News Release

Contact: Robert Alderson

Chief Executive Officer

(731) 668-2444

KIRKLAND’S HIRES RETAIL VETERAN CATHERINE DAVID AS
PRESIDENT AND CHIEF OPERATING OFFICER
____________________________________________________

ANNOUNCES OTHER SENIOR MANAGEMENT CHANGES

JACKSON, Tenn. (March 22, 2006) — Kirkland’s, Inc. (NASDAQ/NM: KIRK) today announced that Catherine David will join the Company as President and Chief Operating Officer, effective March 22, 2006. Robert Alderson will continue as Chief Executive Officer of the Company.

A 20-year retail veteran, Ms. David was most recently Senior Vice President and General Manager of Sears Essentials, Sears Grand and The Great Indoors for Sears Holding Corporation. Prior to that, she was President of The Burnes Group, formerly a division of Newell-Rubbermaid. Ms. David also enjoyed a successful 13-year career at Target Corporation, where she performed in a variety of buying, merchandise planning and store operations roles culminating in her leadership of Target’s website strategy and e-commerce business as Vice President and General Manager of target.direct.

All areas and all members of senior management of the Company will report to her. Ms. David will also lead the hiring of a new General Merchandising Manager for the Company.

Mr. Alderson noted, “We are very excited about Cathy coming on board to lead the Kirkland’s team. She is a proven merchant with a demonstrated ability to set a merchandising vision and attract and develop top merchandising talent. Her background includes extensive experience in home furnishings as well as significant levels of responsibility and leadership. She is well known and admired throughout our industry for her creativity and communications skills as well as the results she has produced. We look forward to working closely with Cathy to lead Kirkland’s to growth and profitability.”

Mr. Alderson had been serving as interim President and Chief Executive Officer pending a search for a new Chief Executive Officer. The Company’s Board of Directors has determined not to pursue the search, and Mr. Alderson will continue as Chief Executive Officer and as a member of the Board. The Board has elected Wilson Orr to serve as Chairman of the Board. An independent director since 1996, Mr. Orr is a General Partner of SSM Partners, a private equity investment firm, and a principal of SSM Corporation, a shareholder of Kirkland’s.

The Company also announced that Reynolds Faulkner has resigned as Executive Vice President and Chief Financial Officer and as a member of the Board of the Company, effective the end of April 2006. Mr. Faulkner stated, “My eight years with Kirkland’s have been exciting and rewarding. Kirkland’s is a terrific company with great people and a bright future. As a shareholder, I am very pleased with the addition of Cathy David to the team, and I look forward to following the Company’s progress under her leadership. My decision to accept a new career challenge is both a personal and professional one. My wife and I both have family in North Carolina, and I am fortunate to have an opportunity to join another great company while also returning to a part of the country that I call home.”

The Company’s Board has elected Mike Madden to serve as Vice President and Chief Financial Officer of the Company. Mr. Madden joined Kirkland’s in 2000 as
Director of Finance and has served as Vice President of Finance for the Company since May 2005. Prior to joining Kirkland’s he was Assistant Controller of Trammell Crow Company in Memphis and was with PricewaterhouseCoopers LLP in Memphis. At PricewaterhouseCoopers, he served in positions of increasing responsibility over six years culminating as Manager – Assurance and Business Advisory Services where he worked with various clients, public and private, in the retail and consumer products industries.

Mr. Alderson stated, “It is always a wonderful thing to see a friend and respected colleague have a great opportunity to realize personal and professional goals. However, no person or company experiences the departure of a brilliant, motivated and competitive partner without a sense of loss. We thank Rennie for his leadership and valuable contributions to Kirkland’s. We wish Rennie and his family great success and happiness as they return home. At the same time, we are very pleased that Mike Madden will be our new CFO. Over the last six years at Kirkland’s, Mike has been integrally involved in all financial areas of the Company. He has demonstrated a high level of competence, leadership and commitment to Kirkland’s. We are confident in his abilities and believe he is fully prepared for this new and important role.”

Kirkland’s, Inc. was founded in 1966 and is a leading specialty retailer of home décor in the United States. Although originally focused in the Southeast, the Company has grown beyond that region and currently operates 336 stores in 37 states. The Company’s stores present a broad selection of distinctive merchandise, including framed art, mirrors, candles, lamps, picture frames, accent rugs, garden accessories and artificial floral products. The Company’s stores also offer an extensive assortment of holiday merchandise, as well as items carried throughout the year suitable for giving as gifts. More information can be found at www.kirklands.com .

Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause Kirkland’s actual results to differ materially from forecasted results. Those risks and uncertainties include, among other things, the competitive environment in the home décor industry in general and in Kirkland’s specific market areas, inflation, product availability and growth opportunities, seasonal fluctuations, and economic conditions in general. Those and other risks are more fully described in Kirkland’s filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K filed on April 14, 2005. Kirkland’s disclaims any obligation to update any such factors or to publicly announce results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

-END-

FIRST AMENDMENT TO KIRKLAND’S, INC.
2002 EQUITY INCENTIVE PLAN

WHEREAS, KIRKLAND’S, INC. (the “Company”) maintains the Kirkland’s, Inc. 2002 Equity Incentive Plan (the “Plan”) for the benefit of the employees, directors, consultants and advisors of the Company and its Subsidiaries (as defined in the Plan); and

WHEREAS, Section 9 of the Plan provides that, subject to certain restrictions, the board of directors of the Company, may amend the Plan from time to time; and

WHEREAS, the Company desires to amend the Plan in order to permit Restricted Share Units, as defined below, to be granted pursuant to the provisions of the Plan; and

NOW, THEREFORE, effective March 17, 2006, the Kirkland’s, Inc. 2002 Equity Incentive Plan is amended as follows:

Section 1 of the Plan is amended by restating subsection (a) as follows:

(a) “ Award ” means the grant of Options, SARs, Restricted Shares or Restricted Share Units pursuant to the provisions of the Plan.

Section 1 of the Plan is amended by adding the following subsection (v):

(v)  “ Restricted Share Unit ” means a contractual right that entitles the Participant, subject to the restrictions in Section 8 hereof, to receive one Share.

Section 8 of the Plan is amended by restating such section as follows:

8. Restricted Shares and Restricted Share Units.

(a)  Issuance . Restricted Shares and Restricted Share Units may be issued either alone or in conjunction with other Awards. The Board will determine the time or times within which Restricted Shares or Restricted Share Units may be subject to forfeiture, and all other conditions of such Awards.

