HERLEY INDUSTRIES INC /NEW
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>hrlyex10-1.txt
<TEXT>
                       THIRD AMENDMENT TO LOAN AGREEMENT


     THIS THIRD AMENDMENT TO LOAN AGREEMENT (the "Third  Amendment") is made and
entered into this 28th day of January,  2002, by and between HERLEY  INDUSTRIES,
INC., a Delaware corporation,  having offices at 3061 Industry Drive, Lancaster,
Pennsylvania  17603 (the  "Borrower")  and  ALLFIRST  BANK,  a  Maryland  state-
chartered  commercial bank,  successor to The First National Bank of Maryland, a
division  of  FMB  Bank,   having  offices  at  1703  Oregon  Pike,   Lancaster,
Pennsylvania 17601 (the ALender@).

                              B A C K G R O U N D :

     A. Borrower has borrowed from Lender and desires to continue to borrow from
Lender in  connection  with the operation of its  business(es).  On February 16,
1999, the parties entered into a Loan Agreement relative to a Revolving Loan and
a Mortgage  Loan,  which was amended by an  Amendment  to Loan  Agreement  dated
January 11, 2000, and by a Second Amendment to Loan Agreement dated February 15,
2001 (as amended,  the  AAgreement@).  The Agreement is  incorporated  herein by
reference  and made a part hereof.  All  capitalized  terms used herein  without
definition  which are defined in the Agreement shall have the meanings set forth
therein.

     B. The parties desire to further amend the Agreement.

     C. Borrower has no defense,  charge,  defalcation,  claim,  plea, demand or
set-off against the Agreement or any of the Loan Documents.

     NOW,  THEREFORE,  for  valuable  consideration,  receipt of which is hereby
acknowledged,  and  intending to be legally  bound  hereby,  the parties  hereto
covenant and agree as follows:

     1. That the above Background is incorporated herein by reference.

     2. That  Section  1.1 of the  Agreement  is amended  to extend the  current
Revolving Loan Maturity Date from January 31, 2003, to January 31, 2004.

     3. That Section 2.5 of the  Agreement  is amended to provide that  interest
will accrue on the outstanding principal balance of the Revolving Loan at a rate
per annum equal to the Federal Funds Target Rate as  established  by the Federal
Open Market  Committee of the Federal  Reserve Board,  as in effect from time to
time,  plus 1.65%.  The  interest  rate shall change  effective  with the Bank=s
implementation  of  changes  in  the  Federal  Funds  Target  Rate  as  publicly
announced.

     4. That Section 6.11 of the  Agreement is amended to provide that  Borrower
will not permit the Tangible Net Worth of Borrower,  on a consolidated basis, to
be less than  $35,000,000  at any time while any Loan  remains  outstanding  and
unpaid or any other amount is owing under any Loan Document to Lender.

<PAGE>

     5. That Section 6.12 of the  Agreement is amended to provide that  Borrower
shall at all times  maintain  a  maximum  Debt-to-Tangible  Net  Worth  Ratio of
1.50-to-1  while any Loan remains  outstanding and unpaid or any other amount is
owing under any Loan Document to Lender.

     6.  That the  Borrower  reaffirms  and  restates  the  representations  and
warranties set forth in Article VII of the  Agreement,  as amended by this Third
Amendment, and all such representations and warranties shall be true and correct
on the date  hereof  with the same  force and  effect  as if made on such  date,
except  as they may  specifically  refer to an  earlier  date(s).  The  Borrower
represents and warrants (which  representations and warranties shall survive the
execution and delivery  hereof) to the Lender that (i) this Third  Amendment has
been duly authorized,  executed and delivered and constitute a legal,  valid and
binding  obligation of the Borrower,  and is enforceable in accordance  with its
terms;  (ii) the  Borrower is not in default  under the  Agreement or any of the
other Loan  Documents,  and the Borrower is in full  compliance  with all of the
terms and conditions  thereof;  (iii) no event exists,  or is likely to exist in
the future,  which with the passage of time,  notice, or both, will constitute a
default under the Agreement or any of the other Loan  Documents;  and (iv) there
have been no material  adverse changes in the Borrower=s  finances or operations
which  would  cause the  Borrower  to be in default  under any of the  financial
covenants contained in the Loan Documents.

     7.  That the terms  and  conditions,  paragraph  sections,  collateral  and
guaranty requirements,  representations and warranties of the Agreement and Loan
Documents,  together with all  understandings by and between the parties to this
Third  Amendment  evidenced  by writings of the same or  subsequent  date not in
conflict with the above modifications under this Third Amendment shall remain in
full force and effect as the agreement of the parties relative to the Loans, and
are hereby ratified, reaffirmed and con- firmed.

     8. That all references to the Agreement,  the Loan Documents, and the other
documents and instruments delivered pursuant to or in connection  therewith,  as
well as in writings of the same or subsequent  date, shall mean the Agreement as
amended hereby and as each may in the future be amended, restated,  supplemented
or modified from time to time.  Similarly,  all references to The First National
Bank of Maryland,  a division of FMB Bank, shall be deemed to have been made and
to refer to Allfirst Bank,  successor to The First National Bank of Maryland,  a
division of FMB Bank.

     9.  That the  parties  hereto  shall,  at any  time,  and from time to time
following  the execution of this Third  Amendment,  execute and deliver all such
further  instruments  and take  all such  further  action  as may be  reasonably
necessary  or  appropriate  in order to carry out the  provisions  of this Third
Amendment.

<PAGE>

     IN WITNESS WHEREOF,  the parties hereto have caused this Third Amendment to
be executed by their  respective duly authorized  officers all as of the day and
year first above written.

ATTEST:                                  HERLEY INDUSTRIES, INC.,
                                         a Delaware corporation

/s/ John Kelley                          By: /s/ Myron Levy
Title:  Sr. Vice President               Title:  CEO


/s/ John Kelley                          By:  /s/ A. C. Garefino
Title: Sr. Vice President                Title: VP Finance/CFO


                                         ALLFIRST BANK, successor to The First
                                         National Bank of Maryland, a Division
                                         of FMB Bank

                                         By:  /s/ Jane E. Kline
                                         Title:  Vice President


                                      - 2 -

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