Jo-Ann Stores, Inc. DEF 14A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

SCHEDULE 14A

(RULE 14a-101)

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5555 Darrow Road
Hudson, Ohio 44236

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD JUNE 11, 2008

To our Shareholders:

The Annual Meeting of Shareholders of Jo-Ann Stores, Inc. will be held at the Conference Center at our corporate offices located at 5373 Darrow Road, Hudson, Ohio, on Wednesday, June 11, 2008 at 9:00 a.m., eastern daylight saving time, for the following purposes:

1. To elect eight directors whose terms will expire at the time of the 2009 Annual Meeting of Shareholders.

2. To ratify the selection of Ernst & Young LLP to serve as our independent registered public accountants for our fiscal year ending January 31, 2009.

3. To approve a new Incentive Compensation Plan.

4. To approve a new Associate Stock Ownership Plan.

5. To transact such other business as may properly come before the meeting.

All shareholders are cordially invited to attend the meeting, although only those holders of common shares of record at the close of business on April 14, 2008 will be entitled to vote at the meeting.

Whether or not you plan to attend the meeting, your vote is important and we encourage you to vote promptly. If you received in the mail only a Notice of the meeting, you may vote your shares via the Internet or by telephone by following the instructions on the Notice. If you received a paper copy of the proxy card by mail or request printed copies of the proxy materials, you may vote by Internet or telephone or by signing, dating and submitting your proxy card and returning it by mail in the envelope provided. Instructions regarding all three methods of voting are contained on the proxy card. Instructions for requesting printed copies of the proxy materials are set forth on the Notice. If you attend the meeting, you may revoke your proxy and vote your shares in person.

The proxy statement accompanies this notice.

David Goldston

Senior Vice President

General Counsel & Secretary

By order of the Board of Directors

April 28, 2008

5555 Darrow Road
Hudson, Ohio 44236

PROXY STATEMENT

Our Board of Directors is furnishing you this proxy statement to solicit proxies on its behalf to be voted at the Annual Meeting of Shareholders of Jo-Ann Stores, Inc. to be held on Wednesday, June 11, 2008 beginning at 9:00 a.m., eastern daylight saving time, at the Conference Center at our corporate offices located at 5373 Darrow Road, Hudson, Ohio, and at any postponements or adjournments of that meeting (“Annual Meeting”). We are first sending the proxy materials on or about May 1, 2008.

ELECTRONIC DELIVERY OF THIS PROXY STATEMENT

We have implemented the Securities and Exchange Commission’s new “E-Proxy Rules” and decided to use what is known as the “Notice and Access Option.” We believe this new E-Proxy process will expedite shareholders’ receipt of proxy materials, lower our printing and delivery costs, and help the environment. Under the new procedures, unless a shareholder previously requested paper copy delivery of this proxy statement and our Annual Report on Form 10-K, all shareholders are being mailed a one-page notice (the “Notice”) regarding the Internet availability of proxy materials. The Notices (and paper copies of the proxy statement and Annual Report on Form 10-K, in the case of shareholders previously requesting paper copies) are being mailed on May 1, 2008. The Notices contain information on how to access this proxy statement and our Annual Report on Form 10-K via the Internet and how to vote. If you received this Notice and wish to receive a printed copy of our proxy materials, please follow the instructions in the Notice for requesting such materials.

ABOUT THE MEETING

What is the purpose of the Annual Meeting?

At our Annual Meeting, shareholders will:

1. Act upon the election of directors.

2. Consider the ratification of the selection of Ernst & Young LLP to serve as our independent registered public accountants for our fiscal year ending January 31, 2009.

3. Consider approval of a new Incentive Compensation Plan.

4. Consider approval of a new Associate Stock Ownership Plan.

5. Transact such other business as may properly come before the meeting.

In addition, our management will report on our performance during fiscal 2008 and respond to questions from shareholders.

Who may attend the Annual Meeting?

All shareholders may attend the Annual Meeting.

Who is entitled to vote?

Shareholders as of the close of business on April 14, 2008, the record date, are entitled to vote at the Annual Meeting. Each outstanding common share entitles its holder to cast one vote on each matter to be voted upon.

How many shares must be present to conduct the Annual Meeting?

Your shares are counted as present at the meeting if you attend the meeting and vote in person or if you properly return a proxy by Internet, telephone or mail. In order for us to conduct the meeting, a majority of our outstanding common shares, as of the record date, must be present in person or by proxy at the meeting. This is referred to as a quorum. On the record date, 25,355,041 common shares were outstanding. Abstentions and broker non-votes are included in determining the number of votes present at the meeting. A broker non-vote occurs when a broker or other nominee holding shares for a beneficial owner does not vote on a particular proposal because the broker or other nominee does not have discretionary voting power with respect to that item and has not received voting instructions from the beneficial owner.

What am I voting on?

You will be voting on the election of eight directors. These directors each will serve a one-year term ending at the time of the 2009 Annual Meeting of Shareholders.

You also will be voting on a proposal to ratify the Audit Committee’s selection of Ernst & Young LLP to serve as our independent registered public accountants for fiscal 2009, on a proposal for a new Incentive Compensation Plan and on a proposal for a new Associate Stock Ownership Plan. These proposals are discussed in further detail beginning on page 5.

If any other matter is presented at the meeting, your proxy holder will vote in accordance with his or her best judgment. At the time this proxy statement was printed, we knew of no other matters to be acted on at the meeting.

How do I vote?

You may vote by proxy or in person at the meeting. To vote by proxy, you may use one of the following methods.

Vote via the Internet:

You can vote your shares via the Internet. The website for Internet voting is shown on your Notice (or your proxy card if you received printed proxy materials). Internet voting is available 24 hours a day, seven days a week. You will have the opportunity to confirm that your instructions have been properly recorded. If you vote via the Internet, you do NOT need to return your proxy card. The deadline for voting via the Internet is 11:59 pm, eastern daylight saving time, on June 10, 2008.

Vote by Telephone:

You can vote your shares by telephone by calling the toll-free telephone number shown on our Internet voting website (or on your proxy card if you received printed proxy materials). Telephone voting is available 24 hours a day, seven days a week. Easy-to-follow voice prompts allow you to vote your shares and confirm that your instructions have been properly recorded. Our telephone voting procedures are designed to authenticate the shareholder by using individual control numbers. If you vote by telephone, you do NOT need to return your proxy card. The deadline for voting by telephone is 11:59 pm, eastern daylight saving time, on June 10, 2008.

Vote by Mail:

If you wish to vote by mail, you will need to request a printed copy of our proxy materials, which will include a paper proxy card. Instructions for obtaining such materials are on your Notice. Simply mark your proxy card, date and sign it, and return it in the postage-paid envelope provided. Proxies returned by mail must be received by 11:59 pm, eastern daylight saving time, on June 10, 2008.

Can I change my vote or revoke my proxy after I submit my proxy?

Yes. Even after you have submitted your proxy, you may change your vote or revoke your proxy at any time before the proxy is exercised by filing a duly executed proxy bearing a later date, or a notice of revocation, with our Secretary. If you attend the meeting in person, you may request that the powers of the proxy holders to vote your shares be suspended, although attendance at the meeting will not by itself revoke a previously granted proxy.

How do I vote my 401(k) shares?

If you participate in the Jo-Ann Stores, Inc. 401(k) Savings Plan, the number of common shares that you may vote is equivalent to the interest in common shares credited to your account as of the record date. You may vote these shares by instructing Vanguard Fiduciary Trust Company pursuant to the instructions on the Notice. The trustee will vote your shares in accordance with your duly executed instructions. If you do not send instructions on how to vote your shares, the share equivalents credited to your account will be voted by the trustee in the same proportion that the trustee votes share equivalents for which it did receive instructions.

What does it mean if I receive more than one Notice or proxy card?

If you receive more than one Notice or proxy card, it is because you hold shares in more than one account. You will need to vote all notices or proxy cards to insure that all your shares are counted.

Who will count the vote?

A representative of Broadridge Financial Solutions, Inc. will tabulate the votes. We have appointed an individual to act as inspector of elections.

What is the required vote for approval of the proposals?

Proposal 1 — Election of Directors. The eight individuals receiving the highest number of “FOR” votes cast at the Annual Meeting will be elected. A properly executed proxy card marked “WITHHOLD AUTHORITY” with respect to the election of one or more nominees will not be voted with respect to the nominee or nominees indicated.

Proposal 2 — Ratification of Selection of Ernst & Young LLP as our Independent Registered Public Accounting Firm. Approval of this proposal will require the affirmative vote of a majority of the shares voting on this proposal.

Proposal 3 — Approval of the Jo-Ann Stores, Inc. 2008 Incentive Compensation Plan. Approval of this proposal will require the affirmative vote of a majority of the shares voting on this proposal.

Proposal 4 — Approval of the Jo-Ann Stores, Inc. 2008 Associate Stock Ownership Plan. Approval of this proposal will require the affirmative vote of a majority of the shares voting on this proposal.

What is cumulative voting?

Under the Ohio General Corporation Law, all of the common shares may be voted cumulatively in the election of directors if any shareholder gives written notice to our President, a Vice President or the Secretary, not less than 48 hours before the time set for the Annual Meeting, and an announcement of the notice is made at the beginning of the Annual Meeting by the Chairman or the Secretary or by or on behalf of the shareholder giving such notice. Cumulative voting permits a shareholder to (1) cast a number of votes equal to the number of common shares owned by the shareholder multiplied by the number of directors to be elected and (2) cast those votes for only one nominee or distribute them among the nominees. In the event that voting at the election is cumulative, the persons named in the enclosed proxy will vote the common shares represented by valid proxies on a cumulative basis for the election of the nominees, allocating the votes of such common shares in accordance with their judgment. Shareholders of the company will not be entitled to dissenters’ rights with respect to any matter to be considered at the Annual Meeting.

PROPOSALS TO BE VOTED ON

Proposal 1 — Election of Directors

Our Board of Directors presently is comprised of ten members. The Board is divided into three classes, two of which consist of three members and one of which consists of four members. Pursuant to an amendment to our Code of Regulations approved at the 2007 Annual Meeting, the class structure will be eliminated and all directors will be subject to annual election starting with our 2009 Annual Meeting.

Ira Gumberg, Patricia Morrison, Frank Newman, Beryl Raff, Tracey Travis and Darrell Webb are directors in classes whose terms of office expire in 2008. Joseph DePinto and David Perdue were elected directors by the Board on April 2, 2008 as members of the class of directors whose terms expire at the 2009 Annual Meeting; however, in accordance with the amendments to our Code of Regulations approved by our shareholders at the 2007 Annual Meeting, Mr. DePinto and Mr. Perdue are standing for re-election at the 2008 Annual Meeting. The Corporate Governance Committee of the Board of Directors has nominated each of these eight individuals for re-election at the Annual Meeting. If elected, each will serve a one-year term expiring at our 2009 Annual Meeting or upon the subsequent election and qualification of the director’s successor, subject to the director’s earlier retirement, resignation or death. Scott Cowen and Alan Rosskamm continue to serve as directors with terms expiring in 2009. Beginning with the 2009 Annual Meeting, all of our directors will be subject to annual election for one-year terms.

Mr. DePinto was elected to the Board in April 2008. He brings to the Board strong executive and operating management skills gained in the retail industry. He has served as President and Chief Executive Officer of 7-Eleven, Inc., the world’s largest convenience retailer, since 2005. During 2005 he served as President of GameStop, Inc., the leading videogame and entertainment software retailer. From 2002 to 2005, Mr. DePinto was an executive with 7-Eleven, serving as Vice President, Operations from 2003 to 2005, and as Division Vice President from 2002 to 2003. Prior to that, he held executive positions at PepsiCo, Inc., and was the Chief Operating Officer of Thornton Quick Café and Market. Mr. DePinto currently serves on the boards of 7-Eleven, Inc. and OfficeMax, Inc.

Mr. Gumberg has been a director since 1992 and brings to the Board strong leadership, financial and management skills, as well as an understanding of commercial real estate and international business matters which are of relevance to the company’s real estate and international sourcing activities. Mr. Gumberg is President and Chief Executive Officer of J.J. Gumberg Co., a nationally ranked real estate investment and development company that maintains a portfolio of more than 30 shopping centers, consisting of over 12 million square feet of space in multiple states. Mr. Gumberg currently serves as a trustee and member of the Audit Committee of Carnegie Mellon University and a member of the board of trustees of the University of Pittsburgh.

Ms. Morrison has been a director since 2003. She brings to the Board strong management and business skills, and in particular, knowledge about information technology issues relevant to the retail industry. Ms. Morrison has served as Executive Vice President and Chief Information Officer since 2007 and Senior Vice President and Chief Information Officer from 2005 to 2007 of Motorola, Inc., a designer, manufacturer, marketer and seller of mobility products. Previously, she was Executive Vice President and Chief Information Officer of Office Depot, Inc., a supplier of office products and services, from 2002 to 2005. Ms. Morrison currently serves on the board of SPSS Inc., a worldwide provider of predictive analytics software and solutions.

Mr. Newman has been a director since 1991 and brings to the Board his professional and personal experiences and expertise in business matters generally, including his extensive retail leadership experience as the former President and Chief Executive Officer of Eckerd Corporation, a national pharmacy retailer. Mr. Newman also brings to the Board his insights into on-line retailing through his experience as former President and Chief Executive Officer of more.com, an on-line health, beauty and wellness retailer. Mr. Newman currently is the Chairman and Chief Executive Officer of Medical Nutrition USA, Inc., a nutrition-medicine company that develops and distributes nutritional products primarily used in long-term care facilities, hospitals and clinics. He is also a director of Jabil Circuit, Inc. and Medical Nutrition USA, Inc. and has

served on the Board of the National Association of Chain Drug Stores since 1993, including as its Chairman in 1999-2000.

Mr. Perdue was elected to the Board in April 2008. He provides the Board with strong executive and operating management skills gained in the retail and consumer products industries. He served as Chairman and Chief Executive Officer of Dollar General Corporation, a Fortune 500 discount retailer, from 2003 to 2007. Previously, he served as Chairman and Chief Executive Officer of Pillowtex Corporation, a home textile manufacturer, from 2002 to 2003. Prior to that, he held senior management positions with leading consumer products companies Reebok International Ltd., Haggar Corporation and Sara Lee Corporation. Mr. Perdue currently serves on the board of Alliant Energy Corporation.

Ms. Raff has been a director since 2001. Ms. Raff is a retail industry leader who brings to the Board strong merchandising and analytical skills. Ms. Raff is currently Executive Vice President-General Merchandising Manager for the Fine Jewelry Division of J.C. Penney Company, Inc., a department store retailer, with whom she has been employed since 2001. Prior to her appointment to her current position in 2005, Ms. Raff served as J.C. Penney’s senior vice president and general merchandise manager of Fine Jewelry. Previously, she spent six years with Zale Corporation, a specialty retailer of fine jewelry, advancing to Chairman and Chief Executive Officer, and spent 19 years with R.H. Macy & Company, a department store retailer, advancing to Senior Vice President/General Merchandising Manager. Ms. Raff presently is on the advisory board of Jewelers Circular Keystone (JCK), the world jewelry trade show organization for manufacturers and retailers of fine jewelry. She also serves on the board of Group 1 Automotive, Inc., a Fortune 500 automotive retailer.

