "parachute payment" within the meaning of Section 280G(b) of the Code
(each such parachute payment, a "Parachute Payment") and will result in the
imposition on Blatt of an excise tax under Section 4999 of the Code, then, in
addition to any other benefits to which Blatt is entitled under this Agreement,
Herley shall pay him an amount in cash equal to the sum of the excise taxes
payable by him by reason of receiving Parachute Payments, plus the amount
necessary to put him in the same after-tax position (taking into account any and
all applicable federal, state and local excise, income or other taxes at the
highest possible applicable rates on such Parachute Payments (including without
limitation any payments under this Section 12) as if no excise taxes had been
imposed with respect to Parachute Payments (the "Parachute Gross-up").
         (b) Computation. The amount of any payment under this Section 12 shall
be computed by a certified public accounting firm of national reputation
selected by Herley and acceptable to Blatt. If Herley or Blatt disputes the
computation rendered by such accounting firm, Herley shall select an alternative
certified public accounting firm of national reputation to perform the
applicable computation. If the two accounting firms cannot agree upon the
computations, Blatt and Herley shall jointly appoint a third certified public
accounting firm of national reputation within 10 calendar days after the two
conflicting computations have been rendered. Such third accounting firm shall be
asked to determine within 30 calendar days the computation of the Parachute
Gross-up to be paid to Blatt, and payments shall be made accordingly. (c)
Payment. In any event, Herley shall pay to Blatt or pay on his behalf the
Parachute Gross-up as computed by the accounting firm initially selected by
Blatt by the time any taxes payable by him as a result of the Parachute Payments
become due, with Blatt agreeing to return the excess amount of such payment over
the final computation rendered from the process described in Section 12(b).
Blatt and Herley shall provide the accounting firms with all information that
any of them reasonably deems necessary in order to compute the Parachute
Gross-up. The cost and expenses of all the accounting firms retained to perform
the computations described above shall be borne by Herley.
                  In the event that the Internal Revenue Service ("IRS") or the
accounting firm computing the Parachute Gross-up finally determines that the
amount of excise taxes thereon initially paid was insufficient to discharge
Blatt's excise tax liability, Herley shall make additional payments to him as
may be necessary to reimburse him for discharging the full liability.
                  Blatt shall apply to the IRS for a refund of any excise taxes
paid and remit to Herley the amount of any such refund that he receives. Herley
shall reimburse Blatt for his expenses in seeking a refund of excise taxes and
for any interest and penalties imposed on excise taxes that he is required to
pay.
         13.      CONSULTING PERIOD.
         (a) General. Effective upon the end of the Employment Term (but only if
the Employment Term ends by reason of its expiration or, if earlier, upon
termination of Blatt's employment (i) voluntarily, (ii) by mutual agreement or

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(iii) by Retirement), Blatt shall become a consultant to Herley, in recognition
of the continued value to Herley of his extensive knowledge and expertise.
Unless earlier terminated, as provided in Section 13(e), the Consulting Period
shall continue for five years.
         (b)      Duties and Extent of Services.
                  (i) During the Consulting Period, Blatt shall consult with
Herley and its senior executive officers regarding its respective businesses and
operations. Such consulting services shall not require more than 50 days in any
calendar year, nor more than one day in any week, it being understood and agreed
that during the Consulting Period Blatt shall have the right, consistent with
the prohibitions of Sections 14 and 15 below, to engage in full-time or
part-time employment with any business enterprise that is not a competitor of
Herley.
                  (ii) Blatt's service as a consultant shall only be required at
such times and such places as shall not result in unreasonable inconvenience to
him, recognizing his other business commitments that he may have to accord
priority over the performance of services for Herley. In order to minimize
interference with Blatt's other commitments, his consulting services may be
rendered by personal consultation at his residence or office wherever
maintained, or by correspondence through mail, telephone, fax or other similar
mode of communication at times, including weekends and evenings, most convenient
to him.
                  (iii) During the Consulting Period, Blatt shall not be
obligated to serve as a member of the Board or to occupy any office on behalf of
Herley or any of its Subsidiaries.
         (c) Compensation. During the Consulting Period, Blatt shall receive
from Herley each year an amount equivalent to one-half of his Salary at the end
of the Employment Term, payable and subject to annual increase as provided in
Section 3 above.
         (d) Disability. In the event of Disability during the Consulting
Period, Herley or Blatt may terminate Blatt's consulting services. If Blatt's
consulting services are terminated due to Disability, he shall be entitled to
compensation, in accordance with Section 13(c), for the remainder of the
Consulting Period.
         (e) Termination. The Consulting Period shall terminate after five years
or, if earlier, upon Blatt's death or upon his failure to perform consulting
services as provided in Section 13(b), pursuant to 30 days' written notice by
Herley to Blatt of the grounds constituting such failure and reasonable
opportunity afforded Blatt to cure the alleged failure. Upon any such
termination, payment of consulting fees and benefits (with the exception of
lifetime medical benefits under Section 9(b) above) shall cease.
         (f) Other. During the Consulting Period, Blatt shall be entitled to
expense reimbursement (including secretarial, telephone and similar support
services) and perquisites and medical benefits, pursuant to the terms of
Sections 7, 8 and 9(b), respectively.
         14.      CONFIDENTIAL INFORMATION.
         (a)      General.
                  (i) Blatt understands and hereby acknowledges that as a result
of his employment with Herley he will necessarily become informed of and have
access to certain valuable and confidential information of Herley and any of its
Subsidiaries, joint ventures and affiliates, including, without limitation,
inventions, trade secrets, technical information, computer software and
programs, know-how and plans ("Confidential Information"), and that any such
Confidential Information, even though it may be developed or otherwise acquired
by Blatt, is the exclusive property of Herley to be held by him in trust solely
for Herley's benefit.
                  (ii) Accordingly, Blatt hereby agrees that, during the
Employment Term and the Consulting Period and subsequent to both, he shall not,
and shall not cause others to, use, reveal, report, publish, transfer or

