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>
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[ ] 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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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[JO-ANN STORES LOGO]
5555 Darrow Road
Hudson, Ohio 44236
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 10, 2004
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 10, 2004 at 9:00 a.m., eastern daylight
saving time, for the following purposes:
1. To elect two Directors of the class whose three-year terms of office
will expire in 2007.
2. To separately approve amendments to our code of regulations that would
reduce from 80% to 66 2/3% the shareholder vote required for either of
the following, when not approved in advance by our Board of Directors:
a) effect any change in the number of the company's directors; and
b) alter or eliminate certain shareholder protective measures,
including the company's staggered board.
3. To approve the material terms of the performance goals under the
company's 1998 Incentive Compensation Plan.
4. 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 16,
2004 will be entitled to vote at the meeting.
ENCLOSED YOU WILL FIND A PROXY CARD TO VOTE YOUR SHARES. 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 SHARES IN PERSON.
The proxy statement accompanies this Notice.
VALERIE GENTILE SACHS
Secretary
By order of the Board of Directors
May 10, 2004
PROXY STATEMENT
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ABOUT THE MEETING........................................... 1
What is the purpose of the Annual Meeting?................ 1
Who may attend the Annual Meeting?........................ 1
Who is entitled to vote?.................................. 1
How many shares must be present to conduct the Annual
Meeting?............................................... 1
What am I voting on?...................................... 2
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?.................................................. 3
Who will count the vote?.................................. 3
What is the required vote for approval of the
proposals?............................................. 3
What is cumulative voting?................................ 3
Is electronic access available to view future proxy
materials?............................................. 3
PROPOSALS TO BE VOTED ON.................................... 4
CORPORATE GOVERNANCE AND BOARD MATTERS...................... 12
Governance Developments................................... 12
Board of Directors........................................ 12
Corporate Governance Guidelines........................... 12
Lead Director............................................. 13
Board Independence........................................ 13
Communications with the Board............................. 13
Code of Business Conduct and Ethics....................... 14
Committees of the Board................................... 14
ELECTION OF DIRECTORS....................................... 16
Process for Nominating Directors.......................... 16
Board Competencies........................................ 16
Selection Process for New Board Candidates................ 16
Evaluation of Candidates.................................. 16
Timing of the Identification and Evaluation Process....... 17
The Nominees.............................................. 17
COMPENSATION OF DIRECTORS................................... 19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 20
EXECUTIVE COMPENSATION...................................... 21
Summary Compensation Table................................ 21
Option Grants in Fiscal Year 2004......................... 22
Aggregate Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values................................. 23
Executive Employment Agreements........................... 23
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE
COMPENSATION.............................................. 24
REPORT OF THE AUDIT COMMITTEE............................... 28
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND
PERMITTED NON-AUDIT SERVICES.............................. 29
PRINCIPAL ACCOUNTING FIRM FEES.............................. 29
</Table>
<Table>
<Caption>
PAGE
----
STOCK PERFORMANCE GRAPH..................................... 30
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN............. 30
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... 31
INDEPENDENT AUDITORS........................................ 31
PROXY SOLICITATION COSTS.................................... 31
PRINCIPAL SHAREHOLDERS...................................... 32
SHAREHOLDERS' PROPOSALS..................................... 34
WEBSITE..................................................... 34
ANNUAL REPORT............................................... 34
APPENDIX A -- Standards for Determining Director
Independence.............................................. A-1
APPENDIX B -- Board Competencies............................ B-1
APPENDIX C -- Audit Committee Charter....................... C-1
</Table>
[JO-ANN STORES LOGO]
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 Thursday, June 10, 2004 beginning at 9:00
a.m., eastern daylight saving time, at the Hilton Garden Inn in Twinsburg, Ohio,
and at any postponements or adjournments of that meeting ("Annual Meeting"). We
are first sending the proxy materials on or about May 7, 2004.
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. Vote to amend our code of regulations to reduce from 80% to 66 2/3% the
shareholder vote required for any of the following, when not approved in
advance by our Board of Directors:
a) effect any change in the number of the company's directors; and
b) alter or eliminate certain shareholder protective measures,
including the company's staggered board; and
3. Approve the material terms of the performance goals under the company's
1998 Incentive Compensation Plan; and
4. Transact such other business as may properly come before the meeting.
In addition, our management will report on our performance during fiscal
2004 and respond to questions from shareholders.
WHO MAY ATTEND THE ANNUAL MEETING?
All shareholders as of the close of business on April 16, 2004, the record
date, may attend the Annual Meeting.
WHO IS ENTITLED TO VOTE?
Shareholders as of 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, 22,214,112 common
shares were outstanding. Abstentions and shares of record held by a broker or
its nominee ("Broker Shares") that are voted on any matter are included in
determining the number of votes present at the meeting. Broker Shares that are
not voted on any matter will not be included in determining whether a quorum is
present.
1
WHAT AM I VOTING ON?
You will be voting on:
1. the election of two directors, each for a three-year term ending in
2007; and
2. amendments to our code of regulations to reduce from 80% to 66 2/3% the
shareholder vote required for any of the following, when not approved in
advance by our Board of Directors:
a) effect any change in the number of the company's directors; and
b) alter or eliminate certain shareholder protective measures,
including the company's staggered board; and
3. approval of the material terms of the performance goals under the
company's 1998 Incentive Compensation Plan.
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.
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 DAYLIGHT SAVING TIME, ON JUNE 9, 2004.
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
DAYLIGHT SAVING TIME, ON JUNE 9, 2004.
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
Secretary of the company. 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 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 AMVESCAP National Trust Co. (a division of AMVESCAP
2
Retirement), 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
elections.
WHAT IS THE REQUIRED VOTE FOR APPROVAL OF THE PROPOSALS?
PROPOSAL 1 -- ELECTION OF DIRECTORS. Directors will be elected by a
plurality of the votes cast at the annual meeting. A properly executed proxy
card marked to "withhold authority" with respect to the election of one or more
directors will not be voted with respect to the director or directors indicated.
PROPOSALS 2(A) AND 2(B) -- AMEND OUR CODE OF REGULATIONS. The amendments to
our code of regulations have been approved in advance by the Board of Directors
and require the affirmative vote of a majority of the outstanding common shares.
PROPOSAL 3 -- APPROVE THE MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER OUR
1998 INCENTIVE COMPENSATION PLAN. The approval of material terms of the
performance goals under the 1998 Incentive Compensation Plan requires the
affirmative vote of a majority of the common shares represented in person or by
proxy at the meeting.
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 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 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 (see page 17), 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.
IS ELECTRONIC ACCESS AVAILABLE TO VIEW FUTURE PROXY MATERIALS?
You can choose to access your future disclosure materials electronically
and save the company the cost of producing and mailing these documents by
following the instructions contained in your proxy packet or by following the
prompt if you choose to vote over the Internet. If you hold your stock in
nominee name (such as through a bank or broker), you will need to review the
information provided by the nominee on how to elect to view future proxy
statements and annual reports over the Internet. If you receive more than one
proxy card, it is because you hold shares in more than one account. If you
choose to receive your future disclosure materials electronically then you will
need to follow the instructions noted above for each proxy card you receive.
3
PROPOSALS TO BE VOTED ON
ITEM 1 -- 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.
Ira Gumberg and Patricia Morrison are directors in the class whose term of
office expires in 2004. Each of these individuals has been nominated by the
Corporate Governance Committee of the Board of Directors for reelection at the
Annual Meeting to serve for a three-year term expiring at our Annual Meeting of
Shareholders in 2007 and until the director's successor is elected and
qualified, subject to the director's earlier retirement, resignation or death.
Mr. Gumberg has been a director since 1992 and has brought to the Board his
professional and personal experiences and expertise in business matters
generally, including his experience as a director and audit committee chair for
Mellon Financial Corporation. As president and chief executive officer of J.J.
Gumberg Co., a nationally ranked leader in the real estate industry, with a
primary focus on shopping center development, Mr. Gumberg has brought insights
into real estate markets, real estate development and shopping center leasing
economics. Mr. Gumberg's guidance has helped the company develop its real estate
transformation strategy from traditional stores to superstores by sharing best
practices in landlord-tenant relations from other big box retailers. J.J.
Gumberg Co. is among the top 25 owner/developers in the country, and has a
managed portfolio of more than 30 shopping centers, consisting of over 12
million square feet of space in multiple states, leasing to many of the largest
U.S. retailers, including Wal-Mart, Home Depot, Target, J.C. Penney, Sears,
Kmart, Petco, Best Buy, Barnes and Noble, Old Navy, Gap and Limited Brands, Inc.
Ms. Morrison joined the Board in December 2003, following an exhaustive
national search by the company for a business leader with operational strengths
in logistics and systems. As Chief Information Officer for Office Depot, the
world's largest seller of office products, she is responsible for directing,
overseeing and managing its global information systems, including its highly
successful global e-commerce platform. Previously, she was the Chief Information
Officer for the Quaker Oats Company prior to Quaker Oats being acquired by
Pepsico. Ms. Morrison also spent three years with General Electric and was the
Chief Information Officer for GE Industrial Systems. While at General Electric,
she became Six-Sigma Certified. Prior to General Electric, Morrison spent 16
years with the Procter & Gamble Company in increasingly responsible positions.
Ms. Morrison filled a vacancy on the Board left by the resignation of Alma
Zimmerman from the Board in August 2003, which preceded her subsequent
appointment as Director Emeritus.
These nominees agree to serve a three-year term. Further background
information about our nominees is provided beginning on page 17.
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.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THESE
DIRECTORS.
4
ITEM 2 -- AMEND THE CODE OF REGULATIONS
INTRODUCTION
You are being asked to approve two amendments to our code of regulations
that would reduce from 80% to 66 2/3% the shareholder vote required for either
of the following, when not approved in advance by our Board of Directors:
a) effect any change in the number of the company's directors; and
b) alter or eliminate certain shareholder protective measures,
including the company's staggered board.
At a special meeting held on November 4, 2003, our shareholders approved
amendments to our code of regulations that, among other things, require an 80%
shareholder vote for any of the following actions when not approved by our Board
of Directors: (1) change in the shareholder vote necessary to call a special
meeting of shareholders, (2) alteration of the procedures for shareholders to
make proposals or director nominations at any meeting of shareholders, (3)
alteration or elimination of our staggered board, or (4) change in the number of
our directors. These matters are described in more detail under the heading
"Actions Now Requiring 80% Shareholder Vote" below. Although the shareholders
approved these amendments to our code of regulations at the special meeting,
several shareholders expressed concern that the 80% vote requirement was too
high. Our Board of Directors has reconsidered the matter and now recommends that
the shareholder vote required to take these actions be reduced from 80% to
66 2/3%.
