Exhibit 10.40
CONFIDENTIAL SETTLEMENT AGREEMENT AND GENERAL RELEASE
     This Confidential Settlement Agreement and General Release (“Agreement”) is
entered into by and between STEVEN M. ALLISON (“Employee”) and MIDWAY GAMES INC.
(with its subsidiaries, the “Company”).
     WHEREAS, Employee’s employment is terminating;
     WHEREAS, Employee wishes to receive a severance payment as full
satisfaction and release of any and all claims Employee has relating to or
associated with his employment with the Company;
     WHEREAS, the Company and Employee, each denying any wrongdoing or liability
whatsoever, desire to sever their employment relationship in an amicable fashion
and to settle all actual and potential disputes.
     NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the sufficiency of which is hereby acknowledged:
     1. Termination. Employee’s employment with the Company shall terminate
effective March 31, 2008 (the “Termination Date”).
     2. Payment to Employee. For settlement purposes only and provided this
Agreement is final and irrevocable under paragraph 9 hereof, the Company agrees
to continue to pay Employee his base annual salary in effect as of the
Termination Date through September 30, 2008, less usual payroll deductions,
payable in normal payroll intervals. Employee acknowledges that the amount
hereunder is above and beyond anything which is owed to Employee under company
policy or by law. Payments will be sent to Employee by U.S. Mail to his home
address, or deposited in his bank account directly if practicable, commencing
with the first pay period after the later of the Terminate Date or the date this
Agreement is final and irrevocable under paragraph 9 hereof. Employee will not
accrue any vacation, credited service under any benefit plan or other benefits
during the period of payments hereunder. Employee and the Company acknowledge
that (i) Employee has submitted and/or intends to submit expense reports to the
Company for expenses incurred in connection with his employment with the Company
and that Employee shall be entitled to reimbursement of such expenses to the
extent provided by Company policy (“Reimbursements”) and (ii) Employee shall be
entitled to payment for accrued vacation through the Termination Date (the
“Vacation Pay”) as required by law.
     3. Continuation of Health Benefits. Employee is advised that provided he
properly elects continuation of health insurance coverage under and pursuant to
COBRA, 29 U.S.C. § 1161 et seq., he shall be solely responsible for any
premiums, except that the Company will pay the premium on Employee’s behalf for
standard employee medical (including dental) coverage until September 30, 2008
or until Employee is re-employed elsewhere, whichever is earlier. Coverage
provided during this period will count toward the maximum of 18 months of
coverage provided under COBRA and toward any coverage provided under similar
state laws. Employee will receive information on his opportunity to elect
“COBRA” coverage under separate cover.
     4. General Release and Covenant Not To Sue. In consideration of the
promises contained herein, the adequacy of which is hereby acknowledged, and
other good and valuable consideration, Employee (on behalf of himself and his
heirs, executors, administrators, successors and assigns) irrevocably and
unconditionally releases and forever discharges and acquits the Company (and all
its agents, officers, employees, directors, shareholders, attorneys and any
affiliated or related companies, including parent companies, subsidiaries,
divisions, successors and assigns) (collectively “Releasees”), from any and all
claims, charges, liabilities, debts, demands, grievances and causes of action of

 

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whatsoever kind, at law or in equity, whether accrued, contingent, inchoate,
known or unknown, suspected or unsuspected, or otherwise, including but not
limited to claims relating to or arising out of Employee’s employment and
termination of employment, claims for breach of employment contract, claims for
attorneys’ fees, claims under the Age Discrimination in Employment Act, Title
VII of the Civil Rights Act of 1964 and 1991, as amended, The Fair Labor
Standards Act, The Family and Medical Leave Act, the Americans with Disabilities
Act, the Equal Pay Act, the Employee Retirement Income Security Act (“ERISA”),
the Worker Adjustment and Retraining Notification Act (“WARN”), the Illinois
Wage Payment and Collection Act, the Illinois Human Rights Act, the California
Fair Employment and Housing Act, the Unruh Civil Rights Act, the Ralph Civil
Rights Act, Cal. Labor Code §200 et seq., claims of retaliation, claims for pain
and suffering and mental and emotional distress, wrongful discharge claims,
severance pay claims other than those contemplated by this Agreement, accrued
vacation, bonuses, salary and benefits, or other claims under any federal, state
or local constitution, statute, or common law, which Employee has, had or may
have against the Releasees arising from or relating to acts or omissions through
the date hereof, or involving the continuing effects of any acts or omissions
which occurred through the date hereof. Notwithstanding anything to the contrary
herein, Employee reserves the right to apply for unemployment compensation
relating to his termination of employment by the Company and the right to
receive the Reimbursements and Vacation Pay. For purposes of clarification, the
Company acknowledges that its obligations to defend and hold harmless Employee
arising from his election and service as an officer of the Company continue
hereafter unaffected by this Agreement.
     Employee acknowledges and agrees that the nature, materiality, extent and
results of the claims compromised and released by this Agreement may not now all
be known or anticipated by him. However, it is the intention of the parties
hereto that this Agreement shall be effective as a bar to each and every claim,
charge, liability, offset, demand, grievance, debt and cause of action that
Employee may have against the Company. Employee further acknowledges and agrees
that he may hereafter discover facts different from or in addition to those now
known, suspected or believed to be true with respect to such claims, demands or
causes of action and agrees that this release will be and remain effective in
all respects notwithstanding any such differences or additional facts.
     Employee covenants and agrees not to sue, to file a charge, to make a claim
or demand, to commence or maintain, or assist or otherwise participate (except,
as required by law, to give testimony), in any action or proceeding of any kind
in any court, before any government agency or in any other forum, or to accept
any money, benefit, or other relief from any proceeding which would be precluded
by this release, whether brought directly by Employee or brought by any other
person, agency or entity, and agrees to indemnify the Company against all
liability, costs and expenses and attorney’s fees in the event he breaches this
release and covenant not to sue.
     5. Waiver of Section 1542. In granting the general release as set forth in
paragraph 4 above, Employee expressly waives all rights under Section 1542 of
the California Civil Code, which he has read and fully understands. It reads as
follows:
“A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor.”
Employee understands that by waiving rights under California Civil Code §1542 he
is forever relinquishing the right to seek redress from the Company for any
injury or damages which are unknown to him at the present time.

