<PAGE>
 
                                                                    EXHIBIT 10.3


                     ADVANCED DEPOSITION TECHNOLOGIES, INC.
                        Myles Standish Industrial Park
                         Taunton, Massachusetts 02780



                                            Dated as of:  June 18, 1998



National Bank of Canada
One Federal Street, 27th Floor
Boston, Massachusetts  02110

     Re:  Modification No. 2 to Revolving Credit and Term Loan Agreement
          --------------------------------------------------------------

Ladies and Gentlemen:

     We refer to the Revolving Credit and Term Loan Agreement, dated as of July
8, 1996 (as from time to time amended and in effect, the "Agreement"), between
Advanced Deposition Technologies, Inc. (the "Borrower") and National Bank of
Canada (the "Lender").  Terms used in this letter of agreement which are not
defined herein, but which are defined in the Agreement, shall have the same
respective meanings herein as therein.

     We have requested you (i) to re-advance the Term Loan in the new principal
amount of $2,750,000 ("Term Loan A") and (ii) to convert the $1,000,000 Bridge
Loan into an additional term loan ("Term Loan B"), each upon the terms and
conditions hereinafter set forth, (iii) to extend the Maturity Date of the
Revolving Loan and the Term Loans to July 8, 2001, and (iv) to make the
amendments to the Agreement necessitated thereby.  You have advised us that you
are prepared and would be pleased to provide such loans and to make the
amendments so requested by us on the condition that we join with you in this
letter of agreement.

     Accordingly, in consideration of these premises, the promises, mutual
covenants and agreements contained in this letter of agreement, and fully
intending to be legally bound by this letter of agreement, we hereby agree with
you as follows:


                                   ARTICLE I
                                   ---------

                            AMENDMENTS TO AGREEMENT
                            -----------------------

     Effective as of June 18, 1998 (in this letter of agreement, the
"Modification Date"), the Agreement is amended as follows:

                                      C-1
<PAGE>
 
     (a)    The terms "Agreement" and "Loan Agreement" shall, wherever used in
the Agreement or any of the other Loan Documents, be deemed to also mean and
include any amendments, restatements and modifications thereof.

     (b)    The term "Loan Documents" shall, wherever used in the Agreement or
any of the other Loan Documents, be deemed to also mean and include Modification
No. 2 and the Notes and any other documents executed and delivered in connection
therewith.

     (c)    The definition of "Maturity Date" contained in Section 1.1 of the
Agreement is amended to read in its entirety as follows:

            "Maturity Date" means July 8, 2001.

     (d)    The definition of "Notes" contained in Section 1.1 of the Agreement
is amended to read in its entirety as follows:

            "Notes" means, collectively, the Revolving Credit Note and the Term
Notes.

     (e)    The definition of "Revolving Credit Maximum Amount" contained in
Section 1.1 of the Agreement is amended to read in its entirety as follows:

            "Revolving Credit Maximum Amount" means $2,000,000.

     (f)    The definition of "Term Note" contained in Section 1.1 of the
Agreement is changed to "Term Notes" and is amended to read in its entirety as
follows:

            "Term Notes" shall mean Term Note A and Term Note B, collectively.

     (g)    The term "Obligations" shall, wherever used in the Agreement or any
of the other Loan Documents, be deemed to also mean and include all obligations
of the Borrower to the Lender under or in respect of Modification No. 2 and the
Term Notes.

     (h)    The definitions of "Bridge Loan", "Bridge Loan Maturity Date",
"Bridge Note" and "Term Loan" contained in Section 1.1 of the Agreement are
hereby deleted in their entirety.

     (i)    The following seven new definitions are added at the end of Section
1.1 of the Agreement:

            "Modification No. 2" means that certain letter agreement dated as of
     June 18, 1998 between the Borrower and Lender, upon the terms of which the
     Agreement was further modified and amended.

            "Second Modification Date" means June 18, 1998.

                                      C-2
<PAGE>
 
     "Term Loan A" shall have the meaning set forth in Section 2.2.1.