Our Board of Directors is aware that reducing the voting requirement from
80% to 66 2/3% could have the effect of facilitating an unsolicited takeover bid
for our company, including a bid that is not in the interests of the company or
our shareholders, and could diminish the leverage that our Board of Directors
might have in negotiations with a potential acquirer. However, the 80% voting
requirement could also make it more difficult for shareholders to change certain
basic governance procedures of the company without Board approval, whether or
not in the context of an unsolicited takeover bid. Although our Board of
Directors believes that the governance procedures approved by the shareholders
at the special meeting are balanced and fair, we realize that shareholders may
disagree. Our Board, therefore, believes that reducing the voting requirement
from 80% to 66 2/3% is appropriate.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSED AMENDMENTS
TO THE CODE OF REGULATIONS.
ACTIONS NOW REQUIRING 80% SHAREHOLDER VOTE. Under our current code of
regulations, an 80% shareholder vote is required to change any of the provisions
described below unless the change is approved by our Board of Directors. If this
proposal is adopted, the shareholder vote required to change the following
provisions will be reduced from 80% to 66 2/3%.
Percentage of Shares Required to Call Special Meetings of
Shareholders. Our code of regulations, as amended at the special meeting,
provides that a special meeting of shareholders may be called by our Chairman of
the Board, our President, a Vice President, our Board of Directors acting at a
meeting, a majority of our directors acting without a meeting, or the holders of
50% of the outstanding shares entitled to vote at the meeting.
Advance Notice of Proposals or Director Nominations to be Made at
Shareholders' Meetings. With respect to shareholder proposals, our code of
regulations, as amended, now provides:
- At an annual meeting of shareholders, only such business as is properly
brought before the meeting may be considered. To be properly brought
before an annual meeting, business must be specified in the notice of the
meeting, brought before the meeting by the presiding officer or at the
direction of our Board of Directors, or properly requested by a
shareholder.
- For business to be properly requested by a shareholder, the shareholder
must be a shareholder of record at the time of the giving of the notice
of the annual meeting and at the time of the annual meeting, be entitled
to vote at the annual meeting, and give timely written notice of the
business to
5
the Secretary. To be timely, the shareholder's notice must be given not
later than the close of business on the 90th day, and not earlier than
the opening of business on the 120th day, prior to the annual meeting,
provided timely notice of the date of the annual meeting is given by the
company. The shareholder's notice must set forth certain basic
information about the shareholder and the business proposed to be brought
before the meeting.
- At a special meeting of shareholders, only such business as is properly
brought before the meeting will be conducted. To be properly brought
before a special meeting, business must be specified in the notice of the
meeting or brought before the meeting by the presiding officer or at the
direction of our Board of Directors.
- The determination of whether any business is properly brought before any
annual meeting or special meeting will be made by the presiding officer
of the meeting. The presiding officer will be the Chairman of the Board
or another officer designated by our Board of Directors.
With respect to director nominations, our code of regulations, as amended,
now provides:
- At a meeting of shareholders at which directors are to be elected, only
persons properly nominated as candidates will be eligible for election as
directors. Candidates may be properly nominated either by our Board of
Directors or by a shareholder.
- For a shareholder to properly nominate a candidate for election as a
director, the shareholder must be a shareholder of record at the time of
the giving of the notice of the meeting and at the time of the meeting,
be entitled to vote at the meeting in the election of directors, and give
timely written notice of the nomination to our Secretary. To be timely, a
shareholder's notice must be given not later than the close of business
on the 90th day, and not earlier than the opening of business on the
120th day, prior to the meeting, provided timely notice of the date of
the meeting is given by the company. 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 Securities and Exchange Commission.
Number of Directors. Our code of regulations currently provides that our
Board of Directors is divided into three classes. This is often referred to as a
"staggered board." An 80% shareholder vote is required for any change effected
by our shareholders in the number of our directors or to eliminate the staggered
board, unless the change is approved by our Board of Directors.
Amendments to Code of Regulations to Eliminate Shareholder Protective
Measures, Including Our Staggered Board. Our code of regulations now requires
an 80% shareholder vote to amend or eliminate any of the shareholder protective
provisions described above, including our staggered Board.
VOTE REQUIRED. Approval of these amendments to our code of regulations to
reduce the shareholder vote will require the affirmative vote of the holders of
a majority of the outstanding common shares.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSED AMENDMENTS
TO THE CODE OF REGULATIONS.
ITEM 3 -- APPROVE THE MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER THE
COMPANY'S 1998 INCENTIVE COMPENSATION PLAN.
INTRODUCTION
You are being asked to re-approve the material terms of the performance
goals under the company's 1998 Incentive Compensation Plan (the "Plan"). This
re-approval is required under the Internal Revenue Service regulations in order
to preserve the company's federal income tax deduction when payments based on
these performance goals are made to certain executive officers. These material
terms, which were approved by
6
our shareholders when the Plan was first adopted in 1998, remain unchanged.
Re-approval requires the favorable vote of a majority of the votes cast. We are
not asking you to approve any amendments to the Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
PURPOSE OF THE PROPOSAL. On March 3, 1998, the Board of Directors
approved, subject to shareholder approval, the company's 1998 Incentive
Compensation Plan (the "1998 Incentive Plan"). The shareholders approved the
1998 Incentive Plan at the Annual Meeting of Shareholders on June 4, 1998. The
primary purposes of the 1998 Incentive Plan are to enable the company to attract
and retain qualified employees and outside Directors and to provide incentives
for, and to reward, performance. To achieve these purposes, the 1998 Incentive
Plan provides the authority to grant awards payable in shares, in cash, or in a
combination of shares and cash.
Section 162(m) of the Internal Revenue Code precludes a deduction, for
federal income tax purposes, for compensation paid to a "covered employee" to
the extent that the compensation exceeds $1,000,000 in any taxable year.
"Covered employees" consist of the Chief Executive Officer and the other four
highest compensated employees of the company. This deduction limitation does
not, however, apply to certain performance-based compensation, including stock
options granted under a plan approved by shareholders. A secondary purpose of
the 1998 Incentive Plan is, therefore, to enable the company to grant stock
options and provide other performance-based compensation that is not subject to
the $1,000,000 deduction limitation.
As discussed above, our shareholders initially approved the 1998 Incentive
Plan, including its performance goals, on June 4, 1998. The company is generally
required by Internal Revenue Service regulations to obtain re-approval of the
material terms of the performance goals from its shareholders every five years.
Therefore, the effectiveness of the 1998 shareholder approval of the material
terms of the 1998 Incentive Plan's performance goals expired at last year's
Annual Meeting and awards under the 1998 Incentive Plan do not currently qualify
as "performance-based" under Section 162(m). As a result, the company is seeking
re-approval of the material terms of the performance goals in order to have the
compensation paid based on these performance goals to the Chief Executive
Officer and the other four highest compensated employees of the company remain
fully deductible by the company for federal income tax purposes.
If shareholders do not re-approve the materials terms of the performance
goals of the 1998 Incentive Plan, the company will still use the 1998 Incentive
Plan for grants made to employees and outside Directors that are not subject to
Section 162(m) and may still use the 1998 Incentive Plan for grants made to the
Chief Executive Officer and the other four highest compensated employees
regardless of the deductibility of such awards for federal income tax purposes.
MATERIAL TERMS OF THE PERFORMANCE GOALS. The Compensation Committee of the
Board of Directors will determine the period of time during which any award that
is performance-based for purposes of Section 162(m) of the Internal Revenue Code
may be earned. The Compensation Committee will also establish, not later than 90
days after the commencement of the award period (or such earlier or later date
as may be the applicable deadline for the award to be performance-based for
purposes of Section 162(m) of the Internal Revenue Code), one or more
performance objectives ("Performance Goals") to be met by the company, or by one
or more of its subsidiaries or other business units, as a condition to the
payment of the award. The Performance Goals may, in the discretion of the
Compensation Committee, include a range of performance objectives (such as
minimum, middle, and maximum objectives) the achievement of which will entitle
eligible persons to receive different amounts of compensation.
The Performance Goals will be based on one or more of the following
criteria ("Performance Criteria"): sales and sales productivity measures,
earnings, earnings per share, return on equity, return on assets or other asset
productivity ratios, completion of acquisitions or other projects, and market
price per share. These Performance Criteria may be measured before or after
taxes, interest, depreciation, amortization, discontinued operations, effect of
accounting changes, acquisition expenses, restructuring expenses, non-operating
items, or unusual charges, as determined by the Compensation Committee at the
time the Performance Goals are established.
7
Under the 1998 Incentive Plan, the following kinds of performance-based
awards may be granted based on the 1998 Incentive Plan's Performance Goals:
stock appreciation rights, stock awards, stock options, incentive compensation
awards and stock purchase rights.
The following summary is a brief description of the material features of
the 1998 Incentive Plan and is qualified in its entirety by reference to the
terms of the 1998 Incentive Plan. Shareholders may obtain a copy of the 1998
Incentive Plan upon written request to the company's Secretary.
ELIGIBLE PERSONS. All outside Directors and employees of the company or
any of its subsidiaries will be eligible to receive awards.
ADMINISTRATION. The 1998 Incentive Plan will be administered by the
Compensation Committee, unless the Board of Directors designates another
committee to administer the 1998 Incentive Plan. The Compensation Committee 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 for performance-based awards, (5)
grant the awards, and (6) adopt, alter, and repeal rules governing the 1998
Incentive Plan. If any member of the Compensation 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 Compensation Committee for purposes of granting an
award if the inclusion of that member on the Compensation 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
Compensation 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 Compensation Committee for purposes of
performance-based awards to covered employees.
NUMBER OF SHARES AVAILABLE UNDER THE 1998 INCENTIVE PLAN. The total number
of shares subject to awards (other than stock purchase rights meeting the
requirements of Section 423 of the Internal Revenue Code) granted in any fiscal
year of the company may not exceed the sum of (1) four percent (4%) of the
number of shares outstanding at the beginning of the fiscal year and (2) for
each of the two prior fiscal years, the excess of four percent (4%) of the
number of shares outstanding at the beginning of each such fiscal year over the
number of shares subject to awards actually granted in each such fiscal year.
With respect to stock purchase rights meeting the requirements of Section 423 of
the Internal Revenue Code granted during any fiscal year, the total number of
shares subject to stock purchase rights granted in any fiscal year may not
exceed 1,000,000. The maximum number of shares that may be issued or delivered
upon exercise of incentive stock options granted under the 1998 Incentive Plan
is 1,000,000. Shares issued or delivered under the 1998 Incentive Plan may
consist of authorized and unissued shares, treasury shares, or shares to be
purchased by the company, as determined by the Compensation Committee.
The number of shares subject to awards granted to any eligible person, and
the amount of any incentive compensation award payable in cash to any eligible
person, are subject to the following limitations:
(1) With respect to stock options (other than incentive stock options), the
number of shares subject to stock options granted to the eligible
person in any fiscal year of the company may not exceed 500,000. If the
exercise price of any stock option granted to the eligible person in
that fiscal year is less than the fair market value of the shares
subject to the stock option at the date of grant, then, with respect to
all stock options granted to the eligible person in that fiscal year,
the aggregate amount of the excess of (a) the fair market value of the
shares subject to the stock options at the dates of grant over (b) the
respective exercise prices may not exceed $1,000,000.
