Exhibit 10.3

AGREEMENT

THIS AGREEMENT (“Agreement”) is made as of the 21st day of October, 2005,
between J0-ANN STORES, INC., an Ohio corporation (the “Company”), and ROSALIND
THOMPSON (“Executive”).

The Company is entering into this Agreement in recognition of the importance of
Executive’s services to the continuity of management of the Company and based
upon its determination that it will be in the best interests of the Company to
encourage Executive’s continued attention and dedication to Executive’s duties
as a general matter and in the potentially disruptive circumstances of a
possible Change of Control of the Company. (As used in this Agreement, the term
“Change of Control” and certain other capitalized terms have the meanings
ascribed to them in Section 17 at the end of this Agreement.)

The Company and Executive agree, effective as of the date first set forth above
(the “Effective Date”), as follows:

1. Severance Benefits upon Certain Terminations Occurring Before a Change of
Control. If, before the occurrence of a Change of Control, Executive’s
employment with the Company is terminated (a) by the Company without Cause, or
(b) by Executive for Good Reason, Executive shall be entitled to the following
as Severance Benefits:

(a) The Company shall pay Executive an amount equal to one and one half (1-1/2)
times Executive’s Base Salary payable in consecutive bi-weekly installments over
the eighteen (18) months following the Termination Date at the same times and in
the same amounts as if Executive had remained in the employ of the Company and
had continued to earn Executive’s Base Salary over that eighteen (18) month
period.

(b) The Company shall continue to provide Executive with the welfare benefits of
medical insurance, dental insurance, and group term life insurance through the
end of the eighteenth (18th) full calendar month following the Termination Date,
except that

  (i)   the Company may stop providing medical insurance and dental insurance
coverage earlier if and when Executive accepts full time employment with a
subsequent employer that generally makes medical insurance available to its
executives and Executive is eligible for that coverage with the subsequent
employer, and

  (ii)   the Company may stop providing group term life insurance earlier if and
when Executive accepts full time employment with a subsequent employer and that
employer provides Executive with group term life insurance coverage.

The benefits to be provided by the Company pursuant to this paragraph shall be
provided to Executive at the same cost to Executive, and at the same coverage
level, as is applicable to continuing executives in comparable positions from
time to time during the period the benefits are continued.

2. Change of Control Severance Benefits upon Certain Terminations Occurring
After a Change of Control. If, after the occurrence of a Change of Control,
Executive’s employment with the Company is terminated (a) by the Company without
Cause, or (b) by Executive for Good Reason, Executive shall be entitled to the
following as Change of Control Severance Benefits:

(a) The Company shall make a lump sum cash payment to Executive, not later than
ten (10) business days after the Termination Date, in an amount equal to two
(2) times the sum of (i) Executive’s Base Salary plus (ii) the greater of
(A) Executive’s average annual bonus earned over the three (3) full fiscal years
of the Company ended before the Termination Date, or (B) Executive’s target
annual bonus established for the bonus plan year in which the Termination Date
occurs. If Executive has been employed by the Company for fewer than three
(3) but at least one (1) full fiscal year of the Company ended before the
Termination Date, the average of the bonuses earned in the two (2) full fiscal
years of the Company ended before the Termination Date, or the amount of the
bonus earned in the one full fiscal year of the Company ended before the
Termination Date, as the case may be, shall be substituted for the average
referred to in (A) above.

(b) If the Termination Date occurs after the end of a bonus year under any
Company sponsored bonus plan and before the bonus with respect to that bonus
year has been paid, the Company shall pay to Executive, not later than ten
(10) business days after the Termination Date, an amount equal to the bonus for
that bonus year to which Executive would have been entitled had the bonus plan
for that bonus year remained in effect without any change and had Executive
remained in the employ of the Company through the date on which bonuses for that
bonus year were paid.

(c) The Company shall make a lump sum cash payment to Executive, not later than
ten (10) business days after the Termination Date, in an amount equal to the
greater of (i) Executive’s unpaid targeted annual bonus, established for the
bonus year in which the Termination Date occurs, multiplied by a fraction, the
numerator of which is the number of days Executive was employed by the Company
in the bonus year through the Termination Date, and the denominator of which is
365, or (ii) the bonus amount specifically guaranteed to Executive for that
bonus year under any other agreement between the Company and Executive.

