COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

            The members of the Compensation Committee are set forth in the preceding section. There are no members of the Compensation Committee who were officers or employees of the Company or any of its subsidiaries during the fiscal year, formerly officers of the Company, or had any relationship otherwise requiring disclosure hereunder.

REPORT OF THE AUDIT COMMITTEE

            The Company’s Audit Committee is composed of independent directors, all of whom meet the standards of independence set forth in Rule 4200(a)(14) of the National Association of Securities Dealers listing standards. For fiscal year 2002, H. Raymond Bingham, Richard J. Elkus, Jr. and Dean O. Morton served as members on the Audit Committee. Mr. Morton resigned effective July 31, 2002, and Robert T. Bond was appointed to the Audit Committee. Mr. Bingham was Chairman of the Audit Committee for fiscal year 2002, and Mr. Elkus is Chairman for fiscal year 2003. The Chairman is responsible for preparing an agenda for each meeting. No member of the Audit Committee attended fewer than 75% of the Audit Committee meetings. Attached as Appendix I to this Proxy Statement is a copy of the Audit Committee Charter, as amended September 19, 2002.

            During fiscal year 2002, the Audit Committee met with the senior members of the Company’s financial management team, the Company’s independent auditors and the Company’s General Counsel when appropriate. The Audit Committee also met separately with the Company’s independent auditors and separately with the Company’s Chief Financial Officer. The parties candidly discussed financial management, accounting and internal controls.

            The Audit Committee recommended to the Board of Directors the engagement of PricewaterhouseCoopers LLP as the Company’s independent auditors and reviewed with the Company’s financial managers and the independent auditors the overall audit scopes and plans, the results of internal and external audit examinations, evaluations by the auditors of the Company’s internal controls and the quality of the Company’s financial reporting.

            The Audit Committee reviewed and discussed the audited financial statements included in the Company’s Annual Report with the Company’s management including, without limitation, a discussion of the quality and not just the acceptability of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements as well as in Management’s Discussion and Analysis of Results of Operations and Financial Condition. In addressing the reasonableness of management’s accounting judgments, members of the Audit Committee asked for management’s representations that the audited consolidated financial statements of the Company have been prepared in conformity with generally accepted accounting principles, and have expressed to both management and auditors their general preference for conservative policies when a range of accounting options is available.

            In its meetings with representatives of the independent auditors, the Audit Committee asked the representatives to address and discuss their responses to several questions that the Audit Committee believes are particularly relevant to its oversight. These questions included (i) whether there were any significant accounting judgments made by management in preparing the financial statements that would have been made differently had the auditors themselves prepared and been responsible for the financial statements; (ii) whether, based on the auditor’s experience and their knowledge of the Company, the Company’s financial statements fairly present to investors, with clarity and completeness, the Company’s financial position and performance for the reporting period in accordance with generally accepted accounting principles and SEC disclosure requirements; and (iii) whether, based on their experience and their knowledge of the Company, they believe the Company has implemented internal controls and internal audit procedures that are appropriate for the Company.

            The Audit Committee also discussed the independence of the independent auditors with them and the matters required to be discussed by Statement on Auditing Standards No. 61, (Communication With Audit Committees). The Audit Committee considered the non-audit services performed by PricewaterhouseCoopers, and approved such services keeping in mind the appropriateness of the additional services. The Audit Committee received from the auditors the written disclosures and the letter from the auditors required by Independence Standards Board Standard No. 1, (Independence Discussions With Audit Committees).

            In performing all of these functions, the Audit Committee acts only in an oversight capacity. The Audit Committee does not complete its reviews prior to the Company’s public announcement of financial results and, necessarily, in its oversight role, the Audit Committee relies on the work and assurances of the Company’s management, which has the primary responsibility for financial statements and reports, and of the independent auditors, who, in their report, express an opinion on the conformity of the Company’s financial statements to generally accepted accounting principles.

            Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board of Directors approved, the audited financial statements included in the Company’s Annual Report for the fiscal year ended June 30, 2002, filed with the Securities and Exchange Commission on September 20, 2002.

		Members of the Audit Committee
		Richard J. Elkus, Jr., Chairman
		H. Raymond Bingham
		Robert T. Bond

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AUDIT AND RELATED FEES

             Audit Fees : The aggregate fees billed or to be billed by PricewaterhouseCoopers LLP for professional services rendered for (i) the audit of the Company’s annual financial statements set forth in the Company’s Annual Report for the fiscal year ended June 30, 2002, and (ii) the review of the Company’s quarterly financial statements set forth in the Company’s Quarterly Reports on Form 10-Q were approximately $627,000.