(b)  Awards and Certificates . The Award Agreement evidencing the grant of any Restricted Shares or Restricted Share Units will contain such terms and conditions, not inconsistent with the terms of the Plan, as the Board deems appropriate in its sole and absolute discretion. The prospective recipient of an Award of Restricted Shares or Restricted Share Units will not have any rights with respect to such Award, unless and until such recipient has executed an Award Agreement and has delivered a fully executed copy thereof to the Company, and has otherwise complied with the applicable terms and conditions of such Award. The purchase price for Restricted Shares or Restricted Share Units may, but need not, be zero.

A share certificate will be issued in connection with each Award of Restricted Shares. Such certificate will be registered in the name of the Participant receiving the Award and will bear the following legend and/or any other legend required by this Plan, the Award Agreement, the Company’s shareholders’ agreement, if any, and any applicable law:

THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE KIRKLAND’S, INC. 2002 INCENTIVE PLAN AND AN AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER AND KIRKLAND’S, INC. COPIES OF THAT PLAN AND AGREEMENT ARE ON FILE IN THE PRINCIPAL OFFICES OF KIRKLAND’S, INC. AND WILL BE MADE AVAILABLE TO THE HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON REQUEST TO THE SECRETARY OF THE COMPANY.

Share certificates evidencing Restricted Shares shall be held in custody by the Company or in escrow by an escrow agent until the restrictions thereon have lapsed. As a condition of any Restricted Share award, the Participant may be required to deliver to the Company a share power, endorsed in blank, relating to the Shares covered by such Award.

(c)  Restrictions and Conditions . The Restricted Shares or Restricted Share Units awarded pursuant to this Section 8 will be subject to the following restrictions and conditions, as applicable:

(i) During a period commencing with the date of an Award of Restricted Shares and ending at such time or times as specified by the Board (the “ Restriction Period ”), the Participant will not be permitted to sell, transfer, pledge, assign or otherwise encumber Restricted Shares awarded under the Plan. The Board may condition the lapse of restrictions on Restricted Shares or Restricted Share Units upon the continued employment or service of the recipient, the attainment of specified individual or corporate performance goals, or such other factors as the Board may determine, in its sole and absolute discretion.

(ii) Except as provided in this Paragraph (ii) or Section 8(c)(i) , once the Participant has been issued a certificate or certificates for Restricted Shares, the Participant will have, with respect to the Restricted Shares, all of the rights of a shareholder of the Company, including the right to vote the Shares, and the right to receive any cash distributions or dividends. The Board, in its sole discretion, as determined at the time of award, may permit or require the payment of cash distributions or dividends to be deferred and, if the Board so determines, reinvested in additional Restricted Shares to the extent Shares are available under Section 3 of the Plan. Any distributions or dividends paid in the form of securities with respect to Restricted Shares will be subject to the same terms and conditions as the Restricted Shares with respect to which they were paid, including, without limitation, the same Restriction Period. A Participant whose Award consists of Restricted Share Units shall not have the right to vote or receive dividend equivalents with respect to such Restricted Share Units.

(iii) Subject to the applicable provisions of the Award Agreement, if a Participant’s service with the Company terminates prior to the expiration of the Restriction Period, all of that Participant’s Restricted Shares or Restricted Share Units that then remain subject to forfeiture will then be forfeited automatically.

(iv) If and when the Restriction Period expires without a prior forfeiture of the Restricted Shares subject to such Restriction Period (or if and when the restrictions applicable to Restricted Shares lapse pursuant to Sections 3(d) ), the certificates for such Shares will be replaced with new certificates, without the portion restrictive legends described in Section 8(b) applicable to such lapsed restrictions, and such new certificates will be promptly delivered to the Participant, the Participant’s representative (if the Participant has suffered a Disability), or the Participant’s estate or heir (if the Participant has died).

This amendment has been adopted and executed this 17th day of March, 2006.

K IRKLAND’S , I NC.

By: /s/ Robert E. Alderson      

Name & Title: Robert E. Alderson, Chief Executive Officer

March 20, 2006

Ms. Cathy David
144 Elmington Avenue
#415
Nashville, TN 37205

Dear Cathy:

As we have discussed, I am pleased to extend an offer for you to join Kirkland’s, Inc. ( “Company” ). Following are the terms and conditions of the offer:

1.  Duties and Responsibilities; Employment Commencement Date . You will serve as President and Chief Operating Officer, reporting directly to the Chief Executive Officer. We anticipate that you will start work with us by not later than March 22, 2006.

2.  Base Salary . Your base salary will be paid at the rate of $400,000 per year, payable in accordance with the Company’s regular payroll practices. Your base salary will be reviewed after you have completed a year of service.

3.  Cash Signing Bonus . Within ten days after your commencement of employment, the Company will pay you a “signing bonus” of $100,000, provided, however, that (a) if your employment should terminate before six months have elapsed from your employment commencement date because of your resignation without Good Reason (as defined below) or because of a Company-initiated termination with Cause (as defined below), you shall repay the full amount of the signing bonus within 10 days following the Company’s written demand, and (b) if your employment should terminate on or after six months have elapsed from your employment commencement date and before the first anniversary of your employment commencement date because of your resignation without Good Reason (as defined below) or because of a Company-initiated termination with Cause (as defined below), you shall repay a prorated amount of the signing bonus within 10 days following the Company’s written demand calculated as follows: $100,000 divided by 365 days multiplied by (365 days minus the number of days that you were employed by the Company prior to the date of termination).

4.  Annual Bonus .

(a) You will be eligible to receive an annual bonus of up to 100% of your base salary. Bonus criteria will be set by the Compensation Committee of the Company’s board of directors, and will be reviewed annually.

(b) For the Company’s fiscal year commencing in 2006 (the “2006 Fiscal Year”), except as otherwise provided in this Paragraph 4(b), you will be guaranteed a minimum bonus of $200,000, which shall be payable by not later than the date that falls 2-1/2 months after the last day of the 2006 Fiscal Year. The guaranteed minimum bonus will not be payable to you, however, if your employment by the Company terminates on or before the last day of the 2006 Fiscal Year as the result of the termination of your employment for Cause (as defined below) or because of your resignation without Good Reason (as defined below).

5.  Equity Grant . Your equity rights as described in this Paragraph 5 will be documented in a form of restricted stock award and a form of restricted stock unit award, respectively, to be provided by the Company, consistent with the following terms.

