Document:

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                                                                   EXHIBIT 10.34

                 THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS
                       COVERING SECURITIES THAT HAVE BEEN
                  REGISTERED UNDER THE SECURITIES ACT OF 1933.

                           ALLIANCE GAMING CORPORATION

                                  COMMON STOCK

                            Par Value $0.10 Per Share

                          -----------------------------

                           ALLIANCE GAMING CORPORATION

                          2001 LONG TERM INCENTIVE PLAN

                          ----------------------------

        The shares of Common Stock, par value $0.10 per share (the "Common
Stock"), of Alliance Gaming Corporation (the "Company") hereby offered are those
shares which are offered to certain directors, employees and designated paid
consultants (as defined below) of the Company, pursuant to awards made under the
Alliance Gaming Corporation 2001 Long Term Incentive Plan (the "Plan").

        Certain persons who receive shares of Common Stock pursuant to an award
under the Plan may be deemed to be "underwriters" or "affiliates" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"), and
may not resell such shares except pursuant to a separate prospectus or pursuant
to a specific exemption from the registration requirements of the Securities
Act.

                          ----------------------------

        NO PERSON HAS BEEN AUTHORIZED BY THE COMPANY TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS DOCUMENT IN
CONNECTION WITH THE OFFER MADE HEREBY, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY.

                 THE DATE OF THIS DOCUMENT IS DECEMBER 11, 2001

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                                TABLE OF CONTENTS

                           ALLIANCE GAMING CORPORATION

                          2001 LONG TERM INCENTIVE PLAN

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                                                                                           Page
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<S>                                                                                        <C>
AVAILABLE INFORMATION....................................................................... 2
        1.     Purpose...................................................................... 3
        2.     Administration............................................................... 3
        3.     Common Stock Subject to the Plan............................................. 4
        4.     Eligibility.................................................................. 5
        5.     Stock Options................................................................ 5
        6.     Restrictions Applicable to Restricted Stock.................................. 8
        7.     Stock Appreciation Rights.................................................... 9
        8.     Rights of Grantees........................................................... 9
        9.     Determination of Fair Market Value.......................................... 10
        10.    Retirement, Termination of Employment or Death of Holders of Options,
               Stock Appreciation Rights and Restricted Stock.............................. 11
        11.    Adjustments................................................................. 12
        12.    Maximum Awards.............................................................. 13
        13.    Manner of Grant............................................................. 13
        14.    Compliance with Laws and Regulations........................................ 13
        15.    Tax Withholding............................................................. 13
        16.    Nonexclusivity of the Plan.................................................. 14
        17.    Amendment................................................................... 14
        18.    Termination or Suspension................................................... 14
        19.    Miscellaneous............................................................... 15
        20.    Exculpation and Indemnification............................................. 15
        21.    Governing Law............................................................... 15
        22.    Unfunded Plan............................................................... 15

PLAN COMMITTEE............................................................................. 16

CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................................... 16

</TABLE>

                              AVAILABLE INFORMATION

        This document does not contain all the information set forth in the
Registration Statement, to which the Prospectus (of which this document is a
part) relates, and the exhibits to that Registration Statement which the Company
has filed with the Securities and Exchange Commission (the "SEC") under the
Securities Act and to which reference is hereby made. The Company will promptly
furnish, without charge, to any employee receiving this document, upon written
or oral request, a copy of (a) any of the documents incorporated by reference in
the Registration Statement to which the Prospectus (of which this document is a
part) relates (not including any exhibits to such incorporated documents unless
such exhibits are specifically incorporated by reference therein), (b) any other
documents required to be delivered pursuant to Rule 428(b) under the Securities
Act, and (c) the Plan. The documents referred to in clause (b) of the preceding
sentence are also incorporated by reference into this document. Requests should
be directed to the Secretary, Alliance Gaming Corporation, 6601 South Bermuda
Road, Las Vegas, Nevada 89119-3605, (702) 270-7600.

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                           ALLIANCE GAMING CORPORATION

                          2001 LONG TERM INCENTIVE PLAN

        The Plan was established by the Board of Directors of the Company (the
"Board") and was approved by shareholders of the Company on December 11, 2001.
The Plan will continue in effect until terminated by the Board in accordance
with the terms of the Plan.

1.      PURPOSE OF THE PLAN

        The Plan is intended to encourage stock ownership by directors,
employees and designated paid consultants of the Company and its subsidiaries
(collectively, the "Subsidiaries" and individually, a "Subsidiary"), in order to
increase their proprietary interest in the success of the Company and to
encourage them to remain in the employ of the Company or a Subsidiary.

        Options granted under the Plan may be either Incentive Stock Options or
Nonstatutory Stock Options; the term "option" when used hereinafter refers to
either Incentive Stock Options or Nonstatutory Stock Options, or both.
Restricted stock awarded under the Plan is subject to restrictions as determined
in each specific case by the Board or by a duly appointed committee of the Board
(the "Committee"). Stock Appreciation Rights may be granted under the Plan. The
term "Award" when used hereinafter collectively refers to options, Stock
Appreciation Rights and restricted stock awarded under the Plan.

2.      ADMINISTRATION

        Administration of the Plan. The Plan is administered by the Board or, if
the Board so determines, by the Committee, provided that except as otherwise
provided below, in the case of Awards to directors or officers subject to
Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act"), the
Committee has exclusive responsibility for and authority to administer the Plan
unless the Board expressly determines otherwise. The membership of the Committee
consists of not less than two members of the Board and will be constituted, if
possible, to permit the Plan to comply with Rule 16b-3 promulgated under the
Exchange Act or any successor rule ("Rule 16b-3") and with the requirements of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
Duly authorized actions of the Committee constitute actions of the Board for the
purposes of the Plan and its administration. The Board or the Committee, as
applicable, has authority in its sole discretion:

-       to determine the time or times at which, and the directors, employees
        and consultants to whom options, Stock Appreciation Rights and
        restricted stock are awarded under the Plan;

-       to determine the base price of any Stock Appreciation Right, the
        Incentive Stock Option Price or the Nonstatutory Stock Option Price
        (both as defined below) of, and the number of shares of Stock (as
        defined below) to be covered by, Stock Appreciation Rights and options
        granted under the Plan;

-       to determine the number of shares of Stock to be covered by awards of
        restricted stock under the

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        Plan;

-       to determine the time or times at which each option and/or Stock
        Appreciation Right granted under the Plan may be exercised, including
        whether the option or Stock Appreciation Right may be exercised in whole
        or in installments;

-       to establish the terms of the restrictions applicable to any restricted
        stock awarded, and to determine the time or times at which restrictions
        lapse;

-       to interpret the Plan and to prescribe, amend and rescind rules and
        regulations relating to it; and

-       to make all other determinations which the Board or Committee, as
        applicable, deem necessary or advisable for the administration of the
        Plan.

        Reserved Authority of the Board. The Committee has all the powers and
duties set forth above, as well as any additional powers and duties that the
Board may delegate to it; provided, however, that the Board expressly retains
the right (i) to determine whether the shares of Stock reserved for issuance
upon the exercise of options or as restricted stock awarded under the Plan shall
be issued shares or unissued shares, (ii) to appoint the members of the
Committee, and (iii) to terminate or amend the Plan. The Board may from time to
time appoint members of the Committee in substitution for or in addition to
members previously appointed, may fill vacancies in the Committee, and may
discharge the Committee.

3.      COMMON STOCK SUBJECT TO THE PLAN

        Limitation on Number of Shares. The number of shares which may at any
time be made subject to options or Stock Appreciation Rights, or which may be
issued upon the exercise of options or Stock Appreciation Rights granted under
the Plan or made subject to grants of restricted stock, is limited to an
aggregate of 1,000,000 shares of the common stock, $.10 par value, of the
Company (the "Stock"). The shares reserved for issuance pursuant to the Plan may
consist either of authorized but previously unissued shares of Stock, or of
issued shares of Stock which have been reacquired by the Company, as determined
from time to time by the Board. If any option or Stock Appreciation Right
granted under the Plan expires, terminates or is canceled for any reason without
having been exercised in full, or any restricted stock Award is forfeited for
any reason, the shares of Stock allocable to the unexercised portion of the
option or Stock Appreciation Right or to the forfeited portion of the restricted
stock Award may again be made subject to an option or Award under the Plan.

        Adjustments of Number of Shares. In the event of a change in the common
stock of the Company that is limited to a change in the designation thereof to
"Capital Stock" or other similar designation, or to a change in the par value
thereof, or from par value to no par value, without increase or decrease in the
number of issued shares, the shares resulting from any such change are deemed to
be the common stock for purposes of the Plan.

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4.      ELIGIBILITY

        Awards may be granted under the Plan to paid consultants, directors and
employees of the Company or a Subsidiary designated by the Board or the
Committee, provided that Incentive Stock Options may be awarded only to regular
full-time employees of the Company or a Subsidiary (including employees who
serve as officers or directors). As used in the Plan, "paid consultant" means a
natural person who is an independent contractor retained to perform continuing
and substantial services for the Company or any subsidiary, and designated as a
paid consultant by the Board or the Committee, except that no individual shall
be designated a "paid consultant" for purposes of this Plan if such individual
is engaged in promoting or maintaining a market in the securities of the
Company, or in any other capacity that would result in the Form S-8 registration
statement being ineffective as to any Awards made to such individual. Any person
granted an Award under the Plan (a "Grantee") remains eligible to receive one or
more additional grants thereafter, notwithstanding that options or Stock
Appreciation Rights previously granted to such person remain unexercised in
whole or in part, or that the applicable restrictions on any restricted stock
issued to such person have not lapsed.

5.      STOCK OPTIONS

        In General. The Plan authorizes the Board or the Committee to grant
options that qualify as incentive stock options pursuant to Section 422 of the
Code ("Incentive Stock Options"), or options that do not so qualify
("Nonstatutory Stock Options"). Each option granted under the Plan is evidenced
by a written and executed option agreement which will specify whether the option
granted therein is an Incentive Stock Option or a Nonstatutory Stock Option.

