EXHIBIT 10.1

                                 LOAN AGREEMENT
                                 --------------

     THIS LOAN  AGREEMENT  is made  this  30th day of  April,  2007 by and among
HERLEY  INDUSTRIES,  INC.  (the  "Borrower"),  MANUFACTURERS  AND TRADERS  TRUST
COMPANY and BANK OF LANCASTER COUNTY,  N.A. (each a "Lender" and,  collectively,
the "Lenders," as further defined herein),  and  MANUFACTURERS AND TRADERS TRUST
COMPANY, as agent (in such capacity, the "Agent").

1.   DEFINITIONS.

     1.1 Defined Terms.

     As used in this Agreement the following terms have the following meanings:

     "Account":  shall  mean and  include  all  accounts,  accounts  receivable,
contact rights,  instruments  (including those evidencing  indebtedness  owed to
Affiliates),  documents,  chattel paper  (including  electronic  chattel paper),
general intangibles  relating to accounts,  drafts and acceptances,  credit card
receivables and all other forms of obligations  owing to such Person arising out
of or in  connection  with the sale or lease of  Inventory  or the  rendition of
services,  all supporting  obligations,  guarantees and other security therefor,
whether secured or unsecured,  now existing or hereafter created, and whether or
not specifically sold or assigned to Agent hereunder.

     "Acquisition":  the  acquisition  of  (i) a  controlling  equity  or  other
ownership  interest  in another  Person  (including  the  purchase of an option,
warrant or convertible  or similar type security.  to acquire such a controlling
interest at the time it becomes  exercisable by the holder thereof),  whether by
purchase  of such  equity or other  ownership  interest  or upon  exercise of an
option or warrant for, or conversion of  securities  into,  such equity or other
ownership  interest,  or by merger or  consolidation,  or (ii) assets of another
Person that  constitute all or any material part of the assets of such Person or
of a line or lines of business conducted by such Person.

     "Advance": a Base Rate Advance or a LIBOR Advance, as the case may be.

     "Aggregate  Revolving  Credit  Commitments":  on any  date,  the sum of the
Revolving Credit Commitments on such date.


     "Agreement":  this Loan Agreement, as the same may be amended, supplemented
or otherwise modified from time to time.

     "Applicable  Margin":  with respect to the unpaid principal amount of LIBOR
Advances,  the  percentage set forth below under the heading "LIBOR Margin" next
to the applicable period:
<PAGE>
Period
------
                                                           LIBOR Margin
                                                           ------------
when the Ratio of Total Liabilities to Tangible               1.35%
 Net Worth is less than 0.40:1.0

when the Ratio of Total Liabilities to Tangible               1.50%
Net Worth is equal to or greater than 0.40:1.0
but not greater than 1.0:1.0

when the Ratio of Total Liabilities to Tangible               1.65%
Net Worth is greater than 1.0:1.0

Changes in the Applicable  Margin  resulting from a change in the Ratio of Total
Liabilities  to Tangible  Net Worth,  as set forth in a  Compliance  Certificate
delivered  pursuant to Section  5.1(c)  evidencing  such a change,  shall become
effective  upon the  forty-fifth  (45th)  day after each  fiscal  quarter of the
Borrower. If the Borrower shall fail to deliver a Compliance  Certificate within
45 days after the end of each fiscal  quarter,  then for purposes of determining
the Applicable Margin, the Ratio of Total Liabilities to Tangible Net Worth from
and including  the date by which such  Compliance  Certificate  was to have been
delivered to the actual date of delivery  shall be  conclusively  presumed to be
greater than 1.0:1.0.

     "Assignment  and  Acceptance  Agreement":   an  assignment  and  acceptance
agreement executed by an assignor and an assignee pursuant to which the assignor
assigns  to the  assignee  all or any  portion  of  such  assignor's  Notes  and
Revolving  Credit  Commitment,  as contemplated  by Section 9.9(a),  in form and
content satisfactory to the Agent.

     "Authorized  Signatory":  the chief executive officer, the president or the
chief financial officer.

     "Base Rate": the rate of interest  announced by the Agent as its prime rate
of interest ("Prime") minus 0.50%.

     "Base Rate Advance":  collectively,  the Loans (or any portions thereof) at
such times as they (or such  portions)  are made and/or being  maintained at the
Base Rate.

     "Borrowing Date": any Business Day on which a Loan is made.

     "Borrowing  Request":  a written  request for Loans in the form supplied or
specified by the Agent.

     "Business  Day": any day of the year on which banking  institutions  in New
York,  New York are not  authorized  or  required  by law or other  governmental
action to close  and,  to the  extent  the LIBOR  Rate is  applicable,  on which
dealings are carried on in the London Interbank Market.

     "Collections": all payments (including payments made by or on behalf of the
Borrower or received by the Agent on account of the Borrower's obligations under
the Loan Documents or pursuant to enforcement  proceedings  thereunder) received

                                       2
<PAGE>

by the  Agent in  respect  of the Notes  and/or  the Loan  Agreement  including,
without  limitation,  late fees and charges,  the Unused  Facility Fee and other
fees  collected  by the  Agent  pursuant  to the  terms of the  Loan  Agreement;
provided,  however,  that the term "Collections"  shall not include any sums (or
accrued interest  thereon) paid to the Agent on account of the costs of closing,
administering  or  enforcing  the,  Loan  Documents,   transaction  and  service
expenses,  issuance fees, processing fees, inspection fees, legal fees and costs
or late  charges,  to the extent a Lender has not shared in the  payment of such
expenses, fees, costs or charges.

     "Compliance  Certificate":  a written  certificate made by the Borrower and
delivered to the Agent pursuant to Section 5.1(c).

     "Conversion  Date":  as the  case may be,  the  date on  which a Base  Rate
Advance is converted to a LIBOR  Advance,  the date on which a LIBOR  Advance is
converted  to a Base  Rate  Advance,  or the  date on which a LIBOR  Advance  is
renewed  for a  successive  one (1) month  Interest  Period as  contemplated  by
Section 2.1.4(b).

     "Cost of Acquisition":  with respect to any Acquisition,  as at the date of
entering  into  any  agreement  therefor,  the  sum  of the  following  (without
duplication) (i) the value of the capital stock,  warrants or options to acquire
capital stock of the Borrower or any  subsidiary to be transferred in connection
therewith,  (ii) the amount of any cash and fair market value of other  property
(excluding  property  described in clause (i) and the unpaid principal amount of
any debt instrument)  given as  consideration,  (iii) the amount  (determined by
using  the face  amount or the  amount  payable  at  maturity,  whichever  is(.)
greater) of any  Indebtedness  incurred,  assumed or acquired by the Borrower or
any subsidiary in connection with such Acquisition, (iv) all additional purchase
price  amounts in the form of earnouts  and other  contingent  obligations  that
should  be  recorded  on the  financial  statements  of  the  Borrower  and  its
subsidiaries  in  accordance  with  GAAP,  (v) all  amounts  paid in  respect of
covenants  not to  compete,  consulting  agreements  that  should be recorded on
financial  statements of the Borrower and its  subsidiaries  in accordance  with
GAAP, (vi) the aggregate fair market value of all other  consideration  given by
the Borrower or any subsidiary in connection  with such  Acquisition,  and (vii)
out-of-pocket  transaction  costs for the services  and  expenses of  attorneys,
accountants and other consultants incurred in effecting such transaction, and(.)
other similar  transaction  costs so incurred and capitalized in accordance with
GAAP.

     "Debt":  for any  date  of  determination,  the  aggregate  of all  amounts
outstanding  on the Loans and all other  indebtedness  for which the Borrower is
liable,  whether as borrower,  maker,  guarantor or endorser  (excluding payment
instruments  endorsed  for  deposit  or  collection  in the  ordinary  course of
business).

     "Debt Service  Coverage  Ratio":  with respect to Borrower,  Borrower's Net
Profit After Tax for its four (4) most recently completed fiscal quarters,  less
dividends to  stockholders  with respect to such period,  plus non-cash  charges
(such as depreciation and  amortization)  for such period,  divided by scheduled
principal payments on Borrower's Debt for such period.

     "Default":  any event or condition which constitutes an Event of Default or
which,  with the giving of notice,  the lapse of time,  or any other  condition,
would, unless cured or waived, become an Event of Default.

                                       3
<PAGE>

     "Eligible  Account":  shall mean (1) an Account  that arose in the ordinary
course of business of Borrower  from or in  connection  with a bonafide  sale of
goods  or  rendition  of  services,  performed  in  accordance  with an order or
contract,  oral or written,  wherein all  obligations of Borrower  regarding the
shipment or delivery of such goods to the  customer  have been  satisfied or the
services have been performed for the customer; (2) the rights of Borrower in and
to the Account  and the  proceeds  thereof  are not  subject to any  assignment,
claim,  lien,  security  interest  or  other  encumbrance;  (3) to the  best  of
Borrower's  knowledge,  the account is not disputed or subject to offset, credit
allowance or adjustment by the customer, except discounts customarily offered in
Borrower's  business;  and (4) the  Account  has  been due and  payable  for one
hundred twenty (120) days or less from the invoice date.

     "Environmental Laws": any and all federal, state and local laws relating to
the  environment,  the  use,  storage,  transporting,  manufacturing,  handling,
discharge,   disposal  or  recycling  of  hazardous  substances,   materials  or
pollutants or industrial  hygiene and  including,  without  limitation,  (i) the
Comprehensive  Environmental  Response,   Compensation  and  Liability  Act,  as
amended,  42 USCA ss.9601 et seq.; (ii) the Resource  Conservation  and Recovery
Act of 1976, as amended, 42 USCA 0901 et seq.; (iii) the Toxic Substance Control
Act, as amended,  15 USCA ss.2601 et seq.; (iv) the Water Pollution Control Act,
as amended,  33 USCA ss.1251 et seq.; (v) the Clean Air Act, as amended, 42 USCA
ss.7401 et seq.; (vi) the Hazardous Material  Transportation Act, as amended, 49
USCA ss.1801 et seq.;.; and (vii) all rules,  regulations,  judgments,  decrees,
injunctions and restrictions thereunder and any similar state law.

     "Event of Default":  any of the events  specified in Section 8.1,  provided
that any  requirement  for the giving of notice,  the lapse of time or any other
condition has been satisfied.

     "GAAP":  generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board and the American Institute
of  Certified  Public  Accountants  and  statements  and  pronouncements  of the
Financial  Accounting  Standards  Board or such  other  statement  by such other
entity as may be approved by a significant segment of the accounting profession,
which  are  applicable  to the  circumstances  as of the date of  determination,
consistently applied.

     "Governmental  Authority":  any  nation or  government,  any state or other
political  subdivision  thereof, any entity exercising  executive,  legislative,
judicial,  regulatory or administrative functions of or pertaining to government
and any court or arbitrator.

     "Guarantor" and "Guarantors": one or more of General Microwave Corporation,
a New York corporation,  Micro-El Patent  Corporation,  a Delaware  corporation,
General Microwave Israel Corporation, a Delaware corporation,  Herley-CTI, Inc.,
a Delaware corporation, Herley-RSS, Inc., a Delaware corporation, Micro Systems,
Inc., a Florida corporation,  Innovative Concepts,  Inc. a Virginia corporation,
Stapor Research, Inc., a Virginia corporation, HMS Investments. Inc., a Delaware
corporation, HMS Trading, Inc., a Delaware corporation, MSI Acquisition Corp., a
Delaware  corporation,  ICI Acquisition Corp., a Delaware  corporation,  and any
additional  U.S.  -  domiciled  operating  subsidiaries  which  Borrower  or any
Guarantor  may  create or  acquire at any time a Loan  remains  outstanding  and
unpaid  or any  other  amount  is owing  under  any  Loan  Document.  The  terms
"Guarantor" and "Guarantors" do not include General Microwave  Israel,  Ltd. and
EW Simulation Technology Ltd.

                                       4
<PAGE>

     "Hazardous Substance": any hazardous or toxic substance, material or waste,
including, but not limited to, (i) those substances, materials and wastes listed
in the United States Department of Transportation  Hazardous Materials Table (49
CFR 172.101) or by the Environmental  Protection Agency as hazardous  substances
(40 CFR Part 302) and amendments thereto and replacements  therefor and (ii) any
substance,  pollutant or material defined as, or designated in any Environmental
Law  as  a  "hazardous  substance,"  "toxic  substance,"  "hazardous  material,"
"hazardous waste," "restricted  hazardous waste," "pollutant," "toxic pollutant"
or words of similar import.

     "Highest  Lawful  Rate" : with  respect to a Lender,  the  maximum  rate of
interest,  if any, that at any time or from time to time may be contracted  for,
taken, charged or received by the Lender on the Notes or which may be owing to a
Lender  pursuant to this Agreement  under the laws  applicable to the Lender and
this Agreement.

     "Indictment":  the indictment which was filed in the United States District
Court for the Eastern  District of Pennsylvania on June 6, 2006 at Criminal Not.
06-CR268.

