Document:

Ex-10.43

 

	 	 	 	 	 

Exhibit 10.43

AMENDMENT TO THE

DEFERRED COMPENSATION AGREEMENT ENTERED INTO BY

HANCOCK FABRICS, INC. AND                      AS OF                     

     THIS AMENDMENT to the deferred compensation Agreement entered into by Hancock Fabrics, Inc.
(the “Company”) and
                    
(the “Employee”) as of           ,          (the “Agreement”) is made on
this 22nd day of December, 2005, by the Company and the Employee.

WITNESSETH:

     WHEREAS, the Company and the Employee entered into the Agreement to provide certain deferred
compensation benefits to the Employee; and

     WHEREAS, the American Jobs Creation Act of 2004 added Section 409A to the Internal Revenue
Code of 1986, as amended (“409A”); and

     WHEREAS, 409A imposes certain restrictions on distribution from, and elections under, deferred
compensation arrangements, such as the Agreement; and

     WHEREAS, the Company and the Employee desire to amend the Agreement to bring the Agreement
into compliance with 409A and to make certain other changes;

     NOW, THEREFORE, the Agreement hereby is amended as follows:

     1. Paragraph 2 of the Agreement is hereby amended to read as follows:

2. If such employment ceases (other than by reason of death) on or after said
date, the Company shall pay to the Employee, if living, (i) on the first day of
the sixth calendar month beginning after such cessation, an amount equal to the
product of (A) two thousand eighty-three dollars and 33 cents ($2,083.33) (the
“monthly amount”) and (B) 6; and (ii) on the first date of each and every month
thereafter until a total of one hundred seventy-four (174) monthly payments shall
have been paid, an amount equal to the monthly amount.

     2. The following new paragraph 3A is hereby added to the Agreement:

3A. If the Employee becomes totally and permanently disabled while still so
employed by the Company or any of its subsidiaries, the Company shall pay to the
Employee the monthly amount on the first day of the month following his total and
permanent disability, and on the first day of each and every month thereafter
until a total of one hundred eighty (180) monthly payments shall have

 

 

been made. For purposes of this Agreement, the Employee is considered totally and permanently
disabled if: (i) the Employee is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
that can be expected to result in death or can be expect to last for a continuous
period of not less than 12 months, or (ii) the Employee is, by reason of any
medically determinable physical or mental impairment that can be expected to
result in death or can be expected to last for a continuous period of not less
than 12 months, receiving income replacement benefits for a period of not less
than 3 months under an accident and health plan covering employees of the Company.
The Employee will be deemed disabled if (i) determined to be totally disabled by
the Social Security Administration, or (ii) determined to be disabled in
accordance with the Company’s disability insurance program, provided that the
definition of disability applied under such disability insurance program complies
with the requirements of the preceding sentence.

     3. The first sentence of paragraph 5 of the Agreement is hereby amended to read as follows:

So long as the Employee is receiving monthly payments hereunder he shall, at the
reasonable request of the Company, and to the extent consistent with his then age
and state of health, make available to the Company at all reasonable times the
benefit of his experience and advice; provided, the Employee shall not provide
services to the Company as an employee at an annual rate that is equal to or
greater than 20 percent of the services the Employee rendered to the Company, on
average, during the three full calendar years of employment immediately preceding
the date his employment with the Company ceases for purposes of paragraph 2
hereof.

     4. Paragraph 11 of the Agreement is hereby amended to read as follows:

11. For purposes of this Agreement, the Employee shall be deemed to be in the
employment of the Company on a full-time basis during any period not exceeding 6
months for which he is on Company-approved sick leave or disability leave.

     5. Paragraph 15 of the Amendment is hereby amended to read as follows:

15. (a) If the Employee ceases employment with the Company (other than by reason
of death) prior to said date (as defined in paragraph 1) but is deemed to have
attained age 60 pursuant to the terms of that certain Severance Agreement, dated
as of                     , between the Company and the Employee, as hereafter amended,
extended or renewed, the Company shall pay to the Employee, if living, (i) on the
first day of the sixth calendar month beginning after such cessation, an amount
equal to the product of (A) the monthly amount (as defined in the following
sentence) and (B) 6; and (ii) on the first day of each and every month thereafter
until a total of one hundred seventy-four (174) monthly payments shall

2

 

have been paid, an amount equal to the monthly amount. For purposes of this subparagraph
(a), the “monthly amount” shall mean the present value of the monthly amount
defined in paragraph 2. Such present value shall be determined by reducing the
monthly amount defined in paragraph 2 for the period from the date the Employee
ceases employment with the Company to the date the Employee would attain age 60
using a discount rate that is 2% below the average of the daily yield (to
maturity) quotations published in the Wall Street Journal on the 30 business days
preceding the date the Employee ceases employment with the Company regarding the
obligations (bonds or notes) of the U.S. Treasury maturing on the date closest to
the 15th anniversary of such date. If the Employee the employee is otherwise
entitled to payments pursuant to this paragraph 15 and dies prior to the date all
such payments have been made, the Company shall make such payments (at such times
and in such manner as would have been payable to the Employee) to such appointee
as may have been designated pursuant to paragraph 10 of this Agreement.

     (b) Notwithstanding anything in this Agreement to the contrary, if the
Employee or such appointee as may have been
designated pursuant to paragraph 10 of this Agreement (hereinafter Employee and
such other person being collectively referred to as “Entitled Payee”) becomes
entitled to begin receiving payments pursuant to this Agreement following a
“Change of Control” (as defined in subparagraph (d) of this paragraph 15), the
Company shall pay to the Entitled Payee a single-sum payment in lieu of the
monthly payments which the Entitled Payee is otherwise entitled to receive
pursuant to this agreement. Such single-sum payment shall be made on the date on
which the first of such monthly payments was to be made to the Entitled Payee, and
the amount of such single-sum payment shall be equal to the sum of each of the
monthly payments to which the Entitled Payee is otherwise entitled to receive
pursuant to this agreement.

     (c) Notwithstanding anything in this Agreement to the contrary, if the
Entitled Payee is receiving monthly payment pursuant to this Agreement on the date
on which a “Change of Control” (as defined in subparagraph (d) of this paragraph
15) occurs, the Company shall pay to the Entitled Payee a single-sum payment in
lieu of the remaining monthly payments which the Entitled Payee is otherwise
entitled to receive pursuant to this agreement. Such single-sum payment shall be
made on the date on which the first of such monthly payments was to be made to the
Entitled Payee following the date of the Change of Control, and the amount of such
single-sum payment shall be equal to the sum of each of the additional monthly
payments to which the Entitled Payee is otherwise entitled to receive pursuant to
this agreement.

     (d) For purposes of this paragraph 15, a “Change of Control” means a change
in the ownership of the Company (as defined in clause (i) of this subparagraph
(d)), a change in effective control of the Company (as defined in clause (ii) of
this subparagraph (d)), or a change in the ownership of a substantial

3

 

portion of the assets of the Company (as defined in clause (iii) of this subparagraph (d)).

               (i) Change in the Ownership of the Company.

               (A) In General. A change in the ownership of the Company occurs on
the date that any one person, or more than one person acting as a group (as
defined in subclause (B) of this clause (i)), acquires ownership of stock of the
Company that, together with stock held by such person or group, constitutes more
than 50 percent of the total fair market value or total voting power
of the stock of the Company. However, if any one person, or more than one person
acting as a group, is considered to own more than 50 percent of the total fair
market value or total voting power of the stock of the Company, the acquisition of
additional stock by the same person or persons is not considered to cause a change
in the ownership of the Company (or to cause a change in the effective control of
the Company (within the meaning of clause (ii) of this subparagraph (d))). An
increase in the percentage of stock owned by any one person, or persons acting as
a group, as a result of a transaction in which the Company acquires its stock in
exchange for property will be treated as an acquisition of stock for purposes of
this clause (i). This clause (i) applies only when there is a transfer of stock
of the Company (or issuance of stock of the Company) and stock in the Company
remains outstanding after the transaction (see clause (iii) of this subparagraph
(d) for rules regarding the transfer of assets of the Company).

               (B) Persons Acting as a Group. For purposes of this clause (i),
persons will not be considered to be acting as a group solely because they
purchase or own stock of the same corporation at the same time, or as a result of
the same public offering. However, persons will be considered to be acting as a
group if they are owners of a corporation that enters into a merger,
consolidation, purchase or acquisition of stock, or similar business transaction
with the Company. If a person, including an entity, owns stock in both
corporations that enter into a merger, consolidation, purchase or acquisition of
stock, or similar transaction, such shareholder is considered to be acting as a
group with other shareholders in a corporation prior to the transaction giving
rise to the change and not with respect to the ownership interest in the other
corporation.

          (ii) Change in the Effective Control of the Company.

