EXHIBIT 10.11


                                                                      #730900124

           TOTAL INDEBTEDNESS SECURED BY THIS MORTGAGE IS $249,950.00



                   COMBINATION MORTGAGE AND SECURITY AGREEMENT


         This Combination Mortgage and Security Agreement made as of the 13th
day of February 1998 (the "Mortgage") by Appliance Recycling Centers of America,
Inc., a Minnesota corporation, as mortgagor ("Mortgagor") and Western Bank, 663
University Ave., St. Paul, a Minnesota banking corporation, as mortgagee (the
"Mortgagee").

WHEREAS:

                a. The Mortgagor holds record fee title to certain land (the
"Land") fully described on Exhibit I attached hereto located in the City of St.
Paul, County of Ramsey, State of Minnesota;

                b. The land is improved with a Commercial building and related
facilities (the "Building");

                c. On the date hereof Mortgagee has advanced (or is committed to
advance) to Mortgagor the sum of $249,950.00

                d. Pursuant to Mortgagor's Note of even date here-with payable
to the order of Mortgagee (the "Note") in the principal amount of $249,950.00,
Mortgagor has agreed to repay to Mortgagee the total amount advanced by
Mortgagee together with interest thereon at the rate(s) stated in the Note, on
or before February 13, 2008 ; and

                e. To secure payment of the Note, Mortgagor has executed and
delivered to Mortgagee this Mortgage.

<PAGE>


                NOW, THEREFORE, in consideration of One Dollar ($1.00) and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged; and to secure (a) the due and punctual payment of principal of and
interest on the Note, and all renewals, extensions and modifications thereof and
any agreements or obligations issued in substitution thereof (provided the
principal amount of such shall not exceed the original principal amount of the
Note); and (b) the performance of all the covenants and agreements of Mortgagor
herein and in any other agreement now or hereafter entered into between the
Mortgagor and Mortgagee in connection with the Note (the payment and other
obligations evidenced by the Note, this Mortgage and all such other agreements
are hereinafter collectively referred to as the "Indebtedness"), the Mortgagor
does hereby mortgage, grant, bargain, sell, assign, transfer and convey unto the
Mortgagee forever, with power of sale, the following:

                                       I.

                All of Mortgagor's right, title and interest in and to the Land
and the Building, structures, other improvements, fixtures and personal property
now standing or at any time hereafter constructed or placed upon the Land (the
"Improvements"), including but not limited to (i) all building materials,
supplies and equipment now or hereafter located on the Land and suitable or
intended to be incorporated in any Improvements located or to be erected on the
Land, (ii) all heating, plumbing and lighting apparatus, motors, engines and
machinery, electrical equipment, incinerator apparatus, air-conditioning
equipment, water and gas apparatus, pipes, faucets, and all other fixtures of
every description which are now or may hereafter be placed or used upon the Land
or in any of the Improvements now or hereafter located thereon, (iii) all
additions, accessions, increases, parts, fittings, accessories, replacements,
substitutions, betterments, repairs and proceeds to and of any and all of the
foregoing, (iv) all hereditaments, easements, appurtenances, estates, and other
rights and interests now or hereafter belonging to or in any way pertaining to
the Land or to any of the Improvements now or hereafter located thereon, and (v)
all tangible personal owned by the Mortgagor and now or at any time hereafter
located on or relating to the Land.

                                       II.

                All rents, issues, profits, condemnation awards, revenues and
income arising from the ownership, operation or sales of the Land and the
Improvements and all proceeds and products thereof (herein collectively called
"Revenues and Income").

                To Have and To Hold the Land and the Improvements (together the
"Mortgaged Property"), and the Revenues and Income unto the Mortgagee forever;
provided, nevertheless, that this Mortgage is upon the express condition that if
the Mortgagor shall cause to be paid to the Mortgagee as and when due and
payable the Indebtedness, and shall also keep and perform each and every
covenant and agreement of Mortgagor herein contained, then, this Mortgage and
the estate hereby granted shall cease

<PAGE>


and be and become void and shall be released of record at the expense of the
Mortgagor; otherwise this Mortgage shall be and remain in full force and effect.

                The Mortgagor represents, warrants and covenants to and with the
Mortgagee that Mortgagor is lawfully seized of the Land in fee simple and has
good right and full power and authority to execute this Mortgage and to mortgage
and Mortgaged Property; that the Mortgagor owns the Mortgaged Property free from
all liens, security interests and encumbrances except as listed in Exhibit 2
attached hereto; that the Mortgagor will warrant and defend the title to the
Mortgaged Property and the lien and priority of this Mortgage against all claims
and demands of all persons whomsoever, whether now existing or hereafter
arising, not listed in Exhibit 2 to this Mortgage. The covenants and warranties
of this paragraph shall survive foreclosure of this Mortgage and shall run with
the Land.