(a)  Initial Restricted Stock Grant . Effective upon your commencement of employment, the Company will make a “restricted stock” grant to you of 150,000 shares of Kirkland’s common stock. The restrictions will lapse and your rights to the restricted stock will vest in full on the fifth anniversary of your employment commencement date, provided that you remain in continuous active service to the Company until that date. If your employment by the Company should terminate for any reason before the fifth anniversary of your employment commencement date, you will forfeit all 150,000 shares of restricted stock, provided that if, before the fifth anniversary of your employment commencement date, the Company files an SEC Form 10-K with the Securities and Exchange Commission that reports earnings per share, as determined pursuant to generally accepted accounting principles by the Company’s independent auditors for the Company’s immediately preceding fiscal year, of $0.75 per share or more, 75,000 of the shares of restricted stock will vest and become nonforfeitable, provided further that you remain in continuous active service to the Company until that date. Notwithstanding anything to the contrary in this Paragraph 5(a), if you are employed by the Company on the date of a Change in Control, as defined in Paragraph 5(c), the restrictions will lapse as to the number of shares determined as the product of (x) times (y), where (x) is the number of shares of Restricted Stock granted pursuant to this Agreement that have not vested and become nonforfeitable as of the date of the Change in Control and (y) is a fraction, the numerator of which is the number of full calendar days of your employment from your employment commencement date through the date of the Change in Control, and the denominator of which is 1,826. Your rights to such number of shares of restricted stock will vest and become nonforfeitable contemporaneously with such Change in Control and the unvested shares of restricted stock will be forfeited at such time.

(b)  Initial Restricted Stock Unit Grant . Effective upon your commencement of employment, the Company will make a “restricted stock unit” grant to you for an additional 100,000 shares. Under the restricted stock unit grant, the Company will deliver 100,000 shares of Kirkland’s common stock to you as soon as reasonably practicable following the date the Company files an SEC Form 10-K with the Securities and Exchange Commission that reports earnings per share, as determined pursuant to generally accepted accounting principles by the Company’s independent auditors for the Company’s immediately preceding fiscal year, of $1.25 per share or more, provided that you remain in continuous active service to the Company until that date. Upon a Change in Control or if your employment by the Company should terminate for any reason before the date on which the Company files such SEC Form 10-K as provided in this Paragraph 5(b), your rights under the restricted stock unit grant will be forfeited in full.

(c)  Change in Control . For purposes of this Agreement, the term “Change in Control” means (i) the sale, transfer, assignment or other disposition (including by merger or consolidation) by shareholders of the Company, in one transaction or a series of related transactions, of more than 50% of the voting power represented by the then outstanding capital stock of the Company to one or more persons, (ii) the sale of substantially all the assets of the Company, or (iii) the liquidation or dissolution of the Company.

6.  Car Allowance or Company Car . The Company will provide you with a Company car, or, in lieu of a Company-provided car, you may elect to receive a car allowance of $1,000 per month during the term of your employment.

7.  Use of Company-Provided Apartment . The Company will also make an apartment available for your exclusive use in the Jackson area, and the Company will pay the rent and utilities on the apartment during the term of your employment. The Company will “gross up” these payments so that your tax liability for these amounts will be covered.

8.  Termination of Employment .

(a) Your employment is at will, and the Company or you may terminate your employment at any time, in its or your sole discretion.

(b) If your employment terminates for any reason other than a Company-initiated termination without “Cause” (as defined below), your resignation for “Good Reason” (as defined below), or your “Disability” (as defined below), you will be entitled only to your accrued base salary through the date of your termination of employment, and such other benefits that have vested or to which you are entitled following your termination of employment based on the terms and conditions of the Company’s general employment policies and benefit plans, programs and arrangements.

(c) If your service to the Company ceases due to a termination by the Company without “Cause” or due to your resignation for “Good Reason,” then, except as otherwise provided in Paragraph 8(h), in addition to the rights described in Paragraph 8(b), you will be entitled to receive:

(i) monthly severance benefits equal to 1/12 ^th of your base salary (as in effect immediately prior to your separation from service) for the 12-month period following your separation from service; and

(ii) a waiver of the applicable premium otherwise payable for COBRA coverage for you (and, if covered by the Company’s group health plan immediately prior to your separation from service, your eligible dependents) for the 12-month period following your separation from service, except that you shall continue to be responsible to the extent of the applicable premium payable for health insurance coverage by similarly-situated active employees.

(d) The Company may terminate your employment if you are unable, due to mental or physical impairment or disability, despite reasonable accommodations by the Company, to fully perform the essential functions of your position that you performed for the Company immediately prior to such disability (your “Disability”) for a period of at least 90 consecutive days, provided that if you should become covered by a Company-sponsored disability benefit plan, program or arrangement that provides for a waiting period of more than 90 days, the Company may only terminate your employment because of Disability after the completion of such waiting period. Following the Company’s termination of your employment because of Disability, then, except as otherwise provided in Paragraph 8(h), and in addition to the rights described in Paragraph 8(b), you will be entitled to receive:

(i) the excess, if any, of (x) monthly severance benefits equal to 1/12 ^th of your base salary (as in effect immediately prior to your separation from service) for the 12-month period following your separation from service minus (y) any disability benefits payable to you under the Company’s disability plan, program or arrangement for the month for which the monthly severance benefit is paid; and

(ii) a waiver of the applicable premium otherwise payable for COBRA coverage for you (and, if covered by the Company’s group health plan immediately prior to your separation from service, your eligible dependents) for the 12-month period following your separation from service, except that you shall continue to be responsible to the extent of the applicable premium payable for health insurance coverage by similarly-situated active employees.

(e) If payments owed to you by the Company under this Paragraph 8 are subject to the requirements of Proposed Treasury Regulation section 1.409A-3(g)(2) (or any successor provision) at the time of your separation from service, then, notwithstanding any other provision of this letter, those payments to you that would otherwise have been due within six months following your separation from service will be deferred (without interest) and paid to you in a lump sum immediately following that six-month period.

(f) Notwithstanding any other provision of this letter, no severance payment or obligation will be owed by the Company to you under this Paragraph 8 unless and until (i) you execute and deliver to the Company a general release of claims (which release shall not include a release or waiver of Company’s obligations to you for earned but unpaid compensation, accrued or vested employee welfare, pension, and retirement benefits, and/or Company’s obligations under this Agreement and its attachments referenced herein) in a form reasonably prescribed by the Company and (ii) that release becomes binding and irrevocable.

(g) The severance benefits described in this letter will be paid in lieu of, and not in addition to, benefits payable under any other severance, termination or similar arrangement maintained by the Company or its affiliates.

(h) Until the first anniversary of your termination of employment, you agree to notify the Company if you obtain new employment or commence compensated self-employment within 10 days following the commencement thereof. The Company shall have no obligation to make any payment under this Paragraph 8 following your commencement of the performance of any personal services for which you have earned compensation (whether or not you are paid contemporaneously with your performance of personal services) during the one-year period following your separation from service.