(2) With respect to stock appreciation rights, the number of shares subject
to stock appreciation rights granted to the eligible person in any
fiscal year of the company may not exceed 100,000.
(3) With respect to incentive stock options, the aggregate fair market
value (determined as of the time the incentive stock option is granted)
of the shares with respect to which incentive stock options may be
exercisable for the first time by any eligible person in any calendar
year may not exceed $100,000 or such other maximum amount as may be
permitted by the Internal Revenue Code.
8
(4) With respect to restricted stock, the number of shares granted to the
eligible person may not exceed 100,000 on the date of hire and 50,000
otherwise in any fiscal year of the company.
(5) With respect to stock awards other than stock options and restricted
stock, the number of shares granted to the eligible person in any
fiscal year of the company may not exceed 100,000.
(6) With respect to incentive compensation awards payable in cash, the
amount payable to the eligible person in any fiscal year may not exceed
the lesser of $1,000,000 or 150% of annual base salary.
These amounts are maximum limitations prescribed by the terms of the 1998
Incentive Plan and do not necessarily reflect the anticipated number or value of
the awards to be granted under the 1998 Incentive Plan.
Shares subject to an award that is forfeited, terminated, canceled, or
surrendered without having been exercised (other than shares subject to a stock
option that is canceled upon the exercise of a related stock appreciation right,
shares subject to an award that is surrendered in payment of the exercise price
of a stock option, and shares subject to an award that is surrendered in payment
of taxes associated with an award) will again be available for grant under the
1998 Incentive Plan, without reducing the number of shares that may be subject
to awards or that are available for the grant of awards in any fiscal year. The
assumption of awards granted by an organization acquired by the company, or the
grant of awards under the 1998 Incentive Plan in substitution for any such
awards, will not reduce the number of shares available for the grant of awards
under the 1998 Incentive Plan. Stock equivalent units that represent deferred
compensation, and shares issued in payment of deferred compensation, will not
reduce the number of shares that may be subject to awards or that are available
for the grant of awards under the 1998 Incentive Plan or to any eligible person
in any fiscal year, except to the extent of matching or other grants by the
company or any discount in the price used to convert the deferred compensation
into stock equivalent units or shares.
In the event of any change in the shares by reason of a merger,
consolidation, reorganization, recapitalization, or similar transaction, or in
the event of a stock dividend, stock split, distribution to shareholders (other
than normal cash dividends), or rights offering or similar sale of shares for
less than their fair market value at the time of sale, the Compensation
Committee will adjust the number of shares that may be issued under the 1998
Incentive Plan, the number of shares that may be issued to any eligible person
in any fiscal year, the number of shares subject to outstanding awards, the
exercise price applicable to outstanding awards, and any value determinations
applicable to outstanding awards.
TYPES OF AWARDS. The 1998 Incentive Plan provides for the grant of
different types of awards, including the following:
(1) Stock Appreciation Rights -- 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 Compensation Committee. 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 Compensation
Committee.
(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.
(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 Compensation Committee. A stock option may be an
incentive stock option designed to meet the requirements of Section 422
of the Internal Revenue Code or a non-qualified stock option, as
determined by the Compensation Committee.
(4) Incentive Compensation Award -- An award that, in the discretion of the
Compensation Committee, is payable in shares, in cash, or in a
combination of shares and cash and is contingent upon the achievement
of performance goals established by the Compensation Committee.
9
(5) Stock Purchase Right -- A right to participate in a stock purchase
program, including but not limited to a stock purchase program that
meets the requirements of Section 423 of the Internal Revenue Code.
Section 423 provides for the grant to employees of rights to purchase
shares for an exercise price that may not be less than the lesser of
(a) 85% of the fair market value of the shares at the time the rights
are granted and (b) 85% of the fair market value of the shares at the
time the rights are exercised. Section 423 also provides that no
employee may be granted rights to purchase shares with a fair market
value of more than $25,000 (determined at the time of grant) in any
calendar year.
More than one award may be granted to the same eligible person. Awards may
be granted singly or in combination or tandem with other awards. The company may
assume awards granted by an organization acquired by the company or may grant
awards in replacement of, or in substitution for, any such awards.
DEFERRAL OF PAYMENT. The Compensation Committee may, in its discretion,
permit eligible persons to defer the payment of some or all of the shares or
cash subject to awards, as well as other compensation or fees, in accordance
with procedures established by the Compensation Committee to assure that the
recognition of taxable income is deferred in accordance with the Internal
Revenue Code. Deferred amounts may, to the extent permitted by the Compensation
Committee, be credited as cash or stock equivalent units and paid in cash or in
shares. The Compensation 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 Compensation Committee may also, in
its discretion, provide for matching or other grants in connection with such
deferrals.
CHANGE IN CONTROL. In the event of a change in control of the company,
unless otherwise determined by the Compensation Committee, (1) all stock
appreciation rights, stock options, and stock purchase rights then outstanding
will become fully exercisable as of the date of the change in control, (2) all
restrictions and conditions applicable to restricted stock and other stock
awards will be deemed to have lapsed or been satisfied as of the date of the
change in control, and (3) all incentive compensation awards will be deemed to
have been fully earned as of the date of the change in control.
AMENDMENT OR SUSPENSION OF THE 1998 INCENTIVE PLAN. The Board of Directors
may amend or suspend the 1998 Incentive Plan at any time. Shareholder approval
for any such amendment will be required only to the extent necessary to preserve
the deductibility of compensation associated with any award for federal income
tax purposes under Section 162(m) of the Internal Revenue Code or as otherwise
required by applicable law or regulations.
EFFECTIVE DATE; TERMINATION. The 1998 Incentive Plan became effective on
June 4, 1998. The 1998 Incentive Plan will continue in effect until June 3,
2008.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The 1998 Incentive Plan provides
for many types of awards. A brief description of the 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.
RESTRICTED STOCK. An eligible person 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 eligible
person will recognize ordinary income, and the company 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 eligible person
for the restricted stock. Any dividends paid to the eligible person on the
restricted stock at or before the lapse of the restrictions will be ordinary
compensation income to the eligible person and deductible as such by the
company.
An eligible person 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 the company 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 eligible person for the restricted
stock. Any dividends subsequently paid to the eligible person on the restricted
stock will be dividend income to the eligible person and not deductible by
10
the company. There are no federal income tax consequences either to the eligible
person or to the company at the time any transfer or forfeiture restrictions
applicable to the restricted stock lapse.
STOCK OPTIONS. There are no federal income tax consequences either to the
recipient of the stock option or to the company upon the grant of an incentive
stock option or a non-qualified stock option. On the exercise of an incentive
stock option during employment or within three months thereafter, the eligible
person will not recognize any income, and the company will not be entitled to a
deduction, although the excess of the fair market value of the shares on the
date of exercise over the exercise price must be included in the eligible
person's alternative minimum taxable income, which may give rise to alternative
minimum tax liability to the eligible person. Generally, if the eligible person
disposes of shares acquired upon exercise of an incentive stock option within
two years of the date of grant or one year of the date of exercise, the eligible
person will recognize ordinary income, and the company will be entitled to a
deduction, equal to the excess of the fair market value of the shares on the
date of exercise over the exercise price (but not in excess of the gain on the
sale). The balance of any gain or loss will be treated as a capital gain or loss
to the eligible person. If the shares are disposed of after the two-year and
one-year periods mentioned above, the company will not be entitled to any
deduction, and the entire gain or loss for the eligible person will be treated
as a capital gain or loss.
On the exercise of a non-qualified 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 eligible person as ordinary income and deductible by
the company, provided the company properly files IRS Form W-2 or Form 1099 in
respect of the exercise. This disposition of shares acquired upon the exercise
of a non-qualified stock option will generally result in a capital gain or loss
for the eligible person, but will have no tax consequences for the company.
STOCK APPRECIATION RIGHTS. There are no federal income tax consequences
either to the eligible person or to the company upon the grant of stock
appreciation rights. The amount of any cash (or the fair market value of any
shares) received by the eligible person upon the exercise of the stock
appreciation rights will be subject to ordinary income tax in the year of
receipt, and the company will be entitled to a deduction for that amount.
VOTE REQUIRED. Re-approval of the material terms of the performance goals
under the 1998 Incentive Plan will require the affirmative vote of the holders
of a majority of the common shares represented in person or by proxy at the
meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
11
CORPORATE GOVERNANCE AND BOARD MATTERS
GOVERNANCE DEVELOPMENTS
We are committed to implementing and upholding high standards of
responsible corporate governance. On March 5, 2004, the Board of Directors, upon
the Corporate Governance Committee's recommendation, approved proposals 2(a) and
(b) being presented to shareholders for their approval. In addition, over the
last year we have undertaken the following:
- Appointed two new independent directors to the Board following the
resignations of Betty Rosskamm and Alma Zimmerman, members of the
founding families of our company. Mrs. Rosskamm and Mrs. Zimmerman
continue to participate on the Board as Directors Emeritus. Under
Emeritus status, neither Mrs. Rosskamm nor Mrs. Zimmerman will serve on
any of the committees of the Board, nor will either of them vote on any
matters that come before the Board for approval. The two new directors,
Tracey Thomas-Travis and Patricia Morrison, were identified through a
nationwide search undertaken by an independent search firm retained by
the Corporate Governance Committee and neither of them was known to any
member of the Board or officer of the company prior to their
identification by the search firm. Each of Ms. Thomas-Travis and Ms.
Morrison bring a diversity of business and personal experience to the
board. See pages 17 and 18.
- The Board approved the reclassification of our dual class stock into a
single class of stock. The reclassification converted our non-voting
class of stock into voting stock, with each share now having one vote.
The reclassification was approved by shareholders on November 4, 2003.
The reclassification aligns the voting rights of shareholders with their
economic interests.
- Corporate Governance Guidelines were adopted on March 5, 2003, and are
discussed in this proxy statement.
We continually monitor developments in the area of corporate governance and
will continue to develop and implement appropriate practices for our company.
BOARD OF DIRECTORS
The primary responsibility of the Board of Directors is to foster the
long-term success of the company, 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 the day-to-day operations of the company. In fulfilling this
role, each director must exercise his or her good faith business judgment of the
best interests of the company.
The Board has four regularly scheduled meetings a year. These meetings are
usually held in March, June, August and November. The organizational meeting
follows immediately after the Annual Meeting of Shareholders in June. All of the
meetings are held at an offsite location. Our Board reviews strategic issues at
Board meetings throughout the year. In addition, the Board formally reviews the
company's strategic plan each year with participation from senior management.
The Board held four regular meetings in fiscal year 2004. 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 on occasion a
director may be unable to attend a meeting. During the last year, all of our
directors attended 100% of the regularly scheduled meetings of the Board and
Committees on which they served, and attended the Annual Meeting of Shareholders
held in June 2003.