(d) The Company shall continue to provide Executive with the welfare benefits of
medical insurance, dental insurance, group term life insurance, and split-dollar
life insurance through the second (2nd) anniversary of the Termination Date,
except that

  (i)   the Company may stop providing medical insurance and dental insurance
coverage earlier if Executive accepts full time employment with a subsequent
employer that generally makes medical insurance available to its executives and
Executive is eligible for that coverage with the subsequent employer, and

  (ii)   the Company may stop providing group term life insurance earlier if
Executive accepts full time employment with a subsequent employer and that
employer provides Executive with group term life insurance coverage.

The benefits to be provided by the Company pursuant to this paragraph shall be
provided to Executive at the same cost to Executive, and at the same coverage
level, as in effect as of the Termination Date.

(e) In lieu of any retirement benefits provided under Articles II or III of the
Fabri-Centers of America, Inc. Supplemental Retirement Benefit Agreement (the
“SERP”), the Company shall pay to Executive, not later than ten (10) business
days after the Termination Date, a lump sum benefit equal to (A) times (B),
where (A) is equal to the Maximum Supplemental Retirement Benefit defined in
Section 1.8 of the SERP, and (B) is a fraction (not to exceed 1.0), the
numerator of which is the number of completed months of service Executive had
with the Company as of the Termination Date and the denominator of which is the
number of months of service Executive would have had with the Company had
Executive continued to work for the Company through Executive’s 65th birthday.

3. Earned but Unpaid Base Salary and Accrued Paid Time Off Pay Payable Upon Any
Termination of Employment; Treatment of Long-Term Incentive Awards. Upon any
termination of Executive’s employment for any reason and at any time, the
Company shall pay to Executive (or, where appropriate, to Executive’s
Beneficiary), not later than ten (10) days after the Termination Date, (a) all
earned but unpaid Base Salary through the Termination Date, and (b) an amount
equal to the aggregate dollar value of all paid time off earned but not taken by
Executive (“Accrued Paid Time Off Pay”) before the Termination Date. In
addition, upon any termination of Executive’s employment, all outstanding
long-term incentive awards shall be subject to the treatment provided under the
applicable long-term incentive plan of the Company.

4. Termination Due to Retirement, Disability, or Death. If Executive’s
employment is terminated due to Retirement, Disability, or death while this
Agreement remains in effect (whether before or after the occurrence of a Change
of Control), neither Executive nor Executive’s Beneficiaries will be entitled to
Severance Benefits or Change of Control Severance Benefits under either of
Sections 1 or 2 but Executive or Executive’s Beneficiaries, as appropriate, will
be entitled to the payments provided for in Section 3 and to such benefits as
may be provided under the terms of the Company’s disability, retirement,
survivor’s benefits, insurance, and other applicable plans and programs of the
Company then in effect.

5. Termination for Cause or by Executive other than for Good Reason. If
Executive’s employment is terminated either by the Company for Cause or by
Executive other than for Good Reason while this Agreement remains in effect
(whether before or after the occurrence of a Change of Control) and Section does
not apply, neither Executive nor Executive’s Beneficiaries will be entitled to
Severance Benefits or Change of Control Severance Benefits under either of
Sections 1 or 2 but Executive or Executive’s Beneficiaries, as appropriate, will
be entitled to the payments provided for in Section 3 and the Company shall pay
to Executive such other amounts to which Executive is entitled under any
compensation plans of the Company, at the time such payments are due. Except as
provided in this Section 5, the Company shall have no further obligations to
Executive under this Agreement.

6. Special Provision Applicable only if Executive is Terminated both in Advance
of and in Contemplation of a Change of Control. If Executive is terminated by
the Company (a) in contemplation of and not more than six (6) full calendar
months before the occurrence of a Change of Control, and (b) under circumstances
such that if the termination had occurred immediately after that Change of
Control Executive would have been entitled to Change of Control Severance
Benefits under Section 2 above, then the Company shall pay and provide to
Executive all of the amounts and benefits specified in Section 2, reduced by
such amounts and such benefits, if any, that the Company has otherwise paid and
provided to Executive pursuant to Section 1 above. The Company shall make any
cash payment required pursuant to this Section 6 within ten (10) days of the
occurrence of the Change of Control.

7. Change of Control Ignored if Employment Continues for More than Two Years
Thereafter. If Executive’s employment continues for more than two (2) years
following the occurrence of any Change of Control, that particular Change of
Control will deemed never to have occurred for purposes of this Agreement.

