Document:

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                                                                    EXHIBIT 10.6

                           MEMORANDUM OF UNDERSTANDING
                       CROWN BOOKS AND INGRAM BOOK COMPANY

GENERAL TERMS AND CONDITIONS

DISCOUNTS AND PRICING (BOOKS)

All discounts will be based on publishers' suggested retail prices, with the
following exceptions where Ingram establishes the suggested retail price:

-   Short discount titles sold through the Greenlight program under the "Y"
    discount code.

-   Merchandise where no suggested retail price is established by the publisher

<TABLE>
<CAPTION>
    -------------------------------------------------------------------------------
      ORDER TYPE OR PROGRAM            TRADE DISCOUNT        WHO PAYS FREIGHT
    -------------------------------------------------------------------------------
<S>                                  <C>                     <C>
      Telephone Orders                 [CONFIDENTIAL              FFE (1)
      Fax or Mail Orders              MATERIAL PROVIDED
                                      SEPARATELY TO THE
                                             SEC]*

      FlashBack Electronic Orders      [CONFIDENTIAL              FFS (2)
                                      MATERIAL PROVIDED
                                      SEPARATELY TO THE
                                             SEC]

      Opening Stores                   [CONFIDENTIAL              FFS (2)
                                      MATERIAL PROVIDED
                                      SEPARATELY TO THE
                                             SEC]
    -------------------------------------------------------------------------------
 </TABLE>

(*)    Standard Ingram discount terms apply for telephone, fax and mail orders.

(1)    Telephone, mail, and fax orders may receive free freight when they meet
       standard Ingram policies for free freight eligibility.

(2)    Electronic orders (any combination of books and audio product) combine
       for free freight shipment. These orders will be released two (2) or
       five (5) times per week depending upon store volume and will be indexed
       to current free freight eligibility guidelines of 150 units per
       shipment. Ingram will periodically review average order size and modify
       store release schedules in accordance with the above guidelines.
       Changes will be made in consultation with Crown.

Discounts and Pricing (other media)

 <TABLE>
 <CAPTION>
    -------------------------------------------------------------------------------
      ORDER TYPE OR PROGRAM           TRADE DISCOUNT        WHO PAYS FREIGHT
    -------------------------------------------------------------------------------
<S>                                <C>                      <C>
      Spoken Audio
        Via EDI                       [CONFIDENTIAL               FFS (2)
        Other Orders                 MATERIAL PROVIDED            FFS (1)
                                     SEPARATELY TO THE
                                             SEC]
    -------------------------------------------------------------------------------
</TABLE>

<PAGE>   2

<TABLE>
<S>                                <C>                      <C>
    -------------------------------------------------------------------------------
      Music
        Via EDI                        [CONFIDENTIAL
        Other Orders                  MATERIAL PROVIDED           FFS (2)
                                     SEPARATELY TO THE            FFE (1)
                                            SEC]

      Multimedia
        Via EDI                        [CONFIDENTIAL
        Other Orders                 MATERIAL PROVIDED            FFS (2)
                                     SEPARATELY TO THE            FFE (1)
                                            SEC]
    -------------------------------------------------------------------------------
</TABLE>

CREDIT COMMITMENT

Ingram will provide Crown with a line of credit in the amount of $11.6 million
until December 31, 1999. On December 31, 1999 the line of credit will be reduced
to $9.6 million. Ingram will not be obligated to continue the above credit lines
if (i) any of the Covenants set forth below are not met on a quarterly basis: or
(ii) if the Crown payment to reduce the credit line to $9.6 million is not made
to Ingram on or before December 31, 1999: or (iii) [CONFIDENTIAL MATERIAL
PROVIDED SEPARATELY TO THE SEC] or (iv) Crown fails to grant or defaults on the
Security Agreement between Ingram and Crown.

       CREDIT COVENANTS

       Loan Coverage Ratio to Trade Debt
       ---------------------------------
       Revolver + Trade AP / inventory

       Ingram Trade Debt Ratio to Trade Debt
       -------------------------------------
       Revolver + Trade AP (exclusive of Ingram) / Ingram

       Performance to Plan of Net Sales and EBITDA

See attached schedule of such covenants.

