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                                                                    EXHIBIT 10.2


                                    AGREEMENT

        This Agreement (this "Agreement") is entered into this 9th day of
August, 2000, by and among KRAUSE'S FURNITURE, INC., a Delaware corporation (the
"Company"), GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation
("GECC"), and JAPAN OMNIBUS LTD., an international business corporation
incorporated under the laws of the British Virgin Islands ("JOL").

                                    RECITALS

        GECC has purchased from the Company Notes dated (i) as of August 14,
1997, as amended as of March 31, 1999 and January 11, 2000, in the outstanding
principal amount of $5,501,091.20 (the "Initial Note"), (ii) as of August 14,
1997, as amended as of March 31, 1999 and January 11, 2000, in the outstanding
principal amount of $2,500,000 (the "August 1997 Note") and (iii) as of December
30, 1997, as amended as of March 31, 1999 and January 11, 2000, in the
outstanding principal amount of $2,500,000 (collectively with the Initial Note
and the August 1997 Note, the "GECC Notes").

        JOL has purchased from the Company Notes dated (i) as of August 14,
1997, as amended as of March 31, 1999 and January 11, 2000, in the outstanding
principal amount of $500,000 (the "JOL August 1997 Note") and (ii) as of
December 30, 1997, as amended as of March 31, 1999 and January 11, 2000, in the
outstanding principal amount of $1,000,000 (together with the JOL August 1997
Note, the "JOL Notes"; the JOL Notes and the GECC Notes are referred to herein
collectively as the "Notes").

        The Company, GECC and JOL are parties to a Supplemental Securities
Purchase Agreement dated as of August 14, 1997 (as amended on September 14,
1999, December 14, 1999, January 11, 2000 and March 26, 2000, the "Supplemental
Purchase Agreement") relating to the Notes.

        The Company, GECC and JOL desire to amend certain provisions of the
Supplemental Purchase Agreement.


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        NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:

        1. Capitalized terms are used as defined in the Supplemental Purchase
Agreement.

        2. Effective as of June 25, 2000, Sections 6.2(a), 6.2(b), 6.2(c) and
6.2(d) of the Supplemental Purchase Agreement shall be amended in their entirety
to read as follows:

            (a) The Company will not permit its Consolidated Net Worth at the
end of any fiscal quarter to be less than the amount set forth below for such
fiscal quarter; provided that, upon any public or private offering of capital
stock of the Company for the Company's account, the amounts set forth below for
fiscal quarters subsequent to such offering shall be adjusted upward by an
amount equal to the net proceeds of any such offering multiplied by 0.9:

            Year            Q1           Q2            Q3           Q4
            ----         -------       -------      -------      -------
            2000          9.2 MM        9.2 MM       6.8 MM       7.5 MM
            2001          6.4 MM        5.2 MM       4.8 MM       7.2 MM
            2002         29.0 MM       32.0 MM      35.0 MM      40.0 MM
            2003         40.0 MM       40.0 MM        N/A          N/A

            (b) The Company and its Subsidiaries will not incur, create, assume
or permit to exist any Indebtedness at the end of any fiscal quarter if such
Indebtedness would result in a ratio of Consolidated Total Indebtedness to
Consolidated Net Worth of more than the amount for such fiscal quarter indicated
set forth below:

            Year            Q1           Q2            Q3           Q4
            ----         -------       -------      -------      -------
            2000           3.20         3.7           5.5          4.6
            2001           5.7          7.4           7.9          4.4
            2002           1.00         1.00          1.00         1.00
            2003           1.00         1.00           N/A          N/A

            (c) The Company will not permit its Fixed Charge Ratio at the end of
any fiscal quarter to be less than the amount set forth below for such fiscal
quarter:

            Year            Q1           Q2            Q3           Q4
            ----          ------       ------        -------      -------
            2000           0.65         0.55           0.80         1.15
            2001           0.95         0.90           1.00         1.40
            2002           1.30         1.30           1.30         1.50
            2003           1.40         1.40            N/A          N/A

            (d) The Company and its Subsidiaries will not make capital
expenditures (net of any sale leasebacks incurred within such fiscal year) in
excess of the amounts set forth below for the fiscal years indicated:

                                2000             5.0 MM

                                2001             4.0 MM

                                2002             4.0 MM

                                2003(1)          4.0 MM

            Any amount not spent in any one fiscal year may be spent in a
succeeding fiscal year, subject to the Company's annual business plan.


