<PAGE>

                                                                   EXHIBIT 10.45

PRIVATE PLACEMENT NUMBER 007947A*5

THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES. THE SECURITY REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITY UNDER APPLICABLE
SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED UNDER AN AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.

                                 PROMISSORY NOTE

October 9, 2003                                                       $2,600,000

         FOR VALUE RECEIVED, ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES,
INC., a Delaware corporation (hereinafter called the "Borrower"), hereby
promises to pay to the order of ALLSTATE INSURANCE COMPANY or registered assigns
(the "Holder") the sum of TWO MILLION SIX HUNDRED THOUSAND and 00/100 Dollars
($2,600,000.00) on October 1, 2017 (the "Scheduled Maturity Date"). The Borrower
hereby promises to pay interest on the unpaid principal balance hereof at the
rate of nineteen and seventy-five hundredth percent (19.75%) per annum from the
date hereof (the "Issue Date") until the same becomes due and payable, whether
at maturity or upon acceleration or otherwise. Interest shall be calculated
based on a three hundred sixty (360) day year, shall commence accruing on the
Issue Date and shall be payable on April 1, 2004, and on each October 1 and
April 1 thereafter until the Scheduled Maturity Date or prepayment hereof. Any
amounts of principal of or interest on this Note which are not paid when due
shall bear interest at a per annum rate (the "Penalty Rate") equal to the lower
of nineteen and 75/100 percent (19.75%) and the highest interest rate permitted
by applicable law from the due date thereof until the same is paid. All payments
of principal of or interest on this Note shall be made in lawful money of the
United States of America. All payments shall be made at such address as the
Holder shall hereafter provide to the Borrower by written notice made in
accordance with the provisions of this Note.

         This Note is issued by the Borrower pursuant to that certain Note
Purchase Agreement, dated as of October 9, 2003, by and between the Borrower and
the Holder (the "Purchase Agreement"). Capitalized terms used but not otherwise
defined herein shall have the meanings provided in the Note Purchase Agreement.

         The following terms shall apply to this Note:

                                     - 1 -

<PAGE>

                                   ARTICLE I

                                 NO PREPAYMENT

         1.1      Prepayment. The principal amount due and payable under this
Note and accrued interest hereon are subject to mandatory prepayment upon the
prepayment in full of all Superior Indebtedness. This Note is not otherwise
subject to prepayment without the consent of the Holder.

                                   ARTICLE II

                                EVENTS OF DEFAULT

The occurrence of any of the foregoing shall constitute an Event of Default
hereunder.

         2.1      Failure to Pay Principal. The Borrower fails to pay the
principal amount hereof when due, whether at maturity, upon acceleration or
otherwise;

         2.2      Failure to Pay Interest. The Borrower fails to pay interest on
this Note within fifteen (15) days of the applicable Interest Payment Date;

         2.3      Breach of Covenant. The Borrower breaches any material
covenant or other material term or condition of this Note (other than as
specifically provided in Sections 2.1 or 2.2 hereof) or the Purchase Agreement
and such breach continues for a period of thirty (30) days after written notice
thereof to the Borrower from the Holder;

         2.4      Breach of Representations and Warranties. Any representation
or warranty of the Borrower made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith
(including, without limitation, the Purchase Agreement), shall be false or
misleading in any material respect when made and the breach of which would have
a material adverse effect on the Borrower or the property of the Borrower or a
material adverse effect on the Holder or the rights of the Holder with respect
to this Note;

         2.5      Receiver or Trustee. The Borrower shall make an assignment for
the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business, or such a receiver or trustee shall otherwise be appointed;

         2.6      Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower; or

         2.7.     Superior Indebtedness Default. An Event of Default, as such
term is defined in the Mortgage and Loan Agreement, dated as of October 1, 2003
(the "Bond Loan Agreement"), by and between the City of Springdale, Arkansas,
and the Borrower, shall have occurred and be continuing.

                                     - 2 -

<PAGE>

                                   ARTICLE III

                                  MISCELLANEOUS

         3.1      Failure or Indulgency Not Waiver. No failure or delay on the
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.

         3.2      Notices. Any notice herein required or permitted to be given
shall be in writing and may be personally served or delivered by courier or sent
by United States mail and shall be deemed to have been given upon receipt if
personally served (which shall include telephone line facsimile transmission) or
sent by courier or three (3) days after being deposited in the United States
mail, certified, with postage pre-paid and properly addressed, if sent by mail.
The addresses for such communications shall be:

         If to the Borrower:

                  ADVANCED ENVIRONMENTAL RECYCLING
                  TECHNOLOGIES, INC.
                  P.O. Box 1237
                  Springdale, AR 72765
                  Delivery: 914 North Jefferson
                  Springdale, AR 72764
                  Attention: Chief Executive Officer

         If to the Holder:

                  ALLSTATE INSURANCE COMPANY
                  3075 Sanders Road, Suite G3A
                  Northbrook, IL 60062
                  Attn: Municipal Bond Portfolio Manager

Both the Holder and the Borrower may change the address for service by service
of written notice to the other as herein provided.

