Advanced Marketing Services,

EMPLOYMENT AGREEMENT


THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the 15th day of May 2006, by and between Advanced Marketing Services, Inc., a Delaware Corporation (the "Company"), and Gary M. Rautenstrauch ("Executive").


WHEREAS, effective May 15, 2006, Executive has been appointed as President and Chief Executive Officer ("CEO") of the Company;


WHEREAS, the parties believe it to be in their mutual interest to set forth in writing the terms and conditions of Executive's employment; and


WHEREAS, this Agreement shall govern the employment relationship between the parties from and after the date stated above and supersedes and negates all previous agreements made between the parties, whether written or oral, relating to Executive's employment with the Company.


NOW, THEREFORE, in consideration of the foregoing, and the mutual promises and covenants contained below, the parties hereby agree as follows:


I. EMPLOYMENT


A. POSITION. Upon the terms and conditions hereinafter set forth, the Company hereby employs Executive and shall appoint him as President and CEO, effective May 15, 2006.


B. TERM. Subject to termination as provided for in this Agreement, the term of this Agreement shall commence May 15, 2006, and shall end on May 15, 2008 ("the Term of the Agreement").


II. COMPENSATION


A. SALARY. The Company shall pay to Executive a base salary at the rate of Four Hundred Fifty Thousand dollars ($450,000) per annum (less taxes, required withholdings, and authorized deductions) (the "Base Salary"). Executive's Base Salary shall not be decreased and shall be earned monthly and paid periodically in accordance with the Company's normal payroll practices.


B. BONUS PLAN. The Company shall pay Executive a bonus of Fifty Thousand dollars ($50,000) less any bonus amounts received by Executive from his previous employer. Executive shall be obligated to repay the bonus to the Company in full if (1) he voluntarily terminates his employment with the Company within one year of the start of his employment, or (b) his employment is terminated by the Company for Cause within one year of the start of his employment.


With respect to the remaining portion of the Company's fiscal year 2007, Executive will be entitled to earn a bonus targeted at 50% of Base Salary, pro-rated for the remaining ten and one-half (10.5) months of the fiscal year, dependent upon the achievement of qualitative and quantitative goals to be agreed upon by Executive and the Company's Board of Directors ("the Board") before June 30, 2006. Executive's bonus may be more or less than the targeted amount, based on the achievement of the agreed upon goals.


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With respect to the Company's fiscal year 2008, Executive will be entitled to earn a bonus targeted at 50% of Base Salary, dependent upon the achievement of qualitative and quantitative goals to be agreed upon by Executive and the Board prior to the beginning of the Company's fiscal year 2008. Executive's bonus may be more or less than the targeted amount, based on the achievement of the agreed upon goals. All bonuses shall be paid subject to applicable deductions and withholdings.


C. STOCK OPTIONS. Pursuant to and subject to the terms and conditions of the Company's Equity Incentive Plan, as amended, and the Company's standard Non-Qualified Stock Option Agreement, the Company shall grant the Executive the right and option (the "Option") to purchase all or any part of an aggregate of 100,000 shares of the presently authorized and unissued Common Stock, no par value, of the Company. Said grant shall be made within 90 days of the execution of this Agreement. The per share exercise price of the Option will be equal to the fair market value of the Common Stock on the date of the Option grant. The Option shares will vest with respect to 20% of the shares upon Executive's completion of one (1) year of service and with respect to the balance of the shares in a series of four equal successive installments upon Executive's completion of each additional year of service thereafter. In the event of a Change of Control, as that term is defined in Executive's Change of Control Agreement attached hereto as Exhibit A, Executive will become vested in Option shares granted in accordance with the provisions of the Change of Control Agreement.


D. RELOCATION EXPENSES. The Company will reimburse Executive for all expenses covered under the Company's relocation policy in moving his family from Charlotte, North Carolina to San Diego, California should this occur during the Term of the Agreement, with the option to extend the temporary living allowance through the first year of the Term of the Agreement. In addition, the Company will pay to Executive the amount of Executive's incremental state and federal income tax liability owing with respect to the Company's reimbursements under its relocation policy, in accordance with the Company's usual practice for such tax payments.