               (A) In General. Notwithstanding that the Company has not undergone a
change in ownership under clause (i) of this subparagraph (d), a change in the
effective control of the Company occurs only on the date that either:

                    (1) Any one person, or more than one person acting as a group (as determined
under subclause (C) of this clause (ii)), acquires

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(or has acquired during the 12-month period ending on the date of the most recent acquisition by such
person or persons) ownership of stock of the Company possessing 35 percent or more
of the total voting power of the stock of the Company; or

                    (2) A majority of members of the Company’s board of directors is replaced
during any 12-month period by directors whose appointment or election is not
endorsed by a majority of the members of the Company’s board of directors prior to
the date of the appointment or election.

               (B) Acquisition of Additional Control. If any one person, or more
than one person acting as a group, is considered to effectively control the
Company (within the meaning of this clause (ii)), the acquisition of additional
control of the Company by the same person or persons is not considered to cause a
change in the effective control of the Company (or to cause a change in the
ownership of the Company within the meaning of clause (i) of this subparagraph
(d)).

               (C) Persons Acting as a Group. Persons will not be considered to be
acting as a group solely because they purchase or own stock of the same
corporation at the same time, or as a result of the same public offering.
However, persons will be considered to be acting as a group if they are owners of
a corporation that enters into a merger, consolidation, purchase or acquisition of
stock, or similar business transaction with the Company. If a person, including
an entity, owns stock in both corporations that enter into a merger,
consolidation, purchase or acquisition of stock, or similar transaction, such
shareholder is considered to be acting as a group with other shareholders in a
corporation only with respect to the ownership in that corporation prior to the
transaction giving rise to the change and not with respect to the ownership
interest in the other corporation.

          (iii) Change in the Ownership of a Substantial Portion of the Company’s
Assets.

               (A) In General. A change in the ownership of a substantial portion
of the Company’s assets occurs on the date that any one person, or more than one
person acting as a group (as determined under subclause (C) of this clause (iii)),
acquires (or has acquired during the 12-month period ending on the date of the
most recent acquisition by such person or persons) assets from the Company that
have a total gross fair market value equal to or more
than 40 percent of the total gross fair market value of all of the assets of the
Company immediately prior to such acquisition or acquisitions. For this purpose,
“gross fair market value” means the value of the assets of the Company, or the
value of the assets being disposed of, determined without regard to any
liabilities associated with such assets.

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               (B) Transfers to a Related Person.

                    (1) A transfer of assets by the Company is not treated as a change in the
ownership of such assets if the assets are transferred to:

                         (i) A shareholder of the Company (immediately before the asset transfer) in
exchange for or with respect to its stock;

                         (ii) An entity, 50 percent or more of the total value or voting power of
which is owned, directly or indirectly, by the Company;

                         (iii) A person, or more than one person acting as a group, that owns,
directly or indirectly, 50 percent or more of the total value or voting power of
all the outstanding stock of the Company; or

                         (iv) An entity, at least 50 percent of the total value or voting power of
which is owned, directly or indirectly, by a person described in subclause (iii)
of this clause (1).

                    (2) For purposes of this subclause (B) and except as otherwise provided, a
person’s status is determined immediately after the transfer of the assets.

               (C) Persons Acting as a Group. Persons will not be considered to be
acting as a group solely because they purchase assets of the Company at the same
time. However, persons will be considered to be acting as a group if they are
owners of a corporation that enters into a merger, consolidation, purchase or
acquisition of assets, or similar business transaction with the Company. If a
person, including an entity shareholder, owns stock in both corporations that
enter into a merger, consolidation, purchase or acquisition of assets, or similar
transaction, such shareholder is considered to be acting as a group with other
shareholders in a corporation only to the extent of the ownership in that
corporation prior to the transaction giving rise to the change and not with
respect to the ownership interest in the other corporation.

          (iv) Attribution of Stock Ownership. For purposes of this
subparagraph (d), Section 318(a) of the Internal Revenue Code of 1986, as amended,
applies to determine stock ownership. Stock underlying a vested option is
considered owned by the individual who holds the vested option (and the stock
underlying an unvested option is not considered owned by the individual who holds
the unvested option). For purposes of the preceding sentence, however, if a
vested option is exercisable for stock that is not substantially vested (as
defined by Section 1.83-3(b) and (j) of the Treasury Regulations), the stock
underlying the option is not treated as owned by the individual who holds the
option.

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     (e) If the Entitled Payee incurs any legal fees or expenses as a result of
seeking to obtain or enforce any benefit under this paragraph 15, Company shall
pay or reimburse Entitled Payee for all such reasonable fees and expenses.

     (f) The Company’s obligation to make the payments provided for in this
paragraph 15 shall not be affected by any circumstances, including, without
limitation, any setoff, counterclaim, recoupment, defense or other right that the
Company may have against the Entitled Payee, provided, however, that the Company’s
failure to make any such setoff shall not constitute a waiver of any claim of the
Company against the Entitled Payee.

6. Paragraph 16 of the Agreement is hereby amended to read as follows:

16. It is the intent of the parties to this Agreement that this Agreement shall be
interpreted, construed and operated in compliance with any applicable provisions
of Section 409A of the Internal Revenue Code of 1986, as amended (“409A”). To the
extent that future regulations issued pursuant to 409A require any amendments to
this Agreement, the parties agree that they will consent to, and make, such
amendments.

7. Except as specified herein, the Agreement shall remain in full force and effect.

     IN WITNESS WHEREOF, the Company has caused its duly authorized officer to execute this
Amendment on the date first written above, and the Employee has executed this Amendment on the date
first written above.

	 	 	 	 	 
	 	HANCOCK FABRICS, INC. 

 	 
	 	By:  	 	 
	 	 	Title: 	 	 
	 	 	 	 

7EX-10.16

 

Exhibit 10.16

JO-ANN STORES, INC.

DEFERRED COMPENSATION PLAN

(as amended by the Board on January 30, 2008)

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 
	 	 	 	 	 	 
	ARTICLE I. TITLE AND DEFINITIONS	 	 	1	 
	     1.1.

	 	Definitions
	 	 	1	 
	 
	 	 	 	 	 	 
	ARTICLE II. PARTICIPATION	 	 	6	 
	     2.1.

	 	Requirements for Participation
	 	 	6	 
	     2.2.

	 	Affiliate Participation
	 	 	6	 
	 
	 	 	 	 	 	 
	ARTICLE III. CONTRIBUTION CREDITS	 	 	6	 
	     3.1.

	 	Elections to Defer Compensation
	 	 	6	 
	     3.2.

	 	Irrevocability of Deferral Elections
	 	 	7	 
	     3.3.

	 	Company Contribution Credits
	 	 	8	 
	     3.4.

	 	Investment Elections
	 	 	8	 
	     3.5.

	 	Automatic Suspension of Deferrals
	 	 	9	 
	 
	 	 	 	 	 	 
	ARTICLE IV. DEFERRAL ACCOUNTS	 	 	9	 
	     4.1.

	 	Deferral Accounts
	 	 	9	 
	     4.2.

	 	Company Discretionary Contribution Account
	 	 	9	 
	     4.3.

	 	Excess 401(k) Contribution Account
	 	 	10	 
	 
	 	 	 	 	 	 
	ARTICLE V. VESTING	 	 	10	 
	     5.1.

	 	Deferral Account
	 	 	10	 
	     5.2.

	 	Company Discretionary Contribution Account
	 	 	11	 
	     5.3.

	 	Excess 401(k) Contribution Account
	 	 	11	 
	     5.4.

	 	Death, Disability or Age 65
	 	 	11	 
	 
	 	 	 	 	 	 
	ARTICLE VI. DISTRIBUTIONS	 	 	11	 
	     6.1.

	 	Distribution of Company Contribution Account
	 	 	11	 
	     6.2.

	 	Distribution of Deferral Account
	 	 	13	 
	     6.3.

	 	Distribution Upon Death or Disability
	 	 	15	 
	     6.4.

	 	Hardship Distribution
	 	 	16	 
	     6.5.

	 	Inability to Locate Team Member
	 	 	16	 
	 
	 	 	 	 	 	 
	ARTICLE VII. ADMINISTRATION	 	 	17	 
	     7.1.

	 	Advisory Committee
	 	 	17	 
	     7.2.

	 	Advisory Committee Action
	 	 	17	 
	     7.3.

	 	Powers and Duties of the Advisory Committee
	 	 	17	 
	     7.4.

	 	Construction and Interpretation
	 	 	18	 
	     7.5.

	 	Information
	 	 	18	 
	     7.6.

	 	Compensation, Expenses and Indemnity
	 	 	18	 
	     7.7.

	 	Quarterly Statements; Delegation of Administrative Functions
	 	 	19	 
	     7.8.

