Exhibit 10.2



                            SETTLEMENT AGREEMENT AND

                        FULL MUTUAL RELEASE OF ALL CLAIMS


     This   Settlement   Agreement  and  Full  Mutual   Release  of  All  Claims
(hereinafter  "Settlement  Agreement")  is made and  entered  into as of May 17,
2006, pursuant to the following terms:

1.   THE PARTIES

     1.1  Advanced Marketing Services, Inc. ("AMS").

     1.2  Federal Insurance Company ("Federal").

     1.3  AMS and Federal are sometimes referred to individually as a "Party" or
collectively as "the Parties."

2.   THE INSURANCE POLICIES

     2.1  Columbia  Casualty  Company  ("CNA")  issued  the  Combined  Solutions
Policy, Policy Number:  267868733, for the policy period April 28, 2003 to April
28, 2004, with policy limits of $5 million.

     2.2  Liberty Mutual Insurance Company ("Liberty Mutual") Excess Follow Form
Policy, Policy Number: 192825-013, for the policy period April 28, 2003 to April
28,  2004,  with policy  limits of $5 million  excess of the  Columbia  Casualty
policy.

     2.3  Federal Insurance Company Excess Policy, Policy Number: 8171-3259 (the
"Policy"),  for the policy period April 28, 2003 to April 28, 2004,  with policy
limits of $5 million excess of the Liberty Mutual policy.

     2.4  CNA, Liberty and Federal are sometimes collectively referred to herein
as the "Insurers."

3.   THE INSURANCE COVERAGE LITIGATION

     3.1  The "Insurance  Coverage  Action" refers to a case generally  known as
AMS v. Columbia Casualty Company,  Continental  Casualty Company,  CNA Financial
Corporation, Liberty Mutual Insurance Company and Federal Insurance Company, now
pending as San Diego Superior Court, Case No. GIC 832603.

     3.2  Liberty  Mutual and Federal have each filed  cross-complaints  in that
matter. A demurrer was sustained to each of those  cross-complaints  and amended
cross-complaints have not yet been filed.



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4.   RECITALS

     4.1  In July 2003,  the Federal Bureau of  Investigation  executed a search
warrant against AMS.

     4.2  Commencing in July of 2003, the United States Attorney's Office "USAO"
issued multiple grand jury subpoenas to AMS and/or its custodian of records, and
to certain of its present and/or former officers, directors and/or employees.

     4.3  In  September   2003,  the  United  States   Securities  and  Exchange
Commission "SEC" began an investigation of AMS and subsequently issued subpoenas
to certain of AMS' present and/or former officers,  directors and/or  employees,
and to AMS' custodian of records.

     4.4  AMS  announced  in January  2004 that it would  restate its  financial
statements for the previous five fiscal years.  AMS has  subsequently  announced
certain anticipated  revisions to that restatement.  As of this date AMS has not
yet issued the restated financial information.

     4.5  Since January 2004, AMS was served with the following securities class
action complaints: Bowen v. Advanced Marketing Services, United States District,
Court Southern District of California,  Case No. 04 CV 00139 H, filed on January
22, 2004; Eastside Investors LLP v. Advanced Marketing  Services,  United States
District, Court Southern District of California,  Case No. 04 CV 00121 JM, filed
on January 16, 2004; and Anderson v. Advanced Marketing Services,  United States
District Court, Southern District of California,  Case No. 04 CV 00324WQH, filed
on February 17,  2004.  These class action  actions were  consolidated  as In re
Advanced Marketing Services Securities Litigation, United States District Court,
Southern  District of California,  Case No. 04 CV 00121 BEN (AJB)  (collectively
the "Securities Class Actions".)

