SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<Table>
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11c or Section 240.14a-12
</Table>
Jo-Ann Stores, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
[JO-ANN STORES LOGO]
5555 Darrow Road
Hudson, Ohio 44236
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 6, 2002
To our Shareholders:
The Annual Meeting of Shareholders of Jo-Ann Stores, Inc. will be held at
the Hilton Garden Inn located at 8971 Wilcox Drive in Twinsburg, Ohio
(directions enclosed), on Thursday, June 6, 2002 at 9:00 a.m., eastern standard
time, for the following purposes:
1. To elect three directors to the class whose three-year term of office
will expire in 2005.
2. 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 Class A common shares of record at the close of business on
April 12, 2002 will be entitled to vote at the meeting.
IF YOU ARE A HOLDER OF CLASS A COMMON SHARES, YOU WILL FIND A PROXY CARD
ENCLOSED. YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE
MEETING, PLEASE FOLLOW THE INSTRUCTIONS ON THE ENCLOSED PROXY CARD TO VOTE YOUR
PROXY EITHER BY MAIL OR TELEPHONE OR VIA THE INTERNET. IF YOU ATTEND THE
MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR CLASS A COMMON SHARES IN
PERSON.
Whether or not you plan to attend, you can be sure your shares are
represented at the meeting by promptly voting and submitting your proxy.
The proxy statement accompanies this Notice.
BETTY ROSSKAMM,
Secretary
By order of the Board of Directors
May 6, 2002
PROXY STATEMENT
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ABOUT THE MEETING........................................... 1
When is the proxy statement being mailed?................. 1
What is the purpose of the Annual Meeting?................ 1
Who may attend the Annual Meeting?........................ 1
Who is entitled to vote?.................................. 1
What constitutes a quorum?................................ 1
What am I voting on?...................................... 1
How do I vote?............................................ 2
Can I change my vote or revoke my proxy after I return my
proxy card?............................................ 2
How do I vote my 401(k) shares?........................... 2
What does it mean if I receive more than one proxy
card?.................................................. 2
Who will count the vote?.................................. 2
What is the Board's recommendation?....................... 3
What is the required vote for approval of the proposal?... 3
Is electronic access available to view future proxy
materials?............................................. 3
PRINCIPAL SHAREHOLDERS...................................... 4
ELECTION OF DIRECTORS....................................... 7
Nominees to and Current Members of the Board of
Directors.............................................. 7
Board of Directors and Its Committees, Meetings and
Functions.............................................. 8
Compensation of Directors................................. 9
EXECUTIVE COMPENSATION...................................... 10
Summary Compensation Table................................ 10
Option Grants in Fiscal Year 2002......................... 11
Aggregate Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values................................. 12
Executive Employment Agreements........................... 12
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE
COMPENSATION.............................................. 13
REPORT OF THE AUDIT COMMITTEE............................... 16
PRINCIPAL ACCOUNTING FIRM FEES.............................. 17
STOCK PERFORMANCE GRAPH..................................... 17
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... 18
INDEPENDENT AUDITORS........................................ 18
PROXY SOLICITATION COSTS.................................... 18
SHAREHOLDERS' PROPOSALS..................................... 18
ANNUAL REPORT............................................... 18
APPENDIX A.................................................. A-1
</Table>
[JO-ANN STORES LOGO]
5555 Darrow Road
Hudson, Ohio 44236
PROXY STATEMENT
This proxy statement contains information related to the Annual Meeting of
Shareholders of Jo-Ann Stores, Inc. to be held on Thursday, June 6, 2002
beginning at 9:00 a.m., eastern standard time, at the Hilton Garden Inn in
Twinsburg, Ohio, and at any postponements or adjournments of that meeting.
ABOUT THE MEETING
WHEN IS THE PROXY STATEMENT BEING MAILED?
This proxy statement is being mailed on or about May 8, 2002 to our
shareholders by our Board of Directors to solicit proxies for use at the Annual
Meeting of Shareholders.
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At our Annual Meeting, shareholders will act upon the election of
directors. In addition, our management will report on our performance during
fiscal 2002 and respond to questions from shareholders.
WHO MAY ATTEND THE ANNUAL MEETING?
All shareholders, both Class A and Class B, as of the close of business on
April 12, 2002, the record date, may attend the Annual Meeting.
WHO IS ENTITLED TO VOTE?
Class A shareholders as of the record date are entitled to vote at the
Annual Meeting. Each outstanding Class A common share entitles its holder to
cast one vote on each matter to be voted upon.
WHAT CONSTITUTES A QUORUM?
The presence at the meeting, in person or by proxy, of the holders of a
majority of the Class A common shares outstanding on the record date will
constitute a quorum, permitting the meeting to conduct its business. As of the
record date, 10,001,176 Class A common shares were outstanding. Proxies received
but marked as abstentions and broker non-votes will be included in the
calculation of the number of shares considered to be present at the meeting.
Consequently, an abstention or broker non-vote has the same effect as a vote
against a director nominee as each abstention or broker non-vote would be one
less vote in favor of a director nominee.
WHAT AM I VOTING ON?
You will be voting on the election of three directors to the class whose
three-year term of office will expire in 2005.
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 went to press, we knew of no other matters to be acted on at the
meeting.
1
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 proxy card. Internet voting is available 24 hours a day, seven
days a week. You will be given 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 12:00 NOON,
EASTERN STANDARD TIME, ON JUNE 5, 2002.
Vote by Telephone:
You can vote your shares by telephone by calling the toll-free telephone
number shown on your proxy card. 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 12:00 NOON, EASTERN
STANDARD TIME, ON JUNE 5, 2002.
Vote by Mail:
If you choose to vote by mail, simply mark your proxy card, date and sign
it, and return it in the postage-paid envelope provided.
CAN I CHANGE MY VOTE OR REVOKE MY PROXY AFTER I RETURN MY PROXY CARD?
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 the
Corporate 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. Savings Plan 401(k), the
number of Class A common shares that you may vote is equivalent to the interest
in Class A common shares credited to your account as of the record date. You may
vote these shares by instructing Institutional Trust Company (a division of
INVESCO Retirement and Benefit Services), the trustee of the plan, pursuant to
the proxy card being mailed with this proxy statement to plan participants. 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 PROXY CARD?
If you receive more than one proxy card, it is because you hold shares in
more than one account. You will need to vote all proxy cards to insure that all
your shares are counted.
WHO WILL COUNT THE VOTE?
A representative of Automatic Data Processing, Incorporated will tabulate
the votes. A representative of our company will be acting as inspector of
election.
2
WHAT IS THE BOARD'S RECOMMENDATION?
The Board recommends a vote for the nominated slate of directors (see page
7). The Board's recommendation is set forth in the description of the proposal
for the "Election of Directors." Unless you give other instructions on your
proxy card, the persons named as proxy holders on the proxy card will vote in
accordance with the recommendation of the Board of Directors.
WHAT IS THE REQUIRED VOTE FOR APPROVAL OF THE PROPOSAL?
The affirmative vote of a plurality of the votes cast at the meeting is
required for the election of directors. A properly executed proxy card marked
"WITHHOLD AUTHORITY" with respect to the election of one or more directors will
not be voted with respect to the director or directors indicated, although it
will be counted for purposes of determining whether there is a quorum.
