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c55077_ex10-69.htm -- Converted by SEC Publisher, created by BCL Technologies Inc., for SEC Filing

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;

1

          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

2

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:

	
Age Discrimination in Employment Act, 29 U.S.C. § 621, et seq.;

	
Title VII of the Civil Rights Act of 1964;

6

	
Sections 1981 through 1988 of Title 42 of the United States Code;

	
The Sarbanes-Oxley Act of 2002;

	
The Employee Retirement Income Security Act of 1974 (“ERISA”) (except for any vested benefits under any tax qualified benefit plan);

	
The Immigration Reform and Control Act;

	
The Americans with Disabilities Act of 1990;

	
The Workers Adjustment and Retraining Notification Act;

	
The Fair Credit Reporting Act;

	
Georgia AIDS Confidentiality Act;

	
Georgia Equal Pay Act;

	
Georgia Age Discrimination in Employment Act;

	
Georgia Equal Employment for Persons with Disabilities Code;

	
Georgia Wage Payment and Work Hour Laws;

	
Any other claim under Georgia law, including but not limited to, claims for breach of contract, wrongful termination and/or fraud, and/or any other claim under
Georgia statutory or common law;

	
Any other federal, state or local civil or human rights law or any other local, state or federal law, regulation or ordinance;

	
Any public policy, contract (express, written or implied), tort, or common law; or

	
Any allegation for costs, fees, or other expenses, including attorney’s fees incurred in these matters.

          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

7

reserves the right to proceed with any claims based on the operative facts currently alleged in Mark Diamond v. Jean Diamond, et al., Civil Action File No. 2007 CV 131025,
currently pending in the Superior Court of Fulton County, Georgia.  Nothing in this Agreement or the above paragraphs shall preclude Mark Diamond or Shay Diamond from proceeding with said lawsuit.

          Notwithstanding anything to the contrary in this Agreement or in the above paragraphs, Mark Diamond reserves the right to proceed with any claims he has or might have as a beneficiary or heir, for any
remedy available under law,  against any released party(ies) or person(s) for conduct they undertook in a representative capacity (e.g., trustee, executor, agent) arising out of the administration of Nathan Diamond’s or Gerald Diamond’s
estates or trusts created thereunder, except (a) as to claims (or portions thereof) that were released pursuant to a separate agreement; (b) as to claims (or portions thereof) against one or
more of the SED Companies or that relate to a transaction involving the SED Companies or the stock in any of the SED Companies; and (c) as to claims (or portions thereof) that Mark Diamond knew about as of the date of this Agreement and that he
could have asserted in a court of competent jurisdiction as of the date of this Agreement.  Notwithstanding anything to the contrary in the preceding sentence, nothing in this paragraph shall be construed as an admission that any such claims exist
or that Mark Diamond has standing to bring any such claims. 

          By this Agreement, the SED Companies, for themselves and for 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, for themselves and for their heirs, executors, administrators, attorneys, successors and assigns, each completely releases
and

8

forever discharges Mark Diamond and Shay Diamond and their heirs, executors, administrators, successors, agents, 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
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, or any of the above-referenced lawsuits. 

          Notwithstanding anything to the contrary in the preceding paragraphs or this Agreement, Jean Diamond and Melvyn Cohen, for themselves and for their heirs, executors, administrators and assigns, specifically reserve the right to
proceed with any claims based on the operative facts currently alleged in Mark Diamond v. Jean Diamond, et al., Civil Action File No. 2007 CV 131025, currently pending in the Superior Court
of Fulton County, Georgia.  Nothing in this Agreement or the above paragraphs shall preclude Jean Diamond or Melvyn Cohen from proceeding with said lawsuit. 

          4.      No Consideration Absent Execution of this Agreement. Mark Diamond and Shay Diamond understand and agree that they would not receive the monies and/or benefits
specified in Paragraph 1 above, except for their execution of this Agreement and fulfillment of the promises contained herein. 

          5.      Acknowledgment and Affirmations. 

a. Mark Diamond and Shay Diamond affirm that
    they have not filed, and are not presently parties, individually or collectively,
    to any lawsuit or proceeding against any Defendant in any forum, except for
    their claims in the Included Litigation, which they

9

have dismissed or will dismiss with prejudice as provided in Paragraph 2, and other than Mark Diamond v. Jean Diamond, et al., Civil Action File No. 2007 CV 131025,
currently pending in the Superior Court of Fulton County, Georgia.  This affirmation does not include a letter or other formal or informal complaints that did not result in the filing of a lawsuit or the initiation of a formal proceeding in one or
both of their names. 

b.      Mark Diamond further affirms that he has
    no workplace injuries or occupational diseases and has been provided or has
    not been denied any leave he requested and was eligible for under the Family
    and Medical Leave Act or related state or local leave or disability accommodation
    laws. 

c.       Neither Mark Diamond
  nor Shay Diamond will apply in the future for employment with the SED Companies
  because of, among other things, irreconcilable differences with the SED Companies.
  

d.       Mark Diamond,
  Shay Diamond, the SED Companies, Jean Diamond, Melvyn Cohen and Stewart Aaron
  each affirm: (1) that Mark Diamond is not an employee or director of any
  of the SED Companies; (2) that Mark Diamond ceased being an employee and/or
  officer of any of the SED Companies on July 25, 2005; and (3) that Mark Diamond
  ceased being a director of any of the SED Companies on December 16, 2005.
  

e.       The SED Companies
  and Stewart Aaron each affirm that they have not filed, and are not presently
  parties, individually or collectively, to any lawsuit or proceeding against
  Mark or Shay Diamond in any forum, except for the claims in the Included
  Litigation, which have been dismissed or will be dismissed with prejudice
  as provided in Paragraph 2. This affirmation does not include a letter or other formal or informal complaints that

10

did not result in the filing of a lawsuit or the initiation of a formal proceeding in one or both of their names.

