<PAGE>
 
                                                                   EXHIBIT 10.21

                       NOTE PURCHASE AND LOAN AGREEMENT

     This Note Purchase and Loan Agreement (the "Agreement") is entered into as
of this 16th day of December, 1996, by and among Plasma & Materials
Technologies, Inc., a California corporation (the "Company"), and the persons
listed on Schedule 1 attached hereto (collectively, the "Investors").

                                   RECITALS:

     The Investors have agreed to lend to the Company up to a maximum aggregate
principal amount of $6,250,000 (the "Loan"), on the terms and conditions set
forth herein and pursuant to subordinated promissory notes in the form attached
hereto as Exhibit A (each individually a "Note" and collectively the "Notes").

                                  AGREEMENT:

     For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Company and the Investors agree as follows:

1.   THE LOAN

     1.1. The Loan.  Each of the Investors, in reliance upon the 
          --------   
          representations, warranties, covenants and agreements of the Company
          contained herein and subject to the terms and conditions of this
          Agreement, hereby agree to provide a loan to the Company in the
          principal amount set forth opposite such Investor's name on Schedule 1
          attached hereto (the "Commitment"), which may be drawn upon by the
          Company from time to time prior to January 1, 1998 (the "Commitment
          Termination Date").  On and after the Commitment Termination Date, no
          further amounts may be borrowed by the Company pursuant to this
          Agreement.

     1.2. The Notes.   The obligation of the Company to repay the Loan shall be
          ---------                                                           
          evidenced by the Notes. The Company shall make payments to the
          Investors in accordance with the terms of the Notes and this
          Agreement. Such payments shall be subordinated in the manner set forth
          therein.

     1.3. Issuance of Warrants.  In consideration of the Commitment and the 
          --------------------   
          Loan, the Company has agreed to issue to each of the Investors
          warrants to purchase that number of shares of the common stock of the
          Company (the "Common Stock") set forth opposite such Investors name on
          Schedule 1, on the terms and pursuant to the form of Common Stock
          purchase warrant attached hereto as Exhibit B (the "Warrants").

     1.4. Procedure for Requesting Advances.
          --------------------------------- 

          (a)  The Company shall give each of the Investors notice of any
               borrowing that it intends to make hereunder in the form of
               Exhibit C attached hereto (a "Notice of Borrowing") not less than
               10 business days prior to such borrowing, specifying
<PAGE>
 
               (i) the date for which funds are requested (the "Funding Date"),
               (ii) the amount to be borrowed from each Investor, which shall be
               such Investor's pro rata share of the amount requested, based
               upon the ratio of such Investor's Commitment to the maximum
               aggregate amount of the Loan ("Pro Rata Basis") and (iii) the
               aggregate amount of such borrowing, which shall not exceed the
               aggregate unfunded amount of the Loan.

          (b)  On the Funding Date specified in the Notice of Borrowing, subject
               to the conditions set forth in Section 5, each of the Investors
               shall make available to the Company the portion of its Commitment
               on a Pro Rata Basis of such borrowing by wire transfer to the
               account designated by the Company.

     1.5. Interest Rate.  If, during the time there are any amounts outstanding 
          -------------   
          under any of the Notes, the interest rate payable under such Notes
          shall be deemed by any competent court of law, governmental agency or
          tribunal to exceed the maximum rate of interest permitted by
          applicable law, then, for such time as the interest rate would be
          deemed excessive, its application shall be suspended and there shall
          be charged instead the maximum rate of interest permissible under such
          laws. If the rate of interest payable on the Notes is ever reduced as
          a result of the preceding sentence and at any time thereafter the
          maximum rate permitted by applicable law shall exceed the applicable
          rate of interest provided for in the Notes, then the rate of interest
          shall be increased to such maximum rate for such period as is required
          so that the total amount of interest received by the Investors is the
          amount that would have been received but for the operation of the
          preceding sentence.

     1.6. Subordination.  Repayment of the Loan shall be subordinated to certain
          -------------   
          other debts of the Company to the extent provided, and on the terms
          and conditions set forth, in the Notes.

     1.7. Payments.  All payments of principal and interest due under the Notes 
          --------   
          shall be paid by the Company in immediately available funds to the
          Investors on a Pro Rata Basis by wire transfer to such accounts as the
          Investors shall designate, or by such other means as each Investor may
          hereafter request.

2.  CLOSING

     2.1. Closing Date.  The execution of this Agreement and the closing of the
          ------------   
          transactions contemplated hereby shall take place simultaneously at
          the offices of Oppenheimer Wolff & Donnelly, 45 South Seventh Street,
          Suite 3400, Minneapolis, Minnesota 55402, at 11 a.m., Minneapolis
          time, on or about December 16, 1996, or as soon as practical
          thereafter (the "Closing") or at such other place or different time or
          day as may be mutually acceptable to the Investors and the Company,
          provided that all other conditions to the Closing as provided in this
          Agreement have been met to the reasonable satisfaction of, or waived
          by, the Investors or the Company, as the case may be.  The date and
          time on which the Closing occurs is referred to as the "Closing Date."

     2.2. Deliveries.  At the Closing, the Company will deliver the Notes, the
          ----------                                                          
          Warrants, and any other documents required by this Agreement.

                                       2
<PAGE>
 
3.   REPRESENTATIONS AND WARRANTIES BY THE COMPANY

     To induce the Investors to enter into this Agreement and to make the
     Commitment and the Loan, the Company hereby represents and warrants to the
     Investors the following, except as disclosed in the Schedules attached
     hereto, which exceptions shall be set forth in reasonable detail:

     3.1. Organization, Standing, Etc.  The Company is a corporation duly 
          ---------------------------   
          organized, validly existing and in good standing under the laws of the
          State of California and has the requisite corporate power and
          authority to own or lease its properties and to carry on its business
          as it is now being conducted. The Company has the requisite corporate
          power and authority to issue the Notes and the Warrants and the shares
          of Common Stock issuable on exercise of the Warrants (the "Warrant
          Shares") and to perform its obligations under this Agreement.

     3.2. Governing Instruments.  The copies of the articles of incorporation 
          ---------------------   
          and bylaws of the Company, and all amendments thereto (collectively,
          the "Charter Documents"), delivered to legal counsel for the Investors
          prior to the execution of this Agreement, are true and complete copies
          of the duly and legally adopted Charter Documents in effect as of the
          date of this Agreement and the Closing Date.

     3.3. Subsidiaries, Etc.  Except for (i) the Company's wholly-owned 
          -----------------   
          subsidiary, Plasma & Materials Technologies (Korea) Co. Ltd. ("PMT
          Korea"), (ii) Electrotech Limited and Electrotech Equipment Limited
          (collectively, "Electrotech") and the direct and indirect subsidiaries
          thereof and (iii) Energy Transfer Systems, Inc., a Delaware
          corporation ("ETS"), the Company does not have any direct or indirect
          ownership interest in any corporation, partnership, joint venture,
          association or other business enterprise. For purposes of this
          Section, references to the Company shall include PMT Korea,
          Electrotech and ETS.

     3.4. Qualification.  The Company is duly qualified, licensed or 
          -------------   
          domesticated as a foreign corporation in good standing in each
          jurisdiction listed on Schedule 3.4.  The Company has not failed to 
                                 ------------
          qualify, be licensed or domesticated in any jurisdiction in which the
          failure to so qualify, be licensed or domesticated would have a
          material adverse effect upon its business, properties or financial
          condition ("Material Adverse Effect").

