Exhibit 10.1



                    SETTLEMENT AGREEMENT AND GENERAL RELEASE

     This Settlement  Agreement and General Release  ("Settlement  Agreement" or
"Agreement") is made and entered into pursuant to the following terms.

1.   THE PARTIES TO THE SETTLEMENT AGREEMENT

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

     1.2  Columbia  Casualty  Company,  Continental  Casualty  Company,  and CNA
Financial Corporation (jointly "CNA").

     1.3  Liberty Mutual Insurance Company ("Liberty Mutual").

     1.4  Columbia   Casualty   Company   and  Liberty   Mutual  are   sometimes
collectively referred to herein as the "Insurers." (Subject to the provisions of
paragraph 10, it is agreed that CNA Financial  Corporation is not an insurer and
that  Continental  Casualty  Company did not issue any  insurance  policy to AMS
relevant to the matters that are the subject of this Agreement.)

     1.5  AMS, CNA, and Liberty  Mutual are sometimes  collectively  referred to
herein as "the Parties" and sometimes individually as a "Party."

2.   THE INSURANCE POLICIES

     2.1  Columbia  Casualty  Company issued  Combined  Solutions  Policy Number
267868733  to AMS for the policy  period  April 28,  2003 to April 28, 2004 (the
"Columbia  Casualty  Policy").  The Columbia  Casualty Policy contains a maximum
aggregate Limit of Liability for all Loss under the Policy of $5 million.

     2.2  Liberty  Mutual  Insurance  Company  issued  Excess Follow Form Policy
Number  192825-013 to AMS for the policy period April 28, 2003 to April 28, 2004
(the "Liberty  Mutual  Policy").  The Liberty  Mutual Policy  contains a maximum
Limit of Liability for all loss of $5 million in excess of the Columbia Casualty
Policy's  Limit of Liability  and any  applicable  Retention  under the Columbia
Casualty Policy.

     2.3  The Columbia Casualty Policy and Liberty Mutual Policy,  collectively,
are sometimes referred to herein as the "Policies."

3.   THE COVERAGE ACTION

     3.1  The "Coverage Action" refers to the case captioned  Advanced Marketing
Services,  Inc. v. Columbia Casualty Company, et al., Case No. GIC 832603, which
is pending in San Diego Superior Court.



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     3.2  Liberty Mutual has filed a  Cross-Complaint  in the Coverage Action. A
demurrer was sustained as to that  Cross-Complaint.  No Amended  Cross-Complaint
has yet been filed.

4.   RECITALS

     4.1  In July 2003,  the U.S.  District  Court for the Southern  District of
California  issued a search  warrant  to the  Federal  Bureau of  Investigation,
authorizing  a search of AMS's  corporate  offices,  and the FBI  executed  that
warrant.

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

     4.3  In  September   2003,  the  United  States   Securities  and  Exchange
Commission began an  investigation  of AMS and subsequently  issued subpoenas to
certain of AMS's present and/or former officers, directors and/or employees, and
to AMS's 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  In or around January and February 2004, several purported class action
securities lawsuits were filed against AMS and others. These lawsuits have since
been consolidated  under the case captioned In re Advanced  Marketing  Services,
Inc. Securities Litigation,  Master File No. 04-00121 JM (AJB), which is pending
in the United States District Court for the Southern District of California (the
"Securities Litigation").

     4.6  In or around January 2004, two derivative  lawsuits were filed against
certain  individuals alleged to be directors and officers of AMS, with AMS named
as a nominal  defendant.  These lawsuits have since been consolidated  under the
case captioned In re Advanced Marketing Services,  Inc.  Derivative  Litigation,
Lead Case No.  GIC824845,  which is  pending  in San Diego  Superior  Court (the
"State Court Derivative Litigation").

     4.7  On or around April 6, 2005, a derivative  lawsuit captioned Dubbert v.
Bartlett,  et al., No.  05CV706H(RBB),  was filed  against  certain  individuals
alleged to be directors and officers of AMS, with AMS as a nominal defendant, in
the United States  District Court for the Southern  District of California  (the
"Dubbert Action").

     4.8  In addition,  other  lawsuits were filed and  indictments  were issued
against directors,  officers, or employees of AMS, including but not necessarily
limited to lawsuits filed or indictments  issued by the United States and/or its
agencies against Karyn Larko and Marcy Roke.