        Incentive Stock Options. Each stock option agreement covering an
Incentive Stock Option granted under the Plan and any amendment thereof, other
than an amendment to convert an Incentive Stock Option into a Nonstatutory Stock
Option, will conform to the following provisions and may contain other terms and
provisions consistent with the requirements of the Plan as the Board or the
Committee deem appropriate:

        Option Price. The purchase price of each of the shares of Stock subject
to an Incentive Stock Option (the "Incentive Stock Option Price") will be a
stated price which is not less than the fair market value of such share of
Stock, determined in accordance with Section 9 below, or the par value of such
share if greater, as of the date such Incentive Stock Option is granted;
provided, however, that if an employee, at the time an Incentive Stock Option is
granted to him or her, owns stock representing more than 10% of the total
combined voting power of all classes of stock of the Company or of the parent
corporation (as defined in Section 424(e) of the Code), if any, of the Company
or of any of the Subsidiaries (or, under Section 424(d) of the Code, is deemed
to own stock representing more than 10% of the total combined voting power of
all such classes of stock, by reason of the ownership of such classes of stock,
directly or indirectly, by or for any brother, sister, spouse, ancestor, or
lineal descendent of such employee, or by or for any corporation, partnership,
estate or trust of which such employee is a shareholder, partner or
beneficiary), then the Incentive Stock Option Price of each share of Stock
subject to such Incentive Stock Option will be at least 110% of the fair market
value of such share of Stock, as determined in accordance with Section 9 below.

        Term. Incentive Stock Options granted under the Plan will be exercisable
for the periods determined by the Board or the Committee at the time of grant of
each Incentive Stock Option, but in no

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event is an Incentive Stock Option exercisable after the expiration of ten years
from the date of grant; provided, however, that an Incentive Stock Option
granted to any employee as to whom the Incentive Stock Option Price of each
share of Stock subject thereto is required to be 110% of the fair market value
of the share of Stock pursuant to the preceding paragraph will not be
exercisable after the expiration of five years from the date of grant. Each
Incentive Stock Option granted under the Plan is also subject to earlier
termination as provided in the Plan.

        Exercise. Generally under the Plan, Incentive Stock Options may be
exercised in whole or in installments, to the extent, and at the time or times
during the terms thereof, as determined by the Board or the Committee at the
time of grant of each option.

        Incentive Stock Options granted under the Plan are exercisable only by
delivery to the Company of written notice of exercise, which states the number
of shares with respect to which such Incentive Stock Option is exercised, the
date of grant of the Incentive Stock Option, the aggregate purchase price for
the shares with respect to which the Incentive Stock Option is exercised and the
effective date of such exercise, which date may not be earlier than the date the
notice is received by the Company nor later than the date upon which the
Incentive Stock Option expires. The written notice of exercise must be sent
together with the full Incentive Stock Option Price of the shares purchased,
which may be paid in cash or in shares of any class of issued and outstanding
stock of the Company held for more than six months by the option holder, whether
preferred or common, or partly in cash and partly in such shares of stock. If
any portion of the Incentive Stock Option Price is paid in shares of stock of
the Company, the shares will be valued at their fair market value, as determined
in accordance with Section 9 below, as of the effective date of exercise of the
Incentive Stock Option. The delivery of shares of stock upon exercise of an
Incentive Stock Option shall be subject to such restrictions as the Board or the
Committee may determine to be appropriate, including, without limitation, a
requirement that such shares be held by an agent designated by the Company until
sold or otherwise disposed of by the option holder, to assure that the Company
is advised of any disposition of such shares by the option holder within two
years of the date of grant of the Incentive Stock Option or within one year
after the date of exercise of the Incentive Stock Option.

        In general, an Incentive Stock Option granted under the Plan remains
outstanding and is exercisable only so long as the person to whom the Incentive
Stock Option was granted remains an officer or employee of the Company, the
parent corporation, if any, of the Company, or any of the Subsidiaries. All
Incentive Stock Options granted under the Plan are nontransferable, except by
will or the laws of descent and distribution, and are exercisable during the
lifetime of the person to whom granted only by such person (or his duly
appointed, qualified, and acting personal representative).

        No Incentive Stock Option may be exercised as to fewer than 100 shares
of Stock at any one time without the consent of the Board or the Committee,
unless the number of shares to be purchased upon the exercise is the total
number of shares at the time available for purchase under the Incentive Stock
Option.

        The Board or the Committee may also permit Grantees (either on a
selective or group basis) to simultaneously exercise options and sell the shares
of the Stock thereby acquired, pursuant to a "cashless exercise" arrangement or
program, selected by and approved of in all respects in advance by the Board or
the Committee. Payment instruments shall be received by the Company subject to
collection. The proceeds received by the Company upon exercise of any option may
be used by the Company for general corporate purposes. Any portion of an option
that is exercised may not be exercised again.

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        Nonstatutory Stock Options. Each stock option agreement covering a
Nonstatutory Stock Option granted under the Plan and any amendment thereof will
conform to the following provisions and may contain other terms and provisions
consistent with the requirements of the Plan as the Board or the Committee deem
appropriate:

        Option Price. The purchase price of each of the shares of Stock subject
to a Nonstatutory Stock Option (the "Nonstatutory Stock Option Price") will be a
fixed price determined by the Board or the Committee at the time of grant, which
will not be less than the greater of the par value of such share, or one hundred
percent (100%) of the fair market value of such share, determined in accordance
with Section 9 below, on the date of the grant of the Nonstatutory Stock Option.

        Term. Nonstatutory Stock Options granted under the Plan are exercisable
for a period of ten years unless otherwise determined by the Board or the
Committee at the time of grant. Each Nonstatutory Stock Option granted under the
Plan will also be subject to earlier termination as provided in the Plan.

        Exercise. Generally, under the Plan, Nonstatutory Stock Options may be
exercised in whole or in installments to the extent, and at the time or times
during the terms thereof, as determined by the Board or the Committee at the
time of grant of each option.

        Nonstatutory Stock Options granted under the Plan are exercisable only
by delivery to the Company of written notice of exercise, which states the
number of shares with respect to which such Nonstatutory Stock Option is
exercised, the date of grant of the Nonstatutory Stock Option, the aggregate
purchase price for the shares with respect to which the Nonstatutory Stock
Option is exercised and the effective date of such exercise, which date may not
be earlier than the date the notice is received by the Company nor later than
the date upon which the Nonstatutory Stock Option expires. The written notice of
exercise must be sent together with the full Nonstatutory Stock Option Price of
the shares purchased, which may be paid in cash or in shares of any class of
issued and outstanding stock of the Company held for more than six months by the
option holder, whether preferred or common, or partly in cash and partly in such
shares of stock. If any portion of the Nonstatutory Stock Option Price is paid
in shares of stock of the Company, the shares will be valued at their fair
market value, as determined in accordance with Section 9 below, as of the
effective date of exercise of the Nonstatutory Stock Option.

        In general, a Nonstatutory Stock Option granted under the Plan remains
outstanding and is exercisable only so long as the person to whom the
Nonstatutory Stock Option was granted remains either a director, employee or
paid consultant of the Company, the parent corporation, if any, of the Company,
or any of the Subsidiaries. A person is deemed to be a paid consultant only so
long as he or she continues to perform and be compensated for substantial
services for the Company, the parent corporation, if any, of the Company, or a
Subsidiary, as to which the determination of the Board or the Committee, as
applicable, will be binding and conclusive. Unless the Board or Committee
determines otherwise, all Nonstatutory Stock Options granted under the Plan will
be nontransferable, except by will or the laws of descent and distribution.

        No Nonstatutory Stock Option may be exercised as to fewer than 100
shares at any one time without the consent of the Board or the Committee, unless
the number of shares to be purchased upon the exercise is the total number of
shares at the time available for purchase under the Nonstatutory Stock Option.

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        The Board or the Committee may also permit Grantees (either on a
selective or group basis) to simultaneously exercise options and sell the shares
of the Stock thereby acquired, pursuant to a "cashless exercise" arrangement or
program, selected by and approved of in all respects in advance by the Board or
the Committee. Payment instruments shall be received by the Company subject to
collection. The proceeds received by the Company upon exercise of any option may
be used by the Company for general corporate purposes. Any portion of an option
that is exercised may not be exercised again.

        The exercise or Option Price of any outstanding Incentive Stock Option
or Nonstatutory Stock Option may not be adjusted or amended by the Board or
Committee (other than in accordance with Section 11 below), whether by
amendment, cancellation, replacement grants, or any other means. As used herein,
"replacement grants" means any grant of Incentive Stock Options, Nonstatutory
Stock Options or Stock Appreciation Rights reasonably related to any prior or
potential cancellation of any outstanding options or stock appreciation rights
for new options or new stock appreciation rights in tandem with previously
granted options or stock appreciation rights that will operate to cancel the
previously granted options or stock appreciation rights upon exercise of the new
options or new stock appreciation rights.

6.      RESTRICTIONS APPLICABLE TO RESTRICTED STOCK

        The Board or the Committee may place any restrictions it deems
appropriate on any shares of restricted stock awarded under the Plan to an
employee, director or paid consultant; provided, however, that shares of
restricted stock awarded under the Plan are subject to certain restrictions
including the following:

        Vesting. In general, shares of Stock awarded to directors, employees or
paid consultants will vest (a) in full with respect to all Stock underlying the
Award of restricted stock at the expiration of a period of not less than three
years from the date of grant of the Award, or (b) proportionately in equal
installments of the Stock underlying the Award of restricted stock over a period
of not less than three years from the date of grant of the Award, as the Board
or the Committee determines, and, in each such case, based upon continued
service during any such period by the recipient as a director, employee or paid
consultant of the Company or any of its Subsidiaries. Any shares of Stock
remaining subject to forfeiture in accordance with the related vesting schedule
are hereinafter referred to as "Unvested Shares." Subject to Section 10 below,
neither the Board nor the Committee have the authority to otherwise accelerate
the vesting of an Award of restricted stock.

