HRLY Herley Industries, Inc. (MM)

        Restricted Stock Awards.     Under the Merger Agreement, each restricted stock award granted under any compensation plan or arrangement of Herley and outstanding immediately prior to the Effective Time will be cancelled in exchange for the Merger Consideration payable in respect of such stock.

        The table below sets forth information regarding the amount of cash consideration each director and executive officer would receive pursuant to the Merger Agreement with respect of shares of restricted stock held by each director and executive officer as of February 23, 2011.

Agreements with Executive Officers and Payments Upon a Change of Control

        Employment Agreement with John A. Thonet.     On June 15, 2010, Herley entered into an Employment Agreement with John A. Thonet (the "Thonet Agreement") pursuant to which Mr. Thonet is employed as Chairman of the Board. The Thonet Agreement has a term of three years that renews daily so that, at all times, the remaining term is three years.

        Under the Thonet Agreement, Mr. Thonet receives a base salary of $482,515 per year, as adjusted to be adjusted annually for any increase in the Consumer Price Index for New York and Northeastern New Jersey, All Items. Mr. Thonet is eligible for an annual bonus as determined by the Compensation Committee. He is also eligible to participate in any long-term incentive compensation plan established for his benefit or the benefit of other members of senior management. In connection with the execution of the Thonet Agreement, Mr. Thonet received a grant of 100,000 shares of Herley's restricted common stock, which vest in equal annual installments over five years. Vesting would be accelerated if Herley terminates Mr. Thonet's employment without cause or if he terminates his employment for good reason.

6

Table of Contents

        Under the Thonet Agreement, Mr. Thonet is entitled to participate in all employee benefit plans available to Herley's senior executives or employees generally. In addition, Mr. Thonet will be reimbursed for all medical expenses incurred by him or his spouse that are not reimbursed by insurance or otherwise offset by Medicare should he and his wife, when eligible, elect Medicare coverage. Under certain circumstances, Mr. Thonet and his spouse would be entitled to coverage during Mr. Thonet's lifetime under Herley's life insurance, hospitalization insurance, surgical insurance, major and excess major medical insurance and dental insurance in accordance with the most favorable plans, policies, programs and practices of Herley made available generally to other senior executive officers of Herley (the "Post-Employment Benefit"), as more specifically discussed below.

        If Mr. Thonet's employment is terminated by Herley without cause or by Mr. Thonet for good reason within two years following a Change in Control, he is entitled to receive the Basic Termination Benefits (as described below) plus the following: (i) a lump sum payment equal to his salary, as then in effect, for the remainder of the term of the Thonet Agreement; (ii) a lump sum payment of annual bonuses for the remainder of the term of the Thonet Agreement equal to the average of the annual bonuses awarded to him for the previous fiscal years in which he was employed preceding the fiscal year of termination; (iii) the Post-Employment Benefit; (iv) continued participation in all employee benefit plans through the end of the term or, if he is precluded from continuing participation in any plan, he shall be entitled to the after-tax economic equivalent; and (v) other benefits in accordance with applicable plans and program of Herley through the end of the term. In addition, all unvested options and unvested grants of shares will vest in full.

        If any benefits or payment Mr. Thonet is to receive would subject him to the excise tax imposed under Section 4999 of the Internal Revenue Code, if the net-after tax amount that Mr. Thonet would receive does not exceed the net-after tax amount he would receive if the amount of such payment and benefits were reduced to the maximum amount which could otherwise be paid without the imposition of the excise tax, then, to the extent necessary to eliminate the imposition of the excise tax, cash payments and benefits shall be first reduced and non-cash payments and benefits shall be next reduced.

        If Mr. Thonet voluntarily terminates employment, or Herley and Mr. Thonet mutually agree to terminate his employment, he would become a consultant to Herley for a period of three years, as described below. In addition, Mr. Thonet's voluntary termination entitles him to receive his salary through the date of termination, accrued vacation, any bonus awarded but not yet paid, any other compensation or benefits that have vested or to which he is otherwise entitled in accordance with the applicable terms and conditions of the grant or award and reimbursement of expenses, including medical expense reimbursement as described in the paragraph above (the "Basic Termination Benefits"). In addition, if the voluntary termination occurs after December 31, 2014, Mr. Thonet and his spouse would be entitled to the Post-Employment Benefit, described above.

        During the consulting period, Mr. Thonet would be required to work no more than sixty (60) days in any calendar year, and no more than three days in any week. As compensation, he would receive fifty (50%) percent of his salary in effect at the end of his employment, subject to annual increase for CPI changes, as described above. If he becomes disabled, he will continue to receive his compensation for the remainder of the consulting period, offset by any disability insurance payments from long-term disability insurance policies that Herley may have elected to provide for him. If Mr. Thonet fails to perform, the consulting services as required, Herley may terminate that arrangement after 30 days notice and an opportunity to cure, and payment of the consulting fees and benefits (except for the Post-Termination Benefits) will cease.

        Employment Letter with Howard M. Eckstein.     On September 14, 2009, Herley offered Mr. Eckstein employment via an Employment Letter, as amended September 9, 2010. The letter provides that Mr. Eckstein will be employed as Division President/General Manager at a base salary of $250,000. Effective in April, 2010, his base salary was raised to $300,000 in connection with his

7

Table of Contents

promotion to Senior Vice President. It also provides that he will receive an automobile allowance of $1,000 per month. He is also eligible for an annual bonus in an amount up to half of his annual base compensation if he achieves certain pre-determined goals, and is entitled to normal company benefits. Pursuant to his Employment Letter, in September 2009, he was granted 10,000 stock options, which vest one-third each year, and 5,000 shares of common stock, which also vest one third each year, with vesting accelerating in each case upon a change of control.

        Employee Retention Agreements.     Herley has entered into Employee Retention Agreements (the "Retention Agreements") with certain employees, including Howard M. Eckstein, Anello C. Garefino, Yonah Adelman and Richard F. Poirier. The current annual base salaries of Messrs. Eckstein, Garefino, Adelman and Poirier are $300,000, $233,210, $300,000 and $450,000, respectively. Each Retention Agreement provides the employee with a payment equal to two times his or her total cash compensation (including salary, bonuses and commissions) in the prior fiscal year, up to a maximum of $1,000,000, if, within 24 months following a change in control, his or her employment is terminated without cause or the executive resigns due to the occurrence of one of the following without his or her consent: (1) reduction in responsibilities; (2) reduction in compensation; (3) material change in or failure to maintain the employee's office or office equipment and services; (4) a material reduction in the number or level of the employee's staff (other than a pro-rata share of company-wide reductions); or (5) relocation of the employee's principal place of employment more than 30 miles from his or her current location. If the employee's employment is terminated for cause, he or she is not entitled to receive benefits under the agreement.

        Quantification of Potential Payments—Cash Severance.     The aggregate value of the cash severance payments which would be payable to Messrs. Eckstein, Garefino, Adelman, Poirier and Thonet in the event of a qualified termination within two years after the completion of the Merger would be approximately $850,000, $626,420, $750,000, $1,000,000, and $2,197,545, respectively. These figures do not include any additional accrued but unpaid salary or benefits.

Employment Matters

        Pursuant to the Merger Agreement, Parent agreed to provide to employees of Herley or any of its subsidiaries as of the closing of the Merger who are employed with Herley or any of its subsidiaries immediately prior to and immediately after the Effective Time ("Continuing Employee") benefits pursuant to either (i) currently existing employee benefit plans of Herley (which includes, among others, severance and employment agreements) or (ii) employee benefit plans that Parent or any of its subsidiaries sponsors, participates in, is a party to or contributes to. Parent or any of its subsidiaries may amend or terminate any benefit plan, program or arrangement following the Effective Time or require participation of any Continuing Employee in any particular employee benefit plan. With respect to any employee benefit plan maintained by Parent or any of its subsidiaries, including the Surviving Corporation, in which any Continuing Employee becomes a participant, Parent will and will use its commercially reasonable efforts to cause its third party insurers to provide that such Continuing Employee shall receive full credit for service with Herley or any of its subsidiaries for purposes of eligibility to participate and vesting, to the same extent that such service was recognized as of the closing date of the Merger under a comparable plan of Herley and any of its subsidiaries in which the Continuing Employee participated, except where the provision of such prior service credit would result in duplication of benefits and subject to certain exceptions. Parent will and will use its commercially reasonable efforts to cause its third party insurers to (i) waive, or cause to be waived, any pre-existing condition limitations, exclusions, actively-at-work requirements and waiting periods under any health or welfare benefit plan maintained by Parent or any of its subsidiaries in which the Continuing Employees (and their eligible dependents) will be eligible to participate from and after the closing date of the Merger, except to the extent that such pre-existing condition limitations, exclusions, actively-at-work requirements and waiting periods were not satisfied or waived under the comparable plan of Herley

8

Table of Contents

and its subsidiaries in which the Continuing Employee participated and (ii) if a Continuing Employee commences participation in any health benefit plan of Parent or its subsidiaries during calendar year 2011, to the extent practicable, cause any health benefit plan of Parent or any of its subsidiaries in which the Continuing Employee participates after the closing date of the Merger to recognize the dollar amount of all co-payments, deductibles and similar expenses incurred by such Continuing Employee (and his or her eligible dependents) during such calendar year for purposes of satisfying such calendar year's deductible and co-payment limitations under the relevant welfare benefit plans in which such Continuing Employee (and dependents) commences participation.

Employment Agreements with Parent

        Parent has entered into employment agreements with certain Herley employees. At the request of Parent, each of Wayne Armstrong, currently the President and General Manager of a subsidiary of Herley, John McClay, currently the General Manager of Herley dba Herley New England, and Ed Weatherwax, currently the President and General Manager of a subsidiary of Herley, entered into an employment agreement with Parent on February 15, 2011, February 14, 2011 and February 10, 2011, respectively (collectively, the "U.S. Employment Agreements") and Yonah Adelman, currently a Senior Vice President of Herley and General Manager of a subsidiary of Herley, entered into an employment agreement with Parent on February 22, 2011 (the "Adelman Employment Agreement" and, together with the U.S. Employment Agreements, the "Employment Agreements"). The Employment Agreements, which are effective and contingent upon the consummation of the Merger, contain terms (as described in greater detail below) relating to the employment of Messrs. Adelman, Armstrong, McClay and Weatherwax following the Effective Time and continuing until December 31, 2014 (subject to early termination and renewal).

        Base Salary.     Pursuant to the Employment Agreements, each of Messrs. Adelman, Armstrong, McClay and Weatherwax will receive a base salary at an annual rate of $300,000, $213,208, $220,064 and $228,132, respectively.

        Incentive Compensation.     Pursuant to the Employment Agreements, each of Messrs. Adelman, Armstrong, McClay and Weatherwax may receive annually, in the sole discretion of Parent and taking into account certain performance goals and results, up to 50%, 35%, 35% and 35%, respectively, of his base salary as incentive compensation.

        Restricted Stock Awards.     Pursuant to the Employment Agreements, at the Effective Time, each of Messrs. Adelman, Armstrong, McClay and Weatherwax will be awarded restricted stock units related to Parent common stock ("Parent Shares"), par value $0.001 per share, in the amount of 10,000. Pursuant to the Employment Agreements, the restrictions on each such restricted stock unit will vest at the rate of one-fifth per year over five years with the first vesting occurring on the one-year anniversary of the Effective Time.