f.      Jean Diamond and Melvyn Cohen each affirm that they
  have not filed, and are not presently parties, individually or collectively, to any lawsuit or proceeding against Mark or Shay Diamond in any forum, except for the claims in the Included Litigation, which have been dismissed or will be dismissed
  with prejudice as provided in Paragraph 2, and other than Mark Diamond v. Jean Diamond, et al., Civil Action File No. 2007 CV 131025, currently pending in the Superior Court of Fulton
    County, Georgia.  This affirmation does not include a letter or other formal or informal complaints that did not result in the filing of a lawsuit or the initiation of a formal proceeding in one or both of their names.

g.       The SED Companies and Jean Diamond, Melvyn Cohen and Stewart Aaron each affirm that Mark Diamond and Shay Diamond may own shares of stock in SED International Holdings, Inc., and that nothing in this Agreement
prohibits them from holding or selling such stock or from acquiring additional stock if they so choose. 

h.       The SED Companies
  each affirm that if Mark Diamond is named as a party in a lawsuit regarding
  his conduct as an employee, director or officer with the SED Companies, or
  is asked by SED Companies to assist in the defense of a lawsuit in which
  one or more of them is named, then Mark Diamond will be indemnified and held
  harmless for the reasonable costs and liabilities associated with same. 

          6.      Mutual Non-Disparagement. Mark Diamond and Shay Diamond agree not to defame, disparage, or demean the SED Companies, Jean Diamond,
Melvyn Cohen, or Stewart Aaron in any manner whatsoever.  The SED Companies, Jean Diamond, Melvyn Cohen, and

11

Stewart Aaron agree not to defame, disparage or demean Mark Diamond or Shay Diamond in any manner whatsoever. 

          7.      No Admission of Wrongdoing. This is a compromise settlement of potential or actual disputed claims and is made by the Parties
solely for the purpose of avoiding the expense and inconvenience of further legal proceedings. The Parties agree that neither this Agreement nor the furnishing of the consideration for this Agreement shall be deemed or construed at any time for any
purpose as an admission by any of the Parties of wrongdoing or evidence of any liability or unlawful conduct of any kind. 

          8.      Confidentiality. The Parties agree that the terms of this Agreement shall be kept confidential to the full extent permitted by law,
except as provided below. The Parties agree not to disclose any information regarding the settlement negotiations or substance of this Agreement, except as follows: (a) to their spouses, tax advisors, agents, and/or attorneys with whom they choose
to consult regarding their consideration of this Agreement; (b) to tax authorities; (c) pursuant to subpoena or other lawful process; provided, that any Party receiving such subpoena or lawful process shall give prompt notice of it to all other
Parties sufficient to enable such other Parties a full and fair opportunity to challenge such subpoena or lawful process or to block or limit disclosure of the terms of the Agreement. Notwithstanding any provision to the contrary in this Agreement:
(a) SED Holdings shall disclose the fact of the settlement underlying this Agreement in its annual 10-K filed with the Securities and Exchange Commission; (b) SED Holdings may disclose information about the settlement in its 8-K filed with the
Securities and Exchange Commission; (c) any Party may state that the Included Litigation has been resolved to the Parties’ mutual satisfaction; and (d) any Party may disclose, but not publish in a newspaper, internet publication, other media or
mass mailing, or other printed material, information

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regarding this settlement that has been included in public filings by the Company with the Securities and Exchange Commission or with other governmental agencies which are available to the public. 

          9.      The Parties acknowledge that on or about July 30, 2008, SED International Holdings, Inc. and SED International, Inc. offered to Michael Levine to enter into a mutual dismissal with prejudice of the
action styled SED International Inc. v. Levine v. SED International Holdings, Civil Action File No. 2006 CV 118591, pending in the Superior Court of Fulton County, Georgia, on the condition
that the parties thereto, as well as Tracy Levine, enter into a mutual release of all claims they have or may have against each other, existing, known or unknown, as of the date of said offer. Said offer included similar terms set out in Paragraphs
6 through 8 above. No monetary consideration was required to be paid by any party to the other as to the dismissal of said case. If Michael Levine and Tracy Levine fail to accept said offer and carry out that dismissal and mutual release, the
obligations of SED International, Inc. and SED International Holdings, Inc. under this paragraph shall be discharged. 

          10.       Governing Law and Interpretation.  This Agreement shall be governed and conformed in accordance with Georgia law without regard
to its conflict of laws provision. In the event of a breach of any provision of this Agreement, either party may institute an action specifically to enforce any term or terms of this Agreement and/or to seek any damages for breach.  Should any
provision of this Agreement be declared illegal or unenforceable by any court of competent jurisdiction and cannot be modified to be enforceable, excluding the general release language, such provision shall immediately become null and void, leaving
the remainder of this Agreement in full force and effect.

13

          11.      Amendment. This Agreement
may not be modified, altered or changed except in writing and signed by all Parties wherein specific reference is made to this Agreement. 

          12.      Entire Agreement. This Agreement sets forth the entire agreement between the Parties hereto, and fully supersedes any prior
agreements or understandings between the Parties. The Parties acknowledge that they have not relied on any representations, promises, or agreements of any kind made to them in connection with their decision to accept this Agreement, except for those
set forth in this Agreement. 

          13.      Warranty. The persons signing this Agreement
on behalf of others warrant and represent that they have the authority to
execute this document on behalf of their respective principals.

          THE PARTIES ARE ADVISED THAT THEY HAVE A
REASONABLE AMOUNT OF TIME TO CONSIDER THIS AGREEMENT AND TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTION OF THE AGREEMENT.

          THE PARTIES FREELY AND KNOWINGLY, AND
  AFTER DUE CONSIDERATION, ENTER INTO THIS AGREEMENT INTENDING TO WAIVE, SETTLE AND RELEASE ALL CLAIMS THEY HAVE
  OR MIGHT HAVE AGAINST THE OTHER PARTIES TO THE EXTENT SET FORTH HEREIN. 