        Delivery to Escrow. Unless the Board or the Committee determines
otherwise, upon issuance of a certificate evidencing such shares the recipient
will be required to deliver the certificate, endorsed in blank or with a duly
executed stock power attached, to the Secretary of the Company, or such other
person or entity as the Board or the Committee may designate, to be held until
any vesting restrictions applicable thereto have lapsed or any Unvested Shares
have been forfeited.

        Legend. Unless the Board or the Committee determines otherwise, each
certificate evidencing Unvested Shares issued under the Plan will bear a legend
to the effect that such shares are subject to potential forfeiture and may not
be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of
except in accordance with the terms of an agreement between the issuer and the
registered owner.

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7.      STOCK APPRECIATION RIGHTS

        The grant of Stock Appreciation Rights under the Plan is subject to the
following terms and conditions and any additional terms and conditions, not
inconsistent with the express terms and provisions of the Plan, as the Board or
the Committee sets forth in the relevant Award agreement:

        Stock Appreciation Rights. A Stock Appreciation Right is an Award
granted with respect to a specified number of shares of Stock entitling the
Grantee to receive an amount equal to the excess of (a) the fair market value of
a share of Stock on the date of exercise over (b) the fair market value of a
share of Stock on the date of grant of the Stock Appreciation Right (the "Base
Price") multiplied by the number of shares of Stock with respect to which the
Stock Appreciation Right has been exercised. Fair market value is determined in
accordance with Section 9 below.

        Grant. A Stock Appreciation Right may be granted in addition to any
other Award under the Plan or in tandem with or independent of any Nonstatutory
Stock Option or Incentive Stock Option.

        Date of Exercisability. Unless otherwise provided in the Grantee's Award
agreement in respect of any Stock Appreciation Right, a Stock Appreciation Right
may be exercised by the Grantee, in accordance with and subject to all of the
procedures established by the Board or the Committee, in whole or in part at any
time and from time to time during its specified term. Notwithstanding the
preceding sentence, in no event is a Stock Appreciation Right exercisable prior
to the exercisability of any Non-Qualified Stock Option or Incentive Stock
Option with which it is granted in tandem. The Board or the Committee may also
provide, as set forth in the relevant Award agreement, that some Stock
Appreciation Rights will be automatically exercised on one or more dates
specified by the Board or the Committee.

        Form of Payment. Upon exercise of a Stock Appreciation Right, payment
may be made in cash, in restricted stock or in shares of unrestricted Stock, or
in any combination thereof, as the Board or the Committee, in its sole
discretion, determines and provides in the relevant Award agreement.

        Tandem Grant. The right of the Grantee to exercise a tandem Stock
Appreciation Right terminates to the extent the Grantee exercises the
Non-Qualified Stock Option or the Incentive Stock Option to which the Stock
Appreciation Right is related.

        The Base Price of any outstanding Stock Appreciation Right may not be
adjusted or amended by the Board or the Committee (other than in accordance with
Section 11 below), whether by amendment, cancellation, replacement grants, or
any other means.

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8.      RIGHTS OF GRANTEES

        Options. No holder of an option or Stock Appreciation Right will be
deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares of Stock subject to such option or Stock Appreciation
Right unless and until his or her option or Stock Appreciation Right has been
exercised pursuant to the terms thereof, the Company has issued and delivered to
the holder of the option or Stock Appreciation Right the shares of Stock as to
which the holder has exercised his or her option or Stock Appreciation Right,
and the holder's name has been entered as a stockholder of record on the books
of the Company. Thereupon, such person shall have full voting and other
ownership rights with respect to such shares of Stock.

        Restricted Stock. Each recipient of a restricted stock award is deemed
to be the registered owner of any Unvested Shares subject to such award,
notwithstanding that such shares may be subject to restrictions and possible
forfeiture under the terms of the agreement pursuant to which they were
received. Unless and until all or a portion of the Unvested Shares are forfeited
in accordance with the terms of such agreement, the recipient thereof will have
full voting rights with respect to such shares as well as the right to receive
any and all distributions thereon.

9.      DETERMINATION OF FAIR MARKET VALUE

        For the purposes of the Plan, the fair market value of a share of stock
of the Company is determined as follows:

        (a)    if on the date as of which a determination is made the class of
               stock being valued is admitted to trading on a national
               securities exchange or exchanges, including without limitation
               the National Association of Securities Dealers Automated
               Quotation System ("Nasdaq"), for which actual sale prices are
               regularly reported, or actual sales prices are otherwise
               regularly published for such stock, the fair market value of a
               share of the stock is deemed to be equal to the closing sale
               price reported for the stock on the date as of which the
               determination is made (or the next preceding trading date if the
               date of determination is not a trading date); or

        (b)    if on the date as of which a determination is made no such
               closing sales prices are reported, but quotations for the class
               of stock being valued are regularly listed on the Nasdaq or
               another comparable system, the fair market value of a share of
               the stock is deemed to be equal to the mean of the average of the
               closing bid and asked prices for the stock quoted on such system
               on the date as of which the determination is made (or the next
               preceding trading date if the date of determination is not a
               trading date); or

        (c)    if no such quotations or actual sales prices are available, the
               fair market value of a share of the stock will be deemed to be
               the average of the closing bid and asked prices furnished by a
               professional securities dealer making a market in such shares, as
               selected by the Board, for the trading date as of which the
               determination is made (or the next preceding trading date if the
               date of determination is not a trading date).

        Notwithstanding (a) - (c) above, the Board or the Committee may
determine the fair market value tock of the Company on the basis of such factors
as it deems appropriate if it determines in

                                       10
<PAGE>

good faith that the approach specified above does not properly reflect the fair
market value of such stock.

10.     RETIREMENT, TERMINATION OF EMPLOYMENT OR DEATH OF HOLDERS OF OPTIONS,
        STOCK APPRECIATION RIGHTS AND RESTRICTED STOCK

        Retirement or Disability. If a Grantee retires from employment with the
Company or any of its Subsidiaries as a result of normal retirement (that is,
termination of employment by the Grantee after he or she attains age sixty-five
(65)), or terminates employment with the Company after becoming "permanently
disabled" (as defined in the Gaming and Technology, Inc. Profit Sharing 401(k)
Plan as in effect on the date of adoption of the Plan by the Board), any
restrictions then applicable to his or her Award will lapse and it will
thereafter be exercisable (in the case of options and Stock Appreciation Rights)
or transferable (in the case of restricted stock) in whole or in part, by the
person to whom granted (or his or her duly appointed, qualified, and acting
personal representative) in the manner set forth in Sections 5, 6 and 7 above,
at any time within the remaining term of the Award, unless otherwise determined
by the Board or the Committee at the time of grant.

        Other Termination of Service or Employment. Except as determined by the
Board or the Committee at the time of grant, or as otherwise provided herein or
in a Grantee's employment agreement, (a) if a person to whom restricted stock
has been awarded under the Plan ceases to be either a director, employee or paid
consultant of the Company or a Subsidiary, any Unvested Shares of restricted
stock held by the person are forfeited as of the last date he or she was either
a director, employee or paid consultant of the Company or a Subsidiary, and (b)
if a person to whom an option or Stock Appreciation Right has been granted under
the Plan ceases to be either a director, employee or paid consultant of the
Company or a Subsidiary, such option or Stock Appreciation Right will continue
to be exercisable or transferable to the same extent that it was exercisable on
the last day on which he or she was either a director, employee or paid
consultant for a period of 60 days thereafter, whereupon such option or Stock
Appreciation Right will terminate and not be exercisable thereafter; provided,
however, that in the event of termination of employment, termination of service
as a paid consultant, or removal from office as a director for Cause (as defined
below), any such option or Stock Appreciation Right will terminate ten days
after such termination of employment, service or removal from office rather than
60 days thereafter. Notwithstanding the immediately preceding sentence, the term
during which an option or Stock Appreciation Right may be exercised shall not in
any event extend beyond the remaining term of such Award as specified in
connection with the grant thereof. No Award made under the Plan will be affected
by any change of duties or position of the person to whom the Award was made or
by any temporary leave of absence granted to the person by the Company or any of
its Subsidiaries. For purposes of the Plan, "Cause" means (i) the Grantee being
convicted of a felony, (ii) the Grantee willfully committing an act of
embezzlement or malfeasance which is intended to materially enrich himself or
herself at the expense of the Company or any of its Subsidiaries or is otherwise
intended to materially harm the Company, or (iii) the Grantee being rejected for
an applicable license or approval by a gaming regulatory authority having
jurisdiction over the Company as a result of an explicit finding of lack of
suitability solely as a result of the Grantee's commission of a crime or an act
of embezzlement or malfeasance.

        Death. Unless otherwise determined by the Board or the Committee at the
time of grant, (a) if a person to whom an option or Stock Appreciation Right has
been granted under the Plan dies prior to the expiration of the term of the
option or Stock Appreciation Right, the option or Stock Appreciation Right is
exercisable by the estate of the Grantee, or by a person who acquired the right
to exercise such option or Stock Appreciation Right by bequest or inheritance
from the Grantee, at any time within two years

                                       11
<PAGE>

after the death of the person and prior to the date upon which such option or
Stock Appreciation Right expires as specified in connection with the grant
thereof, to the extent and in the manner exercisable by the Grantee at the date
of his or her death; and (b) if a person to whom restricted stock has been
awarded under the Plan dies prior to the lapse of all restrictions applicable to
such restricted stock, any Unvested Shares held by such person on the date of
his or her death will be forfeited.

        Termination with Board Approval. If a Grantee ceases to be either a
director, employee or paid consultant of the Company or a Subsidiary for any
reason other than removal for Cause, and the Board or the Committee expressly
determines that such termination of service or employment is in the best
interests of the Company, then an option or Stock Appreciation Right awarded to
the Grantee under the Plan will be exercisable by the Grantee or by the estate
of the Grantee, by a person who acquired the right to exercise such option or
Stock Appreciation Right by bequest or inheritance from the Grantee or
otherwise, for an additional period following termination of service or
employment as determined by the Board or the Committee but in no event later
than the date upon which such option or Stock Appreciation Right would have
expired absent such termination of service or employment. Any such extended
option or Stock Appreciation Right will be exercisable only to the extent and in
the manner exercisable by the Grantee at the time of such termination of service
or employment.