E. OTHER BENEFITS. Executive shall be entitled during his employment to participate in the Company's other benefit plans or policies then applicable generally to senior executives of the Company, including, but not limited to, a car allowance in the amount currently paid to the Company's President and CEO.


III. TERMINATION


A. TERMINATION BY THE COMPANY. The Company may terminate Executive's employment at any time, with or without cause, upon written notice to Executive.


B. TERMINATION BY EXECUTIVE. Executive may terminate Executive's employment at any time, with or without cause, upon written notice to the Company.


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C. OBLIGATIONS OF THE COMPANY UPON TERMINATION.


1. Termination by the Company Without Cause or by the Executive for Good Reason. In the event Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason during the Term of the Agreement, Executive shall be entitled to (i) continued payment of the remaining Base Salary during the Term of this Agreement and (ii) additional severance payments in accordance with the Company's policies for senior executives in effect at the time of termination and in any event not less than six months' Base Salary, each subject to tax withholding and authorized deductions and paid in the Company's normal payroll cycles. The Company shall provide three months notice to Executive of any termination without Cause occurring after 21 months from the commencement of Executive's employment. For the purposes of this Agreement, Cause shall mean any of the following: (i) death; (ii) Disability; (iii) retirement; (iv) continued failure to perform, or willful misconduct or gross negligence in the performance of, duties and obligations to the Company and its stockholders that results in demonstrable harm to the Company or its shareholders; provided, however, that any acts or failures to act which are capable of being cured by Executive shall not constitute Cause under this clause (iv) unless such acts or failures to act remain uncured 30 days after the Company has provided written notice that such acts or failures to act shall constitute Cause if uncured; (v) conviction of any felony or crime of moral turpitude. For purposes of this Agreement, Good Reason shall mean (i) a reduction in base salary or any agreed upon benefit without Executive's consent; provided, that the Company may at any time or from time to time amend, modify, suspend or terminate any benefit plan or program provided to the Executive for any reason and without the Executive's consent if such modification, suspension or termination is consistent with similarly situated senior executive employees of the Company; (ii) a material change in the Executive's responsibilities, position, duties, resources, benefits, reporting responsibilities or support personnel assigned without his prior consent; (iii) a change in location of the Executive's principal place of employment 50 miles or more from its location as of the date hereof.


2. Termination by the Company with Cause. In the event Executive's employment is terminated by the Company with Cause, Executive shall not be entitled to receive any salary continuation or severance payments.


3. Change of Control Termination. The benefits Executive shall be entitled to in the event of a Change of Control shall be determined by Executive's Change of Control Agreement attached hereto as Exhibit A.


4. Termination by the Executive. Except as otherwise provided in the Change of Control Agreement, Executive shall not be entitled to any salary continuation, severance payments, or continued or accelerated vesting of Option shares in the event Executive terminates his employment with the Company.


IV. CONFIDENTIALITY


Concurrently with the execution of this Agreement, Executive shall execute the Company's standard confidentiality agreement for senior executives.


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V. MISCELLANEOUS


A. ENTIRE AGREEMENT; WAIVER; MODIFICATION. This Agreement, including agreements referred to herein and attached hereto, constitutes the entire agreement of the parties hereto and supersedes and replaces any other written or oral agreement or understanding with respect to the subject matter hereof. This Agreement constitutes an integrated agreement. This Agreement may only be modified, amended or waived by a written instrument executed by both parties. No waiver of a breach hereof shall be deemed to constitute a waiver of a future breach, whether of a similar or a dissimilar nature.


B. COMMUNICATIONS. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if hand-delivered or if mailed by registered or certified mail, postage prepaid, addressed to Executive at Executive's last know address as it appears on the records of the Company or addressed to the Company's Executive Vice President, General Counsel and Secretary at the Company's principal office at 5880 Oberlin Drive, Suite 400, San Diego, California 92121. Either party may change the address at which notice shall be given by written notice given in the above manner.


C. SAVINGS CLAUSE. Should any valid federal or state law or final determination of any administrative agency or court of competent jurisdiction affect any provision of this Agreement, the provision or provisions so affected shall be automatically conformed to the law or determination, and if any such law or ...