             All Other Fees : The aggregate fees billed by PricewaterhouseCoopers LLP for services other than those described above for the fiscal year ended June 30, 2002 were approximately $2,899,000.

            All other fees include fees for services such as tax consulting and compliance, expatriate compliance, statutory audits in certain locations outside the United States and other audit related services. Audit related services include work associated with auditing and accounting consultations regarding new accounting standards, SEC filings and acquisitions related accounting assistance.

            The Company’s Audit Committee considered and determined that the provision of the services provided by PricewaterhouseCoopers LLP as set forth herein are compatible with maintaining PricewaterhouseCoopers’ independence and approved all non-audit related fees and services.

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PERFORMANCE GRAPH

            The stock price performance shown on the following graph is not necessarily indicative of future price performance.

Comparison of Five Year Cumulative Total Return Among KLA-Tencor Corporation,
the NASDAQ - US Index and the Philadelphia SOX Index*

		1997			1998			1999			2000			2001			2002
KLA-Tencor Corporation			100			57			133			240			240			180
NASDAQ-US Index			100			132			189			189			152			103
Philadelphia SOX Index			100			80			158			373			204			127

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*

Assumes $100 invested on June 30, 1997. The Company’s fiscal year end is June 30

Previously, the Company had reflected The Hambrecht & Quist Technology Index on this comparative chart. Since that index was discontinued on April 20, 2002, the Company now uses the Philadelphia SOX Index in its comparative chart

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CERTAIN TRANSACTIONS

            In connection with the merger between KLA Instruments Corporation and Tencor Instruments (effective April 30, 1997) the Company entered into identical employment arrangements, subsequently amended, with Messrs. Levy and Schroeder. The arrangements, as amended, provide that certain benefits would be paid if certain events took place after April 30, 1997. The purpose of these arrangements was to retain the services of Messrs. Levy and Schroeder to ensure the continued smooth transition associated with the merger. The terms of those arrangements provide that if an individual were to leave the Company after April 30, 1998, subject to releasing the Company from all claims, and in connection with working part-time for 36 months, he will receive (i) his base salary for the first 24 months of part-time employment, (ii) a mutually agreeable level of compensation per month for the final 12 months of part-time employment, (iii) an annual bonus (based on an achievement of 100% of bonus objectives) in the fiscal year of his transition to part-time employment, (iv) a bonus paid in the fiscal year following the payment of the annual bonus above, (based on achievement of 100% of his individual bonus objectives) and (v) a pro-rated bonus for the fiscal year in which part-time employment ended. During the periods of part-time employment, all options to exercise stock of the Company, which were granted more than 12 months prior to the termination of full-time employment, will continue to vest. The same benefits shall be payable in the event the Company terminates his employment without cause. If he is terminated for cause (defined as (i) gross negligence or willful misconduct in connection with the performance of duties, (ii) conviction of or plea of nolo contendere to any felony, or (iii) the embezzlement or misappropriation of Company property) then he will receive a lump-sum payment equal to 25% of his base salary.

            In December 2000, the Company made a loan to John H. Kispert, the Company’s Chief Financial Officer, in the amount of $300,000. The loan was evidenced by a promissory note (“Note”). The Note incurs interest at a rate of 6.3% per annum and is repayable in December 2020. The Note is secured by a Third Deed of Trust on Mr. Kispert’s real property.

            In fiscal year 2001, the Company entered into a Bonus Agreement with Mr. Kispert, whereby Mr. Kispert will receive payments of $93,000 a year, for the next four years.

Change in Control Agreements

            In fiscal year 2002, the Board of Directors approved individual “change-in-control” agreements for Messrs. Schroeder, Dickerson and Kispert (each, an “Executive”). The change-in-control provisions of these agreements take effect if the Executive’s employment is terminated involuntarily or constructively within two years after a change in control of the Company. If the provisions become effective, the Executive becomes eligible to receive: (i) an amount equal to two times his annual compensation; (ii) an amount equal to two times his bonus amount; (iii) continuation of health benefits for two years; and (iv) full acceleration of vesting for all options held. In addition, in the case of Mr. Schroeder, he would receive an option grant equal to his planned option grants for the forthcoming four years. For the purpose of these agreements, a change in control occurs upon merger of the Company with or into another corporation, or a change in more than half of the total voting power of the Company, or upon the sale of substantially all of the assets of the Company.