        Incentive Stock Options. Notwithstanding anything herein to the contrary
or the provisions of any employment agreement, no Incentive Stock Option shall
be exercisable after the date that is (a) in the case of the Grantee's
termination of employment for any reason other than death or disability, three
months following such termination of employment, or (b) in the case of the
Grantee's termination of employment due to death or Total and Permanent
Disability (as defined in Code section 22(e)(3)), twelve months following such
termination of employment.

11.     ADJUSTMENTS

        Changes in Capitalization. In the event of any change in the number of
shares of the outstanding Stock of the Company by reason of a stock split, stock
dividend, combination or reclassification of shares, recapitalization, or
similar event, the Board or the Committee will adjust proportionally the number
and kind of shares subject to the Plan, and the number, kind, and per share
Stock Appreciation Right Base Price, Incentive Stock Option Price or
Nonstatutory Stock Option Price (as the case may be) of shares then subject to
unexercised options. Any such adjustment will be made without a change in the
aggregate purchase price or aggregate Base Price of the shares of the Stock
subject to the unexercised portion of any option or Stock Appreciation Right.

        Merger Event. In the event of any merger, spin-off, split-off or other
similar consolidation, reorganization or change affecting any class of stock of
the Company (a "Merger Event") subject to Awards made under the Plan, or any
distribution (other than normal cash dividends) to holders of the stock, fair
and equitable adjustment will be made in good faith by the Board or the
Committee, including (without limitation) adjustments to avoid fractional
shares, in respect of all unexercised options or Stock Appreciation Rights to
give proper effect to such event and preserve the value, rights and benefits of
such options or Stock Appreciation Rights; provided, however, that the Board or
the Committee may, in the case of any Merger Event pursuant to which the Company
is not the surviving corporation and pursuant to which the former holders of the
Stock do not hold, directly or indirectly, more than a majority of the voting
securities of the resulting entity immediately after the Merger Event or in
connection with any acquisition by any person of more than fifty percent (50%)
of the outstanding shares of the Stock,

                                       12
<PAGE>

provide that each option or Stock Appreciation Right holder will receive a cash
payment (in exchange for and in cancellation of such option or Stock
Appreciation Right) equal to the difference (if greater than zero) between the
value of the per share consideration received by the holders of the Stock in the
Merger Event or the acquisition and the purchase price or Base Price of such
option or Stock Appreciation Right, multiplied by the number of shares of the
Stock underlying such option or Stock Appreciation Right (and if the difference
is equal to or less than zero, the Committee may provide that each such holder
will receive no payment, nor any other compensation, in exchange for and in
cancellation of any such option or Stock Appreciation Right). In addition, in
the event of any Merger Event pursuant to which all of the outstanding Stock
held by the shareholders of the Company is exchanged for any lawful
consideration, all unvested and unexercisable options or Stock Appreciation
Rights outstanding on the date on which shareholder approval of the Merger Event
is obtained will become 100% vested and exercisable.

12.     MAXIMUM AWARDS

        The following maximum annual and other amounts are subject to adjustment
under Section 11 above and are subject to the Plan maximum under Section 3
above. Each individual Grantee may not receive in any fiscal year Awards of
options and/or Stock Appreciation Rights exceeding 600,000 underlying shares of
Stock. No more than 600,000 shares of Stock may be granted as Awards of
restricted stock. Notwithstanding the foregoing, to the extent that the
aggregate fair market value of stock (determined at the time of grant of the
option) for which Incentive Stock Options first become exercisable by a Grantee
during a calendar year (under all option plans of the Company) exceeds $100,000,
such Options shall be treated as Options that are not Incentive Stock Options.

13.     MANNER OF GRANT

        Nothing contained in the Plan or in any resolution adopted by the Board
or any committee thereof or by the stockholders of the Company with respect to
the Plan, except as provided in the Plan, will constitute the granting of an
Award under the Plan. The granting of an Award under the Plan is deemed to occur
only upon the date on which the Board or the Committee approves the grant of the
Award. Each Award granted under the Plan shall be evidenced by a written
agreement, in the form determined by the Board or the Committee, signed by a
representative of the Board or the Committee and the recipient thereof.

14.     COMPLIANCE WITH LAWS AND REGULATIONS

        The obligation of the Company to sell and deliver any shares of Stock
under the Plan is subject to all applicable laws, rules and regulations, and the
obtaining of all approvals by governmental agencies deemed necessary or
appropriate by the Board or the Committee. In general, the Board or the
Committee may make such changes in the Plan and include such terms in any Award
agreement as may be necessary or appropriate, in the opinion of counsel to the
Company, to comply with the rules and regulations of any governmental authority,
or to obtain for employees granted Incentive Stock Options the tax benefits
under the applicable provisions of the Code and the regulations thereunder.

                                       13
<PAGE>

15.     TAX WITHHOLDING

        The Company or Subsidiary for which services are performed by a
director, employee or paid consultant granted an Award under the Plan has the
right to deduct or otherwise effect a withholding of any tax (including, without
limitation, any FICA (employment) tax required to be withheld under Chapter 21
of the Code, any income tax required to be withheld under Chapter 24 of the
Code, and any similar tax imposed under state, local, or foreign law) required
by federal, state, local or foreign laws to be withheld or otherwise deducted
and paid with respect to the grant, vesting or exercise of any Award or the sale
of stock acquired upon the exercise of an Incentive Stock Option; or, in lieu of
such withholding, to require that the Grantee or person holding such Award pay
to the Company or such Subsidiary in cash (or, at the sole discretion of the
Board or the Committee, in the form of shares of Stock) the amount of any taxes
required to be withheld or otherwise deducted and paid by the Company or its
Subsidiary in connection with the grant, vesting or exercise of any Award or the
sale of shares acquired upon the exercise of an Incentive Stock Option. The
Company may condition any delivery of stock certificates or other evidence of
ownership of shares of Stock on payment of the tax amounts referred to in this
Section 15.

16.     NONEXCLUSIVITY OF THE PLAN

        Neither the adoption of the Plan by the Board nor the submission of the
Plan to the stockholders of the Company for approval has any impact on existing
qualified or nonqualified retirement, bonus or option plans of the Company or
creates any limitations on the power of the Board to adopt any other incentive
arrangements that it may deem desirable, including, without limitation, the
granting of stock options, stock appreciation rights or restricted stock
otherwise than under the Plan, and such arrangements may be either applicable
generally or only in specific cases.

17.     AMENDMENT

        The Board at any time, and from time to time, may amend the Plan,
subject to any required regulatory approval and subject to the limitation that,
except as provided above in Section 11, no amendment is effective unless
approved within 12 months after the date of the adoption of such amendment by
the affirmative vote of the holders of a majority of the shares of the Company's
Voting Stock present in person or represented by proxy at a duly held meeting at
which a quorum is present (or by such greater vote as may be required by
applicable law, regulation or provision of the certificate of incorporation or
bylaws of the Company) if the amendment would, but for such approval, prevent
the issuance of Incentive Stock Options under the Plan or cause the Plan to no
longer comply with the requirements of Section 162(m) of the Code.

        Except as provided in Section 11 above, rights and obligations under any
Awards granted before amendment of the Plan may not be altered or impaired by
amendment of the Plan in any manner having a significant adverse effect on a
Grantee, except with the consent of the Grantee thereof.

18.     TERMINATION OR SUSPENSION

        The Board at any time may suspend or terminate the Plan. The Plan,
unless sooner terminated, will terminate on the 10th anniversary of its adoption
by the Board or its approval by the stockholders of the Company, whichever is
earlier, but such termination will not affect any Award theretofore granted. No
Award may be granted under the Plan while the Plan is suspended or after it is
terminated. In general,

                                       14
<PAGE>

no rights or obligations under any Award granted while the Plan is in effect
will be altered or impaired by suspension or termination of the Plan, except
with the consent of the person to whom the Award was granted. Any Award granted
under the Plan may be terminated by agreement between the holder thereof and the
Company and, in lieu of the terminated Award, a new Award may be granted.

19.     MISCELLANEOUS

        Nothing contained in the Plan (or in any written Award agreement)
obligates the Company or any Subsidiary to continue for any period to elect any
individual as a director or to employ an employee or consultant to whom an Award
has been granted, or interfere with the right of the Company or any Subsidiary
to vary the terms of the person's service or employment or reduce the person's
compensation.

20.     EXCULPATION AND INDEMNIFICATION

        To the fullest extent permitted by applicable law and regulation, the
Company will indemnify and hold harmless the members of the Board and the
members of the Committee from and against any and all liabilities, costs, and
expenses incurred by them as a result of any act, or omission to act, in
connection with the performance of their duties, responsibilities, and
obligations under the Plan, other than such liabilities, costs and expenses as
may result from the gross negligence, bad faith, willful misconduct, or criminal
acts of such persons.

21.     GOVERNING LAW

        The Plan and all actions taken thereunder are governed by and construed
in accordance with the laws of the State of Nevada, without reference to the
principles of conflict of laws thereof.

22.     UNFUNDED PLAN

        The Plan is unfunded and the Company is not required to segregate any
assets in connection with any Awards under the Plan. Any liability of the
Company to any person with respect to any Award under the Plan or any Award
agreement is based solely upon the contractual obligations that may be created
as a result of the Plan or any such Award or agreement. No such obligation of
the Company will be deemed to be secured by any pledge of, encumbrance on, or
other interest in, any property or asset of the Company or any Subsidiary.
Nothing contained in the Plan or any Award agreement will be construed as
creating in respect of any Grantee (or beneficiary thereof or any other person)
any equity or other interest of any kind in any assets of the Company or any
Subsidiary or creating a trust of any kind or a fiduciary relationship of any
kind between the Company, any Subsidiary and/or any such Grantee, any
beneficiary thereof or any other person.

