**Exhibit 10.7****SPLIT DOLLAR INSURANCE AGREEMENT**     THISAGREEMENT made this 27th of July 2006,by and between JO-ANN STORES, INC., an Ohio corporation (the “Company”) and James Kerr (the“Employee”),WITNESSETH:     WHEREAS, the Employee has performed his duties in a capable and efficient manner and is avalued employee of the Company and has indicated his intention to continue such services, and theCompany desires that he do so; and     WHEREAS, in the continuation of such relationship, the parties desire to establish anarrangement in order to provide insurance protection for the benefit of the Employee;     NOW, THEREFORE, in consideration of the services rendered and to be rendered by the Employeeand of the mutual covenants contained herein, the parties hereto agree as follows:     1. **Purchases of Insurance**. The Company shall maintain life insurance policiesacquired by the Company on the life of the Employee (the “Policies”) from insurance companiesselected by the Company (the “Insurance Companies”), shall pay the premiums on the policies whendue, and shall be designated as sole owner of the policies subject to the conditions hereafter setforth.     2. **Allocation of Premiums Between Company and Employee**. The Company will paythe entirety of the Premiums due on the Policies and shall annually furnish the Employee astatement of the amount of income reportable by the Employee for Federal and State income taxpurposes, if any, as a result of its payment of such premiums.     3. **Payment of Proceeds**. Upon the death of the Employee while this Agreement remainsin effect, the proceeds of the Policies shall be paid as follows:     (a) To the Employee’s beneficiary or beneficiaries designated in accordancewith paragraph 4 hereof, the amount of Six Hundred Thousand ($600,000) Dollars.     (b) To the Company, an amount equal to the balance, if any, of the proceeds ofthe Policies, and of any paid-up additional insurance purchased through dividendreinvestment, if any, after payment of the applicable amount to the Employee’sbeneficiary or beneficiaries pursuant to subparagraph (a) of this
 

 
paragraph 3.     4. **Ownership**. The Employee shall have the right to designate the beneficiary orbeneficiaries to receive payment of any proceeds of the Policies which might become payablepursuant to the provisions of paragraph 3(a) hereof. Each and every other right of ownership ofthe Policies shall be reserved to the Company even though the exercise of such right or rightswould adversely affect or extinguish the payment of any benefits pursuant to Paragraph 3(a) hereofor the existence thereafter of the right reserved to the Employee pursuant to the first sentence ofthis paragraph.     5. **Dividends**. The Policies shall provide that the dividends, if any, payable withrespect to the Policies may be applied as determined by the Company in its sole discretion.     6. **Termination**. This Agreement may be terminated by either party hereto, withor without the consent of the other, upon the giving of notice of termination in writing. It shallterminate automatically upon termination of employment of the Employee with the Company for anyreason whatsoever, including early retirement. In the event of termination, the Employee agrees,upon request to him by the Company, to join with the Company in executing such documents as may benecessary to designate the Company as sole owner and sole beneficiary of the Policies.     7. **Possession of Policy**. The Company shall keep possession of the Policies. TheCompany agrees from time to time to make the Policies available to the Employee or to the InsuranceCompany for the purpose of endorsing.     8. **Borrowing**. The Company shall have the right, without the consent of the Employee,to borrow the cash value of the Policies, if any, provided, however, that the Company shall notborrow from the Policies in any more than three of the first seven years and such amount borrowedfrom any Policy during the first seven years shall not exceed the annual premium of such policy.     9. **Plan Administrator**. The Company shall be the Plan Administrator of the plandescribed herein for purposes of the Employee Retirement Income Security Act of 1974. The Companyshall maintain records with respect to the Employee’s benefits hereunder, except for individualclaim records which shall be maintained by the Insurance Companies. The Insurance Companies shallhandle certain aspects in the administration of the plan including, but not limited to, theprocessing of individual claims, and the remittance of benefit payment. Payments from the planshall be made to beneficiaries directly by the Insurance Companies in accordance with the terms ofthe Policies and the terms of this Agreement.     10. **Claims Procedure**. The Company shall provide a procedure for handlingbeneficiaries’ claims for benefits. Such procedure shall be in accordance with regulations issuedby the Secretary of Labor and shall:
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     (a) provide adequate notice in writing to any beneficiary whose claim forbenefits has been denied, setting forth the specific reasons for such denial,written in a manner calculated to be understood by such beneficiary; and     (b) afford a reasonable opportunity to any beneficiary whose claim for benefitshas been denied for a full and fair review by the appropriate named fiduciary of thedecision denying the claim.     11. **Miscellaneous**. The benefits payable under this Agreement shall be independent of,and in addition to, any other employment agreement that may exist from time to time between theparties hereto or any other compensation payable by the Company to an Employee, whether as salary,bonus or otherwise. This Agreement shall not be deemed to constitute a contract of employmentbetween the parties hereto, nor shall any provision hereof restrict the right of the Company toterminate the employment of the Employee at any time.     12. **Amendment**. This Agreement may be revoked or be amended by a writing signed by theCompany and the Employee and attached hereto.     13. **Successors**. This Agreement shall bind and shall inure to the sole benefit of theparties and their respective successors, assigns and legal representatives.     14. **Revocation of Prior Agreement**. Upon execution of the Agreement all split dollarinsurance agreements entered into by the parties hereto prior to the date hereof, if any, shall benull and void and the rights thereunder shall be extinguished.     IN WITNESS WHEREOF, the parties have hereunto set their hands, the Company by its dulyauthorized officers on the day and year first above written.      JO-ANN STORES, INC.