Document:

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                                KIRKLAND'S, INC.
                                805 North Parkway
                            Jackson, Tennessee, 38305

                                  June 3, 2002

Robert E. Kirkland, individually and as Trustee for
The Robert E. Kirkland Annuity Trust - 2002 (the "Trust")
760 Sanders Chapel Road
Union City, Tennessee  38261

         Re:      Kirkland's, Inc.

Dear Robert:

                  As you are aware, Kirkland's, Inc. (the "Company") intends to
conduct an underwritten initial public offering of the common stock of the
Company (the "IPO") on the terms set forth on a registration statement on Form
S-1 filed with the U.S. Securities and Exchange Commission on April 23, 2002.
The purpose of this letter agreement (this "Agreement") is to set forth the
agreement between you, the Trust and the Company with respect to certain issues
and documents related to the IPO.

                  The parties hereby agree as follows:

                  1.       If and when the IPO is consummated, in connection
with the IPO, you and the Trust will sell all of the securities you currently
hold (directly or as trustee of any trust) in the Company that has been acquired
by you directly from the Company, including all preferred stock and all common
stock, including common stock issuable upon exercise of warrants. The sale of
such Company securities will be pursuant to a repurchase Agreement by and
between the Company, you and certain other shareholders of the Company (the
"Repurchase Agreement").

                           a.       Pursuant to the Repurchase Agreement, at the
closing of the IPO and contingent upon the closing of the IPO:

                                    (1)      all of your Class C Preferred Stock
in the Company will be repurchased at 100% of its stated value;

                                    (2)      all of your Class B Preferred Stock
and Class D Preferred Stock in the Company will be repurchased at 93% of the sum
of its total stated value plus accrued dividends (or a higher percentage to the
extent that the underwriting discount payable to the underwriters in the IPO is
less than 7%);

                                    (3)      all of your and the Trust's common
stock in the Company, including common stock issuable upon exercise of warrants,
will be repurchased at a per share price equal to 93% of the initial public
offering price of shares offered in the IPO (or a higher

<PAGE>

percentage to the extent that the underwriting discount payable to the
underwriters in the IPO is less than 7%).

                           b.       At the closing of the IPO and contingent
upon the closing of the IPO, the Company will pay in full any accrued and unpaid
amounts pursuant to your Consulting Agreement with the Company dated June 12,
1996.

                  2.       In return for the Company's agreement to provide you
with the rights and make the payments to you as provided for herein, subject to
the terms and conditions of this Agreement, you agree that:

                           a.       contemporaneously with the execution of this
Agreement you will:

                                    (1)      execute and deliver the Amended and
Restated Shareholders Agreement, dated as of April 15, 2002, by and among the
Company, you and certain other shareholders of the Company (the "Amended and
Restated Shareholders Agreement"):

                                    (2)      execute and deliver the Amended and
Restated Registration Rights Agreement, dated as of April 15, 2002, by and among
the Company, you and certain other shareholders of the Company;

                                    (3)      execute and deliver the 180-day
lock-up letter dated April 1, 2002 in the form previously provided by the
underwriters in the IPO;

                                    (4)      exercise the warrants held by you
to purchase Company common stock by executing and delivering irrevocable
exercise notices in such form as shall be provided by the Company, together with
the exercise price for the shares purchasable upon exercise of the warrants;

                                    (5)      execute and deliver the Power of
Attorney and Custody Agreement and deposit with the Custodian all stock
certificates and stock powers requested by the Company;

                                    (6)      complete, execute and deliver
questionnaires solicited by the Company from its shareholders in connection with
the IPO in the form previously provided by the Company;

                                    (7)      execute and deliver a Form W-9 and
all other documents and instruments reasonably requested by the Company;

                           b.       other shareholders of the Company will be
able to sell shares of Company common stock as selling shareholders in the IPO,
or have their shares of Company common stock redeemed or repurchased by the
Company pursuant to the Repurchase Agreement or otherwise, in each case in such
number and amounts as may be determined by the Company and such other
shareholders; and