                                       15
<PAGE>

                                 PLAN COMMITTEE

        Information with respect to the administration of the Plan by the
Committee is set forth above in Section 2. Members of the Board will act in the
capacity as managers of the Plan and not as trustees thereof. Additional
information about the Committee may be obtained by calling the office of the
Secretary of the Company at (702) 270-7600, or by writing the Company's
Secretary at Alliance Gaming Corporation, 6601 South Bermuda Road, Las Vegas,
Nevada 89119-3605.

                     CERTAIN FEDERAL INCOME TAX CONSEQUENCES

        The following is a general summary of certain federal income tax
consequences applicable to the Plan. The summary does not reflect any provisions
of the income tax laws of any state, local or foreign taxing jurisdiction.
Because the tax consequences of events and transactions under the Plan depend
upon various factors, including a Grantee's own tax status, each person who
receives a grant or award under the Plan should consult his or her own tax
advisor with respect thereto.

STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

1.      INCENTIVE STOCK OPTIONS

        Upon the grant of an Incentive Stock Option, a Grantee will not
recognize any income. No income will be recognized by a Grantee upon the
exercise of an Incentive Stock Option if the requirements of the Plan and the
Code are met, including, without limitation, the requirement that the Grantee
remain an employee of the Company (or a Subsidiary) during the period beginning
on the date of the grant of the option and ending on the day three months (one
year if the Grantee becomes disabled) before the date the option is exercised.

        The federal income tax consequences of a subsequent disposition of
shares of Common Stock acquired upon the exercise of an Incentive Stock Option
will depend upon when the disposition occurs and the type of disposition.

        If such shares are disposed of by the Grantee more than two years after
the date of grant of the Incentive Stock Option, and more than one year after
such shares are transferred to the Grantee, gain or loss realized upon such
disposition will, in general, be characterized as long-term capital gain or
loss, and the Company (or the Subsidiary) will not be entitled to any income tax
deduction in respect of the option or its exercise.

        If such shares are disposed of by the Grantee within two years after the
date of grant of the Incentive Stock Option, or within one year after such
shares are transferred to the Grantee (a "disqualifying disposition") and the
disqualifying disposition is a sale or exchange with respect to which a loss (if
sustained) would be recognized to the Grantee, the excess, if any, of the amount
realized (up to the fair market value of such shares on the exercise date) over
the option price will be compensation taxable to the Grantee as ordinary income
in the year of disposition, and the Company (or the Subsidiary) may be entitled
to a deduction (subject to the provisions of Section 162(m) of the Code
discussed below under "Additional Information," and other applicable Code
provisions) equal to the amount of ordinary income recognized by the Grantee. If
the amount realized by the Grantee upon such disqualifying

                                       16
<PAGE>

disposition exceeds the fair market value of such shares on the exercise date,
the excess will, in general, be characterized as capital gain. If the option
price exceeds the amount realized upon such disqualifying disposition, the
difference will, in general, be characterized as a capital loss.

        If the disqualifying disposition is not a sale or exchange with respect
to which a loss, if sustained, would be recognized (for example, a gift or a
sale to a related person), the excess, if any, of the fair market value of such
shares on the exercise date over the option price will be compensation taxable
as ordinary income, and the Company (or the Subsidiary) may be entitled to a
deduction (subject to the provisions of Section 162(m) of the Code discussed
below under "Additional Information," and other applicable Code provisions)
equal to the amount of ordinary income recognized by the Grantee.

        If a Grantee has not remained an employee of the Company (or a
Subsidiary) during the period beginning on the date of the grant of an Incentive
Stock Option and ending on the day three months (one year if the Grantee becomes
disabled) before the date the option is exercised, the exercise of such option
will be treated as the exercise of a Nonstatutory Stock Option with the tax
consequences described below.

2.      NONSTATUTORY STOCK OPTIONS

        Upon the grant of a Nonstatutory Stock Option, a Grantee will not
recognize any income. At the time a Nonstatutory Stock Option is exercised, the
Grantee will recognize compensation taxable as ordinary income, and the Company
(or the Subsidiary) may be entitled to a deduction (subject to the provisions of
Section 162(m) of the Code discussed below under "Additional Information," and
other applicable Code provisions), in an amount equal to the difference between
the fair market value on the exercise date of the shares of Common Stock
acquired pursuant to such exercise and the option price. Upon a subsequent
disposition of such shares, the Grantee will, in general, realize long-term or
short-term capital gain or loss, depending upon the holding period of such
shares. For purposes of determining the amount of such gain or loss, the
Grantee's initial tax basis in such shares will be the sum of the option price
and the amount of ordinary income recognized upon exercise.

3.      EFFECT OF SHARE FOR SHARE EXERCISE

        If a Grantee elects to tender shares of Common Stock in partial or full
payment of the option price for shares to be acquired upon the exercise of a
Nonstatutory Stock Option, the Grantee will not recognize any gain or loss on
such tendered shares. The number of shares of Common Stock received by the
Grantee upon any such exercise that are equal in number to the number of
tendered shares would retain the tax basis of the tendered shares and the
holding period for the shares received would include the holding period of the
tendered shares. The Grantee will recognize compensation taxable as ordinary
income, and the Company (or the Subsidiary) may be entitled to a deduction
(subject to the provisions of Section 162(m) of the Code discussed below under
"Additional Information," and other applicable Code provisions), in an amount
equal to the fair market value of the number of shares received by the Grantee
upon such exercise that is in excess of the number of tendered shares, less any
cash paid by the Grantee. The fair market value of such excess number of shares
would then become the tax basis for those shares and the holding period of such
shares will begin on the day after the date of purchase of the shares pursuant
to the exercise of the Nonstatutory Stock Option. If the tendered shares were
previously acquired upon the exercise of an Incentive Stock Option, a published
ruling of the Internal Revenue Service indicates that the shares of Common Stock
received by the Grantee upon the exercise of the

                                       17
<PAGE>

Nonstatutory Stock Option that are equal in number to the number of tendered
shares will be treated as shares of Common Stock acquired upon the exercise of
such Incentive Stock Option.

        Except as discussed in the following paragraph, if a Grantee elects to
tender shares of Common Stock in partial or full payment of the option price for
shares to be acquired upon the exercise of an Incentive Stock Option, the
Grantee will not recognize any gain or loss on such tendered shares. No income
will be recognized by the Grantee in respect of the shares received by the
Grantee upon the exercise of the Incentive Stock Option if, as previously
stated, the requirements of the Plan and the Code are met. The Internal Revenue
Service has not yet issued final regulations with respect to the determination
of the basis and the holding period of the shares acquired upon such an
exercise. Regulations proposed by the Internal Revenue Service provide that for
all shares of Common Stock acquired upon such an exercise, the requisite two
year and one year holding periods for stock acquired upon exercise of an
Incentive Stock Option (described above) must be satisfied, regardless of the
holding period applicable to the tendered shares. However, the tax basis (and
holding period for all other federal income tax purposes) of the tendered shares
will carry over to the same number of shares acquired upon the exercise. The
number of shares acquired which is in excess of the number of tendered shares
will have a tax basis of zero and a holding period that begins as of the date
such shares are transferred. Any subsequent disqualifying disposition will be
deemed first to have been a disposition of the shares with a tax basis of zero
and then to have been a disposition of the shares with a carry-over tax basis.
For purposes of determining the amount of compensation taxable to the Grantee
upon a subsequent disqualifying disposition, the option price of the shares with
a tax basis of zero will be deemed to be zero, and the option price of the
shares with a carry-over basis will be deemed to be the fair market value of the
shares on the exercise date.

        If a Grantee elects to tender shares of Common Stock that were
previously acquired upon the exercise of an Incentive Stock Option in partial or
full payment of the option price for shares to be acquired upon the exercise of
another Incentive Stock Option, and such exercise occurs within two years of the
date of grant of such Incentive Stock Option, or within one year after such
tendered shares were transferred to the Grantee, the tender of such shares will
be a taxable disqualifying disposition with the tax consequences described above
regarding the disposition within two years of the date of grant of an Incentive
Stock Option, or within one year after shares were acquired upon the exercise of
Incentive Stock Options. The shares of Common Stock acquired upon such exercise
will be treated as shares of Common Stock acquired upon the exercise of an
Incentive Stock Option and the holding period of such shares for all purposes
will begin on the day after the date of purchase of the shares pursuant to the
exercise of the Incentive Stock Option.

4.      STOCK APPRECIATION RIGHTS

        Upon the grant of a Stock Appreciation Right, a Grantee will not
recognize any income. At the time a Stock Appreciation Right is exercised, a
Grantee will recognize compensation taxable as ordinary income, and the Company
(or the Subsidiary) may be entitled to a deduction (subject to the provisions of
Section 162(m) of the Code discussed below under "Additional Information," and
other applicable Code provisions), in an amount equal to any cash received
(before applicable withholding) plus the fair market value on the exercise date
of any shares of Common Stock received. The Grantee's tax basis in any such
shares received upon the exercise of a Stock Appreciation Right will be the fair
market value of such shares on the exercise date.

                                       18
<PAGE>

5.      RESTRICTED STOCK

        A Grantee will not recognize any income upon an Award of restricted
stock unless an election under Section 83(b) of the Code is made by the Grantee
with respect to such Award. If the Grantee has not made an election under
Section 83(b) of the Code in respect of any shares of restricted stock, any
dividend equivalents or dividends received by the Grantee with respect to shares
of restricted stock prior to the date the Grantee recognizes income with respect
to such award (as described below) must be treated by the Grantee as
compensation taxable as ordinary income, and the Company (or the Subsidiary) may
be entitled to a deduction (subject to the provisions of Section 162(m) of the
Code discussed below under "Additional Information," and other applicable Code
provisions), in an amount equal to the amount of ordinary income recognized by
the Grantee. After the terms and conditions applicable to shares of restricted
stock are satisfied, or if the Grantee has made an election under Section 83(b)
of the Code in respect of any shares of restricted stock, any dividends received
by the Grantee in respect of such shares will be treated as a dividend taxable
as ordinary income, and the Company (or the Subsidiary) will not be entitled to
a deduction in respect of any such dividend payment.

