Document:

EX-10.29

 

Exhibit 10.29

AGREEMENT

     THIS AGREEMENT (“Agreement”) is made as of the 19th day of February, 2008, between
JO-ANN STORES, INC., an Ohio corporation (the “Company”), and James Kerr (“Executive”).

     The Company is entering into this Agreement (in substitution for and in lieu of the employment
agreement entered into by the parties dated July 27, 2006; “Prior 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 Separations from Service Occurring Before a Change of Control.
If, before the occurrence of a Change of Control, Executive has a Separation from Service with the
Company by the Company without Cause, or 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 Executive’s Base Salary for
eighteen (18) months payable in consecutive bi-weekly installments at the same times and in
the same amounts as if Executive had not incurred a Separation from Service and had
continued to earn Executive’s Base Salary over that eighteen (18) month period. Each such
installment shall be a “Payment” for purposes of this Section 1(a). The Payments shall be
paid over the following payment periods:

     (i) First Payment Period. The First Payment Period shall begin on the
first bi-weekly payroll date following the Separation from Service and shall end on
the last bi-weekly payroll date of the sixth (6th) calendar month
following the calendar month in which the Separation from Service occurs. The
Company shall pay a Payment to Executive on each bi-weekly payroll date during the
First Payment Period; provided, however, in no event shall the aggregate amount paid
to Executive during the First Payment Period exceed two (2) times the lesser of: (A)
the Executive’s annualized compensation based upon the annual rate of pay paid to
Executive for services to the Company for the calendar year preceding the calendar
year in which the Separation from Service occurs (adjusted for any increase during
that year that was expected to continue indefinitely but for the Separation from
Service), or (B) the maximum amount that may be taken into account under Section
401(a)(17) of the Internal Revenue Code for the calendar year in which the
Separation from Service occurs.

 

 

     In the event any amount that would have been paid during the First Payment
Period cannot be paid because it would exceed the limitation provided in the
preceding paragraph, such excess amount shall be paid in a lump sum on the first
bi-weekly payroll date of the Second Payment Period (in addition to any amount that
would be paid on such bi-weekly payroll date in the Second Payment Period as
provided in Section 1(a)(ii) below).

     (ii) Second Payment Period. The Second Payment Period shall commence
on the first bi-weekly payroll date following the end of the First Payment Period
and shall end on the last bi-weekly payroll date preceding the date that is eighteen
(18) months following the Executive’s Separation from Service. The Company shall
pay a Payment to Executive on each bi-weekly payroll date in the Second Payment
Period.

     (b) The Company shall continue to provide Executive with group term life insurance for
eighteen (18) months following the Termination Date, except that 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 group term life insurance 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.

     (c) With respect to all equity awards, the provisions of the granting instruments and
relevant Company plans shall be applicable.

     (d) The Executive shall be entitled to continue his medical and dental insurance in
accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”),
provided the Executive timely elects such coverage and satisfies all other eligibility
requirements under COBRA. If the Executive elects COBRA coverage, the Executive shall pay
the full COBRA premium at his own expense.

     (e) On the first bi-weekly payroll date during the Second Payment Period, the Company
shall pay Executive the sum of Forty-Six Thousand Three Hundred Sixty-Seven Dollars
($46,367) in addition to any other amounts due at that time to Executive pursuant to other
provisions of this Agreement.

     (f) If the Separation from Service occurs during a fiscal year in which a bonus was
earned under any Company sponsored bonus plan, the Executive will be entitled to a pro-rata
portion of that fiscal year’s bonus based on the attainment of the performance metrics. This
pro-rata bonus will be paid at its normal time at the end of the performance period.

2. Change of Control Severance Benefits upon Certain Separations from Service Occurring After a
Change of Control. If, after the occurrence of a Change of Control,

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Executive has a Separation from Service with the Company by the Company without Cause, or 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 Separation from Service, 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 cash
bonus earned over the three (3) full fiscal years of the Company ended before the Separation
from Service, or (B) Executive’s target annual bonus established for the bonus plan year in
which the Separation from Service 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
Separation from Service, the average of the bonuses earned in the two (2) full fiscal years
of the Company ended before the Separation from Service, or the amount of the bonus earned
in the one full fiscal year of the Company ended before the Separation from Service, as the
case may be, shall be substituted for the average referred to in (A) above.

     (b) If the Separation from Service 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
Separation from Service, 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 Separation from Service, in an amount equal to the greater of
(i) Executive’s unpaid targeted annual bonus, established for the bonus year in which the
Separation from Service 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
Separation from Service, 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 group term life insurance for
two (2) years following the Termination Date, except that 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 group term life insurance 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.

     (e) All stock options granted to Executive then outstanding will become fully
exercisable as of the date of the Change of Control, and all restrictions and conditions
applicable to restricted stock granted to Executive will be deemed to have been satisfied as
of the date of the Change of Control.

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     (f) The Executive shall be entitled to continue his medical and dental insurance in
accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”),
provided the Executive timely elects such coverage and satisfies all other eligibility
requirements under COBRA. If the Executive elects COBRA coverage, the Executive shall pay
the full COBRA premium at his own expense.

     (g) On the first bi-weekly payroll date during the Second Payment Period, the Company
shall pay Executive the sum of Sixty One Thousand Eight Hundred and Twenty Three Dollars
($61,823) in addition to any other amounts due at that time to Executive pursuant to other
provisions of this Agreement.

