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                                                                    EXHIBIT 10.1

October 14, 2005

Dina Alhadeff
2561 Shoreland Drive South
Seattle, WA  98144

Dear Dina:

This letter memorializes the parties' agreement, reached on September 8, 2005,
and amended on September 28, 2005, which is set forth below. Although Celebrate
Express, Inc. ("Company") has no obligation to provide you with any kind of
severance package, the Company has agreed to assist you with your transition to
new employment. This letter sets forth the terms of the Separation Agreement
(the "Agreement") that the parties have reached.

      1. SEPARATION. Your last day of work with the Company and your employment
termination date was July 22, 2005 (the "Separation Date"). You agree to resign
from any officer position(s) you currently hold.

      2. ACCRUED SALARY, PAID TIME OFF. The Company has paid you all accrued
salary, all accrued and unused vacation earned through the Separation Date,
subject to standard payroll deductions and withholdings. You are entitled to
these payments regardless of whether or not you sign this Agreement.

      3. VESTED STOCK OPTIONS. You were granted on January 22, 2004 an Incentive
Stock Option under the Company's 2004 Equity Incentive Plan (the "Plan") to
purchase up to 29,802 shares of the Company's Common Stock (the "Option"). As of
the Separation Date, 9,313 of the shares subject to the Option were vested and
are exercisable (the "Vested Shares"). Pursuant to the terms of the Option, you
are entitled to exercise the Vested Shares within three (3) months after the
Separation Date.

      4. SEVERANCE. In consideration for the promises set forth in this
Agreement, including but not limited to those described in paragraphs 9-11, and
15-16 and 18-19, below, and although the Company has no policy or procedure for
providing severance benefits, the Company will pay you One Hundred Fifty
Thousand Dollars ($150,000.00), subject to standard payroll deductions and
withholdings. This amount will be paid by wire into the trust account of Ryan
Swanson & Cleveland, upon execution of this signed Agreement. The funds shall be
released to you on the 8th day after execution of the Agreement, if no
revocation occurs. In addition, on the 8th day after execution of the Agreement,
if no revocation occurs, the Company agrees to pay legal fees incurred from the
Separation Date to the date of execution of this Agreement in the amount of
$10,016.35. In the event of the failure of the Company to make such payments
when due you shall have the right to either declare this Agreement null and void
or sue for specific performance. You agree to cause your attorneys to provide a
summary of the time expended with all descriptions of the work performed
deleted.

      5. PROSPECTIVE EMPLOYMENT INQUIRIES. You acknowledge and agree that you
will direct all prospective employment inquiries to Kate Terhaar, Director of
Administration & Human

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Dina Alhadeff
Page 2

Resources, 425-250-1008. The Company will respond to prospective employment
inquiries by only providing your date of hire, your rate of pay, and the
position(s) that you held.

      6. OTHER COMPENSATION OR BENEFITS. You acknowledge that, except as
expressly provided in this Agreement, you will not receive any additional
compensation, severance or benefits after the Separation Date.

      7. EXPENSE REIMBURSEMENTS. You represent and warrant that you have
submitted all documented business expenses you incurred through the Separation
Date, and that the Company has reimbursed you for these expenses pursuant to its
regular business practice.

      8. RETURN OF COMPANY PROPERTY. You further represent and warrant that you
have returned to the Company all Company documents (and all copies thereof) and
other Company property that you have had in your possession at any time,
including, but not limited to, Company files, notes, drawings, records, business
plans and forecasts, financial information, specifications, computer-recorded
information, tangible property, credit cards, entry cards, identification badges
and keys; and, any materials of any kind that contain or embody any proprietary
or confidential information of the Company (and all reproductions thereof).

      9. PROPRIETARY INFORMATION OBLIGATIONS. Both during and after your
employment you acknowledge your continuing obligations under your Employee
Proprietary Information Agreement not to use or disclose any confidential or
proprietary information of the Company without prior written authorization from
a duly authorized representative of the Company. A copy of your Employee
Proprietary Information Agreement is attached hereto as Exhibit A.