        At the time the terms and conditions applicable to a share of restricted
stock are satisfied, or at the time the Award is made if a Section 83(b)
election is made by the Grantee with respect to such Award, a Grantee will
recognize compensation taxable as ordinary income, and the Company (or the
Subsidiary) may be entitled to a deduction (subject to the provisions of Section
162(m) of the Code discussed below under "Additional Information," and other
applicable Code provisions), in an amount equal to the then fair market value of
the shares of unrestricted Common Stock received by the Grantee. The Grantee's
tax basis for any such shares of Common Stock will be the fair market value of
such shares on the date such terms and conditions are satisfied or, if a Section
83(b) election is made with respect to such Award, the fair market value of such
shares on the date of the Award.

ADDITIONAL INFORMATION

        Section 55 of the Code imposes an alternative minimum tax if a
taxpayer's "tentative minimum tax" exceeds his or her regular tax for the
taxable year in question. The "tentative minimum tax" is computed by reference
to a person's "alternative minimum taxable income." A person's alternative
minimum taxable income consists of his or her regular taxable income (with
certain adjustments described in Sections 56 and 58 of the Code) increased by
the tax preference items described in Section 57 of the Code.

        Upon the exercise of an Incentive Stock Option, one of the adjustments
described in Section 56 of the Code is to include in a person's alternative
minimum taxable income for any year an amount equal to the amount of income the
person would have recognized if the option had not been an Incentive Stock
Option, with such inclusion occurring in the year in which such income would
have been recognized. As a result, unless the shares of Common Stock acquired
upon the exercise of an Incentive Stock Option are disposed of (in a sale or
exchange with respect to which a loss (if sustained) would be recognized) in the
same year in which the above-described adjustment to the Grantee's alternative
minimum taxable income is made, a Grantee may incur alternative minimum tax as a
result of the exercise of an Incentive Stock Option under the Plan.

        If a Grantee incurs alternative minimum tax attributable to certain
items of tax preference or certain adjustments (including the adjustment
described above resulting from the exercise of an Incentive

                                       19
<PAGE>

Stock Option), the Grantee will, in general, receive a credit for such tax
against the Grantee's regular income tax liability (but not any alternative
minimum tax liability) in future years. In addition, the basis of shares
acquired as a result of the exercise of an Incentive Stock Option, for purposes
of the alternative minimum tax, will include the amount of the adjustment
described above resulting from the exercise of the Incentive Stock Option.

        A Grantee's compensation income with respect to an Award under the Plan
will be subject to withholding for federal income tax and FICA (employment) tax
purposes. If a Grantee, to the extent permitted by the terms of an Award and the
Plan, uses shares of Common Stock to satisfy the federal income and FICA tax
withholding obligation and any similar withholding obligation for state, local
or foreign tax obligations, the Grantee will realize, in general, a capital gain
or loss, short-term or long-term, depending on the tax basis and holding period
for such shares of common stock.

        Certain compensation payments or other benefits received under the Plan
or otherwise by a "disqualified individual" (as defined in Section 280G(c) of
the Code), generally in connection with a change in the ownership or control of
the Company or in the ownership of a substantial portion of its assets, may
cause or result in "excess parachute payments" (as defined in Section 280G(b)(1)
of the Code). Section 4999 of the Code generally imposes a 20% excise tax on the
amount of any such "excess parachute payment" received by such a "disqualified
individual" and any such "excess parachute payments" will not be deductible by
the Company (or any Subsidiary).

        Under Section 162(m) of the Code, the amount of compensation paid to the
chief executive officer and the four other most highly paid executive officers
of the Company for which a deduction may be claimed by the Company (including
Subsidiaries) for a taxable year is limited to $1,000,000 per person, except
that certain compensation, including compensation which is based solely on the
achievement of one or more performance goals will be excluded for purposes of
calculating the amount of compensation subject to this $1,000,000 limitation, if
the applicable requirements of Section 162(m) are satisfied. The ability of the
Company to claim a deduction for compensation paid to any other executive
officer or employee of the Company (including Subsidiaries) is not affected by
this provision.

        The Company has structured and intends to administer the Plan in a
manner such that it is anticipated that any compensation for which the Company
may claim a deduction in connection with the exercise of Nonstatutory Stock
Options and related Stock Appreciation Rights and the non-qualifying disposition
by a Grantee of shares acquired upon exercise of Incentive Stock Options will be
excluded from compensation, under the performance-related exclusion in Section
162(m) of the Code, in determining whether the limitation on deductions for
compensation imposed by Section 162(m) is applicable.

EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974

        The Plan is not regarded as an "employee benefit plan" under Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and, therefore, is not subject to the provisions of ERISA.

                                       20<PAGE>
                                                                    Exhibit (iv)

                           THIRD AMENDED AND RESTATED
                     STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
                                       OF
                                TEGAL CORPORATION

        Tegal Corporation, a Delaware corporation (the "Company"), hereby amends
and restates the Second Amended and Restated Stock Option Plan for Outside
Directors of Tegal Corporation (as so amended, the "Plan"), incorporating
certain amendments adopted by the Board of Directors on September 25, 2001. The
Plan was initially adopted by the Board of Directors and the stockholders of the
Company on October 1995, with an initial effective date of October 18, 1995. The
Plan was amended and restated on July 16, 1998 by the Board of Directors and
such amendment was approved by the stockholders on September 15, 1998. The Plan
was again amended and restated on July 17, 2001 by the Board of Directors and
such amendment was approved by the stockholders on September 25, 2001. The
purposes of the Plan are as follows:

               (1) To further the growth, development and financial success of
        the Company by providing additional incentives to its outside directors
        who share in the responsibility for the management of the Company's
        business by assisting them to become owners of common stock of the
        Company and thus to benefit directly from its growth, development and
        financial success.

               (2) To enable the Company to obtain and retain the services of
        the type of outside directors considered essential to the long-range
        success of the Company by providing and offering them an opportunity to
        become owners of common stock of the Company.

                                    ARTICLE I

                                   DEFINITIONS

        Whenever the following terms are used in the Plan, they shall have the
meaning specified below unless the context clearly indicates to the contrary.
The masculine pronoun shall include the feminine and neuter and the singular
shall include the plural, where the context so indicates.

SECTION 1.1 -- Board

        "Board" shall mean the Board of Directors of the Company.

SECTION 1.2 -- Change In Control

        "Change in Control" shall mean a change in ownership or control of the
Company effected through either of the following transactions:

               (a) any person or related group of persons (other than the
        Company or a person that directly or indirectly controls, is controlled
        by, or is under common control with, the Company) directly or indirectly
        acquires beneficial ownership (within the meaning of Rule 13d-3 under
        the Exchange Act) of securities possessing more than fifty percent (50%)
        of the total combined voting power of the Company's outstanding
        securities pursuant to a tender or exchange offer made directly to the
        Company's stockholders which the Board does not recommend such
        stockholders to accept; or

               (b) there is a change in the composition of the Board over a
        period of thirty-six (36) consecutive months (or less) such that a
        majority of the Board members (rounded up to the nearest whole number)
        ceases, by reason of one or more proxy contests for the election of
        Board members, to be comprised of individuals who either (i) have been
        Board members continuously since the beginning of such period or (ii)
        have been elected or nominated for election as Board members during such
        period by at least a majority of the Board members described in clause
        (i) who were still in office at the time such election or nomination was
        approved by the Board.

                                       37
<PAGE>
SECTION 1.3 -- Company

        "Company" shall mean Tegal Corporation. In addition, "Company" shall
mean any corporation assuming, or issuing new stock options in substitution for,
Options outstanding under the Plan.

SECTION 1.4 -- Corporate Transaction

        "Corporate Transaction" shall mean any of the following
stockholder-approved transactions to which the Company is a party:

               (a) a merger or consolidation in which the Company is not the
        surviving entity, except for a transaction the principal purpose of
        which is to change the State in which the Company is incorporated, form
        a holding company or effect a similar reorganization as to form
        whereupon this Plan and all Options are assumed by the successor entity;

               (b) the sale, transfer or other disposition of all or
        substantially all of the assets of the Company in complete liquidation
        or dissolution of the Company in a transaction not covered by the
        exceptions to clause (a) above; or

               (c) any reverse merger in which the Company is the surviving
        entity but in which securities possessing more than fifty percent (50%)
        of the total combined voting power of the Company's outstanding
        securities are transferred to a person or persons different from those
        who held such securities immediately prior to such merger.

SECTION 1.5 -- Exchange Act

        "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

SECTION 1.6 -- Option

        "Option" shall mean an option to purchase the Company's common stock,
$0.01 par value, granted under the Plan.

SECTION 1.7 -- Optionee

        "Optionee" shall mean an Outside Director to whom an Option is granted
under the Plan.

SECTION 1.8 -- Outside Director

        "Outside Director" shall mean a member of the Board who is not an
employee of the Company, a Parent Corporation or a Subsidiary under Section
3401(c) of the Code and who is not legally or contractually prohibited from
receiving and holding personally an Option.

SECTION 1.9 -- Parent Corporation

        "Parent Corporation" shall mean any corporation, other than the Company,
in an unbroken chain of corporations ending with the Company if, at the time of
the granting of the Option, each of the corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.

SECTION 1.10 -- Plan

        "Plan" shall mean The Third Amended and Restated Stock Option Plan for
Outside Directors of Tegal Corporation.

                                       38
<PAGE>
SECTION 1.11 -- Rule 16b-3

        "Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act,
including as such Rule may be amended or superseded in the future.

SECTION 1.12 -- Secretary

        "Secretary" shall mean the Secretary of the Company.

SECTION 1.13 -- Securities Act

        "Securities Act" shall mean the Securities Act of 1933, as amended.