          The Parties
knowingly and voluntarily sign this Agreement as of the dates set forth below:

	  
	 	  

	 	 	 
	
Dated 
  	 	Mark Diamond 
  
	  
	 	  

	 	 	 
	Dated	 	Shay Diamond
	 	 	 
	[SIGNATURES CONTINUED ON FOLLOWING
    PAGE] 

14

	  
	 	  

	 	 	 
	Dated 
	 	SED International Holdings,
          Inc. 

	  
	 	  

	 	 	 
	Dated	 	SED International, Inc.
	  
	 	  

	 	 	 
	Dated 
	 	SED Magna (Miami), Inc. 

	  
	 	  

	 	 	 
	Dated	 	Jean Diamond 
	  
	 	  

	 	 	 
	Dated 
	 	Melvyn Cohen 

	  
	 	  

	 	 	 
	Dated	 	Stewart Aaron 
	 	 	 
	 	 	 

15

EXHIBIT A

IN THE SUPERIOR COURT OF FULTON COUNTY STATE OF GEORGIA 

	
MARK DIAMOND,  	   	
)  	   	   
	   	   	
)  	   	   
	
                    Plaintiff,  	   	
)  	   	   
	   	   	
)  	   	
Civil Action File No.  
	
v.  	   	
)  	   	
2007 CV 131027  
	   	   	
)  	   	   
	
SED INTERNATIONAL HOLDINGS, INC.  	   	
)  	   	   
	
SED INTERNATIONAL, INC., and  	   	
)  	   	   
	
SED MAGNA (MIAMI), INC.,  	   	
)  	   	   
	   	   	
)  	   	   
	
                    Defendants.  	   	
)  	   	   

Agreed Order of Dismissal with Prejudice

          The Court, having been
advised by counsel that settlement has been reached on all matters in this case, and that, pursuant to the settlement, all parties stipulate, consent and agree to dismissal, and the Court of Appeals has permitted all appeals from this action to be withdrawn, it is hereby ordered that this
action be, and the same hereby is, DISMISSED WITH PREJUDICE. 

          This ___ day of ______________________, 2008.

_________________________________

Wendy L. Shoob 

Judge, Superior Court of Fulton County 

          Respectfully submitted this ____ day of ______________, 2008.

	________________________________

      Craig M. Frankel, Esq. 

      Georgia Bar No. 272880 

      GASLOWITZ FRANKEL LLC 

      4500 SunTrust Plaza 

      303 Peachtree Street, NE 

      Atlanta, GA 30308-3243 

      [signature continued on next page] 	 	_____________________________________

          L. Dale Owens 

          Georgia Bar No. 557482 

          Edward M. Cherof 

          Georgia Bar No. 123390 

          Suzanne M. Alford 

          Georgia Bar No. 005437 

          [signature continued on next page] 

	
Telephone:   
(404) 892-9797  	   	   
	
Facsimile:
     (404) 892-1311  	   	
JACKSON LEWIS LLP  
	   	   	
1155 Peachtree Street, NE  
	
ATTORNEYS FOR PLAINTIFF  	   	
Suite 1000  
	   	   	
Atlanta, Georgia 30309  
	   	   	
Telephone:   
(404) 525-8200  
	   	   	
Facsimile:     
(404) 525-1173  
	   
	   	   	
ATTORNEYS FOR DEFENDANTS  

EXHIBIT B

IN THE COURT OF APPEALS

STATE OF GEORGIA 

	
SED INTERNATIONAL HOLDINGS, INC.,  	
)  	   	   
	
SED INTERNATIONAL, INC., and SED  	
)  	   	   
	
MAGNA (MIAMI), INC.,  	
)  	   	   
	   	
)  	   	   
	
                                                            Appellants,  	
)  	   	   
	   	
)  	   	
Docket No. A08A1780  
	
v.  	
)  	   	   
	   	
)  	   	   
	
MARK DIAMOND,  	
)  	   	   
	   	
)  	   	   
	
                                                            Appellee.  	
)  	   	   

MOTION FOR PERMISSION TO WITHDRAW APPEAL 

          COME NOW Appellants
SED International Holdings, Inc., SED International, Inc., and SED Magna (Miami), Inc. and move this Court for permission
to withdraw this appeal. The parties have agreed to dismiss this matter with prejudice.

          Respectfully submitted this ___ day of September, 2008.

	 	______________________________ 

      L. Dale Owens 

      Georgia Bar No. 557482 

      Suzanne M. Alford 

      Georgia Bar No. 005437 

      JACKSON LEWIS LLP 

      1155 Peachtree Street, NE, Suite 1000

      Atlanta, Georgia 30309 

      Telephone: (404) 525-8200 

      Facsimile: (404) 525-1173 

      

      ATTORNEYS FOR APPELLANTS

 

CERTIFICATE OF SERVICE

          I certify on September ____, 2008, I served the
foregoing Motion for Permission to Withdraw Appeal on Appellee’s
counsel via U.S. mail, postage pre-paid, to:

	 	Craig M. Frankel, Esq. 

      Gaslowitz Frankel LLC 

      4500 SunTrust Plaza 

      303 Peachtree Street NE

      Atlanta, Georgia 30308 	 

	 	______________________________

      L. Dale Owens 

      Georgia Bar No. 557482 

      Suzanne M. Alford 

      Georgia Bar No. 005437 

      JACKSON LEWIS LLP 

      1155 Peachtree Street, NE 

      Suite 1000 

      Atlanta, Georgia 30309 

      Telephone: (404) 525-8200 

      Facsimile: (404) 525-1173 

      

      ATTORNEYS FOR APPELLANTS

 

 

EXHIBIT C

IN THE COURT OF APPEALS

STATE OF GEORGIA 

	
MARK DIAMOND,  	   	
)  	   	   
	   	   	
)  	   	   
	
                                        Cross-Appellant,  	   	
)  	   	   
	   	   	
)  	   	
Docket No. A08A1781  
	
v.  	   	
)  	   	   
	   	   	
)  	   	   
	
SED INTERNATIONAL HOLDINGS, INC.,  	   	
)  	   	   
	
SED INTERNATIONAL, INC., and SED  	   	
)  	   	   
	
MAGNA (MIAMI), INC.,  	   	
)  	   	   
	   	   	
)  	   	   
	
                                        Cross-Appellees.  	   	
)  	   	   

MOTION FOR PERMISSION TO WITHDRAW CROSS-APPEAL 

          COMES
NOW Cross-Appellant Mark Diamond and moves this Court for permission
to withdraw this cross-appeal. The parties have agreed to dismiss this matter
with prejudice.