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     6. Non–Interference With Other Employees. Employee agrees that he will not
induce or attempt to induce any employees, consultants, or other personnel of
the Company to terminate their relationship with the Company.
     7. Full Compensation Received. Employee acknowledges that he has previously
received all accrued but unused vacation pay, all of the salary and any other
compensation and benefits to which he was entitled to and including the date of
his termination, and any other sums to which he is entitled by virtue of his
employment with the Company, other than the Reimbursements, Vacation Pay and his
salary and employment benefits through the Termination Date, and that the
payments set forth in paragraphs 2 and 3 hereof are above and beyond anything to
which Employee is entitled by Company policy or applicable law.
     8. Return of Company Property. Employee will on or prior to the Termination
Date return all keys, key cards, identification badges, records, papers, files,
blueprints, documents, computers, computer disks, software, data stored on any
computer or other storage device, and other materials or property belonging to
the Company or its employees to the Company. Employee represents that as of the
date of execution of this Agreement he has returned to the Company all such
materials or property other than the keys, identification badge and Blackberry
issued to him by the Company. Notwithstanding anything set forth herein to the
contrary, no severance or other payments will be paid to Employee by the Company
until such keys, badge and Blackberry have been returned.
     9. Notice of Employee Rights; Effective Date. Employee has been advised
(a) that he has up to twenty-one (21) days to consider this Agreement; (b) that
the Agreement does not take effect until seven (7) days after signing and may be
revoked by him during that time period; (c) to consult an attorney before
signing this Agreement; and (d) that the Employee does not waive rights or
claims that may arise after the date the waiver is executed. This Agreement will
be effective eight (8) days after Employee signs it, provided he has not revoked
his Agreement during the seven-day revocation period. If Employee does not sign
or if he timely revokes his Agreement, this Agreement will be null and void.
     10. Confidentiality. Employee agrees that the fact and terms of this
Agreement are strictly confidential, and therefore, agrees that from the date of
presentment to him of this Agreement until the date the Company elects to
publicly disclose such information, Employee shall not disclose, permit or cause
the disclosure of any information concerning this Agreement, except to his
attorney, tax preparer and immediate family members, provided they also agree to
keep this Agreement and its terms confidential.
     11. Entire Agreement. With respect to the matters set forth herein, this
Agreement represents the entire agreement between Employee and the Company and
supersedes all prior agreements or understandings, if any, between the parties,
except for any Inventions, Intellectual Material and Confidentiality Agreement
signed by Employee (the “Confidentiality Agreement”) or any agreement relating
to rights in intellectual property or proprietary rights and/or the confidential
information and/or trade secrets of the Company or any agreement relating to
competition with the Company or to the solicitation or hiring of the employees
of the Company, the provisions of which Employee acknowledges are designed to
survive the termination of his employment. Employee acknowledges that except for
the explicit provisions of this Agreement, no promises or representations of any
kind have been made to Employee by the Company, its attorneys or any of the
Releasees, to induce him to enter into this Agreement. No modification of this
Agreement can be made except in writing and signed by Employee and an authorized
representative of the Company.
     12. Choice of Law; Savings Provision. This Agreement shall be governed,
interpreted and construed under the laws of the State of Illinois without regard
to its conflict of law principles. The