SECTION 1.14 -- Subsidiary

        "Subsidiary" shall mean any corporation, other than the Company, in an
unbroken chain of corporations beginning with the Company if, at the time of the
granting of the Option, each of the corporations other than the last corporation
in an unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.

SECTION 1.15 -- Termination Of Directorship

        "Termination of Directorship" shall mean the time when an Optionee
ceases to be a director of the Company for any reason, including, without
limitation, a termination by resignation, failure to be elected, death,
disability or retirement. The Board, in its absolute discretion, shall determine
the effect of all other matters and questions relating to Termination of
Directorship.

                                   ARTICLE II

                             SHARES SUBJECT TO PLAN

SECTION 2.1 -- Shares Subject To Plan

        The shares of stock subject to Options shall be shares of the Company's
common stock, $0.01 par value (the "Common Stock"). The aggregate number of such
shares which may be issued upon exercise of Options shall not exceed 600,000.

SECTION 2.2 -- Unexercised Options

        If any Option expires or is cancelled without having been fully
exercised, the number of shares subject to such Option but as to which such
Option was not exercised prior to its expiration or cancellation may again be
optioned hereunder, subject to the limitations of Section 2.1.

SECTION 2.3 -- Changes In Company's Shares

        In the event that the outstanding shares of Common Stock of the Company
are hereafter changed into or exchanged for a different number or kind of shares
or other securities of the Company, or of another corporation, by reason of
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, stock dividend or combination of shares, appropriate adjustments shall
be made by the Board in the number and kind of shares for the purchase of which
Options may thereafter be granted, including adjustments of the limitations in
Section 2.1 on the maximum number and kind of shares which may be issued on
exercise of Options.

                                       39
<PAGE>
                                   ARTICLE III

                               GRANTING OF OPTIONS

SECTION 3.1 -- Eligibility

        Any Outside Director of the Company shall be eligible to be granted
Options.

SECTION 3.2 -- Tax Status Of Stock Options

        Options granted under the Plan do not qualify as "incentive stock
options" under Section 422 of the Internal Revenue Code of 1986, as amended.

SECTION 3.3 -- Non-Discretionary Grants

               (a) Any person who is not an Outside Director on the Effective
        Date, but who later becomes an Outside Director, shall be granted on the
        date of his initial election or appointment as an Outside Director an
        Option to purchase 20,000 shares of Common Stock.

               (b) Upon full vesting, as described in Section 4.3 (the
        "Vesting"), of an Option granted to an Outside Director pursuant to
        Section 3.3(a), each Outside Director shall be granted on the date of
        such Vesting (so long as he is an Outside Director at the close of
        business on such date) an Option to purchase an additional 20,000 shares
        of Common Stock.

               (c) Notwithstanding anything to the contrary, any Outside
        Director may elect to waive his right to be granted an Option under this
        Section 3.3 by giving a six month advance written notice of such waiver
        from the effective date of the Outside Director's right to receive such
        Option.

SECTION 3.4 -- Discretionary Grants

               (a) The Board shall from time to time, in its absolute
        discretion, and subject to applicable limitations of the Plan:

                      (i) Select from among the Outside Directors (including
               Outside Directors who have previously received Options under the
               Plan) such of them as in its opinion should be granted Options;

                      (ii) Determine the number of shares to be subject to such
               Options granted to the selected Independent Directors;

                      (iii) Subject to the provisions of Article 4 determine the
               terms and conditions of such Options, consistent with the Plan.

SECTION 3.5 -- No Option Grant Where Prohibited

        No person shall be granted an Option under the Plan if at the time of
such grant, the grant is prohibited by applicable law or by the policies of the
employer of such person or of any other company of which such person is a member
of the board of directors or a general partner.

SECTION 3.6 -- Options in Lieu of Cash Compensation

               (a) In addition to those Options referenced in Sections 3.3 and
        3.4, each Outside Director may elect to receive all or any portion of
        his or her Director's Fee either (i) in cash or (ii) in the form of an
        Option. "Director's Fee" shall mean the amount of compensation set by
        the Board from time to time and as

                                       40
<PAGE>
        payable to a Director for services as a Director; but shall not include
        any fees payable by reason of Committee membership and/or attendance.

               (b) In order to receive Director's Fees in the form of an Option
        in lieu of cash compensation the Outside Director must elect in writing
        at least six months prior to the date of payment of the Director's Fee
        (the "Payment Date"). The election shall be irrevocable with respect to
        the Payment Date for which it is made, and shall remain in effect for a
        subsequent Payment Date unless revoked in writing at least six months
        prior to the relevant Payment Date.

                                   ARTICLE IV

                                TERMS OF OPTIONS

SECTION 4.1 -- Option Agreement

        Each Option shall be evidenced by a written Outside Director Stock
Option Agreement, which shall be executed by the Optionee and an authorized
officer of the Company and which shall contain such terms and conditions, as the
Board shall determine, consistent with the Plan.

SECTION 4.2 -- Option Price

               (a) Unless otherwise provided by the Board and set forth in the
        Outside Director Stock Option Agreement, the price of the shares of
        Common Stock subject to each Option shall equal the Fair Market Value of
        such shares on the date such Option is granted.

               (b) For purposes of the Plan, the "Fair Market Value" of a share
        of the Common Stock as of a given grant date shall be: (i) the closing
        price of a share of the Common Stock on the principal exchange on which
        shares of the Common Stock are then trading, if any, on such grant date,
        or, if shares were not traded on such grant date, then on the next
        preceding trading day during which a sale occurred; or (ii) if the
        Common Stock is not traded on an exchange but is quoted on Nasdaq or a
        successor quotation system, (1) the last reported sales price (if the
        Common Stock is then quoted on the Nasdaq National Market) or (2) the
        mean between the closing representative bid and asked prices (in all
        other cases) for the Common Stock on such grant date as reported by
        Nasdaq or such successor quotation system; or (iii) if the Common Stock
        is not publicly traded on an exchange and not quoted on Nasdaq or a
        successor quotation system, the mean between the closing bid and asked
        prices for the Common Stock, on such grant date, as determined in good
        faith by the Board; or (iv) if the Common Stock is not publicly traded,
        the fair market value established by the Board acting in good faith.

SECTION 4.3 -- Commencement of Exercisability

               (a) Subject to Section 4.7, each Option granted pursuant to
        Section 3.3 shall become exercisable in equal annual installments of
        10,000 on each of the first and second anniversaries, respectively, of
        the date of Option grant.

               (b) Notwithstanding the foregoing, an Outside Director may not
        exercise an otherwise exercisable Option granted pursuant to Section 3.3
        or 3.4 unless such Outside Director attended at least seventy-five
        percent (75%) of the meetings of the Board during the twelve month
        period (the "Attendance Period") preceding the date of exercise of the
        Option; provided, however, that installments of an Option which becomes
        exercisable prior to the commencement of the Attendance Period shall
        remain exercisable by the Optionee.

               (c) All Options granted under Section 3.6 will be fully vested
        and exercisable on the date of Option grant.

                                       41
<PAGE>
               (d) At any time after grant of an Option, the Board may, in its
        sole and absolute discretion and subject to whatever terms and
        conditions it selects, accelerate the period during which an Option
        vests.

               (e) No portion of an Option which is unexercisable at Termination
        of Directorship shall, under any circumstances, thereafter become
        exercisable.

SECTION 4.4 -- Expiration of Options

        Subject to Section 4.7, in the event of the Optionee's Termination of
Directorship, such Optionee may exercise his or her Option within such period of
time as is specified in the Outside Director Stock Option Agreement to the
extent that the Option is vested and exercisable on the date of termination. In
no event may an Option be exercised to any extent by anyone after ten years from
the date the Option was granted. If, after termination, the Optionee does not
exercise his or her Option within the time period specified herein or in the
Outside Director Stock Option Agreement, the Option shall terminate and the
shares covered by such Option shall again become available for issuance under
the Plan.

SECTION 4.5 -- Consideration

        In consideration of the granting of the Option, the Optionee shall
agree, in the written Outside Director Stock Option Agreement, to serve as a
Director of the Company until the next annual meeting of the stockholders of the
Company. Nothing in this Plan or in any Outside Director Stock Option Agreement
hereunder shall confer upon any Optionee any right to continue as a director of
the Company.

SECTION 4.6 -- CHANGES IN COMMON STOCK OR ASSETS OF THE COMPANY, ACQUISITION OR
LIQUIDATION OF THE COMPANY AND OTHER CORPORATE EVENTS

        Subject to Section 4.7, in the event that the Board determines that any
dividend or other distribution (whether in the form of cash, Common Stock, other
securities, or other property), recapitalization, reclassification, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, liquidation, dissolution, or sale, transfer, exchange
or other disposition of all or substantially all of the assets of the Company,
or exchange of Common Stock or other securities of the Company, issuance of
warrants or other rights to purchase Common Stock or other securities of the
Company, or other similar corporate transaction or event, in the Board's sole
discretion, affects the Common Stock such that an adjustment is determined by
the Board to be appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan or
with respect to an Option, then the Board shall, in such manner as it may deem
equitable, adjust any or all of

               (a) the number and kind of shares of Common Stock (or other
        securities or property) with respect to which Options may be granted or
        awarded (including, but not limited to, adjustments of the limitations
        in Section 2.1 on the maximum number and kind of shares which may be
        issued),

               (b) the number and kind of shares of Common Stock (or other
        securities or property) subject to outstanding Options, and

               (c) the exercise price with respect to any Option.

SECTION 4.7 -- Occurrence of a Change in Control or Corporate Transaction

        Upon the occurrence of either a Change in Control or a Corporate
Transaction, each Option outstanding under the Plan shall be exercisable as to
all shares covered thereby, notwithstanding anything to the contrary in Section
4.3(a) or Section 4.3(b). Upon the occurrence of any Change in Control, or upon
stockholder approval of any Corporate Transaction, the Company shall promptly
provide written notice thereof to each Optionee. No Option may be exercised to
any extent after the occurrence of a Corporate Transaction; provided, however,
that such termination of exercise rights shall not occur until after the related
Corporate Transaction has closed and appropriate arrangements shall be made to
permit any Options outstanding to be exercised in connection with such closing.