8. Term of Agreement, Right to Severance Benefits upon Determination by Company
Not to Renew.

8.1. Term. This Agreement shall be effective as of the Effective Date and shall
thereafter apply to any termination of Executive’s employment occurring on or
before July 31, 2006. Unless this Agreement is earlier terminated pursuant to
its terms, on July 31, 2006 and on July 31st of each succeeding year thereafter
(a “Renewal Date”), the term of this Agreement shall be automatically extended
for an additional year unless either party has given notice to the other, at
least one (1) year in advance of that Renewal Date, that the Agreement shall not
apply to any termination of Executive’s employment occurring after that Renewal
Date.

8.2. Right to Severance Benefits. If the Company gives Executive notice that
this Agreement shall not apply to any termination of Executive’s employment
occurring after a particular Renewal Date, Executive shall have the right to
terminate Executive’s employment at any time during the first three (3) months
of the final year during which this Agreement is thereafter scheduled to be
effective (e.g., if the Company gives notice that the Agreement is not to apply
to any termination after July 31, 2007, at any time during the months of August,
September and October 2006) and Executive shall thereupon be entitled to receive
Severance Benefits to the same extent as if all of the conditions to Executive’s
right to receive Severance Benefits under Section 2 had been satisfied.

9. Excise Tax.

If there is any conflict between the provisions of this Section 9 and any other
provision of this Agreement regarding payments to be made or benefits to be
provided to Executive under this Agreement following a Change of Control, the
provisions of this Section 9 shall govern.

9.1. Acknowledgement. The Company and Executive acknowledge that, following a
Change of Control, one or more payments or distributions to be made by the
Company to or for the benefit of Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement, under some
other plan, agreement, or arrangement, or otherwise, and including, without
limitation, any income recognized by Executive upon exercise of an option
granted by the Company to acquire Common Shares issued by the Company) (a
“Payment”) may be determined to be an Excess Parachute Payment that is not
deductible by the Company for federal income tax purposes and with respect to
which Executive will be subject to an excise tax because of Sections 280G and
4999, respectively, of the Code (hereinafter referred to respectively as
“Section 280G” and “Section 4999”).

9.2. Procedure. If Executive’s employment is terminated after a Change of
Control occurs, the Accounting Firm, which, subject to any inconsistent position
asserted by the Internal Revenue Service, shall make all determinations required
to be made under this Section 9, shall determine (a) the maximum amount of
Parachute Payments that Executive may receive without becoming subject to the
excise tax imposed by Section 4999 and without the Company suffering a loss of
deduction under Section 280G (this maximum amount being the “280G Limit”) and
(b) whether, if all Payments were made without regard to this Section 9, any
Payment would be an Excess Parachute Payment. The Accounting Firm shall
communicate its determination, together with detailed supporting calculations,
to the Company and to Executive within 30 days after the Termination Date or
such earlier time as is requested by the Company. The Company and Executive
shall cooperate with each other and the Accounting Firm and shall provide
necessary information so that the Accounting Firm may make all such
determinations. The Company shall pay all of the fees of the Accounting Firm for
services performed by the Accounting Firm as contemplated in this Section 9.

9.3. Reduction or Gross Up if Payments Would Constitute Excess Parachute
Payments. If any Payment would, if made without regard to this Section 9,
constitute an Excess Parachute Payment, either (a) the payments to be made to
Executive under this Agreement without regard to this Section 9 shall be reduced
as provided in Section 9.4, or (b) the Company shall make all of the payments to
be made to Executive under all of the provisions of this Agreement other than
this Section 9 and, in addition, the Company shall make the Gross Up Payments
specified in Section 9.5.

9.4. Reduction in Payments if Aggregate Parachute Payments Would Otherwise not
Exceed 110% of 280G Limit. If the aggregate value of all Parachute Payments does
not exceed 110% of the 280G Limit, the payments to be made to Executive under
this Agreement shall be reduced, but not below zero, by such amount so that the
aggregate value of the Parachute Payments actually made to Executive will be One
Dollar ($1.00) less than the 280G Limit.