     3.5. Financial Statements.  The (i) audited financial statements of the 
          --------------------   
          Company for the fiscal year ended December 31, 1995, and (ii)
          unaudited interim financial statements for the quarterly period ended
          September 30, 1996, together with the notes thereto, complete and
          correct copies of which are attached hereto as Schedule 3.5
                                                         ------------
          (collectively, the "Financial Statements"), present fairly the
          financial position of the Company, as of such dates and the results of
          operations for the periods covered thereby (subject, in the case of
          such unaudited interim financial statements, to year-end audit
          adjustments) and have been prepared in accordance with generally
          accepted accounting principles consistently applied.  Except as set
          forth in the Financial Statements, the Company does not have any
          liabilities, contingent or otherwise, other than (i) liabilities
          incurred in the ordinary course of business subsequent to the date of
          such quarterly Financial Statements; (ii) obligations

                                       3
<PAGE>
 
          under real and personal property leases disclosed pursuant to Section
          3.17 and (iii) obligations under contracts and commitments incurred in
          the ordinary course of business and not required under generally
          accepted accounting principles to be reflected in the Financial
          Statements, which, individually or in the aggregate, are not material
          to the financial condition or operating results of the Company.  
          Except as disclosed in the Financial Statements, and, except as set
          forth in Schedule 3.5, since the date of the quarterly Financial
                   ------------
          Statements, (i) there has been no material adverse change in the
          business or condition, financial or otherwise, operations or prospects
          of the Company; (ii) to the Company's knowledge, neither the business,
          condition or operations of the Company nor any of its properties or
          assets have been materially adversely affected as the result of any
          legislative or regulatory change, any revocation or change in any
          franchise, permit, license, or right to do business, or any other
          event or occurrence, whether or not insured against; (iii) except for
          the closing of the transactions contemplated by the Share Purchase
          Agreement, dated as of July 17, 1996, among the Company, Electrotech
          and the other parties thereto, as amended to date, which was approved
          at a meeting of the shareholders of the Company on October 10, 1996
          (the "Share Purchase Agreement"), the Company has not entered into any
          material transaction other than in the ordinary course of business,
          made any distribution on its capital stock, or redeemed or repurchased
          any of its capital stock; and (iv) there has been no lien or
          encumbrance placed upon any property of the Company.

     3.6. Valid Issuance.  The Notes and Warrants, when executed, issued and 
          --------------   
          delivered pursuant to the terms of this Agreement, will be duly
          authorized, validly issued and enforceable in accordance with their
          respective terms and the terms of this Agreement, except as such
          enforceability may be limited by bankruptcy, insolvency, moratorium,
          reorganization or other similar laws affecting the enforcement of
          creditors' rights generally and to judicial limitations on the
          enforcement of the remedy of specific performance and other equitable
          remedies.  The Warrant Shares have been reserved for issuance and,
          when issued upon the exercise of the Warrants, will be duly
          authorized, validly issued and outstanding, fully paid, nonassessable
          and free and clear of all pledges, liens, encumbrances and
          restrictions, except as set forth in Section 4 or the Charter
          Documents.

     3.7. Corporate Acts and Proceedings.  This Agreement has been duly 
          ------------------------------   
          authorized by all necessary corporate action on behalf of the Company,
          has been duly executed and delivered by authorized officers of the
          Company, is a valid and binding agreement on the part of the Company
          and is enforceable against the Company in accordance with its terms,
          except as such enforceability may be limited by bankruptcy,
          insolvency, moratorium, reorganization or other similar laws affecting
          the enforcement of creditors' rights generally and to judicial
          limitations on the enforcement of the remedy of specific performance
          and other equitable remedies.  All corporate actions necessary to the
          authorization, creation, issuance and delivery of the Notes, the
          Warrants and the Warrant Shares and reservation of the Warrant Shares
          contemplated hereunder have been taken by the Company.

     3.8. Tax Returns and Audits. The Company has prepared and timely filed all
          ----------------------                                               
          federal, state and other tax returns required by law to be filed, has
          paid or made provision for the payment of all taxes shown to be due
          and all additional assessments, and adequate

                                       4
<PAGE>
 
          provisions have been made and are reflected in the Financial
          Statements to the extent required by generally accepted accounting
          principles for all current taxes and other charges to which the
          Company is subject and which are not currently due and payable.  None
          of the income tax returns of the Company have been audited by the
          Internal Revenue Service or the state taxing authority in such a
          manner to bring such audit to the attention of the Company.  The
          Company does not know of any additional assessments or adjustments
          pending or threatened against the Company or its assets for any
          period, nor of any basis for any such assessment or adjustment, which
          would have a Material Adverse Effect.

    3.9.  Title to Properties and Encumbrances.  Except with respect to real 
          ------------------------------------               
          and personal property leased pursuant to lease agreements disclosed in
          the manner set forth in Section 3.17, the Company has good and
          marketable title to all of its properties and assets, including all
          properties and assets used in the conduct of its business, except for
          property disposed of in the ordinary course of business since the date
          of the quarterly Financial Statements, which properties and assets are
          not subject to any mortgage, pledge, lease, lien, charge, security
          interest, encumbrance or restriction, except (i) those which are shown
          and described in the Financial Statements or disclosed in Schedule 3.5
          or (ii) liens for taxes and assessments or governmental charges or
          levies not at this time due or in respect of which the validity
          thereof shall currently be contested in good faith by appropriate
          proceedings.

    3.10. Condition of Properties.  The plant, offices, equipment, inventory 
          -----------------------   
          and other assets of the Company have been kept in good condition and
          repair in the ordinary course of business, and are reasonably fit and
          suitable for the purposes for which they are being used and conform in
          all material respects with applicable ordinances, regulations and
          laws.

    3.11. Litigation; Governmental Proceedings.  There are no legal actions, 
          ------------------------------------   
          suits, arbitrations or other legal, administrative or governmental
          proceedings or investigations pending or, to the knowledge of the
          Company, threatened against the Company, or its properties or business
          or any executive officer or director of the Company, and neither the
          Company nor any executive officer or director of the Company is aware
          of any facts which are probable to result in or form the reasonable
          basis for any such action, suit or other proceeding. The Company is
          not in default with respect to any judgment, order or decree of any
          court or any governmental agency or instrumentality. To the best of
          its knowledge, the Company has not been threatened with any action or
          proceeding under any business or zoning ordinance, law or regulation.

    3.12. Compliance with Applicable Laws and Other Instruments.  The 
          -----------------------------------------------------   
          properties, business and operations of the Company have been and are
          being conducted in all material respects in accordance with all
          applicable laws, rules and regulations of all governmental
          authorities. Neither the execution nor delivery of, nor the
          performance of or compliance with this Agreement, the Notes or the
          Warrants, nor the consummation of the transactions contemplated hereby
          or thereby will, with or without the giving of notice or passage of
          time, result in any breach of, or constitute a default under, or
          result in the imposition of any lien or encumbrance upon any asset or
          property of the Company pursuant to, any agreement or other instrument
          to which the Company is a party or by which it or any of

                                       5
<PAGE>
 
          its properties, assets or rights is bound or affected, and will not
          violate the Charter Documents. The Company is not in violation of its
          Charter Documents nor in violation of, or in default under, any lien,
          indenture, loan or credit agreement, mortgage, lease, agreement,
          instrument, commitment or arrangement in any material respect. Except
          for the subordination provisions contained in the Notes, the Company
          is not subject to any restriction which would prohibit it from
          entering into, enforcing its rights, including requesting any
          borrowing, or performing its obligations under this Agreement.

