Document:

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.

                                  Page 1 of 14

<PAGE>

     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.

                                  Page 2 of 14

<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.

                                  Page 3 of 14

<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.

                                  Page 4 of 14

<PAGE>

     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

                                  Page 5 of 14

<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

                                  Page 6 of 14

<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

                                  Page 7 of 14

<PAGE>

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:

                                  Page 8 of 14

<PAGE>

     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.

                                  Page 9 of 14

<PAGE>

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 14Exhibit 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.

<PAGE>

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

<PAGE>

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

<PAGE>

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

<PAGE>

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.

<PAGE>

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.

<PAGE>

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.

<PAGE>

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
     -------------------------------

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00104-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00104-of-00352.parquet"}]]