        The Mortgagor further covenants and agrees as follows:

        1. Payment of the Indebtedness and Compliance with Other Agreements.

        (a) Mortgagor will cause the principal of and interest on the
        Indebtedness to be duly and punctually paid in accordance with the terms
        of the Note and this Mortgage when and as due and payable. The
        provisions of the Note are hereby incorporated by reference into this
        Mortgage as fully as if set forth at length herein.

        (b) Mortgagor will duly and punctually perform each and every obligation
        under any other agreement now or hereafter entered into by the Mortgagor
        and Mortgagee in connection with the Note.

                2. Application of Payments. All payments received by Mortgagee
with respect to the Note of this Mortgage shall be applied by Mortgagee in the
following order of priority: (i) interest payable on advances made pursuant to
paragraph 11 hereof; (ii) principal of advances made pursuant to paragraph 11
hereof; (iii) interest payable on the Indebtedness; (iv) principal of the
Indebtedness; and (v) any other sums secured by this Mortgage, in such order of
application as Mortgagee may determine.

                3. Payment of Taxes, Assessments and Other Charges; Escrow.
Subject to paragraph 7 relating to contest, the Mortgagor shall pay before a
penalty might attach for nonpayment thereof, all taxes and assessments and all
other charges whatsoever levied upon or assessed or placed against the Mortgaged
Property, except that assessments may be paid in installments so long as no fine
or penalty is added to any installment for the nonpayment thereof. Mortgagor
shall likewise pay all taxes, assessments and other charges, levied upon or
assessed, placed or made against, or measured by, this Mortgage, or the
recordation hereof, or the Indebtedness secured hereby, provided that the
Mortgagor shall not be obliged to pay such tax, assessment or charge if such
payment would be contrary to law or would result in the payment of an unlawful
rate of interest on the indebtedness secured hereby; and provided further that

<PAGE>


nothing herein contained shall be construed as requiring Mortgagor to pay any
net income, profits or revenue taxes of the Mortgagee. Mortgagor shall promptly
furnish to the Mortgagee all notices received by the Mortgagor of amounts due
under this paragraph and shall furnish receipts evidencing such payments within
10 days after such payments are made.

                At the request of Mortgagee, Mortgagor shall deposit with the
Mortgagee on the first day of each and every month hereafter, an amount equal to
one-twelfth (1/12th) of the estimated annual taxes, assessments, and insurance
premiums ("Charges") due on the Mortgaged Property. From time to time out of
such deposits Mortgagee will, upon the presentation to the Mortgagee by the
Mortgagor of the bills thereof, pay the Charges or will upon presentation of
receipted bills thereof, reimburse the Mortgagor for such payments made by the
Mortgagor. In the event the deposits on hand shall not be sufficient to pay all
of the estimated Charges when the same shall become due from time to time, or
the prior payments shall be less than the currently estimated monthly amounts,
then the Mortgagor shall pay to the Mortgagee on demand any amount necessary
make up the deficiency. The excess of any such deposits shall be credited to
subsequent payments to be made for such items. If a default or an Event of
Default shall occur under the terms of this Mortgage or the Note the Mortgagee
may, at its option, without being required so to do, apply any deposits on hand
to the Indebtedness. in such order and manner as the Mortgagee may elect. When
the Indebtedness has been fully paid any remaining deposits shall be returned to
the Mortgagor as its interest may appear. All deposits are hereby pledged as
additional security for the Indebtedness, shall be held for the purposes for
which made as herein provided, may be commingled with other funds of the
Mortgagee, and shall be held without any allowance of interest thereon.

                4. Payment of Utility Charges. Subject to paragraph 7 relating
to contest, the Mortgagor shall pay all charges made by utility companies,
whether public or private, for electricity, gas, heat, water, or sewer,
furnished or used in connection with the Mortgaged Property or any part thereof,
and will, upon written request of Mortgagee, furnish proper receipts evidencing
such payment.

                5. Liens. Subject to paragraph 7 hereof relating to contests,
the Mortgagor shall not create, incur or suffer to exist any lien, encumbrance
or charge on the Mortgaged Property or Revenues and Income or any part thereof,
other than the lien of current real estate taxes and installments of special
assessments with respect to which no penalty is yet payable. Mortgagor shall
pay, when due, the claims of all persons supplying labor or materials to or in
connection with the Mortgaged Property.

