Document:

<PAGE>   1

                                                                    EXHIBIT 10.2

                             FIRST AMENDMENT TO LOAN
                             AND SECURITY AGREEMENT

       This First Amendment to a certain Loan and Security ("Agreement") dated
July 15, 1998 by and between Paragon Capital LLC and Foothill Capital
Corporation (the "Lender") and Crown Books Corporation, Crown Books East
Corporation, Crown Books West Corporation, Crown Books National Corporation,
Super Crown Books Corporation and Crown DHC Corporation (collectively
"Borrower"), entered into as of this 17th day of August, 1998.

       Whereas, the "Maturity Date" under the above described Agreement is
August 17, 1998; and

       Whereas, the Lender and Borrower desire to extend said Maturity Date;

       Now, Therefore, the Lender and Borrower hereby agree as follows:

       1.     The "Maturity Date" in Exhibit 3 to the Agreement is hereby
extended to September 16, 1998.

       2.     In all other respects the Agreement is hereby ratified and
confirmed.

       Executed as a sealed instrument as of August 17, 1998.

<TABLE>
<S>                                                     <C>
PARAGON CAPITAL LLC                                     CROWN BOOKS CORPORATION,
                                                        CROWN BOOKS EAST CORPORATION,
                                                        CROWN BOOKS WEST CORPORATION,
By:  /s/  Robert J. Shusterman                          CROWN BOOKS NATIONAL CORPORATION,
   --------------------------------                     SUPER CROWN BOOKS CORPORATION,
                                                        CROWN DHC CORPORATION
                                                        Debtors-in-Possession
FOOTHILL CAPITAL CORPORATION

                                                        By:  /s/  Anna Currence
By:  /s/  Steven Cole                                      -----------------------------------------
   --------------------------------                           Anna Currence, President and COO

</TABLE>

cc:    Creditor's Committee<PAGE>   1

                                                                    EXHIBIT 10.3

                 SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT

                                    (REVISED)

              THIS AMENDMENT AGREEMENT is made between Paragon Capital LLC
("PARAGON"), a Delaware limited liability company with its principal executive
offices at Hillsite Office Building, 75 Second Avenue, Suite 400, Needham,
Massachusetts 02494 and Foothill Capital Corporation ("FOOTHILL"), a California
corporation with its principal executive offices at 11111 Santa Monica
Boulevard, Suite 1500, Los Angeles, California, 90025 (Paragon and Foothill,
collectively being "LENDER" hereunder) and, for the purpose of monitoring and
servicing the facility referenced herein, its regional offices located at 60
State Street, Suite 1150, Boston, Massachusetts, 02109, and Crown Books
Corporation, Crown Books East Corporation, Crown Books West Corporation, Crown
Books National Corporation, Super Crown Books Corporation and Crown DHC
Corporation, Delaware corporations and Debtors-in-Possession under Chapter 11,
Case Nos. 98-1575 (RRM) through 98-1575 (RRM), District of Delaware
(collectively "BORROWER"), with their principal executive offices at 3300 75th
Avenue, Landover, Maryland, 20785, with respect to a certain Loan and Security
Agreement between Borrower and Lender dated July 15, 1998, as amended (the "Loan
Agreement") ( all capitalized terms not otherwise defined herein shall have the
meaning set forth in the Loan Agreement);

              WHEREAS, the Bankruptcy Court approved the Loan Agreement by
interim order dated July 15, 1998, docketed on July 17, 1998 and following
hearing by final order dated July 31, 1998 (the "Final Order");

              WHEREAS the Loan Agreement provided for the Amended DIP Facility
as described in Exhibit 1-1 to the Loan Agreement;

              WHEREAS the Lender and the Borrower desire to amend the Loan
Agreement to provide for the Amended DIP Facility as described in Exhibit 1-1 to
the Loan Agreement.

              NOW THEREFORE in consideration of the mutual promises set forth
herein and other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:

1.     Article 1-8(a) is hereby amended by striking it in its entirety and
       substituting the following:

       (a)    The unpaid principal balance of the Loan Account shall bear
              interest until repaid (calculated based upon a 360-day year and
              actual days elapsed) as follows:

              (i)    for Standard Inventory Advances -  Base plus one and one
                                                        quarter percent (1.25%)
                                                        per annum

              (ii)   for Special Inventory Advances -   Base plus eight and
                                                        one-half percent (8.5%)
                                                        per annum

<PAGE>   2

              but in no event less than eight percent (8%) per annum, or in
              excess of the maximum rate permitted by applicable law.

2.     Article 1-8(b) is hereby amended by deleting "plus four (4%) percent per
       annum" in the last line thereof and inserting in lieu thereof "plus two
       (2%) percent per annum."

