<PAGE>   1

                                                                    EXHIBIT 10.2

                             PARTY CITY CORPORATION
                            1999 STOCK INCENTIVE PLAN
                  (Amended and Restated as of October 25, 2000)

1.      PURPOSE

        The purpose of the Plan is to provide a means through which the Company
and its Subsidiaries may attract highly qualified persons to become and remain
directors of the Company and enter and remain in the employ of the Company and
its Subsidiaries and to provide a means whereby employees, directors and
consultants of the Company and its Subsidiaries can acquire and maintain Common
Stock ownership, or be paid incentive compensation measured by reference to the
value of Common Stock, thereby strengthening their commitment to the welfare of
the Company and its Subsidiaries and promoting an identity of interest between
stockholders and these employees, directors and consultants. The Plan is
intended to operate in compliance with the provisions of Rule 16b-3 of the
General Rules and Regulations of the Exchange Act.

        So that the appropriate incentive can be provided, the Plan provides for
granting Incentive Stock Options, Nonqualified Stock Options, Restricted Stock
Awards, and other Stock-based Awards, or any combination of the foregoing.

2.      DEFINITIONS

        The following definitions shall be applicable throughout the Plan.

        (a)     "Affiliate" of any individual or entity means an individual or
entity that is directly or indirectly through one or more intermediaries
controlled by or under common control with the individual or entity specified.

        (b)     "Award" means, individually or collectively, any Incentive Stock
Option, Nonqualified Stock Option, Restricted Stock Award, or other Stock-based
Award.

        (c)     "Board" means the Board of Directors of Party City Corporation.

        (d)     "Cause" means the Company or a Subsidiary having cause to
terminate a Participant's employment or service under any existing employment,
consulting or any other agreement between the Participant and the Company or a
Subsidiary. In the absence of any such an employment, consulting or other
agreement, a Participant shall be deemed to have been terminated for Cause if
the Committee determines that his termination of employment with the Company or
a Subsidiary is on account of (A) incompetence, fraud, personal dishonesty,
embezzlement, defalcation or acts of gross negligence or gross misconduct on the
part of Participant in the course of his employment or services, (B) a material
breach of Participant's fiduciary duty of loyalty to the Company or a
Subsidiary, (C) a Participant's engagement in conduct that is materially
injurious to the Company or a Subsidiary, (D) a Participant's conviction by a
court of competent jurisdiction of, or pleading "guilty" or "no contest" to, (x)
a felony, or (y)

<PAGE>   2

any other criminal charge (other than minor traffic violations) which could
reasonably be expected to have a material adverse impact on Company's or a
Subsidiary's reputation and standing in the community; (E) public or consistent
drunkenness by a Participant or his illegal use of narcotics which is, or could
reasonably be expected to become, materially injurious to the reputation or
business of the Company or a Subsidiary or which impairs, or could reasonably be
expected to impair, the performance of a Participant's duties to the Company or
a Subsidiary; or (F) willful failure by a Participant to follow the lawful
directions of a superior officer or the Board, representing disloyalty to the
goals of the Company or a Subsidiary.

        (e)     "Code" means the Internal Revenue Code of 1986, as amended.
Reference in the Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to such section and any regulations under
such section.

        (f)     "Committee" means the Compensation Committee of the Board or
such other committee of at least two people as the Board may appoint to
administer the Plan; provided, however, that each member of the Committee is a
Disinterested Person.

        (g)     "Common Stock" means the common stock par value $0.01 per share,
of Party City Corporation.

        (h)     "Company" means Party City Corporation.

        (i)     "Date of Grant" means the date on which the granting of an Award
is authorized or such other date as may be specified in such authorization.

        (j)     "Disability", with respect to any particular Participant, means
disability as defined in such Participant's employment, consulting or other
relevant agreement with the Company or a Subsidiary or, in the absence of any
such agreement, disability as defined in the long-term disability plan of the
Company or a Subsidiary, as may be applicable to the Participant in question,
or, in the absence of such a plan, the complete and permanent inability by
reason of illness or accident to perform the duties of the occupation at which a
Participant was employed or served when such disability commenced or, if the
Participant was retired when such disability commenced, the inability to engage
in any substantial gainful activity, in either case as determined by the
Committee based upon medical evidence acceptable to it.

        (k)     "Disinterested Person" means a person who is (i) a "non-employee
director" within the meaning of Rule 16b-3 under the Exchange Act, or any
successor rule or regulation and (ii) an "outside director" within the meaning
of Section 162(m) of the Code.