Under the Ohio General Corporation Law, all of the Class A common shares
may be voted cumulatively in the election of directors if any shareholder gives
written notice to the President, a Vice President or the Secretary of the
company, 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 Class A 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
Class A common shares represented by valid proxies on a cumulative basis for the
election of the nominees (see page 7), allocating the votes of such Class A
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.
IS ELECTRONIC ACCESS AVAILABLE TO VIEW FUTURE PROXY MATERIALS?
We offer you the opportunity during the voting process to consent to view
future proxy statements and annual reports via the Internet, rather than receive
paper copies in the mail. You will have other opportunities throughout the year
to give your consent. This service helps us reduce printing and postage costs
and is more environmentally friendly.
3
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of April 12, 2002 (except as otherwise
noted), the amount of Class A common shares beneficially owned by each person or
group known to us to be beneficial owners of more than 5% of Class A common
shares and the amount of Class A and Class B common shares beneficially owned by
(1) each of our directors and nominees for directors, (2) each of the executive
officers named in the Summary Compensation Table not listed as a director and
(3) all our executive officers and directors as a group. The information
provided in connection with this table has been obtained from our records and a
review of statements filed with the Securities and Exchange Commission. Unless
otherwise indicated, each of the persons listed in the following table has sole
voting and investment power with respect to the common shares set forth opposite
his or her name. As of April 12, 2002, 10,001,176 Class A common shares were
outstanding and 8,813,511 Class B common shares were outstanding. Class A common
shares each have one vote per share and Class B common shares do not have voting
rights.
<Table>
<Caption>
CLASS A COMMON SHARES CLASS B COMMON SHARES
-------------------------------- --------------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
NAME OF COMMON SHARES CLASS IF 1% COMMON SHARES CLASS IF 1%
BENEFICIAL OWNER BENEFICIALLY OWNED OR MORE BENEFICIALLY OWNED OR MORE
---------------- ------------------ ----------- ------------------ -----------
5% OWNERS
First Pacific Advisors, Inc.(1) 740,700 7.41% n/a n/a
11400 West Olympic Boulevard
Suite 1200
Los Angeles, CA 90064
DIRECTORS AND NOMINEES FOR DIRECTORS
Alan Rosskamm(2)(3) 1,384,566 13.73% 777,206 8.55%
5555 Darrow Road
Hudson, OH 44236
Betty Rosskamm(2)(4)(5) 879,122 8.79% 582,537 6.61%
5555 Darrow Road
Hudson, OH 44236
Mr. Justin and Mrs. Alma
Zimmerman(2)(5)(6) 679,836 6.80% 410,156 4.65%
5555 Darrow Road
Hudson, OH 44236
Scott Cowen(7) 39,056 * 20,592 *
Gregg Searle(8) 22,245 * 14,323 *
Ira Gumberg(9) 21,188 * 8,966 *
Frank Newman(10) 20,510 * 8,172 *
Beryl Raff(11) 5,000 * -- *
EXECUTIVE OFFICERS
Brian Carney(2)(12) 88,119 * 112,801 1.27%
Dave Bolen(2)(13) 47,034 * 183,548 2.05%
Rosalind Thompson (2)(14) 20,434 * 70,135 *
Mike Edwards (2)(15) 10,000 * 46,385 *
ALL EXECUTIVE OFFICERS AND DIRECTORS
AS A GROUP (12 PERSONS)(2)(16) 2,466,865 24.18% 2,034,791 21.51%
</Table>
- ---------------
* Less than 1%
(1) The Class A common shares listed are reported on a Schedule 13G filed with
the Securities and Exchange Commission with respect to holdings as of
December 31, 2001.
(2) The number of common shares beneficially owned by such persons under our
Jo-Ann Stores, Inc. Savings Plan 401(k) is included as of March 31, 2002,
the latest date for which statements are available.
4
(3) Mr. Rosskamm's beneficial ownership includes 80,000 Class A common shares
and 275,000 Class B common shares subject to stock options that are
exercisable on or prior to June 11, 2002, 20,000 Class A common shares held
as restricted stock, and an aggregate of 181,251 Class A common shares and
210,523 Class B common shares held by his children, spouse or Mr. Rosskamm
as trustee for the benefit of family members and charities. His beneficial
ownership also includes 750,245 Class A common shares and 45,547 Class B
common shares held by Rosskamm Family Partners, L.P. with regard to which
he has shared voting and dispositive power, 154,483 Class B common shares
held by Rosskamm Family Partners, L.P. II with regard to which he has
shared dispositive power, and 98,950 Class A common shares and 9,303 Class
B common shares held by Caneel Bay Partners, L.P. with regard to which he
has sole voting and dispositive power.
(4) Mrs. Rosskamm's beneficial ownership includes 22,803 Class A common shares
and 28,241 Class B common shares held as custodian for the benefit of her
grandchildren. Her beneficial ownership also includes 25,000 Class A common
shares and 25,000 Class B common shares held by The Rosskamm Family
Partnership with regard to which she has sole voting and dispositive power,
750,245 Class A common shares and 45,547 Class B common shares held by
Rosskamm Family Partners, L.P. with regard to which she has shared voting
and dispositive power, and 154,483 Class B common shares held by Rosskamm
Family Partners, L.P. II with regard to which she also has shared
dispositive power.
(5) Mrs. Rosskamm, Mr. and Mrs. Zimmerman and the company have entered into an
agreement, dated September 26, 1997, relating to their Class A and Class B
common shares. Under this agreement, Mrs. Rosskamm and her lineal
descendants and permitted holders, and Mr. and Mrs. Zimmerman and their
lineal descendants and permitted holders, may each sell up to 200,000 Class
A common shares in any calendar year and may not sell more than 100,000 of
those shares in any 180-day period. Mrs. Rosskamm, and Mr. and Mrs.
Zimmerman collectively, may each sell up to 100,000 Class B common shares
in any 60-day period. If either Mrs. Rosskamm or Mr. and Mrs. Zimmerman
plan to sell a number of their Class A common shares in excess of the
number permitted under the agreement, they must first offer to sell those
shares to the other family party to the agreement, and then with the other
family's permission, to the company. If either Mrs. Rosskamm or Mr. and
Mrs. Zimmerman plan to sell a number of their Class B common shares in
excess of the number permitted under the agreement, each family must first
offer to sell those shares to the company.
(6) Of the 679,836 Class A common shares beneficially owned by the Zimmermans,
Mr. Zimmerman disclaims beneficial ownership of 339,230 Class A common
shares beneficially owned by his wife and Mrs. Zimmerman disclaims
beneficial ownership of 340,606 Class A common shares beneficially owned by
her husband. Of the 410,156 Class B common shares beneficially owned by the
Zimmermans, Mr. Zimmerman disclaims beneficial ownership of 198,522 Class B
common shares beneficially owned by his wife and Mrs. Zimmerman disclaims
beneficial ownership of 211,634 Class B common shares beneficially owned by
her husband.
(7) Mr. Cowen's beneficial ownership includes 20,000 Class A common shares and
16,000 Class B common shares subject to stock options that are exercisable
on or prior to June 11, 2002, 1,756 Class A common shares and 2,292 Class B
common shares subject to a deferred compensation arrangement and 5,000
Class A common shares held as restricted stock.