Ms. Travis has been a director since 2003 and brings a strong financial and operational background to the Board. As Senior Vice President and Chief Financial Officer for Polo Ralph Lauren Corporation, a designer, marketer and distributor of apparel, home and fragrance products, since 2005, Ms. Travis is responsible for corporate finance, financial planning and analysis, treasury, investor relations, information technology, tax and corporate compliance. Ms. Travis previously held the position of Senior Vice President, Finance for Limited Brands, Inc., an apparel and personal care products retailer, from 2002 to 2004.

Mr. Webb has been a director since July 2006, when he joined us as Chairman, President and Chief Executive Officer. Previously, Mr. Webb was President of Fred Meyer, the 128-store super center division of The Kroger Company, a retail grocery chain, from 2002 until July 2006 and President of Kroger’s Quality Food Center Division from 1999 to 2002.

Further background information about our nominees and other directors is provided beginning on page 21.

Each of the nominees has consented to serve if elected. If any of them becomes unavailable to serve as a director before the Annual Meeting, the Board may designate a substitute nominee. In that case, the persons named as proxies will vote for the substitute nominee. The Board alternatively may decide to reduce the size of the Board to the extent permitted by our Articles of Incorporation, Code of Regulations and applicable laws.

Vote Required. The eight individuals receiving the highest number of “FOR” votes cast at the Annual Meeting will be elected.

Our Board of Directors recommends that you vote FOR the election of these nominees.

Proposal 2 — Ratification of Selection of Ernst & Young LLP as our Independent Registered Public Accounting Firm

The Audit Committee has selected Ernst & Young LLP to serve as our independent registered public accounting firm to audit our financial statements for our fiscal year ending January 31, 2009. Our Board of Directors recommends ratification of the Audit Committee’s appointment of Ernst & Young LLP.

The selection of Ernst & Young LLP as our independent registered public accounting firm is not required to be submitted to a vote of the shareholders for ratification. The Sarbanes-Oxley Act of 2002 requires that the Audit Committee be directly responsible for the appointment, compensation and oversight of our independent

auditors. Our Board of Directors is submitting the selection to the shareholders for ratification as a matter of good corporate governance practice. If the shareholders fail to vote on an advisory basis in favor of the selection, the Audit Committee will reconsider whether to retain Ernst & Young LLP, and may retain that firm or another firm without re-submitting the matter to our shareholders. Even if the shareholders ratify the selection, the Audit Committee may, at its discretion, direct the selection of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in our best interests and the best interests of our shareholders.

A representative of Ernst & Young LLP is expected to be present at the 2008 Annual Meeting of Shareholders. The representative will be given an opportunity to make a statement if desired and to respond to questions regarding Ernst & Young LLP’s examination of our consolidated financial statements and records for the fiscal year ended February 2, 2008.

Vote Required. Ratification of the Audit Committee’s selection of Ernst & Young LLP as our independent registered public accounting firm for fiscal 2009 will require the affirmative vote of a majority of the shares voting on this proposal.

Our Board of Directors recommends that you vote FOR the ratification of the Audit Committee’s selection of Ernst & Young LLP as our independent registered public accounting firm for fiscal 2009.

Proposal 3 — Approval of the Jo-Ann Stores, Inc. 2008 Incentive Compensation Plan

We are requesting you to approve the adoption of the Jo-Ann Stores, Inc. 2008 Incentive Compensation Plan (the “2008 Incentive Plan”). On April 2, 2008, our Board of Directors approved, subject to shareholder approval, the 2008 Incentive Plan to succeed our 1998 Incentive Compensation Plan, which will expire on June 3, 2008. The primary purpose of the 2008 Incentive Plan is to enable us to attract and retain qualified employees and non-employee Directors, to provide incentives and to reward performance. To achieve this purpose, the 2008 Incentive Plan provides for awards payable in shares, in cash or in a combination of shares and cash.

Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), provides that a public company cannot take a federal income tax deduction for compensation paid to any “covered employee” to the extent the compensation exceeds $1 million in any tax year. A “covered employee” is any employee who on the last day of the tax year is either (1) the Chief Executive Officer or (2) among the other three highest compensated executive officers (other than the Chief Financial Officer). This deduction limitation does not, however, apply to certain performance-based compensation, including stock options and other performance-based awards granted under a plan approved by shareholders. The secondary purpose of the 2008 Incentive Plan is, therefore, to enable us to make equity-based awards and provide other “qualified performance-based compensation” that is not subject to the $1 million deduction limitation under Section 162(m).

The complete text of the 2008 Incentive Plan is attached as Appendix A to this proxy statement. The following summary of the 2008 Incentive Plan does not purport to be complete and is qualified in its entirety by reference to Appendix A.

Plan Summary

General. Under the 2008 Incentive Plan, awards include stock appreciation rights, stock awards, stock options, incentive compensation awards and other incentives.

Eligible Participants. All non-employee directors and full-time and part-time employees of ours and any of our majority-owned subsidiaries (other than temporary, seasonal and unionized employees) will be eligible to receive awards. The eligible participants will be selected by our Compensation Committee, or any other committee designated by our Board of Directors or our Compensation Committee (the “Committee”), in its discretion. Accordingly, approximately nine non-employee directors and 20,000 employees would currently be eligible for awards under the 2008 Incentive Plan.

Administration. The Committee will administer the 2008 Incentive Plan and will have the authority to: (1) select the eligible Directors and employees who will receive awards; (2) determine the number and types of awards to be granted; (3) determine the terms, conditions, vesting periods and restrictions applicable to the awards; (4) establish Performance Goals (as defined in the section titled “Performance-Based Awards under Section 162(m) of the Internal Revenue Code”) for performance-based awards; (5) grant the awards; (6) adopt, alter and repeal rules governing the 2008 Incentive Plan; and (7) interpret the terms of the 2008 Incentive Plan and any outstanding awards.

The Committee will act with the approval of not less than a majority of its members. However, if any member of the Committee does not qualify as a “non-employee director” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that member will not be deemed to be a member of the Committee for purposes of granting an award if the inclusion of that member on the Committee would subject the recipient of the award to the risk of short-swing profit recovery under Section 16(b) of the Exchange Act. Similarly, if any member of the Committee does not qualify as an “outside” director within the meaning of Section 162(m) of the Internal Revenue Code, that member will not be deemed to be a member of the Committee for purposes of qualified performance-based awards (awards intended to satisfy the requirements for “qualified performance-based compensation” under Section 162(m) of the Internal Revenue Code).

Delegation. The Committee may delegate any of its authority to any other person or persons as long as such delegation does not (1) cause the 2008 Incentive Plan or any awards granted under the plan to fail to qualify for the exemption provided by Rule 16b-3 under the Exchange Act, (2) result in a reduction in the amount of compensation associated with any qualified performance-based award that is deductible for federal income tax purposes under Section 162(m) of the Internal Revenue Code, or (3) apply to an award granted to a non-employee director.

Number and Type of Shares Available under the 2008 Incentive Plan. We may issue our common shares under the 2008 Incentive Plan. The closing price of our common shares on April 14, 2008 as reported on the New York Stock Exchange (“NYSE”) was $17.01 per share.

The maximum number of shares that we may issue or deliver under the 2008 Incentive Plan is 1,825,000. We will count any shares that are subject to awards of stock options or stock appreciation rights against this limit as one share for every one share delivered under the award. We will count any shares that are subject to awards other than stock options or stock appreciation rights against this limit as 1.57 shares for every one share delivered under those awards. Shares issued or delivered under the 2008 Incentive Plan may consist of authorized and unissued shares, treasury shares or shares to be purchased by us, as determined by the Committee.

The number of shares subject to awards granted to any participant, and the amount of any incentive compensation award payable in cash to any participant, are subject to the following limitations:

(1) With respect to stock options, the number of shares subject to stock options granted to any participant in any fiscal year may not exceed 500,000.

(2) With respect to stock appreciation rights, the number of shares subject to stock appreciation rights granted to any participant in any fiscal year may not exceed 500,000.

(3) With respect to restricted stock awards that are qualified performance-based awards, the number of shares granted to any participant in any fiscal year may not exceed 200,000.

(4) With respect to stock awards other than stock options and restricted stock that are qualified performance-based awards, the number of shares granted to any participant in any fiscal year may not exceed, in the aggregate, 400,000.

(5) With respect to incentive compensation awards payable in cash that are qualified performance-based awards, the amount payable to any participant in any fiscal year may not exceed the lesser of $2,000,000 or 200% of annual base salary effective at the time the Performance Goals are established.

These amounts are maximum limitations prescribed by the terms of the 2008 Incentive Plan and do not necessarily reflect the anticipated number or value of any awards to be granted under the 2008 Incentive Plan.

Charging of Shares and Adjustments. If any award or any prior award or grant made pursuant to our 1998 Incentive Compensation Plan that is outstanding and unexercised on the date of adoption of the 2008 Incentive Plan (“Prior Award”) terminates, expires, is cancelled or is forfeited, or any award or Prior Award is settled (or can be paid only) in cash, then the underlying shares, to the extent of any such forfeiture, cancellation, termination or cash settlement, will again be available for grant under the 2008 Incentive Plan and credited toward the plan limit. We will add any shares that again become available for grant as (1) one share if such shares were subject to an award or Prior Award of stock options or stock appreciation rights, and (2) as 1.57 shares if such shares were subject to awards or Prior Awards other than stock options or stock appreciation rights. However, shares that are tendered to us by any participant, or withheld from any award or Prior Award by us as full or partial payment of the exercise or purchase price of any award or Prior Award or in payment of any applicable tax withholding, will not be available for future grants under the 2008 Incentive Plan. With respect to a stock appreciation right, when such stock appreciation right is exercised and settled in shares, the number of shares subject to such stock appreciation right will be counted against the shares available for issuance under the plan on a share for share basis, regardless of the number of shares used to settle the stock appreciation right upon exercise. Any substitute awards granted by us in substitution for awards previously granted by an entity acquired by us will not reduce the number of shares available for awards under the 2008 Incentive Plan and will not count against the plan limits.

Upon any dividend or other distribution, reorganization, merger, consolidation, combination, repurchase or exchange of shares or other securities or other change in our corporate structure affecting the shares, the Committee, in its sole discretion, may adjust the number and kind of shares that may be delivered under the 2008 Incentive Plan, the exercise price or purchase price per share and the number of shares covered by each outstanding award and the maximum share limits under the plan.

In connection with any equity restructuring (such as a stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend that causes the per-share value of the shares underlying outstanding awards to change), the Committee will make appropriate, non-discretionary adjustments to the number and type of securities subject to each outstanding award and their exercise or purchase price. The Committee also may make proportionate adjustments to reflect such equity restructuring with respect to the aggregate number and kind of shares that we may issue under the 2008 Incentive Compensation Plan.

We will not make any adjustment if the Committee determines that such adjustment could cause an award to fail to satisfy the conditions of an applicable exemption from the requirements of Section 409A of the Internal Revenue Code or otherwise could subject a participant to the additional tax imposed under Section 409A of the Internal Revenue Code in respect of an outstanding award.

Types of Awards. The 2008 Incentive Plan provides for the grant of different types of awards, including the following:

(1) Stock Appreciation Right — A right to receive a payment, in cash or shares, equal to the excess of (a) the fair market value of a specified number of shares on the date the right is exercised over (b) the fair market value of the shares on the date the right is granted, all as determined by the Committee. The grant price of any stock appreciation rights granted to participants may not be less than the fair market value of the shares subject to the stock appreciation right at the date of grant. The right may be conditioned upon the occurrence of certain events, such as a change in control of the company, or may be unconditional, as determined by the Committee. No stock appreciation right may be exercisable more than seven years after the date of grant.

(2) Stock Award — An award that is made in shares, restricted stock, or stock equivalent units. Restricted stock consists of shares that are subject to restrictions or risk of forfeiture. Stock equivalent units are awards that are valued by reference to the fair market value of shares. Unless the Committee, in its sole discretion, provides for the pro rata lapse of restrictions in installments during the restricted period, each grant or sale of restricted stock to a participant (other than a non-employee director) will

provide that the shares covered by such grant or sale are subject to a “substantial risk of forfeiture” within the meaning of Section 83 of the Internal Revenue Code for a period of not less than three years to be determined by the Committee at the date of grant. Each grant or sale of stock awards (including restricted stock) that are subject to achievement of one or more Performance Goals will have a minimum performance period of at least one year to be determined by the Committee at the date of grant. Stock equivalent units may be payable in cash or in shares.

(3) Stock Option — A right to purchase a specified number of shares, during a specified period, and at a specified exercise price, all as determined by the Committee. The exercise price of any stock options may not be less than the fair market value of the shares subject to the stock option at the date of grant. No stock option may be exercisable more than seven years after the date of grant. Each grant of stock options to a participant (other than a non-employee director) will specify the period of continuous service by the participant that is necessary for the stock options to become exercisable. However, a participant may not exercise stock options sooner than one-third per year over three years.

(4) Incentive Compensation Award — An award that, in the discretion of the Committee, is payable either in shares or in cash and is contingent upon the achievement of Performance Goals established by the Committee. Each grant will have a minimum performance period of at least one year to be determined by the Committee at the date of grant.

We may grant more than one award to the same participant. Awards may be granted singly or in combination or tandem with other awards. We may also grant substitute awards for grants and awards held by employees of an entity who become employees of ours or any of our subsidiaries as a result of an acquisition, merger or consolidation between us and such entity. Each grant of an award under the 2008 Incentive Plan will be evidenced by a grant agreement, in a form specified by the Committee, which will set forth the terms and conditions of the grant. A grant agreement may be in an electronic medium, may be limited to notation on our books and records and, unless determined otherwise by the Committee, does not need to be signed by either our representative or a participant.

Performance-Based Awards under Section 162(m) of the Internal Revenue Code. The Committee will determine the period of time during which a participant may earn any award that is performance-based, but such performance period may not be less than one year. The Committee will also establish one or more performance objectives (“Performance Goals”) to be met as a condition to the payment of the award. The Committee may describe Performance Goals in terms of company-wide objectives or objectives that relate to the performance of a joint venture, subsidiary, business unit, division, department, business segment, region or function and/or that relate to the individual performance of a participant. The Performance Goals may be made relative to the performance of other companies or an index covering multiple companies. The Performance Goals may, in the discretion of the Committee, include a range of performance objectives (such as minimum, middle and maximum objectives), the achievement of which will entitle a participant to receive different amounts of compensation.

The Performance Goals applicable to any qualified performance-based award will be based on specified levels of or growth in one or more of the following performance criteria: sales, same-store sales, earnings, earnings per share, return on equity, market price per share, revenue, operating income, earnings before or after interest and taxes, operating income before or after interest and taxes, net income, cash flow, debt to capital ratio, economic value added, return on total capital, return on invested capital, return on assets, total return to shareholders, earnings before or after interest, taxes, depreciation, amortization or extraordinary or special items, operating income before or after interest, taxes, depreciation, amortization or extraordinary or special items, return on investment, free cash flow, cash flow return on investment (discounted or otherwise), net cash provided by operations, cash flow in excess of cost of capital, operating margin, profit margin and contribution margin. We may also establish the Performance Goals based on strategic business criteria consisting of one or more objectives based on meeting specified product development, strategic partnering, research and development, market penetration, geographic business expansion goals, cost targets, customer satisfaction, employee satisfaction, management of employment practices and employee benefits, supervision of litigation and information technology and goals relating to acquisitions or divestitures of subsidiaries, affiliates and joint ventures. These performance criteria may be measured before or after taxes, interest,

depreciation, amortization, discontinued operations, affect of accounting changes, acquisition expenses, restructuring expenses, non-operating items or unusual charges, as determined by the Committee at the time the Performance Goals are established.