                                      -2-

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                           c.       from and after the date of this Agreement
neither you, nor your affiliates, as defined in rule 12b-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), will (and you and they
will not assist or encourage others to), directly or indirectly, unless
specifically requested in writing to do so in advance or consented prior thereto
in writing by the Company:

                                    (1)      acquire or agree, offer, seek or
propose to acquire, or cause to be acquired, ownership (including, but not
limited to, beneficial ownership as defined in Rule 13d-3 under the Exchange
Act) of any of the assets or business of the Company or of any of its
subsidiaries or any securities issued by the Company or any of its subsidiaries,
or any rights or options to acquire such ownership (including from a third
party), provided, however, that the restriction in this clause (1) shall be
deemed not to restrict your ability (or that of your affiliates) to purchase
shares of a mutual fund managed by an investment company registered as such with
the Securities and Exchange Commission, so long as all such mutual funds own in
the aggregate not more than two percent (2%) of the outstanding Common Stock of
the Company; or

                                    (2)      make, or in any way participate in,
any "solicitation" of "proxies" (as such terms are defined under Regulation 14A
of the Exchange Act) to vote or seek to advise or influence in any manner
whatsoever any person or entity with respect to the voting or any securities of
the Company or any of its subsidiaries; or

                                    (3)      form, join or in any way
participate in a "group" (within the meaning of Section 13(d)(3) of the Exchange
Act) with respect to any voting securities of the Company or any of its
subsidiaries; or

                                    (4)      arrange, or in any way participate
in, any financing for the purchase of any voting securities or securities
convertible or exchangeable into or exercisable for any voting securities or
assets of the Company of any of its subsidiaries, provided, however, that the
restriction in this clause (4) shall be deemed not to restrict the ability of
any bank with which you are affiliated from extending loans in the ordinary
course of business for the purchase of Common Stock of the Company in amounts
aggregating not more than two percent (2%) of the outstanding Common Stock of
the Company in total for all such loans taken together; or

                                    (5)      otherwise act, whether alone or in
concert with others, to seek to propose to the Company or any of its
shareholders any merger, business combination, restructuring, recapitalization
or similar transaction to or with the Company or any of its subsidiaries or
otherwise seek or propose to influence or control the Company's management or
policies; or

                                    (6)      seek to negotiate or influence the
terms and conditions of employment of employees of the Company or any of its
subsidiaries or any agreement of collective bargaining with employees of the
Company or any of its subsidiaries; or

                                    (7)      enter into any discussions,
negotiations, arrangements or understandings with or advise, assist or encourage
any third party with respect to any of the foregoing; or

                                      -3-
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                                    (8)      disparage in any way the Company,
its officers, directors, shareholders or employees or otherwise take any action
that could reasonably be anticipated to harm any of their personal or
professional reputations.

In addition, you also agree not to (x) request the Company directly or
indirectly to amend or waive any provision of this paragraph 2(c) (including
this sentence) or (y) take any action designed to or which can reasonably be
expected to require the Company to make a public announcement regarding any of
the matters referred to in this paragraph 2(c).

                  3.       The parties agree that to the knowledge of each
party, the following list correctly sets forth all Company securities owned by
you:

<TABLE>
<S>                                                                    <C>
              Shares of Common Stock                                     9,271

              Shares of Class B Preferred Stock                        347,745

              Shares of Class C Preferred Shares                       246,250

              Shares of Class D Preferred Shares                         1,353

              Warrants to Purchase Common Stock                          1,456
</TABLE>

                  4.       You agree that notwithstanding your vote against each
of the proposals presented to the shareholders for a vote at the meeting of
shareholders of the Company held on May 24, 2002, as a result of intervening
events you have reconsidered your opinion with respect to each of such proposals
and you have determined that you are in favor of each such proposal and that you
approve and ratify each such proposal.