Section 16(a) Beneficial Ownership Reporting Compliance

            Section 16(a) of the Securities Exchange Act of 1934, as amended requires the Company’s executive officers, directors, and persons who own more than ten percent of a registered Class of the Company’s equity securities to file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. Maureen Lamb, the Company’s Vice President, Finance, timely reported on a Form 4 the sale of 1,000 shares in April 2001, however, due to a clerical error, the Form 4 incorrectly reflected the number of shares. The error was noted on the Form 5 timely filed by Ms. Lamb for the 2002 fiscal year.

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OTHER MATTERS

Delivery of Documents to Stockholders Sharing an Address

            Certain stockholders who share an address are being delivered only one copy of this Proxy Statement and the Company’s Annual Report unless the Company or one of its mailing agents has received contrary instructions.

            Upon the written or oral request of a stockholder at a shared address to which a single copy of this Proxy Statement and Annual Report was delivered, the Company will promptly deliver a separate copy of such documents to such stockholder. Written requests should be made to KLA-Tencor Corporation, Attention: Investor Relations, 160 Rio Robles, San Jose, CA 95134, and oral requests may be made by calling Investor Relations of KLA-Tencor at (408) 875-3600. In addition, if such a stockholder wishes to receive a separate copy of the proxy statement and annual report in the future, such stockholder should notify the Company either in writing addressed to the foregoing address or by calling the foregoing telephone number.

            Stockholders sharing an address who are receiving multiple copies of the proxy statements and annual reports may request delivery of a single copy of the future proxy statements and annual reports by writing to the address above or calling the telephone number above. Stockholders may also request electronic delivery of the Company’s annual report and proxy statement by writing to the address above, calling the telephone number above or by linking directly to the Company’s website at www.icsdelivery.com/klatencor/index.html.

Stockholder Proposals to Be Presented at Next Annual Meeting

            Proposals of stockholders that are intended for inclusion in the Company’s proxy statement relating to the 2003 Annual Meeting of the Stockholders must be received by the Company at its offices at 160 Rio Robles, San Jose, CA 95134, Attention: General Counsel, not later than May 31, 2003 and must satisfy the conditions established by the Securities and Exchange Commission for stockholder proposals in order to be included in KLA-Tencor’s proxy statement for that meeting. Stockholder proposals that are not intended to be included in KLA-Tencor’s proxy materials for such meeting but that are intended to be presented by the stockholder from the floor are subject to the advance notice procedures described below under “Transaction of Other Business.”

Transaction of Other Business

            At the date of this Proxy Statement, the only business that the Board of Directors intends to present or knows that others will present at the meeting is as set forth above. If any other matter or matters are properly brought before the meeting it is the intention of the persons named in the accompanying form of proxy to vote the proxy on such matters in accordance with their best judgment.

            Any stockholder may present a matter from the floor for consideration at a meeting so long as certain procedures are followed. Under KLA-Tencor’s Bylaws, as amended, in order for a matter to be deemed properly presented by a stockholder, timely notice must be delivered to, or mailed and received by, KLA-Tencor not later than 120 days prior to the next annual meeting of stockholders (under the assumption that the next annual meeting of stockholders will occur on the same calendar day as the day of the most recent annual meeting of stockholders). The stockholder’s notice must set forth, as to each proposed matter, the following: (i) a brief description of the business desired to be brought before the meeting and reasons for conducting such business at the meeting; (ii) the name and address, as they appear on KLA-Tencor’s books, of the stockholder proposing such business; (iii) the class and number of shares of KLA-Tencor that are beneficially owned by the stockholder; (iv) any material interest of the stockholder in such business; and (v) any other information that is required to be provided by such stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934. The presiding officer of the meeting may refuse to acknowledge any matter not made in compliance with the foregoing procedure.

The Board of Directors

September 27, 2002

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Audit Committee Charter

KLA-Tencor Corporation, a Delaware Corporation

Purpose

            The purpose of the Audit Committee of the Board of Directors (the “ Board ”) of KLA-Tencor Corporation (the “ Company ”) shall be to:

• Oversee the accounting and financial reporting processes of the Company and audits of the financial statements of the Company;

• Assist the Board in oversight and monitoring of (i) the integrity of the Company’s financial statements, (ii) the Company’s compliance with legal and regulatory requirements, (iii) the independent auditor’s qualifications, independence and performance, and (iv) the Company’s internal accounting and financial controls;

• Prepare the report that the rules of the Securities and Exchange Commission (the “ SEC ”) require be included in the Company’s annual proxy statement;

• Provide the Company’s Board with the results of its monitoring and recommendations derived therefrom; and

• Provide to the Board such additional information and materials as it may deem necessary to make the Board aware of significant financial matters that require the attention of the Board.