9.5. Gross Up Payment if Aggregate Parachute Payments Exceed 110% of 280G Limit.
If the aggregate value of all Parachute Payments exceeds 110% of the 280G Limit
and Executive is therefore subject to the excise tax under Section 4999 on
Excess Parachute Payments received (the “Excise Tax”), the Company shall, in
addition to making all other Payments to Executive, make additional payments
(“Gross Up Payments”) to Executive, from time to time and at the same time as
Parachute Payments are made to Executive, in such lump sum amount or amounts as
are sufficient, from time to time, to place Executive in the same net after tax
position that Executive would have been in if (a) Executive had to bear (without
any Gross Up Payment under this Section 9.5) the Excise Tax with respect to 10%
of all Parachute Payments received by Executive, (b) the Excise Tax did not
otherwise apply to any Payments, and (c) Executive had not incurred any interest
charges or penalties with respect to the imposition any portion of the Excise
Tax. For purposes of this Section 9, all payments received by Executive from the
Company (whether under this Agreement or otherwise and including all Gross Up
Payments received by Executive) shall be deemed to be subject to Federal and
state tax at the highest marginal tax rates applicable to Executive in the year
in which the Gross Up Payment is made.

9.6. Imposition of Excise Tax Following Reduction of Payments Prescribed by
Section 9.4. If, notwithstanding a reduction of payments to Executive under this
Agreement as contemplated by Section 9.4, it is ultimately determined by a court
or pursuant to a final determination by the Internal Revenue Service that any
payment received by Executive is an Excess Parachute Payment and Executive is
therefore obligated to pay Excise Tax with respect to any Payments, the Company
shall make Gross Up Payments to Executive from time to time, in such lump sum
amount or amounts as are sufficient, from time to time, to place Executive in
the same net after tax position that Executive would have been in if no such
Payments constituted Excess Parachute Payments subject to the Excise Tax, the
reduction of Parachute Payments prescribed by Section 9.4 had been made exactly
as intended (i.e., to the extent but only to the extent necessary to avoid the
Excise Tax), and Executive had not incurred any interest charges or penalties
with respect to the imposition of any Excise Tax.

9.7. Imposition of Additional Excise Tax Following Payment of Gross Up
Prescribed by Section 9.5. If the Internal Revenue Service determines that any
Payment gives rise, directly or indirectly, to liability on the part of
Executive for the Excise Tax (and/or any penalties and/or interest with respect
to any Excise Tax) in excess of the amount, if any, previously determined by the
Accounting Firm, the Company shall make further additional cash payments to
Executive not later than the due date of any payment indicated by the Internal
Revenue Service with respect to these matters, in such amounts as are necessary
to put Executive in the same position, after payment of all federal and state
taxes (whether income taxes, Excise Taxes, or other taxes) and any and all
penalties and interest with respect to any such taxes, as Executive would have
been in if the Accounting Firm had anticipated the later determination by the
Internal Revenue Service and the Company had made appropriate Gross Up Payments
to the extent contemplated by Section 9.5 in the first instance.

9.8. Potential Contest by the Company of Internal Revenue Service Determination.
If the Company desires to contest any determination by the Internal Revenue
Service with respect to the amount of Excise Tax, Executive shall, upon receipt
from the Company of an unconditional written undertaking to indemnify and hold
Executive harmless (on an after tax basis) from any and all adverse consequences
that might arise from the contesting of that determination, cooperate with the
Company in that contest at the Company’s sole expense. Nothing in this
Section 9.8 shall require Executive to incur any expense other than expenses
with respect to which the Company has paid to Executive sufficient sums so that
after the payment of the expense by Executive and taking into account the
payment by the Company with respect to that expense and any and all taxes that
may be imposed upon Executive as a result of Executive’s receipt of that
payment, the net effect is no cost to Executive. Nothing in this Section 9.8
shall require Executive to extend the statute of limitations with respect to any
item or issue in Executive’s tax returns other than, exclusively, the Excise
Tax. If, as the result of the contest of any assertion by the Internal Revenue
Service with respect to Excise Tax, Executive receives a refund of Excise Tax
previously paid and/or any interest with respect thereto, Executive shall
promptly pay to the Company such amount as will leave Executive, net of the
repayment and all tax effects, in the same position, after all taxes and
interest, that he would have been in if the refunded Excise Tax had never been
paid.

10. Outplacement Assistance. Following a termination of employment in which
Severance Benefits or Change of Control Severance Benefits are payable hereunder
the Company shall provide Executive with outplacement services obtained by the
Company at its cost and commensurate with the outplacement services typically
provided by the Company to Executives who left the employ of the Company before
the Effective Date of this Agreement until Executive obtains subsequent
employment or self employment.