3. Earned but Unpaid Base Salary and Accrued Paid Time Off Pay Payable Upon Any Separation from
Service; Treatment of Long-Term Incentive Awards. Upon Executive’s Separation from Service 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 Separation from Service, (a) all earned but
unpaid Base Salary through the Separation from Service, 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 Separation from Service. In addition, upon such Separation from Service, all
outstanding long-term incentive awards shall be subject to the treatment provided under the
applicable long-term incentive plan of the Company except as explicitly provided otherwise in this
Agreement..

4. Separation from Service Due to Retirement, Disability, or Death. If Executive has a Separation
from Service 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. Separation from Service for Cause or by Executive other than for Good Reason. If Executive has
a Separation from Service 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 6 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 has a Separation from Service both in Advance of
and in Contemplation of a Change of Control. If Executive has a Separation from Service 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 Separation from
Service had occurred immediately after that Change of Control Executive would have been entitled to
Change of Control Severance Benefits under Section 2 above, then

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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 be deemed never to have occurred for purposes of
this Agreement.

8. Term of Agreement

This Agreement shall be effective as of the Effective Date (without interruption from the
Prior Agreement) and shall continue in effect hereafter until a Separation from Service occurs
pursuant to one of Sections 1, 3, 4, or 5, with due consideration of Sections 3, 6 and 7 hereof.
The parties may, by mutual agreement, at any time and from time to time modify or terminate the
term of this Agreement under this Section 8.

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

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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 of any portion of the Excise Tax; provided, however, that
such Gross Up Payments shall be paid on or before the last day of the calendar year following the
calendar year in which the Executive remits 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.

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     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 Separation from Service 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; provided, however, that such outplacement shall not continue beyond the last
day of the second calendar year following the calendar year in which the Executive’s Termination
Date or “Separation from Service” occurs.

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

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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 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.

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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 income, FICA and Medicare 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 his 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 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.

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     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, including, without limitation, the Prior Agreement.

     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

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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 Separation from Service. 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 normal
duties (other than any such failure resulting from Executive 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 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 action or omission was not in or not opposed to the best
interest of the Company.

     17.8 Change of Control. A “Change of Control” for purposes of Section 2(e) 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;

11

 

     (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

12

 

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.

     A “Change of Control” for all other purposes of the Agreement shall be deemed to have occurred
if at any time or from time to time while this Agreement is in effect:

     (i) 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 fifty percent (50%) of the total fair market value or
total voting power of the stock of the Company;

     (ii) a majority of members of the Company’s board of directors is replaced
during any twelve (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

     (iii) any one person, or more than one person acting as a group, acquires (or
has acquired during a twelve (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 fifty percent (50%) of the total gross
fair market value of all of the assets of the Company immediately before such
acquisition or acquisitions.

     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. “Employer” means the Company and 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

13

 

percent” shall be used instead of “at least 80 percent” in each place it appears in Treas. Regs.
Sec. 1.414(c)-2.

     17.15. “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).

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

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

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

     17.19. “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 material reduction in Executive’s base compensation and short-term and
long-term incentive compensation opportunities (to the extent such short-term and long-term
incentive compensation opportunities are a regular and substantial part of Executive’s base
compensation) 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 compensation and
short-term and long-term incentive compensation opportunities made in contemplation of the
Change of Control.

     (b) Any material 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 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 relevant time.

Executive shall have a Separation from Service for Good Reason (after a Change of Control) only if:
(i) Executive provides written notice to the Company within ninety (90) days after the initial
occurrence of an above event describing in detail the event and stating that Executive’s employment
will terminate upon a specified date in such notice (the “Good Reason Termination Date”), which
date is not earlier than thirty (30) days after the date such notice is provided to the Company
(the “Notice Delivery Date”) and not later than ninety (90) days after the Notice Delivery Date,
and (ii) the Company does not remedy the event prior to the Good Reason Termination Date.

     17.20. “Good Reason” (before a Change of Control) means, without Executive’s express written
consent, a material 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

14

 

of the Company in connection with an across-the-board reduction of executive base salaries.
Executive shall have a voluntary Separation from Service for Good Reason (before a Change of
Control) only if: (a) Executive provides written notice to the Company within ninety (90) days
after the initial occurrence of an above event describing in detail the event and stating that
Executive’s employment will terminate upon a specified date in such notice (the “Good Reason
Termination Date”), which date is not earlier than thirty (30) days after the date such notice is
provided to the Company (the “Notice Delivery Date”) and not later than ninety (90) days after the
Notice Delivery Date, and (b) the Company does not remedy the event prior to the Good Reason
Termination Date.

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

     17.22. “Payment” has the meaning assigned to that term in Section 9.1 above (except as otherwise
provided in Section 1(a)).

     17.23. “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).

     17.24. “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).

     17.25. “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.”

     17.26. “Retirement” means a voluntary Separation from Service by the Executive 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).

     17.27. “Separation from Service” means Executive 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 Executive and Employer reasonably anticipate that no further
services will be performed by the Executive for Employer; provided, however, that Executive shall
be deemed to have a termination of employment if the level of services he would perform for
Employer after a certain date permanently decreases to no more than twenty percent (20%) of the
average level of bona fide services performed for Employer (whether as an employee or independent
contractor) over the immediately preceding thirty-six (36)-month period (or the full period of
services to Employer if Executive has been providing services to Employer for less than thirty-six
(36) months). For this purpose, Executive is not treated as having a Separation from Service while
he is on a military leave, sick leave, or other

15

 

bona fide leave of absence, if the period of such leave does not exceed six (6) months, or if
longer, so long as Executive has a right to reemployment with Employer under an applicable statute
or by contract.

