
<PAGE>
 
                                                                  EXHIBIT (C)(4)

THIS OPTION AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER
SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.

January 18, 1999

                              COMMON STOCK OPTION
                              -------------------

     This Option is issued, for good and valuable consideration, receipt of
which is hereby acknowledged, to STEAG Electronic Systems GmbH, a German
business entity ("Holder"), by AG Associates, Inc., a California corporation
(the "Company").

     1.   Exercise of Option. Subject to the terms and conditions hereinafter
          ------------------                                      
set forth, the Holder of this Option is entitled, upon surrender of this Option
at the address of the Company set forth in Section 16 below (or at such other
place as the Company shall notify the Holder hereof in writing pursuant to
Section 16 below), to purchase from the Company, by payment of the exercise
price per share specified in Section 2 below, Six Hundred Thousand (600,000)
fully paid and non-assessable shares of common stock, no par value per share
(the "Common Stock"), of the Company (as adjusted pursuant to Section 8 hereof,
the "Shares").

     2.   Exercise Price. The exercise price for the Shares shall be two dollars
          --------------                                                 
($2.00) per share. Such price shall be subject to adjustment pursuant to Section
8 hereof (such price, as adjusted from time to time, is herein referred to as
the "Option Price").

     3.   Exercise Period. Options to purchase one hundred thousand (100,000) of
          ---------------                                           
the Shares will become exercisable if and when a loan (the "Loan") is made by
Holder to Company as set forth in Section 6.1 of the Agreement and Plan of
Merger dated as of the date hereof by and among Holder the Company and Newco as
evidenced by a note as contemplated therein (the "Note"). The remainder of this
Option to purchase five hundred thousand (500,000) Shares shall become
exercisable if and when a default occurs under the Note. Options to purchase the
shares shall expire (a) on March 5, 1999, if the Loan is not made or (b) on the
first anniversary of the scheduled maturity date of the Note (the periods during
which Holder shall be entitled to exercise this Option shall be referred to
herein as the "Exercise Periods").

     4.   Method of Exercise. While this Option remains outstanding and
          ------------------                                            
exercisable in accordance with Section 3 above, the Holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by:

                                       1
<PAGE>
 
          a.   the surrender of this Option, together with a duly executed copy
of the form of Subscription attached hereto, to the Secretary of the Company at
its principal offices; and

          b.   the payment to the Company of an amount equal to the aggregate
purchase price for the number of Shares being purchased in cash, a certified
check made payable to the Company or any combination of the foregoing.

     In the event that the Holder shall exercise the right to purchase less than
all of the purchase rights evidenced hereby, the Company shall return to the
Holder a new Option, identical in all respects to this Option, providing for a
right to purchase that number and kind of securities as to which the Holder's
rights hereunder shall not have been exercised.

     5.   Exercise by Exchange. In addition to and without limiting the rights
          --------------------                                          
of the Holder hereof under the terms hereof, this Option may be exercised by
being exchanged in whole or in part at any time or from time to time prior to
its expiration, for a number of shares of Common Stock having an aggregate fair
market value on the date of such exercise equal to the difference between (x)
the fair market value of the number of shares of Common Stock subject to this
Option designated by the Holder hereof on the date of the exercise and (y) the
aggregate Option Price as adjusted by Section 8 for such number of designated
shares. Upon any such exercise, the number of shares of Common Stock purchasable
upon exercise of this Option shall be reduced by such designated number of
shares of Common Stock and, if a balance of purchasable shares of Common Stock
remains after such exercise, whether or not it is exercisable as to such shares
the Company shall execute and deliver to the Holder hereof a new Option for such
balance of shares of Common Stock. No payment of any cash or other consideration
shall be required from the Holder of this Option in connection with any exercise
of this Option by exchange pursuant to this Section. Such exchange shall be
effective upon the date of receipt by the Company of the original Option
surrendered for cancellation and a written request from the Holder hereof that
the exchange pursuant to this Section be made, or at such later date as may be
specified in such request. Any tax liability related to such transaction that is
attributable to the Holder shall be paid by the Holder. For the purposes of this
Section, the "fair market value" of any number of shares of Common Stock shall
be calculated on the basis of (a) if the Common Stock is then traded on a
securities exchange, the average of the closing prices of the Common Stock on
such exchange over the 30-day period ending three (3) days prior to the date of
exercise, (b) if the Common Stock is then actively traded over the counter, the
average of the closing bid or sale prices (whichever is applicable) of the
Common Stock over the 30-day period ending three (3) days prior to the date of
exercise, and (c) if there is no active public market for the Common Stock, the
fair market value thereof as determined in good faith by the Board of Directors
of the Company.

