**Exhibit 10.40****CONFIDENTIAL SETTLEMENT AGREEMENT AND GENERAL RELEASE**     This Confidential Settlement Agreement and General Release (“Agreement”) is entered into byand 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 ofany 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, desireto sever their employment relationship in an amicable fashion and to settle all actual andpotential disputes.     NOW, THEREFORE, in consideration of the foregoing, and for other good and valuableconsideration, the sufficiency of which is hereby acknowledged:     1. Termination. Employee’s employment with the Company shall terminate effective March31, 2008 (the “Termination Date”).     2. Payment to Employee. For settlement purposes only and provided thisAgreement is final and irrevocable under paragraph 9 hereof, the Company agrees to continue to payEmployee 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 theamount hereunder is above and beyond anything which is owed to Employee under company policy or bylaw. Payments will be sent to Employee by U.S. Mail to his home address, or deposited in his bankaccount directly if practicable, commencing with the first pay period after the later of theTerminate 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 benefitsduring the period of payments hereunder. Employee and the Company acknowledge that (i) Employee hassubmitted and/or intends to submit expense reports to the Company for expenses incurred inconnection with his employment with the Company and that Employee shall be entitled toreimbursement 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 properlyelects continuation of health insurance coverage under and pursuant to COBRA, 29 U.S.C. § 1161et seq., he shall be solely responsible for any premiums, except that the Company will paythe premium on Employee’s behalf for standard employee medical (including dental) coverage untilSeptember 30, 2008 or until Employee is re-employed elsewhere, whichever is earlier. Coverageprovided during this period will count toward the maximum of 18 months of coverage provided underCOBRA and toward any coverage provided under similar state laws. Employee will receive informationon his opportunity to elect “COBRA” coverage under separate cover.     4. General Release and Covenant Not To Sue. In consideration of the promises containedherein, the adequacy of which is hereby acknowledged, and other good and valuable consideration,Employee (on behalf of himself and his heirs, executors, administrators, successors andassigns) irrevocably and unconditionally releases and forever discharges and acquits the Company(and all its agents, officers, employees, directors, shareholders, attorneys and any affiliated orrelated 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
 

 
whatsoever kind, at law or in equity, whether accrued,contingent, inchoate, known or unknown, suspected or unsuspected, or otherwise, including but notlimited to claims relating to or arising out of Employee’s employment and termination ofemployment, claims for breach of employment contract, claims for attorneys’ fees, claims under theAge Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964 and 1991, asamended, The Fair Labor Standards Act, The Family and Medical Leave Act, the Americans withDisabilities Act, the Equal Pay Act, the Employee Retirement Income Security Act (“ERISA”), theWorker Adjustment and Retraining Notification Act (“WARN”), the Illinois Wage Payment andCollection Act, the Illinois Human Rights Act, the California Fair Employment and Housing Act, theUnruh Civil Rights Act, the Ralph Civil Rights Act, Cal. Labor Code §200 et seq., claims ofretaliation, claims for pain and suffering and mental and emotional distress, wrongful dischargeclaims, 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 orrelating to acts or omissions through the date hereof, or involving the continuing effects of anyacts or omissions which occurred through the date hereof. Notwithstanding anything to the contraryherein, Employee reserves the right to apply for unemployment compensation relating to histermination of employment by the Company and the right to receive the Reimbursements and VacationPay. For purposes of clarification, the Company acknowledges that its obligations to defend andhold harmless Employee arising from his election and service as an officer of the Company continuehereafter unaffected by this Agreement.     Employee acknowledges and agrees that the nature, materiality, extent and results of theclaims 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 barto each and every claim, charge, liability, offset, demand, grievance, debt and cause of actionthat Employee may have against the Company. Employee further acknowledges and agrees that he mayhereafter discover facts different from or in addition to those now known, suspected or believed tobe true with respect to such claims, demands or causes of action and agrees that this release willbe 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, tocommence or maintain, or assist or otherwise participate (except, as required by law, to givetestimony), in any action or proceeding of any kind in any court, before any government agency orin any other forum, or to accept any money, benefit, or other relief from any proceeding whichwould be precluded by this release, whether brought directly by Employee or brought by any otherperson, agency or entity, and agrees to indemnify the Company against all liability, costs andexpenses 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 4above, Employee expressly waives all rights under Section 1542 of the California Civil Code, whichhe has read and fully understands. It reads as follows:“A general release does not extend to claims which the creditor does not know orsuspect to exist in his favor at the time of executing the release, which if knownby him must have materially affected his settlement with the debtor.”Employee understands that by waiving rights under California Civil Code §1542 he is foreverrelinquishing the right to seek redress from the Company for any injury or damages which areunknown to him at the present time.