     "Interest  Period":  with  respect to any LIBOR  Advance  requested  by the
Borrower,  the period  commencing  on, as the case may be, the Borrowing Date or
the  Conversion  Date with respect to such LIBOR  Advance and ending on the date
that is one month  thereafter,  provided,  however:  (i) if any Interest  Period
would  otherwise end on a day that is not a Business  Day, such Interest  Period
shall  be  extended  to the  next  succeeding  Business  Day  unless  such  next
succeeding  Business Day would fall in the next  calendar  month,  in which case
such Interest  Period shall end on the  immediately  preceding  Business Day and
(ii) no Interest Period shall end, in the case of a Revolving Credit Loan, after
the Revolving Credit Maturity Date.

     "Inventory":  shall mean and  include all now owned or  hereafter  acquired
goods,  merchandise  and  other  personal  property,  wherever  located,  to  be
furnished  under any  consignment  arrangement,  contract of service or held for
sale or lease, all raw materials,  work in process, finished goods and materials
and supplies of any kind,  nature or  description  which are or might be used or
consumed in such Person's  business or used in selling or furnishing such goods,
merchandise  and other  personal  property,  and all documents of title or other
documents representing them.

     "Lender" and  "Lenders":  one or more of  Manufacturers  and Traders  Trust
Company,  in its capacity as a Lender,  Bank of Lancaster County,  N.A. and each
Person that becomes a Lender  pursuant to the  provisions  of Section  9.9(a) of
this Agreement.

     "LIBOR":  shall  mean the rate  per  annum  obtained  by  dividing  (i) the
one-month  interest period London Interbank Offered Rate as fixed by the British
Bankers  Association for United States dollar  deposits in the London  Interbank
Eurodollar Market at approximately  11:00 a.m. London,  England time (or as soon
thereafter as  practicable)  as determined by the Bank from any broker,  quoting
service or commonly  available  source utilized by the Bank by (ii) a percentage
equal to 100% minus the  stated  maximum  rate of all  reserves  required  to be
maintained against  "Eurocurrency  Liabilities" as specified in Regulation D (or
against any other category of liabilities  which includes  deposits by reference
to which the  interest  rate on LIBOR  Rate Loan or Loans is  determined  or any
category of  extensions  of credit or other  assets  which  includes  loans by a

                                       5
<PAGE>

non-United States' office of a bank to United States' residents) on such date to
any member bank of the Federal  Reserve  System.  Notwithstanding  any provision
above,  the practice of rounding to determine  LIBOR may be  discontinued at any
time in the Bank's sole  discretion.  If LIBOR shall become  unavailable,  a per
annum rate of interest equal to the Base Rate shall be substituted for LIBOR.

     "LIBOR Advances": collectively; the Loans (or any portions thereof) at such
time as they (or such  portions)  are made and/or being  maintained at a rate of
interest based upon LIBOR.

     "Lien":  any  mortgage,  pledge,  hypothecation,   assignment,  deposit  or
preferential  arrangement,  encumbrance,  lien  (statutory  or other),  or other
security  agreement  or  security  interest  of any kind or  nature  whatsoever,
including,  without  limitation,  any conditional  sale or other title retention
agreement  and any capital or  financing  lease  having  substantially  the same
economic effect as any of the foregoing.

     "Loans": the Revolving Credit Loans.

     "Loan  Documents":  collectively,  this Agreement,  the Notes and all other
documents executed and delivered in connection with the Loans, and any future or
additional  loan documents  executed and delivered in connection with the Loans,
and any amendments or modifications thereof.

     "Note": a Revolving Credit Note.

     "Notes": the Revolving Credit Notes.

     "Permitted Liens": any of the liens described in clauses (i) through (v) of
Section 6.3 of this Agreement:

     "Person": an individual, a partnership,  a corporation, a business trust, a
joint stock company,  a trust, a limited  liability  company,  an unincorporated
association,  a joint venture,  a Governmental  Authority or any other entity of
whatever nature.

     "Required Lenders": Lenders having Revolving Credit Commitments equal to at
least 66-2/3 % of the Aggregate Revolving Credit Commitments of all the Lenders.

     "Revolving Credit Commitment":  in respect of any Lender having a Revolving
Credit  Commitment,  such  Lender's  undertaking  during  the  Revolving  Credit
Commitment Period to make Revolving Credit Loans to the Borrower, subject to the
terms and conditions  hereof, in an aggregate  outstanding  principal amount not
exceeding  the  amount  set forth  next to the name of such  Lender in Exhibit A
under the heading "Revolving Credit Commitments."

     "Revolving Credit Commitment Percentage": in respect of any Lender having a
Revolving  Credit  Commitment,  the percentage  that the amount of such Lender's
Revolving  Credit  Commitment   comprises  of  the  Aggregate  Revolving  Credit
Commitments, as set forth next to the name of such Lender in Exhibit A under the
heading "Revolving Credit Commitment Percentage."

                                       6
<PAGE>

     "Revolving  Credit  Commitment  Period":  the period  from the date of this
Agreement through the day preceding the Revolving Credit Maturity Date.

     "Revolving Credit Loan" and "Revolving Credit Loans": as defined in Section
2.1.

     "Revolving  Credit Maturity Date":  March 31, 2009, or such earlier date on
which the Notes  shall  become  due and  payable,  whether  by  acceleration  or
otherwise.

     "Tangible  Net  Worth":  with  respect  to  any  Person,  at  any  time  of
determination,  that amount which is equal to the excess of all of such Person's
assets (excluding  inter-affiliate items and any and all intangible assets, such
as, but not limited  to,  customer  lists,  covenants  not to compete,  deferred
financing costs, deferred charges,  goodwill,  intellectual property,  licenses,
organization  costs,  officer and stockholder  advances or receivables,  mineral
rights  and  the  like)   over  all  of  such   Person's   liabilities   (except
inter-affiliate items), determined in accordance with GAAP.

     1.2 Other Definitional Provisions.

          (a) All terms defined in this Agreement  shall have the meanings given
     such  terms  herein  when used in the Loan  Documents  or any  certificate,
     opinion or other  document  made or delivered  pursuant  hereto or thereto,
     unless otherwise defined therein.

          (b) As used in the Loan Documents and in any  certificate,  opinion or
     other  document made or delivered  pursuant  hereto or thereto,  accounting
     terms not defined in Section 1.1, and  accounting  terms partly  defined in
     Section 1.1, to the extent not defined,  shall have the respective meanings
     given to them under GAAP.

          (c) The words "hereof," "herein," "hereto" and "hereunder" and similar
     words when used in this Agreement  shall refer to this Agreement as a whole
     and  not to any  particular  provision  of  this  Agreement,  and  Section,
     schedule and exhibit  references  contained  herein shall refer to Sections
     hereof or schedules or exhibits hereto unless otherwise  expressly provided
     herein.

          (d) The word "or" shall not be exclusive "may not" is prohibitive  and
     not permissive, and an "agreement" of a Person shall include any applicable
     promise,  covenant,  representation,  warranty or other undertaking of such
     Person.

          (e) Unless  the  context  otherwise  requires,  words in the  singular
     number include the plural, and words in the plural include the singular.

          (f) Unless  specifically  provided in a Loan Document to the contrary,
     references  to time  shall  refer  to the  prevailing  time  in  Lancaster,
     Pennsylvania.

2. AMOUNT AND TERMS OF REVOLVING CREDIT.

     2.1 Revolving  Credit Loans.  Subject to the terms and  conditions  hereof,
each Lender  severally  agrees to make revolving credit loans (each a "Revolving
Credit Loan" and, as the context may require,  collectively  with. all Revolving
Credit  Loans of such Lender and with the  Revolving  Credit  Loans of all other
Lenders,  the "Revolving Credit Loans") to the Borrower from time to time during
the Revolving Credit Commitment  Period, in an aggregate  outstanding  principal

                                       7
<PAGE>

amount at any one time outstanding not to exceed such Lender's  Revolving Credit
Commitment.  At no time shall the aggregate  outstanding principal amount of the
Revolving  Credit Loans of all Lenders  exceed the  Aggregate  Revolving  Credit
Commitments.  During the Revolving Credit  Commitment  Period,  the Borrower may
borrow,  prepay  in whole or in part and  reborrow  under the  Revolving  Credit
Commitments,  all in accordance with the terms and conditions of this Agreement.
The  Borrower  covenants  that it will  not  request  any  borrowing  under  the
Revolving  Credit  Loans that would cause the  aggregate  outstanding  principal
amounts of the Revolving Credit Loans to exceed the aforesaid limitations. Also,
in the event that HMS Investments, Inc. shall at any time(s) have total cash and
cash equivalents below $5,000,000, the aggregate outstanding principal amount of
the Revolving  Credit Loans during any such period(s) may not exceed 100% of the
Borrower's  Eligible  Accounts as determined by Bank, it being agreed,  however,
that cash held in General Microwave Israel,  Ltd. may be used in calculating the
required  minimum cash level.  Any  termination  of the Revolving  Credit Loans,
whether by expiration of the Revolving Credit  Commitment  Period or as a result
of the  existence or  continuance  of any Event of Default,  shall  relieve each
Lender of the Lender's  obligation  hereunder to lend money or to make financial
accommodations to or for the Borrower and for any of its accounts,  but shall in
no way release,  terminate,  discharge or excuse the Borrower  from its absolute
duty to pay or perform any or all of its obligations  under this Agreement.  The
application  of the preceding  sentence is intended to apply as long as any sums
remain outstanding, due or owing under any Revolving Credit Loan.

     2.1.1 Revolving  Credit Notes.  The Revolving Credit Loans made by a Lender
shall be evidenced by a Note of the Borrower  (each a "Revolving  Loan Note" and
collectively  the "Revolving  Loan Notes") the terms and conditions of which are
incorporated  herein by  reference.  The (i) date and  amount of each  Revolving
Credit Loan made by a Lender,  (ii) the  interest  rates and  periods  that such
rates are applicable,  and (iii) each payment and prepayment of principal and/or
interest,  shall be recorded by such  Lender on its books and  records,  but any
failure of such Lender to make any such  recordation  or  endorsement  shall not
affect the  obligations  of the  Borrower to make payment when due of any amount
owing under the Loan Documents. All repayments shall be credited to the balances
due under a Lender's  Revolving  Credit Loans in accordance  with the normal and
customary  practices of the Lender.  Interest accrued under a Lender's Revolving
Credit Loans shall be computed on the  outstanding  balances as reflected on the
Lender's books and records.

     2.1.2 Procedure for Borrowing.  The Borrower may borrow under the Revolving
Credit  Commitments on any Business Day during the Revolving  Credit  Commitment
Period,  provided,  however,  that the  Borrower  shall  notify  the  Agent  (by
telephone or telecopy) no later than 11:00 A.M. on the requested Borrowing Date,
specifying (A) the aggregate principal amount to be borrowed under the Revolving
Credit  Commitments,  (B) whether the Advance is to be a Base Rate  Advance or a
LIBOR Advance (if no interest rate option is specified,  then the Borrower shall
be deemed to have specified the Base Rate Advance  option) and (C) the requested
Borrowing Date. Each such notice shall be irrevocable and confirmed  immediately
by delivery to the Agent of a Borrowing Request. The Agent and each Lender shall
be authorized to rely upon any Borrowing  Request made by any  representative of
the Borrower as constituting an authorized Borrowing Request under the Revolving
Credit Loans by the Borrower.  Upon receipt of each notice of borrowing from the
Borrower,  the Agent shall promptly notify each Lender  thereof.  Subject to its

                                       8
<PAGE>

receipt of the notice  referred to in the preceding  sentence,  each Lender will
make the amount of its Revolving Credit Commitment  Percentage of each borrowing
of Revolving  Credit Loans available to the Borrower not later than 3:00 P.M. on
the relevant  Borrowing  Date  requested by the Borrower,  in funds  immediately
available to the  Borrower,  by crediting an account of the Borrower  maintained
with Agent for such purpose with the amount of such borrowing.

     2.1.3 Repayment.  Payments of principal, interest and other amounts due and
owing  under each  Revolving  Credit  Note shall be made by the  Borrower to the
Agent for the account of the respective Lender in immediately available funds as
and when provided in Section  2.3(c) with respect to interest,  and with respect
to principal, as and when provided in such Revolving Credit Note or as otherwise
provided in this Agreement. The Agent will promptly remit to each Lender its pro
rata  share of all  Collections  when  received  by the  Agent,  subject  to the
following:

          (a) After deduction of reasonable  expenses and other charges incurred
     by the Agent and reimbursable by the Borrower, Collections shall be applied
     first to the  payment  of all  accrued  but  unpaid  interest  then due and
     payable in. the order of maturity of the installments of such interest on a
     pro rata basis in relation to the respective  aggregate  amounts of accrued
     but unpaid interest on each Lender's Revolving Credit Loans; and

          (b) Second, to the repayment of all amounts of principal on a pro rata
     basis in relation to the respective  outstanding  principal balance of each
     Lender's  Revolving  Credit  Loans  constituting  LIBOR  Advances,  and the
     balance, if any, to the payment to the Agent in its capacity as a Lender of
     the outstanding principal balance of Base Rate Advances; provided, however,
     that principal  amounts  constituting  LIBOR Advances may be repaid only on
     the last day of the  respective  Interest  Period  applicable to such LIBOR
     Advance and, if repayment of a LIBOR Advance does not occur on the last day
     of the  respective  Interest  Period  and the  Borrower  has not  otherwise
     provided  the Agent  with  timely  notice of the  conversion  of such LIBOR
     Advance to a Base Rate Advance in  accordance  with  Section  2.1.4 of this
     Agreement,  then such LIBOR Advance shall be deemed to constitute a renewed
     LIBOR Advance for a successive one (1) month Interest  Period.  Outstanding
     principal  amounts  constituting  Base Rate  Advances  may be repaid at any
     time.