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

     17.29. “Termination Date” means the date on which any Separation of Service of the Executive
becomes effective.

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

	 	 	 	 	 
	 	JO-ANN STORES, INC.

 	 
	 	By:  	/s/ Darrell Webb
 	 
	 	 	President and Chief Executive Officer 	 
	 	 	 	 
	 
	 	EXECUTIVE

 	 
	 	  	/s/ James Kerr
 	 
	 	 	James Kerr 	 
	 	 	 	 
	 

16EX-10.37

 

Exhibit 10.37

INDEMNIFICATION AGREEMENT

          This
Indemnification Agreement (this “Agreement”) is made as of
the      day of      
2008 by and between JO-ANN STORES, INC., an Ohio corporation (the “Company”), and      
(the “Indemnitee”), a director of the Company.

RECITALS

          A. The Indemnitee is presently serving as a director of the Company, and the Company desires
the Indemnitee to continue in that capacity. The Indemnitee is willing, subject to certain
conditions (including, without limitation, the execution and performance of this Agreement by the
Company), to continue in that capacity.

          B. The Company and Indemnitee are each aware of the exposure to litigation of officers,
directors, employees, agents and representatives of the Company as such persons exercise their
duties to the Company.

          C. In addition to the indemnification to which the Indemnitee is entitled under the Amended
and Restated Code of Regulations of the Company (as such may be amended from time to time in the
future) (the “Regulations”) or otherwise, the Company has obtained, at its sole expense, insurance
protecting the Company and its directors and officers including the Indemnitee against certain
losses arising out of actual or threatened actions, suits, or proceedings to which such persons may
be made or threatened to be made parties. However, as a result of circumstances having no relation
to, and beyond the control of, the Company and the Indemnitee, there can be no assurance that the
Company will continue to be able to obtain appropriate directors and officers’ liability insurance
on an economically acceptable basis.

          Accordingly, and in order to induce the Indemnitee to continue to serve in his or her present
capacity, and in consideration of the foregoing premises and mutual covenants contained herein, the
Company and the Indemnitee agree as follows:

	 	1.	 	Continued Service. The Indemnitee shall continue to serve as a
director of the Company so long as he or she is duly elected and
qualified in accordance with the Regulations or until he or she
resigns in writing in accordance with applicable law.
	 
	 	2.	 	Initial Indemnity.

	 	(a)	 	The Company shall indemnify the Indemnitee to the greatest extent
permitted by Ohio law, including but not limited to the provisions of
the Ohio Revised Code (“ORC”) and the Regulations as such may be
amended from time to time, if or when he or she is a party or is
threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative,
or investigative (other than an action by or in the right of the
Company), by reason of the fact that he or she is or was a director,
officer, employee or agent of the Company or is or was serving at the
request of the Company as a director, trustee, officer, employee,
member, manager or agent of another corporation (domestic or foreign,
non-profit or for profit), limited liability company, partnership,
joint venture, trust, or other enterprise, or by reason of any action
alleged to have been taken or omitted in any such capacity, against
any and all costs, charges, expenses (including, without limitation,
fees and expenses of attorneys and/or others; all such costs, charges
and expenses being herein jointly referred to as “Expenses”),
judgments, fines and amounts paid in settlement, actually and
reasonably incurred by the Indemnitee in connection therewith
including any appeal of or from any judgment or decision, unless it is
proved by clear and convincing evidence in a court of competent
jurisdiction that the Indemnitee’s action or failure to act involved
an act or omission undertaken with deliberate intent to cause injury
to the Company or undertaken with reckless disregard for the best
interests of the Company. In addition, with respect to any criminal
action or proceeding, indemnification hereunder shall be made only if
the Indemnitee had no reasonable cause to believe his or her conduct
was unlawful. The 

1

 

	 	 	 	termination of any action, suit or proceeding by
judgment, order, settlement, or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the Indemnitee did not satisfy the foregoing standard
of conduct to the extent applicable thereto.
	 
	 	(b)	 	The Company shall indemnify the Indemnitee to the greatest extent
permitted by Ohio law, including but not limited to the provisions of
the ORC and the Regulations as such may be amended from time to time,
if or when he or she is a party or is threatened to be made a party to
any threatened, pending, or completed action, suit, or proceeding by
or in the right of the Company to procure a judgment in its favor, by
reason of the fact that the Indemnitee is or was a director, officer,
employee or agent of the Company or is or was serving at the request
of the Company as a director, trustee, officer, employee, member,
manager or agent of another corporation, (domestic or foreign,
nonprofit or for profit), limited liability company, partnership,
joint venture, trust, or other enterprise, against any and all
Expenses actually and reasonably incurred by the Indemnitee in
connection with the defense or settlement thereof or any appeal of or
from any judgment or decision, unless it is proved by clear and
convincing evidence in a court of competent jurisdiction that the
Indemnitee’s action or failure to act involved an act or omission
undertaken with deliberate intent to cause injury to the Company or
undertaken with reckless disregard for the best interests of the
Company (unless a court of competent jurisdiction determines that the
Indemnitee nonetheless, in view of all the circumstances of the case,
is fairly and reasonably entitled to indemnity to the extent deemed
proper by such court), except that no indemnification pursuant to this
Section 2(b) shall be made in respect of any action or suit in which
the only liability asserted against the Indemnitee is pursuant to
Section 1701.95 of the ORC.
	 