                6. Compliance with Laws. Subject to paragraph 7 relating to
contests, Mortgagor shall comply with all present and future statutes, laws,
rules, order, regulations and ordinances affecting the Mortgaged Property, any
part thereof or the use thereof. The Mortgagor represents and warrants that no
hazardous or toxic substances are buried or otherwise located on the Land.

<PAGE>


                7. Permitted Contests. The Mortgagor shall not be required to
(i) pay any tax, assessment or other charge referred to in paragraph 3 hereof,
(ii) pay any charge referred to in paragraph 4 hereof, (iii) discharge or remove
any lien encumbrance or charge referred to in paragraph 5 hereof, or (iv) comply
with any statute, law, rule, regulation or ordinance referred to in paragraph 6
hereof, so long as Mortgagor shall (a) contest, in good faith, the existence,
amount or the validity thereof, the amount of damages caused thereby or the
extent of Mortgagor's liability therefor, by appropriate proceedings which shall
operate during the pendency thereof to prevent (A) the collection of, or other
realization upon the tax, assessment, charge or lien, encumbrance or charge so
contested, (B) the sale, forfeiture or loss of the Mortgaged Property or any
part thereof, and (C) any interference with the use or occupancy of the
Mortgaged Property or any part thereof, and (b) shall give such security to the
Mortgagee as may be reasonably demanded by the Mortgagee to insure compliance
with the foregoing provisions of this paragraph 7. Mortgagor shall give prompt
written notice to Mortgagee of the commencement of any contest referred to in
this paragraph 7.

                8. Insurance.

                (a) Risks to be Insured. Mortgagor, at Mortgagor's sole cost and
expense, will maintain insurance of the following character:

                        (i) "All-Risk" Insurance on the Building and other
                        Improvements now existing or hereafter erected on the
                        Land against loss by fire, lightning, extended coverage
                        perils, collapse, water damage, vandalism, malicious
                        mischief and all other risks and contingencies, subject
                        only to such exceptions as the Mortgagee may approve, in
                        an amount equal to the actual replacement cost thereof
                        (exclusive of foundations and excavations) or the
                        outstanding balance of the Indebtedness, whichever is
                        greater, without deduction for physical depreciation,
                        with coverage for demolition and increased costs of
                        construction, and providing coverage in an "agreed
                        amount" or without provisions for co-insurance. While
                        any Building or other Improvement is in the course of
                        being constructed or rebuilt on the Land, the Mortgagor
                        shall provide the aforesaid hazard insurance in
                        builder's risk completed value form, including coverage
                        available on the so-called 'all risk' non-reporting form
                        of policy.

                        (ii) Business interruption or loss of rents insurance in
                        an amount not less than the total amount of principal,
                        interest, taxes and insurance premiums payable hereunder
                        for a period of six (6) months.

                        (iii) If the Land or any part thereof is located in a
                        designated official flood-hazard area, flood insurance
                        insuring the Building and

<PAGE>


                        Improvements now existing or hereafter erected on the
                        Land in an amount equal to the actual replacement cost
                        thereof or to the maximum limit of coverage made
                        available with respect to such Building and Improvements
                        under the Flood Insurance Act of 1968, as amended,
                        whichever is less.

                        (iv) Public liability, including personal injury and
                        property damage, insurance applicable to the Mortgaged
                        Property in such amounts as are usually carried by
                        persons operating similar properties in the same general
                        locality but in any event with limits of liability not
                        less than $1,000,000 combined single limit.

                        (v) Appropriate worker's compensation insurance with
                        respect to any work on or about the Mortgaged Property.

        (b) Policy Provisions. All insurance policies and renewals thereof
        maintained by Mortgagor pursuant to subparagraph (a) above shall be
        written by insurance carriers satisfactory to the Mortgagee, contain,
        except in the case of liability insurance and worker's compensation
        insurance, a standard mortgagee clause in favor of and in form
        acceptable to Mortgagee, contain an agreement of the insurer that it
        will not cancel or materially modify the policy except after 30 days
        prior written notice to the Mortgagee, include effective waivers by the
        insurer of all claims for insurance premiums against the Mortgagee,
        provide, except in the case of liability insurance and worker's
        compensation insurance, that all sums paid for losses of $10,000 or more
        shall be paid solely to the Mortgagee, provide that any losses shall be
        payable notwithstanding

(1) any act or negligence of the Mortgagor or Mortgagee, (2) any foreclosure or
other proceedings or notice of sale relating to the Mortgaged Property, or (3)
any change in the title to or ownership of the Mortgaged Property, and be
reasonably satisfactory to Mortgagee in all other respects.