          Respectfully submitted this ___ day of September, 2008.

_________________________

Craig M. Frankel, Esq. 

Gaslowitz Frankel LLC 

4500 SunTrust Plaza 

303 Peachtree Street NE 

Atlanta, Georgia 30308 

ATTORNEYS FOR CROSS-APPELLANT

CERTIFICATE OF SERVICE

          I
certify on September ____, 2008, I served the foregoing Motion
for Permission to Withdraw Cross-Appeal on
Cross-Appellees’ counsel via U.S. mail,
postage pre-paid, to:

L. Dale Owens 

    Suzanne M. Alford 

    JACKSON LEWIS LLP 

    1155 Peachtree Street, NE

    Suite 1000 

    Atlanta, Georgia 30309 

    

    

______________________________

    Craig M. Frankel, Esq. 

    Gaslowitz Frankel LLC 

    4500 SunTrust Plaza 

    303 Peachtree Street NE 

    Atlanta, Georgia 30308 
  

   ATTORNEYS FOR CROSS-APPELLANT 

EXHIBIT D

IN THE SUPERIOR COURT OF FULTON COUNTY 

STATE OF GEORGIA 

	
MARK DIAMOND,  	
    : 
	 
	   	
    : 
	 
	
                    Plaintiff,  	
    : 
	 
	   	
    : 
	 
	
v.  	
    :  
	CIVIL ACTION
	   	
    :  
	FILE NO. 2007 CV 144583
	
JEAN DIAMOND, MELVYN COHEN,  	
    : 
	 
	
And STEWART AARON,  	
    : 
	 
	   	
    : 
	 
	
                    Defendants.  	
    : 
	 

Agreed Order of Dismissal with Prejudice

          The
Court, having been advised by counsel that settlement has been reached on all
matters in this case, and that, pursuant to the settlement, all parties stipulate,
consent and agree to dismissal, it is hereby ordered
that this action be, and the same hereby is, DISMISSED WITH PREJUDICE.

          This ___ day of ______________________, 2008.

	 	 	  

	   	 	
Judge, Superior Court of Fulton County  
	   
	   
	          
	   
	
          Respectfully
submitted this_______ 
 day of August, 2008.  
	 
	  
	 	  

	Craig M. Frankel, Esq. 

    Georgia Bar No. 272880 

    GASLOWITZ FRANKEL LLC 

    4500 SunTrust Plaza 

    303 Peachtree Street, NE 

    [signature continued on next page]
  	 	Henry D. Fellows, Jr. 

    Georgia Bar No. 257825 

    Christina M. Baugh 

    Georgia Bar No. 241880 

    FELLOWS LABRIOLA LLP 

    [signature continued on next page]
  

	
Atlanta, GA 30308-3243  	   	
Peachtree Center  
	
Telephone:
   (404) 892-9797  	   	
Suite 2300 South Tower  
	
Facsimile:     
(404) 892-1311  	   	
225 Peachtree Street, N.E.  
	   	   	
Atlanta, Georgia 30303  
	
ATTORNEYS FOR PLAINTIFF  	   	
Telephone: (404) 586-9200  
	   	   	
ATTORNEYS FOR DEFENDANTS  

UNITED STATES DEPARTMENT OF LABOR

	
In the Matter of  	   	
)  	   
	   	   	
)  	   
	
                    MARK DIAMOND,  	   	
)  	   
	   	   	
)  	
ARB Case No. 08-033  
	
                                        Complainant,  	   	
)  	   
	   	   	
)  	   
	
v.  	   	
)  	   
	   	   	
)  	   
	
                    SED INTERNATIONAL  	   	
)  	   
	
                    HOLDINGS, INC.,  	   	
)  	   
	   	   	
)  	   
	
                                        Respondent.  	   	
)  	   
	  
	  
	) 	 

NOTICE OF WITHDRAWAL OF APPEAL

          COMES
NOW Appellant/Complainant Mark Diamond and notifies the Administrative Review
Board that he withdraws his appeal in this matter, and requests that this Court
terminate proceedings in this appeal.

          Respectfully submitted this ___ day of September, 2008.

	 	_________________________ 

      Craig M. Frankel, Esq. 

      Gaslowitz Frankel LLC 

      4500 SunTrust Plaza 

      303 Peachtree Street NE 

      Atlanta, Georgia 30308 

      

      ATTORNEYS FOR 

      APPELLANT/COMPLAINANT

 

CERTIFICATE OF SERVICE

          I
certify on September ____, 2008, I served the foregoing Notice
of Withdrawal of Appeal on
Respondent’s counsel via U.S. mail, postage pre-paid, to:

	 	L. Dale Owens 

      Ed Cherof 

      Suzanne M. Alford 

      JACKSON LEWIS LLP 

      1155 Peachtree Street, NE

      Suite 1000 

      Atlanta, Georgia 30309 

	 	______________________________

      Craig M. Frankel, Esq. 

      Gaslowitz Frankel LLC 

      4500 SunTrust Plaza 

      303 Peachtree Street NE 

      Atlanta, Georgia 30308 

      

      ATTORNEYS FOR 

      APPELLANT/COMPLAINANTexv4w23

Exhibit 4.23

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

COMMON STOCK PURCHASE WARRANT

To Purchase [                    ] Shares of Common Stock of

ARTES MEDICAL, INC.

     THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received,
[                                        ] (the “Holder”), is entitled, upon the terms and subject to the limitations on
exercise and the conditions hereinafter set forth, at any time on or after the sixth (6th) month
anniversary of the date hereof (the “Initial Exercise Date”) and on or prior to the close of
business on the fifth (5th) year anniversary of the Initial Exercise Date (the “Termination Date”)
but not thereafter, to subscribe for and purchase from Artes Medical, Inc., a Delaware corporation
(the “Company”), up to [                    ] shares (the “Warrant Shares”) of Common Stock, par value $0.001
per share, of the Company (the “Common Stock”). The purchase price of one share of Common Stock
under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

     1. Definitions. Capitalized terms used and not otherwise defined herein shall have
the meanings set forth in that certain Subscription Agreement (the “Subscription Agreement”), dated
September [___], 2008, between the Company and the Holder.

     2. Exercise.

          (a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant
may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on
or before the Termination Date by delivery to the Company of a duly executed facsimile copy of the
Notice of Exercise Form annexed hereto (or such other office or agency of the Company as it may
designate by notice in writing to the registered Holder at the address of such Holder appearing on
the books of the Company); provided, however, within five (5) Trading Days of the date said Notice
of Exercise is delivered to the Company, the Holder shall have surrendered this Warrant to the
Company and the Company shall have received payment of

 

 

 the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s
check drawn on a United States bank.

          (b) Exercise Price. The exercise price of the Common Stock under this Warrant shall
be $[___], subject to adjustment hereunder (the “Exercise Price”).

          (c) Cashless Exercise. If at any time after the Initial Exercise Date there is no
effective registration statement under the Securities Act of 1933 (the “Securities Act”)
registering, or no current prospectus available for, the resale of the Warrant Shares by the
Holder, then this Warrant may also be exercised at such time by means of a “cashless exercise” in
which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal
to the quotient obtained by dividing [(A-B) (X)] by (A), where:

	 	(A)	 	= the VWAP (as defined below) on the Trading Day immediately
preceding the date of such election;
	 
	 	(B)	 	= the Exercise Price of this Warrant, as adjusted; and
	 
	 	(X)	 	= the number of Warrant Shares issuable upon exercise of this
Warrant in accordance with the terms of this Warrant by means of a

   cash
exercise rather than a cashless exercise.

               “VWAP” means, for any date, the price determined by the first of the following clauses that
applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume
weighted average price of the Common Stock for such date (or the nearest preceding date) on the
Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg
Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b)
if the Common Stock is not then listed or quoted on a Trading Market and if prices for the Common
Stock are then quoted on the OTC Bulletin Board, the volume weighted average price of the Common
Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common
Stock is not then listed or quoted on the OTC Bulletin Board and if prices for the Common Stock are
then reported in the “Pink Sheets” published by the Pink Sheets, LLC (or a similar organization or
agency succeeding to its functions of reporting prices), the most recent bid price per share of the
Common Stock so reported; or (c) in all other cases, the fair market value of a share of Common
Stock as determined by an independent appraiser selected in good faith by the Company.

          (d) Exercise Limitations. Holder shall not have the right to exercise any portion of
this Warrant, pursuant to Section 2(c) or otherwise, to the extent that after giving effect to such
issuance after exercise, Holder (together with Holder’s affiliates), as set forth on the applicable
Notice of Exercise, would beneficially own in excess of 4.99% of the number of shares of the Common
Stock outstanding immediately after giving effect to such issuance.  For purposes of the foregoing
sentence, the number of shares of Common Stock beneficially owned by Holder and its affiliates
shall include the number of shares of Common Stock issuable upon exercise of this Warrant with
respect to which the determination of such sentence is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (A) exercise of the remaining, nonexercised
portion of this Warrant beneficially owned by Holder or

2

 

 any of its affiliates and (B) exercise or conversion of the unexercised or nonconverted
portion of any other securities of the Company (including, without limitation, any other shares of
Shares or Warrants) subject to a limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by Holder or any of its affiliates.  Except as set forth in the
preceding sentence, for purposes of this Section 2(d), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act, it being acknowledged by Holder that the Company
is not representing to Holder that such calculation is in compliance with Section 13(d) of the
Exchange Act and Holder is solely responsible for any schedules required to be filed in accordance
therewith. To the extent that the limitation contained in this Section 2(d) applies, the
determination of whether this Warrant is exercisable (in relation to other securities owned by
Holder) and of which a portion of this Warrant is exercisable shall be in the sole discretion of
Holder, and the submission of a Notice of Exercise shall be deemed to be each Holder’s
determination of whether this Warrant is exercisable (in relation to other securities owned by
Holder) and of which portion of this Warrant is exercisable, in each case subject to such aggregate
percentage limitation, and the Company shall have no obligation to verify or confirm the accuracy
of such determination. For purposes of this Section 2(d), in determining the number of outstanding
shares of Common Stock, Holder may rely on the number of outstanding shares of Common Stock as
reflected in (x) the Company’s most recent Form 10-Q or Form 10-K, as the case may be, (y) a more
recent public announcement by the Company or (z) any other notice by the Company or the Company’s
transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or
oral request of Holder, the Company shall within two Trading Days confirm orally and in writing to
Holder the number of shares of Common Stock then outstanding.  In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to the conversion or
exercise of securities of the Company, including this Warrant, by Holder or its affiliates since
the date as of which such number of outstanding shares of Common Stock was reported. The
provisions of this Section 2(d) may be waived by Holder, at the election of Holder, upon not less
than 61 days’ prior notice to the Company, and the
provisions of this Section 2(d) shall continue
to apply until such 61st day (or such later date, as determined by Holder, as may be
specified in such notice of waiver).

          (e) Mechanics of Exercise.

               (i) Authorization of Warrant Shares. The Company covenants that all Warrant Shares
which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon
exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued,
fully paid and nonassessable and free from all taxes, liens and charges imposed by the Company in
respect of the issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).