     4.6  Since January 2004, AMS was also served with the following shareholder
derivative  complaints:  Katz v.  Tillinghast et al., San Diego Superior  Court,
Case No. GIC 824845, filed on January 29, 2004; Deranieri v. Tillinghast et al.,
San Diego Superior  Court,  Case No. GIC 824846,  filed on January 29, 2004; and
Dubbert v. Bartlet et al., United States District  Court,  Southern  District of
California,  Case No.  05CV706  H,  filed on April 6,  2005.  These  shareholder
derivative actions were consolidated as In Re Advanced Marketing Services,  Inc.
Derivative Litigation, San Diego Superior Court, Lead Case No. GIC 824845, filed
on or about April 22, 2004 (collectively the "Derivative Actions").

     4.7  Additionally,  the following  government  actions have been  initiated
against certain of AMS' current and former officers, directors and/or employees:
Securities and Exchange  Commission v. Mary Wilson Roke,  United States District
Court,  Southern  District of California,  Case No.  04CV1966 H (POR),  filed on
September  29,  2004;  Securities  and  Exchange  Commission  v.  Sandra  Miller
Christie,  United States District,  Court Southern District of California,  Case
No.  05CV0420  JM (JFS),  filed on March 2,  2005;  United  States of America v.
Sandra Miller  Christie,  United States  District  Court,  Southern  District of



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California, Criminal Case No. 05CR0364LAB, filed on March 2, 2005; United States
of America v. Marcy Wilson Roke, United States District Court, Southern District
of California, Criminal Case No. 04 CR 2524LAB, filed on September 29, 2004; and
United  States of  America v. Karyn Ann Larko,  United  States  District  Court,
Southern District of California, Criminal Case No. 05 CR 0384LAB, filed on March
8, 2005 (collectively, the "Government Actions").

     4.8  AMS has  tendered to the  Insurers  the  circumstances  related to the
investigations  by  the  USAO,  SEC,  the  Securities  Class  Actions,  and  the
Derivative  Actions and the  Government  Actions  identified in  Paragraphs  4.1
through 4.7 (collectively the "Underlying Matters").

     4.9  Federal has asserted certain  coverage  defenses and other grounds for
not  paying  claims  relating  to the  Underlying  Matters,  as set forth in its
reservation  of rights  letters,  its Answer on file in the  Insurance  Coverage
Action  and  in  its  previously  filed  (but  dismissed,   without   prejudice)
Cross-Complaint in the Insurance Coverage Action.

     4.10 AMS has paid for  attorneys'  fees and costs incurred both by AMS, and
also by numerous present and/or former directors,  officers and/or employees, in
connection  with  the  Underlying  Matters.  AMS  contends  that it has  already
expended in excess of $10 million for such attorneys' fees and costs.

     4.11 AMS has stated its intention to incur future attorneys' fees and costs
both on  behalf  of  itself  and on behalf  of  various  present  and/or  former
directors, officers and/or employees, in connection with the Underlying Matters.

     4.12 AMS has advised the Insurers that it has reached a settlement with and
received a Memorandum of Understanding  related to such settlements (the "MOU"),
from the  plaintiffs  in the  Securities  Class Action  litigation,  offering to
resolve  that  litigation  for $6 million,  subject to court  approval.  AMS has
executed the MOU and the  settlement  of the  Securities  Class Actions has been
approved  by AMS' Board of  Directors  subject to funding by the  Carriers.  The
Parties to this Settlement  Agreement each dispute all of the  allegations  made
against  them by the  respective  opposing  Parties  in the  Insurance  Coverage
Action. By entering into this Settlement  Agreement the Parties do not intend to
admit  the  validity  of any  allegation  set forth in such  Insurance  Coverage
Action.  In fact,  it is a  material  provision  of this  Settlement  Agreement,
without  which  the  Parties  would  not  agree to enter  into  this  Settlement
Agreement,  that the Parties are not admitting such merits; and that the Parties
intend by the settlement of the Insurance  Coverage Action merely to resolve the
disputed issues, avoid further litigation and to have their peace.

     4.13 By this  Settlement  Agreement the Parties intend to effect a full and
final  resolution  and  settlement  of any and all  issues  with  respect to the



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Insurance  Coverage Action and/or the Underlying  Matters,  including claims for
damages,  attorneys'  fees and/or  costs,  regardless  of their nature or basis,
which arose, may have arisen,  or hereinafter may arise by reason of any manner,
cause or thing whatsoever, whether or not they were made a part of the Insurance
Coverage Action and/or the Underlying Matters.