      10. COVENANT NOT TO COMPETE. You agree that for thirteen (13) months after
the Separation Date you will not directly or indirectly, whether as employee,
officer, director, independent contractor, consultant, financing source, agent,
stockholder, partner, member or otherwise, engage or assist others to solicit,
assist, advise, or induce any individual or entity to end their relationship
with Company, except employees whom you, Lori Liddle or Amy Grealish brought
over from your or their, as the case may be, former employment. Nor will you
engage in or have any interest in or enter into any relationship with any
company, business, or business activity which is a competitor or is in
competition with the products and services, manufactured or sold by the Company
in any geographic area in which the Company markets or has marketed its products
or services. A "competitor" means any company or business that is in the
Children's Birthday Party market. This will not preclude you from renting
mailing lists except for use in the children's birthday party market.

      11. NON-DISPARAGEMENT. Both you and the Company agree not to disparage or
make any statements, reports or claims concerning the other party, and the other
party's officers, directors, employees, shareholders and agents, in any manner
likely to be harmful to them or their business, business reputation or personal
reputation; provided that both you and the Company will respond accurately and
fully to any question, inquiry or request for information when required by legal
process, and will cooperate fully with any federal or state law enforcement
agencies.

      12. INJUNCTIVE RELIEF. You acknowledge that a breach of paragraphs 9 or 10
will cause irreparable injury and damage to the Company. In the event of such
breach, the Company shall be

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Dina Alhadeff
Page 3

entitled to a preliminary restraining order and injunctive relief, without the
necessity of posting a bond, in addition to all other rights and remedies the
Company may have at law or in equity.

      13. LIQUIDATED DAMAGES. You further acknowledge that the harm caused to
the Company by a breach of paragraphs 9 or 10 may be difficult or impossible to
enumerate, you agree to pay Company $5,000.00 in liquidated damages, per
violation. This in no way shall limit the amount of damages the Company can
recover in the event of a breach.

      14. CONTACT WITH COMPANY. Your point of contact for any post termination
discussions regarding your duties under this agreement or any other Celebrate
Express, Inc. matter shall only be through Kate Terhaar, Director of
Administration and Human Resources.

      15. PENDING LITIGATION. You have commenced a lawsuit entitled Lori Liddle,
Dina Alhadeff and Amy Grealish vs. Celebrate Express, Inc., a Washington
Corporation, and Michael K. Jewell and Jan Jewell, husband and wife and the
marital community composed thereof, in the Superior Court of Washington for King
County ("Litigation"). You agree never to file this Litigation and if previously
filed, to dismiss the Litigation with prejudice simultaneous with your execution
of this Agreement.

      16. RELEASE OF ALL CLAIMS. The parties to this Agreement hereby mutually
release each other and the Additional Released Parties from all Released Claims.

            (1) "Released Claims" means any and all claims, demands, causes of
action, rights, liabilities, contract obligations, damages, attorneys' fees,
costs, torts, suits, debts, sums of money, accountings, bills, covenants,
controversies, agreements, promises, trespasses, extents and executions
whatsoever, at law or in equity or otherwise, whether direct or indirect, known
or unknown, which the releasing parties now own or hold, or have at any time
heretofore owned or held, or may in the future own or hold, against the persons
and entities he, she or it is releasing, or any of them, in any capacity, which
are or may be based upon any facts, acts, omissions, conduct, representations,
contracts, agreements, claims, events, causes or matters of any kind occurring
or existing at any time on or before the date of execution of this Agreement,
including, but not limited to claims or demands related to salary, wages,
bonuses, commissions, claims pursuant to any federal, state or local law,
severance pay, or any other form of compensation, claims or demands under the
federal Civil Rights Act of 1964, as amended; the federal Americans with
Disabilities Act of 1990; the federal Age Discrimination in Employment Act of
1967, as amended ("ADEA"); the Older Worker's Benefit Protection Act of 1990;
the Employee Retirement Income Security Act; the Fair Labor Standard Act; the
Washington Law Against Discrimination in Employment, as amended; tort law,
contract law, wrongful discharge, discrimination, retaliation, harassment,
fraud, defamation, emotional distress, breach of the implied covenant of good
faith and fair dealing, and any other claims and counterclaims which were or
could have been asserted in the Litigation.

            (2) Notwithstanding the foregoing, these releases shall not extend
to any claims for breach of this Agreement.

            (3) These releases extend to and inure to the benefit of the parties
hereto and the following Additional Released Parties: all of the parties' past
and present shareholders, officers,

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Dina Alhadeff
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directors, agents, employees, representatives, partners, attorneys, parent
companies, subsidiaries, affiliates, predecessors, successors, transferees,
heirs, assigns and related entities thereof, and all past and present
shareholders, officers, directors, agents, employees, representatives and
attorneys of any of said entities.