CORPORATE GOVERNANCE GUIDELINES
The Board has adopted Corporate Governance Guidelines, which are posted on
the company's website at www.joann.com. Pursuant to those guidelines, the
non-management directors meet in executive session at each Board meeting. The
non-management directors have a designated lead director to preside at the
executive session.
12
LEAD DIRECTOR
The lead director's responsibilities are to:
- Act as principal liaison between the non-employee directors and the
chairman.
- Coordinate and lead meetings of the non-employee directors and provide
the chairman feedback from those meetings.
- Advise the chairman on issues of interest to the non-employee directors
and provide input on the agenda for future Board meetings.
- Convey requests from the non-employee directors for operational,
financial, legal or other information, updates or advice.
The lead director is rotated on an annual basis based alphabetically on the
directors' last names. Dr. Scott Cowen has served as lead director since August
2003.
BOARD INDEPENDENCE
Under our Corporate Governance Guidelines, a majority of our Board must be
"independent," as such term is defined under the NYSE Listings Standards. No
director qualifies as "independent" unless our Board of Directors affirmatively
determines that the director has no material relationship with the company. In
order to make this determination, the Board considers all relevant facts and
circumstances surrounding the director's relationship with the company and its
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.
In March 2004, the Board adopted Standards for Determining Director
Independence ("Standards") to aid it in determining whether a director is
independent. These Standards are in compliance with the new director
independence requirements of the NYSE Listing Standards and incorporate
independence standards contained in the Securities Exchange Act of 1934, as
amended, and the Internal Revenue Code. A copy of the Standards is attached as
Appendix A to this proxy statement.
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
Alan Rosskamm, who serves as the company's Chairman and Chief Executive Officer,
and Ira Gumberg, who is President and Chief Executive Officer of J.J. Gumberg
Co., a real estate development and investment company, which manages numerous
shopping centers, 12 of which contain stores of our company. Mr. Gumberg and his
family are the sole investors in two partnerships owning shopping centers, which
contain our stores and may result in more than $100,000 being paid to him or
members of his family. J.J. Gumberg Co. operates more than 30 shopping centers,
many of which include large national retailers as tenants.
COMMUNICATIONS WITH THE BOARD
Shareholders and other interested parties who wish to communicate with the
Board may do so by writing to the lead director, Board of Directors of Jo-Ann
Stores, Inc., 5555 Darrow Road, Hudson, OH 44236. The Corporate Secretary will
act as agent to the non-management 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 to be forwarded to the
lead director. Communications that relate to matters that are within the
responsibility of one of the Board Committees are to be 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 to be sent to the appropriate company
13
executive. Solicitations, junk mail and obviously frivolous or inappropriate
communications will not to be forwarded, but will be made available to any
non-management director who wishes to review them.
CODE OF BUSINESS CONDUCT AND ETHICS
In accordance with applicable NYSE Listing Standards and SEC Regulations,
the Board has adopted the Jo-Ann Stores, Inc. Code of Business Conduct and
Ethics (including the Code of Ethics for the CEO and Financial Officers), which
is available on the "Corporate Governance" page of the Investor Relations
section of the company's website at www.joann.com.
COMMITTEES OF THE BOARD
The Board has established three 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 recommendation 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 the company's website at www.joann.com. The Chair of each Committee
works with the company to develop the agenda for that Committee and determine
the frequency and length 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 seven times during the fiscal year ended
January 31, 2004, is responsible for the engagement of the independent auditors
of our company, reviewing with the auditors the results of the audit engagement
and the scope and thoroughness of the auditors' examination, reviewing the
independence of the independent auditors, reviewing our company's SEC filings,
reviewing the effectiveness of our company's systems of internal accounting
controls and approving all auditing and non-auditing services performed by the
company's independent auditors or other auditing or accounting firms 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, a copy of which is attached hereto as Appendix C. 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 Securities Exchange Act of 1934, as
amended. The formal report of the Audit Committee with respect to the fiscal
year ended January 31, 2004 begins on page 28 of this proxy statement. This
committee currently consists of Scott Cowen (Chairman), Patricia Morrison, Frank
Newman, Beryl Raff, Gregg Searle and Tracey Thomas-Travis.
The Board has determined that all members of the Audit Committee are
financially literate as required by the NYSE and that at least one of the
committee members, Dr. Scott Cowen, is an "audit committee financial expert"
within the meaning of regulations of the Securities and Exchange Commission.
THE COMPENSATION COMMITTEE consists entirely of non-management 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
Securities Exchange Act, as amended, and an "outside director" under Section
162(m) of the Internal Revenue Code.
The Compensation Committee met five times during the fiscal year ended
January 31, 2004. The Committee's responsibilities are set forth in the
Compensation Committee Charter and includes setting the compensation for
executive officers of our company, making recommendations to the Board of
Directors with respect to the adoption and amendment of incentive compensation
plans and administering those plans approved by the Board of Directors. The
formal report of the Compensation Committee on executive compensation begins on
page 24 of this proxy statement. This Committee currently consists of Frank
Newman (Chairman), Scott Cowen, Patricia Morrison, Beryl Raff, Gregg Searle and
Tracey Thomas-Travis.
14
THE CORPORATE GOVERNANCE COMMITTEE consists entirely of non-management
directors. Following the organizational meeting in June 2004, all members of the
Corporate Governance Committee will be comprised entirely of directors who have
been determined by the Board to be independent within the meaning of our
Standards, which comply with the listing standards of the NYSE.
The Corporate Governance Committee, met nine times during the fiscal year
ended January 31, 2004. The Committee's responsibilities are set forth in the
Corporate Governance Committee Charter and includes 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. This Committee currently consists of Gregg
Searle (Chairman), Scott Cowen, Ira Gumberg, Patricia Morrison, Frank Newman,
Beryl Raff and Tracey Thomas-Travis.
15
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
following Board Competencies:
BOARD COMPETENCIES
In evaluating the suitability of individuals for Board membership, the
Committee has established minimum qualification standards for nominees and has
also identified certain desirable qualities and skills. A copy of the Board
Competencies is attached to this proxy statement as Appendix B. 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.
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 the company's 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 the company's 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 shareholder of the
company 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 the company's Amended and Restated Code of
Regulations. The company has an advance notice provision. In order for the
director nomination to be timely, a shareholder's notice to the company's
secretary must be delivered to the company's 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 Securities and Exchange Commission 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 Executive Vice President-Human Resources. Later reviews will be conducted by
other members of the
16
Corporate Governance Committee and senior management. 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
The company's fiscal year ends each year on the Saturday closest to January
31. The Corporate Governance Committee usually meets in November and March to
consider, among other things, candidates to be recommended to the Board for
inclusion in the company's recommended slate of director nominees for the next
annual meeting and the company's proxy statement. The Board usually meets each
March to (i) 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, and (ii) to consider and recommend
to the Board for its approval, at the Board meeting following the annual
meeting, the composition of Board committees.
THE NOMINEES
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 16, 2004.
<Table>
<Caption>
PRINCIPAL OCCUPATION PAST FIVE YEARS, DIRECTOR
NAME OTHER DIRECTORSHIPS AND AGE SINCE
---- ------------------------------------- --------
NOMINEES FOR THE TERM TO EXPIRE IN 2007
Ira Gumberg(1) President and Chief Executive Officer of J.J. Gumberg 1992
Co., a real estate development and investment company,
for more than five years. J.J. Gumberg Co. is among the
top 25 owner/developers in the country, and has a
portfolio of more than 30 shopping centers, consisting
of over 12 million square feet of space in multiple
states. Mr. Gumberg is a member of the board of
directors of Mellon Financial Corporation., and a board
member of The Pittsburgh Cultural Trust and the
Allegheny Conference on Community Development. Mr.
Gumberg currently serves as trustee and vice chair of
the Finance Committee for Carnegie Mellon University and
as a member of the board of visitors for the University
of Pittsburgh, Joseph M. Katz Graduate School of
Business.; age 50.
Patricia Morrison(1)(2)(3) Executive Vice President and Chief Information Officer 2003
for Office Depot, Inc., a supplier of office products
and services, since January 2002. From June 2000 to
January 2002, she was Chief Information Officer for The
Quaker Oats Company, a manufacturer and marketer of food
and beverage products. From April 1997 to June 2000, she
was Chief Information Officer for GE Industrial Systems,
a division of the General Electric Company, a
diversified industrial corporation; age 44.
</Table>
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE NOMINEES
17
The following table sets forth certain information regarding the nominees
for election in 2005 and 2006 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
16, 2004.
<Table>
<Caption>
PRINCIPAL OCCUPATION PAST FIVE YEARS, DIRECTOR
NAME OTHER DIRECTORSHIPS AND AGE SINCE
---- ------------------------------------- --------
DIRECTORS WHOSE TERM EXPIRES IN 2005
Frank Newman(1)(2)(3) Chairman and Chief Executive Officer of Medical 1991
Nutrition, Inc., a nutrition-medicine company, since
March 2003. Private investor and consultant from January
2001 to March 2003. 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., Medical Technology Systems, Inc.
and Medical Nutrition, Inc.; age 55.
Beryl Raff(1)(2)(3) Senior Vice President-General Merchandising Manager for 2001
the Retail Jewelry Division of J.C. Penney Company,
Inc., a department store retailer, since May 2001.
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; age 53.
Tracey Thomas-Travis(1)(2)(3) Senior Vice President, Finance for Limited Brands, Inc., 2003
an apparel and personal care products retailer, since
April 2002. Previously she was Vice President, Finance
and Chief Financial Officer of Intimate Brands, Inc., a
women's intimate apparel and personal care products
retailer, from April 2001 to April 2002 and Chief
Financial Officer of the Beverage Can Americas group of
American National Can, a manufacturer of metal beverage
cans, from 1999 to 2001; age 41.
DIRECTORS WHOSE TERM EXPIRES IN 2006
Alan Rosskamm Chairman of the Board, President and Chief Executive 1985
Officer 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 54.
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.
Dr. Cowen is also a Director of American Greetings
Corporation, Forest City Enterprises, Inc. and Newell
Rubbermaid Inc.; age 57.
Gregg Searle(1)(2)(3) President and Chief Executive Officer of Compel Holdings 1996
Inc., 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 of Diebold, Incorporated, a
manufacturer of ATM's and security products; age 55.
</Table>
18
- ---------------
(1) Member of the Corporate Governance Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
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, as noted below:
<Table>
<Caption>
CASH
- - Retainer $5,000 per quarter
- - Committee chair retainer $750 per quarter
- - Meeting fees $2,000 per day
- - Telephonic meeting fees $1,000 per call
DEFERRED STOCK Voluntary
STOCK OPTIONS 8,600 per year
RESTRICTED STOCK
- - Upon election 5,750 shares
- - Subsequent 10 year anniversaries 5,750 shares
</Table>
CASH COMPENSATION. Each non-employee director is compensated at a rate of
$5,000 per quarter and $2,000 for each day of Board and committee meetings
attended. Additionally, committee chairpersons receive an additional $750 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. Under this feature,
non-employee directors can make an irrevocable election at the Board meeting
held at the time of our company's Annual Meeting of Shareholders to convert a
percentage (0% to 100% in 25% increments) of their cash compensation to deferred
stock units for the next 12 month period. The conversion of cash compensation to
deferred stock units is based on the closing market price of our company's
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 8,600
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. Generally, stock option awards are fully exercisable after four
years following the date of grant and expire in seven to ten years. 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 the vested portion of an outstanding
stock option during the three-month period immediately following the date of
termination of such service.