3.     The Commitment Fee provided for in Section 1-9(a) of the Loan Agreement
       shall be reduced to a total of Six Hundred Thousand ($600,000) Dollars,
       which fee is fully earned as of the date hereof. A total of Two Hundred
       Thousand ($200,000) Dollars of the Commitment Fee, as of August 17,1998,
       has been paid by Borrower to Lender and any additional amounts of the
       Commitment Fee due and paid under the Loan Agreement shall be credited
       against the remaining balance of Four Hundred Thousand ($400,000)
       Dollars, which balance, subject to approval of the Bankruptcy Court and
       any such credits, shall be due and payable upon the execution hereof.

4.     Article 1-9(b) is hereby amended by striking it in its entirety and
       substituting in its place the following:

              "1-9(b) Loan Maintenance Fee. On the date of execution hereof and
       on each anniversary of the date of execution hereof, a loan maintenance
       fee equal to One Hundred Twenty Thousand ($120,000) Dollars Such fee
       shall have been fully earned as of the date hereof and as of each
       anniversary of the date of execution hereof and shall be payable in
       twelve (12) monthly installments as follows: 1/12th of such fee (Ten
       Thousand ($10,000) Dollars) shall be payable as of the date hereof and on
       each anniversary of the date of execution hereof, and 1/12th of such fee
       shall be payable on the same day of each month hereafter and thereafter
       until paid in full; and during any month which the Lender makes any
       Special Inventory Advance, the Loan Maintenance Fee shall increase by Ten
       Thousand ($10,000) Dollars (the "Loan Maintenance Fee").

       In any instance where reporting as outlined in Article 9 is received by
       Lender beyond the period set forth therein, the monthly loan maintenance
       fee for the then subject month shall be two times the usual amount set
       forth herein. In the event of two (2) consecutive months of late or
       incomplete reporting, such month's Loan Maintenance Fee shall increase
       permanently thereafter by Five Thousand ($5,000) Dollars plus the doubled
       usual amount until such time as the Borrower has two (2) consecutive
       months of timely and complete reporting."

5.     Section 7-5 is hereby amended to change in the last line, "two (2)
       Banking Days" to "one (1) Banking Day."

6.     Article 13-1 is hereby amended by striking it in its entirety and
       substituting the following:

              "13-1. Termination of Revolving Credit. This Agreement is, and is
       intended to be, a continuing agreement and shall remain in full force and
       effect for a term ending on the Maturity Date, provided, however, that
       Borrower may terminate this Agreement by

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<PAGE>   3

       giving the Lender notice to terminate in writing at least thirty (30)
       days prior to the date of any such termination whereupon all Liabilities
       shall be due and payable in full without presentation, demand, or further
       notice of any kind, whether or not all or any part of the Liabilities is
       otherwise due and payable pursuant to the agreement or instrument
       evidencing same. Lender may terminate this Agreement immediately and
       without notice upon the occurrence of an Event of Default.
       Notwithstanding the foregoing or anything in this Agreement or elsewhere
       to the contrary, the security interest, Lender's rights and remedies
       hereunder and Borrower's obligations and liabilities hereunder shall
       survive any termination of this Agreement and shall remain in full force
       and effect until all of the Liabilities outstanding, or contracted or
       committed for (whether or not outstanding), before the receipt of such
       notice by Lender, and any extensions or renewals thereof (whether made
       before or after receipt of such notice), together with interest accruing
       thereon after such notice, shall be finally and irrevocably paid in full.
       No Collateral shall be released or financing statement terminated until
       such final and irrevocable payment in full of the Liabilities, as
       described in the preceding sentence."

7.     Article 13-2 is hereby amended by striking it in its entirety and
       substituting the following:

              "13-2. Effect of Termination. Upon the termination of the
       Revolving Credit, the Borrower shall pay the Lender (whether or not then
       due), in immediately available funds, all then Liabilities including,
       without limitation: the entire balance of the Loan Account; any then
       remaining installments of the Commitment Fee; any then remaining balance
       of the Loan Maintenance Fee; any accrued and unpaid Unused Line Fee; any
       Prepayment Premium and all unreimbursed costs and expenses of the Lender
       for which the Borrower is responsible, and shall make such arrangements
       concerning any L/C's then outstanding as are reasonably satisfactory to
       the Lender. Until such payment, all provisions of this Agreement, other
       than those contained in Article 1 which place an obligation on the Lender
       to make any loans or advances or to provide financial accommodations
       under the Revolving Credit or otherwise, shall remain in full force and
       effect until all Liabilities shall have been paid in full. The release by
       the Lender of the security interests granted the Lender by the Borrower
       hereunder may be upon such conditions and indemnifications as the Lender
       may require."