        (c) Delivery of Policy. Mortgagor will deliver to Mortgagee certificates
        of insurance or copies of policies satisfactory to Mortgagee evidencing
        the insurance which is required under subparagraph (a), and Mortgagor
        shall promptly furnish to Mortgagee all renewal notices and all receipts
        of paid premiums received by it. At least 30 days prior to the
        expiration date of a required policy, Mortgagor shall deliver to
        Mortgagee a renewal policy or certificate of insurance in form
        satisfactory to Mortgagee.

        (d) Assignment of Policy. If the Mortgaged Property is sold at a
        foreclosure sale or if Mortgagee shall acquire title to the Mortgaged
        Property, the Mortgagee shall have all of the right, title and interest
        of Mortgagor in and to any insurance policies required under paragraph
        8(a) hereof and the unearned premiums thereon

<PAGE>


        and in and to the proceeds resulting from any damage to the Mortgaged
        Property prior to such sale or acquisition.

        (e) Notice of Damage or Destruction; Adjusting Loss. If the Mortgaged
        Property or any part thereof shall be damaged or destroyed by fire or
        other casualty, Mortgagor will promptly give written notice thereof to
        the insurance carrier and Mortgagee, and the Mortgagee shall have the
        right to join the Mortgagor in adjusting any damage or loss which is
        estimated by Mortgagee in good faith to exceed $10,000; but if there has
        been no adjustment of any such damage or loss within 30 days from the
        date of occurrence thereof and if an Event of Default shall exist at the
        end of such 30 day period or at any time thereafter, Mortgagee may alone
        make proof of loss, adjust and compromise any claim under the policies
        and appear in and prosecute any action arising from such policies. In
        connection therewith, Mortgagor does hereby irrevocably authorize,
        empower and appoint Mortgagee as attorney-in-fact for Mortgagor (which
        appointment is coupled with an interest) to do any and all of the
        foregoing in the name and on behalf of Mortgagor.

        (f) Restoration of Damaged or Destroyed Property. In case of any damage
        to or destruction of the Mortgaged Property or any part thereof, the
        Mortgagor, whether or not the insurance proceeds, if any, on account of
        such damage or destruction shall be sufficient for the purpose, at its
        expense, shall promptly commence and complete the restoration, repair,
        replacement or rebuilding of the Mortgaged Property that is damaged or
        destroyed (the "Restoration") as nearly as possible to its value,
        condition and character, immediately prior to such damage or
        destruction, with such alterations and additions as may be made at the
        Mortgagor's election.

        (g) Application of Insurance Proceeds.

                (i) All sums paid for losses of $10,000 or more under any hazard
                insurance policy and/or flood insurance policy required in
                paragraph 8(a) shall be paid to Mortgagee. All such sums
                recovered by the Mortgagee, less the reasonable cost, if any, to
                the Mortgagee of such recovery (including attorneys' fees) may,
                at the sole discretion of the Mortgagee, be applied to the
                Restoration or to the reduction of the Indebtedness in such
                order of application as the Mortgagee may determine.

                (ii) Mortgagor shall promptly reimburse Mortgagee upon demand
                for all of Mortgagee's expenses incurred in connection with the
                collection of the insurance proceeds and all such expenses,
                together with interest from the date of disbursement at the rate
                of interest provided in the Note (unless collection of interest
                from Mortgagor at such rate would be contrary to applicable law,
                in which event such amounts shall bear interest at the

<PAGE>


                highest rate which may be collected from Mortgagor under 
                applicable law) shall be additional amounts secured by this
                Mortgage.

                9. Preservation and Maintenance of Mortgaged Property. Mortgagor
(i) shall keep the Building and other Improvements now or hereafter erected on
the Land in safe and good repair and condition, ordinary wear and tear excepted,
(ii) shall constantly maintain the parking and landscaped areas of the Mortgaged
Property, (iii) shall not commit waste or permit impairment or deterioration of
the Mortgaged Property, (iv) shall not alter or permit the alteration of the
design or structural character of any Building now or hereafter erected on the
Land or hereafter construct, or permit any tenant to construct, additions to the
original Building or additional buildings on the Land without the prior written
consent of the Mortgagee and (v) shall not remove from the Land any of the
fixtures and personal property included in the Mortgaged Property unless the
same is immediately replace with like property of at least equal value and
utility, and this Mortgage becomes a valid first lien on such property.

                10. Inspection. The Mortgagee, or its agents, shall have the
right at all reasonable times, to enter upon the Mortgaged Property for the
purposes of inspecting the Mortgaged Property or any part thereof. The Mortgages
shall, however, have no duty to make such inspection.