	 	Disputes
	 	 	19	 

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	 	 	 	 	Page
	 
	 	 	 	 	 	 
	ARTICLE VIII. MISCELLANEOUS	 	 	20	 
	     8.1.

	 	Unsecured General Creditor
	 	 	20	 
	     8.2.

	 	Insurance Contracts or Policies
	 	 	21	 
	     8.3.

	 	Restriction Against Assignment
	 	 	21	 
	     8.4.

	 	Withholding
	 	 	21	 
	     8.5.

	 	Amendment, Modification, Suspension or Termination
	 	 	21	 
	     8.6.

	 	Governing Law
	 	 	21	 
	     8.7.

	 	Receipt or Release
	 	 	22	 
	     8.8.

	 	Payments on Behalf of Persons Under Incapacity
	 	 	22	 
	     8.9.

	 	Limitation of Rights and Employment Relationship
	 	 	22	 
	     8.10.

	 	Headings
	 	 	22	 
	     8.11.

	 	Trust Information
	 	 	22	 

ii 

 

JO-ANN STORES, INC.

DEFERRED COMPENSATION PLAN

     WHEREAS, this Deferred Compensation Plan (“Plan”) was adopted by Jo-Ann Stores, Inc. (the
“Company”), effective August 1, 2003, to provide nonqualified deferred compensation benefits for a
select group of management or highly compensated employees of the Company and its affiliates; and

     WHEREAS, the terms of this Plan as amended and restated herein shall apply to all amounts
deferred under the Plan, and the Plan shall be interpreted and applied at all times in accordance
with Section 409A of the Internal Revenue Code of 1986, as amended, and guidance issued thereunder;
and

     WHEREAS, no amounts deferred under the Plan shall be subject to “grandfathering” treatment,
even if such amounts were deferred and vested under the Plan before January 1, 2005;

     NOW, THEREFORE, as of January 1, 2005 (except as otherwise specifically set forth herein),
this Plan is hereby amended and restated to read as follows:

ARTICLE I.

TITLE AND DEFINITIONS 

     1.1. Definitions. Whenever the following words and phrases are used in this Plan, with the
first letter capitalized, they shall have the meanings specified below, except where context
clearly indicates otherwise:

     (a) “Account” or “Accounts” shall mean the individual account or accounts maintained by
the Advisory Committee to record the interest of a Team Member under this Plan. Account
includes the Company Discretionary Contribution Account, the Excess 401(k) Contribution
Account and the Deferral Account unless otherwise indicated. Each Team Member’s Account
will be used solely as a measuring device to determine the amount to be paid to a Team
Member under this Plan. The Account does not constitute, nor will it be treated as,
property or a trust fund of any kind. All amounts at any time attributable to a Team
Member’s Account will be, and remain, the sole property of the Company, subject to the terms
of any Trust established hereunder.

     (b) “Advisory Committee” shall mean the individuals serving from time to time as the
Advisory Committee as provided in Section 7.1

     (c) “Affiliate” shall mean each corporation or other entity with whom the Company would
be considered a single employer under Code Sections 414(b) and 414(c), except that in
applying Code Sections 1563(a)(1), (2) and (3) for purposes of determining a controlled
group of corporations under Code Section 414(b), the language “at least 50 percent” shall be
used instead of “at least 80 percent” in each place it appears in Code Sections 1563(a)(1),
(2) and (3), and in applying Treas. Regs. Sec. 1.414(c)-2 for purposes of determining a
controlled group of trades or businesses under Code Section 414(c), the language “at least
50 percent” shall be used instead of “at least 80 percent” in each place it appears in
Treas. Regs. Sec. 1.414(c)-2.

 

 

     (d) “Base Salary” shall mean a Team Member’s base salary, excluding, for example,
without limitation, bonuses, commissions, incentive and similar remuneration, reimbursements
for business or personal expenses, other fringe benefits (cash or non-cash), insurance
premiums or welfare benefits. Base Salary shall be determined prior to reduction for any
salary contributions to a plan established pursuant to Section 125 of the Code or qualified
pursuant to Section 401(k) of the Code.

     (e) “Beneficiary” or “Beneficiaries” shall mean the person or persons, including a
trustee, personal representative or other fiduciary, last designated in writing by a Team
Member in accordance with procedures established by the Advisory Committee to receive the
benefits specified hereunder in the event of the Team Member’s death. No beneficiary
designation shall become effective until it is filed with the Advisory Committee. Any
designation shall be revocable at any time through a written instrument filed by the Team
Member with the Advisory Committee with or without the consent of the previous Beneficiary.
No designation of a Beneficiary other than the Team Member’s spouse shall be valid unless
consented to in writing by such spouse. If there is no such designation or if there is no
surviving designated Beneficiary, then the Team Member’s surviving spouse shall be the
Beneficiary. If there is no surviving spouse to receive any benefits payable in accordance
with the preceding sentence, the duly appointed and currently acting personal representative
of the Team Member’s estate (which shall include either the Team Member’s probate estate or
living trust) shall be the Beneficiary. In any case where there is no such personal
representative of the Team Member’s estate duly appointed and acting in that capacity within
ninety (90) days after the Team Member’s death (or such extended period as the Advisory
Committee determines is reasonably necessary to allow such personal representative to be
appointed, but not to exceed 180 days after the Team Member’s death), then Beneficiary shall
mean the person or persons who can verify by affidavit or court order to the satisfaction of
the Advisory Committee that they are legally entitled to receive the benefits specified
hereunder. In the event any amount is payable under the Plan to a minor, payment shall not
be made to the minor, but instead be paid: (1) to that person’s living parent(s) to act as
custodian, (2) if that person’s parents are then divorced, and one parent is the sole
custodial parent, to such custodial parent, or (3) if no parent of that person is then
living, to a custodian selected by the Advisory Committee to hold the funds for the minor
under the Uniform Transfers or Gifts to Minors Act in effect in the jurisdiction in which
the minor resides. If no parent is living and the Advisory Committee decides not to select
another custodian to hold the funds for the minor, then payment shall be made to the duly
appointed and currently acting guardian of the estate for the minor or, if no guardian of
the estate for the minor is duly appointed and currently acting within sixty (60) days after
the date the amount becomes payable, payment shall be deposited with the court having
jurisdiction over the estate of the minor. Payment by Company to any Beneficiary hereunder
of all benefits owed hereunder shall terminate any and all liability of Company.

     (f) “Board of Directors” or “Board” shall mean the Board of Directors of the Company or
any committee thereof authorized to act on behalf of the Board.

     (g) “Change in Control” of the Company shall be deemed to have occurred if:

2

 

     (1) any one person, or more than one person acting as a group, acquires
ownership of stock of the Company that, together with stock held by such person or
group, constitutes more than 50% of the total fair market value or total voting
power of the stock of the Company;

     (2) any one person, or more than one person acting as a group, acquires (or has
acquired during a 12-month period ending on the date of the most recent acquisition
by such person or persons) ownership of stock of the Company possessing 30% or more
of the total voting power of the stock of the Company;

     (3) a majority of members of the Company’s board of directors is replaced
during any 12-month period by directors whose appointment or election is not
endorsed by a majority of the members of the Company’s board of directors before the
date of the appointment or election; or

     (4) any one person, or more than one person acting as a group, acquires (or has
acquired during a 12-month period ending on the date of the most recent acquisition
by such person or persons) assets from the Company that have a total gross fair
market value equal to or more than 40% of the total gross fair market value of all
of the assets of the Company immediately before such acquisition or acquisitions.

     (h) “Code” shall mean the Internal Revenue Code of 1986, as amended.

     (i) “Company” shall mean Jo-Ann Stores, Inc.

     (j) “Company Contribution Account” shall mean the Company Discretionary Contribution
Account and the Excess 401(k) Contribution Account.

     (k) “Company Contribution Credits” shall mean the Company Discretionary Contribution
Amount and the Excess 401(k) Contribution Amount.

     (l) “Company Discretionary Contribution Account” shall mean the bookkeeping account
maintained by the Advisory Committee for each Team Member that is credited with an amount
equal to: (1) the Company Discretionary Contribution Amount, if any, and (2) earnings and
losses on such amounts pursuant to Section 4.2.

     (m) “Company Discretionary Contribution Amount” with respect to a Team Member shall
mean such amount, if any, credited to the Team Member’s Account under the Plan by the
Company, on a purely discretionary basis, for the benefit of Team Member for a Plan Year.
Such amount may differ from Team Member to Team Member both in amount, if any, and as a
percentage of Compensation.

     (n) “Compensation” shall mean Base Salary and Incentive Compensation Bonus.

     (o) “Deferral Account” shall mean the bookkeeping account maintained by the Advisory
Committee for each Team Member that is credited with amounts equal to:

3

 

     (1) the portion of the Team Member’s Compensation that he or she elects to defer, and

     (2) earnings and losses on such amounts pursuant to Section 4.1.

