EMPLOYMENT AGREEMENT



     AGREEMENT  dated  as of June  7,  2006,  between  HERLEY  INDUSTRIES,  INC.

("Company"),  a Delaware  corporation,  having its  principal  place of business

located at 101 North Pointe Boulevard,  Lancaster,  Pennsylvania 17601-4133, and

John M. Kelley  ("Employee"),  residing 803 Bent Creek Drive,  Lititz,  PA 17543

("Employee").



                                   WITNESSETH:



     WHEREAS,  the Company  desires to continue to employ the  Employee  and the

Employee  desires  to be  employed  by the  Company  subject  to the  terms  and

conditions hereinafter set forth.



     NOW,  THEREFORE,  in consideration of the mutual premises and of the mutual

covenants  hereinafter  contained and for good and valuable  consideration,  the

parties hereto agree as follows:



     1.  Employment.  The Company  hereby  employs the Employee as President for

Herley  Industries,  Inc. and the Employee  hereby accepts  employment  upon the

terms and conditions hereinafter set forth.



     2. Term. The term of this Agreement  shall be 36 months,  commencing on the

date hereof ("Effective Date") and ending June 6, 2009.



     3. Compensation.



     (a) For all services rendered under this Agreement:



          (i) The  Company  shall pay the  Employee a base salary at the rate of

     $250,000 per annum payable in equal bi-weekly installments ("Base Salary").

     The Base Salary shall be reviewed by the Company's Board of Directors on an

     annual basis.



          (ii) an auto allowance that provides a $600 per month car allowance as

     well  as  reimbursement  for  other  expenses  such as  gasoline,  repairs,

     insurance.



          (iii) Employee may be entitled to receive a bonus at the discretion of

     the Board of Directors.



     4. Duties.  The Employee  shall perform on a full time basis such duties of

an Employee nature as shall be customarily associated with his position with the

Company subject to the direction of the Chief Executive Officer and the Board of

Directors.  The Employee  shall perform and discharge  well and  faithfully  the

duties  which  may be  assigned  to him  from  time to time  by the  Company  in

connection with the conduct of its business.



                                       1

{PAGE}



     5. Extent of  Services.  So long as during the term of his  employment  the

Company has not  notified  the  Employee of his  disability  pursuant to Section

10(a) hereof,  the Employee shall devote his full business  time,  attention and

best efforts to the business of the Company  subject to reasonable  absences for

vacation  and illness and may not during the term of his  employment  be engaged

(whether  or not  during  normal  business  hours)  in  any  other  business  or

professional activity,  whether or not such activity is pursued for gain, profit

or other pecuniary advantage.  Notwithstanding the foregoing,  Employee may join

professional  associations  that do not  interfere  with his  attention and best

efforts on behalf of the Company.



     6. Benefits/Expenses.



     (a) During the term of his  employment,  the Employee  shall be entitled to

participate in employee benefit plans or programs of the Company,  to the extent

that his position, tenure, salary, age, health and other qualifications make him

eligible  to  participate,  subject  to the  rules  and  regulations  applicable

thereto. Such benefits shall include life insurance, medical and dental coverage

for Employee and his eligible dependents,  and the opportunity to participate in

a company-sponsored 401(k) savings plan, to the extent available. In addition to

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