CROWN PAYMENT ON OR BEFORE DECEMBER 31, 1999

On or before December 31, 1999 Crown shall pay to Ingram the sum of Two Million
Dollars ($2,000,000), or such required lesser amount, to reduce the Ingram line
of credit from $11.6 million to $9.6 million.

[CONFIDENTIAL MATERIAL PROVIDED SEPARATELY TO THE SEC]

SECONDARY SECURITY INTEREST

Crown shall grant to Ingram, on a form subordinate and satisfactory to Paragon
Capital, LLC and Ingram, a Secondary Security Interest in all assets to secure
all Crown indebtedness to Ingram above One Million Five Hundred Thousand Dollars
($1,500,000). Ingram's security interest shall be pari passu with other trade
creditors which extend $750,000 in unsecured credit to Crown on substantially
similar terms as Ingram ("Trade Creditors Secondary Security Interest"). The
Trade Creditors Secondary Security Interests shall provide that said security
interest is to secure all Crown indebtedness to the applicable trade creditor
above $750,000.

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<PAGE>   3

EFFECTIVENESS

This Agreement will become effective upon the Effective Date as defined in
Crown's First Amended Joint Plan of Reorganization filed in the United States
Bankruptcy Court for the District of Delaware and after execution by both
parties.

PAYMENT TERMS

Payment terms are [CONFIDENTIAL MATERIAL PROVIDED SEPARATELY TO THE SEC]. All
outstanding amounts due to Ingram as of the Confirmation Date of Crown's Plan of
Reorganization shall be paid in the normal course of Crown's business
[CONFIDENTIAL MATERIAL PROVIDED SEPARATELY TO THE SEC] from the date of invoice.
Payment terms for New Stores are [CONFIDENTIAL MATERIAL PROVIDED SEPARATELY TO
THE SEC]. The [CONFIDENTIAL MATERIAL PROVIDED SEPARATELY TO THE SEC] cash
discount may be taken on a net (purchases less returns) basis. Crown Books will
remit [CONFIDENTIAL MATERIAL PROVIDED SEPARATELY TO THE SEC] the amount due, per
the [CONFIDENTIAL MATERIAL PROVIDED SEPARATELY TO THE SEC] billing summary, less
special deductions, by one check for all Crown Books stores. A remittance advice
providing payment detail must accompany the check.

SHORTAGE ALLOWANCE

Crown Book agrees not to make concealed shortage claims against IBC. Instead,
Crown Book will deduct [CONFIDENTIAL MATERIAL PROVIDED SEPARATELY TO THE SEC] of
gross invoice during the [CONFIDENTIAL MATERIAL PROVIDED SEPARATELY TO THE SEC]
invoicing cycle. Full carton shortages of all product types are excluded from
the shortage reserve and will be handled through the normal claim process.

SETTLEMENT PROCESS

Crown Books and Ingram Book Company will settle the disposition of unacceptable
returns and all other settlement issues will be resolved on a [CONFIDENTIAL
MATERIAL PROVIDED SEPARATELY TO THE SEC] basis. Monthly conference calls will be
conducted between the accounting areas of Crown and Ingram to foster the ongoing
resolution of problems. Ingram and Crown personnel shall endeavor to reconcile
the outstanding amounts on a weekly and monthly basis and both sides shall make
available the appropriate personnel to reconcile and resolve any issues.

ACCOUNT MANAGEMENT AND COMMUNICATIONS

Ingram will assign staff at appropriate levels of our organization to work with,
and on behalf of, your staff. Our account team will be led at a Senior
Management level, and will provide the responsiveness and sense of urgency that
your business requires.

[CONFIDENTIAL MATERIAL PROVIDED SEPARATELY TO THE SEC]

RETURNS

-       HASSLE-FREE

Merchandise shipped in error, and damaged or defective merchandise may be
returned to the Ingram distribution center from which the product was shipped
within 30 days of shipment for full credit as a 'hassle-free' return (defective
merchandise may be returned at any time). The reason for the return should be
specified on the hassle-free form found on the back of each packing slip.

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<PAGE>   4

-       OVERSTOCK

Overstock returns will be credited at a [CONFIDENTIAL MATERIAL PROVIDED
SEPARATELY TO THE SEC] discount off of publisher suggested retail price except
short discounted product, which will be credited at purchase price less
[CONFIDENTIAL MATERIAL PROVIDED SEPARATELY TO THE SEC].