        (l)     "Eligible Person" means any (i) person regularly employed by the
Company or a Subsidiary; provided, however, that no such employee covered by a
collective bargaining agreement shall be an Eligible Person unless and to the
extent that such eligibility is set forth in such collective bargaining
agreement or in an agreement or instrument relating thereto; (ii) director of
the Company or a Subsidiary; or (iii) consultant to the Company or a Subsidiary.

                                       2
<PAGE>   3

        (m)     "Exchange Act" means the Securities Exchange Act of 1934.

        (n)     "Fair Market Value" on a given date means the closing price on
the primary exchange with which the Stock is listed and traded on the date prior
to such date, or, if there is no such sale on that date, then on the last
preceding date on which such a sale was reported.

        (o)     "Holder" means a Participant who has been granted an Award.

        (p)     "Incentive Stock Option" means an Option granted by the
Committee to a Participant under the Plan which is designated by the Committee
as an Incentive Stock Option pursuant to Section 422 of the Code.

        (q)     "Nonqualified Stock Option" means an Option granted under the
Plan which is not designated as an Incentive Stock Option.

        (r)     "Normal Termination" means termination of employment or service
with the Company and all Subsidiaries:

                (i)     Upon retirement pursuant to the retirement plan of the
                        Company or a Subsidiary, as may be applicable at the
                        time to the Participant in question;

                (ii)    On account of Disability;

                (iii)   With the written approval of the Committee; or

                (iv)    By the Company or a Subsidiary without Cause.

        (s)     "Option" means an Award granted under Section 7 of the Plan.

        (t)     "Option Period" means the period described in Section 7(c).

        (u)     "Option Price" means the exercise price set for an Option
described in Section 7(a).

        (v)     "Participant" means an Eligible Person who has been selected by
the Committee to participate in the Plan and to receive an Award.

        (w)     "Plan" means the Company's 1999 Stock Incentive Plan.

        (x)     "Restricted Period" means, with respect to any share of
Restricted Stock, the period of time determined by the Committee during which
such Award is subject to the restrictions set forth in Section 8.

                                       3
<PAGE>   4

        (y)     "Restricted Stock" means shares of Stock issued or transferred
to a Participant subject to forfeiture and the other restrictions set forth in
Section 8.

        (z)     "Restricted Stock Award" means an Award of Restricted Stock
granted under Section 8 of the Plan.

        (aa)    "Securities Act" means the Securities Act of 1933, as amended.

        (bb)    "Stock" means the Common Stock or such other authorized shares
of stock of the Company as from time to time may be authorized for use under the
Plan.

        (cc)    "Stock Option Agreement" means the agreement between the Company
and a Participant who has been granted an Option pursuant to Section 7 which
defines the rights and obligations of the parties as required in Section 7(d).

        (dd)    "Subsidiary" means any subsidiary of the Company as defined in
Section 424(f) of the Code.

3.      EFFECTIVE DATE, DURATION AND SHAREHOLDER APPROVAL

        The Plan is effective as of October 19, 1999, the date on which the Plan
was adopted by the Board.

        The expiration date of the Plan, after which no Awards may be granted
hereunder, shall be October 19, 2009; provided, however, that the administration
of the Plan shall continue in effect until all matters relating to the payment
of Awards previously granted have been settled.

4.      ADMINISTRATION

        The Committee shall administer the Plan. Unless otherwise determined by
the Board, each member of the Committee shall, at the time he takes any action
with respect to an Award under the Plan, be a Disinterested Person. The majority
of the members of the Committee shall constitute a quorum. The acts of a
majority of the members present at any meeting at which a quorum is present or
acts approved in writing by a majority of the Committee shall be deemed the acts
of the Committee.

        Subject to the provisions of the Plan, the Committee shall have
exclusive power to:

        (a)     Select the Eligible Persons to participate in the Plan;

        (b)     Determine the nature and extent of the Awards to be made to each
Eligible Person;

        (c)     Determine the time or times when Awards will be made to Eligible
Persons;

                                       4
<PAGE>   5

        (d)     Determine the duration of each Option Period and Restricted
Period;

        (e)     Determine the conditions to which the payment of Awards may be
subject;

        (f)     Prescribe the form of Stock Option Agreement or other form or
forms evidencing Awards; and

        (g)     Cause records to be established in which there shall be entered,
from time to time as Awards are made to Participants, the date of each Award,
the number of Incentive Stock Options, Nonqualified Stock Options, shares of
Restricted Stock and other Stock-based Awards granted by the Committee to each
Participant, the expiration date, the Option Period and the duration of any
applicable Restricted Period.

        The Committee shall have the authority to interpret the Plan and,
subject to the provisions of the Plan, to establish, adopt, or revise such rules
and regulations and to make all such determinations relating to the Plan as it
may deem necessary or advisable for the administration of the Plan. The
Committee's interpretation of the Plan or any documents evidencing Awards
granted pursuant thereto and all decisions and determinations by the Committee
with respect to the Plan shall be final, binding, and conclusive on all parties
unless otherwise determined by the Board.

