SEPARATION, CONSULTING AND NON-COMPETITION AGREEMENT

Exhibit 10.1

SEPARATION, CONSULTING AND NON-COMPETITION AGREEMENT

     This SEPARATION, CONSULTING AND NON-COMPETITION AGREEMENT (the “Agreement”) is made and entered into on the 16th day of June, 2008, by and between GREAT WOLF RESORTS, INC., a Delaware corporation (the “Company”), and HERNAN MARTINEZ (the “Executive”).

RECITALS:

     WHEREAS, the Company and the Executive are parties to an Employment Agreement dated June 28, 2005 (the “Employment Agreement”); and

     WHEREAS, the Executive plans to tender his resignation as an officer and employee of the Company, and the Company plans to accept such resignation effective as of the date specified herein; and

     WHEREAS, the Company and the Executive desire to memorialize the terms of the Executive’s termination of employment in this Agreement and completely resolve all matters arising out of the Executive’s employment with the Company or the termination of that employment, as well as all matters arising out of or related to the Employment Agreement.

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

     1. Termination of the Employment Agreement; Resignation as an Officer and Termination of Employment. The Executive and the Company hereby agree that, effective July 15, 2008 (the “Separation Date”), the Employment Agreement shall be terminated, revoked and rescinded, and all rights and obligations either party has or may be entitled to under the Employment Agreement shall be null and void. The Executive and the Company agree further that the Executive’s status as an officer and employee of the Company shall terminate as of the Separation Date.

     2. Consulting Services and Ongoing Cooperation. After the Separation Date, the Executive agrees to use his reasonable efforts to assist, advise and cooperate with the Company if the Company so requests on issues that arose or were in any way developing during his employment with the Company, subject to the Executive’s availability given his employment obligations, if any, at that time. The Executive will provide such assistance, advice and cooperation on an occasional basis without compensation in excess of that set forth in Section 4(a)(i) of this Agreement. Commencing on the Separation Date and continuing through December 31, 2008, or such earlier date on which the Executive delivers a notice stating that he is no longer available for consulting services (the “Services Termination Notice”), from time-to-time, upon written request from the Company (an “Additional Services Notice”), the Executive shall, if the Executive is available and is so willing, furnish such assistance, advice or cooperation on a continuing or regular basis (“Additional Services”) to the Company as is within the Executive’s reasonable capability and availability, up to and including fifty percent (50%) of

his time during the Company’s normal business hours. Such assistance, advice and cooperation may include, but shall not be limited to the preparation for, or the conduct of, any litigation, investigation or proceeding involving matters or events which occurred during the Executive’s employment by the Company as to which the Executive’s knowledge or testimony may be important to the Company. In connection with the preparation for, or the conduct of such litigation, investigation or proceeding as described in the preceding sentence, the Executive shall promptly provide the Company with any records or other materials in his possession that the Company shall request in connection with the defense or prosecution of such litigation, investigation or proceeding. The Executive shall cease providing Additional Services to the Company upon receipt of written notice (a “Cessation Notice”) from the Company that the Additional Services are no longer required. The Company shall pay or reimburse the Executive for his travel expenses reasonably incurred in the course of providing such Additional Services. The Company shall make such payment or reimbursement within thirty (30) days of receipt of reasonable substantiating documentation from the Executive but in no event later than the end of the calendar year following the year in which such expenses were incurred. The Company acknowledges that the Executive may be unavailable to provide Additional Services for substantial periods from time to time, including during a four-week vacation planned for September, 2008, or may be unwilling to provide Additional Services from time to time or at all times after the Separation Date.

     3. Covenants by the Executive.

          a. Trade Secrets

          (i) General. The Executive agrees that the Executive will hold in a fiduciary capacity for the benefit of the Company and each of its affiliates, and will not directly or indirectly use or disclose to any person not authorized by the Company, any Trade Secret (as defined in Section 3(a)(ii)) of the Company or its affiliates that Executive may have acquired (whether or not developed or compiled by Executive and whether or not Executive is authorized to have access to such information) during the term of, and in the course of, or as a result of Executive’s employment by the Company or its affiliates for so long as such information remains a Trade Secret.

          (ii) Trade Secret. The term “Trade Secret” for purposes of this Employment Agreement means information, including, but not limited to, technical or nontechnical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans, or a list of actual or potential customers or suppliers that (a) derives economic value, actual or potential, from not being generally known to, and not being generally readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use and (b) is the subject of reasonable efforts by the Company and its affiliates to maintain its secrecy.

          (iii) Additional Rights. This Section 3(a) is intended to provide rights to the Company and its affiliates which are in addition to, not in lieu of, those rights the

Company and its affiliates have under the common law or applicable statutes for the protection of trade secrets.

          b. Confidential Information.

          (i) General. The Executive during the Restricted Period (as defined in Section 3(c)) shall hold in a fiduciary capacity for the benefit of the Company and its affiliates, and shall not directly or indirectly use or disclose to any person not authorized by the Company, any Confidential Information (as defined in Section 3(b)(ii)) of the Company or its affiliates that the Executive may have acquired (whether or not developed or compiled by the Executive and whether or not the Executive is authorized to have access to such information) during the term of, and in the course of, or as a result of the Executive’s employment by the Company or its affiliates.

