MANUFACTURING AGREEMENT

MANUFACTURING AGREEMENT





AGREEMENT dated as of the 6th day of April 1998 between WILLIAMS ELECTRONICS GAMES, INC. ("WEG"), a Delaware corporation, and MIDWAY GAMES INC. ("Midway"), a Delaware corporation, each with an address at 3401 North California Avenue, Chicago, Illinois 60618.





W I T N E S S E T H :



WHEREAS, on the date hereof, WMS Industries Inc. ("WMS") is distributing (the "Distribution") all of its shares of Midway's common stock to holders of the shares of WMS' common stock outstanding on March 31, 1998;



WHEREAS, prior to the Distribution, Midway has been a majority-owned subsidiary of WMS;



WHEREAS, the parties formerly provided for certain arrangements whereby WEG, an indirect, wholly-owned subsidiary of WMS, has been providing certain services to Midway and its subsidiaries (collectively, hereinafter, "Midway") pursuant to a Manufacturing and Services Agreement, dated as of July 1, 1996 (the "1996 Agreement"); and



WHEREAS, the parties desire to set forth the terms of continuing arrangements under which, following the Distribution, WEG shall continue to provide certain manufacturing and related services to Midway.



NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained and intending to be legally bound, the parties hereby agree as follows:



1. CERTAIN DEFINITIONS.

1.1 The following terms as used in this Agreement shall have the meanings set forth below:



1.1.1 "Common Parts" means those parts designated as such from time to time by Midway and usable by WEG in the manufacture of any of WEG's products.









1.1.2 "Unique Parts" means video terminals, CPU boards, cabinets and the other parts designated as such from time to time by Midway.



1.2 Unless the context otherwise requires



1.2.1 Words used in the singular include the plural and words used in the plural include the singular;



1.2.2 "including" means including without limitation; and



1.2.3 "herein", "hereto" and "hereunder" shall refer to this Agreement as a whole and not to any particular paragraph or section.



2. EFFECTIVE DATE AND TERM; TERMINATION OF THE 1996 AGREEMENT. This Agreement is effective as of April 6, 1998 and shall continue in effect for a period of three years and for successive renewal periods of six months each; provided, however, that this Agreement may be terminated by either party for any reason upon six months' prior written notice or otherwise earlier terminated pursuant to Section 10 hereof. This Agreement supersedes the 1996 Agreement, which is hereby terminated.



3. COOPERATION. Each of WEG and Midway shall cooperate with the other to develop an even flow of production and to otherwise effectuate this Agreement in a manner which will minimize layoffs, rehiring, training and line switching and which will generally minimize costs and expenses with respect to activities at WEG's facilities located Waukegan, Illinois (the "Waukegan plant").



4. MANUFACTURING OF COIN-OPERATED VIDEO GAMES.

4.1 Coin-operated video games and kits shall be assembled for Midway by WEG at the Waukegan plant. Midway shall give WEG purchase orders specifying a delivery schedule. Within three business days of its receipt of a purchase order, WEG shall either confirm the delivery schedule or offer an alternative schedule, which Midway may reject. The parties shall review all open purchase orders weekly to adjust delivery schedules to permit orderly production















scheduling.



4.2 Midway may use other sources of manufacture if WEG is unable or unwilling to meet requested delivery schedules and specifications, industry standards of quality or competing bona fide quotes.



4.3 WEG shall allocate 65% of its combined production and storeroom square footage at the Waukegan plant in order to perform its obligations hereunder. Every six months, the parties shall review the percentage allocation and, if both parties agree, the percentage to be used with respect to Midway shall be increased or decreased.



5. INDUSTRIAL ENGINEERING AND ENGINEERING SUPPORT.

5.1 Midway shall conduct its own design and engineering of coin-operated video games, including programming, graphic design, electrical engineering, sound engineering and model shop engineering. Midway shall supply to WEG all designs, artwork, parts lists, blueprints, software and other intellectual property needed to manufacture the coin-operated video games.



5.2 Certain production engineering activities, such as designing the process required for the assembly of each game, creating work station profiles and quality control of incoming parts and the assembly process shall be provided to Midway by WEG. The costs of these development activities for the benefit of Midway conducted by WEG employees shall be charged to Midway pursuant to Section 8 hereof.



5.3 Midway engineers shall generate any engineering change notices ("ECNs") necessary for the modification of the video games and shall be responsible for communicating these changes to the WEG scheduling managers and materials planners.



5.4 Notwithstanding anything to the contrary herein, WEG shall bear the cost of reworking products to the extent that such rework is caused by manufacturing process errors of WEG. Midway, on the other hand, shall pay the cost of resources used by WEG to comply with ECNs or otherwise to accommodate manufacturing process or schedule changes requested by Midway.















6. PURCHASING, WAREHOUSING AND INVENTORY INSPECTIONS.

6.1 Common Parts shall be purchased by WEG and delivered to the Waukegan plant on time to meet the schedules set forth in the Midway purchase orders, confirmed by WEG. Unique Parts shall be purchased by Midway and delivered at Midway's cost to the Waukegan plant on time to meet the schedules set forth in the purchase orders. If Midway changes the designation of a Common Part to a Unique Part, WEG may require Midway to purchase the inventory of such part at WEG's cost.



6.2 When parts shipments arrive at the Waukegan plant, parts shall be counted and inspected by WEG on a test basis to ensure that the right number and quality of parts have been delivered to the plant. WEG shall receive and warehouse Common Parts and Unique Parts and shall be responsible for tracking such materials through the completion of assembly. Title to the assembled video games shall pass to Midway upon the completion of assembly. Midway shall arrange for warehousing of finished goods promptly after completion. In the event that Midway and WEG agree that WEG shal ...