5.      GRANT OF AWARDS; SHARES SUBJECT TO THE PLAN

        The Committee may, from time to time, grant Awards of Options,
Restricted Stock and other Stock-based Awards to one or more Eligible Persons;
provided, however, that:

             (a)     Subject to Section 11, the maximum aggregate number of
        shares of Stock available for issuance or distribution pursuant to
        Awards under the Plan is 2,000,000;

             (b)     Except as set forth in Section 5(d), such shares shall be
        deemed to have been used in payment of Awards only to the extent they
        are actually delivered and not where the Fair Market Value equivalent of
        such shares for a Stock-based Award is paid in cash. In the event any
        Award shall be surrendered, terminate, expire, or be forfeited, the
        number of shares of Stock no longer subject thereto shall thereupon be
        released and shall thereafter be available for new Awards under the
        Plan;

             (c)     Stock delivered by the Company in settlement of Awards
        under the Plan may be authorized and unissued Stock or Stock held in the
        treasury of the Company or may be purchased on the open market or by
        private purchase; and

             (d)     No Participant may receive Options or stock appreciation
        rights under the Plan with respect to more than 400,000 shares of Stock
        in any one year. For this purpose, such shares shall be deemed to have
        been used in payment of Awards whether they are actually delivered or
        where the Fair Market Value equivalent of such shares for a stock
        appreciation right is paid in cash.

                                       5
<PAGE>   6

6.      ELIGIBILITY

        Participation shall be limited to Eligible Persons who have received
written notification from the Committee, or from a person designated by the
Committee, that they have been selected to participate in the Plan.

7.      DISCRETIONARY GRANT OF STOCK OPTIONS

        The Committee is authorized to grant one or more Incentive Stock Options
or Nonqualified Stock Options to any Eligible Person; provided, however, that no
Incentive Stock Options shall be granted to any Eligible Person who is not an
employee of the Company. Each Option so granted shall be subject to the
following conditions, or to such other conditions as may be reflected in the
applicable Stock Option Agreement.

        (a)     OPTION PRICE. The exercise price ("Option Price") per share of
Stock for each Option shall be set by the Committee at the time of grant but
shall not be less than the Fair Market Value of a share of Stock at the Date of
Grant.

        (b)     MANNER OF EXERCISE AND FORM OF PAYMENT. Options which have
become exercisable may be exercised by delivery of written notice of exercise to
the Committee accompanied by payment of the Option Price. The Option Price may
be payable in cash, by bank check (acceptable to the Committee) and/or shares of
Stock (valued at the Fair Market Value at the time the Option is exercised),
having in the aggregate a value equal to the aggregate Option Price or, in the
discretion of the Committee, either (i) in other property having a fair market
value on the date of exercise equal to the aggregate Option Price, or (ii) by
delivering to the Committee a copy of irrevocable instructions to a stockbroker
to deliver promptly to the Company an amount of sale or loan proceeds sufficient
to pay the aggregate Option Price.

        (c)     OPTION PERIOD AND EXPIRATION. Options shall vest and become
exercisable in such manner and on such date or dates determined by the Committee
and shall expire after such period, not to exceed ten years, as may be
determined by the Committee (the "Option Period"); provided, however, that
notwithstanding any vesting dates set by the Committee, the Committee may in its
sole discretion accelerate the exercisability of any Option, which acceleration
shall not affect the terms and conditions of any such Option other than with
respect to exercisability. Unless otherwise specifically determined by the
Committee, the vesting of an Option shall occur only while the Participant is
employed or rendering services to the Company or its Subsidiaries and all
vesting shall cease upon a Holder's termination of employment or services for
any reason. If an Option is exercisable in installments, such installments or
portions thereof which become exercisable shall remain exercisable until the
Option expires. Unless otherwise stated in the applicable Option Agreement, the
Option shall expire earlier than the end of the Option Period in the following
circumstances:

                (i)     If prior to the end of the Option Period, the Holder
                        shall undergo a Normal Termination, the Option shall
                        expire on the earlier of the last day

                                       6
<PAGE>   7

                        of the Option Period or the date that is three months
                        after the date of such Normal Termination. In such
                        event, the Option shall remain exercisable by the Holder
                        until its expiration, but only to the extent the Option
                        was vested and exercisable at the time of such Normal
                        Termination.