     (p) “Deferred Amount” with respect to a Team Member shall mean such amount, if any,
credited to the Team Member’s Account under the Plan pursuant to a Deferral Election Form.

     (q) “Deferral Election Form” shall mean a form provided by the Advisory Committee
pursuant to which a Team Member may elect to defer Compensation in accordance with Section
3.1. The form and content of the Deferral Election Form may be revised from time to time
consistent with the Plan, by or at the direction of the Advisory Committee or its designee.

     (r) “Disability” shall mean the Team Member incurs a Separation from Service on account
of his or her inability to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment that can be expected to result in death
or can be expected to last for a continuous period of not less than twelve (12) months.

     (s) “Earnings Rate” shall mean, for each Fund, an amount equal to the net gain or loss
on the assets of such Fund during each month or other period as determined from time to time
by the Advisory Committee or its designee, expressed as a percentage of the balance of the
Fund at the beginning of the month or other period.

     (t) “Eligible Employee” shall mean a member of a select group of management and/or
highly compensated employees of the Company or any of its Related Affiliates who is
designated by the Advisory Committee in writing as eligible to participate under the Plan.
Such designation is solely within the discretion of the Advisory Committee and may be
changed at any time.

     (u) “Employer” shall mean the Company and any Affiliate.

     (v) “Excess 401(k) Contribution Account” shall mean the bookkeeping account maintained
by the Advisory Committee for each Team Member that is credited with amounts equal to: (1)
the Excess 401(k) Contribution Amount, and (2) any earning and losses on such amounts
pursuant to Section 4.3.

     (w) “Excess 401(k) Contribution Amount” shall mean, with respect to each highly
compensated Team Member (within the meaning of the Jo-Ann Stores, Inc. 401(k) Savings Plan),
such amount, if any, credited to the Team Member by the Company, as provided in Section 3.3,
under the Plan for the benefit of the Team Member for a Plan Year.

     (x) “Fund” or “Funds” shall mean one or more of the investment funds selected by the
Advisory Committee and elected by a Team Member pursuant to Section 3.4, in which all or a
portion of a Team Member’s Account may be deemed to be separately invested.

4

 

     (y) “Hardship Distribution” shall mean a distribution under Section 6.4 on account of
an unforeseeable emergency. An “unforeseeable emergency” means a severe financial hardship
to the Team Member resulting from an illness or accident of the Team Member, the Team
Member’s spouse, the Team Member’s beneficiary, or the Team Member’s dependent (as defined
in Code Section 152, without regard to subsections (b)(1), (b)(2) and (d)(1)(B)), the loss
of the Team Member’s property due to casualty, or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the control of the Team
Member.

     (z) “Incentive Compensation Bonus” shall mean any performance or incentive bonus earned
as of the last day of the Plan Year under the Management Incentive Plan, or its successor
plan, or the Field Incentive Plan, or its successor plan, provided a Team Member is an
employee in good standing of the Company on the day such bonus is paid.

     (aa) “Payment Date” shall mean: (1) with respect to a distribution under Section 6.1,
the last regularly scheduled pay day during February of the first calendar year beginning
after the Team Member’s Separation from Service, and (2) with respect to a distribution
under Section 6.2 with respect to deferrals for any Plan Year, the last regularly scheduled
pay day during February of the calendar year elected by the Team Member with respect to such
deferrals, provided that the Team Member may not elect any calendar year earlier than the
second calendar year after the calendar year to which such deferrals relate.

     (bb) “Plan” shall mean this Jo-Ann Stores, Inc. Deferred Compensation Plan.

     (cc) “Plan Year” shall mean the period January 1 to December 31.

     (dd) “Related Affiliate” shall mean a trade or business, whether or not incorporated,
which is a member of a controlled group of corporations, trades or businesses, as defined in
Code Sections 414(b) and 414(c), of which the Company is a member.

     (ee) “Separation from Service” shall mean the Team Member has a termination of
employment with the Employer. Whether a termination of employment has occurred shall be
determined based on whether the facts and circumstances indicate the Team Member and the
Employer reasonably anticipate that no further services will be performed by the Team Member
for the Employer; provided, however, that a Team Member shall be deemed to have a
termination of employment if the level of services he or she would perform for the Employer
after a certain date permanently decreases to no more than twenty percent (20%) of the
average level of bona fide services performed for the Employer (whether as an employee or
independent contractor) over the immediately preceding 36-month period (or the full period
of services to the Employer if the Team Member has been providing services to the Employer
for less than 36 months). For this purpose, a Team Member is not treated as having a
Separation from Service while he or she is on a military leave, sick leave, or other bona
fide leave of absence, if the period of such leave does not exceed six (6) months, or if
longer, so long as the Team Member has a right to reemployment with the Employer under an
applicable statute or by contract.

5

 

     (ff) “Specified Employee” shall mean any Team Member who is an officer of the Company
or any Related Affiliate.

     (gg) “Team Member” shall mean any Eligible Employee who becomes a participant in this
Plan in accordance with Article II.

     (hh) “Trust” shall mean the irrevocable trust adopted by the Company to serve at its
discretion as the funding medium for this Plan. This Trust is intended to qualify as a
“rabbi trust” as described in Rev. Proc. 92-64.

     (ii) “Years of Service” shall be determined according to the meaning given the term
under the Jo-Ann Stores, Inc. 401(k) Savings Plan, but shall include, except as otherwise
provided herein, service with any Employer (as defined herein).

ARTICLE II.

PARTICIPATION

     2.1. Requirements for Participation. An Eligible Employee shall become a Team Member in
the Plan on the first day of the calendar month following the date of his or her written
designation by the Advisory Committee as eligible to participate in the Plan.

     2.2. Affiliate Participation. Any Related Affiliate may elect to participate in this Plan
upon approval of the Company’s Board of Directors.

ARTICLE III.

CONTRIBUTION CREDITS

     3.1. Elections to Defer Compensation. A Team Member may elect to defer, in accordance with
this Section 3.1 up to seventy-five percent (75%) of the Team Member’s Base Salary for a Plan Year
and up to one hundred percent (100%) of the Team Member’s Incentive Compensation Bonus for a Plan
Year, in separate elections. The amount deferred by a Team Member shall be limited in any Plan
Year as necessary to satisfy Social Security Tax (including Medicare) and income tax withholding
requirements. All elections to defer Compensation must be completed and timely filed in accordance
with this Section 3.1 in order to be given effect.

     (a) Initial Election Period. Each Team Member may elect to defer Compensation by
filing with the Advisory Committee, or its designee, a signed and completed Deferral
Election Form, within thirty (30) days of the date he or she first becomes a Team Member;
provided, however, that if the Team Member is or ever was a participant in this Plan or any
other plan required by Code Section 409A to be aggregated with this Plan, this Section
3.1(a) shall not apply and the Team Member may not make a deferral election of Compensation
until the following Plan Year in accordance with Section 3.1(b), unless:

     (1) he or she had not been eligible to participate in the Plan (or any other
plan required by Code Section 409A to be aggregated with this Plan) at any time
during the 24-month period ending on the date he or she again becomes a Team Member,
or

6

 

     (2) he or she has been paid all amounts previously due under the Plan (and any
other plan required by Code Section 409A to be aggregated with this Plan) and, on
and before the date of the last such payment, was not eligible to continue to
participate in the Plan (and any other plan required by Code Section 409A to be
aggregated with this Plan) for periods after such payment.

A deferral election under this Section 3.1(a) will be effective only with respect to
Compensation paid for services performed after such election. For this purpose, the amount
of any Incentive Compensation Bonus payable to the Team Member for services rendered
subsequent to the Team Member’s election will be determined by multiplying the Incentive
Compensation Bonus by a fraction, the numerator of which is the number of calendar days
remaining in the performance period after the election and the denominator of which is the
total number of calendar days in the performance period. For purposes of this Section
3.1(a), the date of a Team Member’s election is the date the executed election form is
received by the Advisory Committee or its designee.

     (b) Annual Election Period. The Advisory Committee shall designate an annual
open enrollment period during which a Team Member may elect to defer Compensation for the
subsequent Plan Year by filing with the Advisory Committee, or its delegate, a signed and
completed Deferral Election Form, no later than the last day of such open enrollment period.
In no event shall such open enrollment period end later than the December 31 preceding the
Plan Year for which the deferral election is to be effective.

     3.2. Irrevocability of Deferral Elections.

     (a) Except as otherwise provided herein, once made for a Plan Year, a deferral election
under Section 3.1(a) may not be revoked, changed or modified after the date of the election
as provided in such section, and a deferral election under Section 3.1(b) may not be
revoked, changed or modified after the applicable filing deadline specified in such section.
Once made for a Plan Year, Base Salary and Incentive Compensation Bonus deferral elections
will continue in effect for subsequent Plan Years unless revoked or modified for any
subsequent Plan Year by filing a Deferral Election Form during an annual open enrollment
period.