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<PAGE>

     4.9  AMS has sought  coverage  under the Policies for the matters listed on
Exhibit "A" to this Agreement (collectively, the "Underlying Matters"). Columbia
Casualty has denied coverage for some Underlying  Matters and accepted  possible
coverage  for other  Underlying  Matters  under a full  reservation  of  rights.
Liberty has not accepted  coverage for any of the  Underlying  Matters under the
Liberty Mutual Policy.  Columbia  Casualty has reserved the right to rescind the
Columbia  Casualty  Policy,  and Liberty  Mutual,  in its  Cross-Complaint,  has
asserted a claim for rescission of the Liberty Mutual Policy.

     4.10 AMS  disputes the  Insurers'  coverage  positions  with respect to the
Underlying Matters,  and specifically  disputes that there is a basis to rescind
the Policies.

     4.11 AMS has paid  attorneys'  fees and costs  incurred  by AMS and present
and/or former  directors,  officers  and/or  employees of AMS in connection with
some or all of the Underlying Matters.  AMS has requested from Columbia Casualty
and Liberty Mutual payment of invoices totaling at least $14,369,461.60, and has
contended that such invoices constitute covered Defense Costs within the meaning
of the Policies.

     4.12 AMS contends that all of the attorneys'  fees and costs it has paid to
date in connection with some or all of the Underlying Matters constitute covered
"Defense  Costs" within the meaning of the Policies,  and Columbia  Casualty and
Liberty Mutual dispute that contention.

     4.13 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.

     4.14 Plaintiffs  in the  Securities  Litigation  and AMS  have  reached  an
agreement to settle the Securities Litigation for payment by or on behalf of AMS
of $6 million and releases by the plaintiff  class of claims against AMS and all
of its current and former directors, officers, agents, employees, etc. The terms
of the  settlement  are  embodied  in a  Memorandum  of  Understanding  that was
executed by counsel for the Lead Plaintiff in the Securities  Litigation and AMS
on February  17,  2006.  The Board of AMS has  approved  the  settlement  of the
Securities  Litigation  subject to funding by the  carriers.  Settlement  of the
Securities Litigation is subject to approval by the United States District Court
for the Southern District of California.

     4.15 Prior to execution of this  Settlement  Agreement,  Columbia  Casualty
paid the sum of $798,341.41 to AMS for amounts that Columbia Casualty determined
constituted  Defense Costs within the meaning of the Columbia  Casualty  Policy,
without  waiver of any of its  rights  under  the  Columbia  Casualty  Policy or
applicable  law,  including,  but not limited to, the right to seek repayment by
AMS for amounts  advanced that are finally  established  not to be insured,  and
subject to AMS's written undertaking to repay such amounts.



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<PAGE>

     4.16 The  Parties   hereby   enter  into  the   Settlement   Agreement   in
consideration of the foregoing and in consideration of the promises,  covenants,
releases and agreements set forth herein, the adequacy of which consideration is
hereby acknowledged.

5.   PAYMENT AND DISMISSALS

     5.1  AMS/CNA Settlement:

          5.1.1 This  Agreement  shall be  effective as between AMS and CNA when
this  Agreement has been executed by or on behalf of AMS and CNA  independent of
whether this Agreement also has been executed by or on behalf of Liberty Mutual.

          5.1.2 On or before May 11,  2006,  but not before this  Agreement  has
been  executed by AMS and CNA and executed  copies of the  signature  pages have
been provided to all Parties hereto,  Columbia Casualty shall pay or cause to be
paid, the sum of $4,151,658.59,  which payment shall be deemed to have exhausted
the  remaining  Limit of  Liability of the  Columbia  Casualty  Policy (the "CNA
Settlement Payment").  Columbia Casualty will deliver the CNA Settlement Payment
to Valley National Bank pursuant to the instructions set forth in Schedule 5.1.2
hereto.  The CNA  Settlement  Payment will be deposited by Valley  National Bank
directly  into the escrow  account  referenced  in  Schedule  5.1.2  hereto (the
"Securities  Litigation  Escrow  Account")  to be held  in  trust  to  fund  the
settlement of the Securities Litigation.

          5.1.3 AMS shall dismiss the Coverage  Action with prejudice as to CNA,
each party to bear its own costs,  within  five (5) court days after  deposit of
the CNA Settlement Payment into the Securities Litigation Escrow Account.