        Without Cause Termination Benefits.     The U.S. Employment Agreements provide that each of Messrs. Armstrong, McClay and Weatherwax will be entitled to receive the following benefits if terminated without cause: (i) any base salary accrued through the date of termination; (ii) any accrued but unused paid time off; (iii) continued payment of base salary for 12 months; (iv) any incentive compensation accrued but not yet paid; and (v) continued medical and dental benefits under COBRA at the then current employee contribution rate for him and his eligible family members for 12 months, provided that he elects to continue and remains eligible for benefits under COBRA and does not become eligible for health coverage through another employer during such 12 months.

        Change of Control Termination Benefits.     The U.S. Employment Agreements provide that each of Messrs. Armstrong, McClay and Weatherwax will be entitled to receive the following benefits if he is terminated without cause upon a change of control of Parent or if a change of control of Parent occurs

9

Table of Contents

and without his written consent his responsibilities are reduced in scope, level or nature, his compensation is reduced, the number or level of his staff is materially reduced (other than as a pro-rata share of any company-wide reduction) or his principal place of employment is relocated beyond 30 miles from its current location (each, a "Change of Control Trigger"): (i) any base salary accrued through the date of termination; (ii) any accrued but unused vacation time; (iii) continued payment of base salary for 12 months; (iv) any incentive compensation earned as of the date of termination; and (v) continued medical and dental benefits at the then current employee contribution rate for him and his eligible family members for 12 months. The Adelman Employment Agreement provides that in the event of a Change of Control Trigger, Mr. Adelman will be entitled to receive the following benefits: (i) any base salary accrued through the date of termination; (ii) any accrued but unused vacation time; and (iii) any incentive compensation earned as of the date of termination. Each of the Employment Agreements provide that in the event of a change of control of Parent, the vesting of 100% of all stock options, stock appreciation rights, restricted stock units and any other equity awards granted under Parent's equity incentive plans shall accelerate to the extent permissible by law.

        Noninterference Provisions.     The Employment Agreements contain customary provisions restricting each of Messrs. Adelman, Armstrong, McClay and Weatherwax, for a period of 12 months following his separation from Parent, from: (i) directly or indirectly contacting or engaging in discussions with Parent's or its affiliates' customers or prospective customers for the purpose of, or in a way reasonably likely to result in, diverting or taking away business from Parent or otherwise interfering or damaging Parent's relationship with its customers or prospective customers; (ii) soliciting or otherwise inducing Parent's employees, consultants or independent contractors to terminate or breach an employment or other contractual relationship with Parent or to leave Parent's employ for a position involving work in direct competition with Parent; or (iii) making disparaging comments about Parent or any of Parent's affiliates.

Additional Offers of Employment by Parent

        Parent has also made offers of employment and is currently in discussions regarding employment agreements with Howard Eckstein, currently a Senior Vice President of Herley and General Manager of Herley dba Herley-Lancaster and Richard Poirier, currently the President and Chief Executive Officer of Herley.

Director and Officer Indemnification and Insurance

        Section 145(a) of the DGCL provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), because he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

        Section 145(b) of the DGCL provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor because the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and

10

Table of Contents

reasonably incurred by the person in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification will be made with respect to any claim, issue or matter as to which he or she has been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or other adjudicating court determines that, despite the adjudication of liability but in view of all of the circumstances of the case, he or she is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or other adjudicating court deems proper.

        Section 145(g) of the DGCL provides, in general, that a corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify the person against such liability under Section 145 of the DGCL.

        Article 12 of Herley's Amended and Restated Certificate of Incorporation (the "Certificate"), provides, in general, that no person who is or was at any time a director of director of Herley will be personally liable to Herley or Herley's stockholders for monetary damages for any breach of fiduciary duty by such person as a director other than (i) for any breach of his or her duty of loyalty to Herley or its stockholders, (ii) for any acts or omissions by the person which are not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the person derived an improper personal benefit.

        Article IX of Herley's Amended and Restated Bylaws (the "Bylaws") provides that Herley may indemnify any director, officer, employee or agent of Herley to the full extent permitted by law.

        Herley has also entered into indemnification agreements with its directors and officers, including the executive officers, pursuant to which Herley agreed to provide indemnification with regard to certain legal proceedings provided that the indemnified officer or director has acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of Herley and with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The agreements provide advancement of expenses (including costs, reasonable attorneys fees and reasonable compensation for the time spent by the director or officer for which he or she is not otherwise compensated), judgments, fines and amounts paid in settlement actually incurred by the officer or director, or on his or her behalf, arising out of proceedings brought against such officer or director by reason of his or her corporate status. The description of the indemnification agreements entered into with Herley's directors and officers is qualified in its entirety by reference to the form of the indemnification agreement which is filed as Exhibit (e)(4) to this Schedule 14D-9 and is incorporated herein by reference.

        The Merger Agreement provides that from and after the Effective Time, Parent will, and will cause Herley to, indemnify and hold harmless each person who is, or was at any time prior to the Effective Time, a director, officer, employee, fiduciary or agent of Herley or any subsidiary of Herley (the "Indemnified Parties") to the fullest extent such persons were indemnified as of the date of the Merger Agreement, against all costs and expenses (including, but not limited to, fees and expenses of attorneys, experts and litigation consultants as well as any appeal bonds), judgments, fines, losses, claims, damages, liabilities and settlement amounts paid in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, whenever asserted, based on or arising out of, in whole or in part, (A) the fact that an Indemnified Party was, or was or is deemed to have status as, a director or officer of Herley or a subsidiary of Herley or (B) acts or omissions by an Indemnified Party in the Indemnified Party's capacity as a director, officer, employee,

11

Table of Contents

fiduciary or agent of Herley or a subsidiary of Herley or taken at the request of Herley or a subsidiary of Herley (including in connection with serving at the request of Herley or a subsidiary of Herley as a director, officer, employee, agent, trustee or fiduciary of another person (including any employee benefit plan)).

        The Merger Agreement provides that all obligations of Herley or any subsidiary of Herley to any Indemnified Party in respect of advancement, indemnification or exculpation from liabilities for acts or omissions occurring at or prior to the Effective Time as provided in (a) applicable law or the Certificate, the Bylaws or other organizational documents of Herley or any Subsidiary of Herley as in effect on the date of the Merger Agreement, or (b) the indemnification agreements with directors, officers, employees, fiduciaries or agents of Herley or any subsidiary of Herley disclosed by Herley, shall continue in full force and effect in accordance with their respective terms, in each case, whether or not Herley's insurance covers all such costs. From and after the Effective Time, Parent and the Surviving Corporation shall be jointly and severally liable to pay and perform in a timely manner such indemnification, advancement and exculpation obligations.

        Parent agreed that until the later of six years from the Effective Time or the applicable statute of limitations, it will cause the certificate of incorporation and by-laws of the Surviving Corporation to contain provisions no less favorable to the Indemnified Parties with respect to limitation of liabilities of directors and officers and advancement and indemnification than are set forth as of the date of the Merger Agreement in the Certificate and Bylaws, which provisions shall not be amended, repealed or otherwise modified in a manner that would adversely affect the rights thereunder of the Indemnified Parties.

        In addition, from and after the Effective Time, Parent will cause Herley or the Surviving Corporation to pay any expenses (including, but not limited to, fees and expenses of legal counsel, experts and litigation consultants, as well as any appeal bonds) of any Indemnified Party (including in connection with enforcing the advancement, indemnity and other related obligations) as incurred to the fullest extent to which such Indemnified Party is entitled to payment as of the date of the Merger Agreement; provided, that the person to whom expenses are advanced provides an undertaking to repay such advances to the extent, and only to the extent, required by applicable law.

        The Merger Agreement further provides that Parent will pay for and will cause Herley to maintain for six years after the Effective Time, the policies of directors' and officers' liability insurance maintained by Herley as of the date of the Merger Agreement with respect to matters existing or occurring at or prior to the Effective Time (including the Transactions) for the individuals who were then covered by Herley's directors' and officers' liability insurance policy on terms and scope with respect to such coverage and in amount not less favorable than the policy in effect on the date of the Merger Agreement. The Surviving Corporation may obtain a different policy provided that the policy limits, terms and conditions are at least as favorable to the directors and officers as the limits, terms and conditions in the existing policies of Herley. The Surviving Corporation will not be required to pay an annual premium in excess of 300% of the last annual premium paid prior to the Effective Time.

        In the event that Parent, Surviving Corporation or any of their successors or assigns (i) consolidates with or merges into any other person and is not the continuing or surviving person of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any person, then, and in each such case, Parent and Surviving Corporation has agreed that proper provision will be made so that the successors, assigns and transferees of Parent or the Surviving Corporation or their respective successors or assigns assume the obligations set forth in these provisions of the Merger Agreement.

        Parent and Merger Sub agreed that all rights to exculpation, indemnification and advancement of expenses for acts or omissions occurring at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time, existing as of the date of the Merger Agreement in favor of the

12

Table of Contents

current or former directors, officers or employees, as the case may be, of Herley as provided in the Certificate or Bylaws will survive the Merger and will continue in full force and effect.

(b)   Arrangements with Parent and Merger Sub

        Merger Agreement.     The summary of the Merger Agreement contained in the sections of the Offer to Purchase titled "13. The Merger Agreement; Other Agreements" is incorporated herein by reference. The Offer to Purchase is being mailed to stockholders together with this Schedule 14D-9 and is filed herewith as Exhibit (a)(1). The summary of the Merger Agreement contained in the Offer to Purchase, which describes the material terms of the Merger Agreement, is qualified by reference to the Merger Agreement, which is filed herewith as Exhibit (e)(1) and is incorporated herein by reference. The Merger Agreement governs the contractual rights among Parent, Merger Sub and Herley in relation to the Offer and the Merger.

        The Merger Agreement has been filed as an exhibit to this Schedule 14D-9 to provide Herley's stockholders with information regarding the terms of the Merger Agreement and is not intended to modify or supplement any factual disclosures about Parent, Merger Sub or Herley in Herley's public reports filed with the SEC. In particular, the Merger Agreement and the summary of terms set forth in the Offer to Purchase and incorporated by reference herein are not intended to be, and should not be relied upon as, disclosure regarding any facts and circumstances relating to Parent, Merger Sub or Herley. The Merger Agreement contains customary representations and warranties Herley, Parent and Merger Sub made to each other as of specific dates. The assertions embodied in those representations and warranties were made solely for purposes of the contract among Herley, Parent and Merger Sub and may be subject to important qualifications and limitations agreed to by Herley, Parent and Merger Sub in connection with the negotiated terms, including, but not limited to, information in confidential disclosure schedules provided by Herley in connection with the signing of the Merger Agreement. These disclosure schedules contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the Merger Agreement. Moreover, some of those representations and warranties may not be accurate or complete as of any specified date, may be subject to a contractual standard of materiality different from those generally applicable to stockholders or may have been used for purposes of allocating risk among Herley, Parent and Merger Sub rather than establishing matters as facts. Accordingly, stockholders should not rely on the representations, warranties and covenants contained in the Merger Agreement or any descriptions thereof as characterizations of the actual state of facts or condition of Herley, Parent or Merger Sub or any of their respective subsidiaries or affiliates. Information regarding Herley is provided in its other filings with the SEC, which are available for free at www.herley.com and on the SEC's website at www.sec.gov.