          (c) Notwithstanding the provisions of Sections 2.1.3(a) and (b) above,
     following the occurrence of an Event of Default and the acceleration by the
     Lenders of the  amounts  due under the Notes,  the Agent  shall  distribute
     Collections,  after  deduction of  reasonable  expenses  and other  charges
     incurred by the Agent and reimbursable by the Borrower, to the Lenders on a
     pro  rata  basis  in  relation  to  the  respective  aggregate  outstanding
     principal  balance  of each  Lender's  Loans to the  aggregate  outstanding
     principal balance of all Loans.

     2.1.4 Conversions. The Borrower may elect from time to time to convert Base
Rate Advances to LIBOR Advances by giving the Agent  irrevocable  notice of such
election no later than 12:00 Noon,  three (3) Business Days prior to the date of
such  conversion,  specifying  the amount to be so converted.  In addition,  the
Borrower  may elect from time to time to  convert  LIBOR  Advances  to Base Rate
Advances by giving the Agent  irrevocable  notice of such election no later than
12:00 Noon,  one (1) Business Day prior to such  conversion,  provided  that any
such  conversion of LIBOR Advances to Base Rate Advances shall only be made on a
Business Day and only on the last day of the Interest  Period  applicable to the
LIBOR Advances which are to be converted to Base Rate Advances.  The Agent shall
promptly  provide the Lenders with notice of any such  election.  LIBOR Advances
and Base Rate Advances may be converted  pursuant to this Section in whole or in

                                       9
<PAGE>

part.  Notwithstanding  anything in this Section to the contrary,  no conversion
will be effected,  if the Borrower or the Agent has knowledge  that a Default or
Event of  Default  has  occurred  and is  continuing  either (i) at the time the
Borrower  notifies the Agent of its election to convert or (ii) on the requested
Conversion Date.

     2.1.5 Duration of the Revolving Credit Loans.  All sums  outstanding  under
the Loans shall be paid in full and the  Revolving  Credit Loans shall expire on
the Revolving Credit Maturity Date.

     2.2 Prepayments of the Loans.

     The Borrower may, at its option,  prepay Base Rate Advances, in whole or in
part,  without  premium  or  penalty,  at any time and  from  time to time.  The
Borrower may pay a LIBOR  Advance,  in whole or in part,  only at the end of the
Interest Period applicable to such LIBOR Advance.

     2.3 Interest Rate and Payment Dates.

     (a) Prior to  Maturity.  Except as  otherwise  provided in Section  2.3(b),
prior to maturity  the Loans shall bear  interest on the  outstanding  principal
balances  thereof at the  applicable  interest rate or rates per annum set forth
below.

          Advances                    Rate

          Base Rate Advance           Base Rate

          LIBOR Advance               LIBOR plus the Applicable Margin


     (b) Event of Default. After the occurrence and during the continuance of an
Event of Default, the outstanding principal balance of the Loans and any overdue
interest or other amount payable under the Loan Documents shall bear interest at
a rate per annum equal to two percent  (2%) plus the rate which would  otherwise
be applicable under Section 2.3(a) of this Agreement.

     (c) General.  Interest  shall be calculated on the basis of a three hundred
sixty  (360) days per year  factor  applied to the  actual  days on which  there
exists an outstanding  principal balance on a Loan. Interest shall be payable in
arrears on the first day of each month during the  Revolving  Credit  Commitment
Period in  respect  of Base  Rate  Advances,  on the last day of the  applicable
Interest  Period in  respect  of LIBOR  Advances,  and on the  Revolving  Credit
Maturity Date. Any change in the interest rate on a Loan resulting from a change
in the Base Rate shall become effective as of the opening of business on the day
on which such change shall become effective. The Agent shall notify the Borrower
of the effective  date and the amount of each such change in the Base Rate,  but

                                       10
<PAGE>

any failure to so notify shall not in any manner  affect the  obligation  of the
Borrower to pay interest on the Loans in the amounts and on the dates  required.
Each  determination of the Base Rate and LIBOR, as the case may be, by the Agent
pursuant to this  Agreement  shall be  conclusive  and  binding on the  Borrower
absent  manifest  error. At no time shall the interest rate payable on the Loans
of any Lender,  together with all other amounts payable under the Loan Documents
to the extent the same are construed to constitute interest,  exceed the Highest
Lawful Rate  applicable to such Lender.  If interest  payable to a Lender on any
date would  exceed the  maximum  amount  permitted  by the  Highest  Lawful Rate
applicable to such Lender,  such interest payment shall automatically be reduced
to such maximum permitted amount, and interest for any subsequent period, to the
extent less than the  maximum  amount  permitted  for such period by the Highest
Lawful  Rate,  shall be increased by the unpaid  amount of such  reduction.  Any
interest  actually  received for any period in excess of such maximum  allowable
amount for such period shall be deemed to have been  applied as a prepayment  of
the Loans.  The Borrower  acknowledges  that to the extent interest payable on a
Loan is based on the Base Rate or LIBOR,  such  rates are only some of the bases
for  computing  interest on loans made by the  Lenders,  and by basing  interest
payable on any of such rates, the Lenders have not committed to charge,  and the
Borrower  has not in any way  bargained  for,  interest  based on a lower or the
lowest  rate at which the  Lenders  may now or in the future make loans to other
borrowers.

     2.4 Use of Proceeds.

     (a) The proceeds of the Loans shall be used for working capital and general
corporate  purposes  including,   without  limitation,   financing  Acquisitions
(subject,  however,  to the  conditions of Section 6.1), and for the issuance of
letters of credit as  provided  in Section  2.4(b).

     (b) To the extent that the Agent, in its sole  discretion,  determines that
funds are available under the Revolving Credit  Commitments,  each Lender agrees
to severally  issue  standby  letters of credit on behalf of the  Borrower  upon
request, subject to such terms and conditions as may be required and approved by
the Agent and the Lenders .in their  collective  discretion,  including  without
limitation,  the terms of the letters of credit and the terms of repayment to be
set forth in separate reimbursement  agreements in form and substance acceptable
to the Agent and the  Lenders.  The Agent shall  attribute  between or among the
Lenders the amounts of letters of credit requested by the Borrower.

     2.5 Fees.

     (a) The Borrower  agrees to pay to the Agent  annually in advance,  for its
own account,  an administration fee in the amount of $5,000 and to pay Agent for
the ratable benefit of Lenders an "Unused Facility Fee" equal to 20 basis points
(0.20%) per annum (calculated on the basis of a 360 day year for the actual days
elapsed) of the unused  portion of the Aggregate  Revolving  Credit  Commitments
(such unused portion being determined by subtracting the aggregate amount of all
outstanding  Revolving Credit Loans on the applicable date of determination from
the Aggregate  Revolving  Credit  Commitments).  For purposes of calculating the
unused portion of the Aggregate Revolving Credit Commitments,  Letters of Credit
made  under the  Loans  shall be deemed  to be used  portions  of the  Aggregate
Revolving  Credit  Commitments.  The  Unused  Facility  Fee  shall  be  paid  in
immediately  available funds and shall be calculated on the basis of the average
daily unused portion of the Aggregate  Revolving Credit Commitments and shall be
payable  quarterly in arrears and on the Revolving  Credit  Maturity Date.  When
received, the Agent will promptly remit to each Lender its pro rata share of the
Unused  Facility  Fee  based  upon such  Lender's  Revolving  Credit  Commitment
Percentage.

                                       11
<PAGE>


     (b) If the  Lenders  are  requested  to issue  standby  letters  of  credit
pursuant to Section 2.4(b) of this  Agreement,  a separate  letter of credit fee
equal  in  amount  to one  percent  (1.00%)  of  the  aggregate  amounts  of the
(.)letters of credit shall be due and payable by the Borrower to the Lender upon
the  issuance of the letters of credit and at each  anniversary  of the issuance
date occurring during the terms of the letters of credit.

     (c) All such  fees  shall be the  absolute  property  of the  Lenders  upon
payment.  Payment  of such fees  shall not be  considered  payment of any of the
Lenders' expenses incurred in connection with the Loans. No portion of such fees
shall be refunded in the event the Borrower prepays any Loan including,  without
limitation,  any  prepayment  of the  Borrower's  obligations  under a letter of
credit reimbursement agreement, whether in whole or in part.

     2.6 Agent's  Records.  The Agent's  records with respect to the Loans,  the
interest rates applicable thereto, each payment by the Borrower of principal and
interest on the Loans, and fees,  expenses and any other amounts due and payable
in connection  with the Loan  Documents  shall be  presumptively  correct absent
manifest  error as to the  amount of the  Loans,  the  amount of  principal  and
interest  paid by the  Borrower  in  respect  of each  Loan and as to the  other
information  relating to the Loans, and amounts paid and payable by the Borrower
hereunder and under the Notes and other Loan Documents.

     2.7  Application of Deposits.  In addition to any rights of set off arising
under  the Loan  Documents  or under  law,  upon the  occurrence  of an Event of
Default,  the  Borrower  hereby  authorizes  the  Lenders to apply any amount on
deposit in any deposit account of the Borrower now or hereafter  maintained with
a Lender against any of the Borrower's indebtedness under the Loan Documents.

3. CONDITIONS OF LENDING - GENERAL.

     In  addition  to the  conditions  precedent  set  forth in  Section  4, the
obligation of the Lenders to make the Loans shall be subject to the  fulfillment
of the following conditions precedent:

     3.1 Evidence of Action.  The Agent shall have received a certificate  dated
as of the closing date of the  Secretary or Assistant  Secretary of the Borrower
(i)  attaching a true and complete  copy of the  resolutions  of the  Borrower's
Board of Directors and of all documents  evidencing  other  necessary  corporate
action  (in  form  and  substance  satisfactory  to the  Agent)  taken  by it to
authorize  the  Loan  Documents  to  which  it is a party  and the  transactions
contemplated  thereby, (ii) attaching a true and complete copy of the Borrower's
articles of incorporation and by-laws, (iii) setting forth the incumbency of the
Borrower's  officer or officers who may sign the Loan Documents to which it is a
party,  including  therein a signature  specimen of each such officer,  and (iv)
attaching  certificates  of good  standing  of the  Secretaries  of State of the
Commonwealth of Pennsylvania and the State of Delaware.

     3.2 This  Agreement.  The Agent shall have  received  counterparts  of this
Agreement  duly executed by an Authorized  Signatory of the Borrower and of each
Lender party hereto.

     3.3 Notes.  The Agent shall have received the  Revolving  Credit Notes duly
executed by an Authorized Signatory of the Borrower.

                                       12
<PAGE>

     3.4 Opinion of Counsel to the  Borrower.  The Agent shall have  received an
opinion of counsel to the Borrower,  addressed to the Agent and Agent's Counsel,
dated the closing  date,  in form and  substance  satisfactory  to the Agent and
covering such matters as the Agent may reasonably request.

     3.5 Litigation. There shall be no injunction, writ, preliminary restraining
order or other order of any nature issued by any  Governmental  Authority in any
respect  affecting  the  transactions  provided  for  herein  and no  action  or
proceeding by or before any Governmental Authority shall have been commenced and
be pending or, to the knowledge of the Borrower,  threatened, seeking to prevent
or delay the transactions  contemplated by the Loan Documents or challenging any
other  terms  and  provisions  hereof or  thereof  or  seeking  any  damages  in
connection therewith.

     3.6 Search  Reports.  The Agent shall have  received  UCC, tax and judgment
lien search  reports with respect to each  applicable  public office where Liens
are filed disclosing that there are no Liens of record in such official's office
covering  any of the  Borrower's  property or showing the  Borrower as a debtor,
except for Permitted Liens.

     3.7 Property,  Public Liability and Other  Insurance.  The Agent shall have
received a  certificate  or  certificates  of all  insurance  maintained  by the
Borrower in form and substance reasonably  satisfactory to the Lender,  together
with the endorsements described in Section 5.3.

     3.8 Other Documents.  The Agent shall have received such other documents as
the Agent shall reasonably request.

     3.9 Fees and Expenses of Agent's Counsel.  The fees and expenses of Agent's
Counsel in connection with the preparation,  negotiation and closing of the Loan
Documents shall have been paid by Borrower.

     3.10  Guarantors.  Each of the Guarantors shall have executed and delivered
to the Agent Continuing Guaranty Agreements in form and substance  acceptable to
the Agent,  providing  joint and several  suretyship for the absolute,  full and
timely  payment and  performance  by the Borrower of the terms and conditions of
each of the Loan Documents.