5.   PAYMENT AND TERMS OF SETTLEMENT

     5.1  The Parties agree to the following  terms and conditions and expressly
acknowledge  that each of the terms and  conditions set forth below are material
to the Settlement Agreement,  without which the Parties would not have consented
to the settlement.

     5.2  Within 15 days of the execution of this  Agreement by AMS and Federal,
and executed copies of the signature pages being provided to all Parties hereto,
Federal shall pay, in accordance with the provisions of Schedule 5.2, the sum of
$1,750,000,  which represents the remaining policy limits less $3,250,000.  Said
payment  shall be held in trust  with such sums to be  released  as  payment  of
Defense  Costs  incurred  in  connection  with  the  Underlying  Matters  or  as
reimbursement of prior Defense Costs.

     5.3  The Parties expressly agree that payment by Federal, and acceptance by
AMS, of the amount referenced in Section 5.2, is not conditioned upon settlement
of the  Underlying  Matters or a global  settlement  of the  Insurance  Coverage
Action. Nor is AMS obligated to expend such funds for any specified purpose.

     5.4  (a) Within five court (5) days after receipt of the amount  referenced
in Section 5.2, AMS shall file a dismissal,  with  prejudice,  of the  Insurance
Coverage  Action as to  Federal;  . (b) the Parties  acknowledge  that the Court
sustained  the demurrer to Federal's  cross-complaint  with leave to amend.  (1)
Federal agrees that it will not file an amended cross-complaint against AMS; and
(2)  Federal  further  agrees  that it will not file an amended  cross-complaint
against  those  persons who may be  insureds  under the  Policy,  but  expressly
reserves its rights in accordance with paragraph 6.8 below.

6.   RELEASE AND DISCHARGE

     6.1  Except for the matters described in this Agreement and the obligations
created herein , AMS, on the one hand, and Federal, on the other hand, do hereby
fully release and forever  discharge  each other and their  respective  members,
corporate  parents,   subsidiaries,   affiliates,   divisions,   successors  and
predecessors,  and their  respective  directors,  officers,  employees,  agents,
counselors,  attorneys, partners, joint venturers, and trustees, of and from any
and all losses,  obligations,  duties, debts, costs, causes of action,  demands,
claims,  liabilities,  expenses  and  damages of any  nature or kind  whatsoever
(including punitive or exemplary damages, attorneys' fees or other relief of any
kind or character),  whether known or unknown, asserted or unasserted, direct or
derivative,  whether at law or in equity,  and whether past,  present or future,
arising  from or based upon the  Underlying  Matters or  anything  that has been
asserted,  or could have been asserted, in the Insurance Coverage Action, except



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that Federal does not release any person (other than AMS) who could, has or ever
does claim to be an insured  presenting  claims  under or pursuant to the Policy
(the "Release").  As to AMS' release of Federal,  such release is made by AMS on
its behalf  and,  to the  extent  legally  allowed,  on behalf of any person who
could,  has or ever does,  claim to be an insured  pursuant to the Policy.  This
Release, as to Federal,  shall include,  without limitation,  the release of any
and all claims  respecting the manner in which Federal  investigated,  responded
to,  handled  and  resolved  any  claims  under the  Policy  (including  without
limitation  all  claims  of  unfair  claims  handling  practices  or  settlement
practices,  and breach of the implied  covenant of good faith and fair  dealing,
whether  pursuant to specific  federal or state statutes or  regulations,  or at
common law), and any and all claims for reimbursement of monies paid by AMS.

