CONFIDENTIAL SETTLEMENT AGREEMENT AND GENERAL RELEASE

CONFIDENTIAL SETTLEMENT AGREEMENT AND GENERAL RELEASE

           This CONFIDENTIAL SETTLEMENT AGREEMENT AND GENERAL RELEASE (“Agreement”) is entered into by and between: Mark Diamond (sometimes referred to herein as “Plaintiff”) and Shay Diamond, on one hand; and SED International Holdings, Inc. SED International, Inc, SED Magna (Miami), Inc., Jean Diamond, Melvyn Cohen, and Stewart Aaron (sometimes referred to herein as “Defendants”), on the other hand, WITNESSETH:

           WHEREAS Mark Diamond is the Plaintiff in the matter of Mark Diamond v. SED International, Holdings, Inc., SED International, Inc., and SED Magna (Miami), Inc. , Civil Action File No. 2007 CV 131027, which is currently pending in the Superior Court of Fulton County and part of which is pending before the Court of Appeals of Georgia in cross-appeals, Docket Nos. A08A1780 and A08A1781;

           WHEREAS Mark Diamond is Complainant in the matter of Mark Diamond v. SED International Holdings, Inc. , Case No. 2006-SOX-0044, ARB No. 08-033, presently pending before the Administrative Review Board of the Department of Labor;

           WHEREAS Mark Diamond is the Plaintiff in the matter of Mark Diamond v. Jean Diamond, Melvyn Cohen, and Stewart Aaron , Civil Action File No. 2007 CV 144583, which is currently pending the Superior Court of Fulton County;

           WHEREAS, the Plaintiff, Shay Diamond, and Defendants (collectively, the “Parties”) attended a mediation on July 23, 2008 at which they executed a legally binding Memorandum of Agreement, pursuant to which they mutually agreed to settle and resolve the above-referenced lawsuits and all appeals and proceedings relating thereto without further legal proceedings (the “Included Litigation”), except as specified in the terms of the Memorandum of Agreement, thereby avoiding the inconvenience, expense, uncertainty and risks involved in litigation;

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           NOW THEREFORE, in consideration of the mutual promises and covenants in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Parties, and the Parties agree as follows:

           1.       Settlement payments. SED International Holdings, Inc. (the “Company”), for itself and on behalf of the other Defendants, agrees:

a.      To pay Mark Diamond the sum of Two Million and One Hundred Thousand Dollars ($2,100,000.00), payable on September 5, 2008. Mark Diamond will consult in good faith with a licensed Certified Public Accountant (“CPA”) (other than Michael Levine) or a licensed tax attorney regarding the appropriate allocation of damages and fees among the various claims and regarding the appropriate tax treatment of same, and the Company agrees not to take a position inconsistent with the allocation recommended in good faith by the CPA or tax attorney. The Parties acknowledge that on or about August 22, 2008, (a) the Company wired the sum of Two Million and One Hundred Thousand Dollars ($2,100,000.00) to an escrow account of the Company’s counsel, with the instruction that the funds could not be released without the written approval of counsel for the Company and counsel for Mark Diamond; and (b) counsel for Mark Diamond provided the Company’s counsel with a proposed allocation prepared by outside tax counsel, Vince L. Slagel of Gomel & Davis, LLP. Payments made payable to Mark Diamond will be reported on either Forms W-2 or Forms 1099 and state law equivalents. All portions allocated under the good-faith allocation as stated above as attorneys’ fees and expenses shall be made payable directly to Mark Diamond’s attorneys, Gaslowitz Frankel LLC and reported on Form 1099 and state reporting equivalent. Mark Diamond, his heirs, executors, administrators and assigns, and Shay

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Diamond, and her heirs, executors, administrators and assigns, each individually agree that he or she will indemnify and hold harmless the Company for any and all reasonable liabilities and expenses incurred by the Company as a result of it taking a tax position consistent with the good-faith allocation as stated above. Mark Diamond or his attorneys shall be allowed to participate at their sole expense in any proceeding in which it is alleged that the Company took an illegal or improper tax position in connection with the allocation of payments set out in this paragraph; provided that Defendants shall retain sole and final control of strategy and settlement decisions and actions with respect to any such proceeding, and Mark Diamond and Shay Diamond shall be bound by the indemnification provision without regard to whether they agree or consent to said strategy or settlement decisions and actions. As used herein, “liabilities and expenses” are intended to include taxes, penalties, reasonable attorneys’ fees and expenses incurred in the defense by the Company in any dispute over the tax positions with the Internal Revenue Service or any other government agency, and attorneys’ fees and expenses in enforcing this indemnification clause. and attorneys’ fees and expenses in enforcing this indemnification clause.

b.      To distribute to The Diamond Children’s Trust (“the Trust”), within seven (7) days after the latter of (i) the creation of the Trust; (ii) the submission of the Trust Agreement for review and approval by the Independent Directors for conformity with this Agreement; and (iii) the approval by the Independent Directors of the Trustee, 200,000 shares of the common stock of SED International Holdings, Inc., to be used solely and exclusively for the education and medical care of the Children of Mark Diamond and Shay Diamond (“the Children” or “Child”). For purposes of the Trust, “education” shall