          5.1.4 Upon  dismissal of the Coverage  Action with prejudice as to CNA
as set forth in Section  5.1.3 of this  Agreement,  Section 6 of this  Agreement
shall be deemed  effective as between AMS and CNA.  This shall be  understood as
including,  but not be limited to, a relinquishment  of any rights which CNA may
have had pursuant to the  Undertaking  of Repayment  executed by AMS on July 22,
2004.

          5.1.5 Should the settlement of the Securities  Litigation as described
in Section 4.14 of this Agreement not be consummated,  for whatever reason, then
the CNA Settlement Payment shall be paid out of the Securities Litigation Escrow
Account  directly to AMS as a final  resolution  of AMS's claim  against CNA for
reimbursement of Defense Costs.



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     5.2  AMS/Liberty Mutual Settlement:

          5.2.1 This  Agreement  shall be  effective  as between AMS and Liberty
Mutual when this  Agreement has been executed by or on behalf of AMS and Liberty
Mutual,  independent  of whether this  Agreement also has been executed by or on
behalf of CNA.

          5.2.2 On or before May 11,  2006,  but not before this  Agreement  has
been  executed by AMS and Liberty  Mutual and executed  copies of the  signature
pages have been  provided to all Parties  hereto,  Liberty  Mutual  shall pay or
cause to be paid, in accordance with the provisions of Schedule  5.2.3,  the sum
of  $3,450,000,  which payment  shall be deemed to have  exhausted the remaining
Limit of  Liability  of the  Liberty  Mutual  Policy,  including  all claims for
Defense Costs thereunder (the "Liberty Mutual Settlement Payment").

          5.2.3 AMS and  Liberty  Mutual  expressly  agree  that  payment of the
Liberty Mutual  Settlement  Payment is not  conditioned  upon  settlement of any
Underlying  Matter(s).  However,  it is agreed by AMS and  Liberty  Mutual  that
Liberty Mutual will deliver the Liberty Mutual Settlement  Payment in accordance
with Schedule 5.2.3 hereto to be held in trust and  distributed as follows:  (a)
if the settlement of the  Securities  Litigation as described in Section 4.14 of
this Agreement is consummated,  then an amount equal to such settlement  payment
less the amount of the CNA Settlement Payment shall be released and delivered to
AMS as  reimbursement of amounts paid to settle the Securities  Litigation;  (b)
any remaining portion of the Liberty Mutual Settlement Payment shall be released
and  delivered  as  payment or  reimbursement  of  Defenses  Costs  incurred  in
connection with the Underlying Matters.  The foregoing,  together with the other
terms and provisions  herein,  shall be accepted by AMS as a final resolution of
AMS's claim against Liberty Mutual for  reimbursement  of Defense Costs incurred
in connection with the Underlying Matters.

          5.2.4 AMS shall  dismiss  the  Coverage  Action with  prejudice  as to
Liberty  Mutual,  each party to bear its own costs,  within  five (5) court days
after  deposit  of the  Liberty  Mutual  Settlement  Payment  into  the  account
identified on Schedule 5.2.3.

          5.2.5 Upon  the   dismissals  set  forth  in  Section  5.2.4  of  this
Agreement,  Section 6 of this Agreement shall be deemed effective as between AMS
and Liberty Mutual.

6.   RELEASES

     6.1  This Section 6 shall become effective between the Parties only at such
time, and between such Parties, as specified in Section 5 of this Agreement.

     6.2  AMS,  for  and  on  behalf  of  itself  and,  to  the  extent  legally
permissible, on behalf of its predecessors,  successors, successors in interest,
affiliates,  subsidiaries,  parents, divisions, partnerships and joint ventures,
and all of the  foregoing  persons'  and  entities'  past,  present  and  future