      17. INDEMNITY. As a former officer of the Company, you are entitled to
indemnification by the Company pursuant to Article V of the Company's Amended
and Restated Articles of Incorporation and Article 10 of the Company's Amended
and Restated Bylaws, excerpts of which are attached as Exhibits B and C. Nothing
in the Release shall be construed to impair, limit or restrict your rights as a
former officer of the Company to such indemnification, which for the purposes of
this Agreement shall be those indemnification rights as exist on the date
hereof.

      18. NO OTHER CHARGES/COMPLAINTS. By signing this Agreement, you represent
that you do not currently have any charges pending relating to the Company
before any administrative body including the Office of Safety and Health
Administration ("OSHA"), the Equal Employment Opportunity Commission ("EEOC"),
or any equivalent state or local agency, and you agree to withdraw any claim or
charge previously filed that is pending, in writing, within three days of
signing this Agreement. Further, you agree to waive any recovery for damages
recovered by any governmental entity, including OSHA and the EEOC, for any
complaint or charge that was filed or that may be brought on your behalf.

      19. NO REHIRE. You will not seek or accept employment with the Company in
the future, and should you attempt to seek such re-employment, the Company may
reject your application or terminate your employment, without recourse.

      20. ADEA WAIVER. You acknowledge that you are knowingly and voluntarily
waiving and releasing any rights you may have under the ADEA, as amended. You
also acknowledge that the consideration given for the waiver and release in the
preceding paragraph hereof is in addition to anything of value to which you were
already entitled. You further acknowledge that you have been advised by this
writing, as required by the ADEA, that: (a) your waiver and release do not apply
to any rights or claims that may arise after the execution date of this
Agreement; (b) you have been advised hereby that you have the right to consult
with an attorney prior to executing this Agreement; (c) you have twenty-one (21)
days to consider this Agreement (although you may choose to voluntarily execute
this Agreement earlier); (d) you have seven (7) days following the execution of
this Agreement by the parties to revoke the Agreement; and (e) this Agreement
will not be effective until the date upon which the revocation period has
expired, which will be the eighth day after this Agreement is executed by you.

      21. WAIVER. In granting the release herein, you understand that this
Agreement includes a release of all claims known or unknown. In giving this
release, which includes claims which may be unknown to you at present, you
hereby expressly waive and relinquish all rights and benefits under any law of
any jurisdiction with respect to your release of any unknown or unsuspected
claims you may have against the Company.

      22. MISCELLANEOUS. This Agreement constitutes the complete, final and
exclusive embodiment of the entire agreement between you and the Company with
regard to this subject

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Dina Alhadeff
Page 5

matter. It is entered into without reliance on any promise or representation,
written or oral, other than those expressly contained herein, and it supersedes
any other such promises, warranties or representations. This Agreement may not
be modified or amended except in a writing signed by both you and a duly
authorized officer of the Company. This Agreement will bind the heirs, personal
representatives, successors and assigns of both you and the Company, and inure
to the benefit of both you and the Company, their heirs, successors and assigns.
If any provision of this Agreement is determined to be invalid or unenforceable,
in whole or in part, this determination will not affect any other provision of
this Agreement and the provision in question will be modified by the court so as
to be rendered enforceable. This Agreement will be deemed to have been entered
into and will be construed and enforced in accordance with the laws of the state
of Washington as applied to contracts made and to be performed entirely within
Washington.

      23. ATTORNEYS' FEES. The prevailing party in any action or proceedings
between the parties to this Agreement shall be entitled to all costs, expenses
and reasonable attorneys' fees (including any fees on appeal).

      24. KNOWING AND VOLUNTARY. This is a release. By signing it, you agree to
all the terms set forth above. You also acknowledge that your decision to enter
into the agreement is knowing and voluntary.

CELEBRATE EXPRESS, INC.

By: /s/ Darin White                                       10/17/05
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      Darin White, Vice President of Finance     Date

 /s/ Dina Alhadeff                                        10/17/05
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Dina Alhadeff                                    Date

Attachment:

Exhibit A - Employee Proprietary Information Agreement

Exhibit B - Article V of the Company's Amended and Restated Articles of
Incorporation

Exhibit C - Article 10 of the Company's Amended and Restated Bylaws