        Exclusivity Agreement.     Herley and Parent are parties to an Exclusivity Agreement, dated January 19, 2011 (the "Exclusivity Agreement"), pursuant to which, among other things and subject to certain exceptions, Herley agreed for a period of 30 calendar days from January 19, 2011, Herley would not and would cause its affiliates, officers, employees, agents, advisers and representatives not to, directly or indirectly, intentionally encourage any person (other than Parent) and its advisors and representatives ("Third Party") to pursue, or intentionally solicit interest from any Third Party regarding a competing transaction, furnish any non-public information to any Third Party in connection with a competing transaction, enter into any agreement with a Third Party regarding a competing transaction, or engage in discussions or negotiations with any Third Party regarding a competing transaction. In consideration for being granted the exclusivity period, Parent paid Herley $2.0 million in cash which is refundable only under limited circumstances. The Exclusivity Agreement has been superseded by the Merger Agreement. The Merger Agreement requires Herley to repay the exclusivity fee to Parent upon the earlier to occur of any of the following occurrences:

•

on the date of acceptance of the tendered Shares by Merger Sub;

13

Table of Contents

•

upon the termination of the Merger Agreement by Parent if:



•

Herley's Board or any committee thereof has effected a Board Recommendation Change (as defined in the Merger Agreement);



•

Herley has materially breached certain no solicitation provisions of the Merger Agreement and as a result thereof, Herley shall have received an Acquisition Proposal (as defined in the Merger Agreement);



•

since February 7, 2011, there has been any Company Material Adverse Effect on Herley; or



•

if there has been a breach of any representation, warranty, or covenant or agreement of Herley set forth in the Merger Agreement, which breach results in certain conditions not being satisfied, and if the breach cannot be cured by June 30, 2011 or is not cured within 30 days after the delivery of a written notice of such breach by Parent; or



•

upon the termination of the Merger Agreement by Herley to accept or enter into a written agreement for a transaction constituting a Superior Proposal (as defined in the Merger Agreement).

        The summary of the Exclusivity Agreement contained herein is qualified entirely by reference to the Exclusivity Agreement, which is filed herewith as Exhibit (e)(2) and is incorporated herein by reference.

        Confidentiality Agreement.     Jefferies & Company, Inc. ("Jefferies"), as agent-in-fact for Herley, and Parent, are parties to a confidentiality agreement, dated October 12, 2010, as amended by the Exclusivity Agreement (the "Confidentiality Agreement"), pursuant to which, among other things and subject to certain exceptions, Parent agreed to keep confidential and not disclose non-public, confidential and proprietary information regarding Herley it obtained in connection with Parent's consideration of a possible acquisition of Herley (the "Potential Transaction"), except in accordance with the terms of the Confidentiality Agreement, and to use such information solely in connection with the Potential Transaction. Information includes, whether oral or written, analyses, compilations, studies or other documents prepared by Parent, its affiliates, directors, officers, agents, employees, or controlling persons, attorneys, advisors and accountants which contain or otherwise reflect or are generated from such information and Parent's review of, or interest in, Herley.

        The summary of the Confidentiality Agreement contained herein is qualified entirely by reference to the Confidentiality Agreement, which is filed herewith as Exhibit (e)(3) and is incorporated herein by reference.

        Ownership of Herley Common Stock.     The Offer to Purchase states that Parent and Merger Sub do not own any shares of Herley Common Stock.

        Board Designees.     The Merger Agreement provides that effective upon Merger Sub's deposit with the paying agent the amount of cash required for the payment of the Offer Price for that number of shares of Common Stock accepted pursuant to the Offer, Parent will be entitled to designate the number of directors, rounded up to the next whole number, on the Board that equals the product of (i) the total number of directors on the Board (giving effect to the election of any additional directors pursuant to this right) and (ii) the percentage that the number of shares of Herley Common Stock beneficially owned by Parent, Merger Sub or any of their affiliates at such time (including shares accepted for payment in connection with the Offer) bears to the total number of shares of Herley Common Stock outstanding; provided, however, Parent may only have such designation rights if the amount of Herley common stock accepted in the Offer represents at least a majority of the total outstanding shares of Herley Common Stock. Herley has agreed that it will, promptly following Parent's written request, use commercially reasonable efforts to either increase the number of directors or seek

14

Table of Contents

and accept resignations of incumbent directors (with such method to be at the election of Parent, including the selection of the individuals designated for resignation) to enable Parent's designees to be elected to Herley's board and to cause Parent's designees to be elected. Herley has also agreed to use commercially reasonable efforts to cause Herley's board to have at least three directors who each were directors of Herley on the date the Merger Agreement was entered into ("Continuing Directors"). If any Continuing Director is unable to serve due to resignation, death or disability or any other reason, the remaining Continuing Directors are entitled to elect or designate another individual who is not an employee of Herley or any of its subsidiaries to fill the vacancy and such director will be deemed to be a Continuing Director. If no Continuing Director remains on the Board prior to the effective date of the Merger, a majority of the members of Herley's Board on date the Merger Agreement was entered into will be entitled to designate three persons who are not employees of Herley or any of its subsidiaries to fill the vacancies. Herley also agreed to cause Parent's designees to constitute the proportional number of members, rounded up to the next whole number, on each committee of the Board in proportion to the number of directors designated by Parent to the Board subject to NASDAQ Listing Rules.

        Following the election or appointment of Parent's designees and until the consummation of the Merger, the affirmative vote of a majority of the Continuing Directors will be required to authorize any amendment or termination of the Merger Agreement by Herley, authorize any contract between Herley and any of its subsidiaries, on the one hand, and Parent, Merger Sub and any of their affiliates, on the other hand, use or waive any of Herley's rights or remedies under the Merger Agreement, extend time for performance of Herley's or Merger Sub's obligations under the Merger Agreement, amend Herley's Certificate or Bylaws if such action would adversely affect Herley's stockholders (other than Parent or Merger Sub), take any action by Herley in connection with the Merger Agreement or the Transactions which is required to be taken by Herley's Board or take any other action that would adversely affect the rights of Herley stockholders (other than Parent or Merger Sub).

        Parent intends to designate representatives to the Board from among the officers and directors of Parent. Background information on these individuals is found in the Information Statement attached to this Schedule 14D-9 as Annex I and incorporated herein by reference.

        Effect on Dividend Policy.     Herley has never paid a cash dividend. Herley's Board evaluates Herley's dividend policy based on its financial condition, profitability, cash flow, capital requirements, and the outlook of its business. Herley intends to retain any earnings for use in the business, including for investment in acquisitions, and consequently does not anticipate paying any cash dividends on the Shares in the foreseeable future. Under the Merger Agreement from the date of the Merger Agreement to the Effective Time, Herley may not, without the prior written consent of Parent, declare, set aside for payment or pay any dividend on, or make any other distribution in respect of, any shares of its capital stock; or split, combine, subdivide or reclassify any shares of its capital stock. Parent does not anticipate waiving this restriction or otherwise consenting to the payment of any dividend on the Shares. Accordingly, it is anticipated that no dividends will be declared or paid on the Shares following February 7, 2011.

        The foregoing summary does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement. The Merger Agreement is filed as Exhibit (e)(1) hereto and is incorporated herein by reference.

15

Table of Contents

ITEM 4.    THE SOLICITATION OR RECOMMENDATION.

(a)   Recommendation of Herley's Board

        At a meeting of the Board held on February 7, 2011, the Board unanimously:

•

resolved that the terms of the Merger Agreement, the Offer, the Merger and the other Transactions are advisable and fair to, and in the best interests of, Herley's stockholders;



•

adopted and approved the Merger Agreement;



•

resolved that the Merger Agreement be submitted to Herley's stockholders for adoption, if applicable, as soon as practicable after the consummation of the Offer;



•

resolved to recommend that Herley's stockholders accept the Offer and tender their shares in the Offer and, to the extent necessary to consummate the Merger, approve the Merger and the Merger Agreement.

         Accordingly, and for the other reasons described in more detail below, the Board unanimously recommends, by the unanimous vote of those present at the meeting of the Board called for that purpose, that Herley's stockholders accept the Offer, tender their Shares pursuant to the Offer and, if necessary, adopt the Merger Agreement and approve the Merger.

(b)   Background of the Transactions

        The following is a chronological description of the material contacts and events leading up to or relating to the Transactions. For a more complete understanding of this description, we encourage you to read the entire Schedule 14D-9, including, but not limited to, the Merger Agreement filed herewith as Exhibit (e)(1) to this Schedule 14D-9.

        Over the past three years, our Board has periodically reviewed and considered various strategic alternatives available to Herley, including whether the continued execution of Herley's strategy as a stand-alone company or the possible sale of Herley to, or a combination of Herley with, a third party offered the best avenue to maximize stockholder value. As is discussed more fully below, our Board's review of strategic alternatives included two formal processes to explore the sale of Herley, one commenced in 2008 and one commenced in 2010, each conducted with the assistance of Jefferies, which Herley retained to serve as its financial advisor in connection with such reviews. Although some of the discussions that resulted from these reviews of strategic alternatives progressed beyond a preliminary stage, up until the discussions with Parent, none ultimately yielded any alternatives deemed acceptable by our Board.

        Among the challenges facing our Board in exploring the possible sale of Herley were various issues related specifically to Herley, as well as issues related to the macroeconomic environment and the aerospace and defense industry, that created significant uncertainties as to Herley's future and prospects. These issues included, but were not limited to, the following:

•

Lack of Profitability in 2008 and 2009— For its fiscal year ended August 3, 2008, Herley reported an operating loss of approximately $21 million and a net loss of approximately $10 million. The loss reported for 2008 was largely due to litigation costs and litigation settlements. For the fiscal year ended August 2, 2009, Herley reported an operating loss of approximately $58 million and a net loss of approximately $41.2 million. The loss reported for 2009 was largely due to charges related to impairment of goodwill in the amount of approximately $44.2 million. Herley returned to profitability in 2010 when it reported, for the fiscal year ended August 2, 2010, operating income of approximately $9.7 million and net income of approximately $7 million.



•

Securities Class Actions —In June and July of 2006, several securities class action complaints were filed against Herley and certain of its current and former officers and directors arising out of a

16

Table of Contents

criminal indictment by the U.S. Attorney's Office for the Eastern District of Pennsylvania in connection with certain government contracts. The plaintiffs in the class actions had sought damages in excess of $80 million on behalf of a class of purchasers of Herley's securities between October 1, 2001 and June 14, 2006 for alleged violations of the federal securities laws. It was not until July 2010 that this matter would be resolved when Herley announced that an agreement had been reached and preliminarily approved by the Court to settle all securities class actions filed in 2006. The terms of the settlement provided for the dismissal of the litigation against all defendants, including Herley, and the creation by Herley of a $10 million settlement fund.