     "Term Loan B" shall have the meaning set forth in Section 2.2.1(A).

     "Term Loans" shall mean Term Loan A and Term Loan B, collectively.

     "Term Note A" shall have the meaning set forth in Section 2.2.1.

     "Term Note B" shall have the meaning set forth in Section 2.2.1(A).

(j)  Section 2.2 of the Agreement is amended in its entirety to read as
     follows:

     "2.2  Term Loan A.
           ----------- 

     2.2.1  Upon the terms and subject to the conditions of this Agreement, and
in reliance upon the representations, warranties and covenants of the Borrower
made herein, the Lender agrees to lend to the Borrower the sum of $2,750,000 on
the Second Modification Date ("Term Loan A") to be evidenced by a Term Note
("Term Note A") substantially in the form of Exhibit A-2 attached hereto.
                                             -----------                 

     2.2.2  The principal of Term Loan A shall be payable in thirty (30)
installments, with each of the first twenty-nine (29) such payments to be in the
amount of $45,833.33 and to be payable on the first day of each month (or the
first Business Day thereafter, if such day is not a Business Day) commencing on
January 1, 1999, and with the last of such thirty payments to be in the amount
of $1,420,833.50 and to be payable, along with any additional unpaid principal
of Term Loan A and all unpaid interest thereon, on the Maturity Date.

     2.2.3  The Borrower may prepay Term Loan A and Term Note A in whole or in
part, without premium or penalty, except as otherwise provided in Section 2.3.5,
at any time and from time to time upon five (5) days' prior written notice to
the Lender.  The principal amount of Term Loan A so prepaid shall be at least
$100,000 (unless the principal amount of Term Loan A shall be less than
$100,000, in which event the prepayment may be equal to such unpaid principal
amount) or a multiple of $100,000, in excess of $100,000, provided that the
                                                          --------         
Borrower shall also pay accrued interest on the principal so prepaid to the date
of such prepayment and all fees and charges payable on or before the date of
such prepayment.  Prepayments shall be applied against unpaid installments of
principal of Term Loan A in inverse order of maturity of such installments.  The
Borrower shall not be permitted to reborrow any part of the principal of Term
Loan A so prepaid at any time or under any circumstances."

     (k)   Section 2.2(A) of the Agreement is amended in its entirety to read as
follows:

           "2.2(A)  Term Loan B.
              ----------- 

          2.2.1(A) Upon the terms and subject to the conditions of this
     Agreement, and in reliance upon the representations, warranties and
     covenants of the Borrower made 

                                      C-3
<PAGE>
 
     herein, the Lender agrees to lend to the Borrower the sum of $1,000,000 on
     the Second Modification Date ("Term Loan B") to be evidenced by a Term Note
     ("Term Note B") substantially in the form of Exhibit A-3 attached hereto.
                                                  -----------

          2.2.2(A) The principal of the Term Loan shall be payable in thirty
     (30) installments, with each of the first twenty-nine (29) such payments to
     be in the amount of $16,666.67 and to be payable on the first day of each
     month (or the first Business Day thereafter, if such day is not a Business
     Day) commencing on January 1, 1999, and with the last of such thirty
     payments to be in the amount of $516,666.60 and to be payable, along with
     any additional unpaid principal of Term Loan B and all unpaid interest
     thereon, on the Maturity Date.

