Document:

<PAGE>   1

                           NINTH AMENDMENT TO LOAN AND
                               SECURITY AGREEMENT

                                                                    EXHIBIT 10.1

        THIS NINTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment"),
dated as of March 31, 2000, is entered into by and between CONGRESS FINANCIAL
CORPORATION (WESTERN), a California corporation ("Lender"), with a place of
business at 251 South Lake Avenue, Suite 900, Pasadena, California 91101 and
KRAUSE'S CUSTOM CRAFTED FURNITURE CORP., a California corporation (formerly
known as Krause's Sofa Factory), and its wholly owned subsidiary, CASTRO
CONVERTIBLE CORPORATION, a New York corporation (jointly and severally,
"Borrower"), with its chief executive office located at 200 North Berry Street,
Brea, California 92821.

                                    RECITALS

        A. Borrower and Lender have previously entered into that certain Loan
and Security Agreement dated as of January 20, 1995, as amended by that certain
First Amendment to Loan and Security Agreement dated as of May 10, 1996, that
certain Second Amendment to Loan and Security Agreement dated as of August 26,
1996, that certain Third Amendment to Loan and Security Agreement dated as of
November 25, 1996, that certain Fourth Amendment to Loan and Security Agreement
dated as of August 14, 1997, that certain Fifth Amendment to Loan and Security
Agreement dated as of December 11, 1997, that certain Sixth Amendment to Loan
and Security Agreement dated as of March 15, 1999, that certain Seventh
Amendment to Loan and Security Agreement dated as of August 23, 1999 and that
certain Eighth Amendment to Loan and Security Agreement dated as of December 15,
1999 (collectively, the "Loan Agreement"), pursuant to which Lender has made
certain loans and financial accommodations available to Borrower. Terms used
herein without definition shall have the meanings ascribed to them in the Loan
Agreement.

        B. Borrower has requested that Lender (i) modify the negative covenant
relating to permitted indebtedness to allow up to Sixty-Five Million Dollars
($65,000,000) of indebtedness to be outstanding to Parent and (ii) adjust the
minimum Adjusted Net Worth covenant to twelve Million Dollars ($12,000,000).

        C. Lender is willing to agree to make such further amendments to the
Loan Agreement and such waiver under the terms and conditions set forth in this
Amendment. Borrower is entering into this Amendment with the understanding and
agreement that none of Lender's rights or remedies as set forth in the Loan
Agreement is being waived or modified by the terms of this Amendment.

        NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:

                                    Page 19
<PAGE>   2

        1.     Amendments to Loan Agreement.

Paragraph (e) of Section 9.9 of the Loan Agreement (entitled "Indebtedness") is
    hereby amended and restated in its entirety as follows:

                      "(e) unsecured indebtedness of Borrower to Krause's
               Furniture, Inc., a Delaware corporation (`Parent'), in the
               maximum principal amount of Sixty Five Million Dollars
               ($65,000,000), plus any amounts added as principal for accrued
               and unpaid interest thereon, which indebtedness is subject to,
               and subordinate in right of payment to, the right of Lender to
               receive the prior payment in full of all of the Obligations;
               provided that: (i) Borrower shall not, directly or indirectly,
               make any payments in respect of such indebtedness, including, but
               not limited to, any prepayments or other non-mandatory payments,
               except that until an Event of Default, or event which with notice
               or passage of time or both would constitute an Event of Default,
               shall exist or have occurred and be continuing, Borrower may make
               payments of principal and interest in accordance with the terms
               of that certain Amended and Restated Subordination Agreement
               between Parent and Lender dated August 26, 1996, as amended from
               time to time (the "Subordination Agreement"), (ii) Borrower shall
               not, directly or indirectly, (A) amend, modify, alter or change
               any terms of such indebtedness or any agreement, document or
               instrument related thereto, or (B) redeem, retire, defease,
               purchase or otherwise acquire such indebtedness, or set aside or
               otherwise deposit or invest any sums for such purpose, except as
               permitted by the Subordination Agreement, (iii) Borrower shall
               furnish to Lender all notices, demands or other materials
               concerning such indebtedness either received by Borrower or on
               its behalf, promptly after receipt thereof, or sent by Borrower
               or on its behalf, concurrently with the sending thereof, as the
               case may be and (iv) copies of all notes, instruments and/or
               agreements evidencing such indebtedness shall be delivered to
               Lender and be in form and substance satisfactory to Lender."

