Tax Indemnification Agreement

TAX INDEMNIFICATION AGREEMENT


This Indemnification Agreement is made and entered into as of December __, 1996 between Amscan Holdings, Inc., a Delaware corporation ("Amscan"), and John A. Svenningsen ("Svenningsen").


WHEREAS, as of the date hereof, Amscan has acquired all of the business operations of Amscan Inc., Am-Source, Inc., JCS Realty Corp. and SSY Realty Corp. (individually, a "Subchapter S Company" and, collectively, the "Subchapter S Companies");


WHEREAS, the Subchapter S Companies elected under Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"), to be treated and operated as Subchapter S corporations;


WHEREAS, Svenningsen was for a number of years the sole shareholder of Amscan Inc., JCS Realty Corp. and SSY Realty Corp. and since 1993 owned a 50% interest in Am-Source, Inc.;


NOW, THEREFORE, in consideration of the premises and mutual provisions hereinafter set forth, the parties hereto hereby agree as follows:


Article 1. AMSCAN INDEMNITY. Amscan will indemnify svenningsen for any United States Federal income tax liability, to the extent such liability is attributable to a claim by the Internal Revenue Service that Svenningsen's income with respect to his ownership of stock in any of the Subchapter S Companies for any taxable year exceeds the income reported to Svenningsen by a Subchapter S Company on its Internal Revenue Service Form K-1 for such taxable year and for any United States Federal income tax liability of Svenningsen in respect of payments to Svenningsen pursuant to this Article 1; provided, however, that Amscan's obligation to indemnify Svenningsen shall be limited to taxes on income which create a tax benefit to any of the Subchapter S Companies (whether by reason of deduction, amortization, credit or otherwise) for a taxable year(s) which end(s) after closing.


Article 2. SVENNINGSEN INDEMNITY. Svenningsen will indemnify Amscan for Amscan's United States Federal income tax liability resulting from a claim by any taxing authority that a Subchapter S Company was not properly treated as a Subchapter S corporation for any period in which such Subchapter S Company filed a tax return on which it claimed that it was properly treated as a Subchapter S corporation; provided, however, that Svenningsen's obligation to indemnify Amscan shall be limited to the amount that Svenningsen would be entitled to receive as a refund of United States


2
2


Federal income taxes previously paid with respect to his share of income generated by a Subchapter S Company..


Article 3. PROCEDURES RELATING TO INDEMNIFICATION. If notice of a pending or threatened audit is not given to the indemnifying party promptly after receipt of correspondence from any taxing authority, or in reasonable detail to apprise the indemnifying party of the nature of the proposed adjustments, such failure to provide notice promptly shall not relieve the indemnifying party of its obligations under this agreement, except to the extent that the failure to notify timely actually prejudices the indemnifying party's ability to contest such matter. With respect to any audit, the indemnifying party shall cont ...