Deferral of Payment. To the extent permitted by Section 409A of the Internal Revenue Code, the Committee may, in its discretion, permit participants to defer the payment of some or all of the shares or cash subject to their awards, as well as other compensation or fees, in accordance with procedures established by the Committee to assure that the recognition of taxable income is deferred under the Internal Revenue Code. Deferred amounts may, to the extent permitted by the Committee, be credited as cash or stock equivalent units and paid in cash or in shares. The Committee may also, in its discretion, establish rules and procedures for the crediting of interest on deferred cash and dividend equivalents on stock equivalent units. The Committee may also, in its discretion, provide for matching or other grants in connection with such deferrals.

Payment of Exercise Price. Participants may pay the exercise price of a stock option or any other stock award in cash, by the transfer of shares, by the surrender of all or part of an award (including the award being exercised) or by combination of these methods, as and to the extent permitted by the Committee.

Change in Control. Unless otherwise determined by the Committee, in the event of a change in control of the company combined with a qualifying termination of a participant during the two-year period commencing on the change of control, (1) all stock appreciation rights and stock options then held by the participant will become fully exercisable and will, to the extent not otherwise provided in the applicable grant agreements, remain exercisable in accordance with their terms but in no event for a period shorter than the lesser of (i) one year following the qualifying termination or (ii) the remaining term of such stock option or stock appreciation right (determined without regard to such termination of employment), (2) all restrictions and conditions applicable to restricted stock and other stock awards held by the participant will be deemed to have lapsed or been satisfied, and (3) all incentive compensation awards held by the participant will be deemed to have been fully earned at the incentive compensation award payout level. The incentive compensation award payout level is the greater of (1) a participant’s average incentive compensation award earned over three full performance periods ended before the qualifying termination or, if the participant was eligible to earn such a bonus for less than the last three full performance periods, for the performance periods during which the participant was eligible to earn such incentive compensation award immediately prior to the qualifying termination, or (2) a participant’s target incentive compensation award established for the year in which the qualifying termination occurs. If the participant was not eligible to earn such an incentive compensation award for any performance period ending on or before the qualifying termination, then the incentive compensation award payout level will be equal to the participant’s target incentive compensation award established for the year in which the qualifying termination occurs.

A change in control is generally deemed to occur if (1) any person acquires 15% or more (but less than 50%) of our shares, (2) any person acquires 50% or more of our shares, (3) any person commences or publicly announces an intention to commence a tender offer or exchange offer to acquire 15% or more of our shares, (4) control of our Board of Directors is transferred during any 24-month period, (5) we are merged, consolidated or reorganized with or into another entity, in which our shareholders are to receive or retain less than 60% of the stock of the surviving or continuing corporation, all or substantially all of our assets are sold, or we are dissolved, or (6) a record date is established for determining shareholders entitled to vote on any transaction described in clause 5. The occurrence of an event described in clauses 2, 4 or 5 constitutes an irrevocable change in control. If an event described in clause 3 occurs, and the Board of Directors either approves such offer or takes no action with respect to such offer, then an irrevocable change in control occurs. On the other hand, if an event described in clauses 1 or 6 occurs, or if an event described in clause 3 occurs and the Board of Directors does not either approve such offer or take no action with respect to such offer, and a majority of those members of the Board of Directors 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 in control, then we will treat that event as not having occurred. If our Board of Directors does not make such determination, a change in control resulting from any of the events described in clauses 1, 3 and 6 will constitute an irrevocable change in control on the 91st day after the occurrence of the event.

A qualifying termination occurs when either (1) we or one of our subsidiaries terminate the participant’s employment or service without cause or (2) the participant terminates his employment or service with us or one of our subsidiaries for good reason. Cause generally means (1) the participant’s willful and continued failure to perform his or her duties, (2) a conviction of fraud, embezzlement, theft or a felony, or (3) the participant’s willful engagement in gross negligence that is materially and demonstrably injurious to us. Good reason generally means (1) any material reduction in the participant’s compensation, (2) any material reduction in the participant’s duties, responsibilities or position, or (3) any material shift of the participant’s principal place of employment.

Amendment or Suspension of the 2008 Incentive Plan. To the extent permitted by Section 409A of the Internal Revenue Code, our Board of Directors may amend, suspend or terminate the 2008 Incentive Plan at any time. However, our shareholders must approve any amendment that (1) materially increases the benefits accruing to participants under the 2008 Incentive Plan, (2) materially increases the number of securities that may be issued under the 2008 Incentive Plan, (3) materially modifies the requirements for participation in the 2008 Incentive Plan, or (4) must otherwise be approved by shareholders to comply with applicable law or NYSE rules.

Amendment of Outstanding Awards. Any amendment of an outstanding award generally requires the participant’s consent.

No Re-Pricing. The 2008 Incentive Plan prohibits the re-pricing of “underwater” stock options and stock appreciation rights without shareholder approval. Accordingly, neither our Board of Directors nor the Committee will, without further approval of our shareholders, authorize the amendment of any outstanding stock option or stock appreciation right to reduce the exercise or grant price. In addition, except for certain adjustments, we will not cancel or replace any stock option or stock appreciation right with awards having a lower exercise or grant price, for another award or for cash without further approval of our shareholders.

Effective Date; Termination. The 2008 Incentive Plan will become effective on the date it is approved by the affirmative vote of the holders of a majority of our outstanding common shares represented in person or by proxy at a meeting of our shareholders. The 2008 Incentive Plan will continue in effect until the 10th anniversary of such shareholder approval.

Certain Federal Income Tax Consequences

The 2008 Incentive Plan provides for many types of awards. A brief description of the federal income tax consequences of certain common types of awards follows. This description is based on federal income tax laws currently in effect and does not purport to be complete.

Stock Appreciation Rights. There are no federal income tax consequences either to the participant or to us upon the grant of a stock appreciation right. The amount of any cash (or the fair market value of any shares) received by the participant upon the exercise of a stock appreciation right will be subject to ordinary income tax in the year of receipt, and we will be entitled to a deduction for that amount.

Stock Options. There are no federal income tax consequences either to the recipient of the stock option or to us upon the grant of a stock option. On the exercise of a stock option, the excess of the fair market value of the shares on the date of exercise over the exercise price will generally be taxable to the participant as ordinary income and deductible by us, provided we properly file Internal Revenue Service Form W-2 or Form 1099 in respect of the exercise. The disposition of shares acquired upon the exercise of a stock option will generally result in a capital gain or loss for the participant, but will have no tax consequences for us.

Restricted Stock. A participant who has been awarded restricted stock and does not make an election under Section 83(b) of the Internal Revenue Code will not recognize taxable income at the time of the award. When any transfer or forfeiture restrictions applicable to the restricted stock lapse, the participant will recognize ordinary income, and we will be entitled to a corresponding deduction, equal to the excess of the fair market value of the shares when the restrictions lapse over any amount paid by the participant for the restricted stock. Any dividends paid to the participant on the restricted stock at or before the lapse of the restrictions will be ordinary compensation income to the participant and deductible as such by us.

A participant who has been awarded restricted stock and makes an election under Section 83(b) of the Internal Revenue Code will recognize ordinary income at the time of the award, and we will be entitled to a corresponding deduction, equal to the fair market value of the shares at the time of grant over any amount paid by the participant for the restricted stock. Any dividends subsequently paid to the participant on the restricted stock will be dividend income to the participant and not deductible by us. There are no federal income tax consequences either to the participant or to us at the time any transfer or forfeiture restrictions applicable to the restricted stock lapse.

Awards Proposed to be Granted Under the 2008 Incentive Plan

No benefits or amounts have been granted, awarded or received under the 2008 Incentive Plan. No discretionary awards to officers, employees or non-employee directors are determinable for any of these individuals at this time. If the plan is approved by shareholders, our annual grant of restricted stock units to non-employee directors is expected to be made immediately under the 2008 Incentive Plan after the annual meeting.

Vote Required. Approval of the 2008 Incentive Plan will require the affirmative vote of the holders of a majority of our outstanding common shares represented in person or by proxy at the meeting.

Our Board of Directors unanimously recommends that you vote FOR approval of the 2008 Incentive Plan.

Proposal 4 — Approval of the Jo-Ann Stores, Inc. 2008 Associate Stock Ownership Plan

We are requesting you to approve the adoption of the Jo-Ann Stores, Inc. 2008 Associate Stock Ownership Plan (the “ASOP”). On April 1, 2008, our Compensation Committee approved, subject to shareholder approval, the ASOP to succeed our previous Associate Stock Ownership Plan adopted as part of our 1998 Incentive Compensation Plan, which expires this year. The approval of our Board of Directors followed on April 2, 2008. The purpose of the ASOP is to enable eligible employees to acquire a proprietary interest in our company through the purchase of our common shares and, therefore, have an additional incentive to contribute to our success. We intend to have the ASOP qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code.

The following summary of the ASOP does not purport to be complete and is qualified in its entirety by the specific language of the plan, a copy of which is attached to this proxy statement as Appendix B.

Plan Summary

General. The ASOP is an employee stock purchase plan that allows employees to purchase our common shares through payroll deductions. Payroll deductions for the purpose of purchasing our common shares accumulate during two six-month periods, April 1 to September 30 and October 1 to March 31 (each, an “Accumulation Period”), and at the end of each Accumulation Period the employees’ accumulated payroll deductions are used to purchase our common shares.

Eligible Employees. Except for temporary and seasonal employees, all employees of ours and our participating subsidiaries, as designated by the Committee (as defined below), are generally eligible to participate in the ASOP. Our non-employee directors are not eligible to participate in the ASOP, and employees who are our “officers” (as defined in Rule 16a-1(f) under the Exchange Act) may participate in the ASOP only in accordance with the requirements of Rule 16b-3 of the Exchange Act. Accordingly, approximately 20,500 employees would currently be eligible to participate in the ASOP.

Under Section 423 of the Internal Revenue Code, we may not grant any employee rights to purchase our common shares under the ASOP in an amount exceeding $25,000 of the fair market value of our common shares (determined at the time of the grant) in any calendar year. In addition, we may not grant such rights to an employee if, immediately after the grant, such employee would own, or hold rights to acquire, 5% or more of our outstanding shares.

Employees become eligible to participate in the ASOP on the first trading day of the Accumulation Period following the employee’s commencement of employment with us or any of our participating subsidiaries. Eligible employees may only enroll in the ASOP at the beginning of an Accumulation Period.

Subject to shareholder approval of the ASOP, the first Accumulation Period will begin on October 1, 2008. The Committee may modify or suspend Accumulation Periods.

Administration. Our Compensation Committee or any other committee designated by our Board of Directors or our Compensation Committee (the “Committee”) will administer the ASOP and will have authority to: (1) interpret the provisions of the ASOP; and (2) adopt such rules and regulations for administering the ASOP as the Committee may deem necessary in order to comply with the requirements of Section 423 of the Internal Revenue Code. The Committee may delegate its authority to any of our internal committees or officers.

Number and Type of Shares Available under the ASOP. Employees may purchase our common shares under the ASOP. The closing price of our common shares on April 14, 2008 as reported on the NYSE was $17.01 per share.

The maximum number of our common shares authorized for sale during the term of the ASOP is 600,000. Shares sold under the ASOP may consist of authorized and unissued shares, treasury shares, outstanding shares reacquired by us in private transactions or open market purchases, or any combination of the foregoing, as determined by the Committee.

To prevent dilution or enlargement of benefits, the Committee, as it deems appropriate, will make equitable adjustments to the ASOP if (1) any change to our common shares occurs as a result of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares, spin-off transaction or other change affecting the outstanding common shares as a class without us receiving any consideration, (2) a spin-off transaction or an extraordinary dividend or distribution substantially reduces the value of our outstanding common shares, or (3) any merger, consolidation or other reorganization occurs. Upon any of such occurrences, the Committee, as it deems appropriate, will adjust (1) the maximum number and kind of securities issuable under the ASOP, (2) the maximum number and kind of securities purchasable per employee on any purchase date, and (3) the number and kind of securities and the price per share in effect under each outstanding right.

Stock Purchases. On the last trading day of each Accumulation Period, we will apply the amount of each employee’s accumulated payroll deduction towards the purchase of our common shares (whole or fractional) at a purchase price equal to 85% of the lower of (1) the fair market value of our common shares on the first trading day of an Accumulation Period or (2) the fair market value of our common shares on the last trading day of the Accumulation Period. We will determine the number of shares purchased by dividing the employee’s total contribution by the per share purchase price applicable for that Accumulation Period. Employees must hold such shares for at least six months following the purchase unless the Committee shortens the holding period.

If the total number of our common shares purchasable on the last trading day of any Accumulation Period, when aggregated with all common shares previously granted under the ASOP, exceeds the plan limit, we will allocate the shares available for purchase on a pro rata basis and will return the balance of accumulated payroll deductions to the employees.

Employee Contributions. An employee may elect to defer at least 1% and at most 15% of his or her earnings for the purchase of our common shares with a maximum annual purchase of the lesser of (1) 2,000 shares per Accumulation Period or (2) the maximum number of our common shares permissible under Section 423 of the Internal Revenue Code. Earnings will encompass the employee’s regular base salary, wages and overtime pay but will not include (1) any contributions made by us or our subsidiaries on the employee’s behalf to any employee benefit or welfare plan (other than contributions under any Internal Revenue Code Section 401(k) salary deferral plan or any Internal Revenue Code Section 125 cafeteria benefit program deducted from such earnings), (2) any compensation attributable to awards under any equity-based plan maintained by us or any of our subsidiaries, or (3) any commissions, incentive compensation, special payment, reimbursements or other benefits that the employee receives during such Accumulation Period. We will calculate earnings before deduction of (1) any income or employment tax withholdings or (2) any contributions that the employee makes to any Internal Revenue Code Section 401(k) plan or any Internal Revenue Code Section 125 program established by us or any of our subsidiaries.

Employees may only change their deduction percentages at the beginning of an Accumulation Period, but may cease making contributions at any time. Once made, we or our participating subsidiary may use the payroll deductions for any corporate purpose. We and our participating subsidiaries will have no obligation to segregate such payroll deductions from any of our other funds and will not credit any earnings on such amounts.

Employee Refunds. Employees may withdraw from the ASOP in full (but not in part) at any time by properly notifying us. Upon such withdrawal, we will refund the employee’s accumulated payroll deductions to the employee. An employee who has ceased payroll deductions may not re-enroll in the ASOP until the next Accumulation Period.

Employees whose employment relationship with us is terminated are no longer eligible to participate in the ASOP. We will refund all payroll deductions accumulated during the Accumulation Period through the date of such cessation of employment to the employee or, in the event of the employee’s death, to his or her estate.