                (ii)    If the Holder dies prior to the end of the Option Period
                        and while still in the employ or service of the Company
                        or a Subsidiary, or within three months of Normal
                        Termination, the Option shall expire on the earlier of
                        the last day of the Option Period or the date that is
                        twelve months after the date of death of the Holder. In
                        such event, the Option shall remain exercisable by the
                        person or persons to whom the Holder's rights under the
                        Option pass by will or the applicable laws of descent
                        and distribution until its expiration, but only to the
                        extent the Option was vested and exercisable by the
                        Holder at the time of death.

                (iii)   If the Holder ceases employment or service with the
                        Company and all Subsidiaries for reasons other than
                        Normal Termination or death, the Option shall expire
                        immediately upon such cessation of employment or
                        service.

        (d)     STOCK OPTION AGREEMENT - OTHER TERMS AND CONDITIONS. Each Option
granted under the Plan shall be evidenced by a Stock Option Agreement, which
shall contain such provisions as may be determined by the Committee and, except
as may be specifically stated otherwise in such Stock Option Agreement, which
shall be subject to the following terms and conditions:

                (i)     Each Option issued pursuant to this Section 7 or portion
                        thereof that is exercisable shall be exercisable for the
                        full amount or for any part thereof.

                (ii)    Each share of Stock purchased through the exercise of an
                        Option issued pursuant to this Section 7 shall be paid
                        for in full at the time of the exercise. Each Option
                        shall cease to be exercisable, as to any share of Stock,
                        when the Holder purchases the share or when the Option
                        expires.

                (iii)   Options issued pursuant to this Section 7 shall not be
                        transferable by the Holder except by will or the laws of
                        descent and distribution and shall be exercisable during
                        the Holder's lifetime only by him; provided, however,
                        that the Committee may at any time upon the request of a
                        Holder allow for the transfer of any Option, subject to
                        such conditions or limitations as it may establish.

                (iv)    Each Option issued pursuant to this Section 7 shall vest
                        and become exercisable by the Holder in accordance with
                        the vesting schedule

                                       7
<PAGE>   8

                        established by the Committee and set forth in the Stock
                        Option Agreement.

                (v)     Each Stock Option Agreement may contain a provision
                        that, upon demand by the Committee for such a
                        representation, the Holder shall deliver to the
                        Committee at the time of any exercise of an Option
                        issued pursuant to this Section 7 a written
                        representation that the shares to be acquired upon such
                        exercise are to be acquired for investment and not for
                        resale or with a view to the distribution thereof. Upon
                        such demand, delivery of such representation prior to
                        the delivery of any shares issued upon exercise of an
                        Option issued pursuant to this Section 7 shall be a
                        condition precedent to the right of the Holder or such
                        other person to purchase any shares. In the event
                        certificates for Stock are delivered under the Plan with
                        respect to which such investment representation has been
                        obtained, the Committee may cause a legend or legends to
                        be placed on such certificates to make appropriate
                        reference to such representation and to restrict
                        transfer in the absence of compliance with applicable
                        federal or state securities laws.

                (vi)    Each Incentive Stock Option Agreement shall contain a
                        provision requiring the Holder to notify the Company in
                        writing immediately after the Holder makes a
                        disqualifying disposition of any Stock acquired pursuant
                        to the exercise of such Incentive Stock Option. A
                        disqualifying disposition is any disposition (including
                        any sale) of such Stock before the later of (a) two
                        years after the Date of Grant of the Incentive Stock
                        Option or (b) one year after the date the Holder
                        acquired the Stock by exercising the Incentive Stock
                        Option.

        (e)     INCENTIVE STOCK OPTION GRANTS TO 10% STOCKHOLDERS.
Notwithstanding anything to the contrary in this Section 7, if an Incentive
Stock Option is granted to a Holder who owns stock representing more than 10% of
the voting power of all classes of stock of the Company or of a Subsidiary, the
Option Period shall not exceed five years from the Date of Grant of such Option
and the Option Price shall be at least 110% of the Fair Market Value (on the
Date of Grant) of the Stock subject to the Option.

        (f)     $100,000 PER YEAR LIMITATION FOR INCENTIVE STOCK OPTIONS. To the
extent the aggregate Fair Market Value (determined as of the Date of Grant) of
Stock for which Incentive Stock Options are exercisable for the first time by
any Participant during any calendar year (under all plans of the Company and its
Subsidiaries) exceeds $100,000, such excess Incentive Stock Options shall be
treated as Nonqualified Stock Options.