     (b) In the event a Team Member has a Separation from Service for any reason, then: (1)
his or her deferral election under Section 3.1 with respect to Base Salary will terminate as
of the date of such Separation from Service (but will be effective with respect to the last
regular paycheck issued to such Team Member), regardless of whether the Team Member
continues to receive Compensation, or other compensation, from any Employer thereafter; and
(2) his or her deferral election under Section 3.1 with respect to Incentive Compensation
Bonuses will remain in effect with respect to the bonus (if any) paid to him or her for the
Plan Year in which such Separation from Service occurs.

     (c) If a Team Member has a Separation from Service for any reason and is rehired
(whether or not as a Team Member) within the same Plan Year:

7

 

     (1) his or her deferral election under Section 3.1 with respect to Base Salary
shall be automatically reinstated and shall remain in effect for the remainder of
such Plan Year; and

     (2) his or her deferral election under Section 3.1 with respect to Incentive
Compensation Bonuses shall be automatically reinstated and shall remain in effect
for the performance period commencing in such Plan Year.

     (d) In the event a Team Member ceases to be a Team Member (other than on account of a
Separation from Service) during any Plan Year, then his or her deferral election under
Section 3.1 will terminate as of the last day of the Plan Year in which such change in
status occurs.

     (e) Notwithstanding anything herein to the contrary, in the event a Team Member goes on
an unpaid leave of absence, his or her deferral election under Section 3.1 with respect to
Base Salary shall automatically cease when he or she commences the unpaid leave of absence;
provided, however, that if he or she returns from the unpaid leave of absence during the
same Plan Year, his or her deferral election under Section 3.1 with respect to Base Salary
shall automatically resume immediately upon return from the leave of absence and shall
continue in effect for the balance of the Plan Year. An Eligible Team Member’s deferral
election under Section 3.1 shall remain in effect with respect to any Base Salary paid while
on a leave of absence. A Team Member’s deferral elections under Section 3.1 with respect to
Incentive Compensation Bonuses shall not be affected by his or her leave of absence.

     3.3. Company Contribution Credits.

     (a) Discretionary Contribution Credits(b) . In the Board’s sole discretion, it
may credit a Team Member’s Account with a Company Discretionary Contribution Amount in any
amount or percentage of Compensation it so desires for any Plan Year. The Board may credit
Team Members with different Amounts, if any, for any Plan Year.

     (b) Excess 401(k) Contribution Credits. For all highly compensated Team
Members (within the meaning of the Jo-Ann Stores, Inc. 401(k) Savings Plan) with at least
ninety (90) days of service under such plan, the Board will credit a Team Member’s Account
with an Excess 401(k) Contribution Amount in an amount determined by the Board in its sole
discretion.

     3.4. Investment Elections.

     (a) The Team Member shall designate, on a form provided by the Advisory Committee, the
Funds in which the Team Member’s Account will be deemed to be invested for purposes of
determining the amount of earnings to be credited to that Account. In making the
designation pursuant to this Section 3.4, the Team Member may specify that all or any
portion of his or her Account be deemed to be invested, in whole percentage increments, in
one or more of the Funds made available under the Plan from time to time by the Advisory
Committee. On a form provided by the Advisory Committee, investment allocations may be
changed daily in whole percentages while

8

 

employed or after termination. If a Team Member fails to elect a Fund under this
Section 3.4, he or she shall be deemed to have elected a money market type of investment
fund as selected by the Advisory Committee.

     (b) Although the Team Member may designate a Fund or Funds as provided in Section
3.4(a), the Advisory Committee shall not be bound to invest a Team Member’s Account in such
Funds. Team Members shall have no ownership interests in any investments made by the
Company.

     3.5. Automatic Suspension of Deferrals. In the event a Team Member receives a distribution
from the Jo-Ann Stores, Inc. 401(k) Savings Plan (or any other plan or successor plan sponsored by
an Employer) on account of hardship, which distribution is made pursuant to Treasury Regulations
Section 1.401(k)-1(d)(3) and requires suspension of deferrals under other arrangements such as this
Plan, the Team Member’s deferral elections under Section 3.1, if any, pursuant to which deferrals
would otherwise be made during the six (6)-month period following the date of the distribution
shall be cancelled.

ARTICLE IV.

DEFERRAL ACCOUNTS

     4.1. Deferral Accounts. The Advisory Committee shall establish and maintain a Deferral
Account for each Team Member under the Plan. Each Team Member’s Deferral Account shall be further
divided into separate subaccounts (“Fund subaccounts”), each of which corresponds to a Fund elected
by the Team Member pursuant to Section 3.4(a). A Team Member’s Deferral Account shall be credited
as follows:

     (a) On the third business day, or as soon as administratively possible thereafter,
after amounts are deferred and withheld from a Team Member’s Compensation, the Advisory
Committee, in accordance with the Team Member’s election under Section 3.4(a), shall credit
the Fund subaccounts of the Team Member’s Deferral Account with an amount equal to the
portion of the Team Member’s Compensation that the Team Member has elected to be deemed to
be invested in such Fund.

     (b) Each business day, each Fund subaccount of a Team Member’s Deferral Account shall
be credited with earnings or losses in an amount equal to that determined by multiplying the
balance credited to such Fund subaccount as of the prior day plus contributions and less any
distributions credited that day to the Fund subaccount by the Earnings Rate for the
corresponding fund selected by the Team Member pursuant to Section 3.4(a).

     (c) In the event a Team Member elects a Payment Date under Section 1.1(aa)(2) for any
Plan Year’s deferrals, all amounts attributed to the deferral of Compensation for such Plan
Year shall be accounted for in a manner which allows separate accounting for the deferral of
Compensation and investment gains and losses associated with such Plan Year’s deferral of
Compensation.

     4.2. Company Discretionary Contribution Account. The Advisory Committee shall establish
and maintain a Company Discretionary Contribution Account for each Team Member

9

 

under the Plan. Each Team Member’s Company Discretionary Contribution Account shall be further
divided into separate investment Fund subaccounts corresponding to the investment fund elected by
the Team Member pursuant to Section 3.4(a). A Team Member’s Company Discretionary Contribution
Account shall be credited as follows:

     (a) On a date established at the Board’s discretion, the Advisory Committee shall
credit the Fund subaccounts of the Team Member’s Company Discretionary Contribution Account
with an amount equal to the Company Discretionary Contribution Amount, if any, applicable to
that Team Member, in accordance with the Team Member’s election under Section 3.4(a).

     (b) Each business day, each investment fund subaccount of a Team Member’s Company
Discretionary Contribution Account shall be credited with earnings or losses in an amount
equal to that determined by multiplying the balance credited to such investment fund
subaccount as of the prior day plus contributions and less distributions credited that day
to the investment fund subaccount by the Earnings Rate for the corresponding Fund selected
by the Team Member pursuant to Section 3.4(a).

     4.3. Excess 401(k) Contribution Account. The Advisory Committee shall establish and
maintain an Excess 401(k) Contribution Account for each Team Member under the Plan. Each Team
Member’s Excess 401(k) Contribution Account shall be further divided into separate investment fund
subaccounts corresponding to the investment fund elected by the Team Member pursuant to Section
3.4(b). A Team Member’s Excess 401(k) Contribution Account shall be credited as follows:

     (a) No later than the date contributions would have to be made in order for such
contributions to be deductible for a given year under a qualified 401(k) plan, the Advisory
Committee shall credit the investment fund subaccounts of the Team Member’s Excess 401(k)
Contribution Account with an amount equal to the Excess 401(k) Contribution Amount, if any,
applicable to that Team Member, in accordance with the Team Member’s election under Section
3.4.

     (b) Each business day, each investment fund subaccount of a Team Member’s Excess 401(k)
Contribution Account shall be credited with earnings or losses in an amount equal to that
determined by multiplying the balance credited to such investment fund subaccount as of the
prior day plus contributions and less distributions credited that day to the investment fund
subaccount by the Earnings Rate for the corresponding Fund selected by the Company pursuant
to Section 3.4.

ARTICLE V.

VESTING

     5.1. Deferral Account. A Team Member shall be 100% vested in his or her Deferral Account.

10

 

     5.2. Company Discretionary Contribution Account. Company Discretionary Contribution
Amounts will vest according to a schedule determined and set forth by the Board at the time the
contribution is credited.

     5.3. Excess 401(k) Contribution Account. Excess 401(k) Contribution Amounts will vest
according to the following Schedule:

	 	 	 	 	 
	Years of Service	 	Percent Vested
	1
	 	 	0	%
	2
	 	 	33	%
	3
	 	 	67	%
	4 or more
	 	 	100	%

     5.4. Death, Disability or Age 65. Notwithstanding the foregoing, a Team Member’s Account
will become fully vested in the event of his or her death, Disability or attainment of age
sixty-five (65) prior to his or her Separation from Service.