A total of 1,537,844 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.
19
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 5,750 common shares to each
then current non-employee director. Additionally, each new non-employee director
will be eligible for a one-time grant of 5,750 common shares upon joining the
Board of Directors. Each non-employee director will then be eligible for an
additional grant of 5,750 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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Ira Gumberg, a Director of our company, 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, 12 of which contain stores of
our company. The owners of the various shopping centers managed by J.J. Gumberg
Co. are separate legal entities (individually referred to as "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 a
director of our company and 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 by the company during fiscal 2004, 2003 and 2002 to the
shopping center entities for various stores under lease amounted to $1.6
million, $1.4 million and $1.3 million respectively. In fiscal 2004, 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 the company are partnerships solely owned by Mr. Gumberg and
members of his family.
20
EXECUTIVE COMPENSATION
The following table sets forth information relating to the annual and
long-term compensation for the three fiscal years ended January 31, 2004 for the
chief executive officer and the four most highly paid executive officers of our
company.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------- --------------------------
OTHER SECURITIES ALL
ANNUAL RESTRICTED UNDERLYING OTHER
NAME AND FISCAL COMPEN- STOCK OPTIONS/SARS COMPEN-
PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) SATION AWARDS(3) COMMON SHARES SATION(4)
------------------ ------ --------- -------- -------- ---------- ------------- ---------
Alan Rosskamm 2004 $683,209 -- -- $517,140 90,000 $962,580(5)
Chairman of the Board, 2003 $584,423 $566,538 -- -- -- $ 70,465
President and 2002 $465,000 -- -- -- -- $ 78,104
Chief Executive Officer
Dave Bolen(6) 2004 $398,269 -- -- $139,230 24,000 $ 17,904
Executive Vice President, 2003 $372,115 $269,135 -- -- -- $ 18,610
Merchandising, Marketing 2002 $342,597 -- -- -- 50,000 $ 19,314
And Logistics
Brian Carney 2004 $347,499 -- -- $139,230 24,000 $ 12,713
Executive Vice President, 2003 $344,596 $249,606 -- -- -- $ 13,527
Chief Financial Officer 2002 $306,500 -- -- -- 50,000 $ 14,273
Mike Edwards(7) 2004 $341,895 -- -- $139,230 24,000 $ 14,122
Executive Vice President, 2003 $335,769 $242,885 -- -- -- $ 12,469
Operations 2002 $238,484 $100,000 $153,831 $ 44,500 125,000 $ --
Valerie Gentile Sachs(8) 2004 $261,411 $100,000 -- $ 39,780 10,000 $ --
Executive Vice President, 2003 $ 20,000 -- -- $114,600 50,000 $ --
General Counsel & Secretary
</Table>
- ---------------
(1) Includes amounts earned but deferred under Section 401(k) of the Internal
Revenue Code.
(2) Represents bonuses paid under the Management Incentive Plan ("MIP") and
other certain guaranteed bonuses. These amounts represent bonuses earned in
the fiscal year indicated but paid in the subsequent fiscal year.
(3) Restricted stock awards granted under the company's 1998 Incentive
Compensation Plan.
(4) 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 year 2004, matching
contributions made under our Jo-Ann Stores, Inc. Savings Plan 401(k) to
executive officers amounted to the following: Mr. Rosskamm -- $1,010; Mr.
Bolen -- $1,038; Mr. Carney -- $966; and Mr. Edwards -- $939. For fiscal
year 2004, 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 -- $1,813; Mr. Bolen -- $540; Mr.
Carney -- $258; and Mr. Edwards -- $258. 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 2004 as follows: Mr.
Bolen -- $16,326; Mr. Carney -- $11,489; and Mr. Edwards -- $12,925.
(5) The company previously had 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 shared in the premium
costs of whole life insurance policies that would have paid death benefits
of not less than $10 million upon the death of Mr. Rosskamm and his wife
(whichever occurred later). The split-dollar insurance arrangement was
structured such that upon the payment of benefits or cancellation,
21
all premium payments would be returned to our company. The present value of the
split-dollar insurance arrangement included herein for fiscal year 2004 is
$13,999. As a result of the early termination of Split-Dollar Insurance
Agreements with Mr. Rosskamm, the Compensation Committee approved the payment
of $945,759 in additional compensation to him over a term of 13 months and
payable in three equal installments of $315,253 in January 2004, February
2004 and February 2005 as full compensation for his economic loss. The formal
report of the Compensation Committee on executive compensation begins on page
24 of this proxy statement.
(6) Mr. Bolen assumed the position of Executive Vice President, Merchandising,
Marketing and Logistics 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. Upon his hire, Mr. Edwards was
granted restricted stock holdings of 11,500 common shares and was guaranteed
a $100,000 MIP bonus -- 50% payable April 2001, 50% payable March 2002.
(8) Ms. Sachs assumed the position of Executive Vice President, General Counsel
and Secretary effective January 6, 2003. Upon her hire, Ms. Sachs was
granted restricted stock holdings of 5,750 common shares and was guaranteed
a $50,000 MIP bonus payable March 2004.
OPTION GRANTS IN FISCAL YEAR 2004
The following table provides information relating to stock option grants
during the last fiscal year for the chief executive officer and the other four
most highly paid executive officers of our company.
<Table>
<Caption>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL
----------------------------------------------------------------------- RATES OF STOCK PRICE
NUMBER OF PERCENT OF TOTAL EXERCISE OR APPRECIATION FOR
SECURITIES UNDERLYING OPTIONS GRANTED BASE PRICE PER OPTION TERM(2)
OPTIONS GRANTED TO EMPLOYEES COMMON EXPIRATION ----------------------
NAME (COMMON SHARES) IN FISCAL YEAR SHARE DATE 5% 10%
---- --------------------- ----------------- -------------- ---------- --------- ----------
Alan Rosskamm 90,000(1) 11.9% $16.80 03/06/2010 $615,536 $1,434,460
Dave Bolen 24,000(1) 3.2% $16.80 03/06/2010 $164,143 $ 382,523
Brian Carney 24,000(1) 3.2% $16.80 03/06/2010 $164,143 $ 382,523
Mike Edwards 24,000(1) 3.2% $16.80 03/06/2010 $164,143 $ 382,523
Valerie Gentile Sachs 10,000(1) 1.3% $16.80 03/07/2010 $ 68,393 $ 159,384
</Table>
- ---------------
(1) The options granted become exercisable in four equal annual installments
commencing one year after the date of grant.
(2) 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.
22
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-ENDED 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
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
COMMON SHARES AT JANUARY 31, 2004 AT JANUARY 31, 2004
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------- -------- ----------- ------------- ----------- -------------
Alan Rosskamm 17,250 $254,961 382,250 215,000 $4,598,090 $2,580,350
Dave Bolen -- -- 271,000 86,500 $3,024,142 $1,148,635
Brian Carney -- -- 137,250 86,500 $2,327,931 $1,148,635
Mike Edwards -- -- 31,250 86,500 $ 641,875 $1,445,510
Valerie Gentile Sachs -- -- 12,500 47,500 $ 55,250 $ 233,150
</Table>
EXECUTIVE EMPLOYMENT AGREEMENTS
Our company has agreements with Alan Rosskamm, Chief Executive Officer, and
five other executive officers, including the 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 agreement). 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.
23
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible for
reviewing and approving executive management compensation and for administering
the incentive and equity participation plans that make up the variable
compensation paid to the chief executive officer and other executive officers
and operating officers. Each member of the Compensation Committee qualifies as a
"non-employee director" under Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended, an "outside director" under Section 162(m) of
the Internal Revenue Code, and an "independent director", as such term is
defined in Section 303.01(B)(2)(a) of the New York Stock Exchange Listed Company
Manual.
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 at 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.
In general, base salary and other components of compensation are determined
by job responsibility, with the Chief Executive Officer and the Executive Vice
Presidents occupying the top tier. During fiscal year 2004, the average salary
increase for all executive officers was 8.2 percent, comprised of a 13.9 percent
increase for the Chief Executive Officer and an average increase of 7.2 percent
for the Executive Vice Presidents.
ANNUAL BONUS. Our company awards bonuses to executive officers, operating
officers and certain other management employees through a Management Incentive
Plan ("MIP"). The MIP 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 MIP 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 plans. The level of bonus
awarded under these plans is based on a combination of the profit target for the
fiscal year and individual performance goals. Bonuses are not payable under the
plans 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
24
operating officers and other management employees participating in the plan are
structured similarly, but designed to amount to a smaller percentage of their
salary. For fiscal year 2004, the company's profit did not meet the minimum
target. Accordingly, no bonuses were paid under the MIP, except for a $100,000
bonus paid to Ms. Sachs, an executive officer of the company, which had been
agreed to as part of her employment consideration at the time she joined the
company.
LONG-TERM PERFORMANCE-BASED COMPENSATION. The company uses equity-based
incentives to reward and retain key employees of the company. Currently, the
company uses a combination of stock option and restricted stock awards as
long-term incentives. Stock option and restricted stock awards are granted to
executive officers and other key employees under the 1998 Incentive Compensation
Plan. The Compensation Committee administers the plans, selects the recipients
and determines the level of awards of stock options and restricted stock.
The Compensation Committee believes that equity-based compensation ensures
that the company's executive officers have a continuing stake in the long-term
success of the Company. All options granted by the company have been granted as
non-qualified stock options with an exercise price equal to the closing price of
the common stock on the date of grant and, accordingly, will have value only if
the market price of the common stock increases after that date. In addition to
annual awards, stock option and restricted stock awards are generally granted to
executive officers, other operating officers and certain other management
employees upon their hire, promotion or assumption of increased responsibility.
The long-term incentive program reflects the Compensation Committee's strong
belief that by providing additional equity-based 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.
In determining the size of stock option grants and restricted stock awards
to key employees, the Compensation Committee bases its recommendations on such
considerations as the value of options and restricted stock awards awarded to
comparable positions in peer group companies, the allocation of overall share
usage attributed to executive officers and the relative proportion of long-term
incentives within the total compensation mix.
Stock option grants during fiscal year 2004 to the Chief Executive Officer
represented 11.9 percent of all stock options granted during the year. Grants to
the Chief Executive Officer and all other executive officers of the company
during fiscal year 2004 represented 26.0 percent of all stock options granted
during the year. Generally, stock option awards are fully exercisable after four
years following the date of grant and expire in seven to ten years.