          2.2.3(A) The Borrower may prepay the Term Loan B and Term Note B in
     whole or in part, without premium or penalty, except as otherwise provided
     in Section 2.3.5, at any time and from time to time upon five (5) days'
     prior written notice to the Lender. The principal amount of the Term Loan B
     so prepaid shall be at least $100,000 (or a multiple of $100,000 in excess
     of $100,000), unless the principal amount of the Term Loan B shall be less
     than $100,000, in which event the prepayment may be equal to such unpaid
     principal amount, provided that the Borrower shall also pay accrued
                       --------                                         
     interest on the principal so prepaid to the date of such prepayment and all
     fees and charges payable on or before the date of such prepayment.  In
     addition, in the event that (i) Alexander Boxall S.A. ("Alexander") incurs
     indebtedness for borrowed money from a lender other than the Lender
     (whether institutional or otherwise, but excluding its existing factoring
     arrangements and lease obligations), or (ii) in the event there is any
     redemption of Alexander's outstanding warrants or stock options, then the
     proceeds of such refinancing or redemption shall, immediately upon the
     receipt thereof, be used to prepay the Term Loan B and the Term Note B.
     The Borrower shall not be permitted to reborrow any part of the principal
     of the Term Loan B so prepaid at any time or under any circumstances."

     (l)    The first three lines of Section 2.3.1 of the Agreement are amended
to read in their entirety as follows:

            "2.3.1 Revolving Loans shall bear interest at a rate per annum equal
     to 1% above the Base Rate in effect from time to time; and each of the Term
     Loans shall bear interest at a rate per annum equal to 1.25% above the Base
     Rate in effect from time to time;"

     (m)    The second full sentence of Section 2.3.1 of the Agreement is
amended in its entirety to read as follows:

            "Interest on Loans (not at the time overdue) shall be payable
     monthly in arrears on the first Business Day of each month commencing with
     July 1, 1998."

     (n)    Section 2.3.5 of the Agreement is amended in its entirety to read as
follows:

                                      C-4
<PAGE>
 
     "2.3.5  In the event that all of the Loans are prepaid in whole or in part
     prior to the Maturity Date pursuant to Sections 2.1.2 or 2.2.3,
     respectively, the Borrower shall pay to the Lender a prepayment fee equal
     to that percentage of the amount of the outstanding Loans so prepaid which
     is set forth below:

<TABLE>
<CAPTION>
                     Date of Prepayment             Percentage of Total
                     ------------------             -------------------
                                                        Loans Prepaid
                                                        -------------
<S>                                                  <C>     
               On or before the date which is one              3%
               year from the Second Modification             
               Date                                          

               After the date which is one year                2%
               from the Second Modification Date,            
               but on or before the date which is            
               two years from the Second                     
               Modification Date                             

               After the date which is two years               1%"
               from the Second Modification Date,
               but before the Maturity Date
</TABLE>


     (o)       The first sentence of Section 5.1(ii) of the Agreement is amended
in its entirety to read as follows:

               "The Borrower will use the proceeds of the Revolving Loans and
               the Term Loans solely for its working capital needs and repayment
               of existing Indebtedness."

     (p)       The first four lines of Section 5.12 of the Agreement are amended
to read in their entirety as follows:

                   "(ii) as soon as available to the Borrower, but in any event
               within 30 days after the end of each fiscal quarter of each
               fiscal year of the Borrower, the balance sheet of the Borrower as
               at the end of, and related statements of income and retained
               earnings for, the portion of the fiscal year then ended and for
               such quarter".

     (q)       Section 3.16 of the Agreement is amended in its entirety to read
as follows:

               "As of the date hereof, the Borrower has no Subsidiaries other
               than Alexander Boxall S.A."

     (r)       Section 5.14 of the Agreement is amended in its entirety to read
as follows:

                                      C-5
<PAGE>
 
     "5.14  Minimum Tangible Net Worth.  The Borrower will not permit its
            --------------------------                                   
     Tangible Net Worth at any fiscal quarter-end specified below to be less
     than the amount identified below as applicable to such fiscal quarter:

<TABLE>
<CAPTION>

                                           Minimum
              Fiscal Quarter-End           Tangible Net Worth
              ------------------           ------------------

 <S>                                       <C>
               For any fiscal quarter
               ending on or after
               June 30, 1998
               through and including
               December 31, 1998           $5,150,000
 
               For the fiscal quarter
               ending March 31, 1999       $5,400,000
 
               For the fiscal quarter
               ending June 30, 1999        $5,650,000
 
               For the fiscal quarter
               ending September 30, 1999   $5,900,000

               For any fiscal quarter
               ending on or after
               December 31, 1999
               through the Maturity Date   $6,000,000."