8.     The following Article 13-3 is added:

       13-3.  Prepayment Premium/Right of First Refusal.

       (a)    If Borrower pays in full all or substantially all of the
              Liabilities at any time after July 15, 1999, and prior to the
              Maturity Date, for any reason, including, without limitation, any
              payment in full of the Liabilities following an acceleration by
              Lender of the Liabilities pursuant to Article 10 hereof, other
              than temporarily from funds internally generated in the ordinary
              course of business, at the time of such payment Borrower shall
              also pay to Lender a prepayment premium in an

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              amount equal to Seven Hundred Fifty Thousand Dollars ($750,000)
              (the "Prepayment Premium").

       (b)    The Prepayment Premium shall be paid to Lender as liquidated
              damages for the loss of the bargain by Lender and not as a
              penalty.

       (c)    Borrower hereby grants to Lender a right of first refusal to
              provide a new credit facility for the emergence of the Borrower
              from the Proceedings. Lender shall waive the Prepayment Premium if
              it provides an emergence facility or declines to provide (and
              another lender so provides) such new facility.

9.     Article 17 is hereby amended by striking it in its entirety and
       substituting the following:

       Notwithstanding that Paragon and Foothill are "the Lender" hereunder,
       Paragon shall carry out the provisions of the Loan Agreement on Paragon's
       behalf and as Foothill's agent, and shall enforce and collect the
       Liabilities and may exercise and enforce all rights and privileges
       accruing to the Lender by reason of any other agreements, security,
       guarantees or claims given to us in connection with the Loan Agreement,
       all in accordance with Paragon's discretion and the exercise of Paragon's
       business judgment, and in accordance with agreements between Paragon and
       Foothill.

10.    Exhibit 9-5 is hereby amended by deleting it in its entirety and
       substituting the attached revised Exhibit 9-5.

11.    Exhibit 9-12(a) is hereby amended by deleting it in its entirety and
       substituting the attached revised Exhibit 9-12(a).

12.    Exhibit 9-12(b) is hereby amended by deleting it in its entirety and
       substituting the attached revised Exhibit 9-12(b).

13.    The definition of "Acceptable Inventory" is amended by striking the last
       clause of the definition beginning in the fifth line, after
       "Encumbrances" with "provided" through the end.

14.    The definition of Borrowing Base is hereby amended by striking it in its
       entirety and substituting the following:

              "BORROWING BASE": Means an amount which is the aggregate of the
       Standard Inventory Advance plus the Special Inventory Advance, but in no
       event shall the aggregate of the Standard Inventory Advance and the
       Special Inventory Advance exceed one hundred percent (100%) of the Net
       Retail Liquidation Value minus (i) the then unpaid balance of the Loan
       Account, minus (ii) the then aggregate of such Reserves as may have been
       established by Lender, and minus (iii) the then outstanding Stated Amount
       of all L/C's."

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15.    The definition of Maturity Date shall be extended from "September 16,
       1998" to "August 16, 2000." Notwithstanding anything to the contrary
       herein, in the event that the Amended Facility not approved by the
       Bankruptcy Court on or before September 16, 1998, the existing Maturity
       Date shall be extended to September 18, 1998, subject to Borrower's
       compliance with all other terms and conditions of the Loan Agreement
       which shall remain in effect until approval of the Amended DIP Facility
       or termination of the Loan Agreement.

16.    The following definition of "Special Inventory Advance" is added:

              "SPECIAL INVENTORY ADVANCE": Means an amount up to Six Million
       ($6,000,000) Dollars not to exceed the lesser of (a) seven and one-half
       (7.5%) percent of the Cost of Acceptable Inventory and (b) fifteen
       percent (15%) of the Net Retail Liquidation Value, provided however,
       Lender shall have no obligation to make any Special Inventory Advance(s)
       unless and until Lender enters into a repurchase agreement from an
       acceptable "book wholesaler" in form and substance acceptable to Lender
       in its discretion.

17.    The following definition of "Standard Inventory Advance" is added:

              "STANDARD INVENTORY ADVANCE": Means an amount which is equal to
       the lesser of (a) fifty-five percent (55%) of the Cost of Acceptable
       Inventory and (b) eighty-five percent (85%) of the Net Retail Liquidation
       Value."

18.    The following definition of "Net Retail Liquidation Value" is added:

              "NET RETAIL LIQUIDATION VALUE": Means the appraised liquidation
       value of Acceptable Inventory less liquidation expenses as determined by
       Lender or its agents from time to time."