     6.2  The  Parties  agree  that the  Release  contained  in this  Settlement
Agreement  is a full  release of the Policy,  and not solely a release of claims
made in the Insurance  Coverage Action. AMS acknowledges that this is a full and
final  release of the Policy and that no sums of money,  except as  expressed in
this  Agreement,  will be paid by Federal to AMS or any other person claiming to
be an insured under the Policy, as a result of the Insurance Coverage Action, or
as a result of any other claim, known or unknown,  past, present or future, that
might arise under the Policy.  The Parties  agree that the Policy will be deemed
null and void for no additional consideration paid to the insureds.

     6.3  It is expressly understood and agreed that there are other policies of
insurance,  other than the Policy,  which have been issued to AMS,  from time to
time, by Federal.  It is the intention of the Parties that the Release shall not
apply to any other  policies of insurance  except for any claims which are being
released pursuant to Paragraph 6.1.

     6.4  The  claims  and  matters  released  in  this  Paragraph  6  shall  be
collectively referred to herein as the "Released Matters."

     6.5  Waiver of Civil  Code  Section  1542.  Except as  otherwise  expressly
provided in this Settlement Agreement,  this Settlement Agreement extends to all
Released  Matters  whether or not claimed or  suspected  by the Parties  hereto,
which exist or existed up to and  including  the date of execution  hereof.  The
Parties acknowledge and agree that they are aware of, and understand the meaning
and effect of, California Civil Code Section 1542, which reads as follows:

          A GENERAL  RELEASE DOES NOT EXTEND TO CLAIMS  WHICH THE CREDITOR  DOES
          NOT  KNOW OR  SUSPECT  TO  EXIST  IN HIS OR HER  FAVOR  AT THE TIME OF
          EXECUTING  THE  RELEASE,  WHICH  IF  KNOWN  BY HIM OR  HER  MUST  HAVE
          MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.



<PAGE>

The Parties  agree to assume the risk of any and all unknown,  unanticipated  or
misunderstood  defenses,  claims, causes of action,  contracts,  liabilities and
obligations arising out of the Released Matters,  and hereby waive,  release and
forever  discharge  all  rights and  benefits  that such Party has or might have
under Section 1542 of the California Civil Code (and any statute,  rule or legal
doctrine of any other  jurisdiction of similar  import)  regarding such unknown,
unanticipated or misunderstood  defenses,  claims, causes of action,  contracts,
liabilities,  indentures and obligations as to the Released Matters.  Each Party
understands and accepts the risk that it may have substantial  claims or damages
that have not yet manifested,  or that are presently  unknown,  or that have not
yet been identified,  and each Party nonetheless intends to and does voluntarily
and deliberately release these possible claims and defenses.

     6.6  It is  expressly  understood  and agreed by each Party herein that the
facts with respect to which this Settlement  Agreement are given may hereinafter
turn out to be other than, or different from, the facts now known or believed by
the Party to be true, and that each Party expressly  assumes a risk of the facts
turning out to be so different,  and agrees that this Settlement Agreement shall
be in all respects  effective  and not subject to  termination  or rescission by
reason of any  difference  in the  facts.  Each  Party  hereto  understands  and
acknowledges the significance and consequence of such specific waiver of unknown
claims and hereby assumes full responsibility for any injuries,  damages, losses
or liabilities that they hereinafter incur or may incur from the waiver of these
unknown claims.

     6.7  The Parties have entered into this Settlement  Agreement as a means of
finally  compromising,  settling  and  resolving  all  disputes,  controversies,
questions  and  issues  among  them  relating  to the  injuries  alleged  in the
Insurance Coverage Action. Nothing herein shall be construed or interpreted as a
concession  or  admission  by the Parties  with respect to any issue or claim in
dispute  between them or with respect to any dispute either of them may have now
or in the  future.  Neither  this  Settlement  Agreement,  nor  anything in this
Settlement  Agreement,  nor  any  part  of the  negotiations  had in  connection
herewith,  may be used for any  purpose or in any manner by either  Party in any
suit or proceeding of any kind,  except as may be necessary to enforce the terms
of this Settlement  Agreement.  This Settlement Agreement constitutes the entire
Settlement  Agreement and  understanding  between the Parties  hereto,  and this
Settlement  Agreement  replaces,  cancels  and  supersedes  any  and  all  other
understandings or undertakings of the Parties, if any, which may have been made.