Change in Control. Immediately prior to the effective date of any change in control, we will apply each employee’s accumulated payroll deductions for the Accumulation Period in which such change in control occurs to the purchase of our common shares at a purchase price per share equal to 85% of the lower of (1) the fair market value of our common shares on the first trading day of the Accumulation Period in which such change in control occurs or (2) the fair market value of our common shares immediately prior to such change in control. The applicable limitation on the number of our common shares purchasable per employee will continue to apply to any such purchase. We will use our best efforts to notify employees of any change in control, and the employees will, following the receipt of such notice, have the right to terminate their outstanding purchase rights prior to the change in control.

Amendment and Termination of the ASOP. The Committee or our Board of Directors may generally amend, suspend or terminate the ASOP at any time to become effective immediately following the close of any Accumulation Period. However, neither our Board of Directors nor the Committee may adopt any of the following amendments to the ASOP without shareholder approval: (1) increase the number of our common shares issuable under the ASOP, except for permissible adjustments upon certain changes in our capitalization, (2) alter the purchase price formula so as to reduce the purchase price of our common shares purchasable under the ASOP, or (3) modify the eligibility requirements for participation in the ASOP.

Upon the termination of the ASOP, the Committee may elect to: (1) terminate all outstanding rights prior to their expiration, (2) terminate such rights upon completion of the purchase of shares on the next purchase date, or (3) permit rights to expire in accordance with their terms (and participation to continue through such expiration date). If the Committee terminates rights prior to expiration, we will return all accumulated payroll deductions not used to purchase our common shares to the employees.

Effective Date; Plan Term. The ASOP will become effective on June 12, 2008 if approved by our shareholders at our 2008 Annual Meeting of Shareholders. Unless sooner terminated by the Committee or our Board of Directors, the ASOP will continue in effect until the earliest of: (1) the 10th anniversary of shareholder approval of the ASOP, (2) the date on which we have sold all shares available for issuance under the ASOP pursuant to the rights exercised under the ASOP, or (3) the date on which all rights are exercised in connection with a change in control. Following such termination, we may no longer grant, or allow to be exercised, purchase rights or collect payroll deductions.

Certain Federal Income Tax Consequences

The following is a brief summary of the principal federal income tax consequences of the purchase of our common shares under the ASOP and dispositions of shares acquired under the ASOP. This description is based on federal income tax laws currently in effect and does not purport to be complete.

We intend the ASOP to be an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code. Under Section 423 of the Internal Revenue Code, an eligible employee who elects to participate in the ASOP will not recognize any taxable income at the time shares are purchased under the ASOP by the employee.

If an employee disposes of the shares purchased under the ASOP more than two years after the first day of the applicable Accumulation Period and the amount realized on the disposition of the shares exceeds the purchase price, the employee will recognize compensation taxable as ordinary income in an amount equal to the lesser of (1) the excess of the fair market value of the shares on the first day of the applicable Accumulation Period over the purchase price (determined as if the shares were purchased on the first day of the offering period for a price equal to 85% of the fair market value of the shares on that date) and (2) the excess of the amount realized on the disposition of the shares over the purchase price. The employee’s cost basis in the shares will be increased by the amount of ordinary income recognized by the employee. In addition, if the amount realized on such disposition exceeds the employee’s adjusted basis in the shares (taking into account any increase in basis for ordinary income recognized on the disposition of the shares), such excess will be taxed as long term capital gain. If the amount realized on such disposition is less than the purchase price of the shares under the ASOP, the employee will recognize long term capital loss in the amount of the difference between the purchase price and the amount realized. We will not be entitled to any deduction with respect to a disposition of the shares occurring under these circumstances.

If the employee disposes of the shares purchased under the ASOP within two years after the first day of the applicable Accumulation Period, the employee will recognize compensation taxable as ordinary income, and we will be entitled to a corresponding deduction, in an amount equal to the excess of the fair market value of the shares on the last day of the applicable offering period over the purchase price of the shares under the ASOP. The employee’s cost basis in the shares will be increased by the amount of the ordinary income recognized by such employee. In addition, upon such disposition of the shares, the employee will recognize short term or long term capital gain or loss equal to the difference between the amount realized on such disposition and the employee’s cost basis in the shares, as so increased. We will not be entitled to any deduction with respect to the amount recognized by such employee as a capital gain.

New Plan Benefits

Participation in the ASOP is entirely within the discretion of the eligible employees. We cannot predict the participation levels by employees, the rate of employee contributions or the eventual purchase prices under the ASOP and, therefore, cannot determine the number of shares that our employees, including our executive officers, may purchase, or the value of benefits that they may obtain, under the ASOP.

Vote Required. Approval of the ASOP will require the affirmative vote of the holders of a majority of our outstanding common shares represented in person or by proxy at the meeting.

Our Board of Directors unanimously recommends that you vote FOR approval of the ASOP.

CORPORATE GOVERNANCE AND BOARD MATTERS

Governance Developments

We are committed to implementing and upholding high standards of responsible corporate governance. Our Board, and in particular our Corporate Governance Committee, continually monitors developments in the area of corporate governance and on a regular basis discusses the desirability of making changes to our corporate governance structure.

Board of Directors

The primary responsibility of the Board of Directors is to foster our long-term success, consistent with its fiduciary duty to the shareholders. The Board has responsibility for establishing broad corporate policies, setting strategic direction, and overseeing management, which is responsible for our day-to-day operations. In fulfilling this role, each director must exercise his or her good faith business judgment in the best interests of our company.

The Board’s current practice is to hold five regularly scheduled meetings a year. These meetings are usually held in January, March or April, June, August and November. The Board is considering changes to this schedule. The organizational meeting follows immediately after the Annual Meeting of Shareholders in June. Our Board reviews strategic issues at Board meetings throughout the year. In addition, the Board conducts a comprehensive review of our strategic plan each year with participation from senior management. During fiscal 2008, the Board held five regular meetings and three special, telephonic meetings (for a total of eight meetings). Directors are expected to attend Board meetings, the Annual Meeting of Shareholders and meetings of the Committees on which they serve, with the understanding that a director may occasionally be unable to attend a meeting. During fiscal 2008, all of our directors who were then serving as directors attended 75% or more of the meetings of the Board, and of the meetings of the Committees on which they served. All but two of our directors who were serving at the time attended the Annual Meeting of Shareholders held in June 2007.

Corporate Governance Guidelines

The Board has adopted Corporate Governance Guidelines, which are posted on the “Corporate Governance” page of the Investor Relations section of our website at www.joann.com. A copy of the Guidelines also may be obtained in printed form from our Secretary. Pursuant to those guidelines, the non-employee directors meet in executive session at each in-person Board meeting, and the independent non-employee directors meet in executive session at least once per year.

Lead Director

The non-employee directors annually select from amongst themselves a Lead Director, based upon a recommendation by the Corporate Governance Committee. The role of the Lead Director is to:


	•	Preside at all meetings of the Board at which the Chairman is not present, including all executive sessions of the non-employee directors

	•	Serve as liaison between the Chairman and the non-employee directors

	•	Provide the Chairman with feedback from executive sessions

	•	Approve agendas and schedules for Board meetings in consultation with the Chairman, to assure that agendas include all items of interest to the non-employee directors and that there is sufficient time for discussion of all agenda items

	•	Determine the information to be sent to the Board, in consultation with the Chairman

	•	Participate, with the Chair of the Compensation Committee, in delivering performance evaluations to the Chairman

	•	Be available for consultation and direct communication upon request by a major shareholder

	•	Perform other responsibilities assigned by the Board

The Lead Director has the authority to call meetings of the non-employee directors.

The designation of a Lead Director is not intended to inhibit communication among the directors or between any of them and the Chairman. Accordingly, other directors are encouraged to communicate freely among themselves and directly with the Chairman. Additionally, any director can ask for an item to be added to the agenda for any Board or Committee meeting.

Gregg Searle served as Lead Director from August 2005 until his resignation from our Board in August 2007. Scott Cowen has served as Lead Director since August 2007, and the non-employee directors presently intend to elect Dr. Cowen to serve as Lead Director for an additional one-year term commencing immediately after the 2008 Annual Meeting.

Board Independence

Under our Corporate Governance Guidelines, a majority of our Board must be “independent,” as such term is defined under the NYSE Listing Standards. No director qualifies as “independent” unless our Board of Directors affirmatively determines that the director has no material relationship with us. In order to make this determination, the Board considers all relevant facts and circumstances surrounding the director’s relationship with us and our management. The Board of Directors recognizes that material relationships can include, without limitation, commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, and will consider these in its determinations.

The Board has adopted Standards for Determining Director Independence (“Standards”) to aid it in determining whether a director is independent. These Standards are in compliance with the director independence requirements of the NYSE Listing Standards and incorporate independence standards contained in the Exchange Act and the Internal Revenue Code.

After considering all relevant facts and circumstances, including each director’s commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, including those relationships described under “Certain Relationships and Related Transactions” below, the Board has affirmatively determined that each director and each director nominee is “independent,” as such term is defined under our Standards, with the exception of Darrell Webb, who serves as our Chairman, President and Chief Executive Officer, Alan Rosskamm, who served as our Chairman, President and Chief Executive Officer until July 24, 2006, and Ira Gumberg, who is President and Chief Executive Officer of J.J. Gumberg Co., a real estate development and investment company, which owns and manages numerous shopping centers, 10 of which contain our stores. Two of the shopping center entities leasing to us are partnerships solely owned by Mr. Gumberg and members of his family. See page 23 of this proxy statement for further information regarding the relationships between us and the entities with which Mr. Gumberg is associated. In reaching its conclusion that the remaining directors and director nominees are “independent,” the Board considered purchases by us from companies where one of our directors serves as a director or executive officer, and in all cases determined that such purchases represented 0.2% or less of our revenues and the revenues of the other company.

Communications with the Board

Shareholders and other interested parties who wish to communicate with the Board may do so by writing to the Board of Directors in care of the Secretary of Jo-Ann Stores, Inc., 5555 Darrow Road, Hudson, OH 44236. The Secretary will act as agent for the non-employee directors in processing any communications received. All communications that relate to matters that are within the scope of the responsibilities of the Board and its Committees are forwarded to the Lead Director. Communications that relate to matters that are within the responsibility of one of the Board Committees are forwarded to the Chairperson of the appropriate Committee. Communications that relate to ordinary business matters that are not within the scope of the Board’s responsibilities, such as customer complaints, are sent to the appropriate company executive. Solicitations, junk mail and obviously frivolous or inappropriate communications are not forwarded, but will be made available to any director who wishes to review them.

Code of Business Conduct and Ethics

In accordance with applicable NYSE Listing Standards and Securities and Exchange Commission (“SEC”) Regulations, the Board has adopted the Jo-Ann Stores, Inc. Code of Business Conduct and Ethics (which serves as the Code of Ethics for the directors, officers and employees of the company), which is available on the “Corporate Governance” page of the Investor Relations section of our website at www.joann.com and in printed form upon request to our Secretary.

Committees of the Board

The Board has established three permanent Committees of the Board to assist it with the performance of its responsibilities. These Committees and their members are listed below. The Board designates the members of these Committees and the Committee Chairs annually at its organizational meeting following the Annual Meeting of Shareholders, based on the recommendations of the Corporate Governance Committee. The Board has adopted written charters for each of these Committees, which are available on the “Corporate Governance” page of the Investor Relations section of our website at www.joann.com or in printed form upon request to our Secretary. The Chair of each Committee works with us to determine the frequency, length and agendas of Committee meetings. All directors are invited to attend meetings of Committees of the Board of which he or she is not a member.

The Audit Committee, which met nine times during fiscal 2008, is responsible for appointing the independent registered public accountants for the fiscal year, reviewing with the independent registered public accountants the results of the audit engagement and the scope and thoroughness of their examination, reviewing the independence of the independent registered public accountants, reviewing our SEC filings, reviewing the effectiveness of our company’s systems of internal accounting controls and approving all auditing and non-auditing services performed by our independent registered public accountants or other auditing or accounting firms. The Board of Directors has adopted a written charter for the Audit Committee, which is available on the “Corporate Governance” page of the Investor Relations section of our website at www.joann.com or in printed form upon request to our Secretary. The Board has determined that all members of the Audit Committee meet the independence requirements as provided in our Standards, which comply with the listing standards of the NYSE and Rule 10A-3 of the Exchange Act. The formal report of the Audit Committee with respect to the fiscal year ended February 2, 2008 begins on page 47 of this proxy statement. The Committee currently consists of Tracey Travis (Chairperson), Scott Cowen and Frank Newman.

The Board has determined that all members of the Audit Committee are financially literate, as required by the NYSE, and that at least two of the committee members, Dr. Cowen and Ms. Travis, are “audit committee financial experts,” as that term is defined in the SEC regulations.

The Compensation Committee consists entirely of non-employee directors, all of whom the Board has determined are independent within the meaning of our Standards, which comply with the listing standards of the NYSE. In addition, each member qualifies as a “non-employee director” under Rule 16b-3 of the Exchange Act and an “outside director” under Section 162(m) of the Internal Revenue Code.

The Compensation Committee met eight times during fiscal 2008. The Committee’s responsibilities are set forth in the Compensation Committee Charter and include setting the compensation for directors, executive officers and each senior management team member; approving director and officer compensation plans, policies and programs; approving director and employee equity grants; overseeing the preparation of, and reviewing, our annual Compensation Discussion & Analysis and recommending to include it in our proxy statement; and producing an annual committee report for inclusion in the proxy statement. For a description of the Compensation Committee’s processes and procedures for the consideration and determination of executive and director compensation, see the Compensation Discussion and Analysis beginning on page 23. The formal report of the Compensation Committee appears on page 46 of this proxy statement. The Committee currently consists of Beryl Raff (Chairperson), Scott Cowen, Patricia Morrison and Frank Newman.

The Corporate Governance Committee consists entirely of non-employee directors, all of whom the Board has determined to be independent within the meaning of our Standards, which comply with the listing standards of the NYSE.

The Corporate Governance Committee met five times during fiscal 2008. The Committee’s responsibilities are set forth in the Corporate Governance Committee Charter and include advising and making recommendations to the Board of Directors on issues of corporate governance, including matters relating to our Code of Business Conduct and Ethics, authority and approval levels, and insider trading and media and analyst communication policies, among others. The Corporate Governance Committee has the authority to interview and recommend to the Board of Directors, for nomination on behalf of the Board, suitable persons for election as directors when a vacancy exists on the Board. The Corporate Governance Committee and the Board of Directors also will consider individuals properly recommended by our shareholders. Such recommendations should be submitted in writing to the Chairman of the Board, who will submit them to the Committee and the entire Board for their consideration. A recommendation must be accompanied by the consent of the individual nominated to be elected and to serve. The Committee currently consists of Patricia Morrison (Chairperson), Beryl Raff and Tracey Travis.

ELECTION OF DIRECTORS

Process for Nominating Directors

The Corporate Governance Committee is responsible for identifying and evaluating nominees for director and for recommending to the Board a slate of nominees for election at the Annual Meeting of Shareholders. In evaluating the suitability of individuals for Board membership, the Committee applies the Board Competencies, discussed immediately below.

Board Competencies

The Committee has established minimum qualification standards for nominees and also has identified certain desirable qualities and skills. The Committee will apply the minimum criteria and will take into account desirable qualities and skills and all other factors that would help in the evaluation of a candidate’s suitability for Board membership. The Board Competencies are available on the “Corporate Governance” page of the Investor Relations section of our website at www.joann.com; a printed copy of the Board Competencies also is available upon request to our Secretary.