During fiscal year 2002, a retention option grant was approved by the
Compensation Committee for executive officers of the company, other than the
chief executive officer. These stock option awards expire after seven years and
vest after four years but were subject to accelerated vesting upon the company
achieving certain levels of financial performance. As a result of the financial
performance during fiscal year 2003 and the accelerated vesting provision, these
options became fully vested during fiscal year 2003. No annual award was made in
fiscal year 2003 to officers or other key employees of 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.
Beginning in fiscal 2004, the company began to structure its annual long-term
incentive awards through a combination of non-qualified stock options and
restricted stock. All restrictions on restricted stock awards granted to
executive officers during the last three fiscal years lapse three to 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.
25
HOW WAS THE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER COMPENSATED FOR
FISCAL YEAR 2004?
During fiscal year 2004, Mr. Rosskamm's base salary was increased
approximately 13.9 percent from $575,000 to $654,687. This increase was based on
the Compensation Committee's positive assessment of his performance and
contributions during fiscal year 2003 as Chairman of the Board, President and
Chief Executive Officer, as well as an adjustment warranted by direct
comparisons to companies in our industry and other specialty retailers.
Mr. Rosskamm was not awarded a bonus for fiscal 2004 under the Management
Incentive Plan.
As part of Mr. Rosskamm's overall compensation package, Mr. Rosskamm had
been provided a split-dollar life insurance program for which the beneficiary
was a trust established for the benefit of Mr. Rosskamm's children, and which
would receive benefits following the second to die of both Mr. Rosskamm and his
wife (the "Trust").
The company, Mr. Rosskamm and the trustee of the Trust entered into Split
Dollar Insurance Agreements (the "Insurance Agreements") in 1994 contingent upon
Mr. Rosskamm waiving all rights he had under a supplemental employment
retirement plan that had been in effect for his benefit since 1979.
The Insurance Agreements were structured in such a way that the company
would advance premium payments on two split-dollar insurance policies over a
period of time estimated to be between 10 and 15 years until the policies became
self-funding. Five years after a full funding test was met under the policies,
the company would receive back all of the premiums advanced on Mr. Rosskamm's
behalf.
Following enactment of the Sarbanes-Oxley Act of 2002 and in light of
issues raised by IRS Notice 2002-8, the company determined that it should
terminate its involvement with the Insurance Agreements. Upon termination on
December 31, 2003, the company received from Mr. Rosskamm $1,602,852, which
comprised all the premiums advanced by the company on his behalf under the
Insurance Agreements and the company released its interests in the policies.
After receiving legal advice from independent counsel that Mr. Rosskamm
could have contractual claims against the company for early termination of the
Insurance Agreements, the Compensation Committee determined it was in the best
interests of the company to resolve any such claims promptly. The Compensation
Committee calculated the quantifiable economic loss Mr. Rosskamm suffered as a
result of the early termination of the Insurance Agreements. The economic loss
calculation was not intended to be a total "make whole" calculation as the
Insurance Agreements had obligations that were not readily quantifiable and,
accordingly, not included in the calculations. The Compensation Committee also
took into account the impact of the early termination of the Insurance
Agreements on Mr. Rosskamm's overall compensation package and other factors.
After reviewing the entire matter, the Compensation Committee approved the
payment of $945,759 in additional compensation to Alan Rosskamm over a term of
13 months and payable in three equal installments of $315,253 in January 2004,
February 2004 and February 2005 as full compensation for his economic loss. Mr.
Rosskamm has released the company from any further liabilities under the split
dollar life insurance program and the early termination of the Insurance
Agreements.
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. Qualifying performance-based compensation will not be subject
to the deduction limit if certain requirements are met. The stock options and
certain restricted stock awards made under the 1998 Incentive Compensation Plan
are intended to qualify as performance-based compensation under Section 162(m).
26
The names of the directors who serve on the Compensation Committee are set
forth below.
COMPENSATION COMMITTEE
FRANK NEWMAN (Chairman)
SCOTT COWEN
PATRICIA MORRISON
BERYL RAFF
GREGG SEARLE
TRACEY THOMAS-TRAVIS
27
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 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 fiscal year
2004, the Audit Committee met seven times, 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, Finance and
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." The Audit
Committee also discussed with the auditors any relationships that may impact
their objectivity and independence and considered the compatibility of non-audit
services with the auditors' independence. The Audit Committee also discussed
with management, the internal auditors and the independent auditors the quality
and effectiveness 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 received updates on legal issues from the company's
legal counsel and followed established procedures as to the intake and
investigation of complaints relating to accounting or auditing matters.
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 January 31, 2004, with management
and the independent auditors. As part of this review, the Audit Committee
discussed the quality, not just the acceptability, of the accounting principles;
the reasonableness of significant judgements; and the clarity of disclosures in
the financial statements. 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 January 31, 2004, for filing with the Securities
and Exchange Commission.
The Audit Committee recommends the appointment of the independent auditors
to the full Board of Directors after it has had the opportunity to review the
scope of work to be performed and the fees proposed.
The Audit Committee Charter is attached to this Proxy Statement as Appendix
C.
AUDIT COMMITTEE
SCOTT COWEN (Chairman)
PATRICIA MORRISON
FRANK NEWMAN
BERYL RAFF
GREGG SEARLE
TRACEY THOMAS-TRAVIS
28
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND
PERMITTED NON-AUDIT SERVICES
The Audit Committee has established policies and procedures regarding
pre-approval of audit, audit-related, tax, and other services that the
independent auditor may perform for the company. Under the policy, predictable
and recurring services are generally approved by the Audit Committee on an
annual basis. The Audit Committee must pre-approve on an individual basis any
requests for audit, audit-related, tax, and other services not covered by the
services that are pre-approved annually.
The Audit Committee may delegate pre-approval authority to any of its
members if the aggregate estimated fees for all current and future periods for
which the services are to be rendered will not exceed a designated amount, and
any such pre-approval must be reported at the next scheduled meeting of the
Audit Committee.
The Audit Committee may prohibit services that in its view may compromise,
or appear to compromise, the independence and objectivity of the independent
auditor. The Audit Committee also periodically reviews a schedule of fees paid
and payable to the independent auditor by type of service being or expected to
be provided.
All services performed by the independent auditor in fiscal year 2004 were
pre-approved by the Audit Committee.
PRINCIPAL ACCOUNTING FIRM FEES
The following table sets forth the aggregate fees billed to the company for
the fiscal years ending January 31, 2004 and February 1, 2003 by the company's
principal accountants, Ernst & Young LLP (in thousands):
<Table>
<Caption>
FISCAL YEAR
------------
2004 2003
---- ----
Audit Fees (1).............................................. $455 $255
Audit-Related Fees (2, 5)................................... 40 10
Tax Fees (3, 5)............................................. 59 14
All Other Fees (4).......................................... -- --
---- ----
Total.................................................. $554 $279
==== ====
</Table>
- ---------------
(1) Audit Fees include fees for professional services rendered by the principal
accountant for the audit of the company's annual financial statements,
review of financial statements included in the company's Form 10-Q filings,
and services that are normally provided in connection with statutory and
regulatory filings or engagements.
(2) Audit-Related Fees include fees for assurance and related services performed
that are reasonably related to the performance of the audit or review of the
company's financial statements. These fees include consultation on SEC
registration statements and filings, services related to Section 404
compliance of the Sarbanes-Oxley Act and consultations on other financial
accounting and reporting matters.
(3) Tax Fees include fees billed for professional services relating to tax
compliance, tax planning and consultations, reviews of tax returns and audit
support.
(4) All Other Fees are fees for other permissible work that does not meet the
above category descriptions.
(5) The Audit Committee has considered and concluded that the provision of these
services is compatible with maintaining the principal accountant's
independence.
29
STOCK PERFORMANCE GRAPH
The following graph compares the yearly changes in total shareholder return
on our 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, 1999. 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>
1999 2000 2001 2002 2003 2004
Jo-Ann Stores, Inc. Common Shares 100 70 36 72 179 194
S&P 500 Index 100 106 105 88 67 88
S&P Specialty Stores Index 100 84 103 149 125 204
</Table>
30
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the company's
directors, executive officers and holders of more than 10% of its common shares
to file with the Securities and Exchange Commission initial reports of ownership
and reports of subsequent changes in ownership. Such persons are required by the
regulations of the Securities and Exchange Commission to furnish the company
with copies of all Section 16(a) reports they file with the Securities and
Exchange Commission. The Securities and Exchange Commission has established
specific due dates for these reports and the company is required to disclose in
this Proxy Statement any late filings or failures to file.
Based solely on the company's review of the copies of such forms (and
amendments thereto) furnished to the company and written representations from
certain reporting persons that no additional reports were required, the company
believes that all the company's directors, executive officers and holders of
more than 10% of the common shares complied with all Section 16(a) filing
requirements during fiscal year 2004, with the exception of the following
reports which were not timely filed. Mr. Rosskamm failed to timely file a Form 4
covering one transaction, Mr. Bolen failed to timely file two Form 4's covering
one transaction each, Mr. Carney failed to timely file a Form 4 covering one
transaction, Mr. Edwards failed to timely file a Form 4 covering one
transaction, Ms. Sachs failed to timely file two Form 4's covering one
transaction each, and Ms. Thompson failed to timely file two Form 4's covering
one transaction each. Mr. Bolen also filed an amended Form 4.
INDEPENDENT AUDITORS
By the selection of the company's Audit Committee, the accounting firm of
Ernst & Young LLP ("E&Y"), certified public accountants, serves the company as
its independent auditors. A representative of E&Y 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 January 31, 2004.
Arthur Andersen LLP ("AA") previously served as the company's independent
auditors. Representatives of AA will not be present at the Annual Meeting.
On May 29, 2002, the Audit Committee of the Board of Directors of the
company decided to terminate the engagement of AA as the company's independent
public accountants and engaged E&Y to serve as the company's independent public
accountants for its fiscal year 2003, which ended on February 1, 2003.
AA's reports on the company's consolidated financial statements for the
year ended February 2, 2002 did not contain an adverse opinion or disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope or
accounting principles.
During the year ended February 2, 2002 and for the period through May 29,
2002, there were no disagreements with AA on any matter of accounting principle
or practice, financial statement disclosure, or auditing scope or procedure
which, if not resolved to AA's satisfaction, would have caused them to make
reference to the subject matter in connection with their report on the company's
consolidated financial statements for such years; and there were no reportable
events as defined in Item 304(a)(1)(v) of Regulation S-K.
During the year ended February 2, 2002 and through the date of the Audit
Committee's decision, the company did not consult E&Y with respect to the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the company's consolidated financial statements, or any other matters or
reportable events referred to in the preceding paragraph.
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
31
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.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of April 16, 2004 (except as otherwise
noted), the amount of common shares beneficially owned by each person or group
known to us to be beneficial owners of more than 5% of our common shares and the
amount of 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 (the "SEC"). 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.
There were 22,214,112 common shares outstanding as of April 16, 2004. Common
shares each have one vote per share.