               (ii) Delivery of Certificates Upon Exercise. Certificates for shares purchased
hereunder shall be transmitted by the transfer agent of the Company to the Holder by crediting the
account of the Holder’s prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission (“DWAC”) system if the Company is a participant in such system, and
otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise
within three (3) Trading Days from the delivery to the Company of the Notice of Exercise Form,
surrender of this Warrant and payment of the aggregate Exercise Price as set forth above (“Warrant
Share Delivery Date”). This Warrant shall be deemed to have been

3

 

exercised on the date the Exercise Price and completed Notice of Exercise are received by the
Company. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so
designated to be named therein shall be deemed to have become a holder of record of such shares for
all purposes, as of the date the Warrant has been exercised by payment to the Company of the
Exercise Price and all taxes required to be paid by the Holder, if any, pursuant to Section
2(e)(vi) prior to the issuance of such shares, have been paid.

               (iii) Delivery of New Warrants Upon Exercise. If this Warrant shall have been
exercised in part, the Company shall, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to
purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all
other respects be identical with this Warrant.

               (iv) Buy-In Rights. In addition to any other rights available to a Holder, if the
Company fails to deliver to the Holder a certificate representing Warrant Shares by the fifth
Trading Day after the date on which delivery of such certificate is required by this Warrant, and
if after such fifth Trading Day the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares
that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within
five Trading Days after the Holder’s request, honor its obligation to deliver to the Holder a
certificate or certificates representing such Common Stock and pay cash to the Holder in an amount
equal to the excess (if any) of the amount equal to the Holder’s total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased over the product of (A)
such number of shares of Common Stock, times (B) the Closing Price on the date of the event giving
rise to the Company’s obligation to deliver such certificate.

               (v) No Fractional Shares or Scrip. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share
which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a
cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by
the Exercise Price.

               (vi) Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall
be made without charge to the Holder for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the
Company, and such certificates shall be issued in the name of the Holder or in such name or names
as may be directed by the Holder; provided, however, that in the event certificates for Warrant
Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered
for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the
Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to
reimburse it for any transfer tax incidental thereto.

               (vii) Closing of Books. The Company will not close its stockholder books or records
prior to the Termination Date in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.

4

 

     3. Certain Adjustments.

          (a) Stock Dividends and Splits. If the Company, at any time while this Warrant is
outstanding: (A) pays a stock dividend or otherwise make a distribution or distributions on shares
of its Common Stock or any other equity or equity equivalent securities payable in shares of Common
Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the
Company pursuant to this Warrant), (B) subdivides outstanding shares of Common Stock into a larger
number of shares, (C) combines (including by way of reverse stock split) outstanding shares of
Common Stock into a smaller number of shares, or (D) issues by reclassification of shares of the
Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall
be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding immediately after such event
and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted.
Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the
record date for the determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a subdivision,
combination or re-classification.

          (b) Subsequent Placements. Subject to Section 3(i), if the Company, at any time during
the one year period following the date of this Warrant (the “Participation Right Period”), shall
complete a Subsequent Placement at an effective price per share less than the then effective
Exercise Price (such lower price, the “Base Share Price” and such issuances collectively, a
“Dilutive Issuance”), as adjusted hereunder (if the holder of the Equity Securities so issued shall
at any time, whether by operation of purchase price adjustments, reset provisions, floating
conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per
share which is issued in connection with such issuance, be entitled to receive shares of Common
Stock at an effective price per share which is less than the Exercise Price, such issuance shall be
deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance),
then, the Exercise Price shall be reduced and only reduced to equal the Base Share Price. Such
adjustment shall be made during the Participation Right Period whenever such Equity Securities are
issued. Notwithstanding the foregoing, no adjustments shall be made, paid or issued during the
Participation Right Period under this Section 3(b) in respect of Exempt Issuances. During the
Participation Right Period, the Company shall notify the Holder in writing as promptly as
reasonably possible following the issuance of any Equity Securities subject to this section,
indicating therein the applicable issuance price, or of applicable reset price, exchange price,
conversion price and other pricing terms (such notice the “Dilutive Issuance Notice”). For
purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant
to this Section 3(b), upon the occurrence of any Dilutive Issuance during the Participation Right
Period, after the date of such Dilutive Issuance the Holder is entitled to the Base Share Price
regardless of whether the Holder accurately refers to the Base Share Price in the Notice of
Exercise.

          (c) Additional Issuances of Equity Securities. Subject to Section 3(i), if the
Company, at any time after the Participation Right Period and while this Warrant is outstanding,
shall issue any Equity Securities (otherwise than as provided in the foregoing subsections (a)

5

 

through (b) of this Section 3 and other than Exempt Issuances) at a price per share less than the
then effective Exercise Price or without consideration, then the Exercise Price upon each such
issuance shall be adjusted to that price (rounded to the nearest cent) determined by multiplying
the Exercise Price then in effect by a fraction:

               (i) the numerator of which shall be equal to the sum of (x) the number of shares of
outstanding Common Stock immediately prior to the issuance of such Equity Securities plus (y) the
number of shares of Common Stock which the aggregate consideration for the total number of such
Equity Securities so issued would purchase at a price per share equal to the Exercise Price then in
effect, and

               (ii) the denominator of which shall be equal to the number of shares of outstanding Common
Stock immediately after the issuance of such Equity Securities.

     The provisions of Section 3(c) shall not apply to any issuance of Equity Securities for which
an adjustment is provided under Sections 3(a) or 3(b).

          (d) Warrant Shares. Subject to Section 3(i), simultaneously with any adjustment to
the Exercise Price pursuant to Section 3(c), the number of Warrant Shares that may be purchased
upon exercise of this Warrant shall be increased or decreased proportionately, as applicable, so
that after such adjustment the aggregate Exercise Price payable hereunder for the increased or
decreased, as applicable, number of Warrant Shares shall be the same as the aggregate Exercise
Price in effect immediately prior to such adjustment.