	 	(c)	 	Any indemnification under Section 2(a) or 2(b) (unless ordered by
a court) shall be made by the Company only as authorized in the
specific case upon a determination that indemnification of the
Indemnitee is proper in the circumstances because he or she has met
the applicable standard of conduct set forth in Section 2(a) or 2(b).
Such authorization shall be made (i) by the directors of the Company
(the “Board”) by a majority vote of a quorum consisting of directors
who were not and are not parties to or threatened with such action,
suit, or proceeding, or (ii) if such a quorum of disinterested
directors is not obtainable or if a majority of such quorum so
directs, in a written opinion by independent legal counsel (designated
for such purpose by the Board) (the “Independent Counsel”) which shall
not be an attorney, or a firm having associated with it an attorney,
who has been retained by or who has performed services for the
Company, or any person to be indemnified, within the five years
preceding such determination, or (iii) by the shareholders of the
Company (the “Shareholders”), or (iv) by the court in which such
action, suit, or proceeding was brought; except that, if a Change of
Control has occurred after the act or failure to act by the Indemnitee
which is the subject of the determination and before the authorization
of the indemnification, such authorization shall be made by
Independent Counsel selected by the Indemnitee. If the determination
of entitlement is to be made by Independent Counsel selected by the
Board, the Company shall promptly give written notice to Indemnitee
advising him or her of the identity of the Independent Counsel so
selected. If the determination of entitlement is to be made by
Independent Counsel selected by the Indemnitee, the Indemnitee shall
promptly give written notice to the Company advising it of the
identity of the Independent Counsel so selected. The Indemnitee or
the Company, as the case may be, may, within ten days after such
written notice of selection shall have been given, deliver to the
Company or the Indemnitee a written objection to such selection;
provided, however, that such objection may be asserted only on the
ground that the Independent Counsel so selected does not meet the
requirements of “Independent Counsel” as defined in this Section of
the Agreement, and the objection shall set forth with particularity
the factual basis of such assertion. Absent a proper and timely
objection, the person so selected shall act as Independent Counsel.
If a written objection is made and substantiated, the Independent
Counsel selected may not serve as Independent Counsel unless and until
such objection is withdrawn or a court has ruled against such
objection. If, within 30 days after submission by Indemnitee of a
written request for indemnification, no Independent Counsel shall have
been selected or an Independent Counsel shall have been selected but
an objection thereto shall have been properly made and remained
unresolved, either the Company or Indemnitee may petition the Summit
County Court of Common Pleas of the State of Ohio or other court of
competent jurisdiction for resolution of any

2

 

	 	 	 	objection that shall have
been made to the selection of Independent Counsel and/or for the
appointment as Independent Counsel of a person selected by the court
or by such other person as the court shall designate, and the person
with respect to whom all objections are so resolved or the person so
appointed shall act as Independent Counsel for purposes of this
Agreement. The Company shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel
in connection with his or her duties pursuant to this Agreement. A
“Change of Control” will be deemed to occur if a majority of the
members of the Board at the time the authorization is made were not
either (i) members of the Board at the time of the act or failure to
act by the Indemnitee which is the subject of the determination or
(ii) nominated for election or appointed as directors by the vote of a
majority of such members.
	 
	 	(d)	 	To the extent that the Indemnitee has been successful on the
merits or otherwise, including, without limitation, the dismissal of
an action without prejudice, in defense of any action, suit, or
proceeding referred to in Section 2(a) or 2(b), or in defense of any
claim, issue, or matter therein, he or she shall be indemnified
against Expenses actually and reasonably incurred by him in connection
therewith.
	 
	 	(e)	 	Expenses actually and reasonably incurred by the Indemnitee in
defending any such action, suit, or proceeding shall be paid by the
Company as they are incurred in advance of the final disposition of
such action, suit, or proceeding under the procedure set forth in
Section 4(b).
	 
	 	(f)	 	For purposes of this Agreement, references to “other enterprises”
shall include employee benefit plans; references to “fines” shall
include any excise taxes assessed on the Indemnitee with respect to
any employee benefit plan; references to “serving at the request of
the Company” shall include any service which imposes duties on, or
involves services by, the Indemnitee with respect to an employee
benefit plan, its participants or beneficiaries; references to the
masculine shall include the feminine; and references to the singular
shall include the plural and vice versa.
	 
	 	(g)	 	No amendment to the Amended and Restated Articles of Incorporation
of the Company (the “Articles”) or the Regulations shall deny,
diminish, or encumber the Indemnitee’s rights to indemnity pursuant to
this Agreement, except to the extent that such amendment is required
by law to be given effect. No amendment to the Articles or the
Regulations shall deny, diminish, or encumber the Indemnitee’s rights
to indemnity pursuant to the Articles, the Regulations, the ORC, or
any other applicable law as applied to any act or failure to act
occurring in whole or in part prior to the date (the “Effective Date”)
upon which the amendment was approved by the Shareholders, except to
the extent that such amendment is required by law to be given effect.
In the event that the Company shall purport to adopt any amendment to
its Articles or Regulations or take any other action the effect of
which is to deny, diminish, or encumber the Indemnitee’s rights to
indemnity pursuant to the Articles, the Regulations, the ORC, or any
such other law, such amendment shall apply only to acts or failures to
act occurring entirely after the Effective Date thereof.