     6.8  Although the  Released  Matters do not include a release by Federal of
any person  (other than AMS) who could,  has or ever does claim to be an insured
pursuant to the Policy,  Federal hereby agrees,  represents and warrants that it
will not bring  litigation  against such a person  which  relates to the Policy,
unless  and until  such a person  first  either:  a) brings  litigation  against
Federal  which  relates to the Policy;  or, b) asserts a claim  against  Federal
which  relates to the Policy and refuses to withdraw  that claim  within 10 days
after AMS has been notified, by Federal, of such assertion.



<PAGE>

     6.9  Subject  to the  restrictions  in Section  6.8,  AMS agrees to defend,
indemnify and hold Federal  harmless  against or in  connection  with any claim,
liabilities,  damages,  attorneys' fees, costs or expenses,  incurred by Federal
resulting  from any claims  made by any person  who is not a  signatory  to this
Settlement  Agreement  and who claims to be an insured  under or pursuant to the
Policy.  AMS shall have the right to settle any such matter in any manner  which
it  deems  appropriate,  to the  extent  that  it  does  not  require  financial
contribution and/or any waiver of rights by Federal (other than a mutual release
between Federal and the claimant), all subject to Federal's consent, which shall
not be  unreasonably  withheld.  In providing a defense,  AMS shall not have the
right to select counsel or to control the defense in any manner, except that AMS
shall have the right to  associate  counsel  for the purpose of  monitoring  the
matter and for the  provision  of strategic  advice to AMS and Federal.  Federal
shall have the right to retain counsel of its own  selection,  to incur fees and
costs as is  reasonably  necessary  to defend  any claims and to settle any such
claims, but only after such counsel and billing  arrangements have been approved
in writing by AMS,  all subject to AMS' review and  consent,  which shall not be
unreasonably withheld.  Such counsel shall be counsel typically retained in such
matters and with billing rates and policies that are consistent  with Cumis rate
limitations.

7.   REPRESENTATIONS AND WARRANTIES.

     Each Party represents and warrants as follows:

     7.1  Each Party and its attorneys have made such investigation of the facts
pertaining to this  settlement  and this  Settlement  Agreement,  and all of the
matters pertaining thereto, as they deem necessary.

     7.2  Except as expressly stated in this Settlement Agreement,  no Party has
made any  statement  or  representation  to any other Party  regarding  any fact
relied upon by any other Party in entering into this Settlement  Agreement,  and
each Party  specifically  does not rely upon any  statement,  representation  or
promise of any other Party in executing the Settlement  Agreement,  or in making
the settlement provided for herein.

     7.3  The terms of this  Settlement  Agreement are  contractual,  not a mere
recital, and are the result of negotiation among the Parties.

     7.4  Each Party  relies on the finality of this  Settlement  Agreement as a
material factor inducing the Party's execution of this Settlement Agreement, and
the payments and obligations assumed by this Settlement Agreement.

     7.5  Each Party agrees that such Party will not take any action which would
interfere with the  performance  of the Settlement  Agreement by any other Party
hereto or which would adversely affect any of the rights provided for herein.



<PAGE>

     7.6  Each  person  executing  this  Settlement   Agreement  represents  and
warrants  that he or she has taken all actions and obtained all  authorizations,
consents and  approvals as are  conditions  precedent to his or its authority to
execute this Settlement Agreement.

     7.7  Each  Party  represents  and  warrants  to the other that they are not
aware of any assignment, hypothecation, or other transfer of any interest in the
claim or claims which are the subject of this Settlement Agreement.

8.   CONFIDENTIALITY

     8.1  The Parties acknowledge that AMS has disclosure  obligations  relating
to this Agreement such that general  confidentiality  may be impractical  and/or
impossible.   However,   the  Parties  agree  to   confidentiality  of  specific
information as set forth below.