ARTICLE VI.

DISTRIBUTIONS

     6.1. Distribution of Company Contribution Account. Except as otherwise provided in Section
6.3, a Team Member’s Company Contribution Account shall be distributed upon the Team Member’s
Separation from Service as provided in this Section 6.1.

     (a) Form of Distribution. A Team Member may make an initial form of payment
election under this Section 6.1(a) within the time periods applicable under Section 3.1(a)
or (b) for making an initial deferral election for the first Plan Year of participation;
provided, however, that in the event the Team Member has not made such an initial deferral
election by the time a Company Discretionary Contribution Amount is to be credited to his or
her Account pursuant to Section 4.2, the Team Member’s initial form of payment election
under this Section 6.1(a) shall be made prior to the date such Amount is credited to the
Team Member’s Company Contribution Account. Any distribution election made after such period
shall be subject to Section 6.1(c). An election (or deemed election) under this Section
6.1(a) shall apply to the Team Member’s entire Company Contribution Account.

     (1) In the event the Team Member incurs a Separation from Service after ten
(10) Years of Service and his or her Company Contribution Account is $50,000 or
greater, such Account shall be paid to the Team Member in one of the following forms
in accordance with the Team Member’s distribution election given effect under this
Section 6.1:

     (A) A lump sum distribution;

     (B) Substantially equal quarterly installments over five (5) years;

11

 

     (C) Substantially equal quarterly installments over ten (10) years; or

     (D) Substantially equal quarterly installments over fifteen (15) years.

If a Team Member who is eligible to make an election as provided in this Section
6.1(a)(1) fails to make an election as provided above, the Team Member will be
deemed to have elected distribution of his or her entire Company Contribution
Account in substantially equal quarterly installments over ten (10) years.

     (2) In the case of a Team Member who incurs a Separation from Service prior to
ten (10) Years of Service or a Team Member whose Company Contribution Account is
less than $50,000, his or her Company Contribution Account shall be paid to the Team
Member in a lump sum distribution.

     (3) Notwithstanding anything herein to the contrary, the form of payment
election of any individual who has or will have a Company Contribution Account as of
December 31, 2007 with respect to his or her Company Contribution Account shall be
the last affirmative election made by such Team Member on or before December 31,
2007; provided, however, that in no event may any such election defer any amount
otherwise payable during 2007 to 2008 or any later year or accelerate any amount
otherwise payable during 2008 or any later year into 2007. If any such Team Member
does not make an affirmative election on or before December 31, 2007, he or she
shall be deemed to have elected payment of his or her entire Company Contribution
Account in accordance with the default elections provided in this Section 6.1(a).
Except as otherwise provided in this Section 6.1(a), any distribution election made
after December 31, 2007 shall be subject to Section 6.1(c).

     (b) Timing of Payment.

     (1) Any distribution to be paid under this Section 6.1 in a lump sum payment
shall be paid within the sixty (60)-day period commencing on the Team Member’s
Payment Date or, if the Team Member is a Specified Employee, during the sixty
(60)-day period commencing on the later of the Team Member’s Payment Date or the
date that is six (6) months after the Team Member’s Separation from Service.

     (2) If the Team Member’s Account is to be distributed in the form of quarterly
installments, the first such installment shall be made within the sixty (60)-day
period commencing on the Team Member’s Payment Date or, if the Team Member is a
Specified Employee, during the thirty (60)-day period commencing on the later of the
Team Member’s Payment Date or the last day of the first Plan Year quarter which ends
at least six (6) months after the Team Member’s Separation from Service. Subsequent
installments shall be made within the thirty (60)-day period commencing on each
subsequent February 1, April 1, July 1 or October 1, until the Team Member’s
benefits are distributed in

12

 

full. The Team Member’s Company Contribution Account shall continue to be
credited with earnings and losses pursuant to Article IV of the Plan until all
amounts credited to his or her Company Contribution Account under the Plan have been
distributed. Each year the installment amounts paid to Team Members will be
determined by dividing the December 31 vested account balance from the year prior to
Team Member’s Payment Date, by the number of total installments elected and
undistributed.

     (c) Subsequent Elections as to Form of Distribution. A Team Member may change
his or her form of payment election (or deemed form of payment election) under Section
6.1(a) at any time by making a new election (referred to in this subsection as a “subsequent
election”) on a form (which may be electronic) approved by the Advisory Committee and filed
with the Advisory Committee or its designee; provided, however, that such subsequent
election shall be subject to the following restrictions:

     (1) A subsequent election made after December 31, 2007 may not take effect
until at least twelve (12) months after the date on which such subsequent election
is made;

     (2) Payment or initial payment of the Team Member’s Company Contribution
Account pursuant to a subsequent election made after December 31, 2007 may not be
made earlier than five (5) years from the date such payment would have been made
absent the subsequent election, unless the distribution is made on account of the
Team Member’s Disability or death;

     (3) For purposes of this Section 6.1 and Code Section 409A, the entitlement to
quarterly installment payments is treated as the entitlement to a single payment;
and

     (4) A Team Member may make only one (1) subsequent election under this Section
6.1(c).

If a Team Member’s distribution election does not satisfy the requirements of this Section
6.1(c) it will not be recognized or given effect by the Advisory Committee. In that event,
distribution of the benefit will be made in accordance with the Team Member’s most recent
distribution election which does satisfy the requirements of this Section 6.1(c).

     6.2. Distribution of Deferral Account.

     (a) Payment Date. Except as otherwise provided in Section 6.3, a Team Member’s
Deferred Amount for any Plan Year shall be distributed upon the Payment Date selected by the
Team Member within the time period applicable under Section 3.1(a) or (b) for making an
initial deferral election for such Plan Year’s Deferred Amount. If any such Team Member
does not make an affirmative election with respect to Deferred Amounts for a Plan Year
during such time period, the Deferred Amount for that Plan Year will be paid according to
Section 6.1 and the Team Member’s elections under Section 6.1.

13

 

     Notwithstanding anything herein to the contrary, the Payment Date with respect to any
Deferred Amount as of December 31, 2007 shall be the last affirmative election made by the
Team Member on or before December 31, 2007 with respect to such Deferred Amount; provided,
however, that in no event may any such election defer any amount otherwise payable during
2007 to 2008 or any later year or accelerate any amount otherwise payable during 2008 or any
later year into 2007. If the Team Member does not make an affirmative election with respect
to such Deferred Amounts for any Plan Year on or before December 31, 2007, the Deferred
Amount for that Plan Year will be paid according to Section 6.1 and the Team Member’s
elections under Section 6.1.

     (b) Form of Distribution. A Team Member may make a separate form of payment
election under this Section 6.2(b) with respect to Deferred Amounts for each separate Plan
Year within the time period applicable under Section 3.1(a) or (b) for making an initial
deferral election with respect to each such Plan Year’s Deferred Amounts.

     (1) In the case of a Team Member whose Deferred Amount for a Plan Year exceeds
$25,000, such Deferred Amount shall be distributed in one of the following forms in
accordance with the Team Member’s distribution election given effect under this
Section 6.2(b):

     (A) A lump sum distribution; or

     (B) Quarterly installments over one (1) to five (5) years.

     (2) In the case of a Team Member whose Deferred Amount for a Plan Year does not
exceed $25,000, such Deferred Amount shall be distributed in a lump sum amount.

     (c) Timing of Payment.

     (1) Any distribution to be paid under this Section 6.2 in a lump sum payment
shall be paid within the sixty (60)-day period commencing on the Team Member’s
Payment Date.

     (2) If the Team Member’s Deferred Amount is to be distributed in the form of
quarterly installments, the first such installment shall be made within the sixty
(60)-day period commencing on the Team Member’s Payment Date. Subsequent
installments shall be made within the sixty (60)-day period commencing on the first
day of each subsequent February 1, April 1, July 1 or October 1, until the Team
Member’s benefits are distributed in full. The Team Member’s Deferred Amount shall
continue to be credited with earnings and losses pursuant to Article IV of the Plan
until all amounts credited to his or her Deferral Account under the Plan for such
Plan Year have been distributed. Installment amounts paid to Team Members will be
determined annually by dividing the December 31 vested account balance from the year
prior to Team Member’s Payment Date, by the number of total installments elected and
undistributed.

14

 

     (3) In the event a Team Member incurs a Separation from Service, other than by
reason of death or Disability, at any time prior to the Payment Date for a Deferred
Amount, such Deferred Amount shall be distributed in accordance with Section 6.1.
In the event a Team Member incurs a Separation from Service, other than by reason of
death or Disability, while a Deferred Amount is being paid in installments, such
installments will continue to be paid in the normal course.

     (d) Subsequent Elections as to Time of Distribution.