        (g)     VOLUNTARY SURRENDER. The Committee may permit the voluntary
surrender of all or any portion of any Nonqualified Stock Option issued pursuant
to this Section 7 to be conditioned upon the granting to the Holder of a new
Option for the same or a different number of shares as the Option surrendered or
require such voluntary surrender as a condition precedent

                                       8
<PAGE>   9

to a grant of a new Option to such Participant. Such new Option shall be
exercisable at an Option Price, during an Option Period, and in accordance with
any other terms or conditions specified by the Committee at the time the new
Option is granted, all determined in accordance with the provisions of the Plan
without regard to the Option Price, Option Period, or any other terms and
conditions of the Nonqualified Stock Option surrendered.

8.      RESTRICTED STOCK AWARDS

        (a)     AWARD OF RESTRICTED STOCK.

                (i)     The Committee shall have the authority (1) to grant
                        Restricted Stock, (2) to issue or transfer Restricted
                        Stock to Eligible Persons, and (3) to establish terms,
                        conditions and restrictions applicable to such
                        Restricted Stock, including the Restricted Period, which
                        may differ with respect to each grantee, the time or
                        times at which Restricted Stock shall be granted or
                        become vested and the number of shares to be covered by
                        each grant.

                (ii)    The Holder of a Restricted Stock Award shall execute and
                        deliver to the Company an Award agreement with respect
                        to the Restricted Stock setting forth the restrictions
                        applicable to such Restricted Stock. If the Committee
                        determines that the Restricted Stock shall be held in
                        escrow rather than delivered to the Holder pending the
                        release of the applicable restrictions, the Holder
                        additionally shall execute and deliver to the Company
                        (i) an escrow agreement satisfactory to the Committee,
                        and (ii) the appropriate blank stock powers with respect
                        to the Restricted Stock covered by such agreements. If a
                        Holder shall fail to execute a Restricted Stock
                        agreement and, if applicable, an escrow agreement and
                        stock powers, the Award shall be null and void. Subject
                        to the restrictions set forth in Section 8(b), the
                        Holder shall generally have the rights and privileges of
                        a stockholder as to such Restricted Stock, including the
                        right to vote such Restricted Stock. At the discretion
                        of the Committee, cash dividends and stock dividends, if
                        any, with respect to the Restricted Stock may be either
                        currently paid to the Holder or withheld by the Company
                        for the Holder's account. Unless otherwise determined by
                        the Committee no interest will accrue or be paid on the
                        amount of any cash dividends withheld. Unless otherwise
                        determined by the Committee, cash dividends or stock
                        dividends so withheld by the Committee shall be subject
                        to forfeiture to the same degree as the shares of
                        Restricted Stock to which they relate.

                (iii)   Upon the Award of Restricted Stock, the Committee shall
                        cause a stock certificate registered in the name of the
                        Holder to be issued and, if it so determines, deposited
                        together with the stock powers with an escrow agent
                        designated by the Committee. If an escrow arrangement is
                        used, the Committee shall cause the escrow agent to
                        issue to the Holder a

                                       9
<PAGE>   10

                        receipt evidencing any stock certificate held by it
                        registered in the name of the Holder.

        (b)     RESTRICTIONS.

                (i)     Restricted Stock awarded to a Participant shall be
                        subject to the following restrictions until the
                        expiration of the Restricted Period, and to such other
                        terms and conditions as may be set forth in the
                        applicable Award agreement: (1) if an escrow arrangement
                        is used, the Holder shall not be entitled to delivery of
                        the stock certificate; (2) the shares shall be subject
                        to the restrictions on transferability set forth in the
                        Award agreement; (3) the shares shall be subject to
                        forfeiture to the extent provided in Section 8(d) and
                        the Award Agreement and, to the extent such shares are
                        forfeited, the stock certificates shall be returned to
                        the Company, and all rights of the Holder to such shares
                        and as a shareholder shall terminate without further
                        obligation on the part of the Company.

                (ii)    The Committee shall have the authority to remove any or
                        all of the restrictions on the Restricted Stock whenever
                        it may determine that, by reason of changes in
                        applicable laws or other changes in circumstances
                        arising after the date of the Restricted Stock Award,
                        such action is appropriate.

        (c)     RESTRICTED PERIOD. The Restricted Period of Restricted Stock
shall commence on the Date of Grant and shall expire from time to time as to
that part of the Restricted Stock indicated in a schedule established by the
Committee and set forth in a written Award agreement.

        (d)     FORFEITURE PROVISIONS. Except to the extent determined by the
Committee and reflected in the underlying Award agreement, in the event a Holder
terminates employment with the Company and all Subsidiaries during a Restricted
Period, that portion of the Award with respect to which restrictions have not
expired ("Non-Vested Portion") shall be treated as follows.

                (i)     Upon the voluntary resignation of a Participant or
                        discharge by the Company or a Subsidiary for Cause, the
                        Non-Vested Portion of the Award shall be completely
                        forfeited.