	 	3.	 	Additional Indemnification.

	 	(a)	 	Pursuant to ORC Section 1701.13(E)(6), without limiting any right
which the Indemnitee may have pursuant to Section 2 hereof or any
other provision of this Agreement or the Articles, the Regulations,
the ORC, any policy of insurance, or otherwise, but subject to any
limitation on the maximum permissible indemnity which may exist under
applicable law at the time of any request for indemnity hereunder and
subject to the following provisions of this Section 3, the Company
shall indemnify the Indemnitee against any amount which he or she is
or becomes obligated to pay relating to or arising out of any claim
(including any pending, threatened or completed action, suit or
proceeding to which he or she is or is threatened to be made a party)
made against him because of any action alleged to have been taken or
omitted to be taken, including any actual or alleged error,
misstatement, or misleading statement, which he or she commits,
suffers, permits, or acquiesces in while acting in his or her capacity
as a director, officer, employee or agent of the Company or while
serving at the request of the Company as a director, trustee, officer,
employee, 

3

 

	 	 	 	member, manager or agent of another corporation (domestic or
foreign, non-profit or for profit), limited liability company,
partnership, joint venture, trust, or other enterprise. The payments
which the Company is obligated to make pursuant to this Section 3
shall include, without limitation, judgments, fines, and amounts paid
in settlement and any and all Expenses actually and reasonably
incurred by the Indemnitee in connection therewith including any
appeal of or from any judgment or decision; provided, however, that
the Company shall not be obligated under this Section 3 to make any
payment in connection with any claim against the Indemnitee:

	 	(i)	 	to the extent of any fine or similar governmental imposition which the
Company is prohibited by applicable law from paying which results from
a final, nonappealable order; or
	 
	 	(ii)	 	to the extent based upon or attributable to the Indemnitee
having            actually realized a personal gain or profit to which he or
she was not legally entitled, including, without limitation, profit from the
purchase and sale by the Indemnitee of equity securities of the Company which
is recoverable by the Company pursuant to Section 16(b) of the Securities
Exchange Act of 1934, or profit arising from transactions in publicly traded
securities of the Company which were effected by the Indemnitee in violation
of Section 10(b) of the Securities Exchange Act of 1934, or Rule 10b-5
promulgated thereunder.

	 	(b)	 	A determination as to whether the Indemnitee shall be entitled to
indemnification under this Section 3 shall be made in accordance with
Section 4(a).
	 
	 	(c)	 	Expenses incurred by the Indemnitee in defending any claim to which
this Section 3 applies shall be paid by the Company as they are
actually and reasonably incurred in advance of the final disposition
of such claim under the procedure set forth in Section 4(b).

	 	4.	 	Certain Procedures Relating to Indemnification.

	 	(a)	 	For purposes of pursuing his or her rights to indemnification
under Sections 2 or 3, unless the indemnification is to be authorized
by Independent Counsel, the shareholders or a court in accordance with
Section 2(c), the Indemnitee shall: (i) submit to the Board a sworn
statement of request for indemnification substantially in the form of
Exhibit 1 attached hereto and made a part hereof (the “Indemnification
Statement”) stating that he or she is entitled to indemnification
hereunder; and (ii) present to the Board reasonable evidence of all
amounts for which indemnification is requested. Submission of an
Indemnification Statement to the Board shall create a presumption that
the Indemnitee is entitled to indemnification hereunder, and the
Company shall, within 60 calendar days after submission of the
Indemnification Statement, make the payments requested in the
Indemnification Statement to or for the benefit of the Indemnitee,
unless (i) within such 60-calendar-day period the Board shall resolve
by vote of a majority of the directors at a meeting at which a quorum
is present that the Indemnitee is not entitled to indemnification,
(ii) such vote shall be based upon clear and convincing evidence
(sufficient to rebut the foregoing presumption), and (iii) the
Indemnitee shall have received within such period notice in writing of
such vote, which notice shall disclose with particularity the evidence
upon which the vote is based. The foregoing notice shall be sworn to
by all persons who participated in the vote and voted to deny
indemnification. The provisions of this Section 4(a) are intended to
be procedural only and shall not affect the right of any Indemnitee to
indemnification under Sections 2 or 3 so long as the Indemnitee
follows the prescribed procedure and any determination by the Board
that an Indemnitee is not entitled to indemnification and any failure
to make the payments requested in the Indemnification Statement shall
be subject to judicial review by any court of competent jurisdiction.
	 
	 	(b)	 	For purposes of obtaining payments of Expenses in advance of final
disposition pursuant to the Section 2(e) or Section 3(c), the
Indemnitee shall submit to the Company a sworn request for advancement
of Expenses substantially in the form of Exhibit 2 attached hereto and
made a part 

4

 

	 	 	 	hereof (the “Undertaking”), stating that he or she has
reasonably incurred actual Expenses in defending an action, suit or
proceeding referred to in Section 2(a) or 2(b) or any claim referred
to in Section 3, or pursuant to Section 11 hereof. Upon receipt of the
Undertaking, the Company shall thereafter promptly pay such Expenses
of the Indemnitee as are noticed to the Company in writing and in
reasonable detail arising out of the matter described in the
Undertaking. No security shall be required in connection with any
Undertaking. The Company shall advance to the Indemnitee all
reasonable costs and expenses incurred or to be incurred by the
Indemnitee in connection with any action under Section 3(c) within 20
days of receipt by the Company of a written request for such advance.
	 
	 	(c)	 	Limitation on Indemnity. Notwithstanding anything contained herein to the contrary, the Company shall not be required hereby to indemnify
the Indemnitee with respect to any action, suit, or proceeding that
was initiated by the Indemnitee unless (i) such action, suit or
proceeding was initiated by the Indemnitee to enforce any rights to
indemnification arising hereunder, (ii) authorized by another
agreement to which the Company is a party whether heretofore or
hereafter entered, or (iii) otherwise ordered by the court in which
the suit was brought.
	 