                  5.       In the event the closing of the IPO has not occurred
by December 31, 2002:

                           a.       this Agreement shall terminate and shall
thereafter be of no further force or effect; and

                           b.       the waiver of preemptive rights by you that
is effectuated pursuant to Section 3(i) of the Amended and Restated Shareholders
Agreement shall be null and void, and the Company shall be permitted to fully
satisfy and discharge such preemptive rights through the payment to you of an
amount equal to your pro rata share (as determined according to your pro rata
ownership of the outstanding common stock of the Company on a fully diluted
basis) of the fair market value of the options described in said Section 3(i),
measured as of the date of termination of this Agreement. For purposes of the
preceding sentence, except as described below in this paragraph (b), the fair
market value of the options (the "Option Value") will be determined by a
nationally recognized appraisal firm mutually acceptable to you and the Company.
The costs of the appraisal will be borne by the Company. In the absence of
agreement on the selection of an appraiser, the appraisal firm to be engaged for
such valuation will be Mercer Capital of Memphis, Tennessee. In the event this
Agreement terminates pursuant

                                      -4-

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to Section 5(a) and the Company thereafter completes an underwritten initial
public offering of its common stock on or before June 30, 2003, the Option Value
will be determined by reference to the initial public offering price in such
initial public offering. If you receive any consideration from the Company
pursuant to this paragraph (b), you agree not to object or otherwise receive any
additional consideration from the Company in the event the Company permits other
shareholders of the Company to exercise their preemptive rights (which will have
been similarly waived) with respect to such option grants and receive a pro rata
payment determined on basis no more favorable to the shareholders than the basis
on which the payment made to you pursuant to this paragraph (b) was determined.

                  6.       Without prejudice to the rights and remedies
otherwise available to you or the Company, each of you and the Company agree
that the other party shall be entitled to equitable relief by way of injunction
if the other party or any of the other party's representatives breach or
threaten to breach any of the provisions of this Agreement.

                  7.       This Agreement constitutes the entire and exclusive
agreement between the you and the Company respecting the subject matter hereof,
superseding all prior discussions, agreements or arrangements, whether oral or
written, with respect to the subject matter hereof. It may not be amended unless
in writing and signed by you and the Company.

                  8.       This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.

                                        Very truly yours,

                                        KIRKLAND'S, INC.

                                        By: /s/ Reynolds C. Faulkner
                                           ----------------------------------
                                           Reynolds C. Faulkner,
                                           Executive Vice President and
                                           Chief Financial Officer

Accepted and agreed to this
3rd day of June, 2002

/s/ ROBERT E. KIRKLAND
--------------------------------------
ROBERT E. KIRKLAND,
individually and as trustee of
The Robert E. Kirkland Annuity Trust - 2002

                                      050<PAGE>

                               EXCHANGE AGREEMENT

                  THIS EXCHANGE AGREEMENT (this "Agreement") is made this 31st
day of May, 2002, by and between Kirkland's, Inc., a Tennessee corporation (the
"Company") and Carl Kirkland ("Shareholder").

                                    RECITALS

                  WHEREAS, Shareholder owns 258,425 shares of Class C Preferred
Stock of the Company (the "Class C Preferred Stock"), and each share of the
Class C Preferred Stock has a stated value equal to $30.83556 (the "Stated
Value");

                  WHEREAS, the Company intends to conduct an initial public
offering of the common stock of the Company (the "IPO") on the terms set forth
on a registration statement on Form S-1 filed with the U.S. Securities and
Exchange Commission (the "SEC") on April 23, 2002 (as the same may be hereafter
amended, including any related registration statement filed pursuant to Rule 462
under the Securities Act of 1933, the "Registration Statement").