(8) Mr. Searle's beneficial ownership includes 13,500 Class A common shares and
13,500 Class B common shares subject to stock options that are exercisable
on or prior to June 11, 2002, 745 Class A common shares and 823 Class B
common shares subject to a deferred compensation arrangement and 5,000
Class A common shares held as restricted stock.
(9) Mr. Gumberg's beneficial ownership includes 13,375 Class A common shares
and 5,375 Class B common shares subject to stock options that are
exercisable on or prior to June 11, 2002, 2,813 Class A common shares and
3,591 Class B common shares subject to a deferred compensation arrangement
and 5,000 Class A common shares held as restricted stock.
(10) Mr. Newman's beneficial ownership includes 14,000 Class A common shares and
6,000 Class B common shares subject to stock options that are exercisable
on or prior to June 11, 2002, 1,510 Class A common
5
shares and 2,172 Class B common shares subject to a deferred compensation
arrangement and 5,000 Class A common shares held as restricted stock.
(11) Ms. Raff's beneficial ownership includes 5,000 Class A common shares held
as restricted stock.
(12) Mr. Carney's beneficial ownership includes 50,000 Class A common shares and
91,250 Class B common shares subject to stock options that are exercisable
on or prior to June 11, 2002 and 20,000 Class A common shares held as
restricted stock.
(13) Mr. Bolen's beneficial ownership includes 133,750 Class B common shares
subject to stock options that are exercisable on or prior to June 11, 2002
and 20,000 Class A common shares held as restricted stock.
(14) Ms. Thompson's beneficial ownership includes 2,250 Class A common shares
and 65,000 Class B common shares subject to stock options that are
exercisable on or prior to June 11, 2002 and 11,000 Class A common shares
held as restricted stock.
(15) Mr. Edwards's beneficial ownership includes 31,250 Class B common shares
subject to stock options that are exercisable on or prior to June 11, 2002
and 10,000 Class A common shares held as restricted stock.
(16) Beneficial ownership for all executive officers and directors as a group
includes 193,125 Class A common shares and 637,125 Class B common shares
subject to stock options granted under our stock option plans that are
exercisable on or prior to June 11, 2002, 6,824 Class A common shares and
8,878 Class B common shares subject to a deferred compensation arrangement
and 106,000 Class A common shares held as restricted stock.
6
ELECTION OF DIRECTORS
Our Board of Directors is presently comprised of eight members. The Board
is divided into three classes, two of which consist of three members and one
that consists of two members. The proxies solicited by this proxy statement will
not be voted for a greater number of persons than the number of nominees named
in this proxy statement.
Frank Newman, Betty Rosskamm and Beryl Raff are directors in the class
whose term of office expires in 2002. Each of these individuals have been
nominated by the Board for reelection at the Annual Meeting to serve for a
three-year term expiring at our Annual Meeting of Shareholders in 2005 and until
his or her successor is elected and qualified, subject to the director's earlier
retirement, resignation or death.
If any of the nominees becomes unable to serve as a director, the proxies
will be voted for the election, as a director, of such other person as the Board
of Directors may recommend. The Board of Directors has no reason, however, to
anticipate that this will occur.
NOMINEES TO AND CURRENT MEMBERS OF THE BOARD OF DIRECTORS
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 the company by such persons as of April 12, 2002.
<Table>
<Caption>
PRINCIPAL OCCUPATION PAST FIVE YEARS, DIRECTOR
NAME OTHER DIRECTORSHIP AND AGE SINCE
---- ------------------------------------- --------
NOMINEES FOR THE TERM TO EXPIRE IN 2005
Frank Newman(1)(2)(3) Private investor since January 2001. Previously, he was 1991
Chief Executive Officer from April 2000 to January 2001 of
more.com, an on-line health, beauty and wellness retailer,
and Chairman of the Board from February 1997 to March 2000,
President and Chief Executive Officer from February 1996 to
March 2000 and President from July 1993 to March 2000 of
Eckerd Corporation, a pharmacy retailer. He is also a
Director of Jabil Circuit, Inc.; age 53.
Betty Rosskamm Senior Vice President and Secretary of our company for more 1967
than five years. Betty Rosskamm is the mother of Alan
Rosskamm; age 73.
Beryl Raff(1)(2)(3) Senior Vice President-General Merchandising Manager for the 2001
Retail Jewelry Division of J.C. Penney Company, Inc., a
department store retailer, since May 2001. Previously, she
spent three 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; age 51.
</Table>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES
IDENTIFIED ABOVE
7
<Table>
<Caption>
PRINCIPAL OCCUPATION PAST FIVE YEARS, DIRECTOR
NAME OTHER DIRECTORSHIP AND AGE SINCE
---- ------------------------------------- --------
DIRECTORS WHOSE TERM EXPIRES IN 2003
Alan Rosskamm(1) Chairman of the Board, President and Chief Executive Officer 1985
of our company for more than five years. He is a member of
one of the two founding families of our company and has been
employed by us since 1978. Mr. Rosskamm is also a Director
of Charming Shoppes Inc., a women's apparel retailer; age
52.
Scott Cowen(1)(2)(3) President of Tulane University and the Seymour S Goodman 1987
Professor of Management since July 1998. Previously, he was
Dean of the Weatherhead School of Management and A.J.
Weatherhead III Professor of Management, Case Western
Reserve University, for more than five years. Mr. Cowen is
also a Director of American Greetings Corporation, Forest
City Enterprises, Inc. and Newell Rubbermaid Inc.; age 55.
Gregg Searle(1)(2)(3) President and Chief Executive Officer of Compel Holdings, 1996
LLC, a network infrastructure services company, since
November 2001 and President and Chief Executive Officer of
StoneGate Holdings, Ltd., a private investment company,
since October 1999. Previously, he was President and Chief
Operating Officer from November 1996 to September 1998 and
Executive Vice President from August 1993 to November 1996
of Diebold, Incorporated; age 53.
DIRECTORS WHOSE TERM EXPIRES IN 2004
Alma Zimmerman Senior Vice President of our company for more than five 1967
years; age 89.
Ira Gumberg(1)(4) President and Chief Executive Officer of J.J. Gumberg Co., a 1992
real estate investment company, for more than five years. He
is also a Director of Mellon Bank, N.A.; age 48.
</Table>
- ---------------
(1) Member of the Corporate Governance Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) J.J. Gumberg Co. manages numerous shopping centers, twelve of which contain
stores of our company. Two of the leases were entered into after Mr. Gumberg
became a director of our company, and we believe such leases are on terms no
less favorable to our company than could have been obtained from an
unrelated party. The aggregate rent and related occupancy charges paid
during fiscal 2002, 2001 and 2000 on these stores amounted to $1.3 million,
$1.4 million, and $1.3 million, respectively.
BOARD OF DIRECTORS AND ITS COMMITTEES, MEETINGS AND FUNCTIONS
During the fiscal year ended February 2, 2002, there were five meetings of
our Board of Directors. Each incumbent director attended at least 75% of the
Board meetings and meetings held by the committees on which he or she served
during the period for which he or she was a director.
The Corporate Governance Committee, which met four times during the fiscal
year ended February 2, 2002, is responsible for advising and making
recommendations to the Board of Directors on issues of corporate governance,
including matters relating to our code of conduct, 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 will also
consider individuals properly recommended by shareholders of our company. 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. The recommendations must be accompanied by the consent of the
individual nominated to be elected and to serve.