    3.13. Environmental and Safety Laws.  The Company is not, in any material
          -----------------------------                                      
          respect, in violation of any applicable statute, law or regulation
          relating to the environment or occupational health and safety, and no
          material expenditures are or are reasonably anticipated to be required
          in order to comply with any such existing statute, law or regulation.

    3.14. Securities Laws.  Based in part upon the representations of the 
          ---------------   
          Investors in Section 4, no consent, authorization, approval, permit or
          order of or filing with any governmental or regulatory authority is
          required under current laws and regulations in connection with the
          execution and delivery of this Agreement or the offer, issuance, sale
          or delivery of the Notes and the Warrants, other than the filing of a
          Form D pursuant to Regulation D under the Securities Act of 1933, as
          amended (the "Securities Act"), and the qualification thereof, if
          required, under applicable state securities laws which qualification
          has been or will be effected as a condition of this sale. Under the
          circumstances contemplated by this Agreement, the offer, issuance,
          sale and delivery of the Notes and the Warrants will not, under
          current laws and regulations, require compliance with the prospectus
          delivery or registration requirements of the Securities Act.

    3.15. Patents and Other Intangible Rights.  Except as set forth in 
          -----------------------------------                          
          Schedule 3.15, the Company (i) owns or has the right to use, free
          -------------
          and clear of all liens, claims and restrictions, all patents, patent
          applications, trademarks, service marks, trade names, copyrights,
          trade secrets, licenses and similar rights with respect to the
          foregoing, necessary for and used in the conduct of its business as
          now conducted and as proposed to be conducted, to the Company's
          knowledge, without infringing upon or otherwise acting adversely to
          the right or claimed right of any person under or with respect to any
          of the foregoing; (ii) is not contractually or, to the Company's
          knowledge, otherwise obligated to make any material payments by way of
          royalties, fees or otherwise to any owner of, licensor of, or other
          claimant to, any patent, trademark, service mark, trade name,
          copyright, trade secret or other intangible asset, with respect to the
          use thereof or in connection with the conduct of its business or
          otherwise; (iii) has not received any notice of conflict with the
          asserted rights of others with respect to such matters; (iv) to the
          Company's knowledge, owns or has the unrestricted right to use all
          trade secrets, including know-how, customer lists, inventions,
          designs, processes, computer programs and technical data used by the
          Company in the development, operation and sale of all products and
          services sold by it, free and clear of any rights, liens or claims of
          others; and (v) to the Company's knowledge, is not using any
          confidential information or trade secrets of others.

                                       6
<PAGE>
 
    3.16.  Capital Stock.
           ------------- 

          (a)  The authorized capital stock of the Company as of the date
               hereof is correctly set forth in the Financial Statements.  All
               of the outstanding shares of the Company were duly authorized and
               validly issued and are fully paid and nonassessable.

          (b)  There are no outstanding subscriptions, options, warrants, calls,
               contracts, demands, commitments, convertible securities or other
               agreements or arrangements of any character or nature whatever,
               other than this Agreement, the Warrants, the Share Purchase
               Agreement or the Indenture for the 7 1/8% convertible
               subordinated notes due 2001 in the original principal amount of
               $86,250,000 (the "Indenture") under which the Company is
               obligated to issue any securities of any kind representing an
               ownership interest in the Company or as set forth in Schedule
                                                                    --------
               3.16.  Neither the offer nor the issuance or sale of the Notes 
               ----                                        
               and Warrants constitutes an event under any anti-dilution
               provisions of any securities issued (or issuable pursuant to
               outstanding rights, warrants or options) by the Company or any
               agreements with respect to the issuance of securities by the
               Company, which will either increase the number of shares issuable
               pursuant to such provisions or decrease the consideration per
               share to be received by the Company pursuant to such provisions.

          (c)  No holder of any securities of the Company is entitled to any
               preemptive or similar rights to purchase any securities of the
               Company from the Company.

    3.17. Assets and Contracts.
          -------------------- 

          (a)  The Company has filed with its registration statement pursuant to
               the Securities Act or pursuant to its periodic filing
               requirements under the Securities Exchange Act of 1934, as
               amended (the "Exchange Act"), all material agreements and
               contracts, has provided a true and complete list of such
               agreements and contracts to legal counsel for the Investors and
               has not entered into any material agreements since the date of
               its most recent filing.

          (b)  The Company has in all material respects substantially performed
               its obligations required to be performed by it to date and is not
               in default in any material respect under any contracts,
               agreements, leases, documents, commitments or other arrangements
               to which it is a party or by which it is otherwise bound.  There
               is not under any of such agreements, any existing material
               default or event of default or event which, with notice or lapse
               of time or both, would constitute an event of default by the
               Company thereunder.

    3.18. Outstanding Debt.  The Company does not have any indebtedness 
          ----------------   
          incurred as the result of a direct borrowing of money, including, but
          not limited to, indebtedness with respect to trade accounts, except as
          set forth in the Financial Statements or pursuant to the Credit
          Agreement and the Indenture, other than indebtedness incurred in the
          ordinary course of business. The Company is not in default in the
          payment of the principal of or interest or premium on any such
          indebtedness, and no event has occurred or is continuing under the
          provisions of any instrument, document or agreement evidencing or

                                       7
<PAGE>
 
          relating to any such indebtedness which with the lapse of time or the
          giving of notice, or both, would constitute an event of default by the
          Company thereunder. The Company is not committed or obligated to make
          any loan or advance to any person or entity, nor does the Company own
          any capital stock, securities or other equity, except for the stock of
          its subsidiaries described in Section 3.3.

    3.19. Accounts Receivable.  To the extent that they exceed the reserves 
          -------------------   
          for doubtful accounts set forth in the Financial Statements, the
          accounts receivable reflected therein and all accounts receivable of
          the Company that have arisen since the September 30, 1996 (except such
          accounts receivable as have been collected since such date) are valid
          and enforceable claims, and the goods and services sold and delivered
          which gave rise to such accounts were sold and delivered in conformity
          with the applicable purchase orders, agreements and specifications. To
          the Company's knowledge, such accounts receivable are subject to no
          valid defense or offsets except routine customer complaints or
          warranty demands of an immaterial nature.

    3.20. Insurance Coverage.  The Company has in full force policies of 
          ------------------   
          insurance issued by insurers of recognized responsibility insuring the
          Company and its properties and business against such losses and risks,
          and in such amounts, as in the Company's judgment, are acceptable for
          the nature and extent of such business and its resources. The Company
          is not in default with respect to any material provision contained in
          any insurance policy, and has not failed to give any notice or present
          any material existing claims it has under its insurance policies in a
          timely fashion.

    3.21. Licenses.  The Company possesses from the appropriate agency, 
          --------   
          commission, board and government body and authority, whether state,
          local or federal, all licenses, permits, authorizations, approvals,
          franchises and rights which (i) are necessary for it to engage in the
          business currently conducted by it, and (ii) if not possessed by the
          Company, would have a Material Adverse Effect.