•

Stockholder Derivative Action —In July and August of 2006, Herley and certain of its current and former officers and directors were named as defendants in two separate stockholder derivative actions which were subsequently consolidated into one action. This matter was not resolved until May 2010 when Herley announced that it had settled the suit for $975,000.



•

Administrative Agreement with the Department of the Navy— On October 12, 2006, Herley entered into an Administrative Agreement with the Department of the Navy, on behalf of the Department of Defense. The Administrative Agreement required Herley, among other things, to implement a comprehensive program of compliance reviews, audits and reports and to sever its relationship with a former chairman of the Board. In return, the Navy, on behalf of the Department of Defense, terminated a previous suspension of certain of Herley's operations from receiving new contract awards from the U.S. Government. The Administrative Agreement expired in accordance with its terms on October 12, 2010.



•

Global Economic Crisis— In 2008, and particularly during the period when Jefferies was soliciting interest from potential buyers on Herley's behalf, the United States and much of the global economy was experiencing an economic and credit crisis that made it more difficult for potential acquirers to raise debt and/or equity financing for an acquisition of Herley.



•

Uncertainty Surrounding Future Defense Budgets— Following the presidential and congressional elections in November 2008, there was significant uncertainty surrounding future defense budgets, particularly given the possibility of a future wind down of U.S. military operations in Iraq.



•

Contraction in Public Market Valuations— In 2008, and particularly during the period when Jefferies was soliciting interest from potential buyers on Herley's behalf, public market valuations had contracted significantly, including, but not limited to, among aerospace and defense companies.

        Even though some of these issues were substantially resolved by the time that our Board's process to explore the sale of Herley was recommenced in 2010, our Board believes that Herley's historical legal and performance issues adversely affected the interest of some potential buyers in pursuing the acquisition of Herley. Feedback solicited by Jefferies from potential buyers that decided not to pursue an acquisition of Herley indicated that some potential buyers were uncomfortable acquiring a business that had such historical legal and/or performance-related issues in the recent past and were concerned about unknown potential future legal and/or performance issues. Given that Herley would be acquired in a merger or stock transaction, as opposed to a sale of assets, all of Herley's liabilities, actual and contingent, known or unknown, would be assumed by the buyer following the closing of the transaction and Herley's past performance issues caused some potential buyers to be skeptical regarding Herley's ability to meet its revenue projections.

        In connection with our Board's 2008 process, on July 30, 2008, Herley engaged Jefferies to serve as its financial advisor and to assist the Board in exploring various strategic alternatives for Herley, including those that might result in the sale of Herley.

17

Table of Contents

        From September 2008 through November 2008, Jefferies contacted 79 potential buyers, including 54 strategic buyers and 25 financial buyers, of which 44 executed confidentiality agreements, six submitted indications of interest and five attended a presentation by Herley's management and engaged in due diligence of Herley. Among the strategic buyers was a publicly-held defense contractor, hereinafter referred to as "Bidder A," which executed a confidentiality agreement with Herley on September 19, 2008. The initial indications of interest that were received from six potential buyers ranged from $12.50 to $18.00 per Share.

        Between January 6, 2009 and January 12, 2009, five of the six potential buyers, including Bidder A, attended presentations by Herley's management.

        From January 2009 through March 2009, five potential buyers, including Bidder A, continued their due diligence process, including accessing Herley's electronic data room containing various operational, financial and other information with respect to Herley.

        On March 6, 2009, Jefferies distributed to the five parties that remained in the sales process a bid process letter, including a proposed form of merger agreement, instructing them to submit a final indication of interest, including any proposed revisions to the merger agreement, by March 19, 2009. None of the five parties, including Bidder A, elected to continue in the sales process and, accordingly, no final indications of interest were received, which effectively ended the sales process that had begun in the fall of 2008. A public announcement that this sales process had concluded was made on July 22, 2009 when Herley also announced various management changes as well as various initiatives to improve Herley's operational and financial performance.

        On January 12, 2010, Herley announced that John A. Thonet, who had been a member of the Board since 1991, had been named Chairman of the Board.

        On March 23, 2010, Herley held its annual meeting of stockholders. At this meeting, Herley's Chairman noted, in his prepared remarks, that the defense industry was continuing to consolidate and that Herley intended to participate in that consolidation process. Herley's Chairman acknowledged that, while Herley would actively seek companies to acquire, it needed to be cognizant of the fact that other, larger companies might be interested in buying Herley. In addition, Herley's Chairman noted that Jefferies was continuing to serve as Herley's financial advisor and that Herley would be seeking advice from Jefferies on how best to increase stockholder value through its participation in the defense industry's consolidation. The full text of these remarks by Herley's Chairman was also included in a press release that was publicly issued by Herley on that date.

        On May 3, 2010, in response to an unsolicited inquiry, Bidder A's financial advisor met with representatives of Jefferies. At the meeting, Bidder A's financial advisor outlined a proposal by Bidder A to acquire Herley for a purchase price of $17.50 per Share, payable 50% in cash and 50% in Bidder A stock and also indicated that Bidder A would not continue to participate in any sales process unless Herley granted it an exclusive period to negotiate a transaction at this price.

        On June 25, 2010, at a meeting of the Board, the Board reviewed the recent proposal from Bidder A to acquire Herley at $17.50 per share. At this meeting, Jefferies reviewed with the Board the terms of Bidder A's acquisition proposal. After such discussion, the Board concluded that Bidder A's acquisition proposal did not provide a valuation sufficient to justify Herley granting exclusivity to Bidder A and instructed Jefferies to communicate to Bidder A that its request for exclusivity had been rejected. The Board also instructed Jefferies to begin contacting other potential buyers.

        Between June 25, 2010 and August 2010, Jefferies contacted 14 potential buyers, including 11 strategic buyers (in addition to Bidder A) and three financial buyers, to solicit their interest in a potential acquisition of Herley, of which 13 parties executed confidentiality agreements and received non-public information concerning Herley. Each party was sent a bid process letter requesting they submit an initial indication of interest by August 10, 2010 (although some bidders that executed

18

Table of Contents

confidentiality agreements in early August 2010 received extensions until late August). At that time, in addition to the 14 potential buyers referenced above, Jefferies also invited Parent to participate in the process, but Parent declined due to other pending transactions and the ongoing integration related to a recent acquisition.

        On July 9, 2010, Herley and Bidder A entered into an amended confidentiality agreement.

        On or about July 26, 2010, Bidder C, a financial buyer, attended a presentation by Herley's management. At such time, Bidder C was not bidding directly on the acquisition of Herley but was contemplating serving as a financial partner for a potential strategic buyer.

        By the August 10, 2010 bid deadline, in addition to Bidder A's proposal to acquire Herley for $17.50 per Share, Herley received initial indications of interest from three other potential strategic buyers with proposed purchase prices ranging from $17.00 to $19.00 per Share. Based on their proposals, each of these potential strategic buyers, as well as Bidder A, were permitted to continue their due diligence, beginning with a management meeting.

        On August 19, 2010, Bidder A met with Herley's management team to review various operational and financial issues.

        On August 24, 2010, Bidder A reiterated its proposal of $17.50 per Share, and requested an exclusivity period to conduct its remaining financial and legal diligence and negotiate a merger agreement. Bidder A also indicated that Bidder A was willing to revise the mix of cash and stock that had been proposed in their initial proposal.

        On August 27, 2010, at a meeting of our Board, our Board instructed Jefferies to request that Bidder A increase its offer to $18.00 per Share payable in cash, at which price the Board would agree to grant exclusivity for 30 days to Bidder A. Jefferies relayed that request to Bidder A's financial advisor and thereafter Herley and Bidder A agreed in principle to exclusivity at $18.00 per Share.

        On August 28, 2010, Herley retained Blank Rome LLP ("Blank Rome") to serve as Herley's M&A counsel in connection with the Board's process to review the possible sale of Herley. Blakinger, Byler & Thomas, P.C. ("Blakinger, Byler & Thomas") continued to serve as Herley's outside general counsel, and Barley Snyder LLP ("Barley Snyder") continued to serve as Herley's securities counsel.

        On August 30, 2010, at a meeting of our Board, Blank Rome reviewed the terms of an exclusivity agreement that had been negotiated with counsel for Bidder A and the structure of the proposed transaction which contemplated an all-cash tender offer for the Shares followed by a back-end merger of a subsidiary of Bidder A with and into Herley. After discussion, and assuming a purchase price of $18.00 per Share in cash, the Board approved the execution of the exclusivity agreement with Bidder A.

        On August 30, 2010, Herley and Bidder A entered into a further amended confidentiality agreement.

        On August 31, 2010, Herley and Bidder A entered into an exclusivity agreement and, thereafter, Bidder A conducted due diligence, including in-person meetings and visits to Herley's facilities, telephone discussions with Herley's management team and advisors, and reviewing documents relating to Herley contained in the electronic data room.

        Between September 3, 2010 and September 20, 2010, counsel for Bidder A and counsel for Herley negotiated the terms of a draft merger agreement and circulated various revised drafts during this period.

        On September 9, 2010, at a meeting of the Board, Blank Rome presented an overview of the proposed transaction, including a discussion of contemplated timing and major deal issues. Blank Rome also discussed with our Board their fiduciary duties as directors in connection with our Board's process to explore the sale of Herley.

19

Table of Contents

        On September 13 - 17, 2010, Bidder A visited Herley's facilities and conducted in-person diligence sessions.

        On September 17, 2010, at a meeting of our Board, Blank Rome presented the Board with a summary of the principal terms of the draft merger agreement with Bidder A and various material deal issues.

        On September 24, 2010, the exclusivity agreement between Herley and Bidder A expired in accordance with its terms.

        On or about September 29, 2010, Bidder A's financial advisor informed Jefferies that Bidder A was reducing its proposed purchase price to $16.50 per Share in cash.

        On October 3, 2010, at a meeting of the Board, the Board rejected Bidder A's revised offer of $16.50 per Share and directed Jefferies to resume contact with existing participants in the process and other potential financial and strategic buyers.

        On or about October 7, 2010, Jefferies contacted Parent again to solicit its interest in acquiring Herley.

        On October 12, 2010, Herley and Parent entered into the Confidentiality Agreement.

        On October 14, 2010, at a meeting of the Board, the Board was updated on the status of the sales process.

        On October 26, 2010, Jefferies contacted Bidder B, a financial buyer, to solicit its interest in acquiring Herley.

        Jefferies also contacted, in October 2010, the three potential strategic buyers that had been contacted in August 2010 (the "August 2010 Bidders") to assess whether they remained interested in acquiring Herley.

        At the request of the Board, Jefferies asked each of the five potential buyers (which included Parent, Bidder B and the three August 2010 Bidders) to submit an indication of interest of at least $18.00 per Share in order to receive a meeting with Herley's management and continue its due diligence process. Jefferies also asked each of the three August 2010 Bidders to reaffirm its bid, which each of them did.

        In late October through December 2010, each of the five potential buyers had meetings with Herley's management and received non-public information.

        On November 10, 2010, Herley and Bidder B entered into a confidentiality agreement.