Selection Process for New Board Candidates

Internal Process for Identifying Candidates. The Corporate Governance Committee has two primary methods for identifying candidates (other than those proposed by our shareholders, as discussed below). First, the Corporate Governance Committee solicits ideas for possible candidates from a number of sources — members of the Board; senior level company executives; individuals personally known to the members of the Board; and research, including database and other searches. Second, the Committee may from time to time use its authority under its charter to retain, at our expense, one or more search firms to identify candidates (and to approve such firms’ fees and other retention terms). If the Corporate Governance Committee retains one or more search firms, they may be asked to identify possible candidates who meet the minimum and desired qualifications, to interview and screen such candidates (including conducting appropriate background and reference checks), to act as a liaison among the Board, the Corporate Governance Committee and each candidate during the screening and evaluation process and thereafter to be available for consultation as needed by the Corporate Governance Committee.

General Nomination Right of All Shareholders. Any of our shareholders may nominate one or more persons for election as a director of the company at an annual meeting of shareholders if the shareholder complies with the provisions contained in our Code of Regulations. We have an advance notice provision. In order for the director nomination to be timely, a shareholder’s notice to our Secretary must be delivered to our principal executive offices not later than the close of business on the ninetieth calendar day, and not earlier

than the opening of business on the one hundred twentieth calendar day, prior to the meeting; except that, if the first public announcement of the date of the meeting is not made at least one hundred days prior to the date of the meeting, notice by the shareholder will be timely if it is delivered or received not later than the close of business on the tenth calendar day after the first public announcement of the date of the meeting and not earlier than the opening of business on the one hundred twentieth calendar day prior to the meeting. A shareholder’s notice must set forth, as to each candidate, all of the information about the candidate required to be disclosed in a proxy statement complying with the rules of the SEC used in connection with the solicitation of proxies for the election of the candidate as a director.

Evaluation of Candidates

The Corporate Governance Committee will consider all candidates identified through the processes described above, and will evaluate each of them, including incumbents, based on the same criteria.

If, based on the Committee’s initial evaluation, a candidate continues to be of interest to the Committee, the Chair of the Corporate Governance Committee will interview the candidate and communicate the Chair’s evaluation to the other Corporate Governance Committee members, the Chairman/Chief Executive Officer and the Lead Director. Later reviews will be conducted by other members of the Corporate Governance Committee. Ultimately, background and reference checks will be conducted and the Corporate Governance Committee will meet to finalize its list of recommended candidates for the Board’s consideration.

Timing of the Identification and Evaluation Process

Our fiscal year ends each year on the Saturday closest to January 31. The Corporate Governance Committee usually meets in March or early April to consider, among other things, candidates to be recommended to the Board for inclusion in our recommended slate of director nominees for the next annual meeting and our proxy statement. The Board usually meets shortly thereafter to vote on, among other things, the slate of director nominees to be submitted to and recommended for election by shareholders at the annual meeting, which is typically held in June of that year.

Nominees and Continuing Directors

Each of the nominees for director other than Mr. DePinto and Mr. Perdue was an incumbent director whose term of office was concluding and was considered as a candidate for continued Board membership. Within the past fifteen months each of the nominees has been evaluated by each of the members of the Board on his or her performance as a Board and committee member, specifically considering his or her attendance, preparation, leadership, ethics, engagement, qualities and skills. The Corporate Governance Committee reviewed the nominees’ performance evaluations. The Corporate Governance Committee determined that each candidate met the established Board Competencies and all requirements for service as a Director and, based on the evaluations, recommended each nominee for continued membership on the Board. Mr. DePinto and Mr. Perdue were elected to the Board in April 2008, with the understanding that they would stand for re-election at the 2008 Annual Meeting. Prior to their elections, the Corporate Governance Committee determined that Mr. DePinto and Mr. Perdue met the established Board competencies and all requirements for service as a Director and the Committee recommended them for election to the Board, and for re-election at the 2008 Annual Meeting.

The following table sets forth certain information regarding the nominees for election as members of the Board of Directors and directors whose terms of office will continue after the Annual Meeting. This information is based upon information furnished to us by such persons as of April 14, 2008.


	Principal Occupation for Past Five Years,	Director
Name	Other Directorships and Age	Since

	Nominees To Fill Board Positions That Are Up For Election At 2008 Annual Meeting of Shareholders
Joseph DePinto	President and Chief Executive Officer of 7-Eleven, Inc., the world’s largest convenience retailer, since 2005. During 2005 he served as President of GameStop, Inc., the leading videogame and entertainment software retailer. From 2002 to 2005 Mr. DePinto was an executive with 7-Eleven, serving as Vice President, Operations from 2003 to 2005, and as Division Vice President from 2002 to 2003. Prior to that, he held executive positions at PepsiCo, Inc., and was the Chief Operating Officer of Thornton Quick Café and Market. Mr. DePinto currently serves on the boards of 7-Eleven, Inc. and OfficeMax, Inc.; age 45.		2008
Ira Gumberg	President and Chief Executive Officer of J.J. Gumberg Co., a real estate development and investment company, for more than five years. J.J. Gumberg Co. is a nationally ranked real estate investment and development company that maintains a portfolio of more than 30 shopping centers, consisting of over 12 million square feet of space in multiple states. Mr. Gumberg currently serves as trustee and member of the Audit Committee of Carnegie Mellon University and a member of the board of trustees of the University of Pittsburgh; age 54.		1992
Patricia Morrison⁽¹⁾⁽³⁾	Executive Vice President and Chief Information Officer since 2007 and Senior Vice President and Chief Information Officer from 2005 to 2007 of Motorola, Inc., a designer, manufacturer, marketer and seller of mobility products. Previously, she was Executive Vice President and Chief Information Officer of Office Depot, Inc., a supplier of office products and services, from 2002 to 2005. Ms. Morrison currently serves on the board of SPSS Inc., a worldwide provider of predictive analytics software and solutions; age 48.		2003
Frank Newman⁽²⁾⁽³⁾	Chairman and Chief Executive Officer of Medical Nutrition USA, Inc., a nutrition-medicine company, since 2003 and a director since 2002. From 2001 to 2003, Mr. Newman was a private investor and advisor to health care and pharmaceutical companies. Prior to 2001, Mr. Newman was in retailing for 30 years, including serving as Chief Executive Officer of Eckerd Corporation, a large drug store chain, from 1993 until 2000 and as Chief Executive Officer of F&M Distributors, a drug store chain, from 1986 until 1993. He is also a Director of Jabil Circuit, Inc. and Medical Nutrition USA, Inc. and has served on the Board of the National Association of Chain Drug Stores since 1993, including as its Chairman in 1999-2000; age 59.		1991
David Perdue	Chairman and Chief Executive Officer of Dollar General Corporation, a Fortune 500 discount retailer, from 2003 to 2007. Previously, Mr. Perdue was Chairman and Chief Executive Officer of Pillowtex Corporation, a home textile manufacturer, from 2002 to 2003, and prior to that he held senior management positions with Reebok International Ltd., Haggar Corporation and Sara Lee Corporation. Mr. Perdue currently serves on the board of Alliant Energy Corporation; age 58.		2008


	Principal Occupation for Past Five Years,	Director
Name	Other Directorships and Age	Since

Beryl Raff⁽¹⁾⁽³⁾	Executive Vice President-General Merchandising Manager for the Fine Jewelry Division of J.C. Penney Company, Inc., a department store retailer, with whom she has been employed since 2001. Prior to her appointment to her current position in 2005, Ms. Raff served as J.C. Penney’s senior vice president and general merchandise manager of Fine Jewelry. Ms. Raff is presently on the advisory board of Jewelers Circular Keystone (JCK), the world jewelry trade show organization for manufacturers and retailers of fine jewelry. She also serves on the board for Group 1 Automotive, a Fortune 500 automotive retailer; age 57.		2001
Tracey Travis⁽¹⁾⁽²⁾	Senior Vice President and Chief Financial Officer for Polo Ralph Lauren Corporation, a designer, marketer and distributor of apparel, home and fragrance products, since 2005. From 2002 to 2004 she was Senior Vice President, Finance for Limited Brands, Inc., an apparel and personal care products retailer; age 45.		2003
Darrell Webb	Our Chairman of the Board, President and Chief Executive Officer since July 2006. Previously, he was President of Fred Meyer, the 128-store super center division of The Kroger Company, a retail grocery chain, from 2002 until July 2006 and President of Kroger’s Quality Food Center Division from 1999 to 2002; age 50.		2006

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE NOMINEES

	Directors Whose Term Expires in 2009
Scott Cowen⁽²⁾⁽³⁾	President of Tulane University and the Seymour S Goodman Professor of Management for more than five years. Dr. Cowen is also a director of American Greetings Corporation, Forest City Enterprises, Inc. and Newell Rubbermaid Inc. Dr. Cowen is a former board member of the American Council of Education, the Business-Higher Education Forum and the National Collegiate Athletic Association, and a member of the Audit Committee Leadership Network in North America, a select group of audit committee chairs from America’s leading companies. Dr. Cowen is the co-author of four books and has published more than 90 articles in academic and professional journals focused on issues dealing with corporate governance, strategic planning and the development of management control systems; age 61.		1987
Alan Rosskamm	Previously served as our Chairman of the Board, President and Chief Executive Officer for more than five years until his resignation from these positions in 2006. He is a member of one of our two founding families and was employed by us from 1978 to 2006. Mr. Rosskamm is also a director of Charming Shoppes, Inc., a women’s apparel retailer with approximately 2,400 stores; age 58.		1985


⁽¹⁾		Member of the Corporate Governance Committee.

⁽²⁾		Member of the Audit Committee.

⁽³⁾		Member of the Compensation Committee.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We have adopted a written “Statement of Policy with Respect to Related Party Transactions.” This policy requires our Corporate Governance Committee to review and approve all transactions, arrangements or relationships with us in which any director, executive officer or shareholder who owns more than 5% of our common shares (including immediate family members of directors and executive officers and entities owned or controlled by any of the above) has a direct or indirect material interest, which involve $10,000 or more and are not generally available to all of our employees, other than ordinary course director or employee compensation arrangements or a transaction with another company at which the related person is a director and/or owner of less than a 5% equity interest. In reviewing the related person transactions, the Corporate Governance Committee will consider the following factors: (1) the extent of the related person’s interest in the transaction, (2) the availability of other sources of comparable products and services, (3) whether the terms of the transaction are no less favorable than terms generally available in unaffiliated transactions under like circumstances, (4) the benefits to us, and (5) the aggregate value of the transaction. This review will occur at each calendar year’s first regularly scheduled Corporate Governance Committee meeting and at subsequent meetings as needed. The Corporate Governance Committee will also review corporate opportunities presented to management or a member of our Board that may be equally available to us. No member of the Corporate Governance Committee with an interest in a related party transaction will participate in the decision-making process regarding that transaction. The Committee also will review any relationships with family members of 5% shareholders to the extent such matters are brought to the Committee’s attention. The only related party transaction of which our company is aware is described in the following paragraph.

Ira Gumberg, one of our directors, is President and Chief Executive Officer of J.J. Gumberg Co., a real estate development and investment company. J.J. Gumberg manages numerous shopping centers, 10 of which contain our stores. The owners of the various shopping centers managed by J.J. Gumberg Co. are separate legal entities (individually referred to as a “shopping center entity”) in which Mr. Gumberg or his immediate family may have some investment interest. Four of the leases were entered into after Mr. Gumberg became one of our directors and are on terms we believe are no less favorable to us than could have been obtained from an unrelated party. From time to time, we also may receive tenant allowances from a shopping center entity on terms we believe are no less favorable to us than could have been obtained from an unrelated party. The aggregate rent and related occupancy charges paid by us during fiscal 2008, 2007, and 2006 to the shopping center entities for various stores under lease amounted to $1.6 million, $2.0 million, and $2.0 million respectively. In fiscal 2008, the payments of $1.6 million to J.J. Gumberg, as agent, did not exceed 2% of such company’s gross revenue, nor did any single shopping center entity receive any payments from us in excess of $1 million dollars. Two of the shopping center entities leasing to us are partnerships solely owned by Mr. Gumberg and members of his family. The Corporate Governance Committee reviewed and approved continuation of these leases at its April 2008 meeting.

COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary


	•	Pay for performance is our compensation philosophy. We tie compensation to performance objectives that are aligned with our corporate goals.

	•	We also align compensation with shareholder returns.

	•	Our goal is to provide our executives with the opportunity to earn total compensation at approximately the 50^th percentile of our peers, provided that we achieve our performance objectives. If we perform better or worse than our performance objectives, our executives will receive higher or lower compensation. Because we consider factors other than peer group data, each executive’s compensation opportunity may be below or above the 50^th percentile, but all executives fall between the 25^th and 75^th percentile.


	•	Our executives’ total compensation package includes three elements:


	•	Base salary, which is intended to recognize an individual’s regular commitment to his or her job and to provide a stable source of income to the individual.

	•	Short-term incentive compensation in the form of an annual performance-based bonus, which is intended to focus our executives on achievement of financial goals established by our Compensation Committee at the beginning of each year.

	•	Long-term incentive compensation in the form of equity-based awards to align the interests of our executives with those of our shareholders and promote a culture of shared ownership.


	•	We also provide our executives with a competitive benefits package, in order to attract and retain high performing executives.

Background

Our executive officers currently include:


	•	Darrell Webb, our Chairman, President and Chief Executive Officer

	•	Kenneth Haverkost, our Executive Vice President, Store Operations

	•	James Kerr, our Executive Vice President, Chief Financial Officer

	•	Travis Smith, our Executive Vice President, Merchandising and Marketing

Our senior management team, referred to as our “Management Committee,” consists of these executive officers and six additional senior managers at the Senior Vice President and Vice President level. All members of our Management Committee report directly to our Chief Executive Officer, with the exception of one senior manager who reports to our Executive Vice President, Store Operations.

In our fiscal 2007 (which ran from January 29, 2006 to February 3, 2007), we faced a number of operational challenges and made major changes in our business through the implementation of our “Repair Plan” initiatives. Fiscal 2007 also was a year of significant executive turnover. In July 2006, Darrell Webb and Travis Smith joined us from outside the company and James Kerr was promoted to his current position. As a result of these changes, our compensation programs during our fiscal 2007 focused on attracting and retaining our key management team members. These initiatives produced a more stable business and positioned us for a return to profitable operations.

With our new management team in place and a more stable business, our compensation programs for our fiscal 2008 (which ran from February 4, 2007 to February 2, 2008) were reoriented to focus on the achievement of performance goals that would result in substantial year-over-year improvement and creation of significant shareholder value. Our fiscal 2008 compensation programs are the focus of this report.

In August 2007, David Holmberg, formerly our Executive Vice President, Operations, left our company, and Kenneth Haverkost joined us as Executive Vice President, Store Operations, in October 2007.

How we make compensation decisions

Executive compensation decisions are made by our Compensation Committee

Our Compensation Committee makes the compensation decisions with respect to our executive officers and other members of our Management Committee. The Compensation Committee also approves the compensation programs applicable to our employees below the Management Committee level.