8
The Compensation Committee, which met three times during the fiscal year
ended February 2, 2002, sets the compensation for executive officers of our
company. The Committee also makes recommendations to the Board of Directors with
respect to the adoption and amendment of incentive compensation plans and
administers those plans approved by the Board of Directors. The formal report of
the Compensation Committee on executive compensation begins on page 13 of this
proxy statement.
The Audit Committee, which met twice during the fiscal year ended February
2, 2002, is responsible for reviewing, the independent auditors of our company,
scope and thoroughness of the auditors' examination, reviewing the independence
of the independent auditors, reviewing the adequacy of our company's systems of
internal accounting controls with the independent auditors and recommending to
the Board of Directors the appointment of independent auditors for the fiscal
year. The Board of Directors has adopted a written charter for the Audit
Committee which is attached hereto as Appendix A. On March 7, 2002, the Board of
Directors amended the charter expressly to give the Audit Committee authority to
retain and consult with its own professional advisors, including accounting
experts and legal counsel. In compliance with its charter, the Audit Committee
has satisfied its responsibilities during the fiscal year ended February 2,
2002. All members of the Audit Committee meet the independence standards of
Section 303.01 of the New York Stock Exchange Listed Company Manual. The formal
report of the Audit Committee with respect to the fiscal year ended February 2,
2002 begins on page 16 of this proxy statement.
COMPENSATION OF DIRECTORS
Our company's compensation program for each non-employee director consists
of cash compensation, deferred stock and grants of stock options and restricted
stock.
CASH COMPENSATION. Each non-employee director is compensated at a rate of
$5,000 per quarter and $1,000 for each day of Board and committee meetings
attended. Additionally, committee chairpersons receive an additional $500 per
quarter per committee chaired.
DEFERRED STOCK. In September 1999, the Board of Directors approved the
adoption of a deferred stock feature for non-employee directors that allows
non-employee directors to elect to convert the retainer and meeting fee portion
of their cash compensation into deferred stock units. This program became
effective for the March 2000 Board meeting. Under this feature, non-employee
directors make an irrevocable election at the Board meeting held at the time of
our company's Annual Meeting of Shareholders whereby they can elect to convert a
percentage (0% to 100% in 25% increments) of their cash compensation to deferred
stock units for the next 12 month period. One-half of the cash compensation
deferred is converted into Class A stock units and one-half into Class B stock
units. The conversion of cash compensation to deferred stock units is based on
the closing market price of Class A and Class B common shares on the date the
cash compensation would have been payable if it were paid in cash. These
deferred stock units are credited to an account of each non-employee director,
although no stock is issued until the earlier of, an elected distribution date
as selected by the non-employee director or retirement.
STOCK OPTIONS. Non-employee directors are granted stock option awards
under the 1998 Incentive Compensation Plan. We grant stock options for 2,500
Class A common shares and 2,500 Class B common shares to each non-employee
director upon completion of each year of service as a director. A year of
service ends on the date of the Annual Meeting of Shareholders. Each grant of
stock options expire ten years following the date of grant. In the event of the
retirement of a director after more than ten years of continuous service, the
Compensation Committee may accelerate the date on which any stock option
(outstanding for a period of more than twelve months) becomes exercisable. Upon
termination of a director from the Board for any reason, he or she would
continue to have the right to exercise an outstanding stock option during the
three-month period immediately following the date of termination of such
service.
A total of 563,962 common shares are currently available for stock awards
under the 1998 Incentive Compensation Plan. The 1998 Incentive Compensation Plan
is the same plan used to grant stock options and restricted stock awards to
executive officers and other key employees of the company.
9
RESTRICTED STOCK. Non-employee directors are granted restricted stock
awards as permitted under the 1998 Incentive Compensation Plan. This feature of
the 1998 Incentive Compensation Plan was adopted by the Board of Directors in
September 1999 and provided for a one-time grant of 5,000 Class A common shares
to each then current non-employee director. Additionally, each new non-employee
director will be eligible for a one-time grant of 5,000 Class A or Class B
common shares upon joining the Board of Directors. Each non-employee director
will then be eligible for an additional grant of 5,000 Class A or Class B common
shares every ten years following their initial grant, provided the director
continuously serves as a director for the entire ten-year period. Restricted
stock represents awards granted without payment to the company but which are
subject to restrictions on their transfer or sale. The restrictions on
non-employee director restricted stock lapse with respect to fifty percent of
the award three years from the date of the grant and with respect to the
remaining fifty percent six years from the date of the grant, provided the non-
employee director still serves in such capacity at the time of each lapse.
EXECUTIVE COMPENSATION
The following table sets forth information relating to the annual and
long-term compensation for the fiscal years ended February 2, 2002, February 3,
2001 and January 29, 2000, for the chief executive officer and the other named
executive officers of our company.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM COMPENSATION AWARDS
ANNUAL COMPENSATION ----------------------------------
----------------------------------------- SECURITIES UNDERLYING
OTHER OPTIONS/SARS ALL
ANNUAL RESTRICTED COMMON SHARES OTHER
NAME AND FISCAL COMPEN- STOCK --------------------- COMPEN-
PRINCIPAL POSITION YEAR(1) SALARY(2) BONUS(3) SATION AWARDS(4) CLASS A CLASS B SATION(5)
------------------ ------- --------- -------- -------- ---------- --------- --------- ----------
Alan Rosskamm 2002 $465,000 -- -- -- -- -- $78,104
Chairman of the Board, 2001 $480,965 -- -- -- -- 250,000 $78,710
President and 2000 $450,053 $225,027 -- -- -- 60,000 $79,042
Chief Executive Officer
Dave Bolen(6) 2002 $342,597 -- -- -- -- 50,000 $19,314
Executive Vice
President, 2001 $329,716 -- -- -- -- 125,000 $20,363
Merchandising and 2000 $300,035 $ 75,009 -- -- -- 33,000 $20,758
Marketing
Brian Carney 2002 $306,500 -- -- -- -- 50,000 $14,273
Executive Vice
President, 2001 $316,871 -- -- -- -- 125,000 $14,724
Chief Financial Officer 2000 $296,022 $ 84,006 -- -- -- 33,000 $14,439
Mike Edwards (7) 2002 $238,484 $100,000 $153,831 $44,500 -- 125,000 $ --
Executive Vice
President, 2001 $ -- -- -- -- -- -- $ --
Operations 2000 $ -- -- -- -- -- -- $ --
Rosalind Thompson 2002 $250,000 -- -- -- -- 50,000 $23,769
Executive Vice
President, 2001 $259,233 -- -- -- -- 125,000 $ 2,058
Human Resources 2000 $202,446 $ 50,612 -- $57,813 -- 33,000 $ 2,351
</Table>
- ---------------
(1) Fiscal year 2001 was a 53 week year.
(2) Includes amounts earned but deferred under Section 401(k) of the Internal
Revenue Code.
(3) Represents bonuses paid under the Key Management Incentive Plan ("KMIP").
These amounts represent bonuses earned in the fiscal year indicated but paid
in the subsequent fiscal year. Mike Edwards was given a $100,000 KMIP
guaranteed bonus -- 50% payable April 2001, 50% payable March 2002.