<Table>
<Caption>
NUMBER OF PERCENT OF
NAME OF COMMON SHARES CLASS IF 1%
BENEFICIAL OWNER BENEFICIALLY OWNED OR MORE
- ---------------- ------------------ -----------
5% OWNERS
First Pacific Advisors, Inc.(1).......................... 2,302,970 10.37%
Betty Rosskamm(2)(3)(4).................................. 1,486,341 6.69%
Alma Zimmerman(2)(4)(5).................................. 1,138,535 5.13%
DIRECTORS
Alan Rosskamm(2)(6)...................................... 2,388,907 10.50%
Scott Cowen(7)........................................... 43,606 *
Ira Gumberg(8)........................................... 19,107 *
Patricia Morrison(9)..................................... 5,750 *
Frank Newman(10)......................................... 43,771 *
Beryl Raff(11)........................................... 12,915 *
Gregg Searle(12)......................................... 50,923 *
Tracey Thomas-Travis(13)................................. 6,318 *
EXECUTIVE OFFICERS
Dave Bolen(2)(14)........................................ 467,121 2.07%
Brian Carney(2)(15)...................................... 208,668 *
Mike Edwards(2)(16)...................................... 98,102 *
Valerie Gentile Sachs(17)................................ 30,790 *
ALL EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP (13
PERSONS)(2)(18)........................................ 3,519,203 14.95%
</Table>
- ---------------
(*) Less than 1%
(1) The common shares listed are reported on Schedule 13G, dated February 5,
2004, filed with the Commission with respect to holdings as of December 31,
2003. The mailing address of First Pacific Advisors, Inc. is 11400 West
Olympic Blvd., Suite 1200, Los Angeles, CA 90064.
(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, 2004,
the latest date for which statements are available.
(3) Mrs. Rosskamm's beneficial ownership includes 53,750 common shares held by
The Rosskamm Family Partnership with regard to which she has sole voting
and dispositive power, 908,328 common shares held
32
by Rosskamm Family Partners, L.P. with regard to which she has shared
voting and dispositive power, and 144,183 common shares held by Rosskamm
Family Partners, L.P. II with regard to which she also has shared
dispositive power. The mailing address for Mrs. Rosskamm is 5555 Darrow
Road, Hudson, OH 44236.
(4) Mrs. Rosskamm, Mrs. Zimmerman and the company are parties to an agreement,
dated October 30, 2003, relating to their Jo-Ann Stores common shares.
Under this agreement, Mrs. Rosskamm and her lineal descendants and
permitted holders (the "Rosskamms") and Mrs. Zimmerman and her lineal
descendants and permitted holders (the"Zimmermans") may each sell up to
400,000 common shares in any calendar year and may not sell more than
200,000 of those shares in any 180-day period. If either the Rosskamms or
Zimmermans plan to sell a number of their respective common shares in
excess of the number permitted under the agreement, they must first offer
to sell those shares to the other family party and to the company. Each of
the Rosskamms and the Zimmermans are permitted to sell an unlimited number
of shares to each other free of the company's right of first refusal and,
with the permission of the other family party to the agreement, to the
company.
(5) Mrs. Zimmerman's beneficial ownership includes 779,862 common shares held
as trustee. The mailing address for Mrs. Zimmerman is 5555 Darrow Road,
Hudson, OH 44236.
(6) Mr. Rosskamm's beneficial ownership includes 529,750 common shares subject
to stock options that are exercisable within 60 days, 51,400 common shares
held as restricted stock, and an aggregate of 131,759 common shares held by
Mr. Rosskamm as custodian or trustee for the benefit of family members and
charities. His beneficial ownership also includes 908,328 common shares
held by Rosskamm Family Partners, L.P. with regard to which he has shared
voting and dispositive power, 144,183 common shares held by Rosskamm Family
Partners, L.P. II with regard to which he has shared dispositive power,
123,095 common shares held by Caneel Bay Partners, L.P. I with regard to
which he has sole voting and dispositive power and 25,493 common shares
held by Caneel Bay Partners, L.P. II with regard to which he has
dispositive power. The mailing address for Mr. Rosskamm is 5555 Darrow
Road, Hudson, OH 44236.
(7) Dr. Cowen's beneficial ownership includes 28,518 common shares subject to
stock options that are exercisable within 60 days, 4,393 common shares
subject to a deferred compensation arrangement and 2,875 common shares held
as restricted stock.
(8) Mr. Gumberg's beneficial ownership includes 9,404 common shares subject to
stock options that are exercisable within 60 days, 6,828 common shares
subject to a deferred compensation arrangement and 2,875 common shares held
as restricted stock.
(9) Ms. Morrison's beneficial ownership includes 5,750 common shares held as
restricted stock.
(10) Mr. Newman's beneficial ownership includes 33,118 common shares subject to
stock options that are exercisable within 60 days, 4,903 common shares
subject to a deferred compensation arrangement and 2,875 common shares held
as restricted stock.
(11) Ms. Raff's beneficial ownership includes 6,950 common shares subject to
stock options that are exercisable within 60 days and 5,750 common shares
held as restricted stock.
(12) Mr. Searle's beneficial ownership includes 40,043 common shares subject to
stock options that are exercisable within 60 days, 1,680 common shares
subject to a deferred compensation arrangement and 2,875 common shares held
as restricted stock.
(13) Ms. Thomas-Travis' beneficial ownership includes 568 common shares subject
to a deferred compensation arrangement and 5,750 common shares held as
restricted stock.
(14) Mr. Bolen's beneficial ownership includes 339,500 common shares subject to
stock options that are exercisable within 60 days and 15,150 common shares
held as restricted stock.
(15) Mr. Carney's beneficial ownership includes 125,000 common shares subject to
stock options that are exercisable within 60 days and 15,150 common shares
held as restricted stock.
(16) Mr. Edwards' beneficial ownership includes 68,500 common shares subject to
stock options that are exercisable within 60 days and 26,650 common shares
held as restricted stock.
33
(17) Ms. Sachs' beneficial ownership includes 15,000 common shares subject to
stock options that are exercisable within 60 days and 15,150 common shares
held as restricted stock.
(18) Beneficial ownership for all executive officers and directors as a group
includes 1,314,283 common shares subject to stock options granted under our
stock option plans that are exercisable within 60 days, 18,372 common
shares subject to a deferred compensation arrangement and 173,150 common
shares held as restricted stock.
SHAREHOLDERS' PROPOSALS
The deadline for shareholders to submit proposals to be considered for
inclusion in the proxy statement for the 2005 Annual Meeting of Shareholders is
January 5, 2005. If notice of the proposal is not received by the company by
that date, then the proposal will be deemed untimely and the company will have
the right to exercise discretionary voting authority and vote proxies returned
to the company with respect to such proposal.
Additionally, a shareholder who wishes to present a proposal at the 2005
Annual Meeting of Shareholders must notify the company of such proposal by no
earlier than February 10, 2005 and no later than March 12, 2005. For business to
be properly requested by a shareholder to be brought before an annual meeting of
shareholders, the shareholder must comply with all of the requirements of the
company's Code of Regulations, not just the timeliness requirements described
above.
WEBSITE
The information on the company's website is not, and shall not be deemed to
be, a part of this proxy statement or incorporated into any other filings the
company makes with the Securities and Exchange Commission.
ANNUAL REPORT
Our Annual Report for the fiscal year ended January 31, 2004 is being
mailed to holders of common shares with this Notice of Annual Meeting and proxy
statement.
VALERIE GENTILE SACHS
Secretary
By order of the Board of Directors
May 10, 2004
34
APPENDIX A
JO-ANN STORES, INC.
STANDARDS FOR DETERMINING DIRECTOR INDEPENDENCE
EMPLOYEES AND FORMER EMPLOYEES. No employee or former employee of Jo-Ann
Stores, Inc. or any of its subsidiaries may be an "independent" director until
three years after the employment ended. No person whose immediate family member
is or was an executive officer of the company may be an "independent" director
until three years after the employment has ended.
AUDITORS AND FORMER AUDITORS. No individual who is, or was, affiliated
with or employed by the certified public accountants of the company may be an
"independent" director until three years after the end of the affiliation, the
employment or the auditing relationship. No person whose immediate family member
is or was affiliated with or employed in a professional capacity by the
certified public accountants of the company may be an "independent" director
until three years after the end of the affiliation, the employment or the
auditing relationship.
INTERLOCKING DIRECTORATES. No individual who is or has been employed by,
or whose immediate family member is or has been employed as an executive officer
of, another company where any of the company's executive officers serve on that
other company's compensation committee may be an "independent" director of the
company until three years after the end of such service or the employment
relationship.
COMPENSATION RECIPIENT. No individual who receives, or whose immediate
family member receives, more than $100,000 per year in direct compensation from
the listed company, other than director or committee fees and pension or other
forms of deferred compensation for prior service (provided such compensation is
not contingent in any way on continued service), may be an "independent"
director until three years after he or she ceases to receive more than $100,000
per year in compensation. For Audit Committee member independence, the threshold
is reduced from $100,000 to $0 and the three-year look back does not apply.
ATTORNEYS, INVESTMENT BANKERS, CONSULTANTS. No individual who is or is
affiliated with a professional services firm that is an attorney, investment
banker, consultant or similar advisor to the company may be an "independent"
director.
SIGNIFICANT CUSTOMER OR SUPPLIER. No individual who is an executive
officer or an employee, or whose immediate family member is an executive
officer, of a company that makes payments to, or receives payments from, the
company for property or services in an amount that, in any single fiscal year,
exceeds the greater of $1 million, or 2% of such other company's consolidated
gross revenues, may be an "independent" director until three years after falling
below such threshold.
SIGNIFICANT CHARITABLE CONTRIBUTION RECIPIENT. No individual who is
employed as an executive officer of a not-for-profit entity that receives
significant contributions from the company may be an "independent" director. A
not-for-profit entity will not be deemed to have received a significant
contribution unless the company's annual contribution to such not-for-profit
entity exceeds the greater of $1 million, or 2% of such charitable
organization's consolidated gross revenues, in any single fiscal year.
CONTROLLING PERSON. No director who, directly or indirectly, through one
or more intermediaries, controls or is controlled by, or under common control
with the company can be "independent."
A-1
APPENDIX B
JO-ANN STORES, INC.
BOARD COMPETENCIES
MINIMUM CRITERIA FOR BOARD MEMBERS
- Each candidate shall be prepared to represent the long-term interests of
all of the company's shareholders and not just one particular
constituency.
- Each candidate shall be an individual who has demonstrated integrity and
ethics in his/her personal and professional life and has established a
record of professional accomplishment in his/her chosen field.
- Each candidate must have an inquisitive and objective perspective,
practical wisdom and mature judgment.
- No candidate, or immediate family member (as defined in NYSE rules), or
affiliate or associate (each as defined in Rule 405 under the Securities
Act of 1933, as amended) of a candidate, shall have any material
personal, financial or professional interest in any present or potential
competitor of the company.
