Installment Promissory Note

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO MAKER THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.


INSTALLMENT PROMISSORY NOTE


$1,500,000 December 28, 2007


THIS INSTALLMENT PROMISSORY NOTE ("Note") is issued pursuant to the terms and conditions of that certain Asset Purchase Agreement, dated as of December 19, 2007, by and among TT ACQUISITION, LLC, a Delaware limited liability company ("Maker"), TONERTYPE OF FLORIDA, LLC., a Florida limited liability company ("Payee"), AMERICAN TONERSERV CORP., a Delaware corporation ("ATS"), and certain other parties (the "Purchase Agreement"). Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed thereto in the Purchase Agreement.


1. Obligation. For value received, and subject to the terms and conditions set forth in this Note, Maker and ATS, jointly and severally, hereby promise to pay to the order of Payee the principal sum of One Million Five Hundred Thousand Dollars ($1,500,000), together with interest (at the rate set forth below) on the unpaid principal balance of this Note.


2. Maturity Date. The term of this Note shall be thirty-six (36) months, beginning with the date of this Note and ending on December 28, 2010 (the "Maturity Date").


3. Interest Rate.


(a) Standard Rate. The interest rate on the unpaid principal during the term of this Note shall be five percent (5%) per annum.


(b) Default Rate. Notwithstanding Section 3(a) hereof, while an Event of Default (as defined below) exists or after acceleration, Maker shall pay interest on the principal amount of all outstanding obligations of Maker under this Note, at the lower of (i) twelve and five-tenths of one percent (12.5%) per annum, or (ii) the highest rate permitted by law.


(c) Computations. All computations of interest shall be made on the basis of a year of three hundred and sixty-five (365) days. Interest shall accrue during each period during which interest is computed from the first day thereof to the last day thereof.


(d) Usury. If performance of or compliance with any provision of this Note or in any instrument now or hereafter securing or guaranteeing this Note results in Payee receiving interest in an amount which would exceed the maximum rate allowed by law, the amount of such interest which exceeds such lawful limits shall be applied to the reduction of the unpaid principal balance and not to the payment of interest. In determining whether or not


the interest paid or payable, under any specific contingency, exceeds the highest rate of interest permitted under applicable law, Payee and Maker shall, to the maximum extent permitted under applicable law, (i) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, and (iii) allocate and "spread" the total amount of interest throughout the entire term of this Note so that the interest rate is uniform throughout the entire term hereof.


4. Payment.


(a) Scheduled Maturity Payment. This Note shall be payable in thirty-six (36) equal monthly installments of principal and interest, based on a sixty (60) month amortization, with the unpaid principal balance due and payable in full on the Maturity Date (the "Balloon Payment"). Upon full payment of all amounts due under this Note, Maker shall be forever released from all of its obligations and liabilities under this Note.


(b) General. All payments due hereunder shall be made in lawful money of the United States of America to Payee via electronic funds transfer directly to the account specified by Payee, or such other person or at such other place as Payee may from time to time designate in writing to Maker. All payments shall be made no later than 5:00 p.m. (Eastern Time) on the date specified herein. Any payment received by Payee later than 5:00 p.m. (Eastern Time) shall be deemed to have been received on the following business day and any applicable interest or fee shall continue to accrue. Whenever any payment is due on a day other than a business day, such payment shall be made on either (i) the previous business day, or (ii) the following business day, and such extension of time shall in such case be included in the computation of interest.


(c) Prepayments. There shall be no penalty for prepayment; provided that any prepayment of less than all of the principal and accrued interest shall shorten the term of this Note and not reduce the amount of any installment otherwise becoming due after the prepayment date. Any payment made shall be applied first to interest and then to principal.


5. Net Working Capital Adjustment. Subject to Section 8 hereof, in the event that there is a downward net working capital adjustment pursuant to Section 7.3 of the Purchase Agreement in an amount that exceeds both the Holdback Amount and the principal amount of the Convertible Note (the "Excess Amount"), the principal amount of this Note shall be adjusted downward by an amount equal to the Excess Amount; provided, however, that any downward adjustment shall decrease the amount of the Balloon Payment but shall not reduce the amount of any installment otherwise becoming due, unless the amount of such downward adjustment exceeds the Balloon Payment, in which case the remaining amount of the downward adjustment shall reduce the amount of the installment otherwise due immediately preceding the Maturity Date, and if necessary, the next immediately preceding installment otherwise due, and so on until the full amount of the downward adjustment has been accounted for.


6. Contingent Adjustment. Subject to Section 8 hereof, the principal amount of this Note shall be adjusted pursuant to Section 7.4 of the Purchase Agreement. Following the determination of EBITDA for the Contingent Period,


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the principal amount of this Note shall be adjusted upward or downward, ...