Involvement of company management

Company management has no involvement in compensation decisions with respect to our Chief Executive Officer. The Compensation Committee receives recommendations from our Chief Executive Officer with respect to the compensation of other members of our Management Committee. Company management also

makes recommendations to the Compensation Committee with respect to the compensation programs applicable to employees below the Management Committee level, and implements these programs within the parameters approved by the Compensation Committee.

Involvement of a compensation consultant

The Compensation Committee receives advice concerning compensation issues from Watson Wyatt Worldwide, Inc. (“Watson Wyatt”), a nationally recognized compensation consulting firm that has significant experience in the retail industry. In 2007, the Compensation Committee determined that Watson Wyatt would provide services solely to the Compensation Committee, and would otherwise cease providing any services to our company at the request of management. Thus, Watson Wyatt is retained by the Committee, not our company management, and takes direction from and reports to the Chair of our Compensation Committee with respect to services being provided to us. Our Compensation Committee believes that this helps ensure the integrity of the advice it receives from Watson Wyatt and avoids actual conflicts of interest or the perception of a possible conflict of interest. Previously, Watson Wyatt provided services at the request of both our Compensation Committee and company management.

Use of peer group data

Our Compensation Committee and management considers peer group data when making compensation decisions. The Committee retained Watson Wyatt to prepare a peer group compensation study prior to the Committee making its fiscal 2008 compensation decisions. The Committee is using the same study in connection with its fiscal 2009 decisions. The Committee feels that year-to-year compensation changes are not significant enough to make annual studies a useful decisionmaking tool. The Committee anticipates that it will obtain another study prior to making fiscal 2010 decisions.

The Committee selected the peer group for the most recent study with advice from Watson Wyatt. The primary factor in selecting the peer group was to identify publicly traded specialty retailers with annual revenues similar to ours. Other factors were market capitalization and numbers of employees, and the Committee also sought to include a variety of types of specialty retailers. The peer group consisted of the following companies:


• Abercrombie & Fitch		• Payless Shoesource
• AnnTaylor Stores		• Petsmart
• Charming Shoppes		• Pier 1 Imports
• Chico’s FAS		• Stage Stores
• Claire’s Stores		• Talbots
• Dress Barn		• Urban Outfitters
• DSW		• Williams Sonoma
• Men’s Wearhouse		• Zale

The Committee will review this list, and perhaps make some changes, prior to making fiscal 2010 compensation decisions.

Other sources of data

The Committee also considers compensation data provided by Watson Wyatt from its proprietary databases and broad market surveys. This data is used in particular in making decisions with respect to senior managers below the executive officer level, since the peer group study is generally limited to the publicly reported data concerning the peer companies’ executive officers. Watson Wyatt also provides the Committee with information concerning general compensation trends on topics such as program designs, allocation of total compensation between base salary, short-term incentives and long-term incentives, the use of various equity vehicles, and methods for enhancing shareholder alignment and retention incentives. The Committee uses this information to help set pay levels and design programs. The Committee has shared selected peer group and other information it obtained from Watson Wyatt with our Chief Executive Officer, who considers

this data in making his compensation recommendations to the Committee for members of the Management Committee.

Use of tally sheets

Our Compensation Committee uses tally sheets to track the total compensation paid and that may in the future become payable to our Management Committee members. Updated tally sheets for each member of our Management Committee are provided to the Committee in connection with each Committee meeting at which executive compensation issues are on the agenda. The main purpose of these tally sheets is to combine and quantify in a tabular form all elements of compensation for our Management Committee members. As the Committee considers executive compensation issues it can consult the tally sheets to assist it in understanding how the compensation matters under consideration fit into and impact our overall compensation program. We believe that the use of tally sheets enables the Committee to monitor more closely the compensation of our Management Committee members and to ensure that the objectives of our compensation program are met.

Individual performance goals

The Compensation Committee sets personal performance goals for our Chief Executive Officer, and our Chief Executive Officer establishes such goals for each other Management Committee member, which are subject to review by the Committee. The personal performance goals are focused on aligning each executive’s activities with our annual business plan and strategic goals. Our Chief Executive Officer’s attainment of his individual performance goals, in addition to achievement of the business plan and financial metrics, is considered by the Committee in determining our Chief Executive Officer’s annual base salary and long-term incentive opportunity for the following year. Likewise, attainment of individual performance goals by other Management Committee members is considered by our Chief Executive Officer in making his base salary and long-term incentive opportunity recommendations for these executives to the Committee, and by the Committee in its review of these recommendations and compensation decisions with respect to these executives. Attainment of individual performance goals does not have an impact on an executive officer’s opportunity to receive short-term incentive compensation, since our short-term incentive compensation program is based on our company’s achievement of company performance metrics.

Tax considerations

The Compensation Committee considers tax consequences when making compensation decisions. Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public corporations for compensation over $1,000,000 paid for any fiscal year to the corporation’s chief executive officer or one of the three other most highly compensated executive officers other than the chief financial officer, unless such compensation is performance-based. Qualifying performance-based compensation will not be subject to the deduction limit if certain requirements are met. Cash payments under our short term incentive compensation, as well as performance share and stock option awards made under our long term incentive compensation plan are intended to qualify as performance-based compensation under Section 162(m).

Our compensation philosophy and program objectives

The underlying philosophy of our compensation program is pay for performance. Our goal is to design and maintain a performance-oriented compensation program that will incentivize our management to meet or exceed annual performance objectives and long term strategic plans approved by the Board, and to align compensation with shareholder returns. We also believe that we need to offer a total compensation opportunity which is competitive with peer companies and other companies with whom we compete for management talent, in order to attract and retain the high caliber team members the company needs in order to achieve a high level of performance and thus create shareholder value.

In general, the Committee seeks to provide our executives with total compensation opportunities at approximately the 50^th percentile of the compensation granted by our peer companies, assuming that the company achieves its “Target” level of performance (as discussed more fully below). Because the Committee

also considers other factors when making its compensation decisions, each executive’s compensation opportunity may be below or above the 50^th percentile but all executives fall between the 25^th and 75^th percentiles. The Committee strives to deliver pay that is commensurate with a team member’s role and his or her relative ability to impact our overall business success, and that is aligned with the management and experience level, tenure in position and any unique skills of the team member. The Committee also considers internal equity. While these factors have not resulted in significant deviations on an overall basis from our general philosophy of setting the total compensation opportunity for our executives at the 50^th percentile of our peer group, these factors may result in significant deviations at the individual employee level.

Our Compensation Committee has set our Chief Executive Officer’s base salary and short and long-term incentive compensation opportunities at a higher level than for our other executive officers due to our Chief Executive Officer’s significantly greater responsibilities for company performance, executive leadership and guardianship of company assets, and in order to be competitive with the compensation practices of our peer group of companies and other companies with whom we compete for executive talent.

Total compensation and its components

Our compensation program for executive officers and other Management Committee members consists of three elements:


	•	Base salary;

	•	Short-term incentive compensation in the form of an annual performance-based bonus; and

	•	Long-term incentive compensation in the form of equity-based awards.

We provide base salaries to recognize an individual’s regular commitment to his or her job and to provide a stable source of income to the individual. We provide annual performance-based bonuses to all salaried members to focus the efforts of our employees on the attainment of annual performance objectives. We provide long-term incentive compensation in the form of equity-based awards to our executive officers, other Management Committee members and other higher level managers in order to align the interests of these managers with those of our shareholders and promote a culture of share ownership.

Base salary

In general, base salaries are determined by job responsibility, market data, individual performance, tenure in position and internal equity, with our Chief Executive Officer and our Executive Vice Presidents occupying the top tier. When hiring new executive officers, we set base salaries based on these factors, the individual’s experience and unique skills and the level of compensation that must be offered in order to recruit a high performance executive possessing the requisite skills. We review the base salary of our executive officers, and all other management employees, each fiscal year. We consider the 50^th percentile of our peer group to be a benchmark when setting base salaries, but we sometimes deviate from this benchmark since we consider other factors, as discussed above. We also focus more on how the total compensation opportunity compares to our peer group data than the peer group comparison for each component of total compensation. Deviations from the peer group benchmark with respect to our fiscal 2008 executive compensation are discussed below at page 31.

Short-term incentive compensation

We provide our executive officers and other senior management team members with the opportunity to earn cash bonuses through our Management Incentive Plan (“MIP”). We believe that this opportunity aligns our employees’ interests with our annual performance objectives, encourages teamwork in achieving common goals and rewards employees for achieving financial performance goals. Bonuses are based on a percentage of each person’s base salary, which percentage is set based on the level of the particular employee, with higher level employees having a bonus opportunity set at a higher percentage of base salary. The Compensation Committee views this as appropriate since higher level employees have more opportunity to influence our company’s performance, and in light of competitive practices. At the beginning of each fiscal year our Compensation Committee sets the performance measures and bonus opportunities under our MIP for that fiscal year.

Long-term incentive compensation

Our Compensation Committee believes that equity-based incentives (such as performance shares, stock options and time-based restricted shares) ensure that our Management Committee members and other higher level managers have a continuing stake in our long-term success and that the interests of our shareholders and management are closely aligned. We believe that our Management Committee members and other higher level managers are motivated to drive future performance through their ownership interest in our company.

At the beginning of each fiscal year, our Compensation Committee determines the long-term incentive opportunity for that fiscal year for employees at each level of our company and the performance criteria that must be met in order to achieve some or all of that opportunity. In determining the sizes of the incentive grants, and the types and mix of equity to be used for employees at each level of the company, our Compensation Committee bases its decisions on such considerations as peer company practices, the potential for dilution of our shareholders, the expense associated with the awards, and the relative proportion of long-term incentives within the total compensation mix. The Committee takes into account advice from Watson Wyatt and recommendations from the Chief Executive Officer with respect to employees below the Chief Executive Officer level.

The Committee specifically approves all awards to our executive officers and other members of our Management Committee, and approves, on a program basis, the grants to other employees. The awards are based on a targeted dollar value that is determined in relation to an employee’s level and base salary. Our Chief Executive Officer may then approve adjusted grant levels between 75% and 125% of the targeted grant levels for individual employees below the Management Committee level, based on his assessment of the individual’s performance and the importance of the individual to us, so long as he does not grant total awards in excess of the established pool.

We believe that each type of our equity awards serves a specific purpose and employ each type, as necessary, to meet our compensation objectives. We use performance shares to motivate our executive officers and most senior management team members to work collaboratively to achieve our financial performance targets, align their interests with the interests of our shareholders, and motivate them to create long-term shareholder value. We use stock options to align our executive officers’ and senior managers’ interests with those of our shareholders and reward them for generating shareholder returns. We grant time-based restricted shares to management team members in order to promote the long-term retention of those employees and to provide them with an ownership interest in Jo-Ann Stores. As a result of these awards, a significant portion of our executive officers’ and senior managers’ total compensation is dependent on the achievement of our performance objectives and increases in the price of our common shares. Since recipients forfeit their right to their long-term incentive equity grants if they leave our company before the awards vest, the Compensation Committee believes that these awards also are a factor in the retention of key management team members.

Fiscal Year 2008 Compensation Decisions and Results

Overview

During fiscal 2008 we provided our executive officers with total compensation packages consisting of base salary, short-term incentive compensation and long-term incentive compensation. Each element is discussed below.

Base salary

For our fiscal 2008, we provided base salaries to our executive officers in the following amounts: Darrell Webb, $800,000; Travis Smith, $500,000; and James Kerr, $320,000. These represented increases of 6.7%, 5.3% and 6.7%, respectively, over their fiscal 2007 base salaries. The Committee established these base salaries after considering peer group data. The Committee also considered other factors, as described above. Mr. Webb’s base salary adjustment also reflects the Committee’s assessment that Mr. Webb has brought necessary discipline and vision to our company and made significant progress in improving company performance during his initial tenure with our company. Mr. Smith’s base salary adjustment also reflected a

commitment made to him at the time of his recruitment to our company and the level of compensation necessary to recruit and retain talented merchandising executives. Mr. Kerr’s base salary adjustment also reflected the Committee’s assessment of his performance since his internal promotion to the Chief Financial Officer position.

When Kenneth Haverkost joined our company in October 2007, his annual base salary was established at $375,000. Again, the peer group data was a factor used by the Committee in establishing Mr. Haverkost’s base salary. The Committee also considered his compensation history, his experience level and the capabilities that he would bring to our company.

Short-term incentive compensation

Prior to the start of fiscal 2008, our Compensation Committee approved the short-term incentive compensation program for the fiscal year. The program was based on two key objective performance measures: earnings before interest and taxes (“EBIT”) and percentage same-store sales increase. Same store sales are defined as net sales from stores that have been open one year or more. The Committee felt that these were the key metrics driving the company’s business performance and therefore the appropriate measures on which to base the short-term incentive compensation plan. The Committee defined Threshold, Target and Maximum performance for each of these performance measures as follows:

Short-Term Incentive Plan Payout Grid


	Threshold			Target			Maximum

Same-Store Sales Growth		1	%		3	%		6	%
Earnings Before Interest & Taxes (in millions)	$	36.5		$	42.0		$	59.0
Payout Percentage (% of Target)		0	%		100	%		200	%

The Committee chose these metrics after considering recommendations from the Chief Executive Officer and advice from Watson Wyatt. In each case, the Target was established as a number that the Committee felt would be challenging, but which would be achievable if management performed at a high level and external business factors were at least neutral. The Target numbers also were set at levels that represented substantial improvement over prior year performance and that would create substantial shareholder value. The Maximum and Threshold numbers were established at percentages above or below the Target numbers. In the case of EBIT, Threshold was set at 14% below Target and Maximum at 40% above Target. For same-store sales increase, Threshold was set at 67% below Target and Maximum at 200% of Target. The Minimum numbers were set so that our executives and managers would only be rewarded if company performance improved over prior year performance to the extent that we achieved substantial shareholder value in excess of the employee rewards. The Committee considered the Maximum numbers to be a stretch goal but achievable with a very high level of performance and execution.

Under the MIP for fiscal 2008, our Chief Executive Officer would receive an incentive payment equal to his base salary if Target performance was achieved, with an opportunity to receive an incentive payment equal to 200% of his base salary if Maximum performance was achieved. In the case of our Executive Vice Presidents, the incentive payment at Target was set at 50% of base salary, with an opportunity to earn an incentive equal to 100% of base salary if Maximum performance was achieved. All of our salaried employees were participants in the MIP for fiscal 2008. While the metrics were the same for all employees, the payout percentages were less for lower level employees. The differences in the payout percentages for employees at different levels of the organization were based on competitive market factors and the fact that employees at higher levels of our company have a greater ability to influence our company’s performance and therefore their total compensation should be more heavily contingent on company performance.

Using the two metrics, we created a matrix of bonus payouts at various combinations of the two metrics. Bonuses were not payable under our MIP if the Threshold performance level for either EBIT or same-store sales was not achieved. In addition, poor performance with respect to one performance measure affects the overall percentage payout even if the other performance measure is achieved at the Target level. For example,

we had to achieve at least 75% of the Target level for EBIT in order for achievement of same-store sales above 100% of Target to produce a bonus payout at or above an executive’s target level, and vice versa.

Our results for fiscal 2008 were EBIT of $37.4 million (slightly above Threshold of $36.5 million) and same-store sales increase of 3.5% (above the Target of 3.0%). This resulted in a bonus payout of 85.3% of Target pursuant to the bonus matrix. Thus, the short-term incentive payouts for our executive officers were: $672,558 for Mr. Webb, $134,512 for Mr. Kerr and $211,610 for Mr. Smith.