          (ii) Confidential Information. The term “Confidential Information” for purposes of this Agreement means any secret, confidential or proprietary information possessed by the Company or its affiliates relating to their businesses, including, without limitation, customer lists, details of client or consultant contracts, current and anticipated customer requirements, pricing policies, price lists, market studies, business plans, operational methods, marketing plans or strategies, product development techniques or flaws, computer software programs (including object codes and source codes), data and documentation, base technologies, systems, structures and architectures, inventions and ideas, past, current and planned research and development, compilations, devices, methods, techniques, processes, future business plans, licensing strategies, advertising campaigns, financial information and data, business acquisition plans and new personnel acquisition plans (not otherwise included in the definition of a Trade Secret under this Agreement) that has not become generally available to the public by the act of one who has the right to disclose such information without violating any right of the Company or its affiliates.

          (iii) Additional Rights. This Section 3(b) is intended to provide rights to the Company and its affiliates which are in addition to, not in lieu of, those rights the Company and its affiliates have under the common law or applicable statutes for the protection of confidential information.

          c. Restricted Period. The term “Restricted Period” for purposes of this Agreement shall mean the one-year period following the Separation Date.

          d. Nonsolicitation of Customers or Employees.

          (i) Customers. During the Restricted Period, the Executive shall not, on the Executive’s own behalf or on behalf of any person, firm partnership, association, corporation or business organization, entity or enterprise, call on or solicit for the purpose of competing with the Company or its affiliates any customers of the Company or its affiliates with whom the Executive had contact, knowledge, or association at any time

during the twelve (12) month period immediately preceding the beginning of the Restricted Period.

          (ii) Employees. During the Restricted Period, the Executive shall not, either directly or indirectly, call on, solicit or attempt to induce any other officer, employee or independent contractor of the Company or its affiliates with whom the Executive had contact, knowledge of, or association at any time during the twelve (12) month period immediately preceding the beginning of the Restricted Period, to terminate his or her employment or business relationship with the Company or its or its affiliates and shall not assist any other person or entity in such a solicitation.

          e. Non-Compete. The Executive and the Company agree that (i) the Company is engaged in the family entertainment resort business featuring indoor waterparks, which shall be referred to as the “Business,” (ii) the Business can be conducted anywhere, (iii) the Business can be and is available to any person or entity with access to sufficient capital, (iv) the Business consequently has no geographic boundary or limitation, (v) the Executive is, and has been during the term of his employment with the Company, intimately involved in the Business wherever it operates, and (vi) this Section 3(e) is intended to provide fair and reasonable protection to the Company in light of the unique circumstances of the Business. The Executive therefore agrees that Executive shall not for the one (1) year period which starts on the Separation Date compete with the Company within fifty (50) miles of a location where the Company conducts its Business or is planning to conduct its Business; provided, however, the Executive may own up to five percent (5%) of the stock of a publicly traded company that engages in such competitive business so long as the Executive is only a passive investor and is not actively involved in such company in any way.

          f. Reasonable and Continuing Obligations. The Executive agrees that the Executive’s obligations under this Section 3 are obligations which will continue beyond the date the Executive’s employment terminates and that such obligations are reasonable and necessary to protect the Company’s legitimate business interests. The Company in addition shall have the right to take such other action as the Company deems necessary or appropriate to compel compliance with the provisions of this Section 3.

          g. Remedy for Breach. The Executive agrees that the remedies at law of the Company for any actual or threatened breach by the Executive of the covenants in this Section 3 would be inadequate and that the Company shall be entitled to specific performance of the covenants in this Section 3, including entry of an ex parte, temporary restraining order in state or federal court, preliminary and permanent injunctive relief against activities in violation of this Section 3, or both, or other appropriate judicial remedy, writ or order, in addition to any damages and legal expenses which the Company may be legally entitled to recover. The Executive acknowledges and agrees that the covenants in this Section 3 shall be construed as agreements independent of any other provision of this or any other agreement between the Company and the Executive, and that the existence of any claim or cause of action by the Executive against the Company, whether predicated upon the Employment Agreement, this Agreement or any other agreement, shall not constitute a defense to the enforcement by the Company of such covenants.

     4. Consideration.

          a. In consideration of the execution and performance of this Agreement by the Executive, and subject to the remaining provisions of this Section 4, the Executive will receive from the Company the following severance payments and benefits:

          i. The Company shall pay to the Executive the sum of $432,500.00, payable in a lump sum within five days of expiration of the 7-day revocation period referred to in Section 6 hereof.

          ii. From and after the Separation Date, commencing on the date specified in each Additional Services Notice, and prior to the date specified in the related Cessation Notice, the Company shall pay to the Executive the sum of $26,650.00 for each one-month period that Executive is performing consulting services as set forth in Section 2 of this Agreement, prorated for each partial month, payable monthly, in arrears, no later than ten (10) days after the end of each such month or partial month.

      &