<PAGE>


otherwise disclose to any person, corporation or other entity any Confidential
Information without prior written consent of the Board, except to (A)
responsible officers and employees of Herley or (B) responsible persons who are
in a contractual or fiduciary relationship with Herley or who need such
information for purposes in the interest of Herley. Notwithstanding, the
foregoing, the prohibitions of this clause (ii) shall not apply to any
Confidential Information that becomes of general public knowledge other than
from Blatt or is required to be divulged by court order or administrative
process.
         (b) Return of Documents. Upon termination of his employment with Herley
for any reason or, if applicable, upon expiration of the Consulting Period,
Blatt shall promptly deliver to Herley all plans, drawings, manuals, letters,
notes, notebooks, reports, computer programs and copies thereof and all other
materials, including without limitation those of a secret or confidential
nature, relating to Herley's business that are then in his possession or
control.
         (c) Remedies and Sanctions. In the event that Blatt is found to be in
violation of Section 14(a) or (b) above, Herley shall be entitled to relief as
provided in Section 16 below.

         15.      NONCOMPETITION/NONSOLICITATION.
          (a)  Prohibitions. During the Employment Term and, if applicable, the
               Consulting Period, Blatt shall not, without prior written
               authorization of the Board, directly or indirectly, through any
               other individual or entity:
                 (i)  become on officer or employee of, or render any service
                      to, any direct competitor of Herley;
                 (ii) solicit or induce any customer of Herley to cease
                      purchasing goods or services from Herley or to become a
                      customer of any competitor of Herley; or
                 (iii) solicit or induce any employee of Herley to become
                       employed by any competitor of Herley.
          (b)  Remedies and Sanctions. In the event that Blatt is found to be in
               violation of Section 15(a) above, Herley shall be entitled to
               relief as provided in Section 16 below.
          (c)  Exceptions.  Notwithstanding  anything to the contrary in Section
               15(a) above, its provisions shall not:
          (i)  apply if Herley terminates Blatt's employment without Cause or
               Blatt terminates his employment for Good Reason, each as provided
               in Section 10(f) above; or
                 (ii) be construed as preventing Blatt from investing his assets
                      in any business that is not a direct competitor of Herley.
         16.      REMEDIES/SANCTIONS.
         Blatt acknowledges that the services he is to render under this
Agreement are of a unique and special nature, the loss of which cannot
reasonably or adequately be compensated for in monetary damages, and that
irreparable injury and damage may result to Herley in the event of any breach of
this Agreement or default by Blatt. Because of the unique nature of the
Confidential Information and the importance of the prohibitions against
competition and solicitation, Blatt further acknowledges and agrees that Herley
will suffer irreparable harm if he fails to comply with his obligations under
Section 14(a) or (b) above or Section 15(a) above and that monetary damages
would be inadequate to compensate Herley for any such breach. Accordingly, Blatt
agrees that, in addition to any other remedies available to either Party at law,
in equity or otherwise, Herley will be entitled to seek injunctive relief or
specific performance to enforce the terms, or prevent or remedy the violation,
of any provisions of this Agreement.
         17.      BENEFICIARIES/REFERENCES.
         Blatt shall be entitled to select (and change, to the extent permitted

