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Herley Announces Settlement Agreement with U.S. Government

Tuesday, May 6, 2008 General News J E 4
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LANCASTER, Pa., May 5 Herley Industries, Inc.(Nasdaq: HRLY) announced today that it has reached a court approved settlementwith the U.S. Government on all existing criminal and civil claims. Theseclaims include (a) the criminal indictment against the Company which hadbeen scheduled for trial on May 5, 2008 with respect to a contract for thesale of voltage control oscillators in January 2001 and two contractsinvolving the sale of power heads to the U.S. Government in April 2002 andOctober 2002, respectively; (b) the civil action by the U.S. Governmentagainst the Company based on alleged excessive profits on these threecontracts; and ( c ) any future U.S. Government action against the Companyarising from activities resulting in its two prior suspensions from receivingnew contract awards from the U.S. Government, including its June 2007suspension related to the Conventional Air Launched Cruise Missile project(CALCM). The Company also announced that a settlement has been reached withthe U.S. Government and its former Chairman, Lee N. Blatt.

The settlement agreement with the Company is as follows: (a) withrespect to the indictment, the Company has pleaded guilty to two counts ofobstructing an audit relating solely to the power heads, a fine of $3.5million, and the remaining 31 counts of the indictment have been dismissed;(b) the Department of Justice has released the Company of any civil liabilityfor the matters set forth in the indictment in exchange for the payment of $6million; and ( c ) with respect to the facts and circumstances resulting inthe Company's two prior suspensions, the U. S. Government considers thematters closed.

With respect to Mr. Blatt, the Court, at the Government's request,dismissed all of the charges against him in the indictment and the Governmentfiled a Superseding Information charging Mr. Blatt with a misdemeanorviolation of the tax code in a single count, and Mr. Blatt has entered aguilty plea for failing to keep Company records of the allocation of an$18,000 corporate research expense. Mr. Blatt has been fined $25,000, hasreceived a term of probation of one year and is required to perform somecommunity service.

The Company is presently a party to an administrative agreement datedOctober 12, 2006, as amended on August 14, 2007, ("the Agreement") with theDepartment of the Navy, Acquisition Integrity Office. Subject to the termsand conditions set forth in the Agreement, the Navy, on behalf of theDepartment of Defense, agreed to terminate Herley's suspension and not todebar Herley based upon the facts and causes leading to the suspension. TheCompany has advised the Navy about the terms and conditions of the Courtapproved settlement for the criminal and civil matters mentioned above, andthe Navy, through the Acquisition Integrity Office, has advised Herley that noaction will be taken to suspend or debar Herley based on this settlement.

Commenting on this settlement, Myron Levy, Chairman and CEO of the Companystated, "We believe this settlement to be in our best interests. It isanticipated that the trial of the criminal matter would have been between twoto three months and the trial of the Justice Department's civil action wouldhave been a similar time period. The legal fees, for both trials, have beenestimated to be in excess of the settlement amount. The U.S. Government'sactions also have been a time-consuming, substantial distraction tomanagement. We are optimistic that with these proceedings finally resolved,we can now look forward to resuming our previously successful performancerecord without the challenging impediments resulting from the U.S.Government's actions."

Herley Industries, Inc. is a leader in the design, development andmanufacture of microwave technology solutions for the defense, aerospace andmedical industries worldwide. Based in Lancaster, PA, Herley has eightmanufacturing l
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