          (e) Fundamental Transaction. If, at any time while this Warrant is outstanding, (A)
the Company effects any merger or consolidation of the Company with or into another Person (other
than a transaction effected solely to change the domicile of the Company), (B) the Company effects
any sale of all or substantially all of its assets in one or a series of related transactions, (C)
any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their shares for other
securities, cash or property, (D) consummate a stock purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme
of arrangement) with another Person whereby such other Person acquires more than the 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock held by the other
Person or other Persons making or party to, or associated or affiliated with the other Persons
making or party to, such stock purchase agreement or other business combination) or (E) the Company
effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which
the Common Stock is effectively converted into or exchanged for other securities, cash or property
(in any such case, a “Fundamental Transaction”), then, upon any subsequent exercise of this
Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been
issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction
upon exercise of this Warrant, the number of shares of Common Stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and any additional consideration
(the “Alternate Consideration”) receivable upon or as a result of such Fundamental Transaction by a
Holder, of the number of shares of Common Stock for which this Warrant is exercisable immediately
prior to such event. For purposes of any such exercise, the determination of the Exercise Price
shall be appropriately adjusted to apply to such Alternate Consideration based on

6

 

the amount of Alternate Consideration issuable in respect of one share of Common Stock in such
Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any different components of
the Alternate Consideration. If holders of Common Stock are given any choice as to the securities,
cash or property to be received in a Fundamental Transaction, then the Holder shall be given the
same choice as to the Alternate Consideration it receives upon any exercise of this Warrant
following such Fundamental Transaction. To the extent necessary to effectuate the foregoing
provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall
issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the
Holder’s right to exercise such warrant into Alternate Consideration. The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this Section 3(e) and insuring that
this Warrant (or any such replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.

          (f) Calculations. All calculations under this Section 3 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the
number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be
the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and
outstanding.

          (g) Voluntary Adjustment By Company. Subject to Section 3(i), the Company may at any
time during the term of this Warrant reduce the then current Exercise Price to any amount and for
any period of time deemed appropriate by the board of directors of the Company.

          (h) Notice to Holders.

               (i) Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to
this Section 3, the Company shall promptly as reasonably possible mail to each Holder a notice
setting forth the Exercise Price after such adjustment. If the Company issues a variable rate
security, the Company shall be deemed to have issued Equity Securities at the lowest possible
conversion or exercise price at which such securities may be converted or exercised in the case of
a Variable Rate Transaction (as defined in the following sentence). The term “Variable Rate
Transaction” shall mean a transaction in which the Company issues or sells (i) any debt or equity
securities that are convertible into, exchangeable or exercisable for, or include the right to
receive additional shares of Common Stock either (A) at a conversion, exercise or exchange rate or
other price that is based upon and/or varies with the trading prices of or quotations for the
shares of Common Stock at any time after the initial issuance of such debt or equity securities, or
(B) with a conversion, exercise or exchange price that is subject to being reset at some future
date after the initial issuance of such debt or equity security or upon the occurrence of specified
or contingent events directly or indirectly related to the business of the Company or the market
for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity
line of credit, whereby the Company may sell securities at a future determined price.

               (ii) Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend
(or any other distribution) on the Common Stock; (B) the Company shall

7

 

declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Company shall authorize the granting to all holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the
approval of any stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which the Company is a party,
any sale or transfer of all or substantially all of the assets of the Company, of any compulsory
share exchange whereby the Common Stock is converted into other securities, cash or property; (E)
the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company; then, in each case, the Company shall cause to be mailed to the Holder
at its last address as it shall appear upon the Warrant Register of the Company, at least five (5)
calendar days prior to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of
which the holders of the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to become effective or close,
and the date as of which it is expected that holders of the Common Stock of record shall be
entitled to exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange;
provided, that the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified in such notice. The
Holder is entitled to exercise this Warrant during the 5-day period commencing on the date of such
notice to the effective date of the event triggering such notice.

          (i) Stockholder Approval. If the Company has not obtained such approval as may be
required by the applicable rules and regulations of the Nasdaq Global Market (or any successor
entity) from the stockholders of the Company with respect to the transactions contemplated by the
Transaction Documents, including the issuance of all of the Warrant Shares in excess of 19.99% of
the issued and outstanding Common Stock on the Closing Date (“Stockholder Approval”), then neither
the Exercise Price of this Warrant nor the number of Warrant Shares that may be purchased upon
exercise of this Warrant shall be adjusted as provided in Sections 3(b), 3(c), 3(d) and 3(g). The
Company shall hold a special meeting of stockholders at the earliest practical date following its
next annual meeting of stockholders, but in no event later than the Initial Exercise Date, for the
purpose of obtaining Stockholder Approval, with the recommendation of the Company’s Board of
Directors that such proposal be approved, and the Company shall solicit proxies from its
stockholders in connection therewith in the same manner as all other management proposals in such
proxy statement and all management-appointed proxyholders shall vote their proxies in favor of such
proposal. If the Company does not obtain Stockholder Approval at the meeting called for such
purpose, the Company shall include the proposal in the Company’s proxy statement for every meeting
thereafter to seek Stockholder Approval until the earlier of the date Stockholder Approval is
obtained or the Warrants are no longer outstanding.

     4. Transfer of Warrant.

          (a) Transferability. Subject to compliance with any applicable securities laws and
the conditions set forth in Sections 5(a) and 4(d) hereof and to the provisions of the

8

 

Subscription Agreement, this Warrant and all rights hereunder are transferable, in whole or in
part, upon surrender of this Warrant at the principal office of the Company, together with a
written assignment of this Warrant substantially in the form attached hereto duly executed by the
Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the
making of such transfer. Upon such surrender and, if required, such payment, the Company shall
execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of assignment, and shall issue to the
assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant
shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for
the purchase of Warrant Shares without having a new Warrant issued.

          (b) New Warrants. This Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued, signed by the Holder
or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be
involved in such division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such
notice.

          (c) Warrant Register. The Company shall register this Warrant, upon records to be
maintained by the Company for that purpose (the “Warrant Register”), in the name of the record
Holder hereof from time to time. The Company may deem and treat the registered Holder of this
Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to
the Holder, and for all other purposes, absent actual notice to the contrary.