Section 9.14 of the Loan Agreement (entitled "Adjusted Net Worth") is hereby
    amended and restated in its entirety to read as follows:

                      "9.14 Adjusted Net Worth. Borrower shall, as of the end of
               each fiscal quarter of Borrower, maintain Adjusted Net Worth of
               not less than twelve Million Dollars ($12,000,000)."

        2. Effectiveness of this Amendment. Lender must have received the
following items, in form and substance acceptable to Lender, or evidence of the
occurrence thereof, before this Amendment is effective and before Lender is
required to extend any credit to Borrower as provided for by this Amendment.

(a)    Amendment. This Amendment fully executed in a sufficient number of
       counterparts for distribution to Lender and Borrower.

(b)    Authorizations. Evidence that the execution, delivery and performance by
       Borrower and each guarantor or subordinating creditor of this Amendment
       and any instrument or agreement required under this Amendment have been
       duly authorized.

(c)    Representations and Warranties.  The representations and warranties of
       Borrower set forth in the Loan Agreement must be true and correct.

                                    Page 20
<PAGE>   3

(d)    Acknowledgment.  Lender has received counterparts of the Acknowledgment
       appended hereto executed by the Parent.

(e)    Other Required Documentation. All other documents and legal matters in
       connection with the transactions contemplated by this Amendment shall
       have been delivered or executed or recorded and shall be in form and
       substance satisfactory to Lender.

(f)    Payment of Modification Fee. Lender shall have received from Borrower a
       modification fee of five thousand Dollars ($5,000) for the processing and
       approval of this Amendment, which fee shall be fully earned as of and
       payable on the date hereof.

        3. Choice of Law. The validity of this Amendment, its construction,
interpretation and enforcement, and the rights of the parties hereunder, shall
be determined under, governed by, and construed in accordance with the laws of
the State of California governing contracts wholly to be performed in that
State.

        4. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute but one and the same instrument.

        5. Due Execution. The execution, delivery and performance of this
Amendment are within the powers of the Borrower, have been duly authorized by
all necessary corporate action, have received all necessary governmental
approval, if any, and do not contravene any law or any contractual restrictions
binding on Borrower.

        6. Otherwise Not Affected. In the event of any conflict or inconsistency
between the Loan Agreement and the provisions of this Amendment, the provisions
of this Amendment shall govern. Except to the extent set forth herein, the Loan
Agreement shall remain in full force and effect.

        7. Ratification. Borrower hereby restates, ratifies and reaffirms each
and every term and condition set forth in the Loan Agreement, as amended hereby,
and the Financing Agreements effective as of the date hereof.

        8. Estoppel. To induce Lender to enter into this Amendment and to
continue to make advances to Borrower under the Loan Agreement, Borrower hereby
acknowledges and agrees that, after giving effect to this Amendment, as of the
date hereof, there exists no Event of Default and no right of offset, defense,
counterclaim or objection in favor of Borrower as against Lender with respect to
the Obligations.

        IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.

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<PAGE>   4

                                      KRAUSE'S CUSTOM CRAFTED FURNITURE CORP.,
                                           a California corporation

                                           By:     /s/ Robert A. Burton
                                              ------------------------------
                                           Name:  Robert A. Burton
                                                ----------------------------
                                           Title:  Exec. V.P./CFO
                                                 ---------------------------

                                           CASTRO CONVERTIBLE CORPORATION,
                                           a New York corporation

                                           By:      /s/ Robert A. Burton
                                              ------------------------------
                                           Name:  Robert A. Burton
                                                ----------------------------
                                           Title:  Exec. V.P. / CFO
                                                 ---------------------------

                                      CONGRESS FINANCIAL CORPORATION (WESTERN),
                                           a California corporation

                                           By:       /s/ J. K. Scott
                                              ------------------------------
                                      Name:  Jeffrey K. Scott
                                            --------------------------------
                                      Title:  Vice President
                                            --------------------------------

                                    Page 22
<PAGE>   5

                                 ACKNOWLEDGMENT

        The undersigned Krause's Furniture, Inc., a Delaware corporation
("KFI"), parent of Krause's Custom Crafted Furniture Corp. ("Krause's"), in
consideration of Congress Financial Corporation (Western) ("Congress") continued
extension of credit to Krause's and Castro Convertible Corporation, hereby
consents to the foregoing Ninth Amendment to Loan and Security Agreement (the
"Amendment") and acknowledges and confirms that its Guarantee dated November 25,
1996 (the "Guarantee") in favor of Congress remains in full force and effect.

