Exhibit 10.1
MIDWAY GAMES INC.
KEY EMPLOYEE INCENTIVE PLAN

1.   OBJECTIVE, OVERVIEW AND EFFECTIVE DATE

     Midway Games Inc. and its subsidiaries (the “Company”) have experienced
liquidity concerns and possible defaults under agreements with the Company’s
lenders and other third parties that have been exacerbated by the change in
control of the Company which occurred November 28, 2008. The Board of Directors
of the Company (the “Board”) has engaged advisors to assist the Company in
exploring strategic alternatives, including restructuring the Company as a stand
alone entity or a sale of some or all of the Company’s business and assets. On
February 12, 2009, the Company and its U.S. subsidiary filed proceedings under
Chapter 11 of the U.S. Bankruptcy Code. During this process, extraordinary
demands have been made upon the Company’s management and key personnel, above
and beyond their normal duties to the Company and those demands continue to be
made. It is contemplated that this process, now including a proceeding under the
Bankruptcy laws and associated reporting and proceedings, presentations to and
due diligence activities with potential bidders for the Company’s assets,
careful management of the Company’s cash and expenses and additional day-to-day
demands could last several months. It is important that the Company’s senior
management and key personnel make significant contributions to the process,
including, among other things, conducting due diligence with creditors and
potential buyers or lenders, the negotiation of agreements to create liquidity
for the Company to enable it to continue to operate, to assist in the marketing
of some or all of the Company’s assets, induce others to do business with the
Company and/or offer to purchase some or all of its assets, and to
enthusiastically encourage other employees to stay with the Company, all for the
purpose of maximizing the value of the Company and its assets.
     This Key Employee Incentive Plan (the “Plan”) is intended to provide
incentives to key members of management and senior staff at this critical time
for the Company to expend extraordinary time and effort and to reward such key
employees upon achievement of certain milestones deemed by the Company to be
critical to maximizing the value of the Company in either a restructuring or
sale of the Company. The efforts required of these key employees to achieve
these milestones will extend well beyond their ordinary course responsibilities,
and, their entitlement to payments under the plan will occur only upon
successful achievement of the milestones and not merely as a result of continued
employment. The Plan offers Participants (as defined below) the opportunity to
receive a cash payment if the Company achieves the milestones described in
Section 4 that are deemed critical to the continued operations and the
restructuring or sale of the Company as determined by the Company and its
lender, Acquisition Holdings Subsidiary I, LLC (the “Lender”), in such amounts
as are approved by the Compensation Committee (the “Committee”) of the Board.
     The Plan is effective as of February 23, 2009 (the “Effective Date”),
subject to Bankruptcy Court approval.

2.   PLAN ADMINISTRATION

     The Plan will be administered by the Committee. The Committee’s powers and
authority include, but are not limited to (1) selecting individuals who are
eligible to participate in the Plan, (2) determining and approving the incentive
amount for each Participant for achievement of each milestone, (3) interpreting
the Plan’s provisions, (4) determining the specifics of each milestone and
achievement of each of the milestones for each Participant, (5) approving the
making of payments under the Plan, and (5) administering the Plan in a manner
that is consistent with its purpose.
     The Committee may delegate certain administrative functions to management,
such as maintenance of lists of all employees who are eligible to participate,
periodic communication with regard to performance against milestones over time,
and other functions as determined by the Committee. The Committee may delegate
determinations under Section 8 to the Chief Executive Officer of the Company
(the “CEO”).

3.   ELIGIBILITY AND PARTICIPATION

     “Participants” will be employees of the Company selected by the Committee
based upon their unique skills, expertise and their importance to the Company
and to the achievement of the milestones but shall exclude the CEO.
     Participants may be added after the Effective Date as recommended by the
CEO and approved by the Committee.

 

--------------------------------------------------------------------------------

 

     Participants will receive a personalized letter from the Company indicating
their eligible participation in the Plan and the specific milestone
opportunities for which they are eligible.

