Document:

EX-10.5

 

Exhibit 10.5

July 24, 2006

Jim Kerr

Dear Jim:

I am delighted to offer you the position of Executive Vice President, Chief Financial Officer of
Jo-Ann Stores, Inc. All of my personal contacts with Board members and other members of Jo-Ann’s
senior leadership team, have reiterated to me your ability and willingness to help lead Jo-Ann back
to the prominence of being the premier fabric and craft retailer.

The following provides the terms and conditions of your employment offer:

	1)	 	Your promotion date will become effective immediately.

	2)	 	Your annual base salary will be increased to $300,000 paid in bi-weekly installments of
$11,538.46 with an annual review in February or March of each year.

	3)	 	Your Target incentive under the Management Incentive Plan for FY08 will be increased to 50%
of earned salary.

	4)	 	Beginning in fiscal year 2008, you will participate in the Jo-Ann Stores, Inc. long-term
incentive plan at a level commensurate with your position relative to other executive
officers. As you know, annual grants under this plan are determined by the board of directors
based on peer incentive compensation levels and the specific needs and circumstances of the
Company. In addition, on the first Friday following the effective date in your new position,
you will receive:

	 	a)	 	A grant of 10,000 shares of Jo-Ann Stores, Inc. common stock These shares will vest
50% after (3) three years and 50% after (4) years.
	 
	 	b)	 	A grant of 25,000 non-qualified options to purchase shares of Jo-Ann Stores, Inc.
common stock. These options will vest 25% annually on the first four anniversaries of your
start date and be exercisable for seven years from date of issuance. These options will be
priced at the closing price of Jo-Ann Stores common stock on the day of the grant.

	5)	 	Your car allowance will be increased to $1,300 per month.
	 
	6)	 	Your PTO will remain the same.

	7)	 	We will provide you with an allowance of up to $5,000 annually to be used for tax and
financial planning purposes.

	8)	 	You will be eligible to participate in the Company’s SERP pending approval at the next Board
of Directors Meeting, with a maximum benefit of $600,000 subject to the terms of the plan.

 

 

	9)	 	The Company will enter into a separate agreement with you covering severance in the event
that your employment is terminated by the Company without cause or by you or the Company as a
result of a Change in Control.

Jim, I am very excited to promote you to Executive Vice President and Chief Financial Officer for
Jo-Ann Stores, Inc. I am very confident that you will continue to make an impact and I look
forward to working with you.

Please confirm your agreement to accept this position by signing and returning one copy of this
letter. Thank you.

Sincerely,

	 	 	 	 	 
	 	 	 
	/s/ Darrell Webb
 	 	 
	Darrell Webb 	 	 
	Chairman, President, & CEO 	 	 
	 

Agreed to this on the 27th day of July, 2006.

	 	 	 	 	 
	 	 	 
	/s/ Jim Kerr
 	 	 
	Jim KerrEX-10.6

 

Exhibit 10.6

AGREEMENT

THIS AGREEMENT (“Agreement”) is made as of the 27th day of July, 2006, between J0-ANN
STORES, INC., an Ohio corporation (the “Company”), and Jim Kerr (“Executive”).

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

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

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

     (a) The Company shall pay Executive an amount equal to 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 remained in the employ of the Company and had continued to earn
Executive’s Base Salary for such eighteen (18) month period.

     (b) The Company shall continue to provide Executive with the welfare benefits of medical
insurance, dental insurance, and group term life insurance for the eighteen (18) months
following the Termination Date, except that

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

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

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     (iii) If the Termination Date 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 fiscal year.

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

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

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

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

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

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

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

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

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

     (f) 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.

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

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

5. Termination for Cause or by Executive other than for Good Reason. If Executive’s employment is
terminated either by the Company for Cause or by

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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 3and the Company shall pay to Executive such other amounts to which Executive is
entitled under any compensation plans of the Company, at the time such payments are due. Except as
provided in this Section 5, the Company shall have no further obligations to Executive under this
Agreement.

6. Special Provision Applicable Only if Executive is Terminated both in Advance of and in
Contemplation of a Change of Control. If Executive is terminated by the Company (a) in
contemplation of and not more than six full calendar months before the occurrence of a Change of
Control, and (b) under circumstances such that if the termination had occurred immediately after
that Change of Control Executive would have been entitled to Change of Control Severance Benefits
under Section 2 above, then the Company shall pay and provide to Executive all of the amounts and
benefits specified in Section 2, reduced by such amounts and such benefits, if any, that the
Company has otherwise paid and provided to Executive pursuant to Section 1 above. The Company
shall make any cash payment required pursuant to this Section 6 within ten 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 years following the occurrence of any Change of
Control, that particular Change of Control will deemed never to have occurred for purposes of this
Agreement.