</TABLE> 

                                      C-6
<PAGE>
 
     (s)  Section 5.15 of the Agreement is amended in its entirety to read as
follows:

          "5.15  Senior Indebtedness to Tangible Net Worth.  The Borrower
                 -----------------------------------------               
     will not permit the ratio of (i) Senior Indebtedness to (ii) Tangible Net
     Worth at any fiscal quarter-end specified below to be more than the ratio
     identified below as applicable to such fiscal quarter:

                 Fiscal Quarter-End           Ratio
                 ------------------           -----

                 For any fiscal quarter
                 ending on or after
                 June 30, 1998
                 through the Maturity Date    2.5 to 1.0."

     (t)  Section 5.16 of the Agreement is amended in its entirety to read as
follows:

          "5.16  Operating Cash Flow to Total Debt Service.  The Borrower
                 -----------------------------------------               
     will not permit the ratio of (i) Operating Cash Flow to (ii) Total Debt
     Service, as at each fiscal quarter-end of the Borrower for the four
     consecutive fiscal quarters then ending, commencing with the four
     consecutive fiscal quarters ending December 31, 1998, to be less than 1.1
     to 1.0."

     (u)  Section 5.17 of the Agreement is amended in its entirety to read as
follows:

          "5.17  Working Capital.  The Borrower shall not permit its
                 ---------------                                    
     Working Capital to be less than $500,000 at any time."

     (v)  Section 5.20 of the Agreement is amended in its entirety to read as
follows:

          "5.20  Capital Expenditures.  Except with the prior written
                 --------------------                                
     consent of the Lender (which consent will not be unreasonably withheld),
     the Borrower will not make any Capital Expenditures in excess of $2,000,000
     in any fiscal year."

     (w)  Exhibits A-1 and A-2 to the Agreement are replaced in their entirety
by the forms of Revolving Credit Note and Term Note A set forth in Annex A and
Annex B, respectively, to this Modification No. 2.

      (x) The form of Term Note B set forth in Annex C to this Modification No.
2 is added as Exhibit A-3 to the Agreement.

                                      C-7
<PAGE>
 
                                   ARTICLE II
                                   ----------

                         REPRESENTATIONS AND WARRANTIES
                         ------------------------------

    The Borrower represents and warrants to you as follows:

    (a) Representations in Agreement:  Each of the representations and
        ----------------------------                                  
warranties made by or on behalf of the Borrower to you in the Agreement or any
other Loan Document, as amended through this letter of agreement, was true and
correct when made and is true and correct on and as of the Modification Date
with the same full force and effect as if each of such representations and
warranties had been made by the Borrower on the date hereof and in this letter
of agreement, except to the extent that such representations and warranties
relate solely to a prior date.

    (b) No Events of Default:  No Default or Event of Default exists on the
        --------------------                                               
Modification Date (after giving effect to all of the arrangements and
transactions contemplated by this letter of agreement).

    (c) Binding Effect of Documents.  This letter of agreement has been duly
        ---------------------------                                         
executed and delivered to you by the Borrower and is in full force and effect as
of the date hereof, and the agreements and obligations of the Borrower contained
herein and therein constitute legal, valid, and binding obligations of the
Borrower enforceable against the Borrower in accordance with their respective
terms.


                                  ARTICLE III
                                  -----------
                                        
                       PROVISIONS OF GENERAL APPLICATION
                       ---------------------------------

    (a) No Other Changes.  Except as otherwise expressly provided by this letter
        ----------------                                                        
of agreement, all of the terms, conditions and provisions of the Agreement and
each of the other Loan Documents remain unaltered.  The Agreement and this
letter of agreement shall be read and construed as one agreement.  Except to the
extent specifically amended hereby, the provisions of the Agreement shall remain
unmodified, and the Agreement, as amended hereby, is hereby confirmed as being
in full force and effect, and the Borrower hereby ratifies and confirms all of
its agreements and obligations contained therein or in the other Loan Documents.