[CONFIDENTIAL MATERIAL PROVIDED SEPARATELY TO THE SEC].

All merchandise purchased from IBC is eligible for return unless designated
non-returnable through Ingram Book Company's product information vehicles.
Overstock returns are to be shipped freight paid to our returns facility in
Chambersburg, Pennsylvania. To receive credit, merchandise must be in resaleable
condition, must be de-stickered, (excluding sensormatic security strips), must
be within publisher eligible return dates, and be returnable to the publisher.

Resaleable condition shall include hard cover books with dust jackets that are
worn, shopworn or ticketed; torn shrink wrap, slightly bent corner and/or spine,
imperfect books due to printer or binder's labor, books with author autographs.
Resaleable condition will exclude trade paperback books with store stickers or
sticker residue; faded covers; water damage; ink marks; cut marks; very bent
cover and/or spine; books with bent, crumpled or dirty pages; prepacks or boxed
sets with missing books, toys or audio: multimedia which has been opened.

COOP ADVERTISING

Our Publisher Advertising department will work with your advertising management
to administer 100% coop passed through Ingram Book Company to Crown from
publishers on a monthly basis. Our system requires that we have a signed coop
contract from the publisher in order to process your coop claim.

Ingram will provide quarterly coop advertising reports to Crown.

MERCHANDISING SUPPORT

Ingram will continue to provide periodic backlist assortment planning and
analysis at a store class level. This effort will provide Crown with Ingram
sales demand data that Crown will use in developing category assortment plans
for their various store classifications.

SERVICE LEVELS

Assuming receipt of orders by 5:00 p.m. local time at each distribution center,
2nd business day delivery as scheduled from Ingram Primary Warehouse and 3rd
business day delivery as scheduled from Ingram Secondary Warehouse.

SYSTEM SUPPORT

Ingram will provide bibliographic and status access to titles@ingram.

OPENING STORES

Opening store orders will be picked and packed by category and will receive free
freight from both Primary and Secondary warehouse locations. Opening store
orders do not combine with any other orders.

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<PAGE>   5

SPECIAL PROCESSING

As requested by Crown, Ingram will sticker all product shipped to Crown stores
for orders that are placed electronically at a cost of [CONFIDENTIAL MATERIAL
PROVIDED SEPARATELY TO THE SEC] per unit.

CONFIDENTIALITY

The terms and conditions of this memorandum and the information contained herein
shall be treated as strictly confidential by the parties and shall not be
disclosed without obtaining the written permission of the other party. In the
event one party deems it necessary to disclose the terms, conditions or
existence of this memorandum and the information contained therein to a third
party, the disclosing party shall obtain the written approval of the other party
prior to disclosure. In the event counsel for a party determines that disclosure
is required by law (including subpoena, deposition or other legal process), the
party required to disclose shall attempt to disclose in as confidential a manner
as reasonably possible and shall give notice to the other party prior to
disclosure as soon as possible after it is determined that disclosure is
required.

In the event of any disclosure required or desired to be made to the Securities
and Exchange Commission ("SEC") with respect to this Agreement or the terms
hereof, the parties agree that Crown shall file a confidential treatment request
with respect thereto and that Ingram shall have the right to participate in the
drafting of, and any discussions or meetings with the SEC with respect to, such
request.

TERM

This is a memorandum of understanding, and is intended to outline in general
terms our relationship through two years from the date Crown's Plan of
Reorganization is confirmed by the Bankruptcy Court. This memorandum of
understanding is non-exclusive to either party and my be terminated upon
conditions causing this Agreement not to be effective under the Effectiveness
paragraph above. This memorandum of understanding can be extended for
agreed-upon periods by the consent of both parties.

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<PAGE>   6

546(g)* RETURNS

In the event Crown files a bankruptcy petition Crown agrees to support Ingram's
petition for a 546(g)* return.

Please sign both copies of this memorandum, indicating your acceptance of these
business terms.