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<PAGE>   6

19.    Lender consents to an increase in the Professional Fee Carve Out as
       defined in Paragraph 21 of the Final Order, from $500,000 to $750,000 as
       of February 1, 1999; provided however, Lender may create a reserve (an
       Availability Reserve or otherwise) in the full amount of such
       Professional Fee Carve Out to the extent of such increase or any other
       increase that may be approved by the Court.

In all other respects, the Loan Agreement is hereby ratified and confirmed.

              Executed as a sealed instrument, this 9th day of September, 1998.

                                   CROWN BOOKS CORPORATION,
                                   Debtor-in-Possession
                                   (BORROWER)

                                   By:  /s/Anna Currence
                                      ------------------------------------------
                                   Print Name:
                                              ----------------------------------
                                   Title:
                                         ---------------------------------------

                                   CROWN BOOKS EAST CORPORATION,
                                   Debtor-in-Possession
                                   (BORROWER)

                                   By:  /s/Anna Currence
                                      ------------------------------------------
                                   Print Name:
                                              ----------------------------------
                                   Title:
                                         ---------------------------------------

                                   CROWN BOOKS WEST CORPORATION,
                                   Debtor-in-Possession
                                   (BORROWER)

                                   By:  /s/Anna Currence
                                      ------------------------------------------
                                   Print Name:
                                              ----------------------------------
                                   Title:
                                         ---------------------------------------

                                       6
<PAGE>   7

                                   CROWN BOOKS NATIONAL CORPORATION,
                                   Debtor-in-Possession
                                   (BORROWER)

                                   By:  /s/Anna Currence
                                      ------------------------------------------
                                   Print Name:
                                              ----------------------------------
                                   Title:
                                         ---------------------------------------

                                   SUPER CROWN BOOKS CORPORATION,
                                   Debtor-in-Possession
                                   (BORROWER)

                                   By:  /s/Anna Currence
                                      ------------------------------------------
                                   Print Name:
                                              ----------------------------------
                                   Title:
                                         ---------------------------------------

                                   CROWN DHC CORPORATION,
                                   Debtor-in-Possession
                                   (BORROWER)

                                   By:  /s/Anna Currence
                                      ------------------------------------------
                                   Print Name:
                                              ----------------------------------
                                   Title:
                                         ---------------------------------------

                                   FOOTHILL CAPITAL CORPORATION

                                   By:  /s/Steven Cole
                                      ------------------------------------------
                                   Print Name: Steven Cole
                                              ----------------------------------
                                   Title: Sr. Vice President
                                         ---------------------------------------

                                   PARAGON CAPITAL LLC
                                   (LENDER)

                                   By:  /s/Robert J. Shusterman
                                      ------------------------------------------
                                   Print Name:  Robert J. Shusterman
                                              ----------------------------------
                                   Title: EVP, Chief Credit Officer
                                         ---------------------------------------

                                       7
<PAGE>   8

                                   EXHIBIT 9-5

              Crown Books Corporation

              REQUIRED REPORTING (AS OF 9/9/98);

              Upon each borrowing request, no less frequently than weekly:

                     Borrowing Base Certificate with summary backup information
                     (Purchases and "Flash" Sales) (rollforward)

              Weekly:       On Friday

                     Sales Audit Report (Paragon format, one week in arrears)
                     Cash Sources and Uses (Actual vs. 13 week cash forecast in
                     form acceptable to Paragon)

              Monthly:
              On the 15th   Day following month-end

                     Perpetual Inventory Report by Department. Purchase and A/P
                     Concentration Summary (Paragon format by within 30 days of
                     closing)

                     A/P Aging Report: (Understood that company will provide in
                     a form acceptable to Paragon by November 15, 1998). During
                     the interim period, the Company will continue to complete
                     the Purchases and A/P concentration report referred to
                     above, and provide the Lenders with details regarding A/P
                     derived manually from the existing system as requested.

                     Inventory Certificate: Reference Perpetual Inventory Report
                     on Paragon Inventory Certificate certifying to the report
                     accuracy by signature.