     3.11 Stock Pledge(s). The Agent shall have received the pledge(s) of 66% of
the stock of each foreign subsidiary.

     3.12 Collateral.  In the event that Borrower's backlog should, at any time,
fall below  $50,000,000,  Borrower shall grant Agent for the ratable  benefit of
Lenders  a  perfected  first  priority  security  interest  in and  lien  on all
Accounts, now owned and hereafter acquired (the "Accounts Lien"), and shall take
any and all actions as Agent may request for purposes  thereof and to effect the
same. Should the aggregate outstanding principal amounts of the Revolving Credit
Loans  (including  issued  letters of credit) then or at any time(s)  thereafter
exceed 100% of Borrower's Eligible Accounts, Borrower shall also grant Agent for
the ratable benefit of Lenders a perfected first priority  security  interest in
and lien on all  Inventory,  now owned and hereafter  acquired  (the  "Inventory
Lien"),  and shall take any and all actions as Agent may  request  for  purposes

                                       13
<PAGE>

thereof and to effect the same.  Borrower  authorizes  Agent to file one or more
financing  statements  in the  appropriate  public  office(s)  under the Uniform
Commercial  Code. So long as an Event of Default has not occurred,  the Accounts
Lien and the  Inventory  Lien will be removed  (without  prejudice)  if and when
Borrower's backlog exceeds $55,000,000.

4. CONDITIONS OF LENDING - ADVANCES.

     The  Obligation  of a Lender to make any Advance under the Loans is subject
to the satisfaction of the following additional  conditions precedent as of each
Borrowing Date:

     4.1 Compliance.

     On each  Borrowing  Date and after giving  effect to the Advance to be made
thereon,  (a)  the  Borrower  shall  be in  compliance  with  all of the  terms,
covenants and  conditions of the Loan  Documents,  (b) the  representations  and
warranties  set forth in the various  Loan  Documents  shall be true and correct
with the same force and effect as if made on and as of each such  Borrowing Date
(except to the extent any such  representation  or warranty may expressly relate
solely  to an  earlier  date);  (c) there  shall  exist no  Default  or Event of
Default., and (d) the outstanding principal amounts of the Loans will not exceed
the  limitations  as to the maximum  outstanding  principal  amount of the Loans
specified in Section 2.1 of this Agreement. Each borrowing by the Borrower shall
constitute a certification by the Borrower as of the date of such borrowing that
each of the foregoing matters is true and correct in all respects.

     4.2 Loan Documentation.

     All  documents  required  by the  provisions  of the Loan  Documents  to be
executed or delivered to the Agent on or before the  applicable  Borrowing  Date
shall  have been  executed  and shall have been  delivered  at the office of the
Agent set forth in Section 9.6 on or before such Borrowing Date.

     4.3 Documentation and Proceedings.

     All  corporate  and  legal  proceedings  and all  documents  and  papers in
connection with the transactions  contemplated by the Loan Documents shall be in
form and substance reasonably satisfactory to the Agent and the Agent shall have
received  all  information  and  copies  of all  documents  which  the Agent may
reasonably  have  requested  in  connection  therewith,  such  documents  (where
appropriate)  to be  certified  by an  Authorized  Signatory  of the Borrower or
proper Governmental Authorities.

     4.4 Required Acts and Conditions.

     All  acts,  conditions  and  things  (including,  without  limitation,  the
obtaining of any necessary  regulatory  approvals and the making of any filings,
recordings or registrations) required to be done, performed and to have happened
on or prior to such  Borrowing  Date and which are  necessary  for the continued
effectiveness  of the Loan  Documents,  shall have been done and  performed  and
shall have happened in due compliance with all applicable laws.

                                       14
<PAGE>

     4.5 Approval of Counsel.

     All legal  matters in  connection  with the making of each Advance shall be
reasonably satisfactory to Agent's Counsel.

     4.6 Supplemental Opinions.

     If requested by the Agent with respect to the  applicable  Borrowing  Date,
there shall have been delivered to the Agent favorable supplementary opinions of
counsel to the Borrower,  addressed to the Agent and dated such Borrowing  Date,
covering such matters  incident to the transactions  contemplated  herein as the
Agent may reasonably request.

     4.7 Other Documents.

     The Agent  shall have  received  such other  documents  as the Agent  shall
reasonably request.

5. AFFIRMATIVE COVENANTS.

     The Borrower  covenants  and agrees that,  so long as this  Agreement is in
effect,  any Loan- remains  outstanding and unpaid, or any other amount is owing
under any Loan Document to any Lender,  the Borrower shall,  except as otherwise
specifically provided:

     5.1 Reports to Agent.

          Deliver to the Agent the following reports:

               (a) The Borrower's financial statements as follows: (i) quarterly
          consolidated  statements  certified by the Borrower's  chief financial
          officer  within  forty-five  (45)  days  after  the end of each of the
          Borrower's  first three (3) fiscal  quarters in each fiscal year;  and
          (ii) year-end  consolidated  statements  within ninety (90) days after
          Borrower's fiscal year-end, which year-end statements shall be audited
          by  an  independent   certified  public   accountant  and  include  an
          unqualified  opinion of such accountant,  any management letter issued
          to the Borrower by such accountant and the Borrower's response to such
          management  letter.  All  financial  'statements  shall be prepared in
          accordance with GAAP consistently applied.

               (b) The  Borrower's  quarterly  report  on Form  10-Q and  annual
          report  on  Form  10-K as  filed  with  the  Securities  and  Exchange
          Commission within ten (10) days after filing.

               (c)  With  the  quarterly  financial  statements  required  under
          Section  5.1(a)(1),  a certificate of compliance with the requirements
          set forth in Sections 6.9, 6.10 and 6.11 of this  Agreement  signed by
          the Borrower's chief financial officer.

                                       15
<PAGE>

               (d) Monthly cash and monthly backlog reporting.

               (e) Such other  reports  as may be  reasonably  requested  by the
          Agent from time to time.

All  of  the  foregoing  reports  shall  be in  form  and  substance  reasonably
satisfactory  to the Agent.  If the  reports  are  required  to be audited by an
independent  certified  public  accountant,  such  independent  certified public
accountant shall be reasonably acceptable to the Agent.

     5.2 Certificates; Other Information.

     Furnish to the Agent prompt written notice if: (i) any  indebtedness of the
Borrower  is  declared  or shall  become  due and  payable  prior to its  stated
maturity,  or called and not paid when due,  (ii) a default  shall have occurred
under any note (other  than the Notes) or the holder of any such note,  or other
evidence  of   indebtedness,   certificate  or  security   evidencing  any  such
indebtedness  or any  obligee  with  respect  to any other  indebtedness  of the
Borrower has the right to declare any such indebtedness due and payable prior to
its stated  maturity,  or (iii) there shall occur and be continuing a Default or
an Event of Default.

     5.3 Insurance.

          (a) Borrower shall maintain insurance as follows:

               (i) Insurance against loss or damage to the Borrower's assets and
          properties  by fire and any of the risks  covered by  insurance of the
          type now known as "fire and extended  coverage," in an amount not less
          than  the  percentage  of  the  full  replacement  cost  of  all  such
          properties and assets, required to satisfy any applicable co-insurance
          requirement  in  such  policy  and  with  not  more  than   $25,000.00
          deductible  from the loss  payable for any  casualty.  The policies of
          insurance  carried  in  accordance  with this  subparagraph  (i) shall
          contain the "Replacement Cost Endorsement";

               (ii) Comprehensive  public liability  insurance on an "occurrence
          basis"  against  claims  for  "personal   injury,"  including  without
          limitation bodily injury,  death or property damage, such insurance to
          afford  immediate  minimum  protection  to a limit  of not  less  than
          $1,000,000  under a primary policy of insurance  together with a limit
          of not less than $2,000,000 under an umbrella policy of insurance with
          respect  to  personal  injury or death to any one or more  persons  or
          damage to property;

               (iii)  Worker's  compensation   insurance  (including  employer's
          liability  insurance,  if  requested  by Agent) for all  employees  of
          Borrower in such amount as is reasonably  satisfactory to Agent, or if
          such limits are established by law, in such amounts;

                                       16
<PAGE>

               (iv) Directors and Officers liability insurance to a limit of not
          less than $3,000,000.

               (v) Such other insurance,  and in such amounts,  as may from time
          to time be  reasonably  required  by Agent  against  the same or other
          hazards.

     (b) All policies of insurance  required by the terms of paragraph (a) shall
contain  an  endorsement  or  agreement  by the  insurer  that any loss shall be
payable in accordance with the terms of such policy  notwithstanding  any act or
negligence  of  Borrower  which might  otherwise  result in  forfeiture  of such
insurance  and the  further  agreement  of the  insurer  waiving  all  rights of
set-off, counterclaim or deduction against Borrower.

     (c) All policies of insurance  shall be, issued by companies and in amounts
reasonably  satisfactory to Agent. All policies of insurance shall have attached
thereto a lender's clause in favor of Agent, and in form reasonably satisfactory
to Agent,  providing that the Agent shall not be subject to contribution,  and a
lender's  loss  payable  endorsement  for  benefit  of  Agent,  all  of  a  form
satisfactory  to Agent.  Borrower  shall furnish  Agent with a signed  duplicate
original  policy  with  respect to all  required  insurance  coverage.  If Agent
consents to Borrower  providing any of the required  insurance  through  blanket
policies carried by Borrower and covering more than one location,  then Borrower
shall furnish Agent with a signed  certificate of insurance for each such policy
setting  forth the coverage,  the limits of liability,  the name of the carrier,
the policy number,  and the expiration date, and listing Agent as lender or loss
payee.  At least twenty (20) days prior to the  expiration  of each such policy,
Borrower shall furnish Agent with evidence  satisfactory  to Agent of payment of
premium and the reissuance of a policy continuing insurance in force as required
by this Agreement. All such policies,  including policies for any amount carried
in excess of the  required  minimum and policies  not  specifically  required by
Agent,  shall be in form satisfactory to Agent, shall be maintained in force and
effect,  shall be assigned and  delivered  to Agent,  with  premiums  prepaid as
collateral  security for payment of the indebtedness  secured hereby,  and shall
contain a  provision  that such  policies  will not be  canceled  or  materially
amended  which  term  shall  include  any  reduction  in the  scope or limits of
coverage,  without at least ten (10) days prior written notice to Agent.  If the
insurance, or any part thereof, shall expire, or be withdrawn, or become void or
unsafe by reason of Borrower's breach of any condition  thereof,  or become void
or unsafe by reason of the value or  impairment of the capital of any company in
which the  insurance  may then be  carried,  or if for any reason  whatever  the
insurance  shall be reasonably  deemed by Agent to be  unsatisfactory,  Borrower
shall obtain new insurance reasonably satisfactory to Agent.

     (d) In the event the Borrower fails to provide,  maintain, keep in force or
deliver  or  furnish  to  Agent  the  policies  of  insurance  required  by this
Agreement,  Agent may procure such insurance or  single-interests  insurance for
such risks covering Agent's interest, and Borrower will pay all premiums thereon
promptly upon demand by Agent,  and until such payment is made by Borrower,  the
amount  of all  such  premiums,  together  with  interest  thereon  at the  rate
specified in the Note.

     (e) In the  event of loss in  excess  of  $500,000.00,  Borrower  will give
immediate  notice thereof to Agent, and Agent may make proof of loss if not made
promptly by Borrower.  Each insurance company concerned is hereby authorized and
directed to make  payment  under such  insurance,  including  return of unearned
premiums,  directly to Agent,  instead of to  Borrower  and Agent  jointly,  and

                                       17
<PAGE>

Borrower appoints Agent irrevocably,  as Borrower's  attorney-in-fact to endorse
any draft therefor. If otherwise, such policies,  including all right, title and
interest of the Borrower  thereunder,  shall become the absolute property of the
Agent.

     5.4 Taxes.

     Duly pay and  discharge all taxes or other claims which might become a Lien
upon any of Borrower's properties except to the extent that such items are being
in good faith  appropriately  contested with adequate  reserves  therefor having
been set aside and with security satisfactory to the Agent.

     5.5 Properties.

     Maintain,  preserve and keep Borrower's properties in good repair,  working
order and condition, and make all reasonable repairs,  replacements,  additions,
betterments and improvements thereto.

     5.6 Corporate Existence.

     Maintain Borrower's corporate existence and comply with all statutes, rules
and regulations,  the  non-compliance  with which would materially and adversely
affect its business, assets of condition, financial or otherwise.

     5.7 Issuance Taxes.

     Pay  all  stamp  or  issuance  taxes,  if any,  payable  by  reason  of the
execution,  delivery or issuance of this Agreement,  the Notes or Loan Documents
under any applicable ordinance or statute now existing or hereafter enacted, and
the Borrower will at all times  indemnify and hold harmless the Lenders  against
any liability in respect thereof.

     5.8 Audits by Agent.

     Upon the  occurrence  of an Event of  Default  or if the  Agent  reasonably
believes  that an Event of Default  is  imminent  based on reports or  financial
reports  received by Agent,  permit the Agent and its duly authorized  agents to
make,  or cause to be made,  inspections  of any of  Borrower's  properties  and
examinations and audits of any books,  records and papers of the Borrower and to
make extracts  therefrom at all such reasonable  times and as often as the Agent
may reasonably require.

     5.9 Management.

     Maintain the current management and executive  personnel of the Borrower or
other management and executive personnel  reasonably  satisfactory to the Agent,
and furnish to the Agent within five (5) days of any election or  appointment of
officers  or  directors  written  notice  of any  change  of such  officers  and
directors.

                                       18
<PAGE>

     5.10 Compliance With Laws.

     Fully comply with all  applicable  Laws with respect to: (a) products  that
the Borrower  sells and  services it  performs,  (b) the conduct of its business
generally,  (c) its use,  maintenance  and  operation  of the real and  personal
properties  owned or leased  by it and,  without  limiting  the  foregoing,  the
Borrower shall obtain and maintain all permits, licenses and approvals necessary
or appropriate to engage in its business.  as presently  conducted and presently
contemplated.