    3.22. Employees.  To the Company's knowledge, except as set forth in 
          ---------                                                      
          Schedule 3.22, no officer of the Company or employee of the Company 
          -------------
          (whose annual compensation is in excess of $80,000) has any present
          plans to terminate his or her employment with the Company. Each
          officer and other employee of the Company having access to the
          confidential and proprietary information of the Company has executed
          an agreement with the Company regarding confidentiality and
          proprietary information.

    3.23. Absence of Restrictive Agreements.  To the Company's knowledge, no
          ---------------------------------                                 
          employee of the Company is subject to any secrecy or noncompetition
          agreement or any agreement or restriction of any kind that would
          impede in any way the ability of such employee to carry out fully all
          activities of such employee in furtherance of the business of the
          Company. To the Company's knowledge, no former employer of any
          employee of the Company has any claim of any kind whatsoever in
          respect of any of the patents or other intangible rights of the
          Company described in Section 3.15 of this Agreement.

    3.24. No Brokers or Finders.  No person, firm or corporation has or will 
          ---------------------   
          have, as a result of any contractual undertaking by the Company, any
          right, interest or valid claim against

                                       8
<PAGE>
 
          the Company or the Investors for any commission, fee or other
          compensation as a finder or broker, or in any similar capacity, in
          connection with the transaction contemplated by this Agreement. The
          Company will indemnify and hold the each of the Investors harmless
          against any and all liability with respect to any such commission, fee
          or other compensation which may be payable or determined to be
          payable.

    3.25. Full Disclosure.  The Company has not knowingly withheld from the
          ---------------                                                  
          Investors any material facts relating to the assets, business,
          operations, financial condition or prospects of the Company. No
          representation or warranty in this Agreement or in any written
          certificate, schedule, statement or other document prepared by or on
          behalf of the Company and furnished by the Company to any Investor
          pursuant hereto or filed by the Company pursuant to the periodic
          reporting requirements of the Exchange Act, as of the date furnished
          to the Investor or filed under the Exchange Act, as the case may be,
          contained any untrue statement of a material fact or omitted to state
          any material fact required to be stated herein or therein necessary to
          make the statements herein or therein not misleading.

4.   REPRESENTATIONS OF THE INVESTORS

   Each of the Investors hereby severally represents and warrants to the Company
that:

    4.1.  Investment Intent.  The Investor is purchasing the Note and Warrant
          -----------------   
          for investment for such Investor's own account and not with the view
          to, or for resale in connection with, any distribution or public
          offering thereof. The Investor has no current plan or intention to
          engage in a sale, exchange, transfer, distribution, redemption,
          reduction in any way of the Investor's risk of ownership by short sale
          or otherwise, or other disposition, directly or indirectly of the Note
          or Warrant pursuant to this Agreement.

    4.2.  Knowledge and Experience.  The Investor has substantial experience 
          ------------------------   
          in evaluating and investing in private placement transactions of
          securities in companies similar to the Company and has the knowledge
          and experience in financial and business matters such that the
          Investor is capable of evaluating the merits and risks of his
          investment in the Company and has the capacity to protect his own
          interests.

    4.3.  Location of Principal Office, Qualification as an Accredited 
          ------------------------------------------------------------
          Investor, Etc.  The state of domicile of the Investor is the state 
          -------------
          set forth in the Investor's address on Schedule 1. The Investor, by
          execution of this Agreement, hereby represents that such Investor
          qualifies as an "accredited investor" for purposes of Regulation D
          promulgated under the Securities Act. The Investor can bear the loss
          of the entire investment in the Note without any material adverse
          effect on such Investor's assets, net worth, business, operations or
          prospects.

    4.4.  Acts and Proceedings.  This Agreement has been duly authorized by 
          --------------------   
          all necessary action on the part of the Investor, has been duly
          executed and delivered by the Investor, and is a valid and binding
          agreement of the Investor and enforceable against the Investor in
          accordance with its terms, except as enforceability may be limited by
          bankruptcy, insolvency, moratorium, reorganization or other similar
          laws affecting the enforcement

                                       9
<PAGE>
 
          of creditor's rights generally and to judicial limitations on the
          remedy of specific enforcement and other equitable remedies.

     4.5. Disclosure of Information.  The Investor acknowledges that the 
          -------------------------   
          Company has made available to the Investor at a reasonable time prior
          to the execution of this Agreement the opportunity to ask questions
          and receive answers concerning the terms and conditions of the
          offering of the Note and Warrant and to obtain any additional
          information (which the Company possesses or can acquire without
          unreasonable effort or expense) as may be necessary to verify the
          accuracy of information furnished to the Investor.  The foregoing,
          however, does not limit or modify the representations and warranties
          of the Company in this Agreement or the right of the Investor to rely
          thereon.  The Investor acknowledges that in making the decision to
          invest in the Company, Investor is not relying on any person, firm or
          company, other than the Company and its officers, employees and/or
          directors.

     4.6. No Brokers or Finders.  No person, firm or corporation has or will 
          ---------------------   
          have, as a result of any contractual undertaking by the Investor, any
          right, interest or valid claim against the Investor for any
          commission, fee or other compensation as a finder or broker, or in any
          similar capacity, in connection with the transactions contemplated by
          this Agreement. The Investor will indemnify and hold the Company
          harmless against any and all liability with respect to any such
          commission, fee or other compensation which may be payable or
          determined to be payable.

     4.7. Restrictions on Resale; Rule 144.  The Investor understands that (i) 
          --------------------------------   
          none of the Note, the Warrant, nor the Warrant Shares have been
          registered under the Securities Act or any state securities laws
          because they are being issued in transactions exempt from such
          registration requirements, pursuant to Section 4(2) of the Securities
          Act and applicable state securities laws, and (ii) that the reliance
          of the Company and others upon these exemptions is predicated in part
          upon this representation by the Investor.  The Investor acknowledges
          that the Note, the Warrant and the Warrant Shares must be held
          indefinitely unless subsequently registered under the Securities Act
          and any applicable state securities act or unless exemptions from such
          registration are available.  The Investor understands that none of the
          Note, the Warrant nor the Warrant Shares may be transferred or resold
          without (i) registration under the Securities Act and any applicable
          state securities laws, or (ii) an exemption from the requirements of
          the Securities Act and applicable state securities laws.  The Investor
          understands that an exemption from such registration is not presently
          available pursuant to Rule 144 promulgated under the Securities Act by
          the Securities and Exchange Commission (the "Commission") and that the
          Investor may not sell any securities acquired hereunder in full
          compliance with Rule 144.

     4.8. Public Market.  The Investor understands that no public market now 
          -------------   
          exists for the Note or the Warrant.

                                       10
<PAGE>
 
     4.9. Legend; Stop Transfer.  The Notes and Warrants shall bear the 
          ---------------------   
          following legend:

          "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER EITHER THE SECURITIES
          ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE BLUE SKY LAWS, AND
          IS SUBJECT TO CERTAIN INVESTMENT REPRESENTATIONS.  THESE SECURITIES
          MAY NOT BE SOLD, OFFERED FOR SALE OR TRANSFERRED IN THE ABSENCE OF AN
          EFFECTIVE REGISTRATION UNDER THE ACT, AND SUCH APPLICABLE BLUE SKY
          LAWS OR AN EXEMPTION THEREFROM.

