Document:

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Exhibit 10.1

CONFIDENTIAL SETTLEMENT AGREEMENT AND GENERAL RELEASE

     This Confidential Settlement Agreement and General Release is made and entered into on this
21st day of July 2006 (the “Effective Date”), by and between Carl J. Landeck, on behalf of himself,
his heirs, executors, administrators, successors and/or assigns (hereinafter collectively referred
to as “LANDECK”), and Bally Total Fitness Holding Corporation, on behalf of itself, its
subsidiaries, affiliates, predecessors, insurers, attorneys, successors, assigns; and their
directors, officers, employees, and agents (hereinafter collectively referred to as the “COMPANY”
or “BALLY”).

     WHEREAS, LANDECK was employed by the COMPANY under the title of Senior Vice President and
Chief Financial Officer of BALLY between March 26, 2005 and April 13, 2006; and

     WHEREAS, LANDECK and the COMPANY entered into an Employment Agreement dated March 28, 2005
(attached hereto as Exhibit A); and

     WHEREAS, LANDECK’S employment with the COMPANY terminated on April 13, 2006 (the “Termination
Date”); and

     NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, it is
agreed as follows:

Payment to LANDECK

     1. The COMPANY shall pay LANDECK the lump sum of Seven Hundred Thousand Dollars ($700,000) in
severance, less required deductions for state and federal withholding, to LANDECK on or about the first business day following the passage of six (6)
months from the Termination Date (i.e. on or about October 16, 2006).

 

 

     2. The COMPANY shall pay LANDECK an additional lump sum amount of Fifteen Thousand Dollars
($15,000) to cover the cost of various health insurance premium payments under the Consolidated
Omnibus Budget Reconciliation Act (“COBRA”), which shall be provided to LANDECK on or about the
first business day following the passage of six (6) months from the Termination Date (i.e. on or
about October 16, 2006).

     3. Upon execution of this Agreement, LANDECK shall immediately vest in all equity positions
with the exception of 23,000 options granted on November 29, 2005 at the strike price of $7.01.
This includes immediate vesting of all non-qualified stock options (with the exception of the
23,000 options granted on November 29, 2005 at the strike price of $7.01) and the tendering of all
restricted stock with all restrictions removed so that LANDECK may sell such stock immediately,
subject only to those restrictions imposed by law. LANDECK’S exercise period for all option
positions shall be extended to ninety (90) days following the Termination Date, and further
extended an additional ninety (90) days until October 10, 2006.

     4. The COMPANY shall pay LANDECK’s legal fees relating to the negotiations leading up to this
Agreement up to a maximum of Twenty Thousand Dollars ($20,000.00), as rendered and invoiced by the
law firm of McMoran, O’Connor & Bramley, and supported by documentation of the applicable fees and
amount of time spent on all applicable dates. Such fees shall be paid directly to the law firm on
or about the first business day following the passage of six (6) months from the Termination Date
(i.e. on or about October 16, 2006), it being understood that an IRS 1099 form relating to such
payment shall be issued to both Landeck and the law firm.

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Release to the COMPANY

     5. In exchange for the consideration provided pursuant to this Agreement, LANDECK hereby
releases the COMPANY and any and all of its predecessors, successors, parents, affiliates and
subsidiaries, and its or their present and former officers, directors, agent, employees, and
shareholders, and the various benefit plans, committees, trustees, fiduciaries, and trusts from any
and all claims or causes of action he may have or claim to have against the COMPANY including any
claims arising out of or relating in any way to his employment with the COMPANY and/or the
termination of that employment. The claims released include, but are not limited to: (a) all
statutory claims including claims arising under the New York Human Rights Law, N.Y. Exec. Law §
290, et seq., the New York City Human Rights Law, the New York City Administrative Code § 8-101, et
seq., the New York State Labor Law, the Illinois Revised Statutes, the Illinois Human Rights Act,
Illinois Public Act, Title VII of the Civil Rights Act of 1964, the Age Discrimination in
Employment Act, the Americans with Disabilities Act, the Rehabilitation Act, the Employee
Retirement Income Security Act, the Uniformed Services Employment and Reemployment Rights Act of
1994, the Sarbanes-Oxley Act of 2002, and the Family and Medical Leave Act; (b) all claims arising
under the United States, New York, or Illinois Constitutions, or any Executive Order, or derived
from or based upon any federal or state regulations; (c) all common law claims including claims for
wrongful discharge, violation of public policy, breach of an express or implied contract, breach of
an implied covenant of good faith and fair dealing, negligent or intentional infliction of
emotional distress, defamation, conspiracy, tortuous interference with contract or prospective
economic advantage, promissory estoppel, equitable estoppel, fraud, misrepresentations, detrimental reliance, retaliation,
and negligence; (d) all claims for any compensation including back wages, front pay, bonuses or