        KFI further acknowledges and confirms that the "Junior Debt", as defined
in that certain Amended and Restated Subordination Agreement dated as of August
23, 1999 between KFI and Congress (the "Subordination Agreement"), includes
(without limitation) any additional indebtedness to KFI permitted by the
foregoing Amendment, that the "Junior Debt Documents", as defined in the
Subordination Agreement, includes (without limitation) any notes, instruments
agreements or other documents evidencing or relating to such additional
indebtedness and that such additional indebtedness shall in all respects be
subject to the terms and conditions of the Subordination Agreement.

        Although Congress has informed KFI of the matters set forth above, and
KFI has acknowledged the same, KFI understands and agrees that Congress has no
duty under the Loan Agreement as defined above, the Guarantee or any other
agreement with KFI to so notify KFI or to seek such an acknowledgment, and
nothing contained herein is intended to or shall create such a duty as to any
advances or transactions hereafter.

Dated: March 31, 2000                       KRAUSE'S FURNITURE, INC.,
                                                   a Delaware corporation

By:
   -----------------------------------------------------------------------------
                                                   By:  /s/ Robert A. Burton
                                                      --------------------------
                                                   Name:   Robert A. Burton
                                                         -----------------------
                                                   Title:   Exec. V.P./ CFO
                                                          ----------------------
                                                   Name:
                                                         -----------------------
                                                   Title:
                                                          ----------------------

                                    Page 23<PAGE>   1

                                                                    EXHIBIT 10.2

                                    AGREEMENT

             This Agreement (this "Agreement") is entered into this 3rd day of
April, 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 and January 11, 2000, the "Supplemental Purchase
Agreement") relating to the Notes. Capitalized terms used herein without
definition have the meanings set forth in the Supplemental Purchase Agreement.

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

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

1. Effective as of March 26, 2000, Sections 6.2(a), 6.2(b) and 6.2(c) 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:

                                    Page 24
<PAGE>   2

<TABLE>
<CAPTION>
            Year             Q1            Q2            Q3             Q4
            ----           -------       -------       -------        -------
            <S>            <C>           <C>           <C>            <C>
            1999            N/A           N/A           8.8 MM         4.0 MM
            2000            9.2 MM       11.2 MM       10.1 MM        10.8 MM
            2001           17.5 MM       20.0 MM       22.0 MM        26.0 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
</TABLE>

                        (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:

<TABLE>
<CAPTION>
            Year             Q1            Q2            Q3             Q4
            ----           -------       -------       -------        -------
            <S>            <C>           <C>           <C>            <C>
            1999            N/A           N/A          3.75           7.50
            2000           3.20          2.85          3.30           2.85
            2001           1.30          1.10          1.00           1.00
            2002           1.00          1.00          1.00           1.00
            2003           1.00          1.00            N/A           N/A
</TABLE>

                        (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:

<TABLE>
<CAPTION>
            Year             Q1            Q2            Q3             Q4
            ----           -------       -------       -------        -------
            <S>            <C>           <C>           <C>            <C>
            1999            N/A           N/A            0.75           0.005
            2000             0.65          0.74          0.84           1.05
            2001             1.20          1.20          1.20           1.35
            2002             1.30          1.30          1.30           1.50
            2003             1.40          1.40          N/A           N/A
</TABLE>

2. Effective as of March 26, 2000, the defined term "Consolidated Net Worth" set
forth in Section 11.1 of the Supplemental Purchase Agreement shall be amended in
its entirety to read as follows:

                        "`Consolidated Net Worth' shall mean the consolidated
        stockholders' equity of the Company and its Subsidiaries determined in
        accordance with generally accepted accounting principles consistently
        applied (it being understood and agreed that (x) the Notes and any other
        Subordinated Indebtedness which is not subordinated to the Notes shall
        not be treated as equity for this purpose and (y) the Company's Series A
        Convertible Preferred Stock, par value $0.001 per share, shall be
        treated as equity for this purpose."

                                    Page 25
<PAGE>   3

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.

                                    Page 26
<PAGE>   4

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.

                                    Page 27
<PAGE>   5

             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/ Daniel L. Felsenthal
                                       -------------------------------------
                                        Name:Robert A. Burton
                                        Title:  Executive Vice President
                                                   and Chief Financial Officer

                                    GENERAL ELECTRIC CAPITAL CORPORATION

                                    By: /s/ George L. Hashbarger Jr.
                                       -------------------------------------

                                        Name:George L. Hashbarger, Jr.
                                        Title:  Senior Vice President/
                                                Department Operations Manager

                                    JAPAN OMNIBUS LTD.

                                    By:________________________________________
                                        Name:
                                        Title:

                                    Page 28

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