11. The Company’s Payment Obligation.

11.1. Payment Obligations Absolute. The Company’s obligation to make the
payments and provide the benefits provided for herein shall be absolute and
unconditional, and shall not be affected by any circumstances, including,
without limitation, any offset, counterclaim, recoupment, defense, or other
right which the Company may have against Executive or anyone else. All amounts
payable by the Company hereunder shall be paid without notice or demand. Each
and every payment made hereunder by the Company shall be final, and the Company
shall not seek to recover all or any part of such payment from Executive or from
whomsoever may be entitled thereto, for any reasons whatsoever.

11.2. No Mitigation. Executive shall not be obligated to seek other employment
in mitigation of the amounts payable or benefits to be provided under any
provision of this Agreement, and the obtaining of any such other employment
shall in no event effect any reduction of the Company’s obligations to make the
payments or provide any benefits as required under this Agreement, except to the
limited extent provided above in cases where a subsequent employer provides
medical insurance and/or group term life insurance coverage.

11.3. Source of Payments and Benefits. All payments under this Agreement shall
be made solely from the general assets of the Company (or from a grantor trust,
if any, established by the Company for purposes of making payments under this
Agreement and other similar agreements), and Executive shall have the rights of
an unsecured general creditor of the Company with respect thereto.

12. Legal Remedies

12.1. Payment of Legal Fees. Unless prohibited by law, the Company shall pay all
legal fees, costs of arbitration and/or litigation, prejudgment interest, and
other expenses incurred in good faith by Executive as a result of the Company’s
refusal to provide the Severance Benefits or Change of Control Severance
Benefits to which Executive deems Executive to be entitled under this Agreement,
as a result of the Company’s contesting the validity, enforceability, or
interpretation of this Agreement, or as a result of any conflict between the
parties pertaining to this Agreement, provided, however, that the Company shall
be reimbursed by Executive for all such fees and expenses if, but only if, it is
ultimately determined by a court of competent jurisdiction or by the
arbitrators, as the case may be, that Executive had no reasonable grounds for
the position propounded by Executive in the arbitration and/or litigation (which
determination need not be made simply because Executive fails to succeed in the
arbitration and/or litigation).

12.2. Arbitration. Subject to the following sentences, any dispute or
controversy arising under or in connection with this Agreement shall be settled
by mandatory arbitration (in lieu of litigation), conducted before a panel of
three (3) arbitrators sitting in a location selected by Executive within fifty
(50) miles from Hudson, Ohio, in accordance with the rules of the American
Arbitration Association then in effect. Any dispute which arises with respect to
Executive’s alleged violation of the prohibition on competition or any other
restriction contained in Section 14 of this Agreement shall be settled by
judicial proceedings (in any court of competent jurisdiction with respect to
such dispute or claim). Except as provided above for claims or disputes under
Section 14, judgment may be entered on the award of the arbitrator in any court
having proper jurisdiction.

13. Withholding. The Company shall be entitled to withhold from any amounts
payable under this Agreement all taxes as legally shall be required (including,
without limitation, any United States federal taxes, and any other state, city,
or local taxes).

14. Noncompetition.

14.1. Prohibition on Competition. Without the prior written consent of the
Company, during the term of this Agreement, and, if Severance Benefits are paid
hereunder, thereafter during the eighteen (18) month period beginning on the
Termination Date or if Change of Control Severance Benefits are paid hereunder,
thereafter through the second (2nd) anniversary of the Termination Date,
Executive shall not, as an employee, an officer, or as a director, engage
directly or indirectly in any business or enterprise that engages to any
significant extent within the United Sates of America in the sale at retail or
direct marketing to consumers of fabric and craft components. Notwithstanding
the foregoing, Executive may purchase and hold for investment less than two
percent (2%) of the shares of any corporation whose shares are regularly traded
on a national securities exchange or in the over-the-counter market.

14.2. Disclosure of Information. Executive acknowledges that Executive has and
has had access to and knowledge of certain confidential and proprietary
information of the Company, which is essential to the performance of Executive’
s duties as an employee of the Company. Executive will not, during or after the
term of Executive’s employment by the Company, in whole or in part, disclose
such information to any person, firm, corporation, association, or other entity
for any reason or purpose whatsoever, nor shall Executive make use of any such
information for their own purposes.