          The Warrant Shares, if and when issued, shall bear a similar legend.
          In addition, the Company shall make a notation regarding the
          restrictions on transfer of the Notes, the Warrants and Warrant Shares
          in its books and the Notes, Warrants and Warrant Shares shall be
          transferred on the books of the Company only if transferred or sold
          pursuant to an effective registration statement under the Securities
          Act covering the securities to be transferred or an opinion of counsel
          satisfactory to the Company that such registration is not required.

5.   CONDITIONS OF THE INVESTORS' OBLIGATIONS.

     The obligations of the Investors hereunder are subject to the fulfillment
     or waiver by the Investors prior to or on the Closing Date and each Funding
     Date of the conditions set forth in this Section.


     5.1. Representations and Warranties.  The representations and warranties 
          ------------------------------   
          of the Company under this Agreement shall be true in all material
          respects as of the Closing Date and each Funding Date with the same
          effect as though made on and as of such date.

     5.2. Compliance with Agreement.  The Company shall have performed and 
          -------------------------   
          complied with all covenants, agreements or conditions required by this
          Agreement to be performed and complied with by it prior to or as of
          the Closing Date and each Funding Date.

     5.3. Certificate of Officers.  The Company shall have delivered to the 
          -----------------------   
          Investors a certificate, dated as of the Closing Date or the Funding
          Date, executed by the President and Chief Financial Officer of the
          Company, certifying to the satisfaction of the conditions specified in
          Sections 5.1 and 5.2.

     5.4. Supporting Documents.  Legal counsel for the Investors shall have 
          --------------------   
          received the following:

          (a)  as of the Closing Date only, a copy of resolutions of the Board
               of Directors authorizing and approving the Notes and Warrants and
               authorizing and approving the execution, delivery and performance
               of this Agreement, all such resolutions to be certified by the
               Secretary of the Company;

          (b)  a Certificate of Incumbency, dated as of the Closing Date or
               Funding Date and executed by the Secretary of the Company
               certifying the names, titles and 

                                       11
<PAGE>
 
               signatures of the officers authorized to execute this Agreement,
               the Notes and the Warrants and certifying the Charter Documents
               of the Company;

          (c)  as of the Closing Date only, a legal opinion of Company's
               counsel, dated the Closing Date and covering such matters typical
               in transactions of this type as may be reasonably requested by
               legal counsel for the Investors; and

          (d)  such additional supporting documentation and other information as
               the Investors or legal counsel for the Investors may reasonably
               request.

     5.5. Qualification under State Securities Laws.  As of the Closing Date, 
          -----------------------------------------   
          all registrations, qualifications, permits and approvals required
          under applicable state securities laws for the lawful execution and
          delivery of this Agreement and the offer, sale, issuance and delivery
          of the securities to the Investors at the closing shall have been
          obtained or will be obtained in compliance with such laws.

6.   CONDITIONS OF THE COMPANY'S OBLIGATION

     The obligations of the Company to the Investors under this Agreement are
     subject to the fulfillment on or before the Closing Date of each of the
     following conditions:

     6.1. Representations and Warranties.  The representations and warranties 
          ------------------------------   
          of the Investors contained in Section 4 shall be true and correct on
          and as of the Closing with the same force and effect as if such
          representations and warranties had been made on and as of the Closing;
          and

     6.2. Qualification under State Securities Laws.  All registrations,
          -----------------------------------------                     
          qualifications, permits and approvals required under applicable state
          securities laws for the lawful execution and delivery of this
          Agreement and the offer, sale, issuance and delivery of the securities
          to the Investors at the closing shall have been obtained or will be
          obtained in compliance with such laws.

7.   AFFIRMATIVE COVENANTS OF THE COMPANY

     Until the later to occur of the maturity of the Loan and the repayment in
full of all amounts due to the Investors under the Notes, the Company covenants
and agrees to:

     7.1. Indenture Covenants.  Comply with the obligations and covenants of the
          -------------------                                                   
          Company set forth in the Indenture, which obligations and covenants
          are incorporated in this Agreement by this reference; and

     7.2. Financial Statements.  Deliver to the Investors:
          --------------------                            

          (a)  promptly upon transmission thereof, copies of all publicly
               available reports, proxy statements, registration statements and
               notifications filed by the Company with the Securities and
               Exchange Commission or furnished to stockholders of the Company
               or to any securities exchange, including, without limitation,
               filings on Form 10-Q and Form 10-K, and any amendments thereto;

                                       12
<PAGE>
 
          (b)  concurrently with the delivery of the financial statements
               referred to in Section 7.2(a) above, a certificate of the Chief
               Executive Officer of the Company stating that the Company has
               performed and observed each and every covenant contained in this
               Agreement and the Notes to be performed by it and that no event
               has occurred and no condition then exists which constitutes an
               Event of Default, under this Agreement or any other loan
               agreement or credit agreement of the Company, or would constitute
               such an Event of Default upon the lapse of time or upon the
               giving of notice and the lapse of time; or, if any such event has
               occurred or any such condition exits, specifying the nature
               thereof; and

          (c)  promptly provide to the other Investors copies of any notice of a
               breach received from an Investor pursuant to Section 9.1 or
               notice of acceleration under Section 10.1.

8.   REGISTRATION RIGHTS

     8.1. Incidental Registration.  Each time the Company shall determine to 
          -----------------------   
          proceed with the actual preparation and filing of a registration
          statement under the Securities Act in connection with the proposed
          offer and sale for money by the Company of any of its securities by it
          or any of its security holders (other than a registration statement on
          Form S-4, S-8 or other limited purpose form), the Company will give
          written notice of its determination to all record holders of Warrants
          and Warrant Shares. Upon the written request of a record holder of any
          Warrants or Warrant Shares given within 30 days after receipt of any
          such notice from the Company, the Company will, except as herein
          provided, cause all Warrant Shares, the record holders of which have
          so requested registration thereof, to be included in such registration
          statement, all to the extent requisite to permit the sale or other
          disposition by the prospective seller or sellers of the Warrant Shares
          to be so registered; provided, however, that nothing herein shall
          prevent the Company from, at any time, abandoning or delaying any
          registration; provided further, however, that if the Company
          determines not to proceed with a registration after the registration
          statement has been filed with the Commission and the Company's
          decision not to proceed is primarily based upon the anticipated public
          offering price of the securities to be sold by the Company, the
          Company shall promptly complete the registration for the benefit of
          those selling security holders who wish to proceed with a public
          offering of their securities and who bear all expenses incurred by the
          Company as the result of such registration after the Company has
          decided not to proceed.  If any registration pursuant to this Section
          shall be underwritten in whole or in part, the Company may require
          that the Warrant Shares requested for inclusion pursuant to this
          Section be included in the underwriting on the same terms and
          conditions as the securities otherwise being sold through the
          underwriters.  If in the good faith judgment of the managing
          underwriter of such public offering the inclusion of all of the
          Warrant Shares originally covered by a request for registration would
          reduce the number of shares to be offered by the Company or interfere
          with the successful marketing of the shares of stock offered by the
          Company, the number of Warrant Shares to be included in the
          underwritten public offering may be reduced pro rata among the holders
          thereof requesting inclusion in such registration.  Those Warrant
          Shares which are thus excluded from the underwritten public offering
          shall be withheld from the market by the holders

                                       13
<PAGE>
 
          thereof for a period, not to exceed 180 days, which the managing
          underwriter reasonably determines is necessary in order to effect the
          underwritten public offering, provided that the executive officers and
          directors of the Company shall have agreed to be bound by
          substantially the same terms and conditions and the restriction shall
          not apply to a registration relating solely to employee benefit plans
          on Form S-1 or Form S-8 (or similar forms promulgated after the date
          hereof) or a registration relating solely to a transaction pursuant
          Rule 145 promulgated under the Securities Act on Form S-14 or Form S-
          15 (or similar forms promulgated after the date hereof).