<PAGE>


under any applicable law) a beneficiary or beneficiaries to receive any
compensation or benefit payable under this Agreement following his death by
giving Herley written notice thereof. In the event of Blatt's death, or of a
judicial determination of his incompetence, reference in this Agreement to Blatt
shall be deemed to refer, as appropriate, to his beneficiary, estate or other
legal representative.
         18.      WITHHOLDING TAXES.
         All payments to Blatt or his Beneficiary under this Agreement shall be
subject to withholding on account of federal, state and local taxes as required
by law.
         19.      INDEMNIFICATION AND LIABILITY INSURANCE.
         Nothing herein is intended to limit Herley's indemnification of Blatt,
and Herley shall indemnify him to the fullest extent permitted by applicable law
consistent with Herley's Certificate of Incorporation and By-Laws as in effect
at the beginning of the Employment Term, with respect to any action or failure
to act on his part while he is an officer, director or employee of Herley or any
Subsidiary. Herley shall cause Blatt to be covered at all times by directors'
and officers' liability insurance on terms no less favorable than the directors'
and officers' liability insurance maintained by Herley in effect on the date
hereof in terms of coverage and amounts. Herley shall continue to indemnify
Blatt as provided above and maintain such liability insurance coverage for him
after the Employment Term and, if applicable, the Consulting Period for any
claims that may be made against him with respect to his service as a director or
officer of Herley or a consultant to Herley.
         20.      EFFECT OF AGREEMENT ON OTHER BENEFITS.
         The existence of this Agreement shall not prohibit or restrict Blatt's
entitlement to participate fully in compensation, employee benefit and other
plans of Herley in which senior executives are eligible to participate.
         21.      ASSIGNABILITY; BINDING NATURE.
         This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of Blatt) and
assigns. No rights or obligations of Herley under this Agreement may be assigned
or transferred by Herley except pursuant to (a) a merger or consolidation in
which Herley is not the continuing entity or (b) sale or liquidation of all or
substantially all of the assets of Herley, provided that the surviving entity or
assignee or transferee is the successor to all or substantially all of the
assets of Herley and such surviving entity or assignee or transferee assumes the
liabilities, obligations and duties of Herley under this Agreement, either
contractually or as a matter of law.
         Herley further agrees that, in the event of a sale of assets or
liquidation as described in the preceding sentence, it shall use its best
efforts to have such assignee or transferee expressly agree to assume the
liabilities, obligations and duties of Herley hereunder; provided, however, that
notwithstanding such assumption, Herley shall remain liable and responsible for
fulfillment of the terms and conditions of this Agreement; and provided,
further, that in no event shall such assignment and assumption of this Agreement
adversely affect Blatt's right upon a Change in Control, as provided in Section
10(h) above. No rights or obligations of Blatt under this Agreement may be
assigned or transferred by him.
         22.      REPRESENTATIONS.
         The Parties 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. Herley 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.
         23.      ENTIRE AGREEMENT.
         Except to the extent otherwise provided herein, this Agreement contains

<PAGE>


the entire understanding and agreement between the Parties 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 Prior Agreement. Payments and benefits provided under
this Agreement are in lieu of any payments or other benefits under any severance
program or policy of Herley to which Blatt would otherwise be entitled.
         24.      AMENDMENT OR WAIVER.
         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
Herley. 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.
         25.      SEVERABILITY.
         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.
         26.      SURVIVAL.
         The respective rights and obligations of the Parties under this
Agreement shall survive any termination of Blatt's employment with Herley.
         27.      GOVERNING LAW/JURISDICTION.

This Agreement shall be governed by and construed and interpreted in accordance
with the laws of New York, without reference to principles of conflict of laws.

        28.      COSTS OF DISPUTES.
         Herley shall pay, at least monthly, all costs and expenses, including
attorneys' fees and disbursements, of Blatt in connection with any proceeding,
whether or not instituted by Herley or Blatt, relating to any provision of this
Agreement, including but not limited to the interpretation, enforcement or
reasonableness thereof; provided, however, that, if Blatt instituted the
proceeding and the judge or other decision-maker presiding over the proceeding
affirmatively finds that his claims were frivolous or were made in bad faith, he
shall pay his own costs and expenses and, if applicable, return any amounts
theretofore paid to him or on his behalf under this Section 28. Pending the
outcome of any proceeding, Herley shall pay Blatt all amounts due to him without
regard to the dispute; provided, however, that if Herley shall be the prevailing
party in such a proceeding, Blatt shall promptly repay all amounts that he
received during pendency of the proceeding (other than amounts received pursuant
to this Section 28).
         29.      NOTICES.
         Any notice given to either Party shall be in writing and shall be
deemed to have been given when delivered either personally, by fax, 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.
If to Herley or the Board:
Herley Industries, Inc.
3061 Industry Drive
Lancaster, Pennsylvania  17603
Fax No.  717-397-9503

<PAGE>



With a copy to:
Blau, Kramer, Wactlar & Lieberman, P.C.
100 Jericho Quadrangle, Suite 225
Jericho, NY  11753
Fax No. 516-822-4824

If to Blatt:
734 Yokum Pond Road
Becket, Massachusetts  01223

And to:
741 North Arrowhead Trail
Vero Beach, FL 32963

With a copy to:
Lee N. Blatt
c/o Herley Industries, Inc.
3061 Industry Drive
Lancaster, Pennsylvania 17603
Fax No.  717-397-9503

         30.      HEADINGS.
         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.
         31.      COUNTERPARTS.
         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
July 29, 2002.

                                            HERLEY INDUSTRIES, INC.


Attest:  ___________________________    By: _________________________
                                                          Myron Levy


Attest: ____________________________    By: __________________________
                                                          John M. Kelley



                                                          EMPLOYEE


Witness: ___________________________           _________________________
                                                           Lee N. Blatt