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awards, commissions, fringe benefits, car allowance, car expenses, disability benefits, severance
benefits, reinstatements, retroactive seniority, pension benefits, profit-sharing, contributions to
401(k) plans, or any other form of economic loss; (e) all claims for personal injury, including
physical injury, mental anguish, emotional distress, pain and suffering, embarrassment,
humiliation, damage to name or reputation, interest, liquidated damages, and punitive damages; and
(f) all claims for costs and attorneys’ fees.

     Notwithstanding the foregoing, nothing in this Paragraph 5 is intended, nor shall be
construed, to release any future claims arising after the date of execution of this Agreement or to
limit any existing right or vested benefits which LANDECK may possess in accordance with the terms
of any of the COMPANY’S welfare benefit plans or pension plans in which LANDECK is a participant.

     LANDECK further represents that he will not provide information concerning the COMPANY or his
employment at the COMPANY to any person involved in any threatened or actual claims against the
COMPANY. Further, except concerning any Securities and Exchange Commission or Department of
Justice proceeding, LANDECK will not testify in any proceedings or participate in any manner in
proceedings against the COMPANY absent a lawful subpoena and will not testify concerning the terms
of this Agreement, including the negotiations leading up to this Agreement, absent a court order
compelling such testimony. LANDECK further agrees to notify the COMPANY, through Bally’s General
Counsel, that he is served with any subpoena relating to his employment at the COMPANY.

No Other Charges or Complaints

     6. The COMPANY represents that as of the Effective Date it has no knowledge of any grounds on
which to file any complaint, charge or lawsuit against LANDECK with any

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government agency or any court, and that it has not filed any complaint, charge or lawsuit against LANDECK with any
government agency or any court. The COMPANY further represents that it will not do so at any time
hereafter in connection with any known claims based on any event preceding the execution of this
Agreement, including any claim related to LANDECK’s employment, termination or association with the
COMPANY.

Indemnification

     7. LANDECK shall be indemnified in accordance with the COMPANY’s charter and by-laws.

Non-Disparagement

     8. LANDECK agrees not to make any statements to, or engage in any conduct in the presence of:
(i) any media (broadcast, print or internet); (ii) any current or former employees of the COMPANY;
or (iii) any current, former or prospective Company customer, business associate, vendor,
consultant, financial institution, accountant, investor, shareholder, bondholder, investment banker
or any other person or entity, if such statement or conduct may reasonably be expected to have the
effect of disparaging the COMPANY or its current or former directors, officers or employees..
Notwithstanding the foregoing, nothing in this Section shall prohibit LANDECK from making truthful
statements when required by order of a court or other governmental body having jurisdiction.

     9. The COMPANY further agrees that no officer or director shall make any statement or engage
in any conduct in the presence of any third party, if such conduct may reasonably be expected to
have the effect of disparaging LANDECK. Notwithstanding the foregoing, nothing in this Section shall prohibit the COMPANY from making any truthful
statements when required by order of a court or other governmental body having jurisdiction.

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Non-Admission of Liability

     10. This Settlement Agreement and General Release shall not constitute and shall not be
considered an admission or acknowledgment of any wrongdoing or liability by LANDECK and/or the
COMPANY, the same being expressly denied.

Non Disclosure

     11. Unless the COMPANY publicly discloses the terms of this Agreement, LANDECK agrees that the
existence, terms and content of this General Release and Settlement Agreement shall be and remain
confidential and shall not be disclosed to any other person, corporation or organization, except:
(i) members of LANDECK’s immediate family, and LANDECK’s accountant(s) and attorney(s) (all of
whom shall be directed to refrain from disclosing the existence, terms and content of this
Agreement); (ii) the Internal Revenue Service and/or applicable state agency, and any applicable
courts or administrative agencies as necessary in connection with tax returns, tax audits or other
requests for information from such agencies; or (iii) as required by law or the rules and
regulations of the Securities and Exchange Commission in connection with that agency’s inquiries
into actions by the COMPANY or LANDECK. LANDECK represents to the COMPANY that to date he has not
disclosed the terms or content of this General Release and Settlement Agreement to any other
person. LANDECK shall be liable for any breach to the extent of any damages proven and/or
sustained by BALLY, and BALLY further shall be entitled to injunctive relief based on any breach of
this provision, it being understood and agreed that the COMPANY may seek to proceed to expedited
arbitration based on an alleged breach of this provision.