9.  Cause . For purpose of this letter, the term “Cause” means the occurrence of any of the following violations: (a) your failure, refusal or inability (other than due to mental or physical disability) to perform your reasonable and customary duties to the Company, which failure is materially and demonstrably injurious to the Company as determined in good faith by the Board, and which failure continues for more than fifteen (15) days after written notice thereof from the Company, (b) alcohol abuse or use of controlled drugs (other than in accordance with a physician’s prescription), which is materially and demonstrably injurious to the Company, as determined in good faith by the Board, (c) your illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, its affiliates or subsidiaries including, without limitation, fraud, embezzlement, theft or proven dishonesty in the course of your employment, as determined in good faith by the Board, (d) your conviction of a misdemeanor involving moral turpitude or a felony, or (e) the entry of a plea of guilty or nolo contendere against you to a misdemeanor involving moral turpitude or a felony.

10.  Good Reason . For purposes of this letter, the term “Good Reason” means that any of the following has occurred with respect to you: (a) your assignment of any duties inconsistent in any respect with your position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by this letter, or any other action by the Company which results in a material diminution in such position, authority, duties or responsibilities; (b) a reduction by the Company in your Annual Salary; provided, however, that if the salaries of substantially all of the Company’s senior executive officers (including the Company’s CEO) are contemporaneously and proportionately reduced, a reduction in your Annual Salary to an amount not less than $300,000 will not constitute “Good Reason” hereunder; (c) the failure by the Company, without your consent, to pay to you any portion of your current compensation, except pursuant to a compensation deferral elected by you, or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Company within thirty days of the date such compensation is due; (d) the failure of the Company to obtain a satisfactory agreement from any successor or assign to assume and agree to perform this Agreement; or (e) a “Change in Control” of the Company; p rovided, however , that the foregoing events or conditions will constitute “Good Reason” hereunder only if you provide the Company with written objection to the event or condition within 60 days following the date on which you discover the occurrence thereof, the Company does not reverse or otherwise cure the event or condition within 30 days of receiving that written objection and you resign your employment within 90 days following the expiration of that cure period.

11.  Other Benefits . Your benefits will include the following:

(a) Subject to the terms and conditions of the applicable plans, you will be eligible to participate in our group health program (including dental and vision coverage), beginning on the first day of the first month after you begin work. Kirkland’s pays a portion of the cost of this coverage, and the balance is handled as a payroll deduction.

(b) We have a Section 125 Cafeteria Plan that allows you to pay your portion of the insurance premiums on a pre-tax basis. The Company will provide $15,000 of life insurance for you when you enroll in our health insurance.  However, we also have an optional group life plan where you can buy additional life insurance at a favorable rate.  You will be eligible to participate in this benefit after one year’s employment.

(c) You will also be entitled to participate in the Kirkland’s 401(k) retirement plan and the Kirkland’s Employee Stock Purchase Plan after completing the required service time (one year). In accordance with the 401(k) plan, Kirkland’s may elect to match the employee’s contribution up to fifty percent of the contribution made, not to exceed six percent of income. We can discuss the details of the Employee Stock Purchase Plan when you arrive, or you can contact Lowell Pugh, our General Counsel, at 731/660-7417 with any questions.

(d) As a highly compensated employee, you will be immediately eligible to participate in our non-qualified deferred compensation plan. Under this plan you are allowed to defer up to 80% of your salary and up to 95% of any bonus compensation. To the extent you are eligible for a Company match under the 401(k) but do not receive it due to the non-discrimination tests, the Company will provide that match under this plan. Again, you can contact Lowell Pugh for more details.

(e) You will be entitled to four weeks of paid vacation per year .

12. Other Miscellaneous Items . This offer is contingent upon (a) favorable background and reference check results, (b) favorable completion of your interview with our corporate psychologist, (c) proper documentation of your legal ability to work in the United States, and (d) execution of a comprehensive Restrictive Covenant Agreement in the form attached hereto.

All payments made to you by the Company in connection with your employment are subject to applicable federal, state and local income, employment and other tax withholding, as reasonably determined by the Company in accordance with its regular payroll policies.

You represent and warrant to the Company that there are no restrictions, agreements or understandings whatsoever to which you are a party that would prevent or make unlawful your employment by the Company, that would be inconsistent or in conflict with this letter or your obligations hereunder, or that would otherwise prevent, limit or impair your performance of your duties under this Agreement. We expect you to observe any contractual or legal obligations that you owe to any previous employer. You will be subject to all Kirkland’s policies, including our Code of Conduct and our Insider Trading policies. We will furnish these policies to you upon your employment with the Company.

The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to you, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets which executes and delivers the agreement provided for in this paragraph or which otherwise becomes bound by all of the terms and provisions of this Agreement by operation of law.

This letter represents our entire understanding regarding the terms and conditions of your employment and merges and supersedes all prior or contemporaneous discussions, agreements and understandings between us relating to that topic. This letter may not be changed or modified, except by an agreement in writing signed by you and an authorized representative of the Company. This letter will be governed by, and enforced in accordance with, the laws of the State of Tennessee, without regard to the application of the principles of conflicts or choice of laws.

• ** ** ** ** **

1

Again, I am pleased to be able to extend this offer to you and look forward to your acceptance. Once you have accepted this offer, we will begin working on the background check. In the meantime, if you have any questions, please feel free to call me at 731/668-2444.

Cathy, I am genuinely excited by the prospect of you joining our team at Kirkland’s. I am confident that you will be a major contributor to our future success.

To acknowledge your agreement to all of the foregoing, please execute the enclosed copy of the letter in the space provided below and return the executed copy to me.

Sincerely,

KIRKLAND’S, INC.

Robert E. Alderson
Chief Executive Officer

Acknowledged and agreed on
March 17, 2006

/s/ Cathy David
Cathy David

2

RESTRICTIVE COVENANT AGREEMENT

THIS RESTRICTIVE COVENANT AGREEMENT (the “Agreement”), is made on this 20 ^th day of March, 2006 (the “Effective Date”), by and between KIRKLAND’S, INC. and CATHY DAVID (the “Executive”).

WHEREAS, as of the Effective Date, the Executive is employed as the President and Chief Operating Officer of Kirkland’s, Inc., a Tennessee corporation (the “Company”);

WHEREAS, the Executive acknowledges that the execution of this Restrictive Covenant is a condition to the commencement of her employment with the Company and the grant of Restricted Stock and Restricted Stock Units pursuant to a Restricted Stock Agreement and a Restricted Stock Unit Agreement of even date herewith; and

WHEREAS, the Executive agrees to be bound by the Restrictive Covenants set forth below.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and promises contained herein, and intending to be bound hereby, the parties agree as follows:

The Executive agrees to be bound by the provisions of this Agreement (the “Restrictive Covenants”). These Restrictive Covenants will apply without regard to whether any termination or cessation of the Executive’s employment is initiated by the Company or the Executive, and without regard to the reason for that termination or cessation.