	 	(d)	 	Partial Indemnity. If the Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a
portion of any Expenses, judgments, fines and amounts paid in
settlement, but not for all of the total amount thereof, the Company
will nevertheless indemnify the Indemnitee for the portion thereof to
which the Indemnitee is entitled.

5

 

	 	5.	 	Notification and Defense of Claims.

	 	(a)	 	The failure by the Indemnitee to timely notify the Company of any
action, suit or proceeding referred to in Section 2(a) or 2(b) or any
claim referred in Section 3 for which Indemnitee seeks or may seek
indemnification or advancement of expenses under this Agreement, shall
not relieve the Company from any liability hereunder unless, and only
to the extent that, the Company did not otherwise learn of such
action, suit, proceeding or claim and such failure results in
forfeiture by the Company of substantial defenses, rights or insurance
coverage.
	 
	 	(b)	 	The Company shall be entitled to participate in the defense of any
action, suit or proceeding referred to in Section 2(a) or 2(b) or any
claim referred to in Section 3 for which Indemnitee seeks or may seek
indemnification or advancement of expenses under this Agreement or to
assume the defense thereof, with counsel reasonably satisfactory to
the Indemnitee; provided that if Indemnitee reasonably believes, after
consultation with counsel selected by Indemnitee, that (a) the use of
counsel chosen by the Company to represent Indemnitee would present
such counsel with an actual or potential conflict, (b) the named
parties in any such action, suit, proceeding or claim (including any
impleaded parties) include both the Company and Indemnitee and
Indemnitee shall conclude that there may be one or more legal defenses
available to him that are different from or in addition to those
available to the Company, or (c) any such representation by such
counsel would be precluded under the applicable standards of
professional conduct then prevailing, then Indemnitee shall be
entitled to retain separate counsel (but not more than one law firm
plus, if applicable, local counsel in respect of any particular
action, suit, proceeding or claim) at the Company’s expense. The
Company shall not be liable to Indemnitee under this Agreement for any
amounts paid in settlement of any threatened or pending action, suit,
proceeding or claim without the Company’s prior written consent. The
Company shall not, without the prior written consent of the
Indemnitee, effect any settlement of any threatened or pending action,
suit, proceeding or claim to which the Indemnitee is, or could have
been, a party unless such settlement solely involves the payment of
money by persons other than the Indemnitee and includes a complete and
unconditional release of the Indemnitee from all liability on any
claims that are the subject matter of such action, suit, proceeding or
claim. Neither the Company nor Indemnitee shall unreasonably withhold
its consent to any proposed settlement; provided that Indemnitee may
withhold consent to any settlement that does not provide a complete
and unconditional release of Indemnitee.

	 	6.	 	Liability Insurance and Funding. For the duration of Indemnitee’s
service as a director and thereafter for six (6) years following the
termination of Indemnitee’s service as a director (but in any event
for so long as Indemnitee shall be subject to any pending or possible
action, suit, proceeding or claim that gives rise to a right
hereunder), the Company shall use commercially reasonable efforts
(taking into account the scope and amount of coverage available
relative to the cost thereof) to cause to be maintained in effect
policies of directors’ and officers’ liability insurance providing
coverage for directors and officers of the Company either that (a) is
at least substantially comparable in scope and amount to that provided
by the Company’s current policies of directors’ and officers’
liability insurance or (b) the annual premium cost of which is at
least $650,000. The Company shall provide Indemnitee with a copy of
all directors’ and officers’ liability insurance applications,
binders, policies, declarations, endorsements and other related
materials. All policies of directors’ and officers’ liability
insurance obtained by the Company, shall name Indemnitee as an insured
and shall provide Indemnitee the same rights and benefits, subject to
the same limitations, as are accorded to the Company’s directors most
favorably insured by such policy.
	 
	 	7.	 	Subrogation; Duplication of Payments.

	 	(a)	 	In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of
the rights of recovery of the Indemnitee, who shall execute
all papers required and shall do everything that may be
necessary to secure such rights, including the execution of
such documents necessary to enable the Company effectively to
bring suit to enforce such rights.

6

 

	 	(b)	 	The Company shall not be liable under this Agreement to make any
payment in connection with any claim made against an Indemnitee to the
extent that the Indemnitee has actually received payment (under any
insurance policy, the Regulations or otherwise) of amounts otherwise
payable hereunder.

	 	8.	 	Shareholder Ratification. The Company may, at its option, propose at
any future meeting of Shareholders that this Agreement be ratified by
the Shareholders; provided, however, that the Indemnitee’s rights
hereunder shall be fully enforceable in accordance with the terms
hereof whether or not such ratification is sought or obtained.
	 
	 	9.	 	Fees and Expenses of Enforcement; Arbitration.

	 	(a)	 	It is the intent of the Company that the Indemnitee not be
required to incur expenses associated with the interpretation,
enforcement or defense of his or her rights under this Agreement by
litigation or otherwise because such expenses would substantially
detract from the benefits intended to be extended to the Indemnitee
hereunder. Accordingly, if it should appear to the Indemnitee that the
Company has failed to comply with any of its obligations under this
Agreement or if the Company or any other person takes any action to
declare this Agreement void or unenforceable, or institutes any
action, suit, or proceeding to deny, or to recover from, the
Indemnitee the benefits intended to be provided to the Indemnitee
hereunder, the Company irrevocably authorizes the Indemnitee from time
to time to retain counsel of his or her choice, at the expense of the
Company as hereafter provided, to advise and represent the Indemnitee
in connection with any such interpretation, enforcement or defense,
including the initiation or defense of any litigation or other legal
action, whether by or against the Company or any director, officer,
shareholder, or other person affiliated with the Company, in any
jurisdiction. Regardless of the outcome thereof, the Company shall pay
and be solely responsible for any and all expenses, including, without
limitation, fees and expenses of attorneys and others, reasonably
incurred by the Indemnitee pursuant to this Section 9, unless the
court determines that each of the material assertions made by the
Indemnitee as a basis for the litigation or other legal action were
not made in good faith or were frivolous.
	 