(4) The number of restricted stock holdings granted to each named executive
officer were as follows: Mr. Edwards 10,000 Class A common shares; and Ms.
Thompson 5,000 Class A common shares.
(5) Reflects matching contributions we have made under our Jo-Ann Stores, Inc.
Savings Plan 401(k), compensation earned for insurance premiums paid on
behalf of the named executive officers for insurance policies for which
family members of the named executive officers are the beneficiaries and
amounts we have expensed for potential benefits earned under our
Supplemental Retirement Benefit Plan. For fiscal
10
year 2002, matching contributions made under our Jo-Ann Stores, Inc. Savings
Plan 401(k) to executive officers amounted to the following: Mr.
Rosskamm -- $2,550; Mr. Bolen -- $2,550; Mr. Carney -- $2,550; and Ms.
Thompson -- $2,550. For fiscal year 2002, compensation earned for insurance
premiums paid or imputed income on insurance premiums paid on behalf of the
named executive officers amounted to the following: Mr. Rosskamm -- $1,551;
Mr. Bolen -- $438; Mr. Carney -- $234; and Ms. Thompson -- $540. Our
Supplemental Retirement Benefit Plan provides benefits, subject to
forfeiture, to such employees upon normal retirement, early retirement,
death or total disability. Under this plan, we expensed the following
amounts for fiscal 2002 as follows: Mr. Bolen -- $16,326; Mr.
Carney -- $11,489; and Ms. Thompson -- $20,679. There is a split-dollar life
insurance arrangement with a trust established by Mr. Rosskamm and his wife,
Barbara Rosskamm, for the benefit of their children. Our company and the
trust share in the premium costs of whole life insurance policies that pay
death benefits of not less than $10 million upon the death of Mr. Rosskamm
and his wife (whichever occurs later). The split-dollar insurance
arrangement is structured such that upon the payment of benefits or
cancellation, all premium payments will be returned to our company. The
present value of the insurance arrangement included herein for fiscal year
2002 is $74,003.
(6) Mr. Bolen assumed the position of Executive Vice President, Merchandising
and Marketing effective March 27, 2001. Prior to such date, he served as
Executive Vice President, Stores and Business Development from December 1998
to March 2001.
(7) Mr. Edwards assumed the position of Executive Vice President, Operations
effective April 15, 2001. Other annual compensation includes a $153,831
relocation allowance paid during fiscal 2002.
OPTION GRANTS IN FISCAL YEAR 2002
The following table provides information relating to stock option grants
during the last fiscal year to the named executive officers of our company noted
below. No stock option grant was awarded to the chief executive officer.
<Table>
<Caption>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
- --------------------------------------------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
NUMBER OF TOTAL OPTIONS PRICE APPRECIATION FOR
SECURITIES UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(3)
OPTIONS GRANTED EMPLOYEES IN BASE PRICE PER EXPIRATION -----------------------
NAME (COMMON SHARES) FISCAL YEAR COMMON SHARE DATE 5% 10%
---- --------------------- ---------------- -------------- ---------- ---------- ----------
Dave Bolen Class B 50,000(1) 12.4% $2.40 07/26/2008 $ 75,467 $191,249
Brian Carney Class B 50,000(1) 12.4% $2.40 07/26/2008 $ 75,467 $191,249
Mike Edwards Class B 125,000(2) 31.0% $3.00 05/04/2011 $235,835 $597,653
Rosalind Thompson Class B 50,000(1) 12.4% $2.40 07/26/2008 $ 75,467 $191,249
</Table>
- ---------------
(1) The options granted become exercisable with respect to one hundred percent
four years after the date of grant, but are subject to accelerated vesting
when the company achieves certain levels of financial performance.
(2) The options granted become exercisable in four equal annual installments
commencing one year after the date of grant.
(3) Based upon the exercise price, which was equal to the fair market on the
date of grant, and annual appreciation at the rate stated on such price
through the expiration date of the options. Amounts represent hypothetical
gains that could be achieved for the options if exercised at the end of the
term. The assumed 5% and 10% rates of stock price appreciation are provided
in accordance with the rules of the Securities and Exchange Commission and
do not represent our estimate or projection of the future stock price.
Actual gains, if any, are contingent upon the continued employment of the
named executive officer through the expiration date, as well as being
dependent upon general performance of our common stock. The potential
realizable values have not taken into account amounts required to be paid by
the named executive officer for federal income taxes.
11
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table provides information relating to aggregate option
exercises during the last fiscal year and fiscal year-end option values for the
chief executive officer and the other named executive officers of our company.
<Table>
<Caption>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
COMMON SHARES OPTIONS AT FEBRUARY 2, 2002 AT FEBRUARY 2, 2002
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------- -------- ----------- ------------- ----------- -------------
Alan Rosskamm Class A -- -- 80,000 -- $334,625 --
Class B -- -- 275,000 295,000 $190,625 $387,500
Dave Bolen Class A -- -- -- -- -- --
Class B -- -- 133,750 199,750 -- $538,750
Brian Carney Class A -- -- 50,000 -- -- --
Class B -- -- 91,250 199,750 -- $538,750
Mike Edwards Class A -- -- -- -- -- --
Class B -- -- -- 125,000 -- $787,500
Rosalind Thompson Class A -- -- 7,250 -- $ 6,663 --
Class B -- -- 70,000 194,000 $ 7,925 $538,750
</Table>
EXECUTIVE EMPLOYMENT AGREEMENTS
Our company has agreements with Alan Rosskamm, Chief Executive Officer, and
the other named executive officers that are designed to retain the executive
officers and provide for continuity of management in the event of any actual or
threatened change in the control of our company. Each agreement will become
operative only if the executive's employment is terminated by the company
"without cause" or by the executive for "good reason" (in each case, as defined
in the agreement). If an agreement becomes operative, the executive will be
entitled to certain severance payments and continuing health and life insurance
coverage. The amount of these payments and the length of time that insurance
coverage will be continued vary depending upon whether the termination occurs
before or after a "Change in Control" of our company (as defined in the
agreements). The payments and continuing coverage that may be provided under
these agreements for Mr. Rosskamm and the other executive officers are explained
below.
If Mr. Rosskamm becomes entitled to benefits under the agreement before a
Change in Control, he will be entitled to receive continued payments of base
salary and continued health and life insurance coverage through the third
anniversary of the termination date. If Mr. Rosskamm becomes entitled to
benefits under the agreement after a Change in Control, he will be entitled to
prompt payment of (a) a lump sum equal to three times the sum of his base salary
plus bonus, (b) any unpaid bonus for any prior year, and (c) a pro rata bonus
for that part of the current year that ends on the termination date. In
addition, health and life insurance coverage will be continued through the third
anniversary of the termination date. Whether the termination is before or after
a Change in Control, continuing health and certain life insurance coverage would
stop if Mr. Rosskamm becomes eligible for similar benefits with another
employer.
The agreements for the other executive officers provide for similar
benefits except that (a) if the termination is before a Change in Control,
salary and health and life insurance coverage would continue for one and
one-half years, rather than three years, after the termination date and (b) if
the termination is after a Change in Control, the lump sum payment would be two
times, rather than three times, salary and bonus and health and life insurance
coverage would be continued through the second, rather than the third,
anniversary of the termination date. In addition, the other executive officers
would be entitled to a lump sum payment in lieu of any retirement benefits
provided under the company's Supplemental Retirement Benefit Plan.