                11. Protection of Mortgagee's Security. Subject to the rights of
the Mortgagor under paragraph 7 hereof, if the Mortgagor fails to perform any of
the covenants and agreements contained in this Mortgage or if any action or
proceeding is commenced which affects the Mortgaged Property or the interest of
the Mortgagee therein, or the title thereto, then the Mortgagee, at Mortgagee`s
option, may perform such covenants and agreements, defend against and/or
investigate such action or proceeding, and take such other action as the
Mortgagee deems necessary to project the Mortgagee's interest. Mortgagee shall
be the sole judge of the legality, validity and priority of any claim, lien,
encumbrance, tax, assessment, charge and premium paid by it and of the amount
necessary to be paid in satisfaction thereof. Mortgagee is hereby given the
irrevocable power of attorney (which power is coupled with an interest and is
irrevocable) to enter upon the Mortgaged Property as the Mortgagor's agent in
the Mortgagor's name to perform any and all covenants and agreements to be
performed by the Mortgagor as herein provided. Any amounts disbursed or incurred
by the Mortgagee pursuant to this paragraph 11, with interest thereon, shall
become additional Indebtedness of the Mortgagor secured by this Mortgage. Unless
Mortgagor and Mortgagee agree in writing to other terms of repayment, such
amounts shall be immediately due and payable, and shall bear interest from the
date of disbursement at the rate of interest provided in the Note, unless
collection from Mortgagor of interest at such rate would be contrary to
applicable law, in which event such amounts shall bear interest at the highest
rate which may be collected from Mortgagor under applicable law. Mortgagee
shall, at its option, be subrogated to the lien of any mortgage or other lien
discharged in whole or in part by the Indebtedness or by the Mortgagee under the
provisions hereof, and any such subrogation rights shall additional and
cumulative security for this Mortgage. Nothing contained in

<PAGE>


this paragraph 11 shall require the Mortgagee to incur any expense or do any act
hereunder, and the Mortgagee shall not be liable to the Mortgagor for any
damages or claims arising out of action taken by the Mortgagee pursuant to this
paragraph 11.

                12. Condemnation.

                (a) Mortgagor hereby irrevocably assigns to the Mortgagee any
award or payment which becomes payable by reason of any taking of the Mortgaged
Property, or any part thereof, whether directly or indirectly or temporarily or
permanent, in or by condemnation or other eminent domain proceedings or by
reason of sale under threat thereof,or in anticipation of the exercise of the
right of condemnation or other eminent domain proceedings (hereinafter called
"Taking"). Forthwith upon receipt by Mortgagor of notice of the institution of
any proceeding or negotiations for a Taking, Mortgagor shall give notice thereof
to Mortgagee. Mortgagee may appear in any such proceedings and participate in
any such negotiations and may be represented by counsel. Mortgagor,
notwithstanding that Mortgage may not be a party to any such proceeding, will
promptly give to Mortgagee copies of all notices, pleadings, judgements,
determinations and other papers received by Mortgagor therein. Mortgagor will
not enter into any agreement permitting or consenting to the Taking of the
Mortgaged Property, or any part thereof, or providing for the conveyance thereof
in lieu of condemnation, with anyone authorized to acquire the same in
condemnation or by eminent domain unless Mortgagee shall first have consented
thereto in writing, which consent will not be unreasonably withheld. All Taking
awards shall be adjusted jointly by Mortgagee. All awards payable as a result of
a Taking shall be paid to Mortgagee, which may, at its option, apply them, after
first deducting Mortgagee's expenses incurred in the collection thereof, to the
payment of the Indebtedness, whether or not due and in such order of application
as Mortgagee may determine, or to the repair or restoration of the Mortgaged
Property, in such manner as Mortgagee may determine. Any application of Taking
awards to principal of the Indebtedness shall not extend or postpone the due
dates of the installments payable under the Indebtedness or change the amount of
such installments.

        (b) If the Taking involves a taking of any Building or other
        Improvements now or hereafter located on the Land, Mortgagor shall
        proceed, with reasonable diligence, to demolish and remove any ruins and
        complete repair or restoration of the Mortgaged Property as nearly as
        possible to its respective size, type, and character immediately prior
        to the Taking, whether or not the condemnation awards are available or
        adequate to complete such repair or restoration.

        (c) Mortgagor shall promptly reimburse Mortgagee upon demand for all of
        Mortgagee's expenses (including reasonable attorney's fees) incurred in
        the collection of awards and their disbursement in accordance with this
        paragraph, and all such expenses, together with interest from the date
        of disbursement at the rate of interest provided in the Note (unless
        collection of interest from Mortgagor at such rate would be contrary to
        applicable law, in which event such amounts shall

<PAGE>


        bear interest at the highest rate which may be collected from Mortgagor
        under applicable law) shall be additional amounts secured by this
        Mortgage.