     5.11 Employee Benefit Plans.

     Comply,  and shall  cause  each of  Borrower's  employee  benefit  plans to
comply, with all applicable provisions of law.

     5.12 Environmental Matters.

     Comply, and shall cause Borrower's  properties (whether owned or leased) to
comply, with all applicable Environmental Laws without limiting the foregoing,

     (a) the Borrower shall:

          (1)  promptly  notify  the  Agent  and each  other  Person  that it is
     required under applicable  Environmental Laws to notify upon the Borrower's
     acquiring  knowledge of a release or  threatened  release of any  Hazardous
     Substance on, from, or near any of its properties,

          (2) promptly notify the Agent once an  environmental  investigation or
     clean-up  proceeding is  instituted  by any Person in  connection  with the
     Borrower or any of its properties,

          (3) comply in all material  respects with and provide such  assistance
     as may be reasonably  required in any such environmental  investigation and
     clean-up proceeding,

          (4) promptly execute and complete remedial actions necessary to ensure
     that no  environmental  liens or  encumbrances  are levied against or exist
     with respect to any of the Borrower's properties or other assets, and

          (5)  promptly   notify  the  Agent  of  any  citation,   notification,
     complaint, or written notice of violation which it receives from any Person
     which  relates or  pertains  to the making,  storing,  handling,  treating,
     disposing, generating,  transporting or release of any Hazardous Substance;
     and

     (b) the Borrower shall not use, produce, transport, dispose of or otherwise
handle any  Hazardous  Substances or permit any other Person to do so at or from
any of the  Borrower's  properties  except in the ordinary  course of Borrower's
business and in compliance with all applicable Environmental Laws.

     The Borrower,  promptly upon the written  request of the Agent from time to
time after (1) the  occurrence of an Event of Default,  or (2) the occurrence of
any  release  of any  Hazardous  Substance  in, on or from any  property  of the
Borrower in violation of any Environmental  Law, shall provide the Agent with an
environmental  site  assessment  or  report,  all in scope,  form,  and  content
satisfactory  to the Agent.  Upon any such event,  the Agent,  or its designated
agent,  may  interview  any or all of the agents and  employees  of the Borrower

                                       19
<PAGE>

regarding  environmental matters,  including any consultants or experts retained
by the Borrower,  all of whom are directed to discuss environmental issues fully
and  openly  with  the  Agent  or  its  designated  agent  and to  provide  such
information as may be requested.  All of the costs and expenses  incurred by the
Agent with respect to the audits, tests, inspections, and examinations which the
Agent may conduct pursuant to this Section, including the fees of the engineers,
laboratories, and contractors, shall be paid by the Borrower.

     The Borrower  shall  indemnify  and hold  harmless the Agent from all loss,
liability, damage, reasonable costs and expenses (including, but not limited to,
reasonable  legal fees),  fines, or other penalties or payments,  for failure of
the Borrower or any of its  properties  to comply  fully with all  environmental
Laws The  provisions of this Section shall survive the payment and  satisfaction
of the Loans and the termination of this Agreement.

     5.13 Deposit Relationship.

          Maintain  a  meaningful  deposit  relationship  with the  Agent.

     5.14 Further Assurances And Power Of Attorney.

     Execute  from time to time such other and further  documents,  which in the
opinion of the Agent or the Agent's  counsel,  may be  reasonably  necessary  to
perfect, confirm, establish,  reestablish,  continue, or complete the agreements
of the Borrower under the Loan Documents and the purposes and intentions of this
Agreement,  it being the intention of the Borrower to provide  hereby a full and
absolute  warranty of further  assurance to the Agent,  provided  that  Borrower
shall not be obligated  under this  Section  5.14 to execute any  document  that
could  effect an  amendment  or  modification  of any term or  condition of this
Agreement  or any other Loan  Document.  If the  Borrower  fails to execute  any
document  requested by the Agent  pursuant to Section 3.12 or this Section 5.14,
the  Borrower  hereby  appoints  the  Lender or any  officer of the Agent as the
Borrower's  attorney in fact for  purposes of  executing  such  documents in the
Borrower's name, place and stead, which power of attorney shall be considered as
coupled with an interest and irrevocable.

6. NEGATIVE COVENANTS.

     The Borrower agrees that, so long as this Agreement is in effect,  any Loan
remains  outstanding  and  unpaid,  or any other  amount is owing under any Loan
Document to a Lender,  the Borrower will not,  directly or  indirectly,  without
prior  adequate  notice to Lender  with  respect to Section  6.1 and without the
prior written consent of the Agent for all other Sections:

     6.1 Acquisitions.

     Enter into any agreement, contract, binding commitment or other arrangement
providing for, or take any action to solicit the tender of securities or proxies
in order to effect any  Acquisition  in excess of  $20,000,000  without  Agent's
prior review and approval if such  Acquisition  is being financed in whole or in
part by one or more Loans made  pursuant to this  Agreement.  The Agent shall be
deemed to have approved the  Acquisition if the Agent shall not have objected to
the  Acquisition  in writing  within  five (5)  Business  Days after  receipt of

                                       20
<PAGE>

projections including balance sheet, income statement and cash floor projections
and such other information  regarding the Acquisition and its anticipated effect
on the Borrower as Agent reasonably may request.

     6.2 Loans and Investments.

     Lend or  advance  money,  credit or  property  to or invest in (by  capital
contribution,  loan,  purchase or  otherwise)  any firm,  corporation,  or other
person,  except: (a) extensions of credit to customers in the ordinary course of
business,  (b) securities  with  maturities of 180 days or less from the date of
acquisition  issued  or  fully  guaranteed  or  insured  by  the  United  States
government or any agency  thereof and backed by the full faith and credit of the
United States, (c) certificates of deposit, eurodollar time deposits,  overnight
bank deposits and bankers'  acceptances of any domestic  commercial  bank having
capital and surplus in excess of $500,000,000  having  maturities of one year or
less from the date of  acquisition,  (d) commercial  paper of an issuer rated at
least A-1 by Standard & Poor's Corporation or P-1 by Moody's Investors Services,
Inc., or carrying an equivalent rating by a nationally  recognized rating agency
if  both  of  the  two  named  rating  agencies  cease  publishing   ratings  of
investments,  in each case,  with maturities of not greater than sixty (60) days
from the date  acquired,  (e) loans to  employees  of the  Borrower  made in the
ordinary course of business, and (f) joint ventures entered into by the Borrower
in the ordinary course of business.

     6.3 Create Encumbrances.

     Create,  assume  or  permit  to  exist,  any  mortgage,   pledge,  Lien  or
encumbrance  of or upon, or security  interest in, any of its property or assets
now owned or hereafter acquired except (i) currently existing mortgages,  Liens,
pledges and  security  interests  in favor of  Manufacturers  and Traders  Trust
Company as a lender of other loans to the  Borrower;  (ii) other Liens,  charges
and  encumbrances  incidental to the conduct of its business or the ownership of
its property and assets which were not incurred in connection with the borrowing
of money or the  obtaining  of  advances  or credit and which do not  materially
impair the use thereof in the operation of its  business;  (iii) Liens for taxes
or other  governmental  charges  which  are not  delinquent  or which  are being
contested in good faith and for which a reserve shall have been  established  in
accordance with generally accepted accounting principles;  (iv) any Lien created
under the Loan Documents;  and (v) any purchase money security interest securing
indebtedness incurred in the ordinary course of business.

     6.4 Guaranties.

     Assume,  endorse,  be or become liable for or guarantee the  obligations of
any person or entity except (i) the  endorsement of negotiable  instruments  for
deposit or collection in the ordinary course of business, (ii) performance bonds
and indemnities with bonding  companies and similar entities entered into in the
ordinary  course of  business  and (iii)  guarantees  entered  into by  Borrower
guarantying the performance of its  subsidiaries  under contracts with customers
entered into in the ordinary course of business.

     6.5 Impairment of Assets.

     Permit  anything  to be done that may  materially  impair  the value of its
properties and assets.

                                       21
<PAGE>

     6.7 Articles of Incorporation and By-Laws.

     Amend or  otherwise  modify the  Borrower's  articles of  incorporation  or
by-laws in any way which would  adversely  affect the  interests  of the Lenders
under any of the Loan Documents.

     6.8 Prepayments of Indebtedness.

     Prepay or obligate itself to prepay,  in whole or in part, any indebtedness
(other than the obligations under the Loan Documents).

     6.9 Minimum Tangible Net Worth.

     Permit the Tangible Net Worth of the Borrower,  on a consolidated basis, to
be less than $90,000,000 at the time any Loan remains outstanding and unpaid, or
any other  amount is owing under any Loan  Document to any Lender,  to be tested
quarterly.

     6.10 Maximum Total Liabilities to Tangible Net Worth Ratio.

     Permit a Total  Liabilities  to Tangible Net Worth Ratio of the Borrower at
not greater than 1.50-to-1 at any time any Loan remains  outstanding and unpaid,
or any other amount is owing under any Loan Document to any Lender, to be tested
quarterly.

     6.11 Minimum Debt Service Coverage Ratio.

     Permit the Debt  Service  Coverage  Ratio of the  Borrower  to be less than
2.0-to-1  at any time any Loan  remains  outstanding  and  unpaid,  or any other
amount is owing under any Loan Document to any Lender, to be tested quarterly on
a rolling four quarter basis.

7. REPRESENTATIONS AND WARRANTIES.

     In order to induce the Lenders to enter into this Agreement and to make the
Loans,  the Borrower makes the following  representations  and warranties to the
Agent and the Lenders and acknowledges the Agent's and each Lender's justifiable
right to rely upon these representations and warranties:

     7.1 Corporate Organization.

     The Borrower is a corporation duly organized,  validly existing and in good
standing  under the laws of the State of Delaware,  and is in good  standing and
duly qualified to conduct  business in the  Commonwealth of Pennsylvania  and in
each other  jurisdiction  in which the character of the  properties  owned by it
therein or in which the  transaction  of its business  makes such  qualification
necessary.

     7.2 Enforceability of Documents.

     This Agreement, the Notes and each of the other Loan Documents to which the

                                       22
<PAGE>

Borrower  is a party  have been duly  authorized,  executed  and  delivered  and
constitute the valid and legally binding obligation of the Borrower, enforceable
in accordance with their respective terms.

     7.3 Legality of Documents.

     The  execution  and  delivery of this  Agreement,  the Notes and all of the
other Loan  Documents to which the Borrower is a party and  performance  thereof
will not violate any  provision  of law or of the articles of  incorporation  or
by-laws  (.)Of the Borrower or any  agreement,  indenture or instrument to which
the Borrower is a party or its  properties or assets may be bound or affected or
of any other agreement to which the Borrower is a party.

     7.4 Pending or Threatened Litigation.

     As of the date  hereof,  there .are no  outstanding  judgments,  actions or
proceedings  pending  before  any  court or  governmental  authority,  bureau or
agency,  with respect to or threatened  against or affecting the Borrower  which
would  result in a material  adverse  change in the  financial  condition of the
Borrower or its  subsidiaries,  except as  disclosed  in Schedule  7.4  attached
hereto.  Borrower agrees to promptly  provide to Agent written notice of any and
all  outstanding  judgments,  actions  or  proceedings  which  may at  any  time
hereafter  be pending  before  any court or  governmental  authority,  bureau or
agency,  with respect to or threatened  against or affecting the Borrower  which
may  reasonably be expected to have a material  adverse  effect on the Borrower,
its financial condition,  business,  properties or prospects,  or the ability of
any Lender to enforce the loan  Documents in  accordance  with their  respective
terms.

     7.5 No Defaults.

     As of the date hereof the Borrower is not in material  default under, or in
material  violation of, nor will the execution,  delivery or performance of this
Agreement,  the Notes or any of the other Loan  Documents  to which the Borrower
is' a party  constitute  a  default  under  or  violation  of,  any  term of any
agreement,  ordinance,  resolution,  decree,  bond,  note,  indenture,  order or
judgment used in the conduct of the Borrower's  business or by which Borrower is
bound.  The operations of the Borrower comply in all material  respects with all
laws,   ordinances   and   regulations   applicable   to  it  and  no  consents,
authorizations  or approvals of any  Governmental  Authority are required by the
Borrower in connection with the Loan Documents.

     7.6 No Onerous Agreements.

     The Borrower is not a party to nor bound by, nor are any of the  properties
or assets  owned by it or used in the conduct of its  business  affected by, any
agreement,  ordinance,  resolution,  decree,  bond,  note,  indenture,  order or
judgment,  or  subject  to any  charter or other  corporate  restriction,  which
materially and adversely affects its business, assets or condition, financial or
otherwise.

     7.7 Financial Statements.

     All  balance  sheets,  profit  and  loss  statements  and  other  financial
information  heretofore furnished to the Agent by the Borrower are true, correct
and  complete  in all  material  respects,  and  present  fairly  the  financial
condition of the Borrower and its  subsidiaries,  if any, as at the date thereof
and for the periods covered thereby,  including contingent  liabilities of every

                                       23
<PAGE>

kind, which financial  condition has not materially  adversely changed since the
date of the  most  recently  dated  balance  sheet  of the  Borrower  heretofore
furnished to the Agent.