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No Other Consideration

     12. LANDECK and the COMPANY agree that the only consideration they have received for executing
this Agreement is the consideration set forth herein; that no promise, inducement, threat,
agreement or understanding of any kind or description has been made with them or to them or their
attorneys to cause them to enter into this Agreement other than as expressly set forth herein; and
that they neither are entitled to nor will seek any further or additional consideration.

Delay in Payments Under Agreement

     13. Any payments due LANDECK under this Agreement which are not made in a timely manner within
ten (10) days of any due date in this Agreement shall accrue interest at a rate of prime plus 3%,
prime being determined at the prime interest reported in The Wall Street Journal on the date the
payments were first due.

Breach and/or Enforcement of Agreement

     14. Any disputes relating to enforcement and/or breach of this Agreement shall be resolved
through binding arbitration held in Chicago, Illinois, in accordance with the rules of the American
Arbitration Association and the prevailing party shall be entitled to costs and reasonable
attorneys’ fees based on the action.

Cooperation

     15. LANDECK will assist and cooperate with the COMPANY in connection with the defense or
prosecution of any claims made against or by the COMPANY or in connection with any ongoing or
future investigation or dispute or claim of any kind involving the COMPANY, including any
proceeding before any arbitral, administrative, judicial, legislative, or other body or agency,
including testifying in any proceeding to the extent that the COMPANY believes that

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LANDECK’S testimony is relevant to the proceeding. LANDECK will also perform all acts and
execute and deliver any documents that may be reasonably necessary to carry out the provisions of
this Paragraph. In seeking LANDECK’S cooperation and assistance, the COMPANY will reasonably
accommodate his other personal and business obligations and responsibilities. In addition, subject
to the COMPANY’S prior authorization not to be unreasonably withheld, the COMPANY will reimburse
LANDECK for reasonable out-of-pocket expenses he incurs while fulfilling his responsibilities under
this Paragraph 16, including any costs associated with legal representation.

Voluntary Agreement

     16. The parties have carefully read and fully understand all the provisions of this Agreement.
The parties are voluntarily executing this Agreement. The parties acknowledge that they have had
the opportunity to obtain the advice of counsel, that they have done so to the extent desired, and
that they have had sufficient time to consider the Agreement and its ramifications without coercion
or intimidation before executing it.

Entire Agreement

     17. This Agreement contains the entire understanding of the parties and shall supersede all
other oral or written agreements or understandings between the parties, including but not limited
to, the March 28, 2005 Employment Agreement, as amended (“Employment Agreement”) with the exception
of Section 5(a)(i) and (iii) and 5(b) of the Employment Agreement, the terms of which are
incorporated herein. This Agreement shall not be modified, altered or changed except upon the
express written consent of the parties hereto. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respect heirs, legatees, representatives, successors,
and assigns. No party may assign this Agreement or

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any of the rights or obligations hereunder, in whole or in part, without the written consent
of the parties.

Non-Assignment

     18. Each of the parties to this Agreement warrants that such party has not assigned, conveyed
or transferred any claim, right or cause of action of any kind that the party has or may have in
connection with, relating to or arising out of any fact, allegation or matter which was or could
have been raised or settled in this Agreement.

Construction

     19. Each party to this Agreement has cooperated in the preparation of this Agreement. Hence,
this Agreement shall not be construed against any party on the basis that the party was the
draftsperson.

Effectuation

     20. Each of the parties to this Agreement agrees to execute any and all additional documents
necessary to effectuate the intent and purpose of this Agreement.

Binding Agreement

     21. This Agreement shall be binding upon and inure to the benefit of each of the parties to
this Agreement and the heirs, executors, conservators, attorneys, administrators, successors and
assigns of each of such parties. Each of the parties to this Agreement represents and warrants
that the party’s own execution and performance of this Agreement does not violate any agreement,
court order or other covenant or restriction binding upon that party.

Choice of Law

     22. This Agreement shall be interpreted in accordance with the laws of the State of Illinois.

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Severability

     23. If any provision of this agreement is held to be illegal, void, or unenforceable, such
provision shall be of no force or effect. However, the illegality or unenforceability of such
provision shall have no effect upon, and shall not impair the legality or enforceability of, any
other provision of this Agreement. Notwithstanding the foregoing, LANDECK agrees that he shall not
at any time attempt to challenge the enforceability of the release, as set forth in Section 5 of
this Agreement, or any other portion of this Agreement. The waiver by any party of a breach or
violation of this Agreement shall not operate as, or be construed to be, a waiver of any subsequent
or continuing breach thereof.