12
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Compensation
Committee") is responsible for approving executive management compensation and
for administering the incentive and equity participation plans which make up the
variable compensation paid to the chief executive officer and other executive
officers and operating officers. Each member of the Compensation Committee is a
non-employee director.
WHAT IS OUR COMPANY'S PHILOSOPHY ON EXECUTIVE COMPENSATION?
The Compensation Committee's strategy is to design a compensation program
that will enable our company to attract, motivate and retain officers and to
establish and maintain a performance and achievement-oriented environment. The
Compensation Committee and the Board believe that the executive management
compensation program should support the goals of our company. Accordingly, the
compensation program:
- Establishes compensation performance objectives that are aligned with
corporate goals;
- Provides a high degree of correlation between compensation and
performance; and
- Creates long-term incentives directly linked to shareholder returns.
HOW ARE THE CHIEF EXECUTIVE OFFICER AND OTHER EXECUTIVE OFFICERS COMPENSATED?
Our company's compensation program for executive management consists of
three elements:
- A base salary;
- A performance-based annual bonus; and
- Periodic grants of stock options and restricted stock awards.
BASE SALARY. Base salaries are generally set above the average of the
salaries of comparable officers at companies that are considered to be peers of
our company. Salary information about peer companies is determined by direct
reference to published public information about companies in the specialty
retail industry as well as companies in the fabric and craft industries. In
determining compensation, consideration is given to the relative size and
revenues of such companies. In addition, the Compensation Committee from time to
time obtains input on industry salary levels from a nationally recognized
employment consultant who has significant experience in the retail
industry. During fiscal year 2002, executive officers did not receive salary
increases, except for Dave Bolen, who received a salary increase of
approximately 8% as a result of his promotion to the position of Executive Vice
President, Merchandising and Marketing.
ANNUAL BONUS. Our company awards bonuses to executive officers, operating
officers and certain other management employees through the Key Management
Incentive Plan ("KMIP"). The KMIP is administered in such a way as to focus the
efforts of participants on meeting the expectations of customers and
shareholders through teamwork. To ensure that the interests of all KMIP
participants are aligned with those of our company's shareholders, the company's
profits are utilized as the primary factor in determining bonuses under the
plan. The level of bonus awarded under this plan is based on a combination of
the profit target for the fiscal year and individual performance goals. Bonuses
are not payable under this plan unless the minimum profit target is achieved.
The profit target that is established by the Board of Directors is
typically set at a level that exceeds our company's profit from the prior fiscal
year. The profit target is comprised of a minimum, midpoint and maximum
target. The chief executive officer can earn a bonus ranging from 50 to 100
percent of his base salary. Executive officers can earn a bonus ranging from 25
to 75 percent of their base salary. Bonuses for operating officers and other
management employees participating in the plan are designed to amount to a
smaller percentage of their salary.
13
STOCK OPTIONS AND RESTRICTED STOCK. Stock option and restricted stock
awards are granted to executive officers and other key employees through, or
subject to, the 1998 Incentive Compensation Plan. Restricted stock awards may
also be granted under the 1994 Executive Incentive Plan. The Compensation
Committee administers the plan, selects the recipients and determines the level
of awards of stock options and restricted stock. Stock option awards are
generally granted to executive officers, other operating officers and certain
other management employees upon hire, promotion or the assumption of increased
responsibility. By including many levels of management, the stock option program
reflects the Compensation Committee's strong belief that by providing additional
incentives to key employees who have substantial responsibility for the
management and growth of our company, the best interests of the shareholders and
management will be closely aligned. Historically, an annual award is granted to
the entire management group, although no such award was made in fiscal year
2002. Generally, stock option awards are fully exercisable after four years
following the date of grant and expire in ten years.
As part of a management retention plan approved by the Compensation
Committee, a specific retention option grant was awarded in the first quarter of
fiscal year 2001 to executive officers, other operating officers and certain
other management employees. These options, which were larger in size than a
normal annual option grant vested 50% after 3 years and 50% at the end of the
fourth year and expire in ten years.
During fiscal year 2002, an additional retention option grant was awarded.
These option awards were made to executive officers of the company, other than
the chief executive officer, that were shorter in duration, with a seven year
expiration. These stock option awards vest in four years but are subject to
accelerated vesting when the company achieves certain levels of financial
performance. By establishing option awards with shorter periods of duration and
accelerated vesting provisions, the Compensation Committee believes that the
value of such awards are more closely aligned to the near-term financial
performance and success of the company, which is appropriate given the
turnaround initiatives established for the company.
The Compensation Committee also grants restricted stock awards as a
performance-based compensation vehicle and to attract and retain executive and
operating officers. Generally, awards are made upon hire, promotion and the
assumption of increased responsibility and to recognize superior performance.
All restrictions on restricted stock awards granted to executive officers during
the last three fiscal years lapse five years from the date of the award.
Recipients forfeit their right to the restricted shares if they leave our
company before the date of lapse. Because of this restriction, the Compensation
Committee believes that these awards are a significant factor in the retention
of key management personnel and induce a long-term view among executive
officers. Restricted stock awards are also considered a useful compensation
vehicle because, even after the restrictions on the awards lapse, they tend to
reinforce the recipient's commitment to continued growth of our company and
appreciation in the market price of our common stock over the long-term.
HOW WAS THE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER COMPENSATED FOR
FISCAL YEAR 2002?
During fiscal year 2002, Mr. Rosskamm did not receive an increase to his
base salary of $465,000. The Compensation Committee will continue to review Mr.
Rosskamm's salary in light of market conditions in the future. Mr. Rosskamm was
not awarded a bonus for fiscal 2002 under the Key Management Incentive Plan.
Also, no stock option award was granted to Mr. Rosskamm during fiscal year 2002.
As part of his overall compensation package, Mr. Rosskamm is provided a
split dollar life insurance program for which the beneficiary is his wife upon
his death and a trust established for the benefit of Mr. Rosskamm's children,
upon the second to die of both Mr. Rosskamm and his wife. See note (5) to the
Summary Compensation Table under "Executive Compensation."
HOW HAS THE COMPANY RESPONDED TO THE IRS LIMITS ON DEDUCTIBILITY OF
COMPENSATION?
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 four
other most highly compensated executive officers, unless such compensation is
performance-based.
14
Qualifying performance-based compensation will not be subject to the deduction
limit if certain requirements are met. During fiscal 1999, the shareholders
approved the 1998 Incentive Compensation Plan, a plan that provides for
performance-based awards. The stock options and restricted stock awards made
under the 1998 Incentive Compensation Plan are intended to qualify as
performance-based compensation under Section 162(m).
The names of the directors who serve on the Compensation Committee are set
forth below.