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     6. Non–Interference With Other Employees. Employee agrees that he will not induce orattempt to induce any employees, consultants, or other personnel of the Company to terminate theirrelationship with the Company.     7. Full Compensation Received. Employee acknowledges that he has previously receivedall accrued but unused vacation pay, all of the salary and any other compensation and benefits towhich he was entitled to and including the date of his termination, and any other sums to which heis entitled by virtue of his employment with the Company, other than the Reimbursements, VacationPay and his salary and employment benefits through the Termination Date, and that the payments setforth in paragraphs 2 and 3 hereof are above and beyond anything to which Employee is entitled byCompany policy or applicable law.     8. Return of Company Property. Employee will on or prior to the Termination Datereturn 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 othermaterials or property belonging to the Company or its employees to the Company. Employeerepresents that as of the date of execution of this Agreement he has returned to the Company allsuch materials or property other than the keys, identification badge and Blackberry issued to himby the Company. Notwithstanding anything set forth herein to the contrary, no severance or otherpayments will be paid to Employee by the Company until such keys, badge and Blackberry have beenreturned.     9. Notice of Employee Rights; Effective Date. Employee has been advised (a) that hehas up to twenty-one (21) days to consider this Agreement; (b) that the Agreement does not takeeffect until seven (7) days after signing and may be revoked by him during that time period; (c) toconsult an attorney before signing this Agreement; and (d) that the Employee does not waive rightsor claims that may arise after the date the waiver is executed. This Agreement will be effectiveeight (8) days after Employee signs it, provided he has not revoked his Agreement during theseven-day revocation period. If Employee does not sign or if he timely revokes his Agreement, thisAgreement will be null and void.     10. Confidentiality. Employee agrees that the fact and terms of this Agreement arestrictly confidential, and therefore, agrees that from the date of presentment to him of thisAgreement until the date the Company elects to publicly disclose such information, Employee shallnot disclose, permit or cause the disclosure of any information concerning this Agreement, exceptto his attorney, tax preparer and immediate family members, provided they also agree to keep thisAgreement and its terms confidential.     11. Entire Agreement. With respect to the matters set forth herein, this Agreementrepresents the entire agreement between Employee and the Company and supersedes all prioragreements or understandings, if any, between the parties, except for any Inventions, IntellectualMaterial and Confidentiality Agreement signed by Employee (the “Confidentiality Agreement”) or anyagreement relating to rights in intellectual property or proprietary rights and/or the confidentialinformation and/or trade secrets of the Company or any agreement relating to competition with theCompany or to the solicitation or hiring of the employees of the Company, the provisions of whichEmployee acknowledges are designed to survive the termination of his employment. Employeeacknowledges that except for the explicit provisions of this Agreement, no promises orrepresentations of any kind have been made to Employee by the Company, its attorneys or any of theReleasees, toinduce him to enter into this Agreement. No modification of this Agreement can be made exceptin writing and signed by Employee and an authorized representative of the Company.     12. Choice of Law; Savings Provision. This Agreement shall be governed, interpretedand construed under the laws of the State of Illinois without regard to its conflict of lawprinciples. The
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parties agree that any dispute or litigation arising in whole or in part hereundershall, at the option of the Company, be litigated in any state or federal court of competentsubject matter jurisdiction sitting in Illinois, to the jurisdiction of which and venue in whichEmployee irrevocably consents. If any provision of this Agreement shall be invalidated or refusedenforcement by any court of competent jurisdiction, the provisions not invalidated or refusedenforcement shall remain in full force and effect.     13. No Attorney’s Fees. Employee waives his right, if any, to attorney’s fees. TheCompany 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 andundesirable 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 thatthis pledge includes an obligation on his part not to make derogatory statements about the Companyor its affiliated companies, or their employees, officers, directors, or shareholders or abouttheir businesses, including without, limitation, their products, processes, plans and strategies.Employee acknowledges and agrees that if he makes any such derogatory statements or he disclosesany information in violation of the Confidentiality Agreement or Section 10 above or he disclosesany 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 aremade orally, in writing, electronically or otherwise), the Company shall be relieved of any furtherpayment obligations under this Agreement, as well as its obligations under this Section 14 (such asits pledge not to make derogatory statements about Employee), and the Company shall be entitled topursue all other remedies available to it for Employee’s breach of his obligations, at law and inequity. The Company will refer all inquiries from prospective employers concerning Employee to theCompany’s Human Resources Department or Chief Executive Officer. Employee will not allege or claimthat 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 onlyand represents the compromise of disputed claims, actual or potential, which Employee has or maybelieve he has. Neither this Agreement, the decision to enter into this Agreement, nor anythingdone pursuant to this Agreement shall be construed to be an admission or evidence of any wrongdoingor liability by the Company, such wrongdoing and liability being expressly denied. Nor will thisAgreement, its existence or its terms be admissible in any proceeding other than a proceeding toenforce the terms of this Agreement or as an affirmative defense to any attempt to breach it. Itis understood that the separation pay provided pursuant to this Agreement is for purposes ofamicably severing the employment relationship and forever resolving any disputed claims, actual orpotential, which Employee has or may believe he has.     16. Representations & Warranties By All Parties. Each of the parties represents andwarrants, as to himself, herself or itself that (a) he, she or it has the capacity, full power andauthority to enter into this Agreement, (b) the individual signing on behalf of the corporate partyis authorized to do so, (c) he, she or it has not assigned, encumbered or in any manner transferredall 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 anycourt, before any agency, or in any forum, and (e) no other person, party or corporation has anyright, title or interest in any of the claims covered by this Agreement.     17. Successors & Assigns. This Agreement shall be binding upon and inure to thebenefit 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 andwarrants that he has read this Agreement and understands all of its terms and executes thisAgreement voluntarily and without duress or undue influence, and with full knowledge of itssignificance, 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**theCompany and Releasees.     19. Opportunity To Consult Advisors. Both Employee and the Company have had reasonableopportunity to consult with attorneys or other advisors of their own choosing before executing thisAgreement.     20. Counterparts. This Agreement may be executed in counterparts, each of which maybe signed separately and may be enforceable as an original, but all of which together shallconstitute but one agreement.     21. Variation of Pronouns. All pronouns and variations thereof shall be deemed torefer 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 ofEmployee’s employment with the Company are such that Employee will have three months after theTermination Date to exercise his options to purchase the Company’s common stock, to the extentvested as of the Terminate Date, pursuant to Article XII, Section 2 of the Company’s 1996 StockOption 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 theirsignatures 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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