                  WHEREAS, the parties have agreed that, immediately prior to
the closing of the IPO (the "IPO Closing"), Shareholder will exchange all of the
shares of Class C Preferred Stock held by him (the "Exchange Shares") for such
number of shares of the Company's common stock, no par value per share (the
"Common Stock"), as provided for in this Agreement;

                  NOW THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties to this Agreement, intending
to be legally bound, hereby agree as follows:

                  1.       Exchange. Upon the terms and subject to the
conditions set forth herein, effective immediately prior to the IPO Closing,
Shareholder hereby assigns, transfers, conveys and delivers the Exchange Shares
to the Company, and the Company, in exchange therefor, hereby agrees to issue
and deliver to Shareholder, immediately prior to the IPO Closing, such number of
shares of Common Stock equal to (x) the Stated Value for all of the Exchange
Shares divided by (y) 93% of the initial public offering price per share at
which the Common Stock is sold in the IPO.

                  2.       Deliveries. Contemporaneously with the execution of
this Agreement, Shareholder agrees to deposit with the Custodian, pursuant to
the Irrevocable Power of Attorney and Custodian Agreement executed by the
Shareholder as of May 31, 2002 (the "POA"), (i) the stock certificates
representing the Exchange Shares exchanged by Shareholder pursuant to Section 1
hereof and (ii) stock powers for the shares of Common Stock that Shareholder is
to receive under this Agreement pursuant to Section 1 hereof (the "New Common
Shares"), duly endorsed or accompanied by appropriate stock, in order to
facilitate the transfer of the Exchange Shares under this Agreement and the
shares of Common Stock in connection with the IPO.

                  3.       Sale of Common Stock. Shareholder hereby agrees to
sell the New Common Shares, as a selling shareholder in the IPO pursuant to a
Purchase Agreement with the

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underwriters, and Shareholder has authorized the attorney-in-fact under the POA
to enter into a Purchase Agreement with the underwriters for that purpose.

                  4.       Termination. This Agreement shall terminate and be
wholly without force or effect in the event that the IPO Closing does not occur
by December 31, 2002.

                  5.       Representations and Warranties of Shareholder.
Shareholder hereby represents, warrants, covenants, agrees and acknowledges to
the Company the following to be true and correct in all respects as to himself:

                           a.       Title; Third-Party Options. There are no
contracts, options, commitments or rights of any kind, by or through
Shareholder, with, to or in any third party to acquire all or any portion of the
Exchange Shares held by Shareholder and Shareholder has good title to such
shares and owns such shares free and clear of any claim, mortgage, assignment,
conditional sale, lease, easement, consignment, bailment, contingent interest,
pledge, lien, option, charge, security interest, preemptive right, encumbrance
or other restrictions of any kind or nature whatsoever, other than restrictions
imposed by the Securities Act (as defined below) or any other securities laws,
and other than any restrictions which have been waived or will terminate prior
to the IPO Closing.

                           b.       No View to Distribution or Resale.
Shareholder will acquire the New Common Shares solely for his own account
without a view to the distribution or resale thereof other than pursuant to a
Registration (as defined below) or an exemption therefrom, and Shareholder does
not have any contract, undertaking, agreement or arrangement to sell or
otherwise transfer or dispose of any of such shares in any manner to any person
except as contemplated by this Agreement.

                           c.       No Transfer Without Registration or
Exemption. Shareholder will not, except as contemplated by this Agreement, sell,
transfer or otherwise dispose of any of the New Common Shares in any manner,
unless at the time of any such transfer: (i) a Registration is in effect with
respect to the New Common Shares to be sold, transferred or disposed of, and
Shareholder complies with all of the requirements of the Securities Act and the
Applicable Laws (as defined below) with respect to the proposed transaction; or
(ii) Shareholder has obtained and has provided to the Company an opinion from
counsel satisfactory to the Company (as to both the counsel rendering such
opinion and the substance of the opinion) that the proposed sale, transfer or
disposition does not require Registration.

                           d.       Securities Legend. A legend will be placed
on the certificates evidencing all New Common Shares and stop-transfer
instructions will be issued to any transfer agent with respect to such shares to
ensure compliance with the provisions of this Agreement the Securities Act and
the Applicable Laws.