                13. Information; Books and Records. Mortgagor will prepare or
cause to be prepared at Mortgagor's expense and deliver of any condition or
event which constitutes, or which after notice or lapse of time or both would
constitute, an Event of Default, written notice specifying the nature and period
of existence thereof and what action Mortgagor has taken, is taking or proposes
to take with respect thereto. Mortgagor shall keep and maintain at all times at
Mortgagor's address stated below or at such other places as Mortgagee may
approve in writing, complete and accurate books of accounts and records in
sufficient detail and accurate books of accounts and records in sufficient
detail to reflect correctly the receipts and expenses in connection with the
acquisition, construction, operation and/or sale of the Mortgaged Property and
copies of all written contracts, leases and other instruments which affect the
Mortgaged Property. Such books, records, contracts, leases and other instruments
shall be subject to examination and inspection by the Mortgagee or its
representative during ordinary business hours.

                14. Indemnification by the Mortgagor. The Mortgagor shall bear
all loss, expense (including attorneys' fees) and damage in connection with, and
agrees to indemnify and hold harmless the Mortgagee and each of its agents,
servants and employees from, all claims, demands and judgements made or
recovered against the Mortgagee or any of its agents, servants and employees
because of bodily injuries, including death at any time resulting therefrom,
and/or because of damages to property of the Mortgagee or others (including loss
of use) from any cause whatsoever, arising out of, incidental to, or in
connection with the construction and/or operation of the Improvements or arising
by reason of the presence of hazardous or toxic substances on the Land or in the
Improvements or releases thereof from the Mortgaged Property, whether or not due
to any act of omissions or commission, including negligence of the Mortgagor or
its employees, servants or agents, and whether or not due to any act of omission
or commission of the Mortgagee or its employees, servants or agents. The
Mortgagor's liability hereunder shall not be limited to the extent of insurance
carried by or provided by the Mortgagor or subject to any exclusions from
coverage in any insurance policy. The obligations of the Mortgagor under this
paragraph shall survive the payment of the Note.

                15. Security Interest. This Mortgage shall constitute a security
agreement with respect to (and the Mortgagor hereby grants the Mortgagee a
security interest in) the tangible personal property and fixtures included in
the Mortgaged Property (as more particularly described in Granting Clause I of
this Mortgage) and the Revenues and Income (as more particularly described in
Granting Clause II). The Mortgagor will from time to time, at the request of the
Mortgagee, execute any and all fixtures (in a form satisfactory to the
Mortgagee, execute any and all financing statements covering such personal
property and fixtures (in a form satisfactory to the Mortgagee) which the
Mortgagee may reasonably consider necessary or appropriate to perfect its
security interest.

<PAGE>


                16. Events of Default. Each of the following occurrences shall
constitute an event of default hereunder (herein called an "Event of Default"):

        (a) Mortgagor shall fail to duly and punctually pay any obligation
        payable under the Note or this Mortgage.

        (b) Mortgagor shall fail duly to perform or observe any of the covenants
        or agreements contained in this Mortgage (other than a default in the
        performance, or breach, of any covenant of the Mortgagor in paragraph
        1(a) hereof) and such failure shall continue for a period of thirty (30)
        days after the Mortgagee has given written notice to the Mortgagor
        specifying such default or breach.

        (c) Mortgagor shall make an assignment for the benefit of Mortgagor's
        creditors, or shall admit in writing Mortgagor's inability to pay
        Mortgagor's debts as they become due, or shall file a petition in
        bankruptcy, or shall become or be adjudicated a bankrupt or insolvent,
        however defined, or shall file a petition seeking any reorganization,
        dissolution, liquidation, arrangement, composition, readjustment or
        similar relief under any present or future bankruptcy or insolvency
        statute, law or regulation or shall file an answer admitting to or not
        consenting the material allegations of petition filed against the
        Mortgagor in such proceedings, or shall not, within 60 days after the
        filing of such petition against the Mortgagor, have same dismissed or
        vacated, or shall seek or consent to or acquiesce in the appointment of
        any trustee, receiver or liquidator of a material part of the
        Mortgagor's properties or of the Mortgaged Property or shall not, within
        60 days after the appointment (without the Mortgagor's consent or
        acquiescence) of a trustee, receiver or liquidator of any material part
        of the Mortgagor's properties or of the Mortgaged Property, have such
        appointment vacated.

        (d) The Land or Building or Revenues and Income, or if any part thereof
        or any legal or equitable interest therein, shall be sold, conveyed,
        transferred or further encumbered without the prior written consent of
        Mortgagee. This provision shall apply to each and every sale, transfer
        or conveyance, regardless of whether or not the Mortgagee has waived its
        rights hereunder, whether by action or inaction in connection with any
        previous sale, transfer or conveyance, whether one or more.