     6.   Certificates for Shares. Upon the exercise of the purchase rights
          -----------------------                                    
evidenced by this Option, one or more certificates for the number of Shares so
purchased shall be issued as soon as practicable thereafter, and in any event
within thirty (30) days of the delivery of the Option, Subscription and purchase
price in accordance with Section 4 hereof.

                                       2
<PAGE>
 
     7.   Reservation of Shares. The Company covenants that it will at all times
          ---------------------                                            
keep available such number of authorized shares of its Common Stock, free from
all preemptive rights with respect thereto, which will be sufficient to permit
the exercise of this Option for the full number of Shares specified herein. The
Company further covenants that such Shares, when issued pursuant to the exercise
of this Option, will be duly and validly issued, fully paid and non-assessable
and free from all taxes, liens and charges with respect to the issuance thereof.

     8.   Adjustment of Option Price and Number of Shares. The number of and
          -----------------------------------------------                
kind of securities purchasable upon exercise of this Option and the Option Price
shall be subject to adjustment from time to time as follows:

          a.   Subdivisions, Combinations and Other Issuances. If the Company
               ----------------------------------------------         
shall at any time prior to the expiration of this Option subdivide its Common
Stock, by stock split or otherwise, combine its Common Stock or issue additional
shares of its Common Stock (or other securities or rights convertible into, or
entitling the Holder thereof to receive, directly or indirectly, additional
shares of Common Stock) as a dividend with respect to any shares of its Common
Stock, the number of Shares issuable on the exercise of this Option shall
forthwith be proportionately increased in the case of a subdivision or stock
dividend and proportionately decreased in the case of a combination. Appropriate
adjustments shall also be made to the Option Price payable per share, but the
aggregate purchase price payable for the total number of Shares purchasable
under this Option (as adjusted) shall remain the same. Any adjustment under this
Section 8(a) shall become effective at the close of business on the date the
subdivision or combination becomes effective or as of the record date of such
dividend, or in the event that no record date is fixed upon the making of such
dividend.

          b.   Reclassification or Reorganization. In the event of any
               ----------------------------------                      
reclassification, capital reorganization or other change in the Common Stock of
the Company (other than as a result of a subdivision, combination or stock
dividend provided for in Section 8(a) above), then as a condition of such
reclassification, reorganization or change, lawful provision shall be made, and
duly executed documents evidencing the same shall be delivered to the Holder of
this Option, so that the Holder of this Option shall have the right at any time
prior to the expiration of this Option to purchase, at a total price equal to
that payable upon the exercise of this Option immediately prior to such event,
the kind and amount of shares of stock or other securities or property
receivable in connection with such reclassification, reorganization or change by
a Holder of the same number of shares of Common Stock as were purchasable by the
Holder of this Option immediately prior to such reclassification, reorganization
or change. In any such case appropriate provisions shall be made with respect to
the rights and interest of the Holder of this Option so that the provisions
hereof shall thereafter be applicable with respect to any shares of stock or
other securities or property deliverable upon exercise hereof, and appropriate
adjustments shall be made to the purchase price per share payable hereunder,
provided the aggregate purchase price shall remain the same.

     9.   Fractions of Shares. No fractional shares shall be issued upon the
          -------------------                                            
exercise or conversion of this Option. In lieu thereof, the Company shall pay
the Holder in cash an

                                       3
<PAGE>
 
amount equal to the value of such fractional share based on the fair market
value of a share of Common Stock as determined in accordance with Section 5
hereof.

     10.  Pre-Exercise Rights. Prior to exercise of this Option, the Holder
          -------------------                                        
shall not be entitled to any rights of a shareholder with respect to the Shares,
including (without limitation) the right to vote such Shares, receive dividends
or other distributions thereon, exercise preemptive rights or be notified of
shareholder meetings, and the Holder shall not be entitled to any notice or
other communication concerning the business or affairs of the Company.