- Each candidate shall be prepared to participate fully in Board
activities, including attendance at, and active participation in,
meetings of the Board and the committees of which he or she is a member,
and shall be responsible for management of other personal or professional
commitments so as not to interfere with or materially limit his or her
ability to meet such Board and committee obligations.
DESIRABLE QUALITIES AND SKILLS. In addition, to the Minimum Criteria for
Board Members, the Corporate Governance Committee also considers it highly
desirable that candidates possess the following qualities or skills:
- Each candidate should contribute to the Board's overall diversity -
diversity being broadly construed to mean a variety of skills,
perspectives, personal and professional experiences and backgrounds, such
as gender, race and ethnicity differences.
- Each candidate should contribute positively to the chemistry and culture
among Board members.
- Each candidate should possess professional and personal experiences and
expertise relevant to the company's vision, mission and strategy.
B-1
APPENDIX C
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 judgment as a
committee member. At least one of the members shall be a financial expert, as
defined by the Securities and Exchange Commission. The members of the Audit
Committee shall meet the independence and experience requirements of the New
York Stock Exchange and the Securities and Exchange Commission.
The members of the Audit Committee shall be appointed by the Board on the
recommendation of the Corporate Governance Committee. Audit Committee members
may be replaced by the Board. No Audit Committee member shall serve on the audit
committees of more than two other public companies, unless the Board determines
that the service on multiple committees would not impair the member's ability to
effectively serve on the company's Audit Committee.
PURPOSE
The purpose of the Audit Committee is to assist the Board with oversight of
(a) the integrity of the financial statements of the company, (b) the
qualifications and independence of the independent auditors, (c) the performance
of the company's internal audit function and independent auditors, and (d) the
compliance by the company with legal and regulatory requirements. The Audit
Committee shall prepare the report required to be included in the company's
annual proxy statement.
STATEMENT OF POLICY
The Audit Committee shall provide assistance to the directors in fulfilling
their responsibility to the shareholders of Jo-Ann Stores, Inc. 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, who shall have final authority and
responsibility to select, evaluate, and, where appropriate, replace the
independent auditors.
MEETINGS
The Audit Committee shall meet at least four (4) times annually, or more
frequently as circumstances dictate. As part of its job to foster open
communication, the Audit Committee will meet privately in executive session
quarterly with management, the director of the internal auditing department, the
independent auditors, and as a committee to discuss any matters that the Audit
Committee or each of these groups believe should be discussed privately. In
addition, the Audit Committee or its Chairperson should meet with the
independent auditors and management quarterly to review the company's financial
statements and significant findings based upon the auditors' limited review
procedures.
RESPONSIBILITIES
The Audit Committee shall be directly responsible for the appointment,
compensation, and oversight of the work of the independent auditors responsible
for preparing and issuing the audit report and related work. 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.
The
C-1
Audit Committee may form and delegate authority to individual committee members,
as deemed necessary or appropriate. The Audit Committee shall report regularly
to the Board and shall annually review its own performance.
In carrying out these responsibilities, the Audit Committee will:
Documents/Reports Review
1. Review and reassess the adequacy of this Charter annually and recommend
any proposed changes to the Board for approval. Prepare, if necessary,
the Charter as required by the rules of the Securities and Exchange
Commission to be included in the company's annual proxy statement for
approval by the Board of Directors.
2. Approve minutes of all meetings of the Audit Committee and discuss the
matters discussed at each committee meeting with the Board of Directors.
3. Discuss with management the company's quarterly earnings press releases,
including the use of "pro forma" or "adjusted" non-GAAP information, as
well as financial information and earnings guidance provided to analysts
and rating agencies.
4. Discuss the annual audited financial statements contained in the
company's annual report and quarterly unaudited financial statements
contained in the company's financial reports, including disclosures
under "Management's Discussion and Analysis of Financial Condition and
Results of Operations," 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.
5. Discuss with the independent auditors, the company's internal auditors,
and management 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 might
be deemed illegal or otherwise improper. Further, the committee should
periodically review company adherence to its written code of conduct.
6. Discuss with management and the independent auditor significant
financial reporting issues and judgments made in connection with the
preparation of the company's financial statements, including any
significant changes in the company's selection or application of
accounting principles, any major issues as to the adequacy of the
company's internal controls, the development, selection, and disclosure
of critical accounting estimates, related party transactions and
analyses of the effect of alternative assumptions, estimates, or methods
used in accordance with accounting principles generally accepted in the
United States ("GAAP") on the company's financial statements.
Independent Auditors
1. Review and evaluate the independence of the independent 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 independent auditors'
independence.
2. Review, select and replace the independent auditors to audit the
company's financial statements. Pre-approve all audit services and
permitted non-audit services, including fees and terms, to be performed
by the independent auditors or, if responsibility for pre-approval has
been delegated to less than the full Audit Committee, review
pre-approved audit and permitted non-audit services. The Audit Committee
can consult with management but shall not delegate these
responsibilities.
C-2
3. Review with the independent auditor at least annually regarding (a) the
auditor's internal quality-control procedures, (b) any material issues
raised by the most recent quality-control review of the firm, or by any
inquiry or investigation by governmental or professional authorities
within the preceding five years respecting one or more independent
audits carried out by the firm, (c) any steps taken to deal with any
such issues, and (d) all relationships between the independent auditor
and the company. Evaluate the qualifications, performance and
independence of the independent auditor, including considering whether
the auditor's quality controls are adequate and the provision of non-
audit services is compatible with maintaining the auditor's
independence, and taking into account the opinions of management and the
internal auditor. The Audit Committee shall present its conclusions to
the Board and, if so determined by the Audit Committee, recommend that
the Board take additional action to satisfy itself of the
qualifications, performance and independence of the auditor.
4. 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.
5. Ensure the independent auditors timely report to the Audit Committee (a)
all critical accounting policies and practices to be used, (b) all
alternative treatments of financial information within GAAP that have
been discussed with management, ramifications of the use of such
alternative disclosures and treatments, and treatments preferred by the
outside auditors, and (c) other written material communications between
the outside auditors and management.
6. Discuss with the independent auditor the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit. In particular, discuss:
(a) The adoption of, or changes to, the company's significant auditing
and accounting principles and practices as suggested by the
independent auditor, internal auditors or management.
(b) The management letter provided by the independent auditor and the
company's response to that letter.
(c) Any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or access to
requested information, and any significant disagreements with
management.
Financial Accounting
1. Discuss with management and the independent auditor the effect of
regulatory and accounting initiatives as well as off-balance sheet
structures, if applicable, on the company's financial statements.
2. Discuss with management and the independent auditor any correspondence
with regulators or governmental agencies and any employee complaints or
published reports that raise material issues regarding the company's
financial statements or accounting policies.
Process Improvement
1. Discuss with management the company's major financial risk exposures and
the steps that management has taken to monitor and control such
exposures, including the Company's risk assessment and risk management
policies.
2. 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.
3. Review the appointment and replacement, as necessary, of the internal
audit director.
4. Set policies for the company's hiring of employees or former employees
of the independent auditor who were engaged on the company's account.
C-3
5. Establish procedures for the receipt of information regarding (a)
improprieties by management or employees discovered by the independent
auditors or internal auditors, (b) accounting, internal control, or
auditing complaints received by the company, and (c) notification
received from any officer, employee, or outside counsel of fraud
involving management, or another employee with a significant role in
internal controls, and significant deficiencies regarding internal
controls.
Ethical and Legal Compliance
1. Obtain reports from management and the company's internal audit director
that the company is in conformity with applicable legal requirements and
the company's Code of Business Conduct and Ethics. Review reports and
disclosures of insider and related party transactions. Advise the Board
with respect to the company's policies and procedures regarding
compliance with applicable laws and regulations and with the company's
Code of Business Conduct and Ethics.
2. Review annually the compliance by the company with legal and regulatory
requirements.
3. Discuss with the company's in-house counsel or outside counsel those
legal matters that may have a material impact on the financial
statements or the company's compliance policies.
4. 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.
5. Review accounting and financial human resources and succession planning
within the company.
6. Ensure the rotation of the lead audit partner or person responsible for
the audit.
C-4
[JoAnn Stores Inc Logo] VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and
for electronic delivery of information anytime before
JO-ANN STORES 12:00 noon eastern daylight saving time, on June 9, 2004.
5555 DARROW ROAD Have your proxy card in hand when you access the web
HUDSON, OH 44236 site and follow the instructions to obtain your records
and to create an electronic voting instruction form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting
instructions anytime before 12:00 noon eastern daylight
saving time, on June 9, 2004. Have your proxy card in
hand when you call and then follow the instructions.
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.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: JASTR1 KEEP THIS PORTION FOR YOUR RECORDS
- -----------------------------------------------------------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
JO-ANN STORES, INC.
FOR WITHHOLD FOR ALL To withhold authority to vote on one director
ALL ALL EXCEPT mark "For All Except" and write the nominee's
number on the line below.
1. Elect the following two directors of the class
whose three-year terms of office will expire
in 2007: [ ] [ ] [ ] ______________________________________________
01) Ira Gumberg
02) Patricia Morrison
FOR AGAINST ABSTAIN
2(a). Amend our code of regulations to reduce from 80% to 66 2/3% the shareholder vote required to effect
any change in the number of the company's directors, when not approved in advance by our Board of [ ] [ ] [ ]
Directors.
2(b). Amend our code of regulations to reduce from 80% to 66 2/3% the shareholder vote required to alter or
eliminate certain shareholder protective measures, including the company's staggered board, when not [ ] [ ] [ ]
approved in advance by our Board of Directors.
3. Approve the material terms of the performance goals under the company's 1998 Incentive Compensation
Plan. [ ] [ ] [ ]
THE DIRECTORS RECOMMEND THAT YOU VOTE FOR ALL NOMINEES IN ITEM 1, FOR ITEMS 2a AND 2b AND FOR ITEM 3.
SHARES REPRESENTED BY PROPERLY EXECUTED PROXIES
WILL BE VOTED AS SPECIFIED. UNLESS OTHERWISE
SPECIFIED, THIS PROXY WILL BE VOTED IN ACCORDANCE
WITH THE RECOMMENDATIONS OF THE DIRECTORS SET
FORTH ABOVE.
_______________________________________ _________________ _______________________________________ _________________
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.
- --------------------------------------------------------------------------------
JO-ANN STORES, INC.
BOARD OF DIRECTORS PROXY
ANNUAL MEETING, JUNE 10, 2004
At the Annual Meeting of Shareholders of our Company to be held on June 10,
2004, and at any adjournment, Frank Newman, Beryl Raff and Tracey Thomas-Travis
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. Election of two directors of the class whose three-year terms of office
will expire in 2007. Nominees for election are: Ira Gumberg and Patricia
Morrison.
2(a). Approval of an amendment to our code of regulations to reduce from 80% to
66 2/3% the shareholder vote required to change the number of directors,
when not approved by our board.
3. Approval of the material terms of the performance goals under the company's
1998 Incentive Compensation Plan.
4. Any other matters as may properly come before the meeting.
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SEE REVERSE
SIDE
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