     8.2  AMS is also entering into a settlement  agreement with CNA and Liberty
Mutual  which is a  separate  transaction  and forms no part of this  Agreement.
Subject to the  provisions  of section 8.3, the Parties  agree that the separate
dollar amount of payment by CNA, by Liberty  Mutual  and/or by Federal,  will be
treated as confidential  and not disclosed.  Specifically,  it is understood and
agreed that the total dollar amount of the settlement payments, in the aggregate
($10,150,000)  will not be  confidential,  but the amount of contribution by any
individual insurer is confidential.

     8.3  The Parties may disclose the confidential information: (1) as required
by a Court Order (subject to Section 8.4); (2) in an action or other  proceeding
among the Parties,  or any of them,  regarding  enforcement of the terms of this
Agreement;  (3) by agreement,  in writing,  among the Parties to this Agreement;
(4) to their counsel, auditors,  accountants,  reinsurers and agents; (5) to any
governmental agency, if such disclosure is required by law, while exercising all
reasonably available options to preserve confidentiality on such disclosure; (6)
publicly,  if the Party is  advised by legal  counsel  that such  disclosure  is
required by law.

     8.4  All  Parties  hereto  shall  cooperate  to  protect  the  confidential
information  from  disclosure.  If any Party to this  Agreement is served with a
demand or request to produce such confidential information such Party shall give
written  notice  to the other  Parties.  Such  notice  shall be given as soon as
reasonably  practicable,  but not  later  than ten days  after  receipt  of such
disclosure demand or request.

9.   GOOD FAITH NEGOTIATIONS

     9.1  The Parties agree and  acknowledge  that all  negotiations by them and
their  representatives  in  connection  with the  matter set forth  within  this
Settlement  Agreement have been conducted in complete good faith and without any
collusion, unfair practices, or tortious conduct of any kind.



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10.  UNDERLYING FACTS AND LAW

     10.1 The law or facts on  which  this  Settlement  Agreement  is based  may
hereafter  turn  out to be other  than or  different  from  those  now  known or
believed by the Parties to be true. The Parties have assumed the risk of the law
or facts turning out to be different and/or being changed by subsequent judicial
and/or legislative  action.  This Settlement  Agreement shall be in all respects
effective  and not subject to  termination  or  rescission by reason of any such
difference in the law or facts.

11.  ENTIRE AGREEMENT AND CONSTRUCTION

     11.1 The terms of this Settlement  Agreement are intended by the Parties as
a final  expression of their agreement with respect to such terms and may not be
contradicted by evidence of any prior or contemporaneous agreement. The language
in all  parts  of this  Settlement  Agreement  shall in all  cases be  construed
simply,  according to its fair  meaning,  and not strictly for or against any of
the Parties hereto. This Settlement Agreement was the subject of negotiation and
revision  between  Parties  represented  by  counsel.  It is agreed that for the
purposes of interpreting  this Settlement  Agreement each and every provision is
assumed to have been jointly drafted.

12.  MODIFICATIONS, AMENDMENTS, WAIVERS AND EXTENSIONS

     12.1 This   Settlement   Agreement   may  not  be   modified,   changed  or
supplemented,  nor may any obligations hereunder be waived or extensions of time
for performance granted,  except by written instrument signed by the Party to be
charged or by its agent duly  authorized  in writing or as  otherwise  expressly
permitted  herein.  No waiver of any breach of any agreement or provision herein
contained shall be deemed a waiver of any preceding or succeeding breach thereof
or of any other agreement or provision  herein  contained.  No extension of time
for  performance of any  obligations or acts shall be deemed an extension of the
time for performance of any other obligations or acts.

13.  ASSIGNMENTS

     13.1 This  Settlement  Agreement and the rights,  duties,  and  obligations
hereunder  may not be  assigned  or  delegated  by any Party  without  the prior
written  consent of the other Party.  Any  assignment of rights or delegation of
duties or obligations  hereunder  made without the written  consent of the other
Party hereto shall be void and be of no effect.