        On November 17, 2010, Parent submitted to Herley an initial indication of interest for the acquisition of Herley in the range of $17.50 to $18.50 per Share in an all-cash transaction.

        Also, on November 17, 2010, Bidder B submitted an initial indication of interest for the acquisition of Herley in the range of $17.00 to $19.00 per Share in an all-cash transaction.

        Later that week, Jefferies contacted Bidder C, a financial partner of a potential strategic buyer in July 2010 that was no longer interested in acquiring Herley. Bidder C discussed with Jefferies its interest in directly participating in the sales process and submitting an indication of interest for the acquisition of Herley.

        On November 22, 2010, Bidder B attended a presentation by Herley's management.

        On November 23, 2010, Bidder B was given access to the electronic data room that contained materials and documents relating to Herley.

20

Table of Contents

        On November 23, 2010, Bidder C submitted an initial indication of interest for the acquisition of Herley in the range of $18.00 to $19.00 per Share.

        Beginning on November 29, Parent was given access to the electronic data room that contained materials and documents relating to Herley.

        On December 2, 2010, Herley and Bidder C entered into a confidentiality agreement. Thereafter, Bidder C was given access to the electronic data room that contained materials and documents relating to Herley.

        On December 9, 2010, Jefferies distributed on behalf of Herley a bid process letter to the three remaining potential buyers (Parent, Bidder B and Bidder C) requesting final indications of interest, including any proposed revisions to a form of merger agreement that would be subsequently provided, by 5:00 p.m. E.D.T., on January 7, 2011.

        In December 2010 and January 2011, Parent visited various Herley's facilities and conducted in-person diligence sessions.

        At various times in December 2010, Bidder C visited Herley's facilities and conducted in-person diligence sessions.

        In response to separate requests from each of Parent, Bidder B and Bidder C that Jefferies offer to provide or arrange financing in connection with the acquisition of Herley, on December 8, 2010, Jefferies notified Herley of such requests and discussed with Herley Jefferies' possible provision of acquisition financing to such bidders.

        On December 13, 2010, so as to facilitate the ability of potential buyers to consummate the acquisition of Herley, Herley provided its written consent for Jefferies or one of its affiliates to make available acquisition financing to potential buyers of Herley. Later, in January 2011, subsequent to the execution of an exclusivity agreement with Parent and at the request of Parent, Jefferies sought written consent from Herley for a member of the Jefferies investment banking team who had been involved with the Herley sales process to assist Parent with its acquisition financing. In response, and so as to facilitate the ability of Parent to consummate its proposed acquisition of Herley in an all-cash transaction, Herley provided the requested written consent.

        On December 16, 2010, at a meeting of our Board, Jefferies updated our Board on the status of the process to explore the sale of Herley, noting that three parties remained interested in acquiring Herley (Parent, Bidder B and Bidder C). At this meeting, our Board discussed Jefferies' potential role in providing or arranging financing for the acquisition of Herley and how it may facilitate our sales process and goal of maximizing stockholder value. It was, however, the belief of our Board that given Jefferies' potential role in such financing and the request of several members of our Board for additional insights and perspectives in evaluating any transaction, it would be advisable and prudent for our Board to retain a second financial advisor to separately analyze the consideration to be received in the Transactions by holders of Shares and render to our Board an opinion as to the fairness, from a financial point of view, of such consideration. Blank Rome then reviewed with our Board the draft form of merger agreement that had been prepared and which would be sent, together with related disclosure schedules and a bid process letter, to various parties that had expressed an interest in continuing to participate in the Board's sales process. Blank Rome also discussed with our Board its fiduciary duties as directors in connection with our Board's process to explore the sale of Herley.

21

Table of Contents

        Following this meeting of our Board, Jefferies, at the direction of Herley, informed each of Parent, Bidder B and Bidder C that their proposals needed to contemplate at least $19.00 per Share if they wanted to continue in our sale process.

        On or about December 20, 2010, Bidder B advised Jefferies that it was no longer interested in pursuing an acquisition of Herley and indicated that its valuation of Herley was below the current stock market valuation of Herley.

        On the afternoon of December 20, 2010, at a meeting of our Board, our Board discussed the draft form of merger agreement that had been prepared for distribution to potential buyers, and authorized its distribution.

        On or about December 23, 2010, Jefferies, on behalf of Herley, circulated a draft form of merger agreement and related disclosure schedules, together with a bid process letter, to Parent and Bidder C. The bid process letter again requested that Parent and Bidder C submit their final indications of interest for the acquisition of Herley, together with any proposed revisions to the form of merger agreement, no later than January 7, 2011.

        On or about January 7, 2011, as a result of its further due diligence and assessment of the business of Herley, Parent submitted a revised indication of interest proposing the acquisition of Herley for $19.00 per Share in cash and shares of Parent common stock. The cash component would be $15.55 per Share and the stock component would be determined based upon a fixed exchange ratio equal to 0.2601 of a share of Parent common stock for each outstanding Share. Parent's indication of interest did not provide for any collars or other mechanisms to provide certainty of valuation in the event that Parent common stock decreased in value. Parent's indication of interest contemplated that its acquisition of Herley would be structured as an exchange offer or one-step merger transaction. In addition, Parent indicated that its obligation to consummate the acquisition of Herley would not be subject to financing and that it would contemplate financing the acquisition with the assistance of an affiliate of Jefferies. Parent's indication of interest was accompanied by a mark-up of the draft form of merger agreement that had been distributed to potential buyers.

        On January 7, 2011, Bidder C submitted a revised indication of interest proposing the acquisition of Herley for $18.00 per Share in cash. Bidder C's indication of interest contemplated that its acquisition of Herley would be structured as an all-cash tender offer. In addition, Bidder C indicated that its obligation to consummate the acquisition of Herley would not be subject to financing and that it would contemplate financing the acquisition with the assistance of an affiliate of Jefferies. While Bidder C's indication of interest was not accompanied by a mark-up of the draft form of merger agreement that had been distributed to potential buyers, it did indicate that its counsel had reviewed the draft form of merger agreement and had no conceptual issues with the draft.

        On January 10, 2011, at a meeting of our Board, Jefferies updated our Board on the status of the process to explore the sale of Herley, noting that, since the process to explore the sale of Herley was first initiated in 2008, Jefferies had contacted a total of 88 parties regarding their potential interest in acquiring Herley, including 57 strategic buyers and 31 financial buyers. Jefferies further noted that, with respect to Herley's most recent process to explore its sale, over the past six months, Jefferies had contacted many of the same potential buyers that had been contacted in 2008 and that had not been subsequently acquired or combined with another company. Of the potential buyers that were contacted by Jefferies, on behalf of Herley, 20 potential buyers had requested additional information regarding Herley, including 14 strategic buyers and six financial buyers and, of those, 18 executed confidentiality agreements, seven submitted initial indications of interest, eight attended a management presentation, and two, Parent and Bidder C, remained interested in the acquisition of Herley and submitted indications of interest. Jefferies then summarized the terms of the indications of interest that had been submitted by each of Parent and Bidder C. Following this update, representatives from Jefferies left the meeting. This meeting of our Board continued into the following day at which time our Board

22

Table of Contents

deliberated over the current status of its sales process, including, but not limited to, how best to respond to Parent and Bidder C.

        On January 11, 2011, Jefferies, at the request of Herley, informed Parent that its revised indication of interest proposing the acquisition of Herley for $19.00 per Share in cash and shares of Parent common stock was not acceptable to our Board and that, if Parent wanted to acquire Herley, it needed to revise its proposal to provide for an all-cash transaction of at least $19.00 per Share.

        Also, on January 11, 2011, Jefferies, at the request of Herley, informed Bidder C that its revised indication of interest proposing the acquisition of Herley for $18.00 per Share in cash was not acceptable to our Board and that, if Bidder C wanted to acquire Herley, it would need to provide Herley with its highest and best offer which needed to provide for an all-cash transaction of at least $19.00 per Share.

        On January 15, 2011, Parent submitted a further revised indication of interest for the acquisition of Herley for $19.00 per Share in cash. In its revised indication of interest, Parent indicated that it was revising the proposed cash and stock consideration mix set forth in its previous indication of interest to an all-cash transaction. Parent also indicated that its acquisition of Herley would be structured as a tender offer or one-step merger transaction. In addition, Parent indicated that its obligation to consummate the acquisition of Herley would not be subject to financing and that it would contemplate financing the acquisition with debt financing to be arranged by financing sources led by an affiliate of Jefferies, and by issuing Parent common stock through an equity offering to be completed prior to signing an acquisition agreement with Herley. Parent also indicated that, one day earlier, an affiliate of Jefferies had represented to Parent that it would provide commitment letters necessary to finance the entire acquisition of Herley, plus fees and expenses, and would provide a financing commitment letter for 100 percent of the transaction purchase price, costs and expenses. Parent's revised indication of interest was not accompanied by a revised mark-up of the draft merger agreement that had been distributed, although Parent indicated that a revised merger agreement would be forthcoming. In its revised indication of interest, Parent also requested that, upon acceptance of the proposal, Herley enter into an exclusivity agreement with Parent through February 15, 2011. In its revised indication of interest, Parent indicated that its proposal would expire at 5:00 p.m., E.D.T., on January 18, 2011.

        On January 16, 2011, Bidder C submitted to Herley a further revised indication of interest for the acquisition of Herley for $18.25 per Share in cash, which represented an increase of $.25 per Share from its previous indication of interest dated January 7, 2011. Bidder C's revised indication of interest contained many of the same terms as were contained in its previous indication of interest. Unlike with its previous indication of interest, Bidder C's revised indication of interest was accompanied by a mark-up of the draft merger agreement that had been distributed to potential buyers. In its revised indication of interest, Bidder C also requested that, upon acceptance of the proposal, Herley enter into an exclusivity agreement with Bidder C for 14 days. In its revised indication of interest, Bidder C indicated that its proposal would expire at 8:00 p.m., E.D.T., on January 17, 2011.

        On January 17, 2011, Paul Hastings, on behalf of Parent, submitted to Herley a revised mark-up of the draft merger agreement. Parent's revised mark-up, among other changes, (i) requested that Parent have the right to negotiate for a five business day period to improve the terms of the proposed transaction in the event that Herley decided not to recommend the proposed transaction or terminate the definitive agreement in order accept a superior proposal, (ii) proposed a break-up fee to be paid by Herley of four percent of the aggregate transaction consideration in connection with certain events described in the merger agreement; (iii) contemplated that Herley's directors and officers enter into tender and voting agreements in connection with the Transactions; (iv) proposed an expanded definition of Company Material Adverse Effect; (v) proposed to limit the mandatory obligation of Merger Sub to extend the expiration date of the Offer until the final termination date if conditions to the Offer were not then satisfied; (vi) proposed to remove the right for Herley to terminate the Merger

23

Table of Contents

Agreement if Parent failed to commence the Offer or accept the Shares tendered in the Offer in accordance with the merger agreement; (vii) proposed to expand the circumstances under which a termination fee would be payable, including during the 12-month period following the termination of the merger agreement in the event that Herley was acquired pursuant to an alternative transaction; (viii) proposed to remove the provision that any payment of a termination fee would be Parent's sole and exclusive remedy under the merger agreement; and (ix) proposed various additional conditions to the consummation of the tender offer, including the receipt of various consents and the absence of various third party actions and related events in connection with an alternative transaction.