1.  Non-Solicitation . The Executive covenants that during her employment by the Company and for a period of twenty-four (24) months following immediately thereafter (the “Restricted Period”), the Executive will not, directly or indirectly solicit for employment or employ or retain (or arrange to have any other person or entity employ or retain) any person who has been employed or retained by the Company within the preceding 12 months.

2.  Confidentiality . The Executive recognizes and acknowledges that the Proprietary Information (as defined below) is a valuable, special and unique asset of the business of the Company. As a result, both during the Term and thereafter, the Executive will not, without the prior written consent of the Company, for any reason divulge to any third-party or use for her own benefit, or for any purpose other than the exclusive benefit of the Company, any Proprietary Information. Notwithstanding the foregoing, if the Executive is compelled to disclose Proprietary Information by court order or other legal process, to the extent permitted by applicable law, she shall promptly so notify the Company so that it may seek a protective order or other assurance that confidential treatment of such Proprietary Information shall be afforded, and the Executive shall reasonably cooperate with the Company in connection therewith. If the Executive is so obligated by court order or other legal process to disclose Proprietary Information it will disclose only the minimum amount of such Proprietary Information as is necessary for the Executive to comply with such court order or other legal process.

3.  Property of the Company .

3.1. Proprietary Information . All right, title and interest in and to Proprietary Information will be and remain the sole and exclusive property of the Company. The Executive will not remove from the Company’s offices or premises any documents, records, notebooks, files, correspondence, reports, memoranda or similar materials of or containing Proprietary Information, or other materials or property of any kind belonging to the Company unless necessary or appropriate in the performance of her duties to the Company. If the Executive removes such materials or property in the performance of her duties, she will return such materials or property promptly after the removal has served its purpose. The Executive will not make, retain, remove and/or distribute any copies of any such materials or property, or divulge to any third person the nature of and/or contents of such materials or property, except to the extent necessary to perform her duties on behalf of the Company. Upon termination of the Executive’s employment with the Company, she will leave with the Company or promptly return to the Company all originals and copies of such materials or property then in her possession.

3.2. Intellectual Property . The Executive agrees that all the Intellectual Property (as defined below) will be considered “works made for hire” as that term is defined in Section 101 of the Copyright Act (17 U.S.C. § 101) and that all right, title and interest in such Intellectual Property will be the sole and exclusive property of the Company. To the extent that any of the Intellectual Property may not by law be considered a work made for hire, or to the extent that, notwithstanding the foregoing, the Executive retains any interest in the Intellectual Property, the Executive hereby irrevocably assigns and transfers to the Company any and all right, title, or interest that the Executive may now or in the future have in the Intellectual Property under patent, copyright, trade secret, trademark or other law, in perpetuity or for the longest period otherwise permitted by law, without the necessity of further consideration. The Company will be entitled to obtain and hold in its own name all copyrights, patents, trade secrets, trademarks and other similar registrations with respect to such Intellectual Property. The Executive further agrees to execute any and all documents and provide any further cooperation or assistance reasonably required by the Company to perfect, maintain or otherwise protect its rights in the Intellectual Property. If the Company is unable after reasonable efforts to secure the Executive’s signature, cooperation or assistance in accordance with the preceding sentence, whether because of the Executive’s incapacity or any other reason whatsoever, the Executive hereby designates and appoints the Company or its designee as the Executive’s agent and attorney-in-fact, to act on her behalf, to execute and file documents and to do all other lawfully permitted acts necessary or desirable to perfect, maintain or otherwise protect the Company’s rights in the Intellectual Property. The Executive acknowledges and agrees that such appointment is coupled with an interest and is therefore irrevocable.

4.  Definitions . For purposes of this Agreement:

4.1. “ Intellectual Property ” means (a) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents and patent applications claiming such inventions, (b) all trademarks, service marks, trade dress, logos, trade names, fictitious names, brand names, brand marks and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith, (c) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, (d) all mask works and all applications, registrations, and renewals in connection therewith, (e) all trade secrets (including research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, methodologies, technical data, designs, drawings and specifications), (f) all computer software (including data, source and object codes and related documentation), (g) all other proprietary rights, (h) all copies and tangible embodiments thereof (in whatever form or medium), or (i) similar intangible personal property which have been or are developed or created in whole or in part by the Executive (1) at any time and at any place while the Executive is employed by Company and which, in the case of any or all of the foregoing, are related to and used in connection with the business of the Company, or (2) as a result of tasks assigned to the Executive by the Company.

4.2 “ Proprietary Information ” means any and all proprietary information developed or acquired by the Company or any of its subsidiaries or affiliates that is subject to reasonable efforts by the Company to maintain its confidentiality. Such Proprietary Information shall include, but shall not be limited to, the following items and information relating to the following items to the extent such confidentiality is maintained: (a) all intellectual property and proprietary rights of the Company (including, without limitation, the Intellectual Property), (b) computer codes and instructions, processing systems and techniques, inputs and outputs (regardless of the media on which stored or located) and hardware and software configurations, designs, architecture and interfaces, (c) business research, studies, procedures and costs, (d) financial data, (e) non-public distribution methods, (f) marketing data, methods, plans and efforts, (g) the identities of actual and prospective suppliers whose identities as suppliers to the Company are not commonly known in the industry, (h) the terms of contracts and agreements with, the needs and requirements of, and the Company’s course of dealing with, actual or prospective suppliers, (i) personnel information, (j) customer and vendor credit information, and (k) information received from third parties subject to obligations of non-disclosure or non-use. Failure by the Company to mark any of the Proprietary Information as confidential or proprietary shall not affect its status as Proprietary Information provided that the Company otherwise has taken reasonable steps to maintain the confidentiality of the information in question. Notwithstanding anything to the contrary contained in this Agreement, nothing in this Agreement shall prevent Executive from using her general experience, training, skills, knowledge, and understanding of the retail industry. Further, the restrictions concerning confidentiality, use and disclosure of Proprietary Information shall not apply to any information, data, or documents that: (a) has legitimately entered the public domain through a source other than Executive or Executive’s representatives; (b) becomes or is made available to Executive by a third party having a lawful right to disclose such information to Executive who is not known by Executive to be bound by any covenant of confidentiality or disclosure; (c) is ascertainable, through legitimate means, with reasonable effort, by a person generally knowledgeable of the industry in which the Company operates; or (d) must be disclosed by Executive pursuant to any law, regulation, subpoena, order, inquiry, or judicial or administrative proceeding.

5.  Acknowledgements . The Executive acknowledges that the Restrictive Covenants are reasonable and necessary to protect the legitimate interests of the Company and its affiliates, that the duration and scope of the Restrictive Covenants are reasonable given the nature of this Agreement and the position the Executive holds within the Company, the Company would not have employed the Executive or granted Restricted Stock and Restricted Stock Units to the Executive if she had not agreed to be bound by the Restrictive Covenants.