14.  COOPERATION

     14.1 The Parties shall  cooperate fully and execute and deliver any and all
supplementary  documents  and take any and all  additional  actions which may be
necessary  or  appropriate  to give  full  force and  effect to this  Settlement
Agreement.



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15.  RELATIONSHIP BETWEEN PARTIES

     15.1 This Settlement  Agreement creates no agency relationship  between the
Parties  hereto,  and nothing herein  contained  shall be construed to place the
Parties in the relationship of partners or joint venturers.

16.  AUTHORITY

     16.1 Each Party  represents  and  warrants  that it is duly  authorized  to
execute and deliver this Settlement Agreement and that this Settlement Agreement
is binding upon and enforceable against said Party in accordance with its terms.

17.  GOVERNING LAW AND VENUE

     17.1 This  Settlement  Agreement shall be governed by,  interpreted  under,
construed and enforced in accordance with the substantive and procedural laws of
the State of  California.  The Parties agree that the courts  (whether  state or
federal) of San Diego,  California,  shall have sole and exclusive  jurisdiction
over any dispute,  whether  between the  Parties,  or between one or more of the
Parties  and any Party  claiming  to be an intended  beneficiary,  whether  such
dispute  relates to the formation ,  interpretation  and/or  enforcement of this
Settlement  Agreement,  and/or any alleged tort claims relating thereto, and the
Parties consent to the jurisdiction of such courts.

18.  ADVICE OF COUNSEL

     18.1 Each Party has received  independent  legal  advice from  attorneys of
their  choice with  respect to entering  into this  Settlement  Agreement.  This
Settlement  Agreement has been carefully read by each Party and is signed freely
by each Party.

19.  JOINT PREPARATION

     19.1 This  Settlement  Agreement  shall  be  deemed  to have  been  jointly
prepared by the Parties, and any uncertainty or ambiguity contained herein shall
not be interpreted more strongly against either of them as the "drafter" of this
Settlement Agreement.

20.  COUNTERPARTS

     20.1 This  Settlement  Agreement may be executed in  counterparts,  each of
which  shall be  deemed  an  original,  but all of which  taken  together  shall
constitute but one and the same  instrument.  Facsimile and PDF signatures shall
be acceptable.



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21.  HEADINGS

     21.1 The  section  and  paragraph   headings   contained   herein  are  for
convenience only and are not intended to define,  limit or describe the scope or
intent of any provision of this Settlement Agreement.

22.  MISCELLANEOUS

     22.1 Notices. All notices, demands, invoices, requests, consents, approvals
or other communications  (collectively the "Notices") given with respect to this
Settlement  Agreement shall be in writing and may be personally served,  sent by
telephone  facsimile  ("fax"),  or may be deposited  in the United  States mail,
addressed as follows:


If to AMS:                     Steven Brower
                               Stephan, Oringher, Richman, Theodora & Miller
                               535 Anton Boulevard, Ninth Floor
                               Costa Mesa, California 92626
                               Telephone: (714) 549-5150
                               Email: sbrower@sortm.com


If to Federal:                 Michael F. Perlis
                               Stroock & Stroock & Lavan LLP
                               2029 Century Park East, Suite 1800
                               Los Angeles, CA  90067-3086

or to such other  address as such Party shall have  specified  most  recently by
written  notice.  Notice  shall  be  deemed  given  on the  date of  service  if
personally served or on the date of telexing, telecopying,  faxing, or e-mail if
telexed,  telecopied, or sent by fax or e-mail. Notice mailed as provided herein
shall be deemed given on the tenth business day following



<PAGE>

the date so mailed.

     IN WITNESS  HEREOF,  the Parties have  executed this  Settlement  Agreement
effective as of the date first above written. Advanced Marketing Services, Inc.


     /s/ Gary M. Rautenstrauch
------------------------------------
By   Gary M. Rautenstrauch
     -------------------------------
It's President and CEO
     -------------------------------

Federal Insurance Company

     /s/ Allison Rose
------------------------------------
By   Allison Rose
     -------------------------------
It's Sr. Specialty Claims Examiner
     -------------------------------