------------
(1) Applicable to the first two fiscal quarters of 2003.


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        3. The Company acknowledges and agrees that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that GECC and JOL shall be entitled to an injunction to
prevent breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
thereof having jurisdiction, this being in addition to any other remedy to which
they may be entitled at law or equity.

        4. 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 of the counterparts have been signed by each party and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.

        5. This Agreement may be amended as to GECC, JOL and their successors
and assigns, and the Company may take any action herein prohibited, or omit to
perform any act required to be performed by it, if the Company shall obtain the
written consent of the registered holders of not less than 66 2/3% of the
aggregate outstanding principal amount of the Notes then held by GECC, JOL and
their successors or assigns; provided, however, that without the written consent
of the holder or holders of all Notes at the time outstanding, no amendment to
or waiver of any terms of this Agreement shall change or affect the interest
rate, maturity, principal amount, time of payment, currency of payment, or the
amount or allocation of any prepayments of any Note. This Agreement may not be
waived, changed, modified, or discharged orally, but only by an agreement in
writing signed by the party or parties against whom enforcement of any waiver,
change, modification or discharge is sought or by parties with the right to
consent to such waiver, change, modification or discharge on behalf of such
party. Notwithstanding anything in this Agreement to the contrary, no provision
of this Section 5 may be waived, changed or modified.

        6. All covenants and agreements contained herein shall bind and inure to
the benefit of the parties hereto and their respective successors and assigns.
This Agreement may be assigned by GECC or JOL to any transferee of Notes. This
Agreement may not be assigned by the Company.

        7. The Company agrees to pay GECC and JOL for all reasonable outside
legal fees in connection with this Agreement.

        8. This Agreement shall terminate upon the repayment in full of all
amounts of principal, interest and other sums due and payable on all Notes.

        9. Each of the parties hereto agrees that it will make no statement
regarding the transactions contemplated hereby which is inconsistent with the
press release agreed to by the parties hereto. Notwithstanding the foregoing,
each of the parties hereto may, in documents required to be filed by it with the
Commission or other regulatory bodies, make such statements with respect to the
transactions contemplated hereby as each may be advised is legally necessary
upon advice of its counsel.

        10. This Agreement shall be effective upon delivery of original
signature pages or facsimile copies thereof executed by each of the parties
hereto.

        11. The Company represents and warrants that other than the parties
executing this Agreement no consent, approval or waiver of any other person or
entity is required for the effectiveness or enforceability of this Agreement.


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        12. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS
OF THE STATE OF NEW YORK AND OF THE UNITED STATES OF AMERICA, IN EACH CASE
LOCATED IN THE COUNTY OF NEW YORK, FOR ANY ACTION, PROCEEDING OR INVESTIGATION
IN ANY COURT OR BEFORE ANY GOVERNMENTAL AUTHORITY ("LITIGATION") ARISING OUT OF
OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY (AND
AGREES NOT TO COMMENCE ANY LITIGATION RELATING THERETO EXCEPT IN SUCH COURTS),
AND FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENT BY
U.S. REGISTERED MAIL TO ITS RESPECTIVE ADDRESS SET FORTH IN THIS AGREEMENT SHALL
BE EFFECTIVE SERVICE OF PROCESS FOR ANY LITIGATION BROUGHT AGAINST IT IN ANY
SUCH COURT. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN THE COURTS OF THE
STATE OF NEW YORK OR THE UNITED STATES OF AMERICA, IN EACH CASE LOCATED IN THE
COUNTY OF NEW YORK, AND HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES
AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH LITIGATION
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE
PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY AND ALL RIGHTS TO TRIAL BY JURY IN CONNECTION WITH ANY
LITIGATION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.

        IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized.


                                         KRAUSE'S FURNITURE, INC.

                                         By: /s/ Robert A. Burton
                                             -----------------------------------
                                             Name:  Robert A. Burton
                                             Title: Executive Vice President and
                                                    Chief Financial Officer



                                         GENERAL ELECTRIC CAPITAL CORPORATION


                                         By: /s/ Brian P. Keil
                                             -----------------------------------
                                             Name:  Brian P. Keil
                                             Title: Regional Operations Manager



                                         JAPAN OMNIBUS LTD.


                                         By: /s/ James P. Hodge
                                             -----------------------------------
                                             Name: James P. Hodge
                                             Title: Portfolio Manager


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