<TABLE>
<CAPTION>

<S>                                                <C>
        /s/    S.G. Panagos                           November 8, 1999
--------------------------------------------       ------------------------
For Crown Books Corporation                        Date
Print Name:    Steven G. Panagos
           ---------------------------------
Title:         CEO
      --------------------------------------

<S>                                                <C>

        /s/    J.E. Chandler                            November 9, 1999
--------------------------------------------       ------------------------
For Ingram Book Company                              Date
James E. Chandler
President
</TABLE>

Effective Date: November 11  , 2000
                -------------

                                       6<PAGE>   1

                                                                    EXHIBIT 10.7
                               SECURITY AGREEMENT

        AGREEMENT made and entered into as of November 9, 1999 between Ingram
Book Company, a division of Ingram Book Group Inc., with its principal office at
One Ingram Blvd., La Vergne, Tennessee 37086 (hereinafter called "SECURED
PARTY") and CROWN BOOKS CORPORATION a Delaware corporation with its principal
office at 3300 75th Avenue, Landover, Maryland 20785 (hereinafter called
"DEBTOR").

        WHEREAS, DEBTOR is party to that certain Agreement (as amended,
restated, refinanced, replaced, extended or otherwise modified from time to
time, the "LOAN AND SECURITY AGREEMENT") with The Paragon Capital, LLC,
("PARAGON") pursuant to which, among other things, DEBTOR has granted to PARAGON
a first priority security interest in the COLLATERAL (as hereinafter defined) to
secure all DEBTOR'S obligations under the LOAN AND SECURITY AGREEMENT;

        WHEREAS, SECURED PARTY and PARAGON are parties to a Subordination and
Intercreditor Agreement wherein SECURED PARTY, among other things, subordinates
its Security Interest granted herein to PARAGON.

        WHEREAS, PARAGON has agreed to waive the restrictions contained in the
AGREEMENT to permit DEBTOR to grant a security interest in the COLLATERAL to
SECURED PARTY;

        1.     SECURITY INTEREST: GRANTED AND SUBORDINATED

               In consideration of the further and continuing extension of
               credit to DEBTOR, DEBTOR pledges, assigns, consigns, transfers,
               sets over, and grants SECURED PARTY a security interest in the
               COLLATERAL hereinafter described to secure the payment and/or
               performance of all OBLIGATIONS, as hereinafter defined, of DEBTOR
               to SECURED PARTY over One Million Five Hundred Thousand Dollars
               ($1,500,000). It is intended that the first One Million Five
               Hundred Thousand Dollars ($1,500,000) extended by SECURED PARTY
               be unsecured. Notwithstanding the time, order or method of
               attachment or perfection of the security interests or liens
               granted hereby or the time or order of filing or lien notation or
               recording of financing statements, or other evidence of liens or
               security interests, and notwithstanding anything contained in any
               such filing, lien notation, recorded instrument or agreement to
               which SECURED PARTY or PARAGON may now or hereafter be a party,
               and notwithstanding any provision of the Uniform Commercial Code
               or other applicable law, SECURED PARTY agrees that the security
               interests and liens upon the PARAGON Collateral as defined in the
               Agreement in favor of PARAGON have and shall have priority over
               the security interests and liens, if any, upon the PARAGON
               Collateral held by SECURED PARTY to the full extent of the Debt
               as defined in the Agreement outstanding at any time and from time
               to time.

        2.     PARI PASSU SECONDARY SECURITY INTERESTS

               SECURED PARTY's security interest shall be pari passu with other
               trade creditors which extend $750,000 in unsecured credit to
               Crown on substantially

<PAGE>   2
               similar terms as SECURED PARTY ("Trade Party Security Interest")
               for that portion of credit trade extended by each of the other
               trade creditors above Seven Hundred Fifty Thousand Dollars
               ($750,000). It is intended that the first Seven Hundred Fifty
               Thousand Dollars ($750,000) extended by each of the other trade
               creditors be unsecured. The other trade creditor's Security
               Agreement shall be in a form substantially similar to this
               Security Agreement and SECURED PARTY shall be notified and
               receive a copy of other trade party's security agreements.