Mr. Haverkost did not participate in the short-term incentive plan since he was not employed by us at the beginning of fiscal 2008. The Committee granted him a fiscal 2008 bonus of $200,000 in consideration of the compensation opportunities he forfeited when he resigned from his prior employer in order to join us.

In addition, Mr. Kerr received a guaranteed cash retention payment of $125,000 in March 2007. The Compensation Committee granted this benefit to Mr. Kerr in September 2005 while he was serving as our Vice President and Controller in order to encourage him to remain with us during a period when we needed to address many operating and financial challenges and the Chief Financial Officer position was vacant. Mr. Kerr fulfilled his obligations to earn this payment.

Long-term incentive compensation

For fiscal 2008, the Committee established a long-term incentive compensation program available to all of our employees at or above the “manager” level. For our Chief Executive Officer, the targeted long term incentive payment was valued at $1.2 million, and for our Executive Vice Presidents it was targeted at $500,000. However, Mr. Haverkost did not participate in this program since he joined us after the start of the fiscal year. Half of this payment was in the form of stock options, which vest 25% per year over four years and expire in seven years. All options granted by us have been granted as non-qualified stock options with an exercise price equal to the closing price of our common shares on the date of grant and, accordingly, will have value only if the market price of our common shares increases after that date. The other half was in the form of performance shares, with the performance metric being earnings per share (“EPS”). The Committee chose EPS as the metric because it directly aligns management with the interests of the shareholders. The performance shares were granted at the NYSE closing price at the date of grant, and to the extent earned, would vest 25% per year over four years. If the company achieved the performance target, the executive would receive the full grant of performance shares. However, if EPS was below the plan’s Threshold, none of the performance shares would be earned; if EPS was between Threshold and Target, some of the performance shares would be earned; and if EPS was above Target, the employee could earn up to 200% of his or her targeted performance shares. At Target, Mr. Webb would have earned 24,000 shares, Mr. Kerr 10,000 shares and Mr. Smith 10,000 shares.

The Threshold for earning any performance shares was set at EPS of 61 cents per share. Target had been set at 75 cents and Maximum had been set at 91 cents per share. The Committee purposefully set aggressive performance metrics in order to incentivize our managers to achieve strong performance, which would create substantial shareholder value even at Threshold performance. We earned 62 cents per share, or just over the Threshold. Thus, the executive officers and other employees receiving performance shares earned 7% of their performance shares. This amounted to 1,714 shares for Mr. Webb, 714 shares for Mr. Kerr and 714 shares for Mr. Smith.

For lower level employees, the target incentive payments were set at lower dollar values, time-based restricted shares were used in lieu of some or all of the performance shares, and the vesting periods were reduced. These differences, and the difference between the Chief Executive Officer and Executive Vice President target awards, were due to competitive market factors and recognition that higher level employees have a greater ability to influence company performance.

Comparison of Fiscal Year 2008 Compensation to Peer Group Data

The total compensation opportunities for our executive officers in fiscal 2008, assuming target performance, compared to our peer group as follows:

Mr. Webb — 25^th percentile

Mr. Haverkost — Between 25^th and 50^th percentiles

Mr. Kerr — 25^th percentile

Mr. Smith — Between 50^th and 75^th percentiles

The primary reason why most of our executive officers fall below the 50^th percentile of our peer group is their short tenure in their current positions. Mr. Smith’s compensation was significantly influenced by his compensation at his former employer and the compensation package necessary to recruit him to our company. The Committee anticipates that our executive officers’ compensation opportunities will move closer to the peer group 50^th percentile as they gain tenure with us, but we are likely to always have deviations from the 50^th percentile since we consider factors other than peer group data. Moreover, actual compensation will most likely always deviate from the 50^th percentile due to our “pay for performance” philosophy and the significant component of total compensation that is contingent on achievement of performance metrics.

Board Policies. Pursuant to policies adopted by our Board of Directors, we make grants of equity-based awards to our executive officers, with the advance approval of our Compensation Committee, on the third full NYSE trading day following the next earnings release after that approval (unless the Compensation Committee selects another date that it has determined to be appropriate after consultation with legal counsel). The exercise price for stock options will be the closing price of our common shares as reported on the NYSE on the date of grant. Our Chief Executive Officer may approve grants to newly hired or promoted employees below the Vice President level, and the Chairperson of our Compensation Committee may approve grants to newly hired or promoted employees at the Vice President level, in each case subject to guidelines regarding such grants that are approved by our Compensation Committee. Annual grants to current employees and grants to newly hired or promoted employees above the Vice President level must be approved by our Compensation Committee at a meeting (and not by means of a unanimous consent resolution). The grant date for grants of equity-based awards to current employees and newly hired or promoted employees also will be the third full NYSE trading day following the next earnings release after approval (and also after the employment commencement or promotion date in the case of newly hired or promoted employees) unless the Compensation Committee selects another date as described above, and the exercise price for stock options will be the closing price of our common shares as reported on the NYSE on the date of grant. Other than pursuant to our equity award grant policy described above, whereby we generally will make equity-based awards only following a quarterly earnings release, we do not intentionally coordinate the grant of equity-based awards with the release of material non-public information. In the past, we have not intentionally coordinated the grant of equity-based awards with the release of material non-public information.

Although our Compensation Committee has the ability under the terms of our 1998 Incentive Compensation Plan to amend awards by waiving performance targets or accelerating the vesting of awards, our Compensation Committee has not exercised that discretion and does not currently intend to exercise that discretion.

Our Board has adopted, as part of its insider trading policy, prohibitions on short sales of our securities, purchases or sales of publicly traded options involving our securities, establishing margin accounts or otherwise pledging our securities, and hedging transactions involving our securities.

The Board has considered, but to date has not adopted, share ownership guidelines for our executive officers. The Board believes that the restricted stock and stock options held by each of our executive officers and other senior managers are sufficient to align their interests with shareholder interests. The Board has considered, but not imposed, clawback provisions on our executive officers but continues to monitor this issue.

Supplemental Retirement Benefit Plan. We provide certain of our executive officers with a limited defined benefit retirement plan, known as the Jo-Ann Stores, Inc. Supplemental Retirement Benefit Plan (“SERP”). The Board’s practice has been to provide the SERP to our executive officers who have completed

at least one year of service with us. Currently, Mr. Webb, Mr. Smith and Mr. Kerr are the only participants in the SERP. Our Compensation Committee added Mr. Kerr as a participant to the SERP on August 15, 2006, shortly after his promotion to an executive officer position, and added Mr. Webb and Mr. Smith as participants to the SERP on November 13, 2007, shortly after their first anniversaries with us. Mr. Haverkost will become eligible to participate in the SERP upon his first anniversary of employment with us on October 15, 2008, and he may be added to the SERP at or shortly after that time.

During fiscal 2008, our Compensation Committee re-evaluated our SERP, with the assistance of Watson Wyatt. The Committee asked Watson Wyatt to examine the SERP from the perspective of market prevalence and to provide advice to the Committee. As part of this evaluation, Watson Wyatt assessed SERP programs offered by peer companies in the context of our total executive remuneration programs and those of our peers. Watson Wyatt found that about one-third of our peer companies provide a SERP program to their executive officers, but also found that the benefits provided through our SERP are generally below market. After considering Watson Wyatt’s analysis and advice, and in particular taking into account the fact that we do not provide any other defined benefit pension plan to our executive officers, our Compensation Committee decided to retain the SERP, in its existing form, as an integral part of our long-term compensation program. The Committee believes that the SERP remains an important component of our overall executive benefits program, and assists us in recruiting and retaining executives.

In general, under our SERP a participant who retires at age 65 will receive his maximum supplemental retirement benefit amount, as established from time to time by the Compensation Committee, payable in 180 equal consecutive monthly installments. Upon retirement before age 65, a participant will be entitled to a supplemental early retirement benefit following 20 years of service or, if the participant has been employed by us for at least ten years, at age 55. Any supplemental early retirement benefit will be payable, beginning at age 65, and will be the maximum supplemental retirement benefit amount reduced by 5% a year (up to a maximum 50% reduction) for each year of retirement prior to age 65. A participant who becomes totally disabled, and whose employment ceases as a result of that total disability, will be eligible for a supplemental disability retirement benefit, payable in 240 equal consecutive monthly installments until the earlier of the participant’s recovery or until all such monthly payments have been made. Any supplemental disability retirement payments received by a participant will reduce the amounts payable upon a participant’s normal or early retirement. Upon the death of a participant after retirement or total disability, his or her designated beneficiaries will receive any remaining monthly installments. If a participant dies before retirement, no benefits are payable under the SERP.

The Compensation Committee has established the maximum supplemental retirement benefit amount for Mr. Webb at $750,000 and for each of Mr. Smith and Mr. Kerr at $600,000.

During fiscal 2008 we also reviewed our SERP for compliance with final regulations issued by the Internal Revenue Service pursuant to Section 409A of the Internal Revenue Code. As a result of this review, our Board approved a number of changes to our SERP for the purposes of Section 409A compliance and in order to ease administration of the SERP. These amendments did not impact the benefits available to our executives under the SERP.

Deferred Compensation Plan. We offer a Deferred Compensation Plan to our upper level management employees as part of our overall benefits package in order to be competitive with companies with which we compete for management talent. We believe that the Deferred Compensation Plan helps us recruit and retain high caliber management talent. Our Deferred Compensation Plan provides our executive officers and management team members with an opportunity to elect to defer receipt of cash compensation (base salary and annual bonus) for a period of years or until retirement up to a maximum of 75% of base salary and 100% of annual bonus. Participants can select from a variety of investment funds from which the earnings on their deferred cash compensation account will be determined. However, our obligations under our Deferred Compensation Plan are general unsecured obligations of Jo-Ann Stores. The first 4% of base salary that is deferred under our Deferred Compensation Plan is matched 50% by us, effectively resulting in a matching contribution of up to 2% of base salary. Our matching contribution is intended to compensate the plan participants who fall within the “highly compensated” definition under Internal Revenue Service regulations

for their inability to obtain an equivalent match under our 401(k) Savings Plan due to restrictions imposed by federal law on 401(k) contributions by highly compensated employees.

Other Executive Officer Benefits and Perquisites. We provide a benefits package to our executive officers intended to be competitive with the benefits packages, offered by peer companies and other companies with whom we compete for management talent. We feel that a competitive benefits package is an important factor in attracting and retaining high performing executives and managers. Our executive officers receive health, life and disability insurance coverage on the same basis as all of our employees, supplemental long-term disability insurance coverage, and matching contributions under our Deferred Compensation Plan and our 401(k) Savings Plan. Our executive officers were eligible to receive the following perquisites in fiscal 2008: an automobile allowance, an annual physical, and reimbursement for certain tax and financial planning expenses. For more information regarding the actual perquisites received by our current executive officers, see footnote 8 to the Summary Compensation Table on page 35 of this proxy statement.

Executive Officer Employment Agreements. We have entered into employment agreements with each of our executive officers. These agreements specify the severance benefits each executive officer will receive in the event his employment is terminated by us without “cause” or by the executive for “good reason,” either before or after a “change of control.” For a description of the current terms of those employment agreements, see the section of this proxy statement titled “Executive Compensation — Current Executive Officer Employment Agreements” beginning on page 39 of this proxy statement.

Our Compensation Committee believes that the severance benefits included in our employment agreements with our executive officers are a necessary component of a competitive compensation program. The Committee, based upon advice from Watson Wyatt, believes that the structure of the employment agreements and the benefit amounts are not significantly different from the severance arrangements typically in place at other companies. The existence of these agreements does not impact the other compensation arrangements offered to our executives because it is not anticipated that these agreements will be triggered, and if they are triggered, the intent is to compensate the executive for lost future compensation following the termination date, rather than for the executive’s performance during the period of employment.

The severance benefits included in these agreements also are intended to align executive and shareholder interests by enabling executives to consider corporate transactions that are in the best interests of our shareholders without undue concern over whether the transactions may jeopardize the executives’ own employment. These agreements further benefit us by imposing non-competition, confidentiality and non-solicitation obligations on the executives.

EXECUTIVE COMPENSATION

The following table sets forth information relating to compensation for the fiscal years ended February 2, 2008 and February 3, 2007 for our Chief Executive Officer, our Chief Financial Officer, all of our other executive officers employed by us as of the end of fiscal 2008 and our former Executive Vice President, Operations. The individuals listed in the Summary Compensation Table are referred to collectively in this proxy statement as the “named executive officers.”

SUMMARY COMPENSATION TABLE


													Change in
											Cash		Value of
							Stock		Option		Incentive		SERP		All Other
	Fiscal		Salary		Bonus		Awards		Awards		Compensation		Benefits		Compensation		Total
Name and Principal Position	Year		($)⁽¹⁾		($)⁽²⁾		($)⁽³⁾⁽⁵⁾		($)⁽⁴⁾⁽⁵⁾		($)⁽⁶⁾		($)⁽⁷⁾		($)⁽⁸⁾		($)

Darrell Webb⁽⁹⁾		2008	$	789,423	$	0	$	569,805	$	460,508	$	672,558	$	88,741	$	36,057	$	2,617,092
Chairman of the Board,		2007	$	403,846	$	403,846	$	380,710	$	138,194	$	0	$	0	$	202,242	$	1,528,838
President and
Chief Executive Officer
Kenneth Haverkost⁽⁹⁾		2008	$	115,385	$	200,000	$	43,439	$	19,869	$	0	$	0	$	174,048	$	552,741
Executive Vice President,
Store Operations
James Kerr⁽⁹⁾		2008	$	315,769	$	125,000	$	118,415	$	181,078	$	134,512	$	4,192	$	27,371	$	906,337
Executive Vice President,		2007	$	278,272	$	100,000	$	153,701	$	62,606	$	0	$	41,916	$	22,790	$	659,285
Chief Financial Officer
Travis Smith⁽⁹⁾		2008	$	496,635	$	0	$	233,669	$	210,968	$	211,610	$	18,661	$	27,956	$	1,199,499
Executive Vice President,		2007	$	246,635	$	200,000	$	148,448	$	66,961	$	0	$	0	$	185,768	$	847,812
Merchandising and Marketing
David Holmberg⁽⁹⁾		2008	$	312,019	$	0	$	210,903	$	266,911	$	0	$	0	$	1,050,127	$	1,839,960
Former Executive Vice		2007	$	434,135	$	230,000	$	336,874	$	245,444	$	0	$	57,061	$	29,039	$	1,332,553
President, Operations


⁽¹⁾		Includes amounts earned but deferred under our Deferred Compensation Plan and under Section 401(k) of the Internal Revenue Code. Fiscal 2008 was a 52-week year; fiscal 2007 was a 53-week year.

⁽²⁾		Mr. Haverkost received a guaranteed cash bonus of $200,000 for fiscal 2008 in consideration for compensation from his former employer that he forfeited upon joining us in October 2007. This amount represents bonus earned in the fiscal year indicated but paid in the subsequent fiscal year.