        (e) Mortgagor shall default in the payment of any obligation other then
        the Indebtedness, whether as a principal or as a surety, in favor of the
        Mortgagee and any periods of grace with respect thereto shall have
        expired.

                17. Acceleration; Foreclosure. Whenever any Event of Default
shall have occurred and be subsisting, the Mortgagee may, at its option,
exercise one or more of the following rights and remedies (and/or any other
rights and remedies available to it):

<PAGE>


        (a) Mortgagee may, by written notice to the Mortgagor, declare
        immediately due and payable all Indebtedness secured by this Mortgage,
        and the same shall thereupon be immediately due and payable, without
        further notice or demand.

        (b) Mortgagee shall have and may exercise with respect to all personal
        property and fixtures which are part of the Mortgaged Property and with
        respect to the Revenues and Income, all the rights and remedies accorded
        upon default to a secured party under the Uniform Commercial Code, as in
        effect in the State of Minnesota. If notice to the Mortgagor of intended
        disposition of such property is required by law in a particular
        instance, such notice shall be deemed commercially reasonable if given
        to Mortgagor (in the manner specified in paragraph 21) at least 10
        calendar days prior to the date of intended disposition. Mortgagor shall
        pay on demand all costs and expenses incurred by Mortgagee in exercising
        such rights and remedies, including without limitation, reasonable
        attorneys' fees and legal expenses.

        (c) Mortgagee may (and is hereby authorized and empowered to) foreclose
        this Mortgage by action or advertisement, pursuant to chapters 580
        through 582 of the statutes of the State of Minnesota in such case made
        and provided, power being expressly granted to sell the Mortgaged
        Property (including, without limitation, and at the option of the
        Mortgagee, any goods constituting a part thereof) at public auction and
        convey the same to the purchaser in fee simple and out of the proceeds
        arising from such sale, to pay all or any part of the Indebtedness
        secured hereby with interest, and all legal costs and charges of such
        foreclosure and the maximum attorneys' fees permitted by law, which
        costs, charges and fees the Mortgagor agrees to pay.

        (d) The Mortgagor shall be entitled, without notice and without any
        showing of waste of the Mortgaged Property, inadequacy of the Mortgaged
        Property as security for the Indebtedness, or insolvency of the
        Mortgagor, to the appointment of a receiver of the rents and profits of
        the Mortgaged Property, including those past due.

        (e) Mortgagee may pursue one or more of the remedies provided for
        herein, in the Note, or in any other agreement now or hereafter entered
        into between the Mortgagor and Mortgagee in connection with the Note.

                18. Estoppel Certificates. Mortgagor agrees at any time and from
time to time, upon not less than 15 days' prior notice by Mortgagee, to execute,
acknowledge and deliver, without charge, to Mortgagee or to any person
designated by Mortgagee, a statement in writing certifying that this Mortgage is
unmodified (or if there have been modifications, identifying the same by the
date thereof and specifying the nature thereof), the principal amount then
secured hereby, that Mortgagor has not received any notice of default or notice
acceleration or foreclosure of this notice of this Mortgage (or if Mortgagor has
received such a notice, that it has been revoked, if such be the case), that

<PAGE>


to the knowledge of Mortgagor no Event of Default exists hereunder (or if any
such Event of Default does exist, specifying the same and stating that the same
has been cured, if such be the case), the Mortgagor to Mortgagor's knowledge has
no claims or offsets against Mortgagee (or if Mortgagor has any such claims,
specifying the same), and the dates to which the principal and interest and the
other sums and charges payable by Mortgagor pursuant to the Note and this
Mortgage have been paid. In the event Mortgagor fails to execute, acknowledge
and deliver such statement within the time above required, Mortgagor hereby
appoints and constitutes Mortgagee as Mortgagor's attorney-in-fact to do so
(which power of attorney is coupled with an interest and is irrevocable), and
Mortgagor shall be fully bound by any such statement executed by Mortgagee on
Mortgagor`s behalf to the same extent as if Mortgagor had executed, acknowledged
and delivered the same.

                19. Forbearance Not a Waiver, Rights and Remedies Cumulative. No
delay by the Mortgagee in exercising any right shall be deemed a waiver of or
preclude the exercise of such right or remedy, and no waiver by the Mortgagee of
any particular provision of this Mortgagee shall be deemed effective unless in
writing signed by the Mortgagee. All such rights and remedies provided for
herein or which the Mortgagee may have otherwise, at law or in equity, shall be
distinct, separate and cumulative and may be exercised concurrently,
independently or successively in any order whatsoever, and as often as the
occasion therefor arises. The Mortgagee's taking action pursuant to paragraph 11
or receiving proceeds, awards or damage pursuant to paragraphs 8 or 12 shall not
impair any right or remedy available to the Mortgagee under paragraph 17 hereof.
Acceleration of maturity of the Indebtedness, once claimed hereunder by the
Mortgagee, may, at the option of Mortgagee, be rescinded by written
acknowledgement to that effect by Mortgagee, but the tender and acceptance of
partial payments alone shall not in any way affect or rescind such acceleration
of maturity of the Indebtedness or constitute a waiver of any proceedings
commenced to foreclose this Mortgage.