        3.     COLLATERAL

               The COLLATERAL of this Security Agreement is as follows, wherever
               located, whether DEBTOR now has or hereafter acquires any rights
               therein, and all proceeds thereof (hereinafter sometimes
               collectively referred to as the "COLLATERAL"):

               All of the assets and proceeds of the DEBTOR including but not
               limited to:

               (a) all of the DEBTOR'S and its subsidiaries now existing and
               future: (a) accounts (as defined in the Uniform Commercial Code
               as in effect in the State of New York and as the same may be
               amended from time to time, hereafter, the "UCC") (whether or not
               specifically listed on schedules furnished to SECURED PARTY)
               including, without limitation, all accounts created by or arising
               from all of the DEBTOR'S sales of INVENTORY (as hereinafter
               defined) and all rights to payment under and with respect to (i)
               promissory notes and (ii) bank or non-bank credit cards, and all
               accounts arising from sales made under any of the DEBTOR'S trade
               names or styles, or through any of the DEBTOR'S subsidiaries, (b)
               unpaid seller's or lessor's rights (including rescission,
               replevin, reclamation and stoppage in transit) relating to the
               foregoing or arising therefrom; (c) rights to any INVENTORY
               represented by any of the foregoing, including rights to returned
               or repossessed goods; (d) reserves and credit balances arising in
               the account owned by PARAGON and under the LOAN AND SECURITY
               AGREEMENT; (e) guarantees or collateral for any of the foregoing;
               (f) insurance policies or rights relating to any of the
               foregoing; and (g) cash and non-cash proceeds of any and all the
               foregoing;

               (b) all present and future documents (as defined in the UCC) and
               any and all warehouse receipts, bills of lading, shipping
               documents, chattel paper, instruments and similar documents, all
               whether negotiable or not and all goods and INVENTORY relating
               thereto and all cash and non-cash proceeds of the foregoing;

               (c) all DEBTOR'S and its subsidiaries present and future general
               intangibles (as defined in the UCC, hereafter, "GENERAL
               INTANGIBLES"), including, without limitation, all present and
               future right, title and interest in and to all tradenames,
               trademarks (together with the goodwill associated therewith),
               copyrights, patents, licenses, customer lists, distribution
               agreements, supply agreements and tax refunds, together with all
               monies and claims for monies now or hereafter due and payable in
               connection with any of the foregoing or otherwise,

<PAGE>   3

               and all cash and non-cash proceeds thereof, including, without
               limitation, the proceeds of any licensing agreements between the
               DEBTOR and any licensee of any of the DEBTOR'S GENERAL
               INTANGIBLES provided, however, that if any of the GENERAL
               INTANGIBLES existing on the date hereof other than tax refunds
               are prohibited by contract from being assigned to SECURED PARTY,
               SECURED PARTY agrees that it shall not require that the DEBTOR
               grant SECURED PARTY a lien on such GENERAL INTANGIBLES until the
               earlier of the termination of such contract or deletion of such
               prohibition, except that any and all monies due or to become due
               under such GENERAL INTANGIBLES shall be subject to SECURED
               PARTY'S lien hereunder;

               (d) all of the DEBTOR'S and its subsidiaries present and
               hereafter acquired inventory (as defined in the UCC) and any and
               all merchandise and goods, and all additions, substitutions and
               replacements thereof, wherever located, together with all goods
               and materials, wherever located, used or usable in manufacturing,
               processing, packaging or shipping same and in all stages of
               production and all cash and non-cash proceeds thereof of whatever
               sort (collectively, "INVENTORY"); and

               (e) all now owned and hereafter acquired deposit accounts
               maintained with any bank or financial institutions; all cash and
               other monies and property in the possession or control of
               PARAGON; all books, records, ledger cards, disks and related data
               processing software at any time evidencing or containing
               information relating to any of the COLLATERAL described herein or
               otherwise necessary or helpful in the collection thereof or
               realization thereon, and all cash and non-cash proceeds of the
               foregoing.

        4.     OBLIGATIONS

               The security interest granted by DEBTOR to SECURED PARTY secures
               the full, prompt, and unconditional payment of any and all
               indebtedness, obligations, or liabilities of DEBTOR to SECURED
               PARTY over the sum of One Million Five Hundred Thousand Dollars
               ($1,500,000) of whatever nature, whether direct or indirect,
               absolute or contingent, now due or hereafter to become due, now
               existing or hereafter arising under any account instrument,
               agreement, note, contract, guaranty, indemnity, loan or otherwise
               (all of which are hereinafter referred to as "OBLIGATIONS").