    (b) Governing Law.  This letter of agreement is intended to take effect as a
        -------------                                                           
sealed instrument and shall be deemed to be a contract under the laws of the
Commonwealth of Massachusetts.  This letter of agreement and the rights and
obligations of each of the parties hereto shall be governed by and interpreted
and determined in accordance with the laws of the Commonwealth of Massachusetts.

                                      C-8
<PAGE>
 
    (c) Binding Effect; Assignment.  This letter of agreement shall be binding
        --------------  ----------                                            
upon and inure to the benefit of each of the parties hereto and their respective
successors in title and assigns.

    (d) Counterparts.  This letter of agreement may be executed in any number of
        ------------                                                            
counterparts, but all such counterparts shall together constitute but one and
the same agreement.  In making proof of this letter of agreement, it shall not
be necessary to produce or account for more than one counterpart thereof signed
by each of the parties hereto.

    (e) Conflict with Other Agreements.  If any of the terms of this letter of
        ------------------------------                                        
agreement shall conflict in any respect with any of the terms of the Agreement
or any other Loan Document, the terms of this letter of agreement shall be
controlling.

    (f) Conditions Precedent (or Subsequent).  This letter of agreement shall
        ------------------------------------                                 
become effective as of the Modification Date, but only if:

         (i) The Borrower has delivered or caused to be delivered to the Lender
    the following instruments and documents, each of which shall be in form and
    substance satisfactory to the Lender:

              (A) An original Revolving Credit Note in the form of Annex A
         hereto duly signed on behalf of the Borrower;

              (B) An original Term Note A in the form of Annex B hereto duly
         signed on behalf of the Borrower;

              (C) An original Term Note B in the form of Annex C hereto duly
         signed on behalf of the Borrower;

              (D) An updated written appraisal of the Borrower's machinery and
         equipment prepared by an appraiser satisfactory to the Lender;

              (E) Board of directors resolutions, good-standing and legal
         existence certificates, an incumbency certificate, and confirmation
         that its charter documents and by-laws have not been modified since
         July 8, 1996; and

              (F) A favorable legal opinion from the Borrower's U.S. counsel in
         or substantially in the form of the opinion delivered in connection
         with the December 29, 1997 Modification No. 1.

              Promptly following its receipt of the Notes described in items
         (A), (B) and (C) above, the Lender will return to the Borrower the
         original $3,000,000 Revolving Credit Note, $2,600,000 Term Note and
         $1,000,000 Bridge Note for cancellation.

                                      C-9
<PAGE>
 
         (ii)   The Borrower shall have delivered to the Lender a non-refundable
    closing fee in the amount of $37,500.

         (iii)  No material adverse change shall have occurred in the financial
    condition of the Borrower or Alexander in the judgment of the Lender.

         (iv)   No material litigation shall be pending or threatened that in
    the Lender's judgment would have a material adverse effect upon the
    creditworthiness or business of the Borrower.

    If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter of agreement and return
such counterpart to the undersigned,  whereupon this letter of agreement, as so
accepted by you, shall become a binding agreement between you and the
undersigned.

                             Very truly yours,

                             The Borrower:
                             ------------ 

                             ADVANCED DEPOSITION TECHNOLOGIES, INC.

                             By: /s/ Glenn J. Walters
                                 ---------------------------------------------
                                 Title: Chief Executive Officer, President and
                                 Treasurer

                                      C-10
<PAGE>
 
    The foregoing agreement is hereby accepted by the undersigned as of June 18,
1998.

                                 
                                  The Lender:                          
                                  ----------                           
                                                                       
                                  NATIONAL BANK OF CANADA              
                                                                       
                                                                       
                                  By: /s/ Edward Paslawski             
                                      ----------------------------------
                                      Title: Vice President Manager     

                                      C-11