        On the afternoon of January 17, 2011, at a meeting of our Board, the Board was updated on the status of the sales process and, in particular, was briefed on the terms of the indications of interest that had been received from Parent and Bidder C. It was noted for the Board that Parent was now requesting that it be granted the exclusive right to negotiate a transaction with Herley through February 28, 2011 and that, in exchange for such exclusivity, Parent had offered to provide Herley with a $2 million exclusivity payment that would be credited to the purchase price if the transaction was consummated or otherwise be refundable under only limited circumstances including if Herley terminated the exclusivity agreement with Parent to pursue an alternative transaction. Following a discussion of both indications of interest, the Board authorized its Chairman to negotiate the terms of an exclusivity agreement with Parent.

        On the evening of January 17, 2011, Blank Rome circulated to Paul Hastings an initial draft exclusivity agreement. In addition to providing Parent with an exclusive negotiating period, the draft exclusivity agreement contemplated that Parent confirm to Herley that no financing condition, including that which may arise due to any conditions contained in a commitment letter to be entered into by Parent or its affiliates with potential financing sources, would be contained or reflected in any definitive agreement relating to the Transactions. The draft exclusivity agreement also contemplated that Herley would have the right to terminate such agreement, in connection with an unsolicited tender or exchange offer or business combination or other alternative transaction, if Herley's Board determined in good faith, after consultation with its advisors, that compliance with the terms of the exclusivity agreement would cause it to violate its fiduciary duties or applicable laws. In addition, the draft exclusivity agreement contemplated, as had been already discussed between Herley and Parent, that Parent, in exchange for being granted exclusivity, would provide Herley with a $2 million exclusivity payment that would be credited to the purchase price if the transaction was consummated or otherwise be refundable under only limited circumstances, including if Herley terminated the exclusivity agreement with Parent to pursue an alternative transaction.

        Concurrently with providing Paul Hastings with an initial draft exclusivity agreement, Blank Rome provided Paul Hastings with various comments to Parent's most recent indication of interest and the merger agreement markup that had been provided and indicated that various issues in the indication of interest and merger agreement needed to be addressed prior to the execution of any exclusivity agreement, including, but not limited to, (i) that Parent confirm that the only transaction structure contemplated is a two-step tender offer followed by a back-end merger as opposed to a one-step merger transaction; (ii) that Parent confirm various matters with respect to its financing of the Transactions, including agreeing to provide Herley with copies of all financing commitment letters by a certain date and indicate what lender approvals Parent would be required to obtain in connection with the Transactions; (iii) that Parent confirm when it expected to complete all of its legal and business due diligence (iv) that Parent provide Herley with a detailed list of all open due diligence areas and materials that need to be provided or uploaded to the electronic data room; (v) that no employment agreements or acceptances of employee offer letters can be a condition to signing or closing of the Transactions; nor will Herley agree to any language suggesting that it has any obligation or duty, best efforts or otherwise, to facilitate such agreements or acceptances; (vi) that no tender and/or voting agreements would be sought in connection with the Transactions; (vii) that the definition of Company

24

Table of Contents

Material Adverse Effect be revised to include a number of the exceptions that Parent had sought to remove such as excluding any items that are included on Herley's disclosure schedules; (viii) that, unless the merger agreement was terminated in accordance with its terms, Merger Sub would have a mandatory obligation to extend the expiration date of the Offer until the final termination date if conditions to the Offer were not then satisfied; (ix) that Herley would have the right to terminate the merger agreement if Parent failed to commence the Offer or accept the Shares tendered in the Offer in accordance with the merger agreement; (x) that no termination fee would be payable during a "tail period" unless the Acquisition Proposal was publicly disclosed prior to the termination of the merger agreement; and (xi) that any payment of a termination fee would be Parent's sole and exclusive remedy under the merger agreement.

        Also, on January 17, 2011, Bidder C verbally communicated to Herley that it was prepared to increase its purchase price for the acquisition of Herley from $18.25 per Share in cash to $18.50 per Share in cash, which represented an increase of $.25 per Share from its previous indication of interest dated January 16, 2011.

        On or about January 18, 2011, Herley's Chairman held a telephone call with a senior executive at Bidder C and they discussed the possibility of Bidder C, similar to what had been discussed with Parent, making a payment to Herley of $2 million in exchange for exclusivity and which payment would be refundable only under limited circumstances. At the end of the call, Bidder C indicated that it was willing to provide such an exclusivity payment.

        On January 18, 2011, Bidder C submitted to Herley a revised indication of interest for the acquisition of Herley confirming its interest in acquiring Herley for $18.50 per Share in cash. Bidder C's revised indication of interest contained many of the same terms as were contained in its previous indication of interest but now also contemplated Bidder C making a payment to Herley of $2 million in exchange for exclusivity and which payment would be refundable only under limited circumstances. In its revised indication of interest, Bidder C also requested that, upon acceptance of the proposal, Herley enter into an exclusivity agreement with Bidder C for 14 days. In its revised indication of interest, Bidder C indicated that its proposal would expire at 7:00 p.m., E.D.T., on January 19, 2011.

        On January 18, 2011, the respective counsel for Herley and Parent, Blank Rome and Paul Hastings, held a telephone conference to discuss and negotiate the terms of the exclusivity agreement and the indication of interest. During the course of the call, the respective counsel also discussed and negotiated the various issues that Herley had with the most recent indication of interest that had been provided by Parent, as discussed above, and discussed and negotiated various provisions of the draft merger agreement that had been provided by Parent that Herley was requiring be resolved before it was prepared to grant Parent exclusivity. Later that day and continuing into the following day, January 19, 2011, Blank Rome and Paul Hastings exchanged various additional drafts of the exclusivity agreement and the indication of interest and held a number of telephone conference calls to discuss and negotiate the provisions of these two documents. During the course of these negotiations, Parent indicated that it would not seek an exclusivity period longer than 30 days.

        On January 19, 2011, Herley and Parent executed the Exclusivity Agreement which provided for exclusivity through the close of business, New York time, on February 19, 2011. In addition, Herley countersigned the final form of indication of interest that had been agreed to by Herley and Parent. As countersigned, the final form of indication of interest continued to contemplate the acquisition of Herley by Parent for $19.00 per Share in an all-cash tender offer. Among other revisions requested by Herley and agreed to by Parent, it also confirmed that (i) no employment agreements or acceptances of employee offer letters would be a condition to signing or closing of the Transactions; (ii) Parent expected to complete its due diligence by February 8, 2011; (iii) Parent's most recent mark-up of the draft merger agreement reflected substantially all of its comments and Parent was not contemplating any additional conditions being proposed to the consummation of the Offer; (iv) Parent would deliver

25

Table of Contents

to Herley a final draft of its financing commitment letter no later than January 28, 2011; and (v) Parent would deliver to Herley within 48 hours a detailed due diligence request list containing all items that it needed to review to finalize its due diligence review of Herley.

        On January 20, 2011, Parent circulated to Herley the detailed due diligence request list that it committed to provide in the countersigned indication of interest.

        On January 25, 2011, Blank Rome distributed to Paul Hastings a revised draft of the merger agreement containing revisions proposed on behalf of Herley.

        Also, on January 26, 2011, Blank Rome, Blakinger, Byler & Thomas and Paul Hastings held a telephonic meeting to discuss the terms of the revised draft of the merger agreement.

        On January 27, 2011, Paul Hastings distributed to Blank Rome, Blakinger, Byler & Thomas, and Barley Snyder a revised draft of the merger agreement containing revisions proposed on behalf of Parent.

        On January 28, 2011, various members of our Board participated in a conference call, to which all members of the Board were invited, to discuss the retention of a second financial advisor. During this call, the qualifications of, and proposals from, a number of investment banking firms were reviewed and, following discussion, it was the consensus of the Board members present that Credit Suisse Securities (USA) LLC ("Credit Suisse") be selected. In connection with this conference call, the members of the Board who were not present indicated to the Board's Chairman that they concurred in the selection of Credit Suisse.

        On the afternoon of January 28, 2011, Blank Rome, Blakinger, Byler & Thomas, and Paul Hastings held a telephonic meeting to discuss and negotiate various provisions of the revised draft of the merger agreement.

        On the evening of January 28, 2011, Paul Hastings distributed to Blank Rome, Blakinger, Byler & Thomas, and Barley Snyder a final draft of the commitment letter that Parent would be executing with an affiliate of Jefferies to provide debt financing for the Transactions.

        On January 30, 2011, Blank Rome distributed to Paul Hastings a revised draft of the merger agreement containing revisions proposed on behalf of Herley.

        On the afternoon of January 31, 2011, Blank Rome, Blakinger, Byler & Thomas, and Paul Hastings held a telephonic meeting to discuss and negotiate various provisions of the revised merger agreement.

        On February 1, 2011, Paul Hastings distributed to Blank Rome, Blakinger, Byler & Thomas, and Barley Snyder a revised draft of the merger agreement containing revisions proposed on behalf of Parent.

        On the evening of February 1, 2011, the members of our Board held a conference call to receive an update on the status of the proposed transaction. Also participating on this conference call were representatives of Herley's legal advisors at Blank Rome, Blakinger, Byler & Thomas, Barley Snyder and representatives of Credit Suisse.

        On February 3, 2011, Blank Rome, Blakinger, Byler & Thomas, and Paul Hastings held a telephonic meeting to discuss the terms of the revised draft of the merger agreement.

        On February 4, 2011, at a meeting of our Board, Blank Rome updated the Board on the status of the negotiations with Parent and provided a summary of the latest draft of the merger agreement provided by Paul Hastings. Blank Rome indicated that all material items in the merger agreement had been resolved other than the amount of the termination fee, the circumstances under which the Exclusivity Payment would be returned and the date by which Parent would be required to commence

26

Table of Contents

the Offer. Blank Rome then reviewed with the Board their fiduciary duties in connection with the sale of Herley, including various factors that each board member may wish to consider before approving the proposed transaction. Jefferies then reviewed with the Board its financial analysis of the $19.00 per Share consideration. Also at this meeting, Credit Suisse reviewed with the Board its preliminary financial analysis of the $19.00 per Share consideration.

        After the Board meeting, Blank Rome contacted Paul Hastings to continue negotiation of the terms of the merger agreement. Following that discussion, Paul Hastings distributed to Blank Rome, Blakinger, Byler & Thomas, and Barley Snyder a revised draft of the merger agreement containing revisions proposed on behalf of Parent.

        On February 5, 2011, Herley's Chairman and Kratos' President & Chief Executive Officer, had a telephone discussion and agreed that the termination fee would be equal to 3.5% of the aggregate transaction value or approximately $9.4 million. They also agreed that the Exclusivity Payment would be returned to Parent within one business day of the earlier to occur of (a) the Acceptance Date and (b) the termination of the merger agreement by (i) Parent in the event of a Company Material Adverse Effect, a Board Recommendation Change or a material breach of the merger agreement by Herley; or (ii) Herley to accept a Superior Proposal.