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<PAGE>

associates, representatives, owners, members, managing members, managers, heirs,
assigns,  shareholders,  creditors,  liquidators,   administrators,   executors,
partners,   principals,   trustees,  directors,  officers,  employees,  spouses,
independent  contractors,  attorneys,  agents, and all others acting or claiming
by,  through,  under or in concert with any of the  foregoing  (hereinafter  the
"AMS-Related  Persons and  Entities"),  hereby  releases,  remises,  acquits and
forever  discharges  CNA and Liberty Mutual and their  respective  predecessors,
successors,   successors  in  interest,   affiliates,   subsidiaries,   parents,
divisions,  partnerships and joint ventures,  and all of the foregoing entities'
past, present and future associates, representatives,  owners, members, assigns,
insurers,  reinsurers, claims managers,  shareholders,  creditors,  liquidators,
administrators,  executors, partners, principals, trustees, directors, officers,
employees, independent contractors,  attorneys, agents, and all others acting or
claiming  by,   through,   under  or  in  concert  with  any  of  the  foregoing
(hereinafter, the "CNA-Related Persons and Entities" and "Liberty Mutual-Related
Persons and Entities,"  respectively) from any and all claims (including without
limitation all rights and claims for fraud or misrepresentation,  or pursuant to
any applicable  statute,  case law, and/or doctrine,  for any alleged failure to
effectuate  prompt,  fair  and  equitable  investigation  or  settlement  of the
Underlying  Matters or any matter that is the subject of this Agreement,  or for
any  actions  taken or not  taken in  connection  therewith,  or for  breach  of
statutory  duties,  or for breach of the covenant of or other alleged  duties of
good faith and fair dealing in connection therewith),  debts, duties,  benefits,
costs, expenses,  judgments,  settlements,  actions,  causes of action, demands,
obligations,   liabilities,   promises,   acts,   agreements,   rights,  damages
(including, but not limited to, compensatory,  contractual, bad faith, punitive,
exemplary,  statutory  or  extra-contractual  damages,  or any  other  damages),
losses, attorneys' fees, or other relief of any kind or character, whether known
or unknown, suspected or unsuspected,  asserted or unasserted, whether at law or
in equity,  which AMS or the  AMS-Related  Persons and  Entities now have or may
hereafter accrue against CNA or the CNA-Related Persons and Entities, or Liberty
Mutual or the Liberty  Mutual-Related  Persons and Entities,  or any of them, by
reason of, in connection  with,  based on, arising out of, related to, or in any
way involving:  (1) the Coverage Action, (2) the Underlying  Matters,  including
but not  limited  to the  Securities  Litigation,  the  State  Court  Derivative
Litigation,  and the Dubbert Action, (3) any matter described in the Recitals to
this Agreement, (4) the facts, circumstances, events, or allegations asserted in
or  underlying  the Coverage  Action,  the  Underlying  Matters,  or the matters
described in the Recitals to this Agreement,  (5) the Columbia  Casualty Policy,
and/or (6) the Liberty Mutual Policy.  This release will not apply to claims for
breach of this Agreement.


     6.3  CNA  and  Liberty  Mutual,  for and on  behalf  themselves  and  their
respective  Related  Persons and Entities,  hereby release,  remise,  acquit and
forever discharge AMS from any and all claims, debts, duties,  benefits,  costs,
expenses,   judgments,   settlements,   actions,   causes  of  action,  demands,
obligations,  liabilities,  promises, acts, agreements, rights, damages, losses,
attorneys'  fees,  or other relief of any kind or  character,  whether  known or
unknown, suspected or unsuspected,  asserted or unasserted, whether at law or in
equity, which CNA or the CNA-Related Persons and Entities,  or Liberty Mutual or
the Liberty Mutual-Related Persons and Entities, or any of them, now have or may
hereafter accrue against AMS by reason of, in connection with, based on, arising



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<PAGE>

out of, related to, or in any way involving:  (1) the Coverage  Action,  (2) the
Underlying Matters,  including but not limited to the Securities Litigation, the
State  Court  Derivative  Litigation,  and the  Dubbert  Action,  (3) any matter
described  in the  Recitals  to this  Agreement,  (4) the facts,  circumstances,
events,  or  allegations  asserted in or  underlying  the Coverage  Action,  the
Underlying  Matters, or the matters described in the Recitals to this Agreement,
(5) the Columbia  Casualty  Policy,  and/or (6) the Liberty Mutual Policy.  This
release will not apply to claims for breach of this Agreement.

     6.4  Except as provided in Paragraph 6.5 of this Agreement,  this Agreement
shall not affect  any  Party's  rights  under or with  respect to any  insurance
policy issued by CNA or Liberty Mutual to AMS other than the Policies.