	 	(b)	 	In lieu of initiating litigation to enforce its rights under this
agreement, the Indemnitee may request that the dispute be resolved by
means of arbitration. If arbitration is requested, such dispute or
controversy shall be submitted by the parties to binding arbitration
in the City of Cleveland, State of Ohio, before a single arbitrator
agreeable to both parties. If the parties cannot agree on a
designated arbitrator within fifteen (15) days after arbitration is
requested in writing by either of them, the arbitration shall proceed
in the City of Cleveland, State of Ohio, before an arbitrator
appointed by the American Arbitration Association. In either case,
the arbitration proceeding shall commence promptly under the
commercial arbitration rules then in effect of that Association and
the arbitrator agreed to by the parties or appointed by that
Association shall be an attorney other than an attorney who has, or is
associated with a firm having associated with it an attorney which has
been retained by or performed services for the Company or Indemnitee
at any time during the five (5) years preceding the commencement of
arbitration. The award shall be rendered in such form that judgment
may be entered thereon in any court having jurisdiction thereof. The
prevailing party shall be entitled to prompt reimbursement of any
costs and expenses (including, without limitation, reasonable
attorney’s fees) incurred in connection with such legal action or
arbitration provided that Indemnitee shall not be obligated to
reimburse the Company unless the arbitrator who resolves the dispute
determines the Indemnitee acted in bad faith in bringing such
arbitration. The arbitrator’s fees and other arbitration costs shall
be borne by the Company, unless the arbitrator determines that the
Indemnitee acted in bad faith in bringing such arbitration and an
alternative allocation of such fees and expenses is appropriate under
the circumstances.

	 	10.	 	Merger or Consolidation. This Agreement shall be binding upon and
inure to the benefit of the Company and any successor to the Company.
If the Company shall be a constituent corporation in a

7

 

	 	 	 	consolidation,
merger, or other reorganization, the Company, if it shall not be the
surviving, resulting, or acquiring corporation therein, shall require
as a condition thereto that the surviving, resulting, or acquiring
corporation agree to assume all of the obligations of the Company
hereunder and to indemnify the Indemnitee to the full extent provided
herein. Whether or not the Company is the resulting, surviving, or
acquiring corporation in any such transaction, the Indemnitee shall
also stand in the same position under this Agreement with respect to
the resulting, surviving, or acquiring corporation in which he or she
would have stood with respect to the Company if its separate existence
had continued.
	 
	 	11.	 	Indemnification for Expenses of a Witness. Notwithstanding any other
provision of this Agreement, to the extent Indemnitee is, by reason of
the fact that Indemnitee is or was a director of the Company or is or
was serving at the request of the Company as a director, trustee,
officer, employee, member, manager or agent of another corporation
(domestic or foreign, non-profit or for profit), limited liability
company, partnership, joint venture, trust, or other enterprise, a
witness in any action, suit, proceeding or claim to which Indemnitee
is not a party, he or she shall be indemnified against all expenses
actually and reasonably incurred by him or on his or her behalf in
connection therewith.
	 
	 	12.	 	Nonexclusively and Severability.

	 	(a)	 	The rights to indemnification provided by this Agreement shall not
be exclusive of any other rights of indemnification to which the
Indemnitee may be entitled under the Articles, the Regulations, the
ORC or any other statute, any insurance policy, agreement, or vote of
shareholders or directors or otherwise, as to any actions or failures
to act by the Indemnitee, and shall continue after he or she has
ceased to be a director, officer, employee, or agent of the Company or
other entity for which his or her service gives rise to a right
hereunder, and shall inure to the benefit of his or her heirs,
executors, and administrators; provided, however, that the Indemnitee
hereby agrees that the provisions set forth in Sections 4 through 19
of this Agreement also shall apply to any rights of indemnification or
advancement of expenses that Indemnitee may have under, and supersede,
if necessary, provisions of the same subject matters set forth in, the
Articles, the Regulations, the ORC or any other statute, insurance
policy, agreement, or vote of shareholders or directors, or otherwise.
	 
	 	(b)	 	This Agreement shall inure to the benefit of and be enforceable by the
Indemnitee’s personal or legal representatives, executors,
administrators, heirs, distributees, legatees and other successors,
but otherwise the rights to indemnification provided by this Agreement
are personal to the Indemnitee and are non-transferable by Indemnitee,
and no party other than the Indemnitee is entitled to indemnification
under this Agreement.
	 
	 	(c)	 	If any provision of this Agreement or the application of any provision
hereof to any person or circumstances is held invalid, unenforceable,
or otherwise illegal, the remainder of this Agreement and the
application of such provision to other persons or circumstances shall
not be affected, and the provision so held to be invalid,
unenforceable, or otherwise illegal shall be reformed to the extent
(and only to the extent) necessary to make it enforceable, valid, and
legal.