                           e.       Investment Risk. Shareholder can bear the
economic risk of his acquisition and ownership of the New Common Shares,
including the total loss of his investment, has no need for liquidity in this
investment and, either individually or with his advisers, has such knowledge and
experience in financial and business matters that he is capable

                                      -2-
<PAGE>

of evaluating the merits and risks of the Company and the investment in the New
Common Shares.

                           f.       Review of Company's Registration Statement.
Shareholder has received the Registration Statement and all other documents
requested by Shareholder have been carefully reviewed by him and Shareholder
understands the information contained therein.

                           g.       Knowledge and Experience. Shareholder,
together with his advisers, have such knowledge and experience in financial,
tax, and business matters, and, in particular, investments in securities, so as
to enable them to utilize the information made available to them in connection
with the New Common Shares to evaluate the merits and risks of an investment in
the New Common Shares and to make an informed investment decision with respect
thereto.

                           h.       Accredited Investor Status. Shareholder is
an "accredited investor," as such term is defined under Regulation D under the
Securities Act.

                           i.       No Reliance. Shareholder is not relying on
the Company or any of its employees or agents with respect to the legal, tax,
economic and related considerations of an investment in the New Common Shares,
and Shareholder has relied on the advice of, or have consulted with, only his
own advisers with respect to such matters.

                           j.       Definitions. As used herein: the term
"Registration" means registration under the Securities Act and, with respect to
the Applicable Laws, such registration thereunder (or, with respect to any of
the Applicable Laws which do not provide for registration, such compliance
therewith which is similar to registration) which has then resulted in statutory
or administration authorization for the proposed transaction; the term
"Securities Act" means the Securities Act of 1933, as amended, and the rules and
regulations thereunder; and the term "Applicable Laws" means any applicable
state securities laws and, to the extent applicable to offers or sales of
securities, the Securities Exchange Act of 1934, as amended, and the rules and
regulations under the foregoing.

                  6.       Governing Law. This Agreement shall be governed by
and interpreted and enforced in accordance with the substantive laws of the
State of Tennessee.

                  7.       No Benefit to Others. The representations,
warranties, covenants and agreements contained in this Agreement are for the
sole benefit of the parties hereto and their executors, legal representatives,
successors and assigns, and they shall not be construed as conferring and are
not intended to confer any rights on any other persons.

                  8.       Contents of Agreement. This Agreement together with
any documents referred to herein set forth the entire agreement of the parties
hereto and supersede any prior agreement or understanding of the parties with
respect to the transactions contemplated hereby. This Agreement may not be
amended except by an instrument in writing signed by the parties hereto, and no
claimed amendment, modification, termination or waiver shall be binding unless
in writing and signed by the party against whom or which such claimed amendment,
modification, termination or waiver is sought to be enforced.

                                      -3-
<PAGE>

                  9.       Further Assurances. Each of the Shareholder and the
Company shall do or cause to be done such further acts and things and deliver or
cause to be delivered such additional assignments, agreements, documents,
powers, and instruments as may reasonably be required to carry into effect the
purposes of this Agreement

                  10.      Severability. Any provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall be ineffective to the
extent of such invalidity or unenforceability without invalidating or rendering
unenforceable the remaining provisions hereof, and any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

                  11.      Counterparts. This Agreement may be executed in any
number of counterparts, which when taken together, shall constitute but one and
the same instrument. Any and all counterparts may be executed by facsimile.

                           [Execution page to follow]

                                      -4-
<PAGE>

                  IN WITNESS WHEREOF, the parties have executed and delivered
this Exchange Agreement on the date first above written.

                                         KIRKLAND'S, INC.

                                         By: /s/ Robert Alderson
                                            ------------------------------
                                             Name:  Robert Alderson
                                             Title: Chief Executive Officer and
                                                    President

                                          /s/ Carl Kirkland
                                         ------------------------------
                                         Carl Kirkland

                                      -5-

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