     7.8 No Margin Stock Purchases.

     No part of the proceeds of .the Loans will be used  directly or  indirectly
for the purpose of purchasing or carrying,  or for payment in full or in part of
indebtedness  which was incurred for the purpose of purchasing or carrying,  any
margin  stock as such term is defined by  Regulation U of the Board of Governors
of the Federal Reserve System.

     7.9 Power and Authority.

     The Borrower has the power to execute and deliver this Agreement, the Notes
and all other Loan  Documents to which it is a party and has taken all necessary
action to authorize the execution, delivery and performance of the same.

     7.10 Properties.

     The Borrower has good and marketable title to all of its assets, subject to
no Liens except Permitted Liens.

     7.11 Taxes.

     The  Borrower  has filed all returns and  reports  that are  required to be
filed by it in connection  with any federal,  state or local tax, duty or charge
levied, assessed or imposed upon it or its property or withheld by it, including
unemployment,  social security and similar taxes and all of such taxes have been
either paid or adequate reserve or other provision has been made.

     7.12 Environmental Matters.

          (a)  The  Borrower  is in  compliance  with  the  requirements  of all
     applicable Environmental Laws.

          (b) To the best of the Borrower's  knowledge,  no Hazardous Substances
     have been generated or manufactured on, transported to or from, treated at,
     stored at or discharged from any property owned or occupied by the Borrower
     in violation of any Environmental  Laws; no Hazardous  Substances have been
     discharged into  subsurface  waters under any such property in violation of
     any Environmental  Laws; no Hazardous  Substances have been discharged from
     any such  property  on or into  property  or waters  (including  subsurface
     waters)  adjacent to any such  property in violation  of any  Environmental
     Laws and any underground or above ground storage tanks situated on any such
     property and regulated under any Environmental  Laws are in compliance with
     all applicable Environmental Laws.

          (c) The  Borrower  (i) has not  received  notice  (written or oral) or
     otherwise learned of any claim,  demand, suit, action,  proceeding,  event,
     condition,   report,   directive,   Lien,   violation,   non-compliance  or
     investigation  indicating or concerning  any potential or actual  liability
     (including,  without  limitation,   potential  liability  for  enforcement,
     investigatory  costs,  cleanup costs,  government  response costs,  removal

                                       24
<PAGE>

     costs,  remedial  costs,  natural  resources  damages,   property  damages,
     personal  injuries  or  penalties)  arising  in  connection  with:  (x) any
     non-compliance  with or violation  of the  requirements  of any  applicable
     Environmental  Laws, or (y) the presence of any Hazardous  Substance on any
     property  owned or  occupied by the  Borrower or the release or  threatened
     release  of any  Hazardous  Substance  into the  environment,  (ii) has not
     received  notice of any threatened or actual  liability in connection  with
     the presence of any Hazardous  Substance on any property  owned or occupied
     by the  Borrower  or the  release or  threatened  release of any  Hazardous
     Substance  into the  environment,  (iii)  has not  received  notice  of any
     federal or state  investigation  evaluating  whether any remedial action is
     needed  to  respond  to the  presence  of any  Hazardous  Substance  on any
     property  owned or  occupied  by the  Borrower  or a release or  threatened
     release  of any  Hazardous  Substance  into the  environment  for which the
     Borrower  is or may be liable,  or (iv) has not  received  notice  that the
     Borrower is or may be liable to any Person under any Environmental Law.

     7.13 Employee Benefit Plans.

     Each employee  benefit plan as to which the Borrower may have any liability
complies in all material respects with all applicable provisions of the Employee
Retirement  Income  Security Act of 1974  ("ERISA"),  including  minimum funding
requirements,  and (i) no  Prohibited  Transaction  (as defined under ERISA) has
occurred  with respect to any such plan,  (ii) no  Reportable  Event (as defined
under  Section 4042 of ERISA) has  occurred  with respect to any such plan which
would cause the Pension Benefit  Guaranty  Corporation to institute  proceedings
under Section 4042 of ERISA, (iii) the 'Borrower has not withdrawn from any such
plan or initiated steps to do so, and (iv) no steps have been taken to terminate
any such plan.

     7.14 Solvency.

     As of  the  date  hereof  and  after  giving  effect  to  the  transactions
contemplated  by the Loan  Documents,  (i) the aggregate value of the Borrower's
assets  will  exceed  its  liabilities  (including   contingent,   subordinated,
unmatured and unliquidated liabilities),  (ii) the Borrower will have sufficient
cash flow to enable it to pay its debts as they  mature,  and (iii) the Borrower
will  not  have  unreasonably  small  capital  for the  business  in which it is
engaged.

     7.15 Subsidiaries.

As of the date of this Agreement, the only direct or indirect subsidiaries of
the Borrower are the Guarantors.

     7.16 Disclosure.

     No  representation or warranty by the Borrower set forth in this Agreement,
any other Loan Document or in any other document or instrument  delivered by-the
Borrower to the Agent pursuant to this  Agreement,  contains or will contain any
untrue  statement of a material fact or omits or will omit to state any material
fact necessary to make the statements made not misleading.

                                       25
<PAGE>


8.   DEFAULT.

     8.1 Events of Default.

     If any one or more of the following Events of Default, each constituting an
"Event of Default," shall occur, the obligations of the Lenders to make Advances
shall cease and the entire  unpaid  balance of the  principal of and interest on
the Loans shall immediately  become due and payable in the case of (g) or at the
option of the Agent in all other cases, without notice, presentment,  protest or
demand (all of which are expressly waived by the Borrower) to the Borrower being
required except as specified below:

     (a)  Failure of the  Borrower to make any payment of  principal or interest
          in respect of any Loan within 10 days after it is due; or

     (b)  The failure of the  Borrower to pay the amount by which the  aggregate
          outstanding  principal amount of all Loans exceeds Aggregate Revolving
          Credit  Commitments  within two (2) Business Days after written notice
          thereof shall have been given by the Agent to the Borrower; or

     (c)  Failure by the  Borrower or any  Guarantor  to perform any other term,
          condition or covenant of this Agreement,  the Notes, any Loan Document
          or any other  agreement,  instrument  or document  delivered  pursuant
          hereto or in  connection  herewith or  therewith,  which shall  remain
          unremedied  for the period of thirty  (30) days after  written  notice
          thereof shall have been given by the Agent to the Borrower,  provided,
          however,  if such failure be such that it cannot be  corrected  within
          thirty(30)  days,  it  shall  not be an Event of  Default  if,  in the
          reasonable discretion of the Agent, the Borrower is taking appropriate
          corrective action to cure the failure and such failure will not impair
          the  ability  of  the  Borrower  to  pay  or  perform  the  Borrower's
          obligations under the Loan Documents; or

     (d)  Default is made,  with  respect to any  evidence of  indebtedness  for
          borrowed money of the Borrower to any Person,  whether now existing or
          hereafter created, if as a result of such default the maturity of such
          evidence of indebtedness is accelerated, or any such indebtedness,  if
          owed to the Agent or any Lender, is not paid when due and payable; or

     (e)  A material  breach of or material  default by the  Borrower  under the
          terms,  covenants  or  conditions  of any  agreements,  loans or other
          transactions of the Borrower with the Agent or any other lender, after
          the expiration of any applicable grace or cure period; or

     (f)  Any representation or warranty made in writing to the Agent and/or the
          Lenders in this  Agreement,  the Notes or other Loan  Documents  or in
          connection with the making of any Loan or any  certificate,  statement
          or report  made in  compliance  with this  Agreement,  shall have been
          false in any material respect when made; or

                                       26
<PAGE>

     (g)  The Borrower or any Guarantor or endorser or surety thereof shall make
          an assignment for the benefit of creditors,  file a petition under the
          Federal  Bankruptcy  Code or any similar  law,  state or  federal,  be
          adjudicated  insolvent or bankrupt,  petition or apply to any tribunal
          for the appointment of a receiver, or trustee or a custodian for it or
          a substantial  part of its assets,  or shall  commence any  proceeding
          under any  bankruptcy,  reorganization,  arrangement,  readjustment of
          debt, dissolution,  or liquidation law or statute of any jurisdiction,
          whether now or hereafter in effect;  or if there shall have been filed
          any such petition or application, or any such petition or application,
          or any such  proceeding  shall have been  commenced  against it, which
          remains  undismissed  for a period of sixty (60) days or more;  or the
          Borrower  or any  endorser  or  surety  by any act or  omission  shall
          indicate  its  consent  to  approval  of or  acquiescence  in any such
          petition,  application or proceeding or the appointment of a receiver,
          or trustee or a custodian for it or any substantial part of any of its
          properties,  or shall suffer any such  receivership,  trusteeship,  or
          custodianship to continue undischarged for a period of sixty (60) days
          or more; or

     (h)  Any  judgment  against the Borrower in excess of  $500,000.00,  or any
          attachment,  levy or execution against any of its properties in excess
          of $500,000.00 shall remain unpaid, unstayed on appeal,  undischarged,
          unbonded or undismissed for a period of thirty (30) days or more; or

     (i)  The  Borrower  shall be unable,  or admit its  inability,  to meet its
          obligations  as they come due or failure of the Borrower  generally to
          pay its debts as they become due; or

     (j)  Occurrence,  in Agent's sole and  independent  discretion,  reasonably
          exercised, of a material adverse change in the business, properties or
          financial  condition of the Borrower,  or an event or condition which,
          in Agent's sole and independent  discretion reasonably exercised would
          be expected to result in such a material adverse change.

     8.2 Remedies.

     In the event of the occurrence and during the  continuation of any Event of
Default, the Agent may, but shall not be required to (i) proceed to apply to the
payment  of the Loans the  balance  to the  credit of any  account  or  accounts
maintained  with any Lender by the  Borrower and all property of Borrower now or
at any time in any Lender's possession in any capacity whatsoever  (set-off) and
(ii) the  obligation  of any Lender to make loans or otherwise  extend credit to
the Borrower shall immediately terminate. The Agent may exercise any other right
or remedy provided  pursuant to the Loan Documents and hereby granted or allowed
to it by law, and each and every right and remedy provided  pursuant to the Loan
Documents and hereby granted to the Agent or any Lender or allowed to one or the

                                       27
<PAGE>

other by law shall be cumulative and not exclusive the one of the other, and may
be  exercised  by the Agent from time to time and as often as may be  necessary.
The  Agent  shall  have at any time,  in its  discretion,  the right to  enforce
collection and payment by appropriate action or proceedings, and the net amounts
received  therefrom,  after  deduction  of all costs and  expenses  incurred  in
connection  therewith,  shall be  applied  on  account of the Loan and any other
indebtedness or liabilities of the Borrower aforesaid, all without notice to the
Borrower. The Agent shall not be required to marshall any security or guarantees
or to resort to the same in any particular order.

9. THE AGENT.

     9.1 Appointment.

     Each Lender hereby  irrevocably  designates and appoints  Manufacturers and
Traders Trust Company,  as the Agent of such Lender under the Loan Documents and
each such Lender hereby irrevocably  authorizes  Manufacturers and Traders Trust
Company,  as the Agent for such Lender,  to take such action on its behalf under
the  provisions of the Loan Documents and to exercise such powers and perform in
such  duties as are  expressly  delegated  to the Agent by the teens of the Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding  any provision to the contrary  elsewhere in any Loan  Document,
the Agent shall not have any duties or responsibilities,  except those expressly
set forth therein, or any fiduciary relationship with any Lender, and no implied
(or express)  covenants,  functions,  responsibilities,  duties,  obligations or
liabilities shall be read into the Loan Documents or otherwise exist against the
Agent,  whether arising under principles of agency or otherwise under applicable
law.  The term  "Agent"  is used  merely as a matter of  market  custom,  and is
intended  to  create  or  reflect  only  an  administrative  relationship  among
independent contracting parties.

     9.2 Administration.

     In the course of its  administration  of the Loans and the Loan  Documents,
the  Agent  may,  without  notice  to or  consent  of the  Lenders,  in its sole
discretion  except  as  otherwise  provided  below,  exercise  or  refrain  from
exercising  any powers or rights vested in the Agent under the Loan Documents or
any  document  relating  thereto or which the Agent may be entitled to assert at
law or in equity or otherwise  enforce or refrain from enforcing the obligations
of the Borrower.  Notwithstanding the foregoing, the Agent will not, without the
consent of all of the  Lenders:  (i) consent to the  reduction of (A) any amount
due and owing by the Borrower  pursuant to the Loan  Documents,  (B) any rate of
interest payable under the Loan Documents,  or (C) the rate at which fees accrue
under the Loan  Documents;  (ii)  increase the amounts of or reinstate  any Loan
other than such reinstatement as is provided in the Loan Documents; (iii) extend
the maturity date of any Loan;  (iv) postpone the due date for any payment to be
made by Borrower  pursuant to the Loan  Documents;  (vi) consent to or waive any
failure  by the  Borrower  to pay money to the  Lenders  if such  failure  would
otherwise constitute an Event of Default under the Loan Documents; (vii) release
any Guarantor from Liability  under its respective  Guaranty  Agreement;  (viii)
release any Guarantor from  Liability  under its  respective  Guaranty;  or (ix)
amend this Section 9.2 or any other  provision of this  Agreement  providing for
consent  or other  action by the  Required  Lenders;  Notwithstanding  any other
provision to the  contrary,  Agent  agrees to promptly  provide to each Lender a
copy of each report,  certificate or other notice or request received from or on
behalf of Borrower or any Guarantor  pursuant to Sections 5.1, 5.2 and/or 5.3 of
this Agreement or otherwise, as well as a copy of each notice the Agent provides
to the Borrower or any  Guarantor  pursuant to this  Agreement or any other Loan
Document.