                20. Successors and Assigns Bound; Number; Gender; Agents,
Captions. The covenants and agreements herein contained shall bind, and the
rights hereunder shall inure to, the respective heirs, legal representatives,
successors and assigns of the Mortgagee and the Mortgagor, subject to paragraph
16(d). Wherever used, the singular number shall include the plural, and the
plural the singular, and the use of any gender shall apply to all genders. In
exercising any rights hereunder or taking any actions provided for herein,
Mortgagee may act through its employees, agents or independent contractors as
authorized by Mortgagee. The captions are headings of the paragraphs of this
Mortgage are for convenience only and are not to be used to interpret or define
the provisions hereof.

                21. Notice. Any notice from the Mortgagee to the Mortgagor under
this Mortgage shall be deemed to have been given by the Mortgagee and received
by the Mortgagor when mailed by certified mail by the Mortgagee or its agents to
the Mortgagor at the address set forth in paragraph 25(a) below or at such other
address as the Mortgagor may designate in writing to the Mortgagee.

<PAGE>


                22. Governing Law; Severability. This mortgage shall be governed
by the laws of the State of Minnesota. In the event that any provision or clause
of this Mortgage conflicts with applicable law, such conflict shall not affect
other provisions of this Mortgage which can be given effect without the
conflicting provisions and to this end the provisions of the Mortgage are
declared to be severable.

                23. Counterparts. This Mortgage may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

                24. Waiver of Marshalling. Mortgagor, any party who consents to
this mortgage and any party who now or hereafter acquires a lien on the
Mortgaged Property and who has actual or constructive notice of this Mortgage
hereby waives any and all right to require the marshalling of assets in
connection with the exercise of any of the remedies permitted by applicable law
or provided herein and waives any right to have the Mortgaged Property sold in
separate tracts pursuant to section 580.08, Minnesota Statutes.

                25. Fixture Filing. From the date of its recording, this
Mortgage shall be effective as a financing statement filed as a fixture filing
with respect to all goods constituting part of the Mortgaged Property (as more
particularly described in Granting Clause I of this Mortgage) which are or are
to become fixtures related to the real estate described herein. For this
purpose, the following information is set forth:


                (a) Name and Address of Debtor and Record Owner of Real Estate:

                        Appliance Recycling Centers of America, Inc.
                        7400 Excelsior Blvd.
                        St. Louis Park, MN 55426

                (b) Name and Address of Secured Party:

                        Western Bank
                        663 University Avenue West
                        St. Paul, MN 55104
                        Attention: Loan Servicing Dept.

                (c) This document covers goods which are or are to become
                    fixtures.

                IN WITNESS WHEREOF, the Mortgagor has caused this Mortgage to be
duly executed as of the day and year first above written.

<PAGE>


THE TOTAL INDEBTEDNESS SECURED BY THIS DOCUMENT IS $249,950.00.



                                Appliance Recycling Centers of America, Inc.



                                By:
                                     Kent S. McCoy, Chief Financial Officer


STATE OF Minnesota      )
                        ) SS.
COUNTY OF    Ramsey     )



                The foregoing instrument was acknowledged before me this ______
day of February, 1998 by Kent S. McCoy, Chief Financial Officer of Appliance
Recycling Centers of America, Inc., a Minnesota Corporation, on behalf of the
corporation. .


                                       -----------------------------------------
                                          Notary Public




This instrument was
drafted by:  Western Bank, 663 University Ave., St. Paul, MN 55104

<PAGE>


                                    EXHIBIT 1
                                       TO
                   COMBINATION MORTGAGE AND SECURITY AGREEMENT

                           (DESCRIPTION OF THE "LAND")


Legal:




Lots 6, 7, 8, 9, 10 and 11, in Chute Brothers Division No. 1 Addition to the
City of St. Paul, Minnesota










Address:  654 University Avenue, St. Paul, MN 55104

<PAGE>


                                    EXHIBIT 2
                                       TO
                   COMBINATION MORTGAGE AND SECURITY AGREEMENT

                            (PERMITTED ENCUMBRANCES)


1)      Taxes not yet due and payable.