                     Rent Compliance Certificate (Paragon format, absent
                     nonpayment, only signature certifying compliance is
                     required)

                     13 week cash forecast in form acceptable to Paragon

              On the 30th Day following month-end

                     Tax & Insurance Compliance Certificate (Paragon format,
                     absent nonpayment, only signature certifying compliance is
                     required), or when reasonably requested by Paragon

                     Reconciliation of Cost of Goods Sold and Gross Margin per
                     the COGS Report to the General Ledger

                     Reconciliation of Evolution (Perpetual) Inventory to the
                     General ledger Statement of Store Activity (Paragon format)

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              On the 45th   Day following month-end
                            Monthly Financial Statements*

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                     Officer's Compliance Certificate (Paragon format)

              *Inclusive of Balance Sheet, Income Statement, and Sources and
              Uses of Cash

              ANNUAL FINANCIAL STATEMENTS

                     Final year-end financial statements with Accountant's
                     Certificate within 90 days after fiscal year-end

                     Interim "draft" financial statements within 60 days after
                     year-end

              All of the above in a form and substance or by means of electronic
              submission as required by the Lender from time to time at its sole
              discretion.

              Ineligible Inventory

              The following categories will be deemed ineligible if the
              aggregate effective advance rate exceeds 44% at any time.

                     -      Calendars

                     -      Newspapers/Periodicals/Calendars

              "Day 1" Inventory Reserves

                     -      Shrink Reserve equal to 4.29% of YTD sales

                     -      The Shrink Reserve will be reset to zero after a
                            full physical inventory (conducted by an acceptable
                            third party) of the ongoing stores is completed, and
                            the results of said inventory (the actual shrink) is
                            properly reflected in the Perpetual Inventory Report
                            and Borrowing Base. Thereafter, a mutually agreeable
                            shrink reserve will be imposed consistent with the
                            physical inventory results.

              "Day 1" Availability Reserves

                     -      Other reserves - $500,000

                     -      Professional/Bankruptcy fees - $500,000; $750,000 at
                            FYE 2/1/99

              COMPOSITION AND IMBALANCE

              Measured monthly, "Non-Book" inventory (excluding calendars) shall
              not exceed 8.5% of total inventory at cost.

              Measured monthly, "Remainder" inventory shall not exceed 12.0% of
              total inventory at cost.

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                                 EXHIBIT 9-12(a)

              FINANCIAL AND INVENTORY COVENANTS:
              Min/Max Inventory

              Measured monthly, on a rolling three-month basis, commencing EOM
              October 1998, average EOM inventory at cost shall be at least 80%
              of plan, and not more than 115.0% of plan; exclusive of
              "opportunistic buys"' (those purchases deemed extraordinary given
              trade terms granted different than those typically offered to the
              company) also excluded are those inventories pertaining to store
              openings in accordance with the business plan. DOCUMENTATION IS
              SUBJECT TO THE SOLE SATTSFACTION OF THE LENDER.

              TRADE ACCOUNTS PAYABLE TO INVENTORY TEST

              Measured monthly, commencing with EOM September 1998, the EOM
              Trade Accounts Payable as a percentage of EOM Inventory at cost
              shall not vary negatively from plan by more than: (1) 10 ppts EOM
              September, 1998 and (2) 6.0 ppts for each month thereafter. If the
              Trade Accounts Payable To Inventory Ratio varies negatively from
              plan by more than the variances detailed above, the advance rate
              will be decreased by 2.0 ppts the first month and 1.5 ppts each
              month thereafter until the advance rate reaches 45.0% of eligible
              cost inventory or until such time as the Trade Accounts Payable To
              Inventory Ratio at month end is within 78.00% of plan. It is
              further understood that the reduction in the aforementioned
              advance rate will not be made if the Company is in compliance with
              the Accounts Payable to Inventory Test within ten days from the
              end of the respective month.

              SALES:

              Measured weekly an a rolling four-week basis, commencing with the
              first fiscal week of October 1998, Sales shall not vary negatively
              from plan by more than: (1) 12.5% during fiscal months of January
              through April, and July through September, or (2) 15.0% during the
              fiscal months of May and June, and, October through December. If
              Sales vary negatively from plan by more than the variances
              detailed above, the advance rate will be decreased by 3.0 ppts the
              first week and 1.5 ppts each week thereafter until the advance
              rate reaches 45.0% of eligible cost inventory or until such time
              as Sales are within 85% of plan as measured on a rolling four week
              basis. In the event that weekly plan sales figures are not
              provided by the Company, weekly plan sales shall be calculated
              based upon the monthly plans sales figure per the Company's
              business plan divided by 4.3 average weeks.

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<PAGE>   12

              The forgoing test could be subject to change should a revised
              Business Plan acceptable to Paragon be received subsequent to the
              closing of the proposed facility. Absent receipt of a Revised
              Business Plan, consistent with the notice requirements contained
              in the proposed Amended Agreement, the Lenders will consider
              adjustments to the aforementioned tests commensurate with the
              proportional impact to such tests of unplanned store closings. It
              is understood that the Borrower is obligated to provide written
              notice to the Lender at least thirty days prior to the date such
              store closings are to occur.

                                       12

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