COMPENSATION COMMITTEE
FRANK NEWMAN (Chairman)
SCOTT COWEN
BERYL RAFF
GREGG SEARLE
15
REPORT OF THE AUDIT COMMITTEE
In accordance with its written charter adopted by the Board of Directors,
the Audit Committee of the Board of Directors (the "Audit Committee") assists
the Board in fulfilling its responsibility for oversight of the quality and
integrity of the accounting, auditing and financial reporting practices of the
company. During the current year, the Audit Committee met twice, and the Audit
Committee chair, as representative of the Audit Committee, discussed the interim
financial information contained in each quarterly earnings announcement with the
Chief Executive Officer, Chief Financial Officer, Vice President and Controller
and independent auditors prior to public release.
In discharging its oversight responsibility of the audit process, the Audit
Committee obtained, from the independent auditors, a formal written statement
describing all relationships between the auditors and the company that might
bear on the auditors' independence consistent with Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees," and discussed
with the auditors any relationships that may impact their objectivity and
independence. The Audit Committee also discussed with management, the internal
auditors and the independent auditors the quality and adequacy of the company's
internal controls and the internal audit function's organization,
responsibilities, budget and staffing. The Audit Committee reviewed both with
the independent and internal auditors their audit plans, audit scope and
identification of audit risks.
The Audit Committee discussed and reviewed, with the independent auditors,
all communications required by generally accepted auditing standards, including
those described in Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees," and, with and without management present,
discussed and reviewed the results of the independent auditors' examination of
the financial statements. The Audit Committee also discussed the results of the
internal audit examinations.
The Audit Committee reviewed the audited financial statements of the
company, as of and for the fiscal year ended February 2, 2002, with management
and the independent auditors. Management has the responsibility for the
preparation of the company's financial statements and the independent auditors
have the responsibility for the examination of those statements.
Based on the above-mentioned review and discussions with management and the
independent auditors, the Audit Committee recommended to the Board that the
company's audited financial statements be included in its Annual Report on Form
10-K for the fiscal year ended February 2, 2002, for filing with the Securities
and Exchange Commission.
Historically, the Audit Committee recommends the appointment of the
independent auditors to the full Board of Directors at its November Board
Meeting after it has had the opportunity to review the scope of work to be
performed and the fees proposed.
Arthur Andersen LLP has been the independent auditor of the company, and
the company presently intends to utilize Arthur Andersen LLP in the review of
its first quarter results during the fiscal year ending February 1, 2003. The
Audit Committee wishes to acknowledge the quality of the services that the
company has received from Arthur Andersen LLP, and the integrity and
professionalism of their personnel assigned to the company's audit.
However, in light of the current environment, the Audit Committee has met
with senior management of Arthur Andersen LLP, and is closely monitoring the
evolving events. The Audit Committee has taken appropriate contingency planning
steps to interview and evaluate other independent auditors in the event that the
Audit Committee exercises its right to change independent auditors during the
February 1, 2003 fiscal year.
AUDIT COMMITTEE
SCOTT COWEN (Chairman)
FRANK NEWMAN
BERYL RAFF
GREGG SEARLE
16
PRINCIPAL ACCOUNTING FIRM FEES
The following table sets forth the aggregate fees billed to our company for
the fiscal year ended February 2, 2002 by the company's principal accounting
firm, Arthur Andersen LLP (in thousands):
<Table>
Audit fees $265
Financial information systems design and
implementation fees --
All other fees 103(a)(b)
----
$368
====
</Table>
- ---------------
(a) Includes fees for non-audit accounting, consulting and tax fees.
(b) The Audit Committee has considered whether the provision of these services
is compatible with maintaining the principal accountant's independence.
STOCK PERFORMANCE GRAPH
The following graph compares the yearly changes in total shareholder return
on our Class A and Class B common shares with the total return of the S&P
Composite--500 Stock Index and the S&P Specialty Stores Index for the last five
years. In each case, we assumed an initial investment of $100 on January 31,
1997. Each subsequent date on the chart represents the last day of the indicated
fiscal year. No dividends were paid by us during such five-year period.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
LOGO
<Table>
1997 1998 1999 2000 2001 2002
Jo-Ann Stores, Inc. Class A Common Shares 100 160 101 67 37 76
Jo-Ann Stores, Inc. Class B Common Shares 100 152 90 66 32 61
S&P 500 Index 100 125 163 173 172 144
S&P Specialty Stores Index 100 134 136 114 140 203
</Table>
17
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3, 4 and 5 and amendments thereto
furnished to us with respect to our most recent fiscal year, we believe that,
during the fiscal year ended February 2, 2002, all filing requirements under
Section 16(a) of the Securities Exchange Act of 1934 applicable to our executive
officers, directors and greater than 10% beneficial owners were met.
INDEPENDENT AUDITORS
A representative of Arthur Andersen LLP will be present at the Annual
Meeting and will have an opportunity to make a statement if he desires to do
so. Additionally, this representative will be available to answer appropriate
questions that you may have with respect to his firm's examination of our
financial statements and records for the fiscal year ended February 2, 2002.
PROXY SOLICITATION COSTS
The proxies being solicited by this proxy statement are being solicited by
our company. We will bear the expense of preparing, printing, mailing and
otherwise distributing this proxy statement. Further solicitation, if required,
may be made by mail, telephone and personal interview, by the directors,
officers and regularly engaged employees of our company, without extra
compensation. Upon request, we will reimburse brokerage firms and others for
their reasonable expenses in forwarding solicitation materials to the beneficial
owners of our common shares.
SHAREHOLDERS' PROPOSALS
The deadline for shareholders to submit proposals to be considered for
inclusion in the proxy statement for the 2003 Annual Meeting of Shareholders is
January 8, 2003. Proxies for the 2003 Annual Meeting of Shareholders will confer
discretionary authority to vote on any matter that a shareholder does not give
written notice of by March 24, 2003.
ANNUAL REPORT
Our Annual Report for the fiscal year ended February 2, 2002 is being
mailed to holders of both Class A and Class B common shares with this Notice of
Annual Meeting and proxy statement.
BETTY ROSSKAMM,
Secretary
By order of the Board of Directors
May 6, 2002
18
APPENDIX A
JO-ANN STORES, INC.
AUDIT COMMITTEE CHARTER
ORGANIZATION
There shall be a committee of the Board of Directors to be known as the
Audit Committee. The Audit Committee shall be composed of at least three
financially literate directors who are independent of the management of the
company and are free of any relationship that, in the opinion of the Board of
Directors, would interfere with their exercise of independent judgement as a
committee member. At least one of the members shall have accounting or related
financial management expertise.
STATEMENT OF POLICY
The Audit Committee shall provide assistance to the directors in fulfilling
their responsibility to the shareholders of Jo-Ann Stores, Inc. and the
investment community relating to the company's accounting and reporting
practices and the quality and integrity of the financial reports of the
company. In so doing, it is the responsibility of the Audit Committee to
maintain free and open means of communication between the directors, the
independent auditors, the internal auditors, and the financial management of the
company. The independent auditors shall be ultimately responsible to the Audit
Committee and the Board of Directors, who shall have final authority and
responsibility to select, evaluate, and, where appropriate, replace the
independent auditors.
RESPONSIBILITIES
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
This is the responsibility of the management of the company and its independent
auditors. Nor is it the duty of the Audit Committee to conduct investigations,
to resolve disagreements, if any, between management and the independent auditor
or to assure compliance with the laws and regulations and the company's business
conduct guidelines.