Compliance with Section 409A

     24. It is intended that any amounts payable under this Agreement will comply with Section 409A
of the Internal Revenue Code of 1986, as amended (the “Code”), and treasury regulations relating
thereto, so as not to subject LANDECK to the payment of any tax penalty or interest which may be
imposed under Section 409A of the Code (“409A Penalties”), and the Agreement shall be interpreted
in accordance with such intent. In the event the COMPANY and LANDECK determine that this Agreement
would subject LANDECK to 409A Penalties, the COMPANY and LANDECK shall cooperate in all reasonable
respects to amend the terms of the Agreement, in accordance with Paragraph 15 hereof, to avoid such
409A Penalties insofar as possible, while preserving the intended benefits provided under this
Agreement, except that LANDECK shall be solely and exclusively responsible for any 409A Penalties.

Compliance With Older Workers’ Benefit Protection Act

     25. LANDECK shall have twenty-one (21) days in which to review this Agreement and have it
reviewed by an attorney, it being understood that, at his option, LANDECK shall

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have the right to execute the Agreement prior to that date. It is also understood and agreed
that LANDECK shall be bound by the Agreement if not revoked within seven (7) days after execution
of the Agreement. LANDECK understands and agrees that he is being provided with consideration
greater than that to which he is entitled, and it is further understood and agreed that, by this
Agreement, neither LANDECK nor the COMPANY is waiving any rights that may arise after entering into
this Agreement. LANDECK also has been advised of his right to consult with legal counsel prior to
executing a copy of this Agreement.

     LANDECK AND THE COMPANY REPRESENT THAT THEY HAVE CAREFULLY READ AND FULLY UNDERSTAND ALL OF
THE PROVISIONS OF THIS AGREEMENT, THAT THEY HAVE HAD SUFFICIENT OPPORTUNITY TO REVIEW AND DISCUSS
THIS AGREEMENT WITH AN ATTORNEY; THAT THEY HAVE BEEN GIVEN A REASONABLE PERIOD OF TIME WITHIN WHICH
TO CONSIDER THE AGREEMENT BEFORE SIGNING IT; AND THAT THEY ARE VOLUNTARILY SIGNING THE AGREEMENT
WITHOUT ANY DURESS OR COERCION.

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     IN WITNESS WHEREOF, the parties have executed this Confidential Settlement Agreement and
General Release on the date first above written.

	 	 	 	 	 
	/s/ Carl J. Landeck	 	 	Date: July 21, 2006
	 
	 	 	 	 
	CARL J. LANDECK
	 	 	 	 
	 
	 	 	 	 
	BALLY TOTAL FITNESS HOLDING CORPORATION
	 	 	 	 
	 
	 	 	 	 
	By:  
	 /s/ Harold Morgan

	 	 	Date: August 1, 2006
	 	 
	 	 	 
	 	 Harold Morgan	 	 	 

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EXHIBIT 10.1

Summary of Managing Director 2006 Incentive Compensation Plan

	•	 	Each Managing Director is eligible to receive 7% base override on the new business
generation compensation paid to officers of the Managing Director’s region.

	•	 	Each Managing Director is eligible to receive 20% additional override on the new
business generation compensation paid to the officers of the Managing Director’s region for
certain types of transactions.

	•	 	Compensation will be paid 60% cash and 40% restricted stock. Restricted stock will vest
ratably over 3 years and be denominated based on a price to be determined senior management
with the approval of the Compensation Committee. There will be no
pre-set limit on the amount of
Managing Director incentive compensation.

	•	 	Losses from comparable transactions will offset gains for the purpose of determining
compensation payable.

	•	 	Payment of incentive compensation will take place annually, in conjunction with
incentive compensation paid to executive management.

	•	 	Additional incentive compensation of up to $75,000 for each category ($300,000 in the
aggregate) is payable based upon 1) a Managing Director’s cities within his region
generating minimum profits from new business generation transactions
and minimum volumes of acquisition, development and certain targeted transactions
during a calendar year; 2) a
Managing Director’s region generating a minimum acquisition/re-development volume during a
calendar year; 3) a Managing Director’s region generating a minimum dollar volume of
development starts and developments in-service during the calendar year; and 4) a Managing
Director meeting sales leadership responsibilities in certain areas.

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