        5.     WARRANTIES AND COVENANTS

               (i)     DEBTOR warrants that:

                       a)      DEBTOR is duly organized and existing under the
               laws of the state of its incorporation and is duly qualified and
               in good standing in every other state in which it is doing
               business.

                                       3
<PAGE>   4

                    b)      The execution, delivery and performance of this
                Agreement are within DEBTOR's corporate powers, have been duly
                authorized by all necessary corporate action on the part of
                DEBTOR, are not in contravention of any law applicable to DEBTOR
                or any of the terms of DEBTOR's articles of incorporation,
                by-laws or other incorporation papers, or of any other
                indenture, agreement, or undertaking to which DEBTOR is party or
                by which it is bound.

                   c)      Except for the security interest granted hereby, the
                security interest granted to PARAGON, any trade party security
                interest or any security interest permitted by SECURED PARTY,
                DEBTOR is and shall be at all times the lawful owner of the
                COLLATERAL, free and clear of any adverse lien, encumbrance,
                security interest, claim, charge or levy securing any
                indebtedness (other than the OBLIGATIONS and indebtedness under
                the LOAN AND SECURITY AGREEMENT).

                (ii)    Subject to the terms of the LOAN AND SECURITY AGREEMENT,
                DEBTOR covenants that:

                        a)      DEBTOR shall defend its title to the COLLATERAL
                against all persons and against all claims or demands of any
                kind whatsoever other than Permitted Encumbrances (as defined in
                the ___________________ AGREEMENT as in effect on the date
                hereof.

                        b)      DEBTOR shall pay, when due, all charges, taxes,
                assessments, and fees which may now or hereafter be imposed upon
                the ownership, sale, purchase, or possession of the COLLATERAL,
                except to the extent not yet due or contested in good faith; and
                SECURED PARTY may, but is under do duty to, pay said items and
                charge the cost of same to DEBTOR as part of the OBLIGATIONS.

                        c)      DEBTOR shall keep the COLLATERAL only at (i)
                such addresses that are furnished to SECURED PARTY, (ii) such
                other locations as to which DEBTOR shall give SECURED PARTY
                prior written notice and (iii) such other locations known to
                SECURED PARTY and at which SECURED PARTY has filed a UCC-1
                Financing Statement.

                        d)      DEBTOR shall not permit any of the COLLATERAL to
                be kept or stored at any location other than as permitted
                hereinabove without the prior written consent of SECURED PARTY.

                        e)      DEBTOR shall not lend, rent, lease, or otherwise
                dispose of the COLLATERAL or any interest herein except in the
                ordinary course of DEBTOR's business or as may be authorized by
                SECURED PARTY in writing.

                        f)      DEBTOR shall immediately notify SECURED PARTY in
                writing of any change in DEBTOR's place or places of business or
                of the discontinuance or addition of any such place or places of
                business.

                                       4
<PAGE>   5

6.      INSURANCE

        DEBTOR agrees as follows:

                a)      Notwithstanding anything to the contrary herein, DEBTOR
        shall obtain, and provide a certificate evidencing same to SECURED
        PARTY, satisfactory Lender's Loss Payable Endorsements naming SECURED
        PARTY, as its interests may appear, with respect to policies which
        insure INVENTORY, or with such other designation as SECURED PARTY may
        agree. DEBTOR shall at all times keep the INVENTORY insured against loss
        or damage by fire, theft, and such other casualties as SECURED PARTY may
        designate or approve. All such polices of insurance shall provide for at
        least ten (10) days prior written notice of cancellation to SECURED
        PARTY. Upon DEBTOR's failure to obtain such insurance or to keep same in
        force, SECURED PARTY may, but is under no duty to, obtain such insurance
        or pay any premium and charge the cost of same to DEBTOR as part of the
        OBLIGATIONS.

                b)      DEBTOR shall give immediate written notice to SECURED
        PARTY and to any insurers of any loss or damage to the INVENTORY.

                c)      Upon the occurrence and during the continuance of an
        event of default which has not been cured pursuant to Paragraph 8, (i)
        DEBTOR hereby appoints SECURED PARTY as attorney in-fact for DEBTOR in
        obtaining, adjusting, filing claims under and canceling any such
        insurance and endorsing settlement drafts by insurers of the COLLATERAL,
        and (ii) proceeds of such policies shall be paid to SECURED PARTY to the
        extent of its security interest or lien in the INVENTORY covered by the
        policy, for applications to its claims, its OBLIGATIONS or as otherwise
        required by applicable law.