In carrying out its responsibilities, the Audit Committee believes its
policies and procedures should remain flexible in order to best react to
changing conditions and to ensure to the directors that the accounting and
reporting practices of the company are in accordance with all requirements and
are of the highest quality.
In carrying out these responsibilities, the Audit Committee will:
- Review and recommend to the directors the independent auditors to be
selected to audit the consolidated financial statements of the company.
- Review and evaluate the independence of the outside auditors by obtaining
a formal written statement detailing all relationships between the
auditors and the company, or any other relationships which might
adversely affect the independence or objectivity of the auditors, and
take appropriate action to satisfy itself of the outside auditors'
independence.
- Meet with the independent auditors and financial management of the
company to review the scope of the proposed audit for the current year
and the audit procedures to be utilized, and at the conclusion thereof
review such audit, including any comments or recommendations of the
independent auditors.
- Review with the independent auditors, the company's internal auditors,
and financial and accounting personnel the adequacy and effectiveness of
the accounting and financial controls of the company and elicit any
recommendations for the improvement of such internal control procedures
or particular areas where new or more detailed controls or procedures are
desirable. Particular emphasis should be given to the adequacy of such
internal controls to expose any payments, transactions, or procedures
that
A-1
might be deemed illegal or otherwise improper. Further, the committee
should periodically review company adherence to its written code of
conduct.
- Review annually the internal audit function of the company, including the
independence and authority of its reporting obligations, a summary of
findings from completed internal audits, the proposed audit plans for the
coming year, and the coordination of such plans with the independent
auditors.
- Review the annual audited financial statements contained in the company's
annual report, quarterly earnings releases, and the quarterly financial
reports with management and the independent auditors to determine that
the independent auditors are satisfied with the quality of the accounting
principles used and the disclosure and content of the financial
statements to be presented to the public and filed with the Securities
and Exchange Commission. Any changes in accounting principles or material
estimates should be reviewed.
- Provide sufficient opportunity for the internal and independent auditors
to meet with the members of the Audit Committee without members of
management present. Among the items to be discussed in these meetings are
the independent auditors' evaluation of the company's financial,
accounting and auditing personnel, and the cooperation that the
independent auditors receive during the course of the audit.
- Review accounting and financial human resources and succession planning
within the company.
- Submit the minutes of all meetings of the Audit Committee to, or discuss
the matters discussed at each committee meeting with, the Board of
Directors.
- Investigate any matter brought to its attention within the scope of its
duties, with the power to retain its own accounting advisors, legal
counsel or other assistance for this purpose, if, in its judgement, that
is appropriate.
A-2
[JO-ANN STORES INC LOGO] VOTE BY PHONE - 1-800-690-6903
C/O PROXY SERVICES USE ANY TOUCH-TONE TELEPHONE TO TRANSMIT YOUR VOTING
P.O. BOX 9150 INSTRUCTIONS ANYTIME BEFORE 12:00 NOON EASTERN
FARMINGDALE, NY 11735 STANDARD TIME, ON JUNE 5, 2002. HAVE YOUR PROXY CARD
IN HAND WHEN YOU CALL. YOU WILL BE PROMPTED TO ENTER
YOUR 12-DIGIT CONTROL NUMBER WHICH IS LOCATED BELOW
AND THEN FOLLOW THE SIMPLE INSTRUCTIONS THE VOTE
VOICE PROVIDES YOU.
VOTE BY INTERNET - www.proxyvote.com
USE THE INTERNET TO TRANSMIT YOUR VOTING INSTRUCTIONS
ANYTIME BEFORE 12:00 NOON EASTERN STANDARD TIME, ON
JUNE 5, 2002. HAVE YOUR PROXY CARD IN HAND WHEN YOU
ACCESS THE WEB SITE. YOU WILL BE PROMPTED TO ENTER
YOUR 12-DIGIT CONTROL NUMBER WHICH IS LOCATED BELOW
TO OBTAIN YOUR RECORDS AND CREATE AN ELECTRONIC
VOTING INSTRUCTION FORM.
VOTE BY MAIL
MARK, SIGN AND DATE YOUR PROXY CARD AND RETURN IT IN
THE POSTAGE-PAID ENVELOPE WE HAVE PROVIDED OR RETURN
TO JO-ANN STORES, INC., C/O ADP, 51 MERCEDES WAY,
EDGEWOOD, NY 11717.
Also, please check the box provided below if you
would like to view future materials (i.e., annual
report, proxy, press releases) on the Internet.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK:
JOANN1 KEEP THIS PORTION FOR YOUR RECORDS
- ------------------------------------------------------------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
- ------------------------------------------------------------------------------------------------------------------------------------
JO-ANN STORES, INC.
ELECTION OF DIRECTORS
1. To elect the following three directors of the class whose FOR WITHHOLD FOR ALL To withhold authority to vote, mark
three-year terms of office will expire in 2005: ALL ALL EXCEPT "For All Except" and write the nominee's
number on the line below.
01) Frank Newman [ ] [ ] [ ]
02) Betty Rosskamm --------------------------------------
03) Beryl Raff
SHARES REPRESENTED BY PROPERLY EXECUTED PROXIES WILL BE VOTED AS SPECIFIED. UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE
VOTED FOR THE ELECTION AS DIRECTORS OF THE NOMINEES LISTED ABOVE.
Please check if you would like to view future materials on the Internet. [ ]
--------------------------------------------- -------------------------------------------------------
--------------------------------------------- -------------------------------------------------------
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
- ------------------------------------------------------------------------------------------------------------------------------------
DIRECTIONS TO THE
HILTON GARDEN INN
FROM DOWNTOWN CLEVELAND
TAKE I-77 SOUTH TO I-480 EAST. EXIT
TWINSBURG SR 82. TURN RIGHT ONTO
SR 82 (AURORA ROAD). TURN RIGHT
ON WILCOX DRIVE.
[MAP]
FROM CLEVELAND HOPKINS AIRPORT
TAKE I-480 EAST. EXIT AT TWINSBURG
SR 82. TURN RIGHT ONTO SR 82
(AURORA ROAD). TURN RIGHT ON
WILCOX DRIVE.
FROM AKRON (EAST SIDE) DOWNTOWN
TAKE ROUTE 8 NORTH. THEN TURN RIGHT ON SR 82 INTO TWINSBURG.
TURN LEFT ON WILCOX DRIVE.
FROM AKRON (WEST SIDE) COPLEY-BARBERTON
TAKE I-77 NORTH TO I-271 NORTH. EXIT AT ROUTE 8 (MACEDONIA). TURN LEFT ON
SR 8. THEN TURN RIGHT ON SR 82. FOLLOW 82 INTO TWINSBURG. TURN LEFT ONTO
WILCOX DRIVE.
JOANN2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
JO-ANN STORES, INC.
BOARD OF DIRECTORS PROXY
ANNUAL MEETING, JUNE 6, 2002
At the Annual Meeting of Shareholders of our Company to be held
on June 6, 2002, and at any adjournment, Ira Gumberg and Alma
Zimmerman and each of them, with full power of substitution,
is hereby authorized to represent me and thereat to vote my
shares on the following:
1. To elect the following three directors of the class whose
three-year terms of office will expire in 2005: Frank Newman,
Betty Rosskamm and Beryl Raff.
----------------
SEE REVERSE
SIDE
----------------
- --------------------------------------------------------------------------------