         3.3      Amendment Provision. This Note and any provision hereof may
only be amended by an instrument in writing signed by the Borrower and agreed to
by the Holder. The term "Note" and all references thereto, as used throughout
this instrument, shall mean this instrument as originally executed, or if later
amended or supplemented, then as so amended or supplemented.

                                     - 3 -

<PAGE>

         3.4      Assignability. This Note shall be binding upon the Borrower
and its successors and assigns and shall inure to be the benefit of the Holder
and its successors and assigns; provided, however, that so long as no Event of
Default has occurred, this Note shall only be transferable in whole or in
increments of $500,000 to "Accredited Investors" (as defined in Rule 501 (a)
under the Securities Act of 1933, as amended).

         3.5      Cost of Collection. If default is made in the payment of this
Note, the Borrower shall pay the Holder hereof costs of collection, including
reasonable attorneys' fees.

         3.6      Governing Law: Jurisdiction. This Note shall be governed by
and construed in accordance with the laws of the State of Illinois applicable to
contracts made and to be performed in the State of Illinois, without giving
effect to the principles of conflict of laws.

         3.7      Lost or Stolen Note. Upon receipt by the Borrower of (i)
evidence of the loss, theft, destruction or mutilation of this Note and (ii) (y)
in the case of loss, theft or destruction, of indemnity reasonably satisfactory
to the Borrower, or (z) in the case of mutilation, upon surrender and
cancellation of this Note, the Borrower shall execute and deliver new Notes, in
the form hereof, in such denominations of at least $500,000 as Holder may
request.

         3.8      Denominations. At the request of the Holder, upon surrender of
this Note, the Borrower shall promptly issue new Notes in the aggregate
outstanding principal amount hereof, in the form hereof, in such denominations
of at least $500,000 as the Holder shall request.

         3.9      Waiver of Right to Jury Trial. The Borrower hereby knowingly,
voluntarily, and intentionally waives any rights it may have to a trial by jury
in respect of any litigation based hereon or arising out of, under or in
connection with this Note or any course of conduct, course of dealing,
statements (whether verbal or written) or actions of the Holder.

         3.10     Security. The obligation of the Borrower hereunder shall be
secured by the following (the "Security Documents");

                  (a)      a Subordinate Mortgage, Assignment of Leases and
Rents, Security Agreement and Financing Statement delivered with respect to
certain property of the Borrower located in Lowell, Arkansas (the "Subordinate
Lowell Mortgage");

                  (b)      a Subordinate Mortgage, Assignment of Leases and
Rents, Security Agreement and Financing Statement delivered with respect to
certain property of the Borrower located in Springdale, Arkansas (the
"Subordinate Springdale Mortgage");

                  (c)      a Subordinate Deed of Trust, Assignment of Leases and
Rents, Security Agreement and Financing Statement delivered with respect to
certain property of the Borrower located in Junction, Texas ( the "Subordinate
Junction Deed of Trust"); and

                                     - 4 -

<PAGE>

                  (d)      a Subordinate Patent and Trademark Security Agreement
(the Subordinate Security Agreement").

         3.11     Subordination. This Note and the Security Documents shall, to
the extent and in the manner set forth in the Purchase Agreement, be fully
subordinated to the Superior Indebtedness, as herein defined. For all purposes
of this Note, the term "Superior Indebtedness" shall mean (i) all obligations of
this Borrower arising under (A) the Bond Loan Agreement, (B) the Lowell Mortgage
(within the meaning of the Bond Loan Agreement), or (C) the Junction Deed of
Trust (within the meaning of the Bond Loan Agreement) (together, the "Bond
Documents"), as each may be supplemented and modified to the date hereof, or as
the same may hereafter from time to time be further supplemented and modified
and any other obligations secured by or evidencing, directly or indirectly,
obligations evidenced by such Bond Documents, including post-petition interest,
(ii) all obligations of this Borrower secured on a parity with the obligations
of the Borrower arising under the Bond Loan Agreement, as provided therein, and
(iii) all obligations of the Borrower to which the obligations of the Borrower
arising hereunder shall be further subordinated, as provided in the Purchase
Agreement.

                     [REMAINDER OF PAGE INTENTIONALLY BLANK]

                                     - 5 -

<PAGE>

         IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by duly authorized officers this 9th day of October 2003.

                                     ADVANCED ENVIRONMENTAL
                                     RECYCLING TECHNOLOGIES, INC.

                                     By: /s/ STEVE BROOKS
                                         ----------------------------
                                         Name: Steve Brooks
                                         Title: Co-CEO

                                       6