     8.2. Registration Procedures.  If and whenever the Company is required to 
          -----------------------   
          effect the registration of Warrant Shares under the Securities Act,
          the Company will:

          (a)  prepare and file with the Commission a registration statement
               with respect to such securities, and use its best efforts to
               cause such registration statement to become and remain effective
               for such period as may be reasonably necessary to effect the sale
               of such securities, not to exceed six months;

          (b)  prepare and file with the Commission such amendments to such
               registration statement and supplements to the prospectus
               contained therein as may be necessary to keep such registration
               statement effective for such period as may be reasonably
               necessary to effect the sale of such securities, not to exceed
               three months;

          (c)  furnish to the security holders participating in such
               registration and to the underwriters of the securities being
               registered such reasonable number of copies of the registration
               statement, preliminary prospectus, final prospectus and such
               other documents as such underwriters may reasonably request in
               order to facilitate the public offering of such securities;

          (d)  use its best efforts to register or qualify the securities
               covered by such registration statement under such state
               securities or blue sky laws of such jurisdictions as such
               participating holders may reasonably request within 20 days
               following the original filing of such registration statement,
               except that the Company shall not for any purpose be required to
               execute a general consent to service of process or to qualify to
               do business as a foreign corporation in any jurisdiction wherein
               it is not so qualified;

          (e)  notify the security holders participating in such registration,
               promptly after it shall receive notice thereof, of the time when
               such registration statement has become effective or a supplement
               to any prospectus forming a part of such registration statement
               has been filed;

          (f)  notify such holders promptly of any request by the Commission for
               the amending or supplementing of such registration statement or
               prospectus or for additional information;

          (g)  prepare and file with the Commission, promptly upon the request
               of any such holders, any amendments or supplements to such
               registration statement or 

                                       14
<PAGE>
 
               prospectus which, in the opinion of counsel for such holders (and
               concurred in by counsel for the Company), is required under the
               Securities Act or the rules and regulations thereunder in
               connection with the distribution of the Warrant Shares by such
               holder;

          (h)  prepare and promptly file with the Commission and promptly notify
               such holders of the filing of such amendment or supplement to
               such registration statement or prospectus as may be necessary to
               correct any statements or omissions if, at the time when a
               prospectus relating to such securities is required to be
               delivered under the Securities Act, any event shall have occurred
               as the result of which any such prospectus or any other
               prospectus as then in effect would include an untrue statement of
               a material fact or omit to state any material fact necessary to
               make the statements therein, in the light of the circumstances in
               which they were made, not misleading;

          (i)  advise such holders, promptly after it shall receive notice or
               obtain knowledge thereof, of the issuance of any stop order by
               the Commission suspending the effectiveness of such registration
               statement or the initiation or threatening of any proceeding for
               that purpose and promptly use its best efforts to prevent the
               issuance of any stop order or to obtain its withdrawal if such
               stop order should be issued; and

          (j)  not file any amendment or supplement to such registration
               statement or prospectus to which a majority in interest of such
               holders shall have reasonably objected on the grounds that such
               amendment or supplement does not comply in all material respects
               with the requirements of the Securities Act or the rules and
               regulations thereunder, after having been furnished with a copy
               thereof at least two business days prior to the filing thereof,
               unless in the opinion of counsel for the Company the filing of
               such amendment or supplement is reasonably necessary to protect
               the Company form any liabilities under any applicable federal or
               state law and such filing will not violate applicable law.

     8.3. Expenses.  With respect to each inclusion of Warrant Shares in a
          --------                                                        
          registration statement pursuant to Section 8.1, the Company shall bear
          the following fees, costs and expenses: all registration, filing and
          NASD fees, printing expenses, fees and disbursements of counsel and
          accountants for the Company and all legal fees and disbursements and
          other expenses of complying with state securities or blue sky laws of
          any jurisdictions in which the securities to be offered are to be
          registered or qualified.  Fees and disbursements of counsel and
          accountants for the selling security holders, underwriting discounts
          and commissions and transfer taxes for selling security holders and
          any other expenses incurred by the selling security holders not
          expressly included above shall be borne by the selling security
          holders.

     8.4. Indemnification.
          --------------- 

          (a)  The Company will indemnify and hold harmless each holder of
               Warrant Shares which are included in a registration statement
               pursuant to the provisions of this 

                                       15
<PAGE>
 
               Section and any underwriter (as defined in the Securities Act)
               for such holder and each person, if any, who controls such holder
               or such underwriter within the meaning of the Securities Act,
               from and against any and all loss, damage, liability, cost and
               expense to which such holder or any such underwriter or
               controlling person may become subject under the Securities Act or
               otherwise, insofar as such losses, damages, liabilities, costs or
               expenses are caused by any untrue statement or alleged untrue
               statement of any material fact contained in such registration
               statement, any prospectus contained therein or any amendment or
               supplement thereto, or arise out of or are based upon the
               omission or alleged omission to state therein a material fact
               required to be stated therein or necessary to make the statements
               therein, in light of the circumstances in which they were made,
               not misleading; provided, however, that the Company will not be
               liable in any such case to the extent that any such loss, damage,
               liability, cost or expense arises out of or is based upon an
               untrue statement or alleged untrue statement or omission or
               alleged omission so made in conformity with information furnished
               by such holder, such underwriter or such controlling person in
               writing specifically for use in the preparation thereof.

          (b)  Each holder of Warrant Shares which are included in a
               registration pursuant to the provisions of this Section severally
               will indemnity and hold harmless the Company, any controlling
               person and any underwriter from and against any and all loss,
               damage, liability, cost or expense to which the Company or any
               controlling person and/or any underwriter may become subject
               under the Securities Act or otherwise, insofar as such losses,
               damages, liabilities, costs or expenses are caused by any untrue
               or alleged untrue statement of any material fact contained in
               such registration statement, any prospectus contained therein or
               any amendment or supplement thereto, or arise out of or are based
               upon the omission or the alleged omission to state therein a
               material fact required to be stated therein or necessary to make
               the statements therein, in light of the circumstances in which
               they were made, not misleading, in each case to the extent, but
               only to the extent, that such untrue statement or alleged untrue
               statement or omission or alleged omission was so made in reliance
               upon and in strict conformity with written information furnished
               by such holder specifically for use in the preparation thereof
               and only to the extent of proceeds from the sale of Warrant
               Shares.