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be deemed to include: (a) primary, secondary, religious, post-secondary, vocational, or graduate schools, whether private or public; (b) tuition, books and room and board at any said school; (c) extra-curricular, summer, or travel programs related to the Child’s participation at any said school or the Child’s religious education, including but not limited to school trips or trips abroad; (d) private or group tutoring; and (e) speech, occupational or other therapies that benefit or relate to a Child’s education. For purposes of the Trust, “medical care” shall be deemed to include: any and all expenses for deductibles and other medical expenses not covered by health insurance, hospitalizations, orthodontics, physical therapy or other rehabilitation services, vision care, mental illness treatment, in-patient or out-patient surgery or treatment, medication or medical devises, and in-home medical or rehabilitation care. The trustee shall have no obligation to prorate the benefits of the Trust among the beneficiaries, but shall administer the Trust for the stated reasons as it deems appropriate in its sole discretion. The Trust will remain in effect until the earliest of (1) when the youngest child reaches the age of 25, or (2) the life of the last surviving child. Upon the expiration of said term, any remaining corpus shall be distributed to the Children or, if one or more are predeceased, to their heirs at law other than Mark Diamond and Shay Diamond. All costs, fees and expenses associated with the creation and operation of the Trust shall be paid out of the corpus of Trust. The trustee will be selected by Mark Diamond, subject to the approval of the independent directors of the Board of Directors of the Company, and their successors (“Independent Directors”), which approval shall not be unreasonably withheld. As used herein, “Independent Directors” shall not include Jean Diamond, Melvyn Cohen, or Stewart Aaron. The voting rights shall be controlled by a voting trust or voting rights agreement

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that requires that all voting rights associated with said shares shall be exercised by a single Independent Director designated in writing by the Independent Directors. The initial Independent Director shall be Arthur Goldberg. Under no circumstances shall the shares of the trust be controlled by either Mark Diamond or Shay Diamond. In the event of any failure or dissolution of the trust prior to the normal expiration of its term as stated above, the corpus shall revert to the Children or, if one or more deceased, to their heirs at law other than Mark Diamond and Shay Diamond.

           2.       Withdrawal of appeals and dismissal of claims with prejudice. Within seven (7) days of the payments being made in Paragraph 1(a):

a.      Mark Diamond v. SED International Holdings, Inc., et al. , Civil Action File No.2007 CV 131027 (Fulton County Superior Court). Plaintiff and Defendants in this matter shall jointly file an Agreed Order of Dismissal with Prejudice, attached hereto as Exhibit A.

b.      SED International Holdings, Inc., et al. v. Mark Diamond , Docket No. A08A1780 (Court of Appeals of Georgia). Appellants in this matter shall file a Motion for Permission to Withdraw Appeal, attached hereto as Exhibit B.

c.      Mark Diamond v. SED International, Inc., et al. , Docket No. A08A1781 (Court of Appeals of Georgia). Appellant in this matter shall file a Motion for Permission to Withdraw Appeal, attached hereto as Exhibit C.

d.      Mark Diamond v. Jean Diamond, Melvyn Cohen and Stewart Aaron , Civil Action File No. 2007 CV 144583 (Fulton County Superior Court). Plaintiff and Defendants in this matter shall jointly file an Agreed Order of Dismissal with Prejudice, attached hereto as Exhibit D.

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e.      Mark Diamond v. SED International Holdings, Inc. , Case No. 2006-SOX-00044; ARB No. 08-033 (United States Department of Labor). Complainant in this matter shall file with the Administrative Review Board a Notice of Withdrawal of Appeal, attached hereto as Exhibit E.

           3.       Release of Claims . By this Agreement, Mark Diamond, for himself and for his heirs, executors, administrators and assigns, and Shay Diamond, for herself and for her heirs, executors, administrators and assigns, each completely release and forever discharge SED International Holdings, Inc., SED International, Inc., and SED Magna (Miami), Inc. (collectively, the “SED Companies”), and their direct and indirect and present and former subsidiaries, affiliated companies, divisions, predecessors-in-interest, successors, assigns, insurers, administrators, executors, officers, directors, agents, attorneys, and employees, and Jean Diamond, Melvyn Cohen, and Stewart Aaron and their heirs, executors, administrators, successors, attorneys, and assigns from any and all actions, causes of action, judgments, suits, debts, dues, sums of money, accounts, recordings, bonds, bills, specialties, covenants, contracts, bonuses, controversies, agreements, promises, claims, charges, complaints and demands of any kind, known or unknown, in law or in equity, including but not limited to, any claims which Mark Diamond, his heirs, executors, administrators, successors and assigns have against the SED Companies arising out of the employment of Mark Diamond by any of the SED Companies and his former service as a director of any of the SED Companies, his separation from the SED Companies, any claim that Mark Diamond is still an employee or director of any of the SED Companies, or any of the above-referenced lawsuits, including not limited to:

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           Notwithstanding anything to the contrary in the preceding paragraphs or this Agreement, Mark Diamond, for himself and for his heirs, executors, administrators, and assigns, specifically

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reserves the right to proceed with any claims based on the operative facts currently alleged in M