     6.5  Notwithstanding   Paragraph  6.4  of  this  Agreement,  or  any  other
provision of this Agreement, this Agreement, including the releases set forth in
Paragraphs  6.2 and 6.3,  shall apply fully to any request for  coverage for the
matters  released in this Agreement,  whether under the CNA Policy,  the Liberty
Mutual Policy, or any other insurance policy issued by CNA or Liberty to AMS.

7.   INDEMNITY AND HOLD HARMLESS IN FAVOR OF CNA AND LIBERTY

     7.1  AMS agrees to  indemnify,  defend,  and hold  harmless CNA and Liberty

Mutual and their respective Related Persons and Entities, or any of them, in the
event that an individual or entity  purporting to be entitled to coverage  under
the Columbia  Casualty Policy and/or the Liberty Mutual Policy, or any attorney,
agent,  representative,  spouse, heir, executor,  administrator,  successor,  or
assign of any such individual or entity,  seeks coverage from CNA or its Related
Persons or Entities,  or Liberty Mutual or its Related  Persons or Entities,  or
any of them, for claimed  Defense  Costs,  Loss, or other losses with respect to
the  matters  released  in this  Agreement.  AMS will defend CNA and its Related
Persons and  Entities  and Liberty  Mutual and its Related  Persons and Entities
with  respect  to any and all such  claims  and  will pay 100% of any  resulting
liability.  CNA and Liberty Mutual,  jointly as to claims asserted  against both
CNA and Liberty Mutual,  CNA, as to claims asserted against CNA but not Liberty,
and Liberty,  as to claims  asserted  against  Liberty Mutual but not CNA, shall
have the right to select  counsel to defend such claims,  subject to the consent
of AMS, which shall not be unreasonably  withheld. CNA and/or Liberty Mutual, as
applicable,  shall have the right to direct such counsel  concerning the defense
of the claim, subject to reasonable cooperation and consultation with AMS.

8.   REPRESENTATIONS AND WARRANTIES

     8.1  Representations and Warranties by AMS Relating to AMS's Solvency: AMS
represents and warrants that: (1) AMS has sufficient  resources to pay its debts
as they come due; (2) there is currently no petition in bankruptcy, voluntary or
involuntary, on file in any court involving AMS as debtor (as distinguished from
creditor  and/or  claimant);  (3) AMS has no present  intent to file a voluntary



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petition in bankruptcy;  (4) to the best of AMS's knowledge,  no creditor of AMS
intends to file an involuntary  bankruptcy  petition against AMS; and (5) to the
extent  permitted and required under  applicable  law, as such may be limited by
general principles of corporate, bankruptcy or insolvency law, AMS will continue
to indemnify,  and pay attorneys' fees and costs incurred by, its present and/or
former  directors,  officers and  employees in  connection  with the  Underlying
Matters to the fullest extent permitted by law.

     8.2  No  Assignment:  The Parties  represent and warrant that they have not
assigned, sold, transferred or otherwise disposed of any of the claims, demands,
rights,  or causes  of  action  released  in this  Agreement,  that they are the
current  holders of all such claims,  and that no future  assignment or transfer
will be made  without  the prior  written  consent of all other  Parties to this
Agreement.  Any  assignment  of rights or  delegation  of duties or  obligations
hereunder  made without the written  consent of each other Party hereto shall be
void and of no effect.

     8.3  Authority:   Each  of  the  undersigned   individuals  executing  this
Agreement on behalf of his respective  Party  represents and warrants that he or
she is  authorized  to enter into and execute  this  Agreement on behalf of such
Party,  that the appropriate  corporate  resolutions or other consents have been
passed and/or obtained,  and that this Agreement will be binding on the Party on
whose behalf it is executed.

     8.4  Advice of Counsel:  Each Party hereby represents,  agrees and warrants
to each  other  Party:  (a) that he,  she,  or it has  made  and  executed  this
Agreement with the advice and counsel of  independently  selected legal counsel;
(b) that he,  she,  or it has not relied upon a  representation,  disclosure  or
nondisclosure by any other Party not explicitly provided in this Agreement;  and
(c) that he,  she,  or it has not been  coerced  or  induced  to enter into this
Agreement by any improper action of any other Party.