                                       28
<PAGE>

     9.3 Delegation of Duties.

     The Agent may  execute  any of its duties  under the Loan  Documents  by or
through  agents  or  attorneys-in-fact  and shall be  entitled  to rely upon the
advice of counsel  concerning all matters  pertaining to such duties.  The Agent
shall not be  responsible  for the negligence or misconduct of any such agent(s)
or  attorney(s)-in-fact  in the absence of the Agent's own gross  negligence  or
willful misconduct.


     9.4 Exculpatory Provisions.

     Neither the Agent nor any of its officers,  directors,  employees,  agents,
attorneys-in-  fact or  affiliates  shall be (i) liable for any action  lawfully
taken or omitted to be taken by it or such Person  under or in  connection  with
the Loan Documents (except for its own gross negligence or willful  misconduct),
or (ii)  responsible  in any  manner  to any of the  Lenders  for any  recitals,
statements,  representations or warranties made by the Borrower or any Guarantor
or any officer  thereof  contained in the Loan Documents or in any  certificate,
report,  statement or other document referred to or provided for in, or received
by the Agent under or in connection  with,  the Loan Documents or for the value,
validity,  effectiveness,  genuineness,  enforceability or sufficiency of any of
the Loan  Documents  or for any failure of the  Borrower or any other  Person to
perform its obligations thereunder.  The Agent shall not be under any obligation
to any Lender to ascertain or to inquire as to the  observance or performance of
any of the agreements contained in, or conditions of, the Loan Documents,  or to
inspect the properties,  books or records of any Loan Party. The Agent shall not
be under any liability or responsibility  whatsoever,  as Agent, to the Borrower
or any other Person as a consequence of any failure or delay in performance,  or
any  breach,  by any  Lender  of any of its  obligations  under  any of the Loan
Documents.

     9.5 Reliance by Agent.

     The  Agent  shall be  entitled  to rely,  and shall be fully  protected  in
relying, upon any writing, resolution, notice, consent, certificate,  affidavit,
opinion,  letter,  cablegram,  telegram,  telecopy,  telex or teletype  message,
statement,  order or other document or conversation believed by it to be genuine
and  correct  and to have  been  signed,  sent or made by the  proper  Person or
Persons and upon advice and  statements  of legal  counsel  (including,  without
limitation, counsel to the Borrower),  independent accountants and other experts
selected by the Agent. The Agent may treat each Lender, or the Person designated
in the last notice filed with it under this Section, as the holder of all of the
interests of such Lender in its Loans and in its Notes until  written  notice of
transfer,  signed by such  Lender (or the Person  designated  in the last notice
filed with the Agent) and by the Person  designated  in such  written  notice of
transfer, in form and substance satisfactory to the Agent, shall have been filed
with the  Agent.  The Agent  shall not be under any duty to examine or pass upon
the  validity,  effectiveness  or  genuineness  of  the  Loan  Documents  or any
instrument,   document  or  communication   furnished  pursuant  thereto  or  in
connection  therewith,  and the Agent  shall be entitled to assume that the same
are valid, effective and genuine, have been signed or sent by the proper parties
and are what they  purport to be. The Agent shall be fully  justified in failing
or refusing to take any action  under the Loan  Documents  unless it shall first
receive  such  advice  or  concurrence  of  the  Required  Lenders  as it  deems
appropriate  and,  if it so  requests,  it  shall  first be  indemnified  to its
satisfaction  by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action. The
Agent shall in all cases be fully  protected in acting,  or in  refraining  from
acting,  under the Loan Documents .in accordance  with a request or direction of

                                       29
<PAGE>

the Required  Lenders,  and such  request or  direction  and any action taken or
failure to act  pursuant  thereto  shall be binding upon all the Lenders and all
future holders of the Notes. Where this Agreement expressly permits or prohibits
an action unless the Required Lenders otherwise determine,  the Agent shall, and
in-all other  instances,  the Agent may, but shall not be required to,  initiate
any solicitation for the consent or a vote of the Lenders.

     9.6 Notice of Default.

     The Agent shall not be deemed to have knowledge or notice of the occurrence
of any Event of  Default,  except  with  respect to  default  in the  payment of
principal, interest and fees required to be paid to the Agent for the account of
the Lenders,  unless the Agent has received written notice thereof from a Lender
or the Borrower  referring to this  Agreement,  describing such Event of Default
and  stating  that such notice is a "notice of  default."  In the event that the
Agent  receives such a notice,  the Agent shall  promptly give notice thereof to
the  Lenders.  The Agent shall take such action with  respect to such Default or
Event of  Default  as shall be  reasonably  directed  by the  Required  Lenders,
provided,  however,  that  unless and until the Agent shall have  received  such
directions,  the Agent may (but shall not be obligated to) take such action,  or
refrain  from  taking  such  action,  with  respect to such  Default or Event of
Default as it shall deem to be in the best interests of the Lenders.

     9.7 Non-Reliance on Agent and Other Lenders.

     Each Lender  expressly  acknowledges  that neither the Agent nor any of its
respective  officers,   directors,   employees,  agents,   attorneys-in-fact  or
affiliates  ("Agent-Related Persons") has made any representations or warranties
to it and that no act by the  Agent  or any  Agent-Related  Person  hereinafter,
including any review of the affairs of the Borrower or any other  Person,  shall
be deemed to  constitute  any  representation  or  warranty  by the Agent to any
Lender.  Each  Lender  represents  to the Agent that it has,  independently  and
without reliance upon the Agent or any other Lender, and based on such documents
and  information  as it has deemed  appropriate,  made its own evaluation of and
investigation  into the  business,  operations,  property,  financial  and other
condition and  creditworthiness  of the Borrower and the Guarantors and made its
own decision to enter into this  Agreement.  Each Lender also represents that it
will, independently and without reliance upon the Agent or any other Lender, and
based on such  documents and  information  as it shall deem  appropriate  at the
time,  continue to make its own credit  analysis,  evaluations  and decisions in
taking  or  not  taking  action  under  any  Loan  Document,  and to  make  such
investigation  as it  deems  necessary  to  inform  itself  as to the  business,
operations,  property, financial and other condition and creditworthiness of the
Borrower and the  Guarantors.  Except for notices,  reports and other  documents
expressly  required to be furnished to the Lenders by the Agent  hereunder,  the
Agent shall not have any duty or  responsibility  to provide any Lender with any
credit or other  information  concerning  the  business,  operations,  property,
financial  and other  condition  or  creditworthiness  of the  Borrower  and the
Guarantors  which  may  come  into  the  possession  of the  Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates.

                                       30
<PAGE>

     9.8 Indemnification.

     Each Lender  agrees to indemnify and reimburse the Agent in its capacity as
such (to the extent not promptly reimbursed by the Borrower and without limiting
the obligation of the Borrower or any Guarantor) upon demand, pro rata according
to its Revolving  Credit  Commitment,  from and against any and all liabilities,
obligations,  claims, losses, damages,  penalties,  actions,  judgments,  suits,
costs,  expenses or  disbursements  of any kind whatsoever  (including,  without
limitation,  any amounts paid to the Lenders (through the Agent) by the Borrower
pursuant to the terms of the Loan Documents,  that are subsequently rescinded or
avoided,  or must  otherwise  be  restored  or  returned)  which may at any time
(including,  without limitation, at any time following the payment of the Notes)
be imposed on, incurred by or asserted  against the Agent in any way relating to
or  arising  out  of  the  preparation,   execution,  delivery,  administration,
modification,  amendment or enforcement  (whether  through  negotiations,  legal
proceedings  or  otherwise)  of,  or legal  ,advice  in  respect  of  rights  or
responsibilities  under, the Loan Documents or any other documents  contemplated
by or referred to therein or the transactions contemplated thereby or any action
taken or omitted to be taken by the Agent under or in connection with any of the
foregoing to the extent the Agent is not  reimbursed  for such expenses by or on
behalf of the Borrower,  provided,  however,  that no Lender shall be liable for
the payment of any portion of such liabilities,  obligations,  losses,  damages,
penalties,  actions,  judgments,  suits, costs, expenses or disbursements to the
extent resulting  solely from the gross negligence or willful  misconduct of the
Agent.  The  agreements in this Section shall survive the payment of all amounts
payable under the Loan  Documents,  the  termination of the Aggregate  Revolving
Credit Commitments and the resignation of the Agent.

     9.9 Agent in Its Individual Capacity.

     Manufacturers  and Traders Trust Company and its respective  affiliates may
make loans to, accept deposits from, issue letters of credit for the account of,
and generally  engage in any kind of business  with,  the  Borrower,  and/or any
Guarantor  as though  Manufacturers  and  Traders  Trust  Company  was not Agent
hereunder,  and  without  notice  to or  consent  of  any  Lender.  The  Lenders
acknowledge  that pursuant to such activities,  Manufacturers  and Traders Trust
Company or its  affiliates may receive  information  regarding the Borrower or a
Guarantor  (including   information  that  may  be  subject  to  confidentiality
obligations in favor of the Borrower or such Guarantor) and acknowledge that the
Agent shall be under no obligation  to provide such  information  to them.  With
respect to Manufacturers and Traders Trust Company's Revolving Credit Commitment
and the Notes  issued to  Manufacturers  and Traders  Trust  Company  hereunder,
Manufacturers  and Traders  Trust  Company shall have the same rights and powers
under the Loan  Documents  as any Lender and may  exercise the same as though it
was not the Agent,  and the terms.  "Lender"  and  "Lenders"  shall in each case
include Manufacturers and Traders Trust Company in its individual capacity.

     9.10 Successor Agent.

     If at any time the Agent deems it advisable, in its sole discretion, it may
submit to each of the  Lenders a written  notice,  of its  resignation  as Agent
under this Agreement,  such  resignation to be effective upon the earlier of (i)
the written  acceptance of the duties of the Agent under the Loan Documents by a
successor Agent and (ii) on the 30th day after the date of such notice. Upon any
such  resignation,  the  Required  Lenders  shall have the right to appoint from
among the Lenders a successor  Agent.  If no successor  Agent shall have been so
appointed  by the  Required  Lenders and accepted  such  appointment  in writing

                                       31
<PAGE>

within 30 days after the retiring Agent's giving of notice of resignation,  then
the  retiring  Agent may, on behalf of the Lenders,  appoint a successor  Agent,
which successor Agent shall be a commercial bank organized under the laws of the
United  States of  America  or any State  thereof.  Upon the  acceptance  of any
appointment as Agent hereunder by a successor Agent,  such successor Agent shall
thereupon succeed to and become vested with all the rights,  powers,  privileges
and duties of the retiring  Agent,  and the  retiring  Agent's  rights,  powers,
privileges and duties as Agent under the Loan Documents shall be terminated. The
Borrower and the Lenders shall  execute such  documents as shall be necessary to
effect such  appointment.  After any retiring Agent's  resignation  hereunder as
Agent, the provisions of the Loan Documents shall inure to its benefit as to any
actions  taken or  omitted  to be taken by it while it was Agent  under the Loan
Documents.  If at any time  hereunder  there shall not be a duly  appointed  and
acting  Agent,  the  Borrower  agrees  to make each  payment  due under the Loan
Documents directly to the Lenders entitled thereto during such time.

10.  GENERAL.

     10.1 Survival of Warranties.

     All agreements, representation and warranties made herein shall survive the
delivery of this Agreement.

     10.2 Modification of Documents.

     No modification  or waiver of any provision of this  Agreement,  the Notes,
the other Loan Documents or other instruments or consent to any departure by the
Borrower  from any of the  terms or  conditions  thereof,  shall in any event be
effective  unless it shall be in writing and signed by the Agent (and,  but only
to the  extent  specifically  required  by  Section  9.2  each  Lender)  and the
Borrower,  and then  such  waiver  or  consent  shall be  effective  only in the
specific instance and for the purpose for which given. No notice to or demand on
the Borrower in any case shall, of itself,  entitle the Borrower to any other or
further notice or demand in similar or other circumstances.

     10.3 Rights Cumulative.

     Each and every right  granted to the Agent or a Lender  hereunder  or under
any other document delivered hereunder or in connection herewith, or allowed one
or the other by law or equity,  shall be  cumulative  and may be exercised  from
time to time.  No failure on the part of the Agent to exercise,  and no delay in
exercising, any right shall operate as a waiver thereof, nor shall any single or
partial  exercise of any right preclude any other or future exercise  thereof or
the exercise of any other right.

     10.4 Construction and Severability.

     This  Agreement,  the Notes and the other Loan Documents and the rights and
obligations of the parties shall be construed and interpreted in accordance with
the laws of the Commonwealth of  Pennsylvania.  The provisions of this Agreement
are  severable  and  if any  clause  or  provision  shall  be  held  invalid  or
unenforceable in whole or in part in any  jurisdiction,  then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof, in

                                       32
<PAGE>

such jurisdiction and shall not in any manner affect such clause or provision in
any other  jurisdiction,  or any other clause or provision in this  Agreement in
any jurisdiction.