14.3. Covenants Regarding Other Employees. During the term of this Agreement and
thereafter during any period during which Executive is subject to the
restriction set forth in Section 14.1, Executive shall not to attempt to induce
any employee of the Company to terminate his or her employment with the Company
or accept employment with any competitor of the Company and Executive shall not
interfere in any similar manner with the business of the Company.

15. Successors and Assignment.

15.1. Successors to the Company. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation, or otherwise) of all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform the Company’s obligations under this Agreement in
the same manner and to the same extent that the Company would be required to
perform them if no such succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the effective date of any such
succession shall be a breach of this Agreement and shall entitle Executive to
notify the Company that, unless the failure is remedied within thirty (30) days
after delivery of the notice from Executive, Executive’s employment will
terminate as of the thirty-first (31st) day after the delivery of the notice. If
any such notice is given and the failure is not so remedied, Executive will be
entitled to receive the same payments and benefits from the Company, and on the
same schedule, as if the Company had undergone a Change of Control on the date
of the succession and Executive had thereupon terminated his employment for Good
Reason.

15.2. Assignment by Executive. This Agreement shall inure to the benefit of and
be enforceable by Executive and each of Executive’s personal or legal
representatives, executors, administrators, successors, heirs, distributes,
devisees, and legatees. If Executive dies while any amount would still be
payable to Executive hereunder had Executive continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement, to Executive’s Beneficiary. If Executive has not named
a Beneficiary, then such amounts shall be paid to Executive’s devisee, legatee,
or other designee, or if there is no such designee, to Executive’s estate.

16. Miscellaneous.

16.1. Employment Status. Except as may be provided under any other agreement
between Executive and the Company, the employment of Executive by the Company is
“at will,” and, prior to the effective date of a Change of Control, may be
terminated by either Executive or the Company at any time, subject to applicable
law.

16.2. Entire Agreement. This Agreement sets forth the entire agreement between
the parties with respect to severance benefits to be provided upon any
termination of Executive’s employment and supersedes any and all prior
employment, retention, and/or change of control agreements between Executive and
the Company.

16.3. Beneficiaries. Executive may designate one or more persons or entities as
the primary and/or contingent Beneficiaries of any Severance Benefits or Change
of Control Severance Benefits owing to Executive under this Agreement. Such
designation must be in the form of a signed writing acceptable to the Committee.
Executive may make or change such designation at any time.

16.4. Severability. In the event any provision of this Agreement shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Agreement, and the Agreement shall be construed and
enforced as if the illegal or invalid provision had not been included.

16.5. Modification. No provision of this Agreement may be modified, waived, or
discharged unless such modification, waiver, or discharge is agreed to in
writing and signed by Executive and by an authorized representative of the
Company, or by the respective parties’ legal representatives and successors.

16.6. Applicable Law. To the extent not preempted by the laws of the United
States, the laws of the state of Ohio, applicable to contracts made and to be
performed wholly within that state, shall be the controlling law in all matters
relating to this Agreement.

17. Definitions. Whenever used in this Agreement, the following capitalized
terms shall have the meanings set forth below:

17.1. “Accounting Firm” means the independent auditors of the Company for the
Fiscal Year preceding the year in which the Change of Control occurred and such
firm’s successor or successors; provided, however, if such firm is unable or
unwilling to serve and perform in the capacity contemplated by this Agreement,
the Company shall select another national accounting firm of recognized standing
to serve and perform in that capacity under this Agreement, except that such
other accounting firm shall not be the then independent auditors for the Company
or any of its affiliates (as defined in Rule 12b-2 promulgated under the
Securities Exchange Act of 1934, as amended).

17.2. “280G Limit”

      has the meaning assigned to it in Section 9.2.

 
   
17.3.
  “Base Salary”

means an amount equal to Executive’s base annual salary at the highest rate
payable at any time before the date of a termination. For this purpose, Base
Salary shall not include bonuses, long-term incentive compensation, or any
remuneration other than base annual salary.

17.4. “Beneficial Owner” shall have the meaning ascribed to such term in
Rule 13d-3 of the General Rules and Regulations under the Exchange Act.

17.5. “Beneficiary” means the persons or entities designated or deemed
designated by Executive pursuant to Section 15.2 herein.

17.6. “Board” means the Board of Directors of the Company.