        Also, on February 5, 2011, Blank Rome and Paul Hastings discussed the date by which the tender offer must be commenced and agreed, on behalf of Herley and Parent, respectively, that the tender offer would be commenced no later than February 25, 2011. During the remainder of the day and continuing through February 6, 2011, Herley and Parent, acting through their respective counsel, negotiated the remaining terms of the merger agreement.

        After such negotiations, on the morning of February 7, 2011, at a meeting of the Board, Blank Rome and Blakinger, Byler & Thomas reviewed with the Board the resolution of the material issues in the merger agreement that had been noted as unresolved as of the last Board meeting. Jefferies rendered to the Board its opinion, confirmed by delivery of a written opinion dated February 7, 2011, to the effect that as of that date and based on and subject to the various assumptions made, procedures followed, matters considered and limitations on the review undertaken as set forth therein, the $19.00 per Share consideration to be received in the Offer and the Merger, taken together, by holders of Shares was fair, from a financial point of view, to such holders. Also at this meeting, Credit Suisse updated the Board as to its financial analysis of the $19.00 per Share consideration and rendered to the Board an oral opinion, confirmed by delivery of a written opinion dated February 7, 2011, to the effect that, as of that date and based on and subject to the matters described in the opinion, the $19.00 per Share consideration to be received in the Offer and the Merger, taken together, by holders of the Shares (other than Parent, Merger Sub and their respective affiliates) was fair, from a financial point of view, to such holders. After deliberation and discussion, the Board unanimously (i) adopted and approved the merger agreement, (ii) resolved that the terms of the merger agreement, the Offer, the Merger and any other transactions contemplated by the merger agreement were advisable and fair to, and in the best interests of, Herley and its stockholders, (iii) resolved that the merger agreement be submitted to Herley's stockholders for adoption, if applicable, as soon as practicable after the consummation of the Offer, (iv) resolved that the Board would recommend that the stockholders accept the Offer and tender their Shares to Merger Sub pursuant to the Offer and, to the extent required to consummate the Merger, the stockholders entitled to vote thereon should adopt the merger agreement, and (v) authorized management to finalize and execute the merger agreement.

        On the afternoon of February 7, 2011, the merger agreement was executed by Herley, Parent and Merger Sub. Thereafter, following the closing of trading on NASDAQ that day, Herley and Parent issued separate press releases announcing that the parties had entered into the merger agreement.

27

Table of Contents

(c)   Reasons for the Transaction and Recommendation of Herley's Board

        Our Board, in consultation with our senior management and our legal counsel and financial advisors, evaluated the Merger Agreement, the Offer, the Merger and the other transactions contemplated by the Merger Agreement. Our Board, in determining to approve and declare advisable, fair to and in the best interest of the stockholders of Herley, the Merger Agreement and the consummation of the Transactions, including the Offer and the Merger, upon the terms and conditions contained therein, and in recommending that, if required by applicable law, the stockholders of Herley approve the Merger Agreement, considered a number of factors, including the following:

Business and Financial Condition and Prospects of Herley

•

The current and historical financial condition, results of operations, competitive position, strategic options and prospects of Herley, as well as the financial plan and prospects if Herley were to remain an independent public company, and the potential impact of those factors on the trading price of Herley Common Stock (which cannot be quantified numerically).



•

Herley's likelihood of achieving and executing upon its business plan given Herley's size in comparison to other competitors in its industry and the ongoing consolidation in its industry, including the effect Herley's size would have on (i) its ability to attract and retain talent, (ii) its ability to attract and secure contracts with larger customers, and (iii) its future revenue.



•

Herley's competitive position, particularly its ability to continue to compete for new business from existing customers and new customers against larger, financially stronger firms which have more diversified offerings.



•

The certainty of realizing in cash a compelling value for Herley Common Stock in the Offer compared to the risk and uncertainty associated with the operation of Herley's business (including the risk factors set forth in Herley's Annual Report on Form 10-K for the fiscal year ended August 1, 2010 and Herley's Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2010) in highly volatile and unpredictable market conditions, including the risks and uncertainties in the U.S. and global economies generally.

Industry Trends

•

The trends and conditions impacting Herley and the defense industry, including changes in competition and consolidation within the defense industry.

Historical Trading Prices; Premium to Market Price

•

The relationship of the Offer Price to the historical market prices of the Shares on NASDAQ. The Offer Price represents:



•

A 34.3% premium over the closing price of the Shares on March 22, 2010, the day before Herley announced at its 2010 annual meeting of stockholders that it intended to increase stockholder value through its participation in the consolidation of the defense industry.



•

A 16.9% premium over the closing price of the Shares on February 7, 2011, the last full trading day prior to Herley's announcement that it had entered into the Merger Agreement.



•

A 9.9% premium over the average closing price of the Shares over the 30-day period ended on the day before the announcement of the transaction.



•

A 10% premium over the average closing price of the Shares over the 60-day period ended on the day before the announcement of the transaction.

28

Table of Contents

•

An 11.7% premium over the average closing price of the Shares over the 90-day period ended on the day before the announcement of the transaction.

Review of Strategic Alternatives

•

That, after the reviews of strategic alternatives conducted by Herley, both in 2008 and 2010, which involved contacting, in the aggregate, 88 parties regarding their potential interest in acquiring Herley, including 57 strategic buyers and 31 financial buyers, the value offered to stockholders in the Offer and the Merger was more favorable to the Herley stockholders than the potential value that might result from other strategic opportunities readily available to Herley, including remaining an independent company and pursuing Herley's strategic plan, taking into account (i) the potential benefits, risks and uncertainties associated with those opportunities and (ii) the difficulties in implementing Herley's plans related to revenue growth.

Solicitation of Other Parties

•

The results of our Board's most recent process to explore the sale of Herley, with the assistance of Jefferies, which, after contacting many of the same parties that participated in our Board's 2008 process, included 20 potential buyers, including 14 strategic buyers and six financial buyers, requesting additional information regarding Herley, and, of those, 18 executing confidentiality agreements, seven submitting initial indications of interest, eight attending a management presentation, and two submitting final indications of interest. Our Board considered the fact that Parent's bid represented the highest price that Herley received for the acquisition of Herley at the conclusion of its bidding process.



•

The various public disclosures that were made by Herley in 2010 and 2011 placing all potential acquirers or strategic partners on notice of a possible sale, including, but not limited to, the comments by Herley's Chairman, (i) on March 23, 2010, at Herley's 2010 Annual Meeting of Stockholders, that Herley intended to increase stockholder value through its participation in the consolidation of the defense industry and that Jefferies had been retained to serve as Herley's financial advisor; and (ii) on January 11, 2011, at Herley's 2011 Annual Meeting of Stockholders, that Herley's process to enhance stockholder value was nearing a conclusion.



•

The discussions that our Board had held with Herley's legal counsel and Jefferies at different times during the process with respect to the terms of the proposals received in the sales process and whether parties other than Parent would likely be willing or capable of entering into a transaction with Herley that would provide value to Herley's stockholders superior to the cash price to be paid pursuant to the Offer and the Merger.



•

The fact that our Board could terminate the Merger Agreement to accept a Superior Proposal (as defined in the Merger Agreement), subject to payment of a termination fee prior to the purchase of Shares in the Offer.

History of Negotiations with Parent

•

The course of negotiations between Herley and Parent which, among things, resulted in Parent agreeing to reduce the proposed termination fee from 4.0% to 3.5% of the aggregate consideration payable to the holders of Shares (with such termination fee, if payable, serving as Parent's and Merger Sub's sole and exclusive remedy for damages).



•

The Herley Board's belief that, based on the history of Herley's negotiations with Parent, that the Offer Price was the highest price per Share that Parent was willing to pay and that the other terms of the Merger Agreement were the most favorable terms to Herley to which Parent was willing to agree.

29

Table of Contents

Opinions of Financial Advisors

•

The opinion, dated February 7, 2011, and financial analysis of Jefferies to our Board as to the fairness, from a financial point of view and as of the date of such opinion, and based upon and subject to the various assumptions made, procedures followed, matters considered and limitations on the review undertaken as set forth in the opinion, of the $19.00 per Share consideration to be received in the Offer and the Merger, taken together, by holders of shares of Herley Common Stock, as more fully described under "(f) Opinion of Herley's Financial Advisors—Opinion of Jefferies & Company, Inc."



•

The opinion, dated February 7, 2011, and financial analysis of Credit Suisse to our Board as to the fairness, from a financial point of view and as of the date of such opinion, and based upon and subject to the various assumptions made, procedures followed, matters considered and limitations on the review undertaken as set forth in the opinion, of the $19.00 per share consideration to be received in the Offer and the Merger, taken together, by holders of Herley Common Stock (other than Parent, Merger Sub and their respective affiliates), as more fully described below under "(f) Opinion of Herley's Financial Advisors—Opinion of Credit Suisse Securities (USA) LLC."

Certainty of Value of Cash Consideration

•

That the Offer and the Merger provides Herley's stockholders with $19.00 per Share in all-cash consideration in exchange for their Shares thereby eliminating any uncertainties in valuing such cash consideration to be received by Herley's stockholder and providing Herley's stockholders with immediate liquidity.

Advantages of Structuring the Transaction as a Tender Offer

•

The advantages of structuring the transaction as a tender offer for all Shares, which should allow stockholders to receive the transaction consideration in a relatively short time frame, followed by the Merger in which stockholders (other than those who properly perfect their appraisal rights under the DGCL) will receive the same consideration as received by stockholders who tender their Shares in the Offer.

Business Reputation of Parent

•

The business reputation of Parent and its management, and the substantial financial resources of Parent and, by extension, Merger Sub.

Availability of Financing to Consummate the Offer and the Merger; No Financing Condition

•

The fact that the Offer is not subject to a financing condition, and the representation of Parent that it has sufficient funds available to it to consummate the Offer and the Merger, which collectively supported the conclusion that a transaction with Parent and Merger Sub could be completed relatively quickly and in an orderly manner.

Regulatory Approvals

•

That the only material regulatory filing that will be required to consummate the Offer and the Merger is the filing of a pre-merger notification form pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.



•

The other regulatory approvals needed to consummate the Offer and the Merger, and the expectation, after considering advice of outside legal counsel, with respect to obtaining all

30

Table of Contents

regulatory approvals in a timely manner, and the commitment by Parent with respect to taking action needed to obtain such clearances.

Termination Fee

•

That the termination fee of approximately $9.4 million (or approximately 3.5% of the aggregate consideration payable in the Transactions), payable by Herley to Parent if the Merger Agreement is terminated for the reasons discussed in the Merger Agreement, is not unreasonable, was comparable to termination fees in transactions of a similar size, and would not likely deter competing bids and would not likely be required to be paid unless Herley entered into or intended to enter into a transaction that is more favorable to Herley's stockholders than the Transactions.



•

That the termination fee, if payable, would serve as Parent's and Merger Sub's sole and exclusive remedy for damages.

Terms and Conditions of the Merger Agreement

•

The fact that the financial and other terms and conditions of the Merger Agreement and the Transactions, including, but not limited to, the number and nature of the conditions to Parent's and Merger Sub's obligations to consummate the Offer and the Merger, were the product of arms-length negotiations among the parties and were designed to provide more certainty that the Offer and the Merger would ultimately be consummated on a timely basis.