     10.5 Conflict of Documents.

     The  provisions of this Agreement are in addition to, and not in limitation
of, the provisions of the Notes and the other Loan  Documents.  In. the event of
conflict  between the  provisions of this  Agreement  and the  provisions of the
Notes or any Loan Document, the provisions of this Agreement shall prevail.

     10.6 Notices.

     Notices by one party to the other  shall be in writing  and shall be deemed
to have been  validly  given at the time when posted in the U.S.  Mail,  postage
prepaid,  or hand delivered to the following address or to any alternate address
designated in writing by the recipient:

         The Borrower:  Herley Industries, Inc. 3061 Industry Drive
                        Lancaster, Pennsylvania 17603 Attn: Myron Levy, CEO

         The Agent:     Manufacturers and Traders Trust Company
                        1703 Oregon Pike
                        Lancaster, Pennsylvania 17601-4201 Attn: Jane E. Kline,
                        Vice President

         The Lenders:   Manufacturers and Traders Trust Company
                        1703 Oregon Pike
                        Lancaster, Pennsylvania 17601-4201 Attn: Jane E. Kline,
                        Vice President

         The Lenders:   Bank of Lancaster County, N.A.
                        101 North Pointe Boulevard
                        Lancaster, PA 17601
                        Attn: Susan S. Carson

     10.7 Expenses of the Agent.

     The  Borrower  shall pay all fees and expenses  reasonably  incurred by the
Agent in connection with the preparation, execution, delivery and performance of
this Agreement,  the Notes,  the other Loan Documents and all other  instruments
executed in  connection  herewith or in  connection  with the  collection of the
indebtedness  hereunder,  or any part  thereof.  These fees and  expenses  shall
include, without limitation, fees and disbursements of Agent's Counsel.


     10.8 Binding Effect.

     This  Agreement  and any  other  documents  and  instruments  delivered  or
required to be delivered pursuant hereto shall inure to the benefit of and shall

                                       33
<PAGE>

be binding upon the parties hereto and their heirs,  executors,  administrators,
personal  representatives,  successors  and  permitted  assigns  of the  parties
hereto. The Borrower may not assign its rights or obligations  hereunder without
the prior written consent of Agent and all of the Lenders.

     10.9 Participations and Assignments.

     (a) Each Lender with the prior written  consent of the Agent shall have the
right  to  assign  all or any  part of such  Lender's  Loans,  Revolving  Credit
Commitment  and  Notes,  on a pro rata  basis,  to any other  Lender,  provided,
however,  notwithstanding  the  foregoing,  that any such  assignment by Bank of
Lancaster  County and each Bank of Lancaster  County  Affiliate (as  hereinafter
defined) shall be permitted  without such consent if made to a Bank of Lancaster
County  Affiliate.  For the  purposes of this  Section  10.9,  the term "Bank of
Lancaster  County  Affiliate" shall mean any commercial bank organized under the
laws of the United States of America or any State  thereof that is,  directly or
indirectly.,  wholly-owned  by the  entity  that is Bank of  Lancaster  County's
"ultimate  parent  entity" as such term is defined in 16 CFR ss.801.1.  For each
assignment,  the  parties to such  assignment  shall  execute and deliver to the
Agent for its acceptance  and recording an Assignment and Acceptance  Agreement.
Upon such execution,  delivery,  acceptance and recording by the Agent, from and
after the effective date specified in such Assignment and Acceptance  Agreement,
the assignee  thereunder  shall be a party hereto and, to the extent provided in
such Assignment and Acceptance  Agreement,  the assignor Lender thereunder shall
be released from its obligations  under the Loan Documents.  The Borrower agrees
upon written  request of the Agent and at the Borrower's  expense to execute and
deliver (1) to such assignee, Notes, dated the effective date of such Assignment
and Acceptance  Agreement,  in an aggregate  principal amount equal to the Loans
assigned to, and Revolving Credit  Commitment  assumed by, such assignee and (2)
to such assignor Lender,  Notes, dated the effective date of such Assignment and
Acceptance  Agreement,  in an aggregate principal amount equal to the balance of
such assignor Lender's Loans and Revolving Credit  Commitment,  if any, and each
assignor'  Lender shall  cancel and return to the  Borrower its existing  Notes.
Upon any  such  assignment,  the  applicable  Revolving  Credit  Commitment  and
Revolving Credit Commitment Percentages set forth in Exhibit A shall be adjusted
accordingly  by the Agent and a new Exhibit A shall be  distributed by the Agent
to the Borrower and each Lender.

     (b) Each Lender may grant  participations  in all or any part of its Loans,
its Notes and its Revolving Credit  Commitment to one or more lenders,  provided
that  (i) such  Lender's  obligations  under  the Loan  Documents  shall  remain
unchanged, (ii) such Lender shall remain solely responsible to the other parties
to the  Loan  Documents  for the  performance  of such  obligations,  (iii)  the
Borrower,  the Agent and the other  Lenders  shall  continue  to deal solely and
directly  with  such  Lender  in  connection   with  such  Lender's  rights  and
obligations  under  the  Loan  Documents,  (iv) no  sub-participations  shall be
permitted and (v) the voting. rights of any holder of any participation shall be
limited  to  decisions  that  only  do any of the  following:  (A)  subject  the
participant  to any  additional  obligation  (B)  reduce  the  principal  of, or
interest  on the Notes or any fees or other  amounts  payable  hereunder  to the
extent such  participant has an interest therein (C) postpone any date fixed for
the  payment of  principal  of, or  interest  on, the Notes or any fees or other
amounts  payable  hereunder  to the  extent  such  participant  has an  interest
therein,  provided,  however,  notwithstanding  the  foregoing,  that  any  such
participation  granted by Bank of  Lancaster  County and each Bank of  Lancaster
County Affiliate shall require the prior written consent of the Agent if made to
any lender other than a Bank of Lancaster County Affiliate.

                                       34
<PAGE>

     10.10 Indemnification by the Borrower.

     In addition to all amounts payable  hereunder,  the Borrower shall protect,
indemnify,  and save  harmless  the  Agent,  each  Lender  and their  respective
officers,  employees and agents  (collectively,  the "Indemnitees")  against and
from any and all liabilities,  suits, actions, claims, demands, losses, expenses
and costs of every kind and nature  incurred by, or asserted or imposed  against
any Indemnitee by reason of (a) any accident, injury (including death) or damage
to any person or property,  however  caused (other than the gross  negligence or
willful  misconduct  of such  Indemnitee),  resulting  from,  connected  with or
growing  out of any  act of  commission  or  omission  of the  Borrower,  or any
officers,  employees,  agents,  assignees,  contractors or subcontractors of the
Borrower,  or (b) any untrue  statement by the Borrower or any of its  officers,
employees or agents of a material fact or any omission by the Borrower or any of
its officers, employees or agents to state a material fact necessary in order to
make any statements  made, in light of the  circumstances  under which they were
made, not misleading and made in connection with the Loans and the  transactions
contemplated by this Agreement and, in any such case, regardless of whether such
liabilities,  suits, actions,  claims,  demands,  damages,  losses, expenses and
costs be against, or be suffered or sustained by, any Indemnitee, or be against,
or be suffered or  sustained  by, legal  entities,  officers,  agents,  or other
persons to whom an Indemnitee may become liable therefor.  The Borrower may, and
if so requested by the Indemnitee  shall,  undertake to defend, at its sole cost
and expense,  any and all suits,  actions and  proceedings  brought against such
Indemnitee in  connection  with any of the matters  indemnified  against in this
Section.  The Agent and each Lender agree to give the Borrower  timely notice of
and shall forward to the Borrower every demand, notice, summons or other process
received  with  respect  to any claim or legal  proceeding  within  the  purview
hereof,  but the  failure to give such notice  shall not affect an  Indemnitee's
rights to indemnification hereunder unless the failure to give notice shall have
deprived the Borrower of a reasonable opportunity to contest any such matter. If
the indemnification  provided for herein is held by a court to be unavailable or
is  insufficient  to hold  harmless  the  Indemnitees  in respect of any losses,
claims,  damages  or  liabilities  (or  actions in  respect  thereof),  then the
Borrower shall  contribute to the amount paid or payable by the Indemnitees as a
result of the  losses,  claims,  damages or  liabilities  (or actions in respect
thereof) in such  proportion as is  appropriate to reflect the relative fault of
the Borrower on the one hand and the  Indemnitees  on the other hand, as well as
any other  relevant  equitable  considerations.  The  provisions of this Section
shall survive the  expiration of the Revolving  Credit  Commitment  Period,  the
repayment,  satisfaction  or discharge of the Loans,  and the Resignation of the
Agent or replacement of any Lender.

     10.11 Integration.

     All Exhibits to a Loan Document  shall be deemed to be a part thereof.  The
Loan Documents embody the entire agreement and understanding among the Borrower,
the Agent, the Lenders and the other parties thereto with respect to the subject
matter thereof and supersede all prior agreements and  understandings  among the
Borrower,  the Agent,  the Lenders  and the other  parties  with  respect to the
subject matter  thereof.  This  Agreement  amends and restates that certain Loan
Agreement dated June 19, 2002, by and among Herley  Industries,  Inc.,  Allfirst
Bank (a predecessor to Manufacturers and Traders Trust Company), Fulton Bank and
Manufacturers and Traders Trust Company,  as Agent, as the same has been amended
and supplemented from time to time.

                                       35
<PAGE>

     10.12 Waiver of Trial by Jury.


THE AGENT,  EACH  LENDER AND THE  BORROWER  HEREBY  KNOWINGLY,  VOLUNTARILY  AND
INTENTIONALLY  WAIVE  ANY  RIGHT  EITHER  OF THEM MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION  ARISING OUT OF, UNDER OR IN CONNECTION  WITH THE LOAN
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREIN. FURTHER, THE BORROWER HEREBY
CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF THE AGENT OR ANY LENDER, OR COUNSEL
THERETO, HAS REPRESENTED,  EXPRESSLY OR OTHERWISE,  THAT THE AGENT OR ANY LENDER
WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT
TO JURY  TRIAL  PROVISION.  THE  BORROWER  ACKNOWLEDGES  THAT THE  AGENT AND THE
LENDERS  HAVE BEEN  INDUCED TO ENTER INTO THIS  AGREEMENT  BY,  INTER ALIA,  THE
PROVISIONS OF THIS SECTION.

     10.13 Jurisdiction and Venue.

     The Borrower hereby irrevocably  consents to the exclusive  jurisdiction of
any state or federal court for the county or judicial district where the Agent's
office indicated in Section 10.6 of this Agreement is located, and consents that
all  service of  process  be sent by  nationally  recognized  overnight  courier
service directed to the Borrower at the Borrower's  address set forth herein and
service so made will be deemed to be completed on the business day after deposit
with such  courier,  provided  that  nothing  contained in this  Agreement  will
prevent the Agent or any Lender from bringing any action, enforcing any award or
judgment or exercising any rights against the Borrower individually, against any
security or against any property of the Borrower within any other country, state
or other foreign or domestic jurisdiction. The Agent and the Borrower agree that
the venue provided above is the most convenient forum for both the Agent and the
Borrower.  The Borrower waives any objection to venue and any objection based on
a more convenient forum in any action instituted under this Agreement.

     10.14 Indictment.

     The advance formula set forth in Section 2.1 that applies in the event that
HMS Investments,  Inc. shall at any time(s) have total cash and cash equivalents
below $5,000,000 and the collateral  requirement  contained in Section 3.12 will
cease and terminate if and when the  Indictment is actually  resolved to Agent's
reasonable satisfaction.

     The  Borrower  acknowledges  that  it has  read  and  understands  all  the
provisions of this Agreement,  including  Waiver, of Trial by Jury, and has been
advised by counsel as necessary or appropriate.

                                       36
<PAGE>


     IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
caused this Agreement to be duly executed on its  respective  behalf on the date
first set forth above.



WITNESS:                                     HERLEY INDUSTRIES, INC.

/S/                                         /S/
-----------------------------            By: -----------------------------------

                                                PRESIDENT
                                        Title: --------------------------------


ATTEST:                                     BANK OF LANCASTER COUNTY, N.A.
/S/                                         /S/
----------------------------            By: -----------------------------------

VICE PRESIDENT                                  SENIOR VICE PRESIDCENT
Title: ---------------------            Title: --------------------------------

WITNESS:                                   MANUFACTURERS AND TRADERS
                                           TRUST COMPANY
/S/                                          /S/
----------------------------            By: -----------------------------------


                                        Title: --------------------------------

                                       37
<PAGE>
                          REVOLVING CREDIT COMMITMENTS
                   AND REVOLVING CREDIT COMMITMENT PERCENTAGES

<TABLE>
<CAPTION>
                             Revolving Credit                Revolving Credit
Lender                           Commitment                Commitment Percentage
--------------------------------------------------------------------------------
<S>                                                               <C>
Manufacturers and Traders     $30,000,000.00                       75 %
Trust Company

Bank of Lancaster County,     $10,000,000.00                       25 %
N.A.

Aggregate Revolving Credit    $40,000,000.00                      100 %
Commitment
</TABLE>

                                       38