                (ii)    Upon Normal Termination, the Non-Vested Portion of the
                        Award shall be prorated for service during the
                        Restricted Period and shall be received as soon as
                        practicable following termination.

                (iii)   Upon death, the Non-Vested Portion of the Award shall be
                        prorated for service during the Restricted Period and
                        paid to the Participant's beneficiary as soon as
                        practicable following death.

                                       10
<PAGE>   11

        (e)     DELIVERY OF RESTRICTED STOCK. Upon the expiration of the
Restricted Period with respect to any shares of Stock covered by a Restricted
Stock Award, the restrictions set forth in Section 8(b) and the Award agreement
shall be of no further force or effect with respect to shares of Restricted
Stock which have not then been forfeited. If an escrow arrangement is used, upon
such expiration, the Company shall deliver to the Holder, or his beneficiary,
without charge, the stock certificate evidencing the shares of Restricted Stock
which have not then been forfeited and with respect to which the Restricted
Period has expired (to the nearest full share) and any cash dividends or stock
dividends credited to the Holder's account with respect to such Restricted Stock
and the interest thereon, if any.

        (f)     STOCK RESTRICTIONS. Each certificate representing Restricted
Stock awarded under the Plan shall bear the following legend until the end of
the Restricted Period with respect to such Stock:

                        "Transfer of this certificate and the shares represented
        hereby is restricted pursuant to the terms of a Restricted Stock
        Agreement, dated as of ___, between Party City Corporation and ________.
        A copy of such Agreement is on file at the offices of Party City
        Corporation."

Stop transfer orders shall be entered with the Company's transfer agent and
registrar against the transfer of legended securities.

9.      OTHER STOCK-BASED AWARDS

        The Committee may grant any other cash, stock or stock-related Awards to
any eligible individual under this Plan that the Committee deems appropriate,
including, but not limited to, stock appreciation rights, limited stock
appreciation rights, phantom stock Awards, the bargain purchase of Stock and
Stock bonuses. Any such benefits and any related agreements shall contain such
terms and conditions as the Committee deems appropriate. Such Awards and
agreements need not be identical. With respect to any benefit under which shares
of Stock are or may in the future be issued for consideration other than prior
services, the amount of such consideration shall not be less than the amount
(such as the par value of such shares) required to be received by the Company in
order to comply with applicable state law.

10.     GENERAL

        (a)     ADDITIONAL PROVISIONS OF AN AWARD. Awards under the Plan also
may be subject to such other provisions (whether or not applicable to the
benefit awarded to any other Participant) as the Committee determines
appropriate including, without limitation, provisions to assist the Participant
in financing the purchase of Stock upon the exercise of Options, provisions for
the forfeiture of or restrictions on resale or other disposition of shares of
Stock acquired under any Award, provisions giving the Company the right to
repurchase shares of Stock acquired under any Award in the event the Participant
elects to dispose of such shares, and provisions to comply with Federal and
state securities laws and Federal and state tax withholding requirements. Any
such provisions shall be reflected in the applicable Award agreement.

                                       11
<PAGE>   12

        (b)     PRIVILEGES OF STOCK OWNERSHIP. Except as otherwise specifically
provided in the Plan, no person shall be entitled to the privileges of stock
ownership in respect of shares of Stock which are subject to Awards hereunder
until such shares have been issued to that person.

        (c)     GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company
to make payment of Awards in Stock or otherwise shall be subject to all
applicable laws, rules, and regulations, and to such approvals by governmental
agencies as may be required. Notwithstanding any terms or conditions of any
Award to the contrary, the Company shall be under no obligation to offer to sell
or to sell and shall be prohibited from offering to sell or selling any shares
of Stock pursuant to an Award unless such shares have been properly registered
for sale pursuant to the Securities Act with the Securities and Exchange
Commission or unless the Company has received an opinion of counsel,
satisfactory to the Company, that such shares may be offered or sold without
such registration pursuant to an available exemption therefrom and the terms and
conditions of such exemption have been fully complied with. The Company shall be
under no obligation to register for sale under the Securities Act any of the
shares of Stock to be offered or sold under the Plan. If the shares of Stock
offered for sale or sold under the Plan are offered or sold pursuant to an
exemption from registration under the Securities Act, the Company may restrict
the transfer of such shares and may legend the Stock certificates representing
such shares in such manner as it deems advisable to ensure the availability of
any such exemption.