•

That the Merger Agreement provides for a prompt cash tender offer for all Shares to be followed by a Merger for the same consideration, thereby enabling Herley stockholders, at the earliest possible time, to obtain the benefits of the transaction in exchange for their Shares.



•

That the Merger Agreement provides that, under certain circumstances, Merger Sub would be required to extend the Offer beyond the initial 20 Business Day period if certain conditions to the consummation of the Offer are not satisfied as of the end of such period and that Merger Sub may elect, other than in certain limited circumstances, to provide "subsequent offering periods" pursuant to Rule 14d-11 of the Exchange Act.



•

That the Merger Agreement includes a representation of Parent that it had sufficient funds to consummate all of the Transactions, including the purchase of all of the outstanding Shares in the Offer and the Merger.



•

That the material terms of the Merger Agreement, taken as a whole, were as favorable as, or more favorable than, those found in comparable acquisition transactions.



•

The definition of "Company Material Adverse Effect" in the Merger Agreement and the various exceptions thereto and the effect thereof on the likelihood that the Offer and the Merger would be consummated pursuant to the terms of the Merger Agreement.



•

The fact that, subject to compliance with the terms and conditions of the Merger Agreement, Herley is permitted to furnish information to, and participate in discussions and negotiations with, any third party that makes an unsolicited, bona fide, written takeover proposal that constitutes or may reasonably be expected to constitute a Superior Proposal.



•

The ability of our Board under certain circumstances to withdraw, modify or change our Board's recommendation to stockholders that they accept the Offer, tender their shares of Herley Common Stock to Merger Sub pursuant to the Offer and, if required, vote their shares of Herley Common Stock in favor of the adoption of the Merger Agreement, and the right of our Board to terminate the Merger Agreement if certain conditions are satisfied, subject to the payment of a termination fee of approximately $9.4 million (or approximately 3.5% of the

31

Table of Contents

aggregate consideration payable in the Transactions) from Herley to Parent, and the reasonableness of such provisions in light of, among other things, the benefits of the Offer and the Merger to Herley's stockholders and the typical range and size of such fees in similar transactions.

•

The provisions of the Merger Agreement allowing each party to terminate the Merger Agreement if Shares have not been accepted for payment by Merger Sub prior to June 30, 2011.



•

The availability of appraisal rights with respect to the Merger, which would give stockholders who properly perfected their appraisal rights the ability to seek and be paid a judicially determined appraisal of the "fair value" of their shares of Herley Common Stock at the completion of the Merger.

Specific Performance/Remedies.

•

That the Merger Agreement provides each party the right to seek an injunction or injunctions to prevent breaches of the Merger Agreement and to enforce specifically the terms of the Merger Agreement in Delaware courts.



•

That there is no limitation on the amount of damages for fraud or any intentional or knowing material breach of the Merger Agreement (other than against Herley in circumstances in which the termination fee is paid by Herley).

        In the course of its deliberations, the Herley Board also considered a variety of risks and other countervailing factors with respect to the Offer and the Merger, including:

No-Shop; Termination Fee

•

The restrictions that the Merger Agreement impose on Herley's ability to solicit or participate in discussions or negotiations regarding alternative business combination transactions, subject to specified exceptions, and the insistence by Parent, as a condition to executing the Merger Agreement, that Herley would be obligated to pay a termination fee of approximately $9.4 million (or approximately 3.5% of the aggregate consideration payable in the Transactions) under certain circumstances, and the potential effect of such termination fee in deterring other potential acquirers from proposing alternative transactions.

Conditions to Closing

•

The conditions to Parent and Merger Sub's obligation to consummate the Offer and the Merger, and the possibility that such conditions may not be satisfied. The risk that completion of the Offer and the Merger would require antitrust clearance and the satisfaction of certain other closing conditions that are not within Herley's control, including that no material adverse effect on Herley has occurred.

Effect of a Failure to Close

•

The risk that, if the Transactions, including the Offer and the Merger, are not completed, Herley's officers and other employees will have expended extensive time and effort attempting to complete the transaction and will have experienced significant distractions from their work during the pendency of the transaction.

Potential Harm to Business if Merger is Not Completed

•

The risk that, if the Transactions, including the Offer and the Merger, are not completed, the market's perception of Herley could potentially result in a loss of customers, vendors and

32

Table of Contents

employees, and the risk that, during the course of the due diligence process, Herley has provided Parent with very sensitive, confidential information that could affect Herley's ability to compete with Parent were the Transactions not to be completed.

Public Announcement of the Merger Agreement

•

The effect of a public announcement of the execution of the Merger Agreement, including effects on Herley's sales, operating results and stock price, and Herley's ability to attract and retain key management and sales and marketing personnel.

Pre-Closing Covenants

•

The restrictions on the conduct of Herley's business prior to the completion of the transaction, requiring Herley to conduct its business in the ordinary course of business, to use its reasonable efforts, consistent with past practice and policies, to preserve intact its business organization and material assets, to keep available the services of its officers, directors and associates, to comply in all material respects with all applicable laws and the requirements of its material contracts, to maintain satisfactory relationships with business partners, and to seek the consent of Parent prior to engaging in various activities, which may delay or prevent Herley from undertaking business opportunities that may arise pending completion of the transaction, whether or not consummated.

Cash Consideration

•

While the consummation of the Offer gives the stockholders the opportunity to realize a premium over the prices at which the Shares traded prior to the public announcement of the Offer and the Merger, tendering of shares of Herley common stock in the Offer would eliminate the opportunity for stockholders to participate in the future growth and profits of Herley.

Possible Inability to Obtain Financing

•

The risk that Parent and Merger Sub may not have sufficient cash to consummate the transactions if their financing is not consummated.

Improvement in Company's Prospects

•

The risk that Herley's prospects could change materially, including in ways beneficial to Herley, but in ways that do not constitute an intervening event that would entitle our Board to change its recommendation to Herley's stockholders, and the price per share of Herley Common Stock offered under the Merger Agreement is fixed at $19.00 per Share, regardless of such changes.

Interests in the Transactions

•

The risk that the executive officers and directors of Herley may have interests in the Offer and the Merger that are different from, or in addition to, those of Herley's stockholders, including certain change of control payments, and the risk that neither the Offer nor the Merger is conditioned upon any member of Herley's management entering into any employment, equity contribution, or other agreement, arrangement or understanding with Parent, Merger Sub or Herley.

33

Table of Contents

Tax Consequences

•

The risk that the all-cash consideration to be received by the stockholders who are U.S. persons in the Offer and the Merger would be taxable to such stockholders who have a gain for U.S. federal income tax purposes.

        The foregoing discussion of the factors considered by our Board is not intended to be exhaustive, but does set forth the principal factors considered by our Board. Our Board collectively reached the unanimous conclusion to approve the Offer, the Merger and the Merger Agreement in light of the various factors described above and other factors that each member of our Board deemed relevant. In view of the wide variety of factors considered by the members of our Board in connection with their evaluation of the Offer and the Merger and the complexity of these matters, our Board did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision. Our Board made its decision based on the totality of information presented to and considered by it. In considering the factors discussed above, individual directors may have given different weights to different factors.

        After evaluating the above factors, our Board unanimously determined that the Offer, the Merger and the other Transactions are advisable, fair to and in the best interests of the stockholders of Herley and adopted and approved the Merger Agreement, the Offer, the Merger and the other Transactions and declared it advisable that Herley enter into the Merger Agreement and consummate the Offer, the Merger and the other Transactions. Our Board unanimously recommends that Herley stockholders accept the Offer, tender their shares of Herley Common Stock pursuant to the Offer and, if necessary, approve the Merger.

(d)   Financial Information and Projections

        Throughout this section, references to "fiscal years ending July 31" (other than references to historical periods) are deemed to refer to the 52 or 53 week period that would end on the Sunday closest to July 31 of such period. Information contained in this section and expressed in dollars has generally been presented in rounded numbers. Certain of the totals presented in this section may have been affected by the use of this rounded information.

        Herley's management does not as a matter of course make public projections as to future performance, earnings or other results due to the unpredictability of the underlying assumptions and estimates. However, in connection with the sale process, Herley's management prepared certain non-public financial information and projections about Herley, which were presented to the Board by management during the course of deliberations regarding the Offer and the Merger. This information was also provided to Jefferies and Credit Suisse in connection with their respective opinions to the Board, as described under "Item 4. The Solicitation or Recommendation—Opinions of the Company's Financial Advisors". In addition, certain financial information and projections were presented to qualifying bidders during the course of the sale process, which information was updated as the sale process continued during 2008 though 2010. None of the financial information and projections gives effect to the Offer or the Merger.

        The most recent financial information and projections of Herley made available to qualifying bidders, including Parent, as well as to Herley's financial advisors, included:

•

adjusted historical statement of operations information of Herley for the 53 weeks ended August 3, 2008, and for the 52 weeks ended August 2, 2009 and August 1, 2010;



•

financial projections, on both an adjusted and unadjusted basis, of Herley for each of the fiscal years ending July 31, 2011, 2012 and 2013.

34

Table of Contents

        Certain of the most recent adjusted historical financial information for Herley's 2008, 2009 and 2010 fiscal years, made available to Parent and other qualifying bidders, as well as to Herley's financial advisors, was as follows:

Adjusted Historical Financial Information

(1)

Adjusted to eliminate net sales and cost of products sold, as the case may be, associated with (i) a contract that was transferred as a result of the closing in fiscal year 2008 of Herley's Farmingdale facility; (ii) costs associated with certain abandoned assets, and physical inventory and obsolescence adjustments as a result of the Farmingdale facility closing; (iii) the settlement of an outstanding claim with a customer for equitable adjustment for unpriced change orders; and (iv) a write-off of certain inventory associated with the settlement of litigation with a customer. The following table presents a reconciliation of net sales and cost of products sold, as reported, to net sales and cost of products sold, each as adjusted, respectively, for each of the fiscal years presented above:

(2)

"Selling and administrative expenses" is defined throughout this section to mean Herley's consolidated cost and expenses, as reported, other than cost of products sold, as reported. In the foregoing table, selling and administrative expenses have been adjusted to exclude (i) costs associated with the Farmingdale facility closing; (ii) certain of Herley's costs and expenses associated with being a stand-alone public company, including certain executive and corporate staff

35

Table of Contents

compensation and corporate office costs; (iii) certain non-recurring settlement costs and related legal expenses; and (iv) a non-recurring goodwill impairment charge. The following table presents a reconciliation of Herley's selling and administrative expenses, as reported as defined above, to selling and administrative expenses, as adjusted, for each of the fiscal years presented above:

(3)

As used throughout this section, (i) EBITDA is defined as Herley's consolidated operating income (loss) plus depreciation and amortization, and (ii) pre-tax free cash flow is defined as Herley's EBITDA, plus the (increase) decrease in net working capital, minus capital expenditures.

        Certain of the most recent unadjusted and adjusted projected financial information for Herley's 2011, 2012 and 2013 fiscal years made available to Parent and other qualifying bidders, as well as to Herley's financial advisors, was as follows:

Unadjusted Projected Financial Information

36

Table of Contents