     8.5  Indemnity and Hold  Harmless:  AMS  expressly  covenants and agrees to
indemnify,  defend and hold harmless CNA and Liberty Mutual and their respective
Related Persons and Entities,  and CNA and Liberty and their respective  Related
Persons and Entities expressly covenant and agree to indemnify, defend, and hold
harmless  AMS of and  from  any and all  losses,  costs,  damages,  liabilities,
claims, suits,  proceedings,  demands,  causes of action and expenses (including
costs of investigation, defense of legal action, and reasonable attorneys' fees)
arising out of or resulting  from a breach by such Party of the  representations
and  warranties  contained  in this  Agreement,  whether  in this  Section  8 or
elsewhere in this Agreement.

9.   RELEASE OF UNKNOWN CLAIMS.

     9.1  The  Parties,  and  each  of  them,  acknowledge  their  awareness  of
California Civil Code Section 1542, which reads as follows:



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     Section  1542.  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.

It is the intention of each of the Parties to waive his, her, or its  respective
rights under that section and any statute,  rule,  or legal  doctrine of similar
import for any and all matters  released  herein.  In waiving the  provisions of
Section 1542 of the California Civil Code and similar statutes,  rules, or legal
doctrines,  the Parties, and each of them, expressly  acknowledge and understand
that they may hereafter  discover  facts in addition to or different  from those
which they now  believe to be true with  respect  to the  subject  matter of the
matters  released  herein,  but  expressly  agree  that  they have  taken  these
possibilities  into account in electing to  participate in this  Agreement,  and
that the  releases  given  herein  shall be and  remain  in  effect  as full and
complete  releases  notwithstanding  the  discovery  or  existence  of any  such
additional  or  different  facts,  as to which  the  Parties,  and each of them,
expressly assume the risk.

     9.2  In entering  into this  Agreement,  each Party assumes the risk of any
mistake.  Subject to the  possibility of this Agreement  terminating or becoming
null and void as expressly set forth  therein,  this Agreement is intended to be
and is a final and binding agreement among the Parties, regardless of any claims
of mistake of fact or law.

10.  NO ADMISSION OF LIABILITY

     10.1 This  Agreement  is intended to be, and is, a  compromise  of disputed
claims among the Parties and shall not be construed as an admission with respect
to coverage  under the Policy or any other  policy,  or of any  liability by any
Party to any other Party or person for any purpose  whatsoever.  This  Agreement
shall not be used in any  proceeding or hearing to create,  prove,  or interpret
the  obligations  under,  or terms and conditions of, any other agreement or any
alleged insurance policy.

11.  NO FURTHER ACTIONS

     11.1 The Parties understand,  acknowledge and agree that this Agreement may
be  pleaded  as a full and  complete  defense  to,  and  used as a basis  for an
injunction against, any action, suit or other proceeding that may be instituted,
prosecuted or attempted in breach of this  Agreement or in  connection  with any
matter released pursuant to this Agreement.

12.  CONSTRUCTION OF AGREEMENT

     12.1 This  Agreement will not be construed  against the Party  preparing it
but will be  construed  as if all  Parties had  prepared  it, and it will not be
construed against any Party because that Party is or may be an insurer.



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13.  ENTIRE AGREEMENT

     13.1 This Agreement and the Policies  constitute the entire agreement among
the Parties with respect to the subject matter  hereof,  and supersede all other
prior discussions,  agreements and understandings,  both written and oral, among
the Parties with respect thereto.

14.  SUCCESSORS AND ASSIGNS

     14.1 The Parties agree that this  Agreement  will be binding upon and inure
to the benefit of the Parties and their Related Persons and Entities  (except as
may  be  otherwise   specifically  provided  for  in  this  Agreement)  and  any
corporation,  partnership  or other  entity into which  either of the  corporate
Parties may merge, consolidate or reorganize.

15.  MODIFICATIONS, AMENDMENTS, WAIVERS AND EXTENSIONS

     15.1 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.

16.  COOPERATION

     16.1 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.

17.  RELATIONSHIP BETWEEN PARTIES

     17.1 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.

18.  FORCE MAJEURE

     18.1 In the event that any Party is prevented from performing, or is unable
to perform,  any of its obligations  under this Settlement  Agreement due to any
act of God, fire, casualty,  loss, flood, war,  insurrection,  failure of public
utilities,  epidemic,  or destruction of facilities,  then the affected  Party's
performance  shall be excused and the time for performance shall be extended for
the period of delay or inability to perform due to such occurrence.