	 	13.	 	Security. To ensure that the Company’s obligations pursuant to this
Agreement can be enforced by Indemnitee, the Company may, at its
option, establish a trust pursuant to which the Company’s obligations
pursuant to this Agreement and other similar agreements can be funded.
	 
	 	14.	 	Notices. All notices and other communications hereunder shall be in
writing and shall be personally delivered or sent by recognized
overnight courier service (a) if to the Company, to the then-current
principal executive offices of the Company (Attention: General
Counsel) or (b) if to the Indemnitee, to the last known address of
Indemnitee as reflected in the Company’s records. Either party may
change its address for the delivery of notices or other communications hereunder by providing

8

 

	 	 	 	notice to the other party as provided in this
Section 14. All notices shall be effective upon actual delivery by the
methods specified in this Section 14.
	 
	 	15.	 	Prior Agreements. Subject to Section 12, this Agreement constitutes
the entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and
understandings, oral, written and implied, between the parties hereto
with respect to the subject matter hereof.
	 
	 	16.	 	Termination. This Agreement may be terminated by either party upon
not less than sixty (60) days’ prior written notice delivered to the
other party, but such termination shall not in any way diminish the
obligations hereunder with respect to Indemnitee’s service as a
Company director and activities prior to the effective date of the
termination or the Company’s obligation to provide continuing
insurance coverage for past service and activities pursuant to Section
6 hereof. In the case of termination by the Company, such termination
must be pursuant to a resolution adopted by majority vote of the Board
of Directors.
	 
	 	17.	 	Governing Law and Consent to Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Ohio, without giving effect to the principles of conflict of laws
thereof. The Company and the Indemnitee each hereby irrevocably
consents to the jurisdiction of the federal and state courts located
in Summit County, Ohio for all purposes in connection with any action,
suit, proceeding or claim which arises out of or relates to this
Agreement and hereby waives any objections or defenses relating to
jurisdiction with respect to any lawsuit or other legal proceeding
initiated in or transferred to such courts.
	 
	 	18.	 	Modification. This Agreement and the rights and duties of the
Indemnitee and the Company hereunder may be modified only by an
instrument in writing signed by both parties hereto

9

 

	 	19.	 	Headings; References. Descriptive headings of the several Sections of
this Agreement are inserted for convenience only and will not control
or affect the meaning or construction of any of the provisions of this
Agreement. Unless otherwise expressly provided, references to Sections
and Exhibits are to Sections of and Exhibits to this Agreement.
	 
	 	20.	 	Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts will for all purposes be
deemed to be an original, and all counterparts together will
constitute but one and the same instrument.

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

	 	 	 	 	 
	 	JO-ANN STORES, INC.

 	 
	 	By:  	 	 
	 	 	 
	 	 	Title:  	 	 
	 	 	 
	 	 	  	 	 
	 	 	  	Director 	 

10

 

Exhibit 1

INDEMNIFICATION STATEMENT

	 	 	 	 	 
	STATE OF 	 	)  	 
	 	 	  	) SS	 
	COUNTY OF 	 	)  	 

I, _______________________, being first duly sworn, do depose and say as follows:

          1. This Indemnification Statement is submitted pursuant to the Indemnification Agreement made
as of ____________, 2008 between JO-ANN STORES, INC. (the “Company”), an Ohio corporation, and
the undersigned.

          2. I am requesting indemnification against costs, charges, expenses (which may include fees
and expenses of attorneys and/or others), judgments, fines, and amounts paid in settlement
(collectively, “Liabilities”), which have been actually and reasonably incurred by me in connection
with a claim referred to in Sections 2 or 3 of the aforesaid Indemnification Agreement.

          3 With respect to all matters related to any such claim, I am entitled to be indemnified as
herein contemplated pursuant to the aforesaid Indemnification Agreement.

          4. Without limiting any other rights which I have or may have, I am requesting indemnification
against Liabilities which have or may arise out of

	 	 	 	 	 
	 	 	. 
	 	[Signature of Indemnitee]

 	 
	 

     Subscribed and sworn to before me, a Notary Public in and for said County and State, this
_________ day of ______________ , 2008.

[Seal]

          My commission expires ______________

11

 

Exhibit 2

UNDERTAKING

	 	 	 	 	 
	STATE OF 	 	)  	 
	 	 	  	) SS	 
	COUNTY OF 	 	)  	 

          I, ____________, being first duly sworn do depose and say as follows:

          1. This Undertaking is submitted pursuant to the Indemnification Agreement made as of
_________, 2008 between JO-ANN STORES, INC. (the “Company”), an Ohio corporation, and the
undersigned.

          2. I am requesting payment of costs, charges, and expenses which I have reasonably incurred or
will reasonably incur in defending an action, suit or proceeding referred to in Section 2(a) or
2(b) or any claim referred to in Section 3, or pursuant to Section 9 or Section 11 of the aforesaid
Indemnification Agreement.

          3. The costs, charges, and expenses for which payment is requested are, in general, all
expenses related to: _________.

          4. I hereby undertake to (a) repay all amounts paid pursuant hereto if it ultimately is
determined that I am not entitled to be indemnified by the Company under the aforesaid
Indemnification Agreement or otherwise and (b) reasonably cooperate with the Company concerning the
action, suit, proceeding or claim.

	 	 	 	 	 
	 	 	 
	 	
[Signature of Indemnitee] 	 
	 	 	 
	 	 	 
	 	 	 
	 

     Subscribed and sworn to before me, a Notary Public in and for said County and State, this _________
day of _______________, 2008.

[Seal]

     My commission expires __________________

12

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