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parties agree that any dispute or litigation arising in whole or in part
hereunder shall, at the option of the Company, be litigated in any state or
federal court of competent subject matter jurisdiction sitting in Illinois, to
the jurisdiction of which and venue in which Employee irrevocably consents. If
any provision of this Agreement shall be invalidated or refused enforcement by
any court of competent jurisdiction, the provisions not invalidated or refused
enforcement shall remain in full force and effect.
     13. No Attorney’s Fees. Employee waives his right, if any, to attorney’s
fees. The Company will pay all expenses incurred by it, and Employee will bear
all expenses incurred by him, in the negotiation and preparation of this
Agreement.
     14. Non–Disparagement Pledge. The parties agree that it would be
counterproductive and undesirable for either to communicate in a derogatory
manner to third parties about one another, and each party pledges not do so,
unless required by law. Employee acknowledges and agrees that this pledge
includes an obligation on his part not to make derogatory statements about the
Company or its affiliated companies, or their employees, officers, directors, or
shareholders or about their businesses, including without, limitation, their
products, processes, plans and strategies. Employee acknowledges and agrees that
if he makes any such derogatory statements or he discloses any information in
violation of the Confidentiality Agreement or Section 10 above or he discloses
any other information about the Company’s or its affiliates’ businesses that is
not already known (through no action of Employee) to the public generally
(whether such statements or disclosures are made orally, in writing,
electronically or otherwise), the Company shall be relieved of any further
payment obligations under this Agreement, as well as its obligations under this
Section 14 (such as its pledge not to make derogatory statements about
Employee), and the Company shall be entitled to pursue all other remedies
available to it for Employee’s breach of his obligations, at law and in equity.
The Company will refer all inquiries from prospective employers concerning
Employee to the Company’s Human Resources Department or Chief Executive Officer.
Employee will not allege or claim that he was discriminated against or otherwise
mistreated by the Company in any manner.
     15. For Settlement Only. This Agreement is entered into for settlement
purposes only and represents the compromise of disputed claims, actual or
potential, which Employee has or may believe he has. Neither this Agreement, the
decision to enter into this Agreement, nor anything done pursuant to this
Agreement shall be construed to be an admission or evidence of any wrongdoing or
liability by the Company, such wrongdoing and liability being expressly denied.
Nor will this Agreement, its existence or its terms be admissible in any
proceeding other than a proceeding to enforce the terms of this Agreement or as
an affirmative defense to any attempt to breach it. It is understood that the
separation pay provided pursuant to this Agreement is for purposes of amicably
severing the employment relationship and forever resolving any disputed claims,
actual or potential, which Employee has or may believe he has.
     16. Representations & Warranties By All Parties. Each of the parties
represents and warrants, as to himself, herself or itself that (a) he, she or it
has the capacity, full power and authority to enter into this Agreement, (b) the
individual signing on behalf of the corporate party is authorized to do so,
(c) he, she or it has not assigned, encumbered or in any manner transferred all
or any portion of the claims covered by this Agreement, (d) there are no other
charges, complaints, suits, arbitrations or other claims or proceedings pending
between the parties in any court, before any agency, or in any forum, and (e) no
other person, party or corporation has any right, title or interest in any of
the claims covered by this Agreement.
     17. Successors & Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective personal representatives,
agents, attorneys, executors, administrators, heirs, successors and assigns.

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     18. Knowing and Voluntary Signing of Binding Contract. Employee represents
and warrants that he has read this Agreement and understands all of its terms
and executes this Agreement voluntarily and without duress or undue influence,
and with full knowledge of its significance, intending to be legally bound.
Employee acknowledges that by signing this Agreement, subject to the limited
right to revoke in paragraph 9, he is GIVING UP ALL CLAIMS AGAINST the Company
and Releasees.
     19. Opportunity To Consult Advisors. Both Employee and the Company have had
reasonable opportunity to consult with attorneys or other advisors of their own
choosing before executing this Agreement.
     20. Counterparts. This Agreement may be executed in counterparts, each of
which may be signed separately and may be enforceable as an original, but all of
which together shall constitute but one agreement.
     21. Variation of Pronouns. All pronouns and variations thereof shall be
deemed to refer to masculine, feminine or neuter, singular or plural, as the
identity of persons may require.
     22. Stock Options. The Company confirms that the circumstances of the
termination of Employee’s employment with the Company are such that Employee
will have three months after the Termination Date to exercise his options to
purchase the Company’s common stock, to the extent vested as of the Terminate
Date, pursuant to Article XII, Section 2 of the Company’s 1996 Stock Option Plan
and the agreement under which such options were issued to Employee by the
Company.
     IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
affixing their signatures and the date of execution where indicated below.

                      MIDWAY GAMES INC.       EMPLOYEE    
 
                   
By:
  /s/ Deborah K. Fulton       By:   /s/ Steven M. Allison    
 
 
 
         
 
STEVEN M. ALLISON    
Its:
  SVP, Secretary and General Counsel                
 
                    Dated: January 24, 2008       Dated: January 24, 2008    

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