7.      BOOKS AND RECORDS INSPECTION

                a)      DEBTOR will keep and maintain such books and records
        with respect to the general business of DEBTOR as is customary and
        consistent with its sound business practices.

                b)      DEBTOR shall at any time during normal business hours,
        and from time to time, allow SECURED PARTY by or through any of its
        officers, agents, attorneys, accountants, or other representative, to
        examine or inspect the Inventory Collateral, wherever the same may be
        located and to examine, inspect and make extracts from or copies of
        DEBTOR's books and records respecting any or all of the COLLATERAL.

                c)      DEBTOR will, at any time at SECURED PARTY's reasonable
        request, deliver to SECURED PARTY a schedule specifically identifying
        all of the Inventory Collateral, and shall from time to time deliver to
        SECURED PARTY such additional schedules and such certificates and
        reports respecting any or all of the COLLATERAL as SECURED PARTY may
        reasonably specify.

                                       5
<PAGE>   6

        DEBTOR's failure to give the schedule, certificate and/or reports set
        forth herein shall in no way limit the Security Interest of SECURED
        PARTY in COLLATERAL.

                d)      Upon the occurrence and during the continuance of an
        event of default which has not been cured pursuant to Paragraph 8,
        SECURED PARTY shall have the right in its own name or in the name of the
        DEBTOR to verify the amount owing from DEBTOR's customers with regard to
        the COLLATERAL.

8.      EVENTS OF DEFAULT

        DEBTOR shall be in default hereunder upon the occurrence of any of the
        following:

                a)      Failure at any time to pay in full and as when due any
        OBLIGATIONS of DEBTOR to SECURED PARTY or failure to perform any of the
        warranties, covenants, or provisions contained or referred to herein or
        in any instrument evidencing any of the OBLIGATIONS or any breach
        thereof;

                b)      The making by DEBTOR of any false or misleading
        representation, or warranty in this Agreement;

                c)      Dissolution, termination of existence, insolvency,
        cessation of the business of DEBTOR, appointment of a receiver of any
        part of the property of, assignment for the benefit of creditors by, or
        the commencement of any proceeding under any bankruptcy or insolvency
        laws by or against DEBTOR, provided that, in the event of any
        involuntary proceeding commenced against DEBTOR, such proceeding is not
        dismissed or discharged within forty-five (45) days of the commencement
        thereof;

                d)      A breach by debtor of any term of this or any other
        agreement between DEBTOR and SECURED PARTY; or

                e)      Any default by DEBTOR of, or under, the terms of the
        LOAN AND SECURITY AGREEMENT and related agreements with PARAGON which
        default results in the acceleration of the obligations thereunder,
        provided however, SECURED PARTY will not deem Debtor in default for a
        period of fifteen (15) days if Paragon has not acted other than issuing
        a notice of default.

9.      RIGHT AND REMEDIES ON DEFAULT

        Upon the occurrence of an event of default, which default shall not have
        been cured by DEBTOR within twenty (20) days following receipt of
        written notice from SECURED PARTY of such default, and excluding from
        the applicability of such cure period subparagraphs (c) and (e) of
        Paragraph 8, and at any time thereafter, SECURED PARTY shall have all of
        the rights and remedies of a

                                       6
<PAGE>   7

        secured party under the above Uniform Commercial Code, including,
        without limitation, the following:

                a)      To declare all OBLIGATIONS of DEBTOR to SECURED PARTY
        immediately due and payable.