     11.  Restricted Securities. The Holder understands that this Option and the
          ---------------------                                          
Shares purchasable hereunder constitute "restricted securities" under the
federal securities laws inasmuch as they are being, or will be, acquired from
the Company in transactions not involving a public offering and accordingly may
not, under such laws and applicable regulations, be resold or transferred
without registration under the Securities Act of 1933 (the "Securities Act") or
an applicable exemption from registration. In this connection, the Holder
acknowledges that Rule 144 of the Securities and Exchange Commission is not now,
and may not in the future be, available for resales of the Shares purchased
hereunder. The Holder further acknowledges that the Shares and any other
securities issued upon exercise of this Option shall bear a legend substantially
in the form of the legend appearing on the face hereof.

     12.  Certification of Investment Purpose. Unless a current registration
          -----------------------------------                   
statement under the Securities Act shall be in effect with respect to the
securities to be issued upon exercise of this Option, the Holder hereof, by
accepting this Option, covenants and agrees that, at the time of exercise
hereof, and at the time of any proposed transfer of securities acquired upon
exercise hereof the Holder will deliver to the Company a written certification
that the securities acquired by the Holder upon exercise hereof are for the
account of the Holder and acquired for investment purposes only and that such
securities are not acquired with a view to, or for sale in connection with, any
distribution thereof.

     13.  Registration Under the Securities Act.
          ------------------------------------- 

          a.   The Company agrees that if, at any time during the Exercise
Periods as provided in Section 3, the Company proposes to register any Common
Stock under the Securities Act or the Company receives a written request from
the Holder that the Company file a registration statement under the Securities
Act, the Company shall (i) cause such registration statement to cover all
Shares, (ii) use its best efforts to cause such registration statement to become
effective as soon as practicable and (iii) take all other action necessary under
any federal or state law or regulation of any governmental authority to permit
all Shares which it has been so requested to include in such registration
statement to be sold or otherwise disposed of, and will maintain such compliance
with such federal and state law and regulation of any governmental authority for
the period necessary for the Holder to effect the proposed sale or other
disposition. The Company shall furnish to the Holder and to each underwriter, if
any, a signed counterpart, addressed to the Holder or underwriter, of (i) an
opinion of counsel to the Company, dated the effective date of such registration
statement (and, if such registration includes an underwritten public offering,
an opinion dated the date of the closing under the

                                       4
<PAGE>
 
underwriting agreement), and (ii) a "comfort" letter dated the effective date of
such registration statement (and, if such registration includes an underwritten
public offering, a letter dated the date of the closing under the underwriting
agreement) signed by the independent public accountants who have issued a report
on the Company's financial statements included in such registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters public offerings of
securities.

          b.   The Company shall pay all expenses incurred in connection with
any registration statement or other action pursuant to the provisions of this
Section 13, other than underwriting discounts and applicable transfer taxes
relating to the Shares.

          c.   In the event of any registration of any of the Shares under the
Securities Act pursuant to this Section 13, the Company shall indemnify and hold
harmless the Holder, each underwriter (as defined in the Securities Act), and
each controlling person of the Holder or underwriter, if any (within the meaning
of the Securities Act), against any losses, claims, damages, settlements or
liabilities, joint or several (or actions in respect thereof), to which the
Holder, underwriter or controlling person may be subject under the Securities
Act, under any other statute or at common law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement (or alleged untrue statement) of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any summary prospectus issued in connection
with any securities being registered, or any amendment or supplement thereto, or
any other document used with the Company's consent to sell the Shares (including
an illegal prospectus), (ii) any omission (or alleged omission) to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any violation by the Company of the
Securities Act or any blue sky law, or any rule or regulation promulgated under
the Securities Act or any blue sky law, or any other law applicable to the
Company in connection with any such registration, and shall reimburse the
Holder, underwriter or controlling person for any legal or other expenses
reasonably incurred by the Holder, underwriter or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Holder, underwriter or controlling person in any such event to the extent
that any such loss, claim, damage or liability arises out of or is based upon
any such untrue statement or omission made in such registration statement,
preliminary prospectus, summary prospectus, prospectus, or amendment or
supplement thereto, or any other document, in reliance upon and in conformity
with written information furnished to the Company by the Holder, underwriter or
controlling person, specifically for use therein. The indemnity provided for
herein shall remain in full force and effect regardless of any investigation
made by or on behalf of the Holder, underwriter or controlling person, and shall
survive transfer of the Shares by the Holder.