                                       42
<PAGE>
                                    ARTICLE V

                               EXERCISE OF OPTIONS

SECTION 5.1 -- Person Eligible to Exercise

        During the lifetime of the Optionee, only the Optionee may exercise an
Option granted to the Optionee, or any portion thereof unless it has been
disposed of pursuant to a qualified domestic relations order as defined under
the Internal Revenue Code of 1986, as amended, or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder.
After the death of the Optionee, any exercisable portion of an Option may, prior
to the time when such portion becomes unexercisable under Section 4.4 or Section
4.7, be exercised by the Optionee's personal representative or by any person
empowered to do so under the deceased Optionee's will or under the then
applicable laws of descent and distribution.

SECTION 5.2 -- Partial Exercise

        Subject to Section 4.3, at any time and from time to time prior to the
time when an exercisable Option or exercisable portion thereof become
unexercisable under Section 4.4 or Section 4.7, such Option or portion thereof
may be exercised in whole or in part; provided, however, that in no event may an
Option be exercised as to less than one hundred (100) shares at any one time, or
the remaining shares covered by the Option if less than two hundred (200);
provided, further, that the Company shall not be required to issue fractional
shares.

SECTION 5.3 -- Manner of Exercise

        An exercisable Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or his office of all of the
following prior to the time when such Option or such portion becomes
unexercisable under Section 4.4 or Section 4.7:

               (a) Notice in writing signed by the Optionee or other person then
        entitled to exercise such Option or portion thereof, stating that such
        Option or portion thereof is exercised, such notice complying with any
        applicable rules established by the Board;

               (b) Full payment for the shares with respect to which such Option
        or portion thereof is thereby exercised (i) in cash or by check, (ii)
        with the consent of the Board, in shares of Common Stock held by the
        Optionee for at least six (6) months with a Fair Market Value equal to
        the aggregate exercise price of the Option or exercised portion thereof
        on the date of Option exercise, (iii) with the consent of the Board, in
        surrendered shares of Common Stock issuable upon the exercise of the
        Option with a Fair Market Value equal to the aggregate exercise price of
        the Option or exercised portion thereof on the date of Option exercise,
        (iv) with the consent of the Board, any combination of the foregoing, or
        (v) by other means authorized by the Board;

               (c) Such representations and documents as the Board, in its
        absolute discretion, deems necessary or advisable to effect compliance
        with all applicable provisions of the Securities Act and any other
        federal or state securities laws or regulations. The Board may, in its
        absolute discretion, also take whatever additional actions it deems
        appropriate to effect such compliance including, without limitation,
        placing legends on share certificates and issuing stop-transfer orders
        to transfer agents and registrars; and

               (d) In the event that the Option or portion thereof shall be
        exercised pursuant to Section 5.1 by any person or persons other than
        the Optionee, appropriate proof of the right of such person or persons
        to exercise the Option or portion thereof.

SECTION 5.4 -- Conditions to Issuance of Stock Certificates

        The shares of stock issuable and deliverable upon the exercise of an
Option, or any portion thereof, may be either previously authorized but unissued
shares or issued shares which have then been reacquired by the Company.

                                       43
<PAGE>
Such shares shall be fully paid and nonassessable. The Company shall not be
required to issue or deliver any certificate or certificates for shares of stock
purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:

               (a) The admission of such shares to listing or quotation on all
        stock exchanges or automated quotation services on which such class of
        stock is then listed or quoted, as the case may be;

               (b) The completion of any registration or other qualification of
        such shares under any state or federal law or under the rulings or
        regulations of the Securities and Exchange Commission or any other
        governmental regulatory body, which the Board shall, in its absolute
        discretion, deem necessary or advisable;

               (c) The obtaining of any approval or other clearance from any
        state or federal governmental agency which the Board shall, in its
        absolute discretion, determine to be necessary or advisable;

               (d) The payment to the Company of all amounts which it is
        required to withhold, if any, under federal, state or local law in
        connection with the exercise of the Option; and

               (e) The lapse of such reasonable period of time following the
        exercise of the Option as the Board may establish from time to time for
        reasons of administrative convenience.

SECTION 5.5 -- Rights as Stockholders

        The holders of Options shall not be, nor have any of the rights or
privileges of, stockholders of the Company in respect of any shares purchasable
upon the exercise of any part of an Option unless and until certificates
representing such shares have been issued by the Company to such holders.

                                   ARTICLE VI

                                 ADMINISTRATION

SECTION 6.1 -- Duties and Powers of the Board

        It shall be the duty of the Board to conduct the general administration
of the Plan in accordance with its provisions. The Board shall have the power to
interpret the Plan and the Options and to adopt such rules for the
administration, interpretation and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules.

SECTION 6.2 -- Majority Rule

        The Board shall act by a majority of its members in office. The Board
may act either by vote at a meeting or by a memorandum or other written
instrument signed by a majority of the Board.

SECTION 6.3 -- Compensation; Professional Assistance; Good Faith Actions

        Members of the Board shall receive no additional compensation for their
services under the Plan. All expenses and liabilities incurred by members of the
Board in connection with the administration of the Plan shall be borne by the
Company. The Board may employ attorneys, consultants, accountants, appraisers,
brokers or other persons. The Board and the Company shall be entitled to rely
upon the advice, opinions or valuations of any such persons. All actions taken
and all interpretations and determinations made by the Board in good faith shall
be final and binding upon all Optionees, the Company and any other interested
persons. No member of the Board shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
the Options, and all members of the Board shall be fully protected by the
Company in respect to any such action, determination or interpretation.

                                       44
<PAGE>
                                   ARTICLE VII

                                OTHER PROVISIONS

SECTION 7.1 -- Options Not Transferable

        No Option or interest or right therein or part thereof shall be liable
for the debts, contracts or engagements of the Optionee or his successors in
interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law, by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including, without limitation, bankruptcy), and any attempted disposition
thereof shall be null and void and of no effect; provided, however, that nothing
in this Section 7.1 shall prevent transfers by will or by the applicable laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined under the Internal Revenue Code of 1986, as amended, or Title I of the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder.

SECTION 7.2 -- Amendment, Suspension or Termination of the Plan

               (a) The Plan may be wholly or partially amended or otherwise
        modified, suspended or terminated at any time or from time to time by
        the Board. However, unless otherwise determined by the Board and
        permitted by Rule 16b-3 as then in effect, without approval of the
        Company's stockholders given within 12 months before or after the action
        by the Board, no action of the Board may, except as provided in Section
        2.3, increase the limits imposed in Section 2.1 on the maximum number of
        shares which may be issued on exercise of Options, extend the limit
        imposed in this Section 7.2 on the period during which Options may be
        granted, or amend or modify the Plan in a manner requiring stockholder
        approval under Rule 16b-3 or the Code. Neither the amendment, suspension
        nor termination of the Plan shall, without the consent of the holder of
        the Option, alter or impair any rights or obligations under any Option
        theretofore granted.

               (b) The Plan is intended to conform to the extent necessary with
        all provisions of the Securities Act and the Exchange Act and any and
        all regulations and rules promulgated by the Securities and Exchange
        Commission thereunder including, without limitation, Rule 16b-3.
        Notwithstanding anything herein to the contrary, the Plan shall be
        administered, and Options shall be granted and may be exercised, only in
        such a manner as to conform to such laws, rules and regulations. To the
        extent permitted by applicable law and notwithstanding Section 7.2(a),
        the Plan and Options granted hereunder shall be deemed amended to the
        extent necessary to conform to such laws, rules and regulations.

               (c) No Option may be granted during any period of suspension nor
        after termination of the Plan, and in no event may any Option be granted
        under the Plan after October 18, 2005.

SECTION 7.3 -- Effective Date; Approval of Plan and Options by Stockholders

        The effective date of the Plan shall be the effective date of the
Company's initial public offering (the "Effective Date"); provided, however,
that the Plan shall be submitted for the approval of the majority of holders of
the outstanding Common Stock and the holders of more than 66 2/3% of the
outstanding Series A Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock of the Company within twelve months after the date of the
Board's adoption of the Plan. If such approval is not obtained, the Plan shall
have no force or effect. Options may be granted prior to such stockholder
approval under the circumstances and to the extent provided in the Plan;
provided, however, that Options so granted shall be conditioned upon the
stockholders' approval and shall provide that if such approval is not obtained,
the Options shall be null and void and of no further force or effect.

SECTION 7.4 -- Effect of Plan Upon Other Option and Compensation Plans

        The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for directors of the Company. Nothing in the Plan
shall be construed to limit the right of the Company to grant or assume options

                                       45
<PAGE>
otherwise than under the Plan in connection with any proper corporate purpose,
including, without limitation, the grant or assumption of options in connection
with the acquisition, by purchase, lease, merger, consolidation or otherwise, of
the business, stock or assets of any corporation, firm or association.

SECTION 7.5 -- Notices

        Any notice to be given under the terms of the Plan to the Company shall
be addressed to the Company in care of its Secretary and any notice to be given
to any Optionee shall be addressed to such Optionee at such Optionee's last
address as reflected in the Company's records. By a notice given pursuant to
this Section 7.5, either party may designate a different address for notices to
be given to it, him or her. Any notice which is required to be given to an
Optionee, if the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 7.5. Any notice shall
have been deemed duly given if enclosed in a properly sealed envelope or wrapper
addressed as aforesaid at the time it is deposited (with postage prepaid) in a
post office or branch post office regularly maintained by the United States
Postal Service.

SECTION 7.6 -- Titles

        Titles are provided herein for convenience only and are not to serve as
a basis for interpretation or construction of the Plan.

                               * * * * * * * * * *

                                       46
<PAGE>
        I hereby certify that the foregoing Plan was duly adopted by the Board
of Directors of Tegal Corporation as of ______________________, 2001.

        Executed as of the ________ day of _______________ 2001.

                                       /S/ _________________

                                       ---------------------------------------
                                       Secretary

                                       47

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