6.  Remedies and Enforcement Upon Breach .

6.1. Specific Enforcement . The Executive acknowledges that any breach by her, willfully or otherwise, of the Restrictive Covenants will cause continuing and irreparable injury to the Company for which monetary damages would not be an adequate remedy. The Executive shall not, in any action or proceeding to enforce any of the provisions of this Agreement, assert the claim or defense that such an adequate remedy at law exists. In the event of any such breach by the Executive of any of the Restrictive Covenants, the Company shall be entitled to injunctive or other similar equitable relief in any court, without any requirement that a bond or other security be posted, and this Agreement shall not in any way limit remedies of law or in equity otherwise available to the Company.

6.2. Judicial Modification . If any court determines that any of the Restrictive Covenants, or any part thereof, is unenforceable because of the duration or scope of such provision, such court shall have the power to modify such provision and, in its modified form, such provision shall then be enforceable.

6.3. Accounting . If the Executive breaches any of the Restrictive Covenants, the Company will have the right and remedy to require the Executive to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by the Executive as the result of such breach. This right and remedy will be in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity.

6.4. Disclosure of Restrictive Covenants . The Executive agrees to disclose the existence and terms of the Restrictive Covenants to any employer that the Executive may work for during the Restricted Period.

6.5. Extension of Restricted Period . If the Executive breaches this Agreement in any respect, the restrictions contained in that section will be extended for a period equal to the period that the Executive was in breach.

7.  Miscellaneous .

7.1. Successors and Assigns . The Company may assign this Agreement to any successor to all or substantially all of its assets and business by means of liquidation, dissolution, merger, consolidation, transfer of assets, sale of stock or otherwise. The duties of the Executive hereunder are personal to the Executive and may not be assigned by her.

7.2. Governing Law and Enforcement . This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee, without regard to the principles of conflicts of laws. Any legal proceeding arising out of or relating to this Agreement will be instituted in a state or federal court in the State of Tennessee, and the Executive and the Company hereby consent to the personal and exclusive jurisdiction of such court(s) and hereby waive any objection(s) that they may have to personal jurisdiction, the laying of venue of any such proceeding and any claim or defense of inconvenient forum.

7.3. Waivers . The waiver by either party of any right hereunder or of any breach by the other party will not be deemed a waiver of any other right hereunder or of any other breach by the other party. No waiver will be deemed to have occurred unless set forth in a writing. No waiver will constitute a continuing waiver unless specifically stated, and any waiver will operate only as to the specific term or condition waived.

7.4. Severability . Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law. However, if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect any other provision, and this Agreement will be reformed, construed and enforced as though the invalid, illegal or unenforceable provision had never been herein contained.

7.5. Survival . The terms and conditions of this Agreement will survive the cessation of the Executive’s employment by the Company.

7.6. Notices . Any notice or communication required or permitted under this Agreement shall be made in writing and (a) sent by overnight courier, (b) mailed by overnight U.S. express mail, return receipt requested or (c) sent by telecopier, addressed as follows:

If to the Executive, to the address listed in the Company’s personnel records and if to the Company, to:

Kirkland’s, Inc.

805 North Parkway

Jackson, TN 38305

Attention: General Counsel

or to such other address as either party may from time to time duly specify by notice given to the other party in the manner specified above.

7.7. Entire Agreement; Amendments . This Agreement contains entire agreement and understanding of the parties hereto relating to the subject matter hereof, and merges and supersedes all prior and contemporaneous discussions, agreements and understandings of every nature relating to the subject matter. This Agreement may not be changed or modified, except by an agreement in writing signed by each of the parties hereto.

7.8. Section Headings . The headings of sections and paragraphs of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement.

Counterparts; Facsimile . This Agreement may be executed in multiple counterparts (including by facsimile signature), each of which will be deemed to be an original, but all of which together will constitute but one and the same instrument.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Executive has executed this Agreement, in each case as of the Effective Date.

KIRKLAND’S, INC.

CATHY DAVID

/s/ Cathy David

Restricted Stock Agreement
Under the
Kirkland’s, Inc. 2002 Equity Incentive Plan

This Restricted Stock Agreement (this “Agreement”) is made as of the 22 ^nd day of March, 2006 (the “Effective Date”) between Kirkland’s, Inc. (the “Company”) and Cathy David (the “Grantee”). The Restricted Shares awarded pursuant to this Agreement are subject to the terms set forth herein and in all respects not inconsistent with this Agreement are subject to the terms and provisions of the Kirkland’s, Inc. 2002 Equity Incentive Plan (the “Plan”) applicable to Restricted Shares, which terms and provisions are incorporated herein by reference. Unless the context requires otherwise, the terms defined in the Plan shall have the same meanings herein.

1. Award of Shares. The Company hereby grants to the Grantee 150,000 Restricted Shares of the Company’s common stock (the “Shares”).

2. Vesting and Forfeiture of Shares .

(a)  The restrictions described in Paragraph 8 will lapse and Grantee’s rights to the restricted stock will vest in full on the fifth anniversary of Grantee’s employment commencement date, provided that Grantee remains in continuous active service to the Company until that date. If Grantee’s employment by the Company should terminate for any reason before the fifth anniversary of Grantee’s employment commencement date, Grantee will forfeit all 150,000 shares of restricted stock, provided that if, before the fifth anniversary of Grantee’s employment commencement date, the Company files an SEC Form 10-K with the Securities and Exchange Commission that reports earnings per share, as determined pursuant to generally accepted accounting principles by the Company’s independent auditors for the Company’s immediately preceding fiscal year, of $0.75 per share or more, 75,000 of the shares of restricted stock will vest and become nonforfeitable, provided further that Grantee remains in continuous active service to the Company until that date.

(b)  Notwithstanding anything to the contrary in this Section 2, if Grantee is employed by the Company on the date of a Change in Control, as defined in the Plan, the restrictions will lapse as to the number of shares determined as the product of (x) times (y), where (x) is the number of shares of Restricted Stock granted pursuant to this Agreement that have not vested and become nonforfeitable as of the date of the Change in Control and (y) is a fraction, the numerator of which is the number of full calendar days of Grantee’s employment from Grantee’s employment commencement date through the date of the Change in Control, and the denominator of which is 1,826. Grantee’s rights to such number of shares of restricted stock will vest and become nonforfeitable contemporaneously with such Change in Control and the unvested shares of restricted stock will be forfeited at such time.