        (d)     TAX WITHHOLDING. Notwithstanding any other provision of the
Plan, the Company or a Subsidiary, as appropriate, shall have the right to
deduct from all Awards cash and/or Stock, valued at Fair Market Value on the
date of payment, in an amount necessary to satisfy all Federal, state or local
taxes as required by law to be withheld with respect to such Awards and, in the
case of Awards paid in Stock, the Holder or other person receiving such Stock
may be required to pay to the Company or a Subsidiary, as appropriate, prior to
delivery of such Stock, the amount of any such taxes which the Company or
Subsidiary is required to withhold, if any, with respect to such Stock. Subject
in particular cases to the disapproval of the Committee, the Company may accept
shares of Stock of equivalent Fair Market Value in payment of such withholding
tax obligations if the Holder of the Award elects to make payment in such
manner.

        (e)     CLAIM TO AWARDS AND EMPLOYMENT RIGHTS. No individual shall have
any claim or right to be granted an Award under the Plan or, having been
selected for the grant of an Award, to be selected for a grant of any other
Award. Neither the Plan nor any action taken hereunder shall be construed as
giving any individual any right to be retained in the employ or service of the
Company or a Subsidiary.

        (f)     DESIGNATION AND CHANGE OF BENEFICIARY. Each Participant may file
with the Committee a written designation of one or more persons as the
beneficiary who shall be entitled to receive the rights or amounts payable with
respect to an Award due under the Plan upon his death. A Participant may, from
time to time, revoke or change his beneficiary designation without the consent
of any prior beneficiary by filing a new designation with the Committee.

                                       12
<PAGE>   13

The last such designation received by the Committee shall be controlling;
provided, however, that no designation, or change or revocation thereof, shall
be effective unless received by the Committee prior to the Participant's death,
and in no event shall it be effective as of a date prior to such receipt. If no
beneficiary designation is filed by the Participant, the beneficiary shall be
deemed to be his or her spouse or, if the Participant is unmarried at the time
of death, his or her estate.

        (g)     PAYMENTS TO PERSONS OTHER THAN PARTICIPANTS. If the Committee
shall find that any person to whom any amount is payable under the Plan is
unable to care for his affairs because of illness or accident, or is a minor, or
has died, then any payment due to such person or his estate (unless a prior
claim therefor has been made by a duly appointed legal representative) may, if
the Committee so directs the Company, be paid to his spouse, child, relative, an
institution maintaining or having custody of such person, or any other person
deemed by the Committee to be a proper recipient on behalf of such person
otherwise entitled to payment. Any such payment shall be a complete discharge of
the liability of the Committee and the Company therefor.

        (h)     NO LIABILITY OF COMMITTEE MEMBERS. No member of the Committee
shall be personally liable by reason of any contract or other instrument
executed by such member or on his behalf in his capacity as a member of the
Committee nor for any mistake of judgment made in good faith, and the Company
shall indemnify and hold harmless each member of the Committee and each other
employee, officer or director of the Company to whom any duty or power relating
to the administration or interpretation of the Plan may be allocated or
delegated, against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim) arising out of any act or
omission to act in connection with the Plan unless arising out of such person's
own fraud or willful bad faith; provided, however, that approval of the Board
shall be required for the payment of any amount in settlement of a claim against
any such person. The foregoing right of indemnification shall not be exclusive
of any other rights of indemnification to which such persons may be entitled
under the Company's Articles of Incorporation or By-Laws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.

        (i)     GOVERNING LAW. The Plan shall be governed by and construed in
accordance with the internal laws of the State of Delaware without regard to the
principles of conflicts of law thereof.

        (j)     FUNDING. No provision of the Plan shall require the Company, for
the purpose of satisfying any obligations under the Plan, to purchase assets or
place any assets in a trust or other entity to which contributions are made or
otherwise to segregate any assets, nor shall the Company maintain separate bank
accounts, books, records or other evidence of the existence of a segregated or
separately maintained or administered fund for such purposes. Holders shall have
no rights under the Plan other than as unsecured general creditors of the
Company, except that insofar as they may have become entitled to payment of
additional compensation by performance of services, they shall have the same
rights as other employees under general law.

                                       13
<PAGE>   14

        (k)     NONTRANSFERABILITY. A person's rights and interest under the
Plan, including amounts payable, may not be sold, assigned, donated, or
transferred or otherwise disposed of, mortgaged, pledged or encumbered except,
in the event of a Holder's death, to a designated beneficiary to the extent
permitted by the Plan, or in the absence of such designation, by will or the
laws of descent and distribution; provided, however, the Committee may, in its
sole discretion, allow for transfer of Awards other than Incentive Stock Options
to other persons or entities, subject to such conditions or limitations as it
may establish.

        (l)     RELIANCE ON REPORTS. Each member of the Committee and each
member of the Board shall be fully justified in relying, acting or failing to
act, and shall not be liable for having so relied, acted or failed to act in
good faith, upon any report made by the independent public accountant of the
Company and its Subsidiaries and upon any other information furnished in
connection with the Plan by any person or persons other than himself.