                b)      To take immediate and exclusive possession of COLLATERAL
        or any part thereof, and for that purpose SECURED PARTY may, so far as
        DEBTOR can give authority therefor, with or without judicial process,
        enter upon any premises on which COLLATERAL or any part thereof may be
        situated and remove the same therefrom;

                c)      To hold, maintain, preserve, and prepare the COLLATERAL
        for public or private sale at SECURED PARTY's sole discretion, until
        disposed of, or to retain the DEBTOR's OBLIGATIONS as provided in the
        Uniform Commercial Code. SECURED PARTY may require DEBTOR to assemble
        the COLLATERAL and make it available to SECURED PARTY for possession at
        a place to be designated by SECURED PARTY which is reasonably convenient
        to both parties. SECURED PARTY will give DEBTOR reasonable notice of the
        time and place of any public sale thereof or of the time after which any
        private sale or any other intended disposition thereof is to be made.
        SECURED PARTY may be the purchaser at any public or private sale of the
        COLLATERAL. The net proceeds realized upon any such disposition, after
        deduction for the expenses of retaking, holding, preparing for sale,
        selling or the like, and the reasonable attorney's fees and legal
        expenses incurred by SECURED PARTY shall be applied in satisfaction of
        the OBLIGATIONS secured hereby. SECURED PARTY will account to DEBTOR for
        any surplus realized on such disposition and DEBTOR shall remain liable
        for any deficiency.

10.     MODIFICATION

        The security interest granted to SECURED PARTY under this Security
        Agreement shall not supersede, but will supplement all other agreements
        signed, or hereafter signed, between the DEBTOR and SECURED PARTY. The
        terms of this Security Agreement may not be changed, varied, modified,
        or altered except in writing signed by both parties and specifically
        referring to this Security Agreement.

11.     NON-WAIVER OF RIGHTS

        No delay or omission on the part of SECURED PARTY in exercising any of
        its rights hereunder, nor the acquiescence in or waiver by SECURED PARTY
        of a breach of any term, covenant or condition of this Security
        Agreement shall be deemed or consumed to operate as a waiver of such
        rights or acquiescence thereto except in the specific instance for which
        given.

                                       7
<PAGE>   8

12.     NOTICES

        Notices to either party shall be in writing and shall be delivered
        personally or by registered or certified mail, postage prepaid, to the
        DEBTOR at its address first set forth herein, and to SECURED PARTY at
        its office located at One Ingram Blvd., P. 0. Box 3006, La Vergne,
        Tennessee 37086-1986, Attention: Chief Financial Officer and a copy to
        Ingram Book Group, Attention: General Counsel at the same address stated
        herein.

13.     ASSIGNMENTS

        SECURED PARTY may assign this Agreement and, if so assigned, the
        assignee shall be entitled, upon notifying the DEBTOR, to full
        performance by DEBTOR or all of DEBTOR's warranties, covenants, and
        agreements hereunder and the assignee shall be entitled to all rights
        and remedies of SECURED PARTY hereunder.

14.     FINANCING STATEMENTS

        DEBTOR authorizes SECURED PARTY to sign and file financing statements at
        any time with respect to any of the COLLATERAL, without the DEBTOR's
        signature. At SECURED PARTY's request, DEBTOR will join with SECURED
        PARTY in executing one or more financing statements pursuant to the
        above Uniform Commercial Code in forms satisfactory to SECURED PARTY.
        DEBTOR will pay all costs and fees for filing any financing statement
        wherever SECURED PARTY deems it necessary or desirable to file same.

15.     TERMINATION

        This Agreement shall be a continuing agreement in every respect until
        such time as the DEBTOR has paid and/or performed all of its OBLIGATIONS
        to SECURED PARTY and has notified SECURED PARTY of its election to
        terminate this Agreement.

16.     GOVERNING LAW

        The law of the state of New York shall govern the rights, duties, and
        remedies of the parties without regard to choice or conflict of law
        provisions.

                                       8
<PAGE>   9

        IN WITNESS WHEREOF, the parties hereto have signed this Agreement the
day and year fast above written.

                                            CROWN BOOKS CORPORATION

                                             /s/  Steven G. Panagos
                                            ------------------------------------
                                            (DEBTOR)

                                            By:  Steven G. Panagos
                                                 -------------------------------

                                            Its:  CEO
                                                  ------------------------------

                                            INGRAM BOOK COMPANY, a division of
                                            INGRAM BOOK GROUP INC.

                                             /s/  F.A. Kerrigan
                                            ------------------------------------
                                            (SECURED PARTY)

                                            By:  F.A. Kerrigan
                                                 -------------------------------

                                            Its:  Sr. Vice President and CFO
                                                  ------------------------------

                                       9
<PAGE>   10

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