          (c)  Promptly after receipt by an indemnified party pursuant to the
               provisions of paragraph (a) or (b) of this Section of notice of
               the commencement of any action involving the subject matter of
               the foregoing indemnity provisions, such indemnified party will,
               if a claim thereof is to be made against the indemnifying party
               pursuant to the provisions of said paragraph (a) or (b), promptly
               notify the indemnifying party of the commencement thereof; but
               the omission to so notify the indemnifying party will not relieve
               it from any liability which it may have to any indemnified party
               otherwise than hereunder.  In case such action is brought against
               any indemnified party and it notifies the indemnifying party of
               the commencement thereof, the indemnifying party shall have the
               right to participate in, and, to the extent that it may wish,
               jointly with any other indemnifying party

                                       16
<PAGE>
 
               similarly notified, to assume the defense thereof, with counsel
               satisfactory to such indemnified party; provided, however, if the
               defendants in any action include both the indemnified party and
               the indemnifying party and there is a conflict of interest which
               would prevent counsel for the indemnifying party from also
               representing the indemnified party, the indemnified party or
               parties shall have the right to select separate counsel to
               participate in the defense of such action on behalf of such
               indemnified party or parties.  After notice from the indemnifying
               party to such indemnified party of its election so to assume the
               defense thereof, the indemnifying party will not be liable to
               such indemnified party pursuant to the provisions of said
               paragraph (a) or (b) for any legal or other expense subsequently
               incurred by such indemnified party in connection with the defense
               thereof other than reasonable costs of investigation, unless (i)
               the indemnified party shall have employed counsel in accordance
               with the proviso of the preceding sentence, (ii) the indemnifying
               party shall not have employed counsel satisfactory to the
               indemnified party to represent the indemnified party within a
               reasonable time after the notice of the commencement of the
               action, or (iii) the indemnifying party has authorized the
               employment of counsel for the indemnified party at the expense of
               the indemnifying party.

9.   EVENTS OF DEFAULT

     An "Event of Default" shall occur upon the occurrence of any of the
following events:

     9.1. Representations and Warranties.  Any representation or warranty made 
          ------------------------------   
          by the Company herein shall prove to have been incorrect in any
          material respect on or as of the date made and remains unremedied for
          a period of thirty (30) days after an Investor provides the Company
          with written notice of such breach; provided, however that in the
          event such breach has not been remedied at the end of such 30-day
          period, but the Company is diligently working to remedy it, the
          Company shall have an additional thirty (30) days to remedy such
          breach;

     9.2. Covenants.  The Company shall default in the observance or 
          ---------   
          performance of any material covenant or agreement contained in this
          Agreement and such default shall continue unremedied for a period of
          the earlier of thirty (30) days from the date an executive officer of
          the Company has actual knowledge of such default or thirty (30) days
          after an Investor has provided the Company with written notice of such
          default; provided, however that in the event such default has not been
          remedied at the end of such 30-day period, but the Company is
          diligently working to remedy it, the Company shall have an additional
          thirty (30) days to remedy such default; or

     9.3. Notes.  An event of default shall occur under the Notes; or
          -----                                                      

     9.4. Indenture.  An event of default shall occur under the Indenture.
          ---------                                                       

10.  REMEDIES UPON AN EVENT OF DEFAULT.

     Upon the occurrence of an Event of Default, unless such Event of Default
     shall have been waived or cured prior to the exercise of the remedies set
     forth in this Section:

                                       17
<PAGE>
 
     10.1. Acceleration.  Upon the occurrence of an Event of Default, each 
           ------------   
           Investor shall have the option to declare the principal amount of
           such Investor's Note, and all accrued but unpaid interest thereon, to
           be immediately due and payable upon written notice to the Company;
           provided, however, that payment of such amount shall be subject to
           the subordination provisions in the Note.

     10.2. Other Remedies.  Each Investor shall have all other remedies at law 
           --------------   
           or in equity, afforded to holders of debt or otherwise provided for
           by this Agreement.

11.  MISCELLANEOUS

     11.1. Changes, Waivers, Etc.  Neither this Agreement nor any provision 
           ---------------------   
           hereof may be changed, waived, discharged or terminated orally, but
           only by a statement in writing signed by the party against which
           enforcement of the change, waiver, discharge or termination is
           sought.

     11.2. Notices.  All notices, requests, consents and other communications 
           -------   
           required or permitted hereunder shall be in writing and shall be
           delivered, or mailed first-class postage prepaid, registered or
           certified mail, as follows:

          (a)  if to the Investors, to the addresses listed on Schedule 1; and

          (b)  if to the Company, to:

               Plasma Materials & Technologies, Inc.
               9255 Deering Avenue
               Chatsworth, California 91311
               Attention:  Chief Financial Officer

           and such notices and other communications shall for all purposes of
           this Agreement be treated as being effective or having been given if
           delivered personally, or, if sent by mail, when received. Any party
           may change its address for such communications by giving notice
           thereof to the other parties in conformity with this Section.

     11.3. Survival of Representations, Warranties, Agreements, Etc.  All 
           --------------------------------------------------------   
           representations, warranties, covenants and agreements contained
           herein or in any certificate delivered pursuant to this Agreement
           shall survive the execution and delivery of this Agreement or such
           certificate, as the case may be, any investigation at any time made
           by the Investors or on their behalf, and the closing of the
           transactions contemplated by this Agreement.  All statements
           contained in any certificate, instrument or other writing prepared by
           or on behalf of the Company and delivered by the Company pursuant to
           this Agreement or in connection with or in contemplation of the
           transactions herein contemplated shall constitute representations and
           warranties by the Company hereunder.

     11.4. Successors and Assigns.  The terms and conditions of this Agreement 
           ----------------------   
           shall inure to the benefit of and be binding upon and be enforceable
           by the successors and assigns of the

                                       18
<PAGE>
 
            parties hereto, including the holder or holders from time to time of
            any of the Notes, Warrants or Warrant Shares.

     11.5.  Entire Agreement.  This Agreement, the schedules hereto, the 
            ----------------   
            documents referenced herein and the exhibits thereto, constitute the
            entire understanding and agreement of the parties hereto with
            respect to the subject matter hereof and thereof and supersede all
            prior and contemporaneous agreements or understandings, inducements
            or conditions, express or implied, written or oral, between the
            parties with respect hereto and thereto.  The express terms hereof
            control and supersede any course of performance or usage of the
            trade inconsistent with any of the terms hereof.

     11.6.  Other Remedies.  Any and all remedies herein expressly conferred 
            --------------   
            upon a party shall be deemed cumulative with, and not exclusive of,
            any other remedy conferred hereby or by law on such party, and the
            exercise of any one remedy shall not preclude the exercise of any
            other.

     11.7.  Delays or Omissions.  Except as expressly provided herein, no delay 
            -------------------   
            or omission to exercise any right, power or remedy accruing to any
            party under this Agreement shall impair any such right, power or
            remedy of such party nor shall it be construed to be a waiver of any
            such breach or default, or an acquiescence thereto, or of a similar
            breach or default thereafter occurring; nor shall any waiver of any
            single breach or default be deemed a waiver of any other breach or
            default theretofore or thereafter occurring.  Any waiver, permit,
            consent or approval of any kind or character on the part of any
            party hereto of any breach of default under the Agreement, or any
            waiver on the part of any party of any provisions or conditions of
            this Agreement, must be in writing and shall be effective only to
            the extent specifically set forth in such writing.

     11.8.  Attorneys' Fees.  Should suit be brought to enforce any provision 
            ---------------   
            of this Agreement, the prevailing party shall be entitled to
            recover, as an element of the costs of suit and not as damages,
            reasonable attorneys' fees to be fixed by the court (including,
            without limitation, costs, expenses and fees on any appeal).  The
            prevailing party shall be the party entitled to recover its costs of
            suit, regardless of whether such suit proceeds to final judgment.  A
            party not entitled to recover its costs shall not be entitled to
            recover attorneys' fees.  No sum for attorneys' fees shall be
            counted in calculating the amount of a judgment for purposes of
            determining if a party is entitled to recover costs or attorneys'
            fees.