     (1) A Team Member may change his or her Payment Date election under Section
6.2(a) with respect to the Deferred Amount for any Plan Year at any time by making a
new election (referred to in this subsection as a “subsequent election”) on a form
approved by the Advisory Committee and filed with the Advisory Committee or its
designee; provided, however, that such subsequent election shall be subject to the
following restrictions:

     (A) A subsequent election made after December 31, 2007 may not take
effect until at least twelve (12) months after the date on which such
subsequent election is made;

     (B) A subsequent election must be made not less than twelve (12) months
before the date the payment is scheduled to be paid (or, if payment is to be
made in installments, twelve (12) months before the date the first amount is
scheduled to be paid);

     (C) Payment or initial payment of the Team Member’s Deferred Amount for
any Plan Year pursuant to a subsequent election made after December 31, 2007
may not be made earlier than five (5) years from the date such payment would
have been made absent the subsequent election, unless the distribution is
made on account of the Team Member’s Disability or death; and

     (D) A Team Member may make a subsequent election under this Section
6.2(d) only twice with respect to the Deferred Amount for any one Plan Year.

If a Team Member’s distribution election does not satisfy the requirements of this
Section 6.2(d), it will not be recognized or given effect by the Advisory Committee.
In that event, distribution of the benefit will be made in accordance with the Team
Member’s most recent election which does satisfy the requirements of this Section
6.2(d).

     6.3. Distribution Upon Death or Disability. If a Team Member dies or is determined to
have a Disability before receiving his or her entire Account under the Plan, such Team Member, or
his or her Beneficiary, as applicable, will receive the total undistributed Account in a lump sum
within ninety (90) days after notification of such death or Disability; provided, however, that,
where the Team Member is a Specified Employee, in no event will such lump

15

 

sum on account of Disability be paid earlier than six (6) months following his or her
Separation from Service.

     6.4. Hardship Distribution. A Team Member shall be permitted to elect a Hardship
Distribution from his or her vested Accounts prior to the Payment Date, subject to the following
restrictions:

     (a) The election to take a Hardship Distribution shall be made by filing a form
provided by and filed with the Advisory Committee prior to the end of any calendar month.

     (b) The Advisory Committee shall have made a determination that the requested
distribution constitutes a Hardship Distribution in accordance with Section 1.1(y) of the
Plan. The Advisory Committee will permit a Hardship Distribution only to the extent
reasonably necessary to satisfy the unforeseeable emergency, plus amounts necessary to pay
federal, state or local income taxes and penalties reasonably anticipated to result from the
distribution, after taking into account the extent to which such need is or may be relieved
through reimbursement or compensation by insurance, by liquidation of the Team Member’s or
beneficiary’s assets (to the extent the liquidation of such assets would not itself cause
severe financial hardship), or by cessation of deferrals under the Plan.

     (c) The amount determined by the Advisory Committee as a Hardship Distribution shall be
paid in a single lump sum as soon as practicable after the end of the calendar month in
which the Hardship Distribution election is made and approved by the Advisory Committee.

     (d) If a Team Member receives a Hardship Distribution, the Team Member’s deferral
elections under Section 3.1, if any, for such Plan Year shall be immediately cancelled.

     (e) All Hardship Distributions shall be made on a pro rata basis from among a Team
Member’s Accounts and Fund subaccounts for all Plan Years, unless the Advisory Committee
approves an alternate method.

     (f) Notwithstanding anything in the Plan to the contrary, if the Company reasonably
anticipates that its deduction with respect to any distribution under this Section 6.4 would
not be permitted due to the application of Code Section 162(m); such payment shall be
suspended to the extent a deduction would not be permitted until the earliest date at which
it reasonably anticipates that the deduction of such distribution would not be barred by
application of Code Section 162(m); provided, however, that the conditions of Section 6.4
are still satisfied as of such date.

     6.5. Inability to Locate Team Member. In the event that the Advisory Committee is unable
to locate a Team Member or Beneficiary within two (2) years following the required Payment Date,
the amount allocated to the Team Member’s Account shall be forfeited.

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ARTICLE VII.

ADMINISTRATION 

     7.1. Advisory Committee. The Chairman of the Board may appoint a committee to serve, at
the pleasure of the Board, as the Advisory Committee. The number of members comprising such
committee shall be determined by the Chairman of the Board, who may from time to time vary the
number of members. A member of the Advisory Committee appointed pursuant to this Section 7.1 may
resign by delivering a written notice of resignation to the Chairman of the Board. The Chairman of
the Board may remove any member by delivering a notice of removal to such member.

     7.2. Advisory Committee Action. The Advisory Committee shall act at meetings by
affirmative vote of a majority of the members of the Advisory Committee. A majority of the members
of the Advisory Committee shall constitute a quorum in any meeting of the Advisory Committee. Any
action permitted to be taken at a meeting may be taken without a meeting if, prior to such action,
a written consent to the action is signed by all members of the Advisory Committee and such written
consent is filed with the minutes of the proceedings of the Advisory Committee. A member of the
Advisory Committee shall not vote or act upon any matter which relates solely to himself or herself
as a Team Member. The Chairman or any other member or members of the Advisory Committee designated
by the Chairman may execute any certificate or other written direction on behalf of the Advisory
Committee.

     7.3. Powers and Duties of the Advisory Committee.

     (a) The Advisory Committee, on behalf of the Team Members and their Beneficiaries,
shall enforce the Plan in accordance with its terms, shall be charged with the general
administration of the Plan, and shall have all powers necessary to accomplish its purposes,
including, but not by way of limitation, the following:

     (1) To select the Funds in accordance with Section 3.4 hereof;

     (2) To construe and interpret the terms and provisions of this Plan, to
determine eligibility for and the amount of any benefit payable under the Plan, and
to decide any dispute which may arise regarding the rights of Team Members (or their
Beneficiaries) under this Plan;

     (3) To compute and certify to the amount and kind of benefits payable to Team
Members and their Beneficiaries;

     (4) To maintain all records that may be necessary for the administration of the
Plan;

     (5) To provide for the disclosure of all information and the filing or
provision of all reports and statements to Team Members, Beneficiaries or
governmental agencies as shall be required by law;

17

 

     (6) To make and publish such rules for the regulation of the Plan and
procedures for the administration of the Plan as are not inconsistent with the terns
hereof;

     (7) To appoint one or more Plan administrators or any other agent, and to
delegate to them such powers and duties in connection with the administration of the
Plan as the Advisory Committee may from time to time prescribe; and

     (8) To take all actions necessary or appropriate for the administration of the
Plan.

     7.4. Construction and Interpretation. The Advisory Committee shall have full discretion to
construe and interpret the terms and provisions of this Plan, which interpretations or construction
shall be final and binding on all parties, including but not limited to the Company and any
Affiliate and any Team Member or Beneficiary. The Advisory Committee shall administer such terms
and provisions in a uniform and nondiscriminatory manner and in full accordance with any and all
laws applicable to the Plan.

     7.5. Information. To enable the Advisory Committee to perform its functions, the Company
shall supply full and timely information to the Advisory Committee on all matters relating to the
Compensation of all Team Members, their death or other events which cause termination of their
participation in this Plan, and such other pertinent facts as the Advisory Committee may require.

     7.6. Compensation, Expenses and Indemnity.

     (a) The members of the Advisory Committee shall serve without compensation for their
services hereunder.

     (b) The Advisory Committee is authorized at the expense of the Company to employ such
legal counsel as it may deem advisable to assist in the performance of its duties hereunder.
Expenses and fees in connection with the administration of the Plan shall be paid by the
Company. Such legal counsel may be the same legal counsel used by the Company for other
matters.

     (c) To the extent permitted by applicable state law, the Company shall indemnify and
hold harmless the Advisory Committee and each member thereof, the Board of Directors and any
delegate of the Advisory Committee who is an employee of the Company against any and all
expenses, liabilities and claims, including legal fees to defend against such liabilities
and claims arising out of their discharge in good faith of responsibilities under or
incident to the Plan, other than expenses and liabilities arising out of willful misconduct.
This indemnity shall not preclude such further indemnities as may be available under
insurance purchased by the Company or provided by the Company under any bylaw, agreement or
otherwise, as such indemnities are permitted under state law.

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     7.7. Quarterly Statements; Delegation of Administrative Functions.

     (a) Under procedures established by the Advisory Committee, a Team Member shall receive
a statement with respect to such Team Member’s Accounts on a quarterly basis.

     (b) The Advisory Committee may delegate administrative duties under the Plan to any one
or more persons or companies selected by the Advisory Committee.

     7.8. Disputes.

     (a) Claim.