                                       5
<PAGE>
 
          d.   The rights to cause the Company to register securities granted to
the Holder under this Section 13 may be transferred or assigned by the Holder to
a transferee or assignee in connection with any transfer or assignment of the
Shares of the Holder; provided, however, that: (a) such transfer or assignment
may otherwise be effected in accordance with applicable securities laws, (b)
prompt written notice of such transfer or assignment is given to the Company and
(c) such transferee or assignee either (i) controls, is controlled by, or is
under common control with the Holder or (ii) is acquiring all of the Holder's
securities.

          e.   From and after the date of this Option, the Company shall not,
without the prior written consent of the Holder, grant rights to any person with
priority over, or on a parity with, the registration rights granted to Holder
pursuant to this Section 13.

     14.  Replacement of Option. On receipt by the Company of evidence
          ---------------------                                        
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Option and, in the case of any such loss, theft or
destruction of this Option, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Option, the Company at its
expense and deliver, in lieu thereof, a new Option of like tenor.

     15.  Transfer. Subject to the transfer conditions referred to in the legend
          --------                                                        
endorsed hereon, this Option and all rights hereunder are transferable, in whole
or in part, without charge to the Holder hereof upon surrender of this Option
with a properly executed assignment at the principal office of the Company. Upon
any partial transfer, the Company will at its expense issue and deliver to the
Holder hereof a new Option of like tenor, in the name of the Holder hereof,
which shall be exercisable for such number of shares of Common Stock which were
not so transferred.

     16.  Successors and Assigns. The terms and provisions of this Option shall
          ----------------------                                          
inure to the benefit of, and be binding upon, the Company and the Holder hereof
and their respective successors and assigns.

     17.  Notice. Any notice or other communication required or permitted
          ------                                                          
hereunder shall be in writing and shall be delivered personally, telegraphed or
sent by certified, registered, or express mail, postage prepaid, and shall be
deemed given when so delivered personally, telegraphed or, if mailed, three (3)
days after the date of deposit in the United States mails, as follows:

     If to the Company to:

          AG Associates, Inc.
          4425 Fortran Drive
          San Jose, California  95134
          Attention:  Dr. Arnon Gat

     If to the Holder to the address for the Holder shown on the records of the
Company:

                                       6
<PAGE>
 
     18.  Governing Law. This Option shall be governed by and construed in
          -------------                                                    
accordance with the laws of the State of California, without giving effect to
conflict of law principles.

          IN WITNESS WHEREOF, the Company has caused this Option to be signed in
its corporate name by a duly authorized officer and to be dated as of the date
first above written.

                                             AG Associates, Inc.

                                             By: /s/ Arnon Gat
                                                 -------------------------------
                                             Name:  Arnon Gat
                                             Title: Chief Executive Officer and
                                                    Chairman of the Board of
                                                    Directors

                                       7
<PAGE>
 
                             FORM OF SUBSCRIPTION

                   (To be signed only on exercise of Option)

TO _____________________________

     The undersigned, the Holder of the within Option, hereby irrevocably elects
to exercise the purchase right represented by such Option for, and to purchase
thereunder, ____________* shares of Common Stock of _________________________,
and herewith makes payment of $__________ therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to,
________________________________, whose address is ____________________________.
 

                              __________________________________________________

                              (Signature must conform in all respects to name of
                              Holder as specified on the face of the Option)

                              __________________________________________________

                              __________________________________________________
                                                    (Address)

Dated:

_____________________________


_____________________________
*    Insert here the number of shares as to which the Option is being exercised.

                                       8
<PAGE>
 
                              FORM OF ASSIGNMENT

                   (To be signed only on transfer of Option)

     For value received, the undersigned hereby sells, assigns, and transfers
unto ________________________________ the right represented by the within Option
to purchase shares of Common Stock of ____________________________________ to
which the within Option relates, and appoints __________________________________
Attorney to transfer such right on the books of __________________________ with
full power of substitution in the premises.

                              __________________________________________________

                              (Signature must conform in all respects to name of
                              Holder as specified on the face of the Option)

                              __________________________________________________

                              __________________________________________________
                                                    (Address)


Dated:

_____________________________

                                       9