17.7. “Cause” shall mean the occurrence of any one or more of the following:

(a) The willful and continued failure by Executive to substantially perform his
or her normal duties (other than any such failure resulting from Executive’s
Disability), after a written demand for substantial performance is delivered to
Executive that specifically identifies the manner in which the Committee
believes that Executive has not substantially performed his or her duties, and
Executive has failed to remedy the situation within thirty (30) business days of
receiving such notice;

(b) Executive’s conviction for committing an act of fraud, embezzlement, theft,
or other criminal act constituting a felony; or

(c) The willful engaging by Executive in gross negligence materially and
demonstrably injurious to the Company. However, no act, or failure to act on
Executive’s part, shall be considered “willful” unless done, or omitted to be
done, by Executive not in good faith and without reasonable belief that his or
her action or omission was in or not opposed to the best interest of the
Company.

17.8. Change of Control. A “Change of Control” shall be deemed to have occurred
if at any time or from time to time while this Agreement is in effect:

(a) Any person (other than the Company, any of its Subsidiaries, any member of
either of the Founding Families, any employee benefit plan or employee stock
ownership plan of the Company, or any person organized, appointed, or
established by the Company for or pursuant to the terms of any such plan), alone
or together with any of its affiliates, becomes the beneficial owner of fifteen
percent (15%) or more (but less than fifty percent (50%)) of the Voting Shares
then outstanding;

(b) Any person (other than the Company, any of its Subsidiaries, any employee
benefit plan or employee stock ownership plan of the Company, or any person
organized, appointed, or established by the Company for or pursuant to the terms
of any such plan), alone or together with any of its affiliates, becomes the
beneficial owner of fifty percent (50%) or more of the Voting Shares then
outstanding;

(c) Any person commences or publicly announces an intention to commence a tender
offer or exchange offer the consummation of which would result in the person
becoming the beneficial owner of fifteen percent (15%) or more of the Voting
Shares then outstanding;

(d) At any time during any period of twenty-four (24) consecutive months,
individuals who were directors at the beginning of the 24-month period no longer
constitute a majority of the members of the Board of the Company, unless the
election, or the nomination for election by the Company’s shareholders, of each
director who was not a director at the beginning of the period is approved by at
least a majority of the directors who (i) are in office at the time of the
election or nomination, and (ii) were directors at the beginning of the period;

(e) A record date is established for determining shareholders entitled to vote
upon (i) a merger or consolidation of the Company with another corporation in
which those persons who are shareholders of the Company immediately before the
merger or consolidation are to receive or retain less than sixty percent (60%)
of the stock of the surviving or continuing corporation, (ii) a sale or other
disposition of all or substantially all of the assets of the Company, or
(iii) the dissolution of the Company;

(f) (i) the Company is merged or consolidated with another corporation and those
persons who were shareholders of the Company immediately before the merger or
consolidation receive or retain less than sixty percent (60%) of the stock of
the surviving or continuing corporation, (ii) there occurs a sale or other
disposition of all or substantially all of the assets of the Company, or
(iii) the Company is dissolved; or

(g) Any person who proposes to make a “control share acquisition” of the
Company, within the meaning of Section 1701.01(Z) of the Ohio General
Corporation Law, submits or is required to submit an acquiring person statement
to the Company.

Notwithstanding anything herein to the contrary, if an event described in clause
(b), clause (d), or clause (f) above occurs, the occurrence of that event will
constitute an irrevocable Change of Control. Furthermore, notwithstanding
anything herein to the contrary, if an event described in clause (c) occurs, and
the Board either approves such offer or takes no action with respect to such
offer, then the occurrence of that event will constitute an irrevocable Change
of Control. On the other hand, notwithstanding anything herein to the contrary,
if an event described in clause (a), clause (e), or clause (g) above occurs, or
if an event described in clause (c) occurs and the Board does not either approve
such offer or take no action with respect to such offer as described in the
preceding sentence, and a majority of those members of the Board who were
Directors prior to such event determine, within the 90-day period beginning on
the date such event occurs, that the event should not be treated as a Change of
Control, then, from and after the date that determination is made, that event
will be treated as not having occurred. If no such determination is made, a
Change of Control resulting from any of the events described in the immediately
preceding sentence will constitute an irrevocable Change of Control on the 91st
day after the occurrence of the event.

17.9. “Change of Control Severance Benefits” means those payments and benefits
that may become payable pursuant to Section 2 above.

17.10. “Code” means the United States Internal Revenue Code of 1986, as amended.

17.11. “Committee” means the Compensation Committee of the Board, or any other
committee appointed by the Board to perform the functions of the Compensation
Committee.