4.   THE MILESTONES

     The Committee has established the following milestones each of which, upon
achievement, will trigger the right to receive the incentive payment applicable
to such milestone approved by the Committee under this Plan as set forth herein.
     Milestone 1: The Board has determined that it is a key objective of the
Company for its key personnel to continue to develop and exploit the Company’s
intellectual property through an orderly sale or restructuring process. In order
to continue to maintain the value of the business and assets of the Company,
provide due diligence to prospective purchasers and/or lenders, undertake the
additional tasks created by the Bankruptcy process, and otherwise achieve the
objectives and purposes of the Plan, it is critical that the Company’s key
personnel work with the Lender, the Company’s unsecured creditors and other
constituencies to agree upon a plan to maximize the value of the Company for its
creditors including, if so determined, working through an orderly sale of its
assets or a restructuring of the Company. Milestone 1 shall be deemed achieved
upon the earlier to occur of (i) the later of execution of asset purchase
agreement(s) (singularly or collectively, the “APA”) with one or more stalking
horse bidders that are approved by the Bankruptcy Court as a stalking horse
APA(s) at a bid procedures hearing and that provide for aggregate Net Sale
Proceeds of at least $30 million (the “Target Amount”), and the date upon which
the APA does not contain a financing, due diligence or employee hire condition
that has not been waived, terminated, or satisfied (which could be either at
filing of the APA or at any time thereafter, including at closing) and (ii) the
filing by the Company with the Bankruptcy Court having jurisdiction over the
Proceeding of a Plan of Reorganization acceptable to the Lender or which
provides for the payment in full of the Lender’s allowed secured claims. Within
three (3) business days after the achievement of Milestone 1, each Participant
shall be entitled to receive the incentive amount previously approved by the
Committee for Milestone 1 for such Participant from a pool of not more than
$600,000.
     Milestone 2: For the same reasons supporting the importance of Milestone 1,
it is critical that the Company’s key personnel complete any sale of its assets
under Bankruptcy Code Section 363 and provide incentive to Participants to
maximize the sale proceeds and the Company’s other available assets or obtain
approval of a plan of reorganization. Achievement of Milestone 2 shall be deemed
to have been achieved upon the earlier of (a) approval by the Bankruptcy Court
with jurisdiction over the Proceeding of a Plan of Reorganization/Liquidation of
the Company acceptable to the Lender or which provides for payment in full of
the Lender’s allowed secured claims or (b) the closing of the sale(s) of Company
assets to the stalking horse bidder(s) or higher bidder(s) in an auction
process. Upon achievement of Milestone 2, each Participant shall be entitled to
receive the incentive amount previously approved by the Committee for Milestone
2 for such Participant.
The total incentive amount to be paid under Milestone 2 in the case of approval
of a Plan of Reorganization/Liquidation shall be $1,000,000 and in the case of
approval of a sale or sales shall be based upon the amount of Net Sale Proceeds.
If the Net Sale Proceeds are at least equal to the Target Amount, $1,000,000
will be paid under Milestone 2 at sale closing (and if the Net Sale Proceeds are
less than the Target Amount, nothing shall be paid under Milestone 2 at sale
closing). For every additional $1,000,000 of Net Sale Proceeds above the Target
Amount, an additional $75,000 will be paid under Milestone 2 at the sale closing
(with the understanding there would be no prorations of any such additional
amounts payable under Milestone 2).
So, with a hypothetical $30,000,000 in Net Sale Proceeds upon sale closing, and
assuming nothing had been paid yet under Milestone 1, the amount payable under
this Plan at sale closing would be $1.6 million ($600,000 + 1,000,000).
With a hypothetical $31,750,000 in Net Sale Proceeds upon sale closing, and
assuming nothing had been paid yet under Milestone 1, the amount payable under
this Plan at sale closing would be $1.675 million ($600,000 + 1,000,000 +
75,000).
“Net Sale Proceeds” at sale closing shall be defined as the amount of cash
actually received (or to be received if the calculation of Milestone 1 occurs
before sale closing) by the Company at the sale closing(s), plus any good faith
cure amounts (which amounts shall be subject to review by the Creditors
Committee) paid or otherwise satisfied by purchaser(s) relating to contracts
assumed by Purchaser(s) in connection with the sale(s), less any cure amounts
the Company must satisfy in connection with the sale closing. For the avoidance
of doubt, if a purchaser purchases its own contract with the Company and waives
or otherwise deems to be satisfied any cure claim in connection therewith, the
amount of such cure claim shall not be included in the calculation of Net Sale
Proceeds.