     11.9.  Payment of Fees and Expenses of the Investors.  The Company agrees 
            ---------------------------------------------   
            to reimburse the Investors for reasonable legal expenses incurred
            for one special legal counsel to the Investors, Oppenheimer, Wolff &
            Donnelly. in connection with the transactions contemplated by this
            Agreement.

     11.10. Construction of Agreement.  This Agreement has been negotiated by 
            -------------------------   
            the respective parties hereto and their attorneys and the language
            hereof shall not be construed for or against any party.  A reference
            in this Agreement to any section shall include a reference to every
            section the number of which begins with the number of the section to
            which reference is specifically made (e.g. a reference to Section 11
            shall include a reference to

                                       19
<PAGE>
 
            Section 11.1 through 11.13 inclusive).  The titles and headings
            herein are for reference purposes only and shall not in any manner
            limit the construction of this Agreement which shall be considered
            as a whole.  A reference to a section means a section of this
            Agreement, unless the context expressly otherwise requires.

     11.11. Governing Law.  This Agreement shall be governed by and construed 
            -------------   
            under the laws of the State of California.

     11.12. Counterparts.  This Agreement may be executed concurrently in two 
            ------------   
            or more counterparts, each of which shall be deemed an original, but
            all of which together shall constitute one and the same instrument.

     11.13. Severability.  Should any one or more of the provisions of this 
            ------------ 
            Agreement or of any agreement entered into pursuant to this
            Agreement be determined to be illegal or unenforceable, all other
            provisions of this Agreement and of each other agreement entered
            into pursuant to this Agreement, shall be given effect separately
            from the provision or provisions determined to be illegal or
            unenforceable and shall not be affected thereby.

     IN WITNESS WHEREOF, the Company and each of the Investors has caused this
Agreement to be executed by its duly authorized representatives in counterpart.


COMPANY:                          PLASMA & MATERIALS TECHNOLOGIES, INC.


                                  By: /s/ John W. LaValle
                                     -------------------------------------------
                                    Its:  VP, CFO, Corp. Secretary
                                        ----------------------------------------


INVESTORS:                        ST. PAUL FIRE AND MARINE INSURANCE COMPANY


                                  By: /s/ Brian D. Jacobs
                                     -------------------------------------------
                                    Its  Authorized Representative
                                       -----------------------------------------

                                  BRENTWOOD ASSOCIATES V, L.P.


                                  By:  Brentwood V Ventures, L.P.
                                  Its:  General Partner


                                  By: /s/ G. Bradford Jones
                                     -------------------------------------------
                                     Its General Partner

                                       20
<PAGE>
 
                                  SBIC PARTNERS, L.P.,
                                   a Texas limited partnership

                                  By:  Forrest Binkley & Brown L.P.,
                                       a Texas limited partnership

                                       By:  Forrest Binkley & Brown Venture Co.,
                                            a Texas corporation
                                            General Partner


                                            By:  /s/ Jeffrey J. Brown
                                               ---------------------------------
                                               Jeffrey J. Brown
                                               Office of the President

                                  By:  SL-SBIC Partners, L.P.,
                                       a Texas limited partnership

                                       By:  FW-SBIC, Inc.,
                                            a Texas corporation
                                            General Partner


                                            By:  /s/ Peter Sterling
                                               ---------------------------------
                                               Peter Sterling
                                               Chairman



                                  /s/ Bruce Hendry
                                  ----------------------------------------------
                                  BRUCE HENDRY


                                  TONKAWA N.G. PARTNERS


                                  By  /s/ John P. Nagel
                                    --------------------------------------------
                                     John P. Nagel
                                     General Partner

                                       21
<PAGE>
 
                                  SCHEDULE 1

                       NAMES AND ADDRESSES OF INVESTORS
<TABLE>
<CAPTION>
==============================================================================================
                                                      Maximum Principal          Number of
      Name and Address of Investor                     Amount of Note          Warrant Shares
----------------------------------------------------------------------------------------------
<S>                                                   <C>                      <C>
St. Paul Fire and Marine Insurance Company             $1,250,000                  49,020
c/o St. Paul Venture Capital
8500 Normandale Lake Boulevard
Suite 1940
Bloomington, Minnesota 55437
Attention:  Brian Jacobs
----------------------------------------------------------------------------------------------
SBIC Partners, L.P.                                    $1,250,000                  49,020
201 Main Street
Suite 2302
Fort Worth, Texas 76102
----------------------------------------------------------------------------------------------
Brentwood Associates V, L.P.                           $1,250,000                  49,020
c/o Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
Attention:  Brad Jones
----------------------------------------------------------------------------------------------
Bruce Hendry                                           $1,250,000                  49,020
Summit Investment Corp.
900 Second Avenue South
Suite 500
Minneapolis, Minnesota 55402
----------------------------------------------------------------------------------------------
Tonkawa N.G. Partners                                  $1,250,000                  49,020
c/o Carlson Investment Group
P.O. Box 59159
Minneapolis, Minnesota 55459
Attention:  John Nagel
----------------------------------------------------------------------------------------------
                                          TOTAL:       $6,250,000                 245,100
==============================================================================================
</TABLE>
<PAGE>
 
                                   EXHIBIT A

                     FORM OF SUBORDINATED PROMISSORY NOTE


Filed herewith as Exhibit 4.5 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.
<PAGE>
 
                                   EXHIBIT B

                                FORM OF WARRANT


Filed herewith as Exhibit 4.6 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.
<PAGE>
 
                                   EXHIBIT C

                              NOTICE OF BORROWING

[Investors]
[Addresses]

Ladies and Gentlemen:

     This Notice of Borrowing is delivered to you pursuant to Section 1.4 of the
Note Purchase and Loan Agreement, dated as of December __, 1996 (together will
all amendments, if any, from time to time made thereto, the "Note Agreement"),
among you and the undersigned.  Capitalized terms used without definition herein
have the meanings specified in the Note Agreement.

     The undersigned hereby requests that an amount of the Loan equal to
$_______ in the aggregate ($_____ from each of the Investors) be made to the
undersigned on _________, 199__ ("Funding Date").

     The undersigned hereby represents and warrants to the Investors that as of
the date hereof:

     (a)  no Event of Default has occurred and is continuing;

     (b)  the representations and warranties of the undersigned set forth in the
          Note Agreement are true and correct in all material respects as if
          made on and as of the date hereof, except to the extent such
          representations and warranties relate solely to an earlier date, in
          which case such representations and warranties were true and correct
          as of such date; and

     (c)  the undersigned has complied with each covenant and other agreement
          set forth in the Note Agreement.

     The undersigned agrees that if prior to the Funding Date any matter
certified herein will not be true and correct as of the Funding Date, the
undersigned will immediately so notify the Investors.  Each matter certified
herein shall be deemed to be certified as true and correct on the Funding Date.

     Please deliver the proceeds of the Loan requested in this Notice of
Borrowing by wire transfer in accordance with the following instructions:
 
                      __________________________________
                      __________________________________
                      __________________________________ 
 

     The undersigned has caused this Notice of Borrowing to be executed and
delivered by its duly authorized officer as of this ___ day of ___________,
199__.

                                  PLASMA MATERIALS & TECHNOLOGIES, INC.

                                  By:___________________________________________
                                     Its:_______________________________________