3. Share Legends. The certificates evidencing all the Shares shall bear such legend(s) as may be required by the Plan.

4. Escrow of Shares.

(a)  Certificates evidencing the Shares issued under this Agreement will be held in escrow by the Company’s General Counsel (the “Escrow Holder”) until such Shares cease to be subject to forfeiture in accordance with Section 2, at which time, the Escrow Holder will deliver such certificates representing the nonforfeitable Shares to the Grantee; provided, however , that no certificates for Shares will be delivered to the Grantee until appropriate arrangements have been made with the Company for the withholding or payment of any taxes that may be due with respect to such Shares.

(b)  If any of the Shares are forfeited by the Grantee under Section 2, upon request by the Company, the Escrow Holder will deliver the stock certificate(s) evidencing those Shares to the Company, which will then have the right to retain and transfer those Shares to its own name free and clear of any rights of the Grantee under this Agreement or otherwise.

(c)  The Escrow Holder is hereby directed to permit transfer of the Shares only in accordance with this Agreement or in accordance with instructions which are consistent with this Agreement which are signed by both parties. If further instructions are reasonably desired by the Escrow Holder, he or she shall be entitled to conclusively rely upon directions executed by a majority of the members of the Board. The Escrow Holder shall have no liability for any act or omissions hereunder while acting in good faith in the exercise of his or her own judgment.

5. Rights of Grantee. The Grantee shall have the right to vote the Shares and to receive cash dividends with respect to the Shares; provided, however, that any dividends paid on the Shares during the period that the Shares remain forfeitable in accordance with Section 2 shall accumulate, without interest, in an unfunded and unsecured bookkeeping account established by the Company solely for the purpose of recordkeeping, and shall be paid to the Grantee as soon as practicable after the Shares with respect to which they were paid have vested and become nonforfeitable as provided in Section 2. If any dividends under this Section 5 accumulate with respect to Shares that are later forfeited by the Executive for any reason, accumulated dividends attributable to such forfeited Shares shall also be automatically forfeited.

6. Stock Splits, etc. If, while any of the Shares remain subject to forfeiture, there occurs any merger, consolidation, reorganization, recapitalization, stock split, stock dividend, or other similar change in the Company’s common stock, then any and all new, substituted or additional securities or other consideration to which the Grantee is entitled by reason of the Grantee’s ownership of the Shares will be immediately subject to this escrow, deposited with the Escrow Holder and included thereafter as “Shares” for purpose of this Agreement.

7. Tax Consequences. The Grantee understands and agrees that the Company has not advised the Grantee regarding the Grantee’s income tax liability in connection with the vesting of the Shares. The Grantee has reviewed with the Grantee’s own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. The Grantee is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Grantee understands that the Grantee (and not the Company) shall be responsible for the Grantee’s own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement. The Grantee understands that under Section 83 of the Code the Grantee is subject to federal income tax on the fair market value of the Shares as determined on the vesting date. The Grantee understands that the Grantee may elect to be taxed at the time the Shares are granted rather than when the applicable restrictions lapse by filing an election under Section 83(b) of the Code with the I.R.S. within 30 days from the date of grant.

THE GRANTEE ACKNOWLEDGES THAT IT IS THE GRANTEE’S SOLE RESPONSIBILITY AND NOT THE COMPANY’S TO FILE TIMELY ANY SECTION 83(b) ELECTION.

8. Restriction on Transfer. Except for the escrow described in Section 4 hereof or the transfer of the Shares to the Company or its assignees as contemplated by this Agreement, none of the Shares or any beneficial interest therein shall be transferred, encumbered, pledged or otherwise alienated or disposed of in any way until the Shares become nonforfeitable in accordance with Section 2 of this Agreement.

9. Market Stand-Off. The Executive agrees that, in connection with any public offering by the Company of its equity securities pursuant to a registration statement filed under the Securities Exchange Act of 1934, she will not sell, make any short sale of, loan, hypothecate, pledge, grant any option for the purchase of or otherwise dispose of any Shares without the prior written consent of the Company or its underwriters, for such period of time before or after the effective date of such registration as may be requested by the Company or such underwriters, provided that all similarly situated Share recipients are subject to a similar lock-up restriction.

10. General Provisions:

(a)  This Agreement, together with the Plan, represents the entire agreement between the parties with respect to the grant of the Shares and may only be modified or amended in a writing signed by both parties.

(b)  Any notice to be given to the Company will be addressed to the Company in care of its General Counsel (or such other person as the Company may designate from time to time) at its principal executive office, and any notice to be given to the Grantee will be delivered personally or addressed to him or her at the address given beneath his or her signature, below, or at such other address as the Grantee may hereafter designate in writing to the Company. Any such notice will be deemed duly given on the date and at the time delivered via personal, courier or recognized overnight delivery service or, if sent via telecopier, on the date and at the time telecopied with confirmation of delivery or, if mailed, on the date five (5) days after the date of the mailing (which will be by regular, registered or certified mail). Delivery of a notice by telecopy (with confirmation) will be permitted and will be considered delivery of a notice notwithstanding that it is not an original that is received.

(c)  Any notice to the Escrow Holder shall be sent to the Company’s address, with a copy to the other party not sending the notice.

(d)  The rights and benefits of the Company under this Agreement shall be transferable to any one or more persons or entities, and all covenants and agreements hereunder shall inure to the benefit of, and be enforceable by the Company’s successors and assigns.

(e)  Either party’s failure to enforce any provision or provisions of this Agreement shall not in any way be construed as a waiver of any such provision or provisions, nor prevent that party thereafter from enforcing each and every other provision of this Agreement. The rights granted both parties herein are cumulative and shall not constitute a waiver of either party’s right to assert all other legal remedies available to it under the circumstances.

(f)  The Grantee agrees upon request to execute any further documents or instruments necessary or desirable to carry out the purposes or intent of this Agreement.

(g)  The grant of Shares hereunder will not confer upon the Grantee any right to continue in the employ of the Company or any of its subsidiaries or affiliates.

(h)  The Committee may from time to time impose any conditions on the Shares as it deems necessary or advisable to ensure that the Plan and this Award satisfy the conditions of Rule 16b-3, and that Shares are issued and resold in compliance with the Securities Act of 1933, as amended.

(i)  This Agreement shall be governed by, and enforced in accordance with, the laws of the State of Tennessee without regard to the application of the principals of conflicts or choice of laws.

[ This space left blank intentionally; signature page follows. ]

1

(j)  This Agreement may be executed, including execution by facsimile signature, in one or more counterparts, each of which shall be deemed an original, and all of which together shall be deemed to be one and the same instrument.

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first set forth above.

K IRKLAND’S , I NC.