                                  Page 10 of 14

<PAGE>

19.  GOVERNING LAW

     19.1 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.

20.  VENUE

     20.1 The Parties agree that sole and exclusive  jurisdiction for litigation
of any disputes  between the Parties related to this Settlement  Agreement shall
be in the state or federal courts having  principal  jurisdiction  in San Diego,
California.

21.  HEADINGS

     21.1 The section 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.  CONFIDENTIALITY

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

     22.2 AMS is concurrently  entering into a settlement with Federal Insurance
Company,  which issued a policy of insurance  which was excess to Liberty Mutual
(the "Federal Settlement"). The Federal Settlement is a separate transaction and
forms no part of this  Agreement,  but AMS will  exercise  its best  efforts  to
obtain a similar degree of confidentiality in the Federal Settlement. Subject to
the  provisions  of Section  22.3,  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. Further, the parties agree that the names of
individuals  set forth in  Paragraph  5 of Exhibit  "A" shall also be treated as
confidential information under this Settlement Agreement.

     22.3 The Parties may disclose the confidential information: (1) as required
by a Court Order; (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;  and/or (6) publicly,  if the
Party is advised by legal counsel that such disclosure is required by law.



                                  Page 11 of 14

<PAGE>

     22.4 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  the  confidential  information,  or is advised by
legal counsel that  disclosure is required by law, such Party shall give written
notice to the other Parties.  Such notice shall be given within ten (10) days of
the receipt of such disclosure  demand or determination to disclose,  unless ten
(10) days' notice would not permit  sufficient  time in which to allow the other
Parties to assert any interest in prohibiting the requested disclosure.  In such
case,  the Party being  requested to make the disclosure or planning to disclose
shall give written notice to the other Parties as soon as possible.

23.  NOTICE

     23.1 Unless  another  person is  designated  in writing  to all  respective
Parties for receipt of notice hereunder, notices to the respective Parties shall
be sent to the following persons:

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 CNA:                    Michael R. Davisson
                              Sedgwick, Detert, Moran & Arnold LLP
                              801 South Figueroa Street, 18th Floor
                              Los Angeles, CA  90017-5556


If to Liberty Mutual:         Andrew Margulis
                              Ropers, Majeski, Kohn & Bentley
                              17 State Street, 24th Floor
                              New York, NY  10004

24.  EXECUTION

     24.1 This  Agreement may be executed in one or more  counterparts,  each of
which shall be deemed an original and when taken  together with the other signed
counterparts,  shall  constitute  one agreement  which shall be binding upon and
effective as to all Parties. This Agreement shall be effective when at least one
counterpart  has been executed by each Party and delivered to all Parties,  even
though no single  counterpart  is executed  by all  Parties.  Facsimile  or .pdf
signatures will constitute valid evidence of execution.



                                  Page 12 of 14

<PAGE>


     IN  WITNESS  WHEREOF,  the  Parties  agree to be bound by the terms of this
Agreement and, in order to signify such agreement,  have executed this Agreement
as of the last date appearing below.





Dated:  May 5, 2006                     Advanced Marketing Services, Inc.
       -------------


                                 By:        /s/ Loren C. Paulsen
                                        ----------------------------------------

                                 Title: President and Chief Executive Officer
                                        ----------------------------------------





Dated:  May 5, 2006                     Columbia Casualty Company
       -------------


                                 By:         /s/ Danielle Librizzi
                                        ----------------------------------------

                                 Title:      Director - Complex Claims
                                        ----------------------------------------






Dated:  May 5, 2006                     Continental Casualty Company
       -------------


                                 By:           /s/ Danielle Librizzi
                                        ----------------------------------------

                                 Title:      Director - Complex Claims
                                        ----------------------------------------





                                  Page 13 of 14

<PAGE>



Dated:  May 5, 2006                     CNA Financial Corporation
       -------------


                                 By:          /s/ Danielle Librizzi
                                        ----------------------------------------

                                 Title:      Director - Complex Claims
                                        ----------------------------------------




Dated:  May 5, 2006                     Liberty Mutual Insurance Company
       -------------


                                 By:         /s/ John Patterson
                                        ----------------------------------------

                                 Title:          Vice President
                                        ----------------------------------------







                                  Page 14 of 14