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

          8.1. Term. This Agreement shall be effective as of the Effective Date and shall thereafter apply
to any termination of Executive’s employment occurring on or before July 27, 2009. Unless this
Agreement is earlier terminated pursuant to its terms, on July 27, 2009 and on July 27 of each
succeeding year thereafter (a “Renewal Date”), the term of this Agreement shall be automatically
extended for an additional year unless either
party has given notice to the other, at least one year in advance of that Renewal Date, that the
Agreement shall not apply to any termination of Executive’s employment occurring after that Renewal
Date.

          8.2. Right to Severance Benefits. If the Company gives Executive notice that this Agreement shall
not apply to any termination of Executive’s employment occurring after a particular Renewal Date,
Executive shall have the right to terminate Executive’s employment at any time during the first
three months of the final year during which this Agreement is thereafter scheduled to be effective
(e.g., if the Company gives notice that the Agreement is not to apply to any termination after July

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31, 2009, at any time during the months of August, September, and October 2008) and Executive shall
thereupon be entitled to receive Severance Benefits to the same extent as if all of the conditions
to Executive’s right to receive Severance Benefits under Section 2 had been satisfied.

9. Excise Tax.

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

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

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

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

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Section 9 and, in addition,
the Company shall make the Gross Up Payments specified in Section 9.5.

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

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

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

          9.7. Imposition of Additional Excise Tax Following Payment of Gross Up Prescribed by Section 9.5.
If the Internal Revenue Service determines that any Payment gives rise, directly or indirectly, to
liability on the part of Executive for the

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

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

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

11. The Company’s Payment Obligation.

          11.1. Payment Obligations Absolute. The Company’s obligation to make the payments and provide the
benefits provided for herein shall be absolute and unconditional, and shall not be affected by any
circumstances, including, without limitation, any offset, counterclaim, recoupment, defense, or
other right which the

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Company may have against Executive or anyone else. All amounts payable by
the Company hereunder shall be paid without notice or demand. Each and every payment made
hereunder by the Company shall be final, and the Company shall not seek to recover all or any part
of such payment from Executive or from whomsoever may be entitled thereto, for any reasons
whatsoever.

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

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

12. Legal Remedies.

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

          12.2. Arbitration. Subject to the following sentences, any dispute or controversy arising under or
in connection with this Agreement shall be settled by mandatory arbitration (in lieu of
litigation), conducted before a panel of three arbitrators sitting in a location selected by
Executive within 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 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 18
month period beginning on the Termination Date or if Change of Control Severance Benefits are paid
hereunder, thereafter through the second 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 of the shares of any corporation whose shares are regularly traded
on a national securities exchange or in the over-the-counter market.

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

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

15. Successors and Assignment.

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

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so remedied, Executive will be entitled to receive the same payments and benefits
from the Company, and on the same schedule, as if the Company had undergone a Change of Control on
the date of the succession and Executive had thereupon terminated his employment for Good Reason.

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

16. Miscellaneous.

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

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

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performed wholly within that state, shall be the controlling
law in all matters relating to this Agreement.

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

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

          17.2. “280G Limit” has the meaning assigned to it in Section 9.2.

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

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

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

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

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

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

11

 

by Executive not in good faith and
without reasonable belief that his or her action or omission was in or not opposed to the best
interest of the Company.

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

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

     (b) Any person (other than the Company, any of its Subsidiaries, any employee benefit plan
or employee stock ownership plan of the Company, or any person organized, appointed, or
established by the Company for or pursuant to the terms of any such plan), alone or together
with any of its affiliates, becomes the Beneficial Owner of 50% or more of the Common 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 15% or more of the Common Shares then outstanding;

     (d) At any time during any period of 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 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 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

12

 

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

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

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

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

13

 

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

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

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

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

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

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

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

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

     (f) Any dissolution or liquidation of the Company.

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

          17.19. “Good Reason” (before a Change of Control) means, without Executive’s express written
consent, any reduction in Executive’s Base Salary other

14

 

than a reduction that is in the same
proportion as the reduction of the base salaries of every other executive officer of the Company in
connection with an across-the-board reduction of executive base salaries.

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

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

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

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

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

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

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

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

15

 

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

	 	 	 	 	 
	 	JO-ANN STORES, INC.

 	 
	 	By  	/s/ Darrell Webb
 	 
	 	 	Darrell Webb 	 
	 	 	President and CEO

Jo-Ann Stores, Inc. 	 
	 

	 	 	 	 	 
	 	“EXECUTIVE”

 	 
	 	/s/ Jim Kerr
 	 
	 	Jim Kerr

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