          (d) Transfer Restrictions. If, at the time of the surrender of this Warrant in
connection with any transfer of this Warrant, the transfer of this Warrant shall not be registered
pursuant to an effective registration statement under the Securities Act and under applicable state
securities or blue sky laws, the Company may require, as a condition of allowing such transfer (i)
that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written
opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of
counsel in comparable transactions) to the effect that such transfer may be made without
registration under the Securities Act and under applicable state securities or blue sky laws, (ii)
that the holder or transferee execute and deliver to the Company an investment letter in form and
substance acceptable to the Company and (iii) that the transferee be an “accredited investor” as
defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities Act
or a qualified institutional buyer as defined in Rule 144A(a) under the Securities Act.

9

 

     5. Miscellaneous.

          (a) Title to Warrant. Prior to the Termination Date and subject to compliance with
applicable laws and Section 4 of this Warrant, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the Holder in person
or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form
annexed hereto properly endorsed. The transferee shall sign an investment letter in form and
substance reasonably satisfactory to the Company.

          (b) No Rights as Shareholder Until Exercise. Except as may be specifically set forth
herein, this Warrant does not entitle the Holder to any voting rights or other rights as a
shareholder of the Company prior to the exercise hereof. Upon the surrender of this Warrant and
the payment of the aggregate Exercise Price (or by means of a cashless exercise), the Warrant
Shares so purchased shall be and be deemed to be issued to such Holder as the record owner of such
shares as of the close of business on the later of the date of such surrender or payment.

          (c) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon
receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the
case of the Warrant, shall not include the posting of any bond), and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver
a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such
Warrant or stock certificate.

          (d) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or
a legal holiday, then such action may be taken or such right may be exercised on the next
succeeding day not a Saturday, Sunday or legal holiday.

          (e) Authorized Shares. The Company covenants that during the period the Warrant is
outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights
under this Warrant. The Company further covenants that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant. The Company will take all such reasonable
action as may be necessary to assure that such Warrant Shares may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements of the Trading Market
upon which the Common Stock may be listed.

               Except and to the extent as waived or consented to by the Holder, the Company shall not by any
action, including, without limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, but will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such actions as may be

10

 

necessary or appropriate to protect the rights of Holder as set forth in this Warrant against
impairment. Without limiting the generality of the foregoing, the Company will (a) not increase
the par value of any Warrant Shares above the amount payable therefor upon such exercise
immediately prior to such increase in par value, (b) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to
obtain all such authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its obligations under
this Warrant.

               Before taking any action which would result in an adjustment in the number of Warrant Shares
for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.

          (f) Jurisdiction. All questions concerning the construction, validity, enforcement and
interpretation of this Warrant shall be determined in accordance with the provisions of the
Subscription Agreement.

          (g) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the
exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state
and federal securities laws.

          (h) Nonwaiver. No course of dealing or any delay or failure to exercise any right
hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice
Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate
on the Termination Date.

          (i) Notices. Any notice, request or other document required or permitted to be given
or delivered to the Holder by the Company shall be delivered in accordance with the notice
provisions of the Subscription Agreement.

          (j) Limitation of Liability. No provision hereof, in the absence of any affirmative
action by Holder to exercise this Warrant or purchase Warrant Shares, and no enumeration herein of
the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase
price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.

          (k) Successors and Assigns. Subject to applicable securities laws, this Warrant and
the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the
successors of the Company and the successors and permitted assigns of Holder. The provisions of
this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant
and shall be enforceable by any such Holder or holder of Warrant Shares.

          (l) Amendment. This Warrant may be modified or amended or the provisions hereof
waived with the written consent of the Company and the Holder.

11

 

          (m) Severability. Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law, but if any provision
of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of
such provisions or the remaining provisions of this Warrant.

          (n) Headings. The headings used in this Warrant are for the convenience of reference
only and shall not, for any purpose, be deemed a part of this Warrant.

[Remainder of page left intentionally blank]

12

 

          IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer
thereunto duly authorized as of the date first set forth above.

	 	 	 	 	 
	 	 	ARTES MEDICAL, INC.
	 
	 	 	 	 
	 

	 	By: 	 	 
	 

	 	 	 
	 
	 	 	 	 
	 

	 	Print Name:  	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 

 

 

NOTICE OF EXERCISE

TO:  ARTES MEDICAL, INC.

          (1) The undersigned hereby elects to purchase                      Warrant Shares of the Company pursuant
to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of
the exercise price in full, together with all applicable transfer taxes, if any.

          (2) Payment shall take the form of (check applicable box):

[ ] in lawful money of the United States; or

[ ] the cancellation of such number of Warrant Shares as is necessary, in
accordance with the formula set forth in subsection 2(c), to exercise this
Warrant with respect to the maximum number of Warrant Shares purchasable
pursuant to the cashless exercise procedure set forth in subsection 2(c).

          (3) Please issue a certificate or certificates representing said Warrant Shares in the name of
the undersigned or in such other name as is specified below:

 

The Warrant Shares shall be delivered to the following:

 

 

 

          (4) Accredited Investor. The undersigned is an “accredited investor” as defined in
Regulation D promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

Name of Investing Entity:       
                  
                  
                  
                          
                  
                 
                 
        

Signature of Authorized Signatory of Investing Entity:  
                    
                    
                   
                   
                   
     

Name of Authorized Signatory:      
                   
                   
                   
                       
                   
                   
              

Title of Authorized Signatory:    
                  
                   
                        
              
                   
                          
                

Date:         
         
                   
          
                   
                       
                   
                   
                          
                    
   

 

 

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

          FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned
to

          
                   
                   
                   
              whose address is

          
                    
                   
                    
                        
                   
                   
                   
                        
            .

          
                    
                    
                    
     
                    
                    
                   
                   
     
                   
       

Dated:                                         ,                     

	 	 	 	 	 	 	 
	 

	 	Holder’s Signature:	 	 	 	 
	 

	 	 	 

	 	 
	 

	 	Holder’s Address:	 	 	 	 
	 

	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 

	 	 

Signature Guaranteed:       
                   
                   
                   
                   
     
                   
                   
                   
                

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the
face of the Warrant, without alteration or enlargement or any change whatsoever, and must be
guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign the foregoing
Warrant.

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