17.12. “Company” means Jo-Ann Stores, Inc., an Ohio corporation, and its
successors.

17.13. “Disability” means permanent and total disability, within the meaning of
Code Section 22(e)(3), as determined by the Committee in the exercise of good
faith and reasonable judgment, upon receipt of and in reliance on sufficient
competent medical advice from one (1) or more individuals, selected by the
Committee, who are qualified to give professional medical advice, provided,
however, that Executive must be entitled to disability benefits under the
Company sponsored disability plans or programs.

17.14. “Excess Parachute Payment” has the meaning assigned to that term in Q/A-3
(note that although initial capital letters are used on this term in this
Agreement, the Q/As do not use initial caps for this term).

17.15. “Exchange Act”

      means the United States Securities Exchange Act of 1934, as amended.

 
   
17.16.
  “Excise Tax” has the meaning assigned to that term in Section 9.5.

17.17. “Founding Families” means the families consisting of Betty and Martin
Rosskamm and Alma and Justine Zimmerman and their respective issue.

17.18. “Good Reason” (after a Change of Control) means, without Executive’s
express written consent, the occurrence, after the occurrence of a Change of
Control, of any one or more of the following:

(a) Any reduction in Executive’s Base Salary below the amount in effect
immediately before the Change of Control or, if higher, the amount in effect
before any reduction in Executive’s Base Salary made in contemplation of the
Change of Control.

(b) Any significant reduction in Executive’s duties, responsibilities, or
position with respect to the Company from the duties, responsibilities, or
position as in effect immediately before the Change of Control or as in effect
immediately before any reduction in any such item made in contemplation of the
Change of Control.

(c) Any significant reduction in Executive’s benefits package from the benefit
package in effect immediately before the Change of Control or as in effect
immediately before any reduction of the benefit package made in contemplation of
the Change of Control.

(d) Any reduction in Executive’s long-term incentive opportunity with the
Company.

(e) Any shift of Executive’s principal place of employment with the Company to a
location that is more than fifty (50) miles (by straight line measurement) from
the site of the Company’s headquarters in Hudson, Ohio at the Effective Time.

(f) Any dissolution or liquidation of the Company.

Executive’s continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason under this
Section 17.18 unless the Company has given Executive written notice of the
change and Executive has voluntarily agreed in a writing that specifically
refers to this section of this Agreement to accept the change and to waive any
possible reliance on that change as constituting Good Reason.

17.19. “Good Reason”(before a Change of Control) means, without Executive’s
express written consent, any reduction in Executive’s Base Salary other than a
reduction that is in the same proportion as the reduction of the base salaries
of every other executive officer of the Company in connection with an
across-the-board reduction of executive base salaries.

17.20. “Gross Up Payment” has the meaning assigned to that term in Section 9.5
above.

17.21. “Payment” has the meaning assigned to that term in Section 9.1 above.

17.22. “Parachute Payment” has the meaning assigned to that term in Q/A-2 but
without reference to subsection (4) of Q/A-2 (with the effect that a payment
otherwise meeting the definition of “Parachute Payment” will be referred to as a
Parachute Payment even if the total of all such Parachute Payments is less than
three times Executive’s base amount (as defined Q/A-34) (note that although
initial capital letters are used on this term in this Agreement, the Q/As do not
use initial caps for this term).

17.23. “Person” shall have the meaning ascribed to such term in Section 3(a)(9)
of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a
“group” as defined in Section 13(d).

17.24. “Q/As” means the entire series of Questions and Answers set forth in
Section 1.280G-1 of the Treasury Regulations issued under Section 280G of the
Code (which Section of regulations is presented in Question and Answer format);
references to particular Question and Answers will be, for example, to “Q/A-1.”

17.25. “Retirement” means a voluntary termination of Executive’s employment
other than for Good Reason after Executive has either (a) attained age
fifty-five (55) and has completed at least ten (10) full years of continuous
service with the Company, or (b) has attained age sixty-five (65) (without
regard to length of service).

17.26. “Severance Benefits” means those payments and benefits that may become
payable before the occurrence of a Change of Control pursuant to Section 1
above.

17.27. “Termination Date” means the date on which any termination of Executive’s
employment becomes effective.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.

JO-ANN STORES, INC.

By

/s/ Alan Rosskamm
Alan Rosskamm
President and Chief Executive Officer

“EXECUTIVE”

/s/ Rosalind Thompson

      Rosalind Thompson

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