		Mr. Webb received a guaranteed cash bonus of 100% of his actual earned salary for fiscal 2007, and Mr. Smith received a guaranteed cash bonus of $200,000 for fiscal 2007. These amounts represent bonuses earned in the fiscal year indicated but paid in the subsequent fiscal year. Mr. Holmberg and Mr. Kerr received guaranteed cash retention payments, which were paid 50% in May 2006 and 50% in November 2006. Mr. Kerr also received a $125,000 retention payment in March 2007 pursuant to a 2005 grant while he was serving as our Vice President and Controller, which grant was intended to encourage him to remain with us during a period when we needed to address many operating and financial challenges and the Chief Finanical Officer position was vacant.

⁽³⁾		Stock Awards include all compensation cost recognized in the financial statements for the indicated fiscal year in accordance with Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (“FAS No. 123R”) with respect to restricted stock granted during the indicated fiscal year and in previous years. On March 15, 2007, we granted each of our executive officers performance shares. Based upon the performance achieved by the company during fiscal 2008, each of these executive officers earned the following performance shares, which were converted to stock awards: Mr. Webb — 1,714 shares; Mr. Kerr — 714 shares; and Mr. Smith — 714 shares. Mr. Holmberg also was granted the opportunity to earn performance shares; his termination of employment forfeited his right to such shares. On December 3, 2007, Mr. Haverkost was granted 31,847 time-based restricted shares in connection with his commencement of employment with us. For fiscal 2007, each of these executive officers received the following grants


		of restricted stock on July 28, 2006: Mr. Webb — 100,000 shares and Mr. Kerr — 10,000 shares; and on August 4, 2006: Mr. Smith — 40,000 shares.

⁽⁴⁾		Option Awards include all compensation cost recognized in the financial statements for the indicated fiscal year in accordance with FAS No. 123R with respect to stock option grants during the indicated fiscal year and in prior years. For fiscal 2008, each of these executive officers received stock option grants to purchase the following number of shares on March 15, 2007: Mr. Webb — 68,337 shares; Mr. Kerr — 28,474 shares; Mr. Smith — 28,474 shares; Mr. Holmberg — 28,474 shares and on December 3, 2007: Mr. Haverkost — 45,771 shares. Mr. Holmberg’s resignation resulted in the forfeiture of his award. For fiscal 2007, each of these executive officers received stock option grants to purchase the following number of shares on July 28, 2006: Mr. Webb — 100,000 shares and Mr. Kerr — 25,000 shares; and on August 4, 2006: Mr. Smith — 50,000 shares.

⁽⁵⁾		For a discussion of the assumptions we made in valuing the stock and option awards, see “Note 1 — Significant Accounting Policies — Stock-Based Compensation” and “Note 8 — Stock-Based Compensation” in the notes to our consolidated financial statements contained in the 2008 Annual Report.

⁽⁶⁾		For fiscal 2008, each of these executive officers received the following performance-based cash bonus: Mr. Webb — $672,558; Mr. Kerr — $134,512; and Mr. Smith — $211,610.

⁽⁷⁾		The SERP provides benefits, subject to forfeiture, to designated employees upon retirement at age 65, early retirement, total disability or death. Under this plan, we expensed the following amounts for fiscal 2008: Mr. Webb — $88,741; Mr. Kerr — $4,192; and Mr. Smith — $18,661 and the following amounts for fiscal 2007: Mr. Holmberg — $57,061 and Mr. Kerr — $41,916.

⁽⁸⁾		The amounts in the All Other Compensation Column consist of the following compensation items:


											Matching
								Tax Planning			Contributions		Matching
			Group					Reimbursements			Under		Contributions		Car					Relocation
			Life		Insurance			and Gross-Up			Deferred		Under 401(k)		Allowance		Relocation			Reimbursements
			Insurance		Premiums			Payments			Compensation		Savings Plan		and Car		Allowance			and Gross-Up
Name	Year		($)		Paid ($)			($)			Plan ($)		($)		Usage ($)		($)			Payments ($)			Total ($)

Darrell Webb		2008	$	888	$	84		$	4,307	^(a)	$	0	$	2,865	$	16,800	$	0		$	11,113	^(b)	$	36,057
		2007	$	121	$	0		$	0		$	0	$	0	$	8,400	$	193,721	^(f)	$	0		$	202,242

Kenneth Haverkost		2008	$	35	$	0		$	0		$	288	$	0	$	5,200	$	150,000		$	18,525	^(c)	$	174,048

James Kerr		2008	$	470	$	228		$	0		$	8,808	$	2,265	$	15,600	$	0		$	0		$	27,371
		2007	$	279	$	0		$	0		$	5,660	$	2,901	$	13,950	$	0		$	0		$	22,790

Travis Smith		2008	$	362	$	21		$	0		$	0	$	0	$	15,600	$	0		$	11,973	^(d)	$	27,956
		2007	$	67	$	0		$	0		$	0	$	0	$	7,800	$	177,901		$	0		$	185,768

David Holmberg		2008	$	786	$	719		$	0		$	6,423	$	1,899	$	40,300	$	0		$	0		$	1,050,127	^(g)
		2007	$	450	$	1,811	^(e)	$	0		$	8,904	$	2,274	$	15,600	$	0		$	0		$	29,039


^(a)		$1,807 out of $4,307 represents tax gross-up payments for tax planning services.

^(b)		The total amount of $11,113 consists of $9,580 paid as relocation reimbursements and $1,533 representing tax gross-up payments for relocation reimbursements. $2,987 out of the $9,580 in relocation reimbursement was for fiscal 2007 expenses but was paid in fiscal 2008. $1,261 out of the $1,533 in tax gross-up payments related to fiscal 2007 expenses but was paid in fiscal 2008.

^(c)		The total amount of $18,525 consists of $12,606 paid as relocation reimbursements and $5,919 representing tax gross-up payments for relocation reimbursements.

^(d)		$3,548 out of $11,973 was for fiscal 2007 expenses but was paid in fiscal 2008.

^(e)		$677 out of $1,811 represents tax gross-up payments for COBRA payments.

^(f)		The total amount of $193,721 consists of $191,608 paid as relocation reimbursements and $2,113 representing tax gross-up payments for relocation reimbursements.

^(g)		Effective August 10, 2007, Mr. Holmberg resigned as our Executive Vice President, Operations. Pursuant to a letter agreement dated September 12, 2007, implementing his pre-existing employment agreement, Mr. Holmberg received a lump sum payment equal to 24 months of his base salary. This payment amounted to $1,000,000.


⁽⁹⁾		Mr. Webb joined us and assumed the position of Chairman, President and Chief Executive Officer as of July 24, 2006. Mr. Kerr was promoted to the position of Executive Vice President, Chief Financial Officer as of July 31, 2006 from his former position as Vice President, Controller. Mr. Smith joined us and assumed the position of Executive Vice President, Merchandising and Marketing as of July 31, 2006. Mr. Holmberg resigned as Executive Vice President, Operations as of August 10, 2007. Mr. Haverkost joined us and assumed the position of Executive Vice President, Store Operations as of October 15, 2007.

The following table provides information relating to stock and option awards granted under our 1998 Incentive Compensation Plan during fiscal 2008 to the named executive officers.

FISCAL 2008 GRANTS OF PLAN-BASED AWARDS


													All Other
													Options
											All Other		Awards:
											Stock		Number of				Grant Date
					Estimated Future Payouts Under						Awards:		Common		Exercise or		Fair Value
			Grant		Performance Share Grants						Number of		Shares		Base Price		of Stock and
			Date for		Below						Common		Underlying		of Option		Option
Name	Approval Date		Options		Threshold		Target		Maximum		Shares (#)		Options (#)		Awards ($/Sh)		Awards⁽¹⁾

Darrell Webb		01/22/08		03/15/07		0		24,000		48,000		N/A		68,337	$	25.00	$	640,642
Kenneth Haverkost		11/13/07		12/03/07		N/A		N/A		N/A		31,847		45,771	$	15.70	$	749,981
James Kerr		01/22/08		03/15/07		0		10,000		20,000		N/A		28,474	$	25.00	$	266,934
Travis Smith		01/22/08		03/15/07		0		10,000		20,000		N/A		28,474	$	25.00	$	266,934
David Holmberg		01/22/08		03/15/07		0		10,000		20,000		N/A		28,474	$	25.00	$	249,084


⁽¹⁾		Stock and Option Awards are valued in accordance with FAS No. 123R.

Our Compensation Committee must approve equity grants to executive officers, and the grant date is the third NYSE trading day following our next quarterly earnings release pursuant to the Rules adopted by the Compensation Committee under our 1998 Incentive Compensation Plan (unless the Compensation Committee selects another date). The indicated approval dates are the dates when Compensation Committee meetings took place at which the grants were approved. The indicated grant dates are the dates that are the third NYSE trading date following the earnings release that next followed the approval date.

Performance shares represent a contingent right to receive a common share, on a one-for-one basis, upon achievement of certain performance-based criteria. The original grants dated March 15, 2007 were for up to the maximum performance shares (assuming achievement of the performance-based criteria at the “Maximum” level). To the extent the performance shares were earned, they would vest 25% per year over four years, beginning one year after the original grant date. Actual performance shares earned were 7% of the “Target” grant, or 1,714 shares for Mr. Webb, 714 shares for Mr. Kerr and 714 shares for Mr. Smith, which are disclosed in the Summary Compensation Table in the column titled “Stock Awards.” For a description of the terms of the grants set forth in the Fiscal 2008 Grants of Plan-Based Awards Table, see “Compensation Discussion and Analysis — Fiscal Year 2008 Compensation Decisions and Results — Long-Term Incentive Compensation” on page 30.

The following table sets forth information relating to all of our named executive officers’ outstanding equity-based awards as of the end of fiscal 2008 (February 2, 2008).

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END (2008)


	Option Awards								Stock Awards
											Market
									Number of		Value of
									Shares or		Shares or
									Units of		Units of
					Option		Option		Stock That		Stock That
	Number of Securities Underlying Unexercised Options (#)				Exercise		Expiration		Have Not		Have Not
Name	Exercisable		Unexercisable		Price ($)		Date		Vested (#)		Vested ($)⁽⁶⁾

Darrell Webb⁽¹⁾										76,714	$	983,473
Darrell Webb⁽¹⁾		25,000		75,000	$	14.05		07/28/2013
Darrell Webb⁽¹⁾		0		68,337	$	25.00		03/15/2014
Kenneth Haverkost⁽²⁾										31,847	$	408,279
Kenneth Haverkost⁽²⁾		0		45,771	$	15.70		12/03/2014
James Kerr⁽³⁾										20,604	$	264,143
James Kerr⁽³⁾		2,000		0	$	25.41		03/06/2008
James Kerr⁽³⁾		5,000		0	$	18.91		10/02/2008
James Kerr⁽³⁾		4,000		0	$	14.31		12/16/2008
James Kerr⁽³⁾		4,000		0	$	10.94		12/07/2009
James Kerr⁽³⁾		6,000		0	$	16.80		03/06/2010
James Kerr⁽³⁾		0		16,000	$	12.42		11/18/2012
James Kerr⁽³⁾		6,250		18,750	$	14.05		07/28/2013
James Kerr⁽³⁾		0		28,474	$	25.00		03/15/2014
Travis Smith⁽⁴⁾										30,714	$	393,753
Travis Smith⁽⁴⁾		12,500		37,500	$	14.22		08/04/2013
Travis Smith⁽⁴⁾		0		28,474	$	25.00		03/15/2014
David Holmberg⁽⁵⁾		0		0		0		0


⁽¹⁾		During fiscal 2008, Mr. Webb was granted 68,337 option awards and 1,714 performance shares, which were converted to stock awards. The option awards granted become exercisable in four equal annual installments commencing one year after the date of grant. The stock awards granted will vest in four equal annual installments commencing one year after the grant date. From prior year grants, Mr. Webb also has unvested option awards at the end of fiscal 2008: 25,000 will vest on each of July 28, 2008, 2009 and 2010. From prior year grants, Mr. Webb also has unvested stock awards at the end of fiscal 2008: 25,000 will vest on each of July 28, 2008, 2009 and 2010.

⁽²⁾		On December 3, 2007, Mr. Haverkost was granted 45,771 option awards and 31,847 stock awards in connection with his commencement of employment with us. The option awards granted become exercisable in four equal annual installments commencing one year after the date of grant. The stock awards granted will vest in four equal annual installments commencing one year after the date of grant.

⁽³⁾		During fiscal 2008, Mr. Kerr was granted 28,474 option awards and 714 performance shares, which were converted to stock awards. The option awards granted become exercisable in four equal annual installments commencing one year after the date of grant. The stock awards granted will vest in four equal annual installments commencing one year after the grant date. From prior year grants, Mr. Kerr also had unvested option awards at the end of fiscal 2008: 6,250 will vest on each of July 28, 2008, 2009 and 2010; 8,000 will vest on each of March 1, 2009 and 2010. From prior year grants, Mr. Kerr also had unvested stock awards at the end of fiscal 2008: 5,000 vested on March 1, 2008, 1,300 vested on March 4, 2008, 1,600 vested on March 5, 2008, 690 vested on March 6, 2008, 1,300 will vest on March 4, 2009, 5,000 will vest on each of July 28, 2009 and 2010.


⁽⁴⁾		During fiscal 2008, Mr. Smith was granted 28,474 option awards and 714 performance shares, which were converted to stock awards. The option awards granted become exercisable in four equal annual installments commencing one year after the date of grant. The stock awards granted will vest in four equal annual installments commencing one year after the grant date. From prior year grants, Mr. Smith also has unvested option awards at the end of fiscal 2008: 12,500 will vest on each of August 4, 2008, 2009 and 2010. From prior year grants, Mr. Smith also has unvested stock awards at the end of fiscal 2008: 10,000 will vest on each of August 4, 2008, 2009 and 2010.

⁽⁵⁾		During fiscal 2008, Mr. Holmberg was granted 28,474 option awards, which were to become exercisable in four equal annual installments commencing one year after the date of grant. Mr. Holmberg forfeited these options when he terminated employment with us. During fiscal 2008, Mr. Holmberg also was granted the opportunity to earn performance shares under our fiscal 2008 long-term incentive program; he forfeited his right to such shares upon his termination of employment. Upon his resignation, Mr. Holmberg did not have any vested outstanding option awards or outstanding stock awards from prior year grants and his resignation resulted in the forfeiture of all unvested option and stock awards.

⁽⁶⁾		The market value at our fiscal year end was $12.82.

The following table provides information relating to aggregate stock option exercises and aggregate stock awards vested, including in each case the value realized upon exercise or vesting, during fiscal 2008 for the named executive officers.

FISCAL 2008 OPTION EXERCISES AND STOCK VESTED


	Option Awards				Stock Awards
	Number of				Number of
	Shares Acquired		Value Realized		Shares Acquired		Value Realized
Name	on Exercise (#)		on Exercise ($)		on Vesting (#)		on Vesting ($)

Darrell Webb		0	$	0		25,000	$	601,500
Kenneth Haverkost		0	$	0		0	$	0
James Kerr		0	$	0		7,290	$	159,606
Travis Smith		0	$	0		10,000	$	237,300
David Holmberg		0	$	0		12,500	$	276,375

The following table provides information relating to the present value of the accumulated benefit under the SERP for the named executive officers. None of the named executive officers received any payments under the SERP during the last fiscal year.

FISCAL 2008 PENSION BENEFITS

Payments

Present Value of

During

Accumulated

Last

Benefit

Fiscal Year

Name

Plan Name

($)⁽¹⁾

($)

Darrell Webb