     A person who believes that he or she is being denied a benefit to which he or
she is entitled under this Plan (hereinafter referred to as “Claimant”) must file a
written request for such benefit with the Advisory Committee or its designee,
setting forth his or her claim. The request must be addressed to the Advisory
Committee, or its designee, at its then principal place of business. If such claim
is not filed within one (1) year of the Team Member’s Separation from Service,
neither the Plan nor the Company or any Affiliate shall have any obligation to pay
the disputed benefit and the Claimant shall have no further rights under the Plan.

     (b) Claim Decision.

     Upon receipt of a claim, the Advisory Committee, or its designee, shall advise
the Claimant that a reply will be forthcoming within ninety (90) days (or forty-five
(45) days in the event of a claim involving a Disability determination) and shall,
in fact, deliver such reply within such period. The Advisory Committee or its
designee may, however, extend the reply period for an additional ninety (90) days
(or thirty (30) days in the event of a claim involving a Disability determination),
provided the Advisory Committee determines that the extension is necessary due to
matters beyond the Plan’s control and the Claimant is notified of the extension
before the end of the initial 90-day (or, as applicable, 45-day) period and the date
by which the Advisory Committee expects to render a decision.

     If the claim is denied in whole or in part, the Advisory Committee or its
designee shall inform the Claimant in writing, using language calculated to be
understood by the Claimant, setting forth: (i) the specified reason or reasons for
such denial; (ii) the specific reference to pertinent provisions of this Plan on
which such denial is based; (iii) a description of any additional material or
information necessary for the Claimant to perfect his or her claim and an
explanation of why such material or such information is necessary; (iv) appropriate
information as to the steps to be taken if the Claimant wishes to submit the claim
for review; and (v) the time limits for requesting a review under subsection (c).

19

 

     (c) Request For Review.

     Within sixty (60) days (or one hundred eighty (180) days in the case of a claim
involving a Disability determination) after the receipt by the Claimant of the
written opinion described above, the Claimant may request in writing that the
Advisory Committee review the determination of the Advisory Committee or its
designee. Such request must be addressed to the Secretary of the Company, at its
then principal place of business. The Claimant or his or her duly authorized
representative may, but need not, review the pertinent documents and submit issues
and comments in writing for consideration by the Advisory Committee. If the
Claimant does not request a review within such sixty (60) day (or, as applicable,
one hundred eighty (180) day) period, he or she shall be barred and estopped from
challenging the Advisory Committee’s, or its designee’s, determination.

     (d) Review of Decision.

     Within sixty (60) days (or forty-five (45) days in the event of a claim
involving a Disability determination) after the Advisory Committee’s receipt of a
request for review, after considering all materials presented by the Claimant, the
Advisory Committee will inform the Claimant in writing, in a manner calculated to be
understood by the Claimant, the decision setting forth the specific reasons for the
decision containing specific references to the pertinent provisions of this Plan on
which the decision is based. If special circumstances require that the sixty (60)
day (or, as applicable, forty-five (45) day) time period be extended, the Advisory
Committee will so notify the Claimant and will render the decision as soon as
possible, but no later than one hundred twenty (120) days (or ninety (90) days in
the event of a claim involving a Disability determination) after receipt of the
request for review.

     (e) Legal Action.

     A Claimant’s compliance with the foregoing provisions of this Section 7.8 is a
mandatory prerequisite to a Claimant’s right to commence any legal action with
respect to any claim for benefits under this Plan.

ARTICLE VIII.

MISCELLANEOUS 

     8.1. Unsecured General Creditor. Team Members and their Beneficiaries, heirs, successors,
and assigns shall have no legal or equitable rights, claims, or interest in any specific property
or assets of the Company. No assets of the Company shall be held in any way as collateral security
for the fulfilling of the obligations of the Company under this Plan. Any and all of the Company’s
assets shall be, and remain, the general unpledged, unrestricted assets of the Company. The
Company’s obligation under the Plan shall be merely that of an unfunded and unsecured promise of
the Company to pay money in the future, and the rights of the Team Members and Beneficiaries shall
be no greater than those of unsecured general creditors. It is

20

 

the intention of the Company that this Plan be unfunded for purposes of the Code and for purposes
of Title I of the Employee Retirement Income Security Act of 1974, as amended.

     8.2. Insurance Contracts or Policies. Amounts payable hereunder may be provided through
insurance contracts or policies, the premiums for which are paid by the Company from its general
assets, and which contracts or policies are issued by an insurance company or similar organization.
In order to become a Team Member under the Plan, an Eligible Team Member may be required to
complete such insurance application forms and insurance application worksheets and to undergo such
medical examinations as requested by the Advisory Committee in connection with the acquisition of
any such insurance contract or policy.

     8.3. Restriction Against Assignment. The Company shall pay all amounts payable hereunder
only to the person or persons designated by the Plan and not to any other person or corporation.
No part of a Team Member’s Accounts shall be liable for the debts, contracts, or engagements of any
Team Member, his or her Beneficiary, or successors in interest, nor shall a Team Member’s Accounts
be subject to execution by levy, attachment, or garnishment or by any other legal or equitable
proceeding, nor shall any such person have any right to alienate, anticipate, sell, transfer,
commute, pledge, encumber, or assign any benefits or payments hereunder in any manner whatsoever.
If any Team Member, Beneficiary or successor in interest is adjudicated bankrupt or purports to
anticipate, alienate, sell, transfer, commute, assign, pledge, encumber or charge any distribution
or payment from the Plan, voluntarily or involuntarily, the Advisory Committee, in its discretion,
may cancel such distribution or payment (or any part thereof) to or for the benefit of such Team
Member, Beneficiary or successor in interest in such manner as the Advisory Committee shall direct.

     8.4. Withholding. There shall be deducted from each payment made under the Plan or any
other compensation payable to the Team Member (or Beneficiary) all taxes which are required to be
withheld by the Company in respect to such payment or this Plan. The Company shall have the right
to reduce any payment (or compensation) by the amount of cash sufficient to provide the amount of
said taxes.

     8.5. Amendment, Modification, Suspension or Termination. The Board may amend, modify,
suspend or terminate the Plan in whole or in part, except that no amendment, modification,
suspension or termination shall have any retroactive effect to reduce any amounts allocated to a
Team Member’s Accounts or to accelerate the payment of any Account, except as otherwise permitted
by law.

     Notwithstanding the preceding, the Company may, by action of its Board of Directors, within
the thirty (30) days preceding or twelve (12) months following a Change in Control, partially
terminate the Plan and distribute benefits to all affected Team Members within twelve (12) months
after such action, provided that all plans sponsored by the service recipient immediately after the
Change in Control (which are required to be aggregated with this Plan pursuant to Code Section
409A) are also terminated and liquidated with respect to each affected Team Member.

     8.6. Governing Law. This Plan shall be construed, governed and administered in accordance
with the laws of the State of Ohio, except where pre-empted by federal law.

21

 

     8.7. Receipt or Release. Any payment to a Team Member or the Team Member’s Beneficiary in
accordance with the provisions of the Plan shall, to the extent thereof, be in full satisfaction of
all claims against the Advisory Committee and the Company. The Advisory Committee may require such
Team Member or Beneficiary, as a condition precedent to such payment, to execute a receipt and
release to such effect.

     8.8. Payments on Behalf of Persons Under Incapacity. In the event that any amount becomes
payable under the Plan to a person who, in the sole judgment of the Advisory Committee, is
considered by reason of legal, physical or mental condition to be unable to give a valid receipt
therefore, the Advisory Committee may direct that such payment be made to any person found by the
Advisory Committee, in its sole judgment, to have assumed the care of such person. Any payment
made pursuant to such determination shall constitute a full release and discharge of the Advisory
Committee and the Company.

     8.9. Limitation of Rights and Employment Relationship. Neither the establishment of the
Plan nor any modification thereof, nor the creating of any fund or account, nor the payment of any
benefits shall be construed as giving to any Team Member, or Beneficiary or other person any legal
or equitable right against the Company or any Affiliate except as provided in the Plan; and in no
event shall the terms of employment of any Employee or Team Member be modified or in any way be
affected by the provisions of the Plan.

     8.10. Headings. Headings and subheadings in this Plan are inserted for convenience of
reference only and are not to be considered in the construction of the provisions hereof.

     8.11. Trust Information. The Company has established the Trust for the purposes of this
Plan. Pursuant to the Trust and to the direction of the Advisory Committee, the Trustee shall
enter into any necessary or reasonable contracts for purposes of holding and investing the assets
maintained under the Plan.

     This Plan is amended and restated by resolution adopted by the Compensation Committee of the
Board of Directors on this 13th day of November, 2007, to be effective as of January 1, 2005
(except as otherwise specified herein).

	 	 	 	 	 
	 	JO-ANN STORES, INC.

 	 
	 	By:  	/s/ Darrell Webb
 	 
	 	 	Name:  	Darrell Webb 	 
	 	 	Title:  	Chairman of the Board  	 
	 

22

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