 

--------------------------------------------------------------------------------

 

     In determining the incentive amounts, the Committee considered (1) the
level of payment that is necessary or appropriate to provide an economic
incentive for each Participant to exert additional efforts beyond his/her normal
duties on behalf of the Company to achieve the milestone, (2) the level of
payment weighed against the perceived benefit to be received by the Company for
achievement of the applicable Milestones, and (3) such other factors as the
Committee deemed desirable. The incentive amount that may be earned at the
achievement of each Milestone will be in the aggregate an amount of an incentive
pool for such Milestone as determined by the Committee and each Participant’s
level of participation shall be equal to a percentage of the total amount of the
incentive pool for the applicable Milestone and will be expressed as a dollar
amount.

5.   AWARD DETERMINATIONS

     The total amount of the award paid to a Participant for achievement of any
Milestone under the Plan may not exceed the amount calculated as provided
herein.

6.   FORM OF PAYOUT AND TIMING

     To be eligible to receive a payout under the Plan upon achievement of a
Milestone, subject to Section 8, a Participant must be in active full-time
employment with the Company on the date the Milestone has been achieved as
determined by the Committee (the “Trigger Date”).
     All awards will be paid in cash and will be subject to all applicable tax
withholding requirements.
     Because the Plan does not provide welfare benefits and does not provide for
the deferral of compensation to termination of employment, it is established
with the intent and understanding that it is not an employee benefit plan within
the meaning of the Employee Retirement Income Security Act of 1974, as amended.
To the extent any award under the Plan would become subject to Section 409A of
the Internal Revenue Code of 1986, as amended (the “Code”), such award shall be
granted in compliance with the requirements set forth in Section 409A of the
Code and any binding regulations or guidance promulgated thereunder.
     It is intended that the Plan and awards issued hereunder will comply with
Section 409A of the Code (and any regulations and guidelines issued thereunder)
to the extent the awards are subject thereto, and the Plan and such awards shall
be interpreted on a basis consistent with such intent. The Plan and any award
agreements issued thereunder may be amended in any respect deemed by the Board
or the Committee to be necessary in order to preserve compliance with
Section 409A of the Code.

7.   AMENDMENTS AND TERMINATION

     The Company, by action of the Committee, shall have the right to amend or
terminate the Plan as it deems necessary and appropriate.

8.   TERMINATION OF EMPLOYMENT

     Unless determined otherwise by the Committee or the CEO, a Participant will
forfeit the right to receive any incentive payment with respect to achievement
of a Milestone, except for the circumstances set forth in this Section 8, if he
or she is not for any reason in active full-time employment with the Company on
the Trigger Date for such Milestone.
     Notwithstanding the foregoing, in the event of a Participant’s death or
disability or involuntary termination of employment by the Company without
“Cause” (as defined), then a Participant may be eligible to receive upon a
Trigger Date for a Milestone, all or a portion of the incentive amount for such
Participant applicable to such Milestone as may be determined to be fair and
equitable by the CEO or the Committee based upon such Participant’s contribution
to achievement of the milestone during his employment and or performance of such
Participant’s obligations necessary to achieve a milestone.
     “Cause” shall mean (i) conviction (pursuant to a final or non-appealable
judgment) of a felony or any other crime involving fraud, larceny or dishonesty;
(ii) failure and refusal to follow a reasonable direction of the officer(s) of
the Company to which the Participant reports, if any, or the Board of Directors
of the Company after notice in writing of such failure or refusal and a cure
period of ten days thereafter; or (iii) commission of any dishonest, willful or
grossly negligent act which has or is reasonably likely to have a material
adverse effect on the Company or its customer or trade relationships.

9.   OTHER

 

--------------------------------------------------------------------------------

 

          (a) No Individual Rights. Neither the Plan nor any action taken
hereunder will be construed as giving any Participant any right to continue to
be employed or to continue to provide services to the Company, any subsidiary,
or any related entity. The right to terminate the employment of or performance
of services by any Participant at any time and for any reason is specifically
reserved to the Company and its subsidiaries, as applicable.
          (b) Unfunded Plan. The Plan will be unfunded and will not create or be
construed to create a trust or a separate fund or funds. To the extent any
Participant holds any obligation of the Company hereunder by virtue of
participation in this Plan, such obligation will constitute a general unsecured
liability of the Company and accordingly will not confer upon such person any
right, title, or interest in any assets of the Company.
          (c) Governing Law. The terms of the Plan and all rights thereunder
will be governed by and construed in accordance with the laws of the State of
Illinois, without reference to principles of conflicts of law.