        (m)     RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall
be taken into account in determining any benefits under any pension, retirement,
profit sharing, group insurance or other benefit plan of the Company or any
Subsidiary except as otherwise specifically provided in such other plan.

        (n)     EXPENSES. The expenses of administering the Plan shall be borne
by the Company and its Subsidiaries.

        (o)     PRONOUNS. Masculine pronouns and other words of masculine gender
shall refer to both men and women.

        (p)     TITLES AND HEADINGS. The titles and headings of the sections in
the Plan are for convenience of reference only, and in the event of any
conflict, the text of the Plan, rather than such titles or headings shall
control.

        (q)     TERMINATION OF EMPLOYMENT. For all purposes herein, a person who
transfers from employment or service with the Company to employment or service
with a Subsidiary or vice versa shall not be deemed to have terminated
employment or service with the Company or a Subsidiary.

11.     CHANGES IN CAPITAL STRUCTURE

        Awards granted under the Plan and any agreements evidencing such Awards,
the maximum number of shares of Stock subject to all Awards under the Plan and
the maximum number of shares of Stock with respect to which any one person may
be granted Options or stock appreciation rights during any year may be subject
to adjustment or substitution, as determined by the Committee in its sole
discretion, as to the number, price or kind of a share of Stock or other
consideration subject to such Awards or as otherwise determined by the Committee
to be equitable (i) in the event of changes in the outstanding Stock or in the
capital structure of Company by reason of stock dividends, stock splits, reverse
stock splits, recapitalizations, reorganizations, mergers, consolidations,
combinations, exchanges, or other relevant changes in

                                       14
<PAGE>   15

capitalization occurring after the Date of Grant of any such Award or (ii) in
the event of any change in applicable laws or any change in circumstances which
results in or would result in any substantial dilution or enlargement of the
rights granted to, or available for, Participants in the Plan, or (iii) for any
other reason which the Committee, in its sole discretion, determines otherwise
warrants equitable adjustment because it interferes with the intended operation
of the Plan. Any such adjustment may provide for the elimination of any
fractional share which might otherwise become subject to an Award. With respect
to Awards intended to qualify as "performance-based compensation" under Section
162(m) of the Code, such adjustments or substitutions shall, unless otherwise
determined by the Committee in its sole discretion, be made only to the extent
that the Committee determines that such adjustments or substitutions may be made
without a loss of deductibility for such Awards under Section 162(m) of the
Code. The Company shall give each Participant notice of an adjustment hereunder
and, upon notice, such adjustment shall be conclusive and binding for all
purposes.

Notwithstanding the above, in the event of (i) a merger or consolidation such
that after such merger or consolidation the Company is not the surviving entity
or the ultimate parent of the surviving entity, (ii) the sale of all or
substantially all of the assets of the Company, or (iii) the reorganization or
liquidation of the Company, the Committee may, in its discretion and upon at
least 10 days advance notice to the affected persons, cancel any outstanding
Awards and pay to the Holders thereof, in cash or Stock, the value of such
Awards based upon the price per share of Stock received or to be received by
other shareholders of the Company in the event.

12.     NONEXCLUSIVITY OF THE PLAN

        Neither the adoption of this Plan by the Board nor the submission of
this Plan to the stockholder of the Company for approval shall be construed as
creating any limitations on the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under this Plan, and such arrangements
may be either applicable generally or only in specific cases.

13.     AMENDMENTS AND TERMINATION

        The Board may at any time terminate the Plan. Subject to Section 11,
with the express written consent of an individual Participant, the Board or the
Committee may cancel or reduce or otherwise alter outstanding Awards if, in its
judgment, the tax, accounting, or other effects of the Plan or potential payouts
thereunder would not be in the best interest of the Company. The Board or the
Committee may, at any time, or from time to time, amend or suspend and, if
suspended, reinstate, the Plan in whole or in part; provided, however, that
without further stockholder approval neither the Board nor the Committee shall
make any amendment to the Plan which would:

        (a)     Materially increase the maximum aggregate number of shares of
Stock which may be issued or distributed pursuant to Awards, except as provided
in Section 11;

        (b)     Extend the maximum Option Period;

                                       15
<PAGE>   16

        (c)     Extend the termination date of the Plan; or

        (d)     Change the class of persons eligible to receive Awards under the
Plan.

                          *                *                 *


As adopted by the Board of Directors of
Party City Corporation as of
October 19, 1999 and amended
and restated as of October 25, 2000.


By:    /s/  Thomas E. Larson
   ---------------------------------------
Name:  Thomas E. Larson
Title: Chief Financial Officer and Secretary

                                       16