CATHY DAVID

/s/ Cathy David

(Address)

2

Restricted Stock Unit Agreement
Under t he
Kirkland’s, Inc. 2002 Equity Incentive Plan

This Restricted Stock Unit Agreement (this “Agreement”) is made as of the 22 ^nd day of March, 2006 (the “Effective Date”) between Kirkland’s, Inc. (the “Company”) and Cathy David (the “Grantee”). The Restricted Share Units awarded pursuant to this Agreement are subject to the terms set forth herein and in all respects not inconsistent with this Agreement are subject to the terms and provisions of the Kirkland’s, Inc. 2002 Equity Incentive Plan (the “Plan”) applicable to Restricted Share Units, which terms and provisions are incorporated herein by reference. Unless the context requires otherwise, the terms defined in the Plan shall have the same meanings herein.

1. Award of Restricted Share Units. The Company hereby grants to the Grantee 100,000 Restricted Share Units. Each Restricted Share Unit is equivalent in value to one share of the Company’s common stock, and shall entitle the Grantee to receive from the Company, subject to Section 2 of this Agreement, one share of common stock for each Restricted Share Unit (the “Units”).

2. Vesting of Restricted Share Units . The Restricted Share Units are subject to forfeiture to the Company until such time as they vest and become nonforfeitable as set forth below in this Section 2.

(a)  The Restricted Stock Units will vest and become nonforfeitable if the Company files an SEC Form 10-K with the Securities and Exchange Commission that reports earnings per share, as determined pursuant to generally accepted accounting principles by the Company’s independent auditors for the Company’s immediately preceding fiscal year, of $1.25 per share or more, provided that the Grantee remains continuously employed by the Company through such filing date.

(b)  Upon the earlier of (i) the termination of the Grantee’s employment with the Company for any reason, (ii) a Change in Control as defined in the Plan, or (iii) May 24, 2012 (the date on which the Plan expires), or such later date that the Plan expires if the Plan is extended or renewed, any Restricted Stock Units which have not vested and become nonforfeitable as of such date will immediately and automatically be forfeited.

3. Delivery of Shares . As soon as practicable following the date the Units credited to the Grantee’s Account become nonforfeitable in accordance with Section 2 above (the “ Delivery Date ”), and, in the Board’s discretion, subject to the Grantee’s satisfaction of any withholding obligations, the Grantee shall receive stock certificates evidencing the conversion of the Units into Shares. Such stock certificates shall be issued to the Grantee as of the Delivery Date and registered in the Grantee’s name.

4. Rights as Restricted Share Unit Holder . The Grantee shall not have voting or any other rights as a shareholder of the Company with respect to the Units.

5. Stock Splits, etc. If, while any of the Units remain subject to forfeiture, there occurs any merger, consolidation, reorganization, recapitalization, stock split, stock dividend, or other similar change in the Company’s common stock, then any and all new, substituted or additional securities or other consideration to which the Grantee is entitled by reason of the Grantee’s ownership of the Units, will be immediately reflected in the Grantee’s Account, and included thereafter as “Units” for purpose of this Agreement.

6. Tax Consequences. The Grantee understands and agrees that the Company has not advised the Grantee regarding the Grantee’s income tax liability in connection with the vesting of the Units. The Grantee has reviewed with the Grantee’s own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. The Grantee is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Grantee understands that the Grantee (and not the Company) shall be responsible for the Grantee’s own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement. The Grantee understands that under Section 83 of the Code the Grantee is subject to federal income tax on the fair market value of the Shares as determined on the vesting date of the Units.

7. Restriction on Transfer. None of the Units or any beneficial interest therein shall be transferred, encumbered, pledged or otherwise alienated or disposed of in any way until the Units become nonforfeitable in accordance with Section 2 of this Agreement.

8. Restrictive Legends . Stock certificates provided to the Grantee evidencing Shares received hereunder will bear such legends as the Company deems necessary or desirable under the Securities Act of 1933 and/or other rules, regulations or laws.

9. Market Stand-Off. The Executive agrees that, in connection with any public offering by the Company of its equity securities pursuant to a registration statement filed under the Securities Exchange Act of 1934, she will not sell, make any short sale of, loan, hypothecate, pledge, grant any option for the purchase of or otherwise dispose of any Shares without the prior written consent of the Company or its underwriters, for such period of time before or after the effective date of such registration as may be requested by the Company or such underwriters, provided that all similarly situated Share recipients are subject to a similar lock-up restriction.

10. General Provisions:

(a)  This Agreement, together with the Plan, represents the entire agreement between the parties with respect to the grant of the Units and may only be modified or amended in a writing signed by both parties.

(b)  Any notice to be given to the Company will be addressed to the Company in care of its Secretary (or such other person as the Company may designate from time to time) at its principal executive office, and any notice to be given to the Grantee will be delivered personally or addressed to him or her at the address given beneath his or her signature, below, or at such other address as the Grantee may hereafter designate in writing to the Company. Any such notice will be deemed duly given on the date and at the time delivered via personal, courier or recognized overnight delivery service or, if sent via telecopier, on the date and at the time telecopied with confirmation of delivery or, if mailed, on the date five (5) days after the date of the mailing (which will be by regular, registered or certified mail). Delivery of a notice by telecopy (with confirmation) will be permitted and will be considered delivery of a notice notwithstanding that it is not an original that is received.

(c)  The rights and benefits of the Company under this Agreement shall be transferable to any one or more persons or entities, and all covenants and agreements hereunder shall inure to the benefit of, and be enforceable by the Company’s successors and assigns.

(d)  Either party’s failure to enforce any provision or provisions of this Agreement shall not in any way be construed as a waiver of any such provision or provisions, nor prevent that party thereafter from enforcing each and every other provision of this Agreement. The rights granted both parties herein are cumulative and shall not constitute a waiver of either party’s right to assert all other legal remedies available to it under the circumstances.

(e)  The Grantee agrees upon request to execute any further documents or instruments necessary or desirable to carry out the purposes or intent of this Agreement.

(f)  The grant of Units hereunder will not confer upon the Grantee any right to continue in the employ of the Company or any of its subsidiaries or affiliates.

(g)  The Committee may from time to time impose any conditions on the Units or the Shares underlying the Units as it deems necessary or advisable to ensure that the Plan and this Award satisfy the conditions of Rule 16b-3, and that Units are issued and the underlying Shares are resold in compliance with the Securities Act of 1933, as amended.

(h)  This Agreement shall be governed by, and enforced in accordance with, the laws of the State of Tennessee without regard to the application of the principals of conflicts or choice of laws.

(i)  This Agreement may be executed, including execution by facsimile signature, in one or more counterparts, each of which shall be deemed an original, and all of which together shall be deemed to be one and the same instrument.

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first set forth above.

K IRKLAND’S , I NC.

CATHY DAVID

/s/ Cathy David

(Address)