            In addition, the Audit Committee will undertake those specific duties and responsibilities listed below and such other duties as the Board of Directors may from time to time prescribe.

Membership and Meetings

            The Audit Committee shall be comprised of not less than three non-employee members of the Board. The Board shall appoint the members of the Audit Committee, one of whom shall be designated a chairman of the Audit Committee, and such members shall serve at the discretion of the Board. Members of the Audit Committee must meet the following criteria (as well as any criteria required by the SEC or Nasdaq):

• Each member will be an independent director, as defined in (i) Nasdaq Rule 4200 and (ii) the rules of the SEC;

• Each member will be able to read and understand fundamental financial statements, in accordance with the Nasdaq National Market Audit Committee requirements; and

• At least one member will have past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background, including a current or past position as a principal financial officer or other senior officer with financial oversight responsibilities.

            The Audit Committee shall meet at least four times annually or more frequently as the Audit Committee may deem appropriate.

            The Audit Committee will meet separately with the Chief Executive Officer and separately with the Chief Financial Officer of the Company at such times as are appropriate to review the financial affairs of the Company. The Audit Committee will meet separately with the independent auditors of the Company, at such times as it deems appropriate, but not less than quarterly to fulfill the responsibilities of the Audit Committee under this charter.

Key Responsibilities

            The responsibilities of the Audit Committee shall include:

• Reviewing on a continuing basis the adequacy of the Company’s system of internal controls, including meeting periodically with the Company’s management and the independent auditors to

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review the adequacy of such controls and to review before release the disclosure regarding such system of internal controls required under SEC rules to be contained in the Company’s periodic filings and the attestations or reports by the independent auditors relating to such disclosure;

• Appointing, compensating and overseeing the work of the independent auditors (including resolving disagreements between management and the independent auditors regarding financial reporting) for the purpose of preparing or issuing an audit report or related work;

• Pre-approving audit and non-audit services provided to the Company by the independent auditors (or subsequently approving non-audit services in those circumstances where a subsequent approval is necessary and permissible); in this regard, the Audit Committee shall have the sole authority to approve the hiring and firing of the independent auditors, all audit engagement fees and terms and all non-audit engagements, as may be permissible, with the independent auditors;

• Reviewing and providing guidance with respect to the external audit and the Company’s relationship with its independent auditors by (i) reviewing the independent auditors’ proposed audit scope, approach and independence; (ii) obtaining on a periodic basis a statement from the independent auditors regarding relationships and services with the Company which may impact independence and presenting this statement to the Board of Directors, and to the extent there are relationships, monitoring and investigating them; (iii) discussing with the Company’s independent auditors the financial statements and audit findings, including any significant adjustments, management judgments and accounting estimates, significant new accounting policies and disagreements with management and any other matters described in SAS No. 61, as may be modified or supplemented; and (iv) reviewing reports submitted to the audit committee by the independent auditors in accordance with the applicable SEC requirements;

• Reviewing and discussing with management and the independent auditors the annual audited financial statements and quarterly unaudited Financial Statements, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations to be included in the Company’s Annual Report on Form 10K (or the Annual Report to Shareholders if distributed prior to the filing of Form 10K) and Quarterly Reports on Form 10-Q, respectively, prior to their filing with the SEC.

• Conducting a post-audit review of the financial statements and audit findings, including any significant suggestions for improvements provided to management by the independent auditors;

• Reviewing before release the unaudited quarterly operating results in the Company’s quarterly earnings release;

• Overseeing compliance with the requirements of the SEC for disclosure of auditor’s services and audit committee members, member qualifications and activities;

• Reviewing, approving and monitoring the Company’s code of ethics for its senior financial officers;

• Reviewing, in conjunction with counsel, any legal matters that could have a significant impact on the Company’s financial statements;

• Reviewing and approving in advance any proposed related party transactions;

• Reviewing its own charter, structure, processes and membership requirements;

• Providing a report in the Company’s proxy statement in accordance with the rules and regulations of the SEC; and

• Establishing procedures for receiving, retaining and treating complaints received by the Company regarding accounting, internal accounting controls or auditing matters and procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

            In addition to the above responsibilities, the Audit Committee will undertake such other duties as the Board delegates to it, and will report, at least annually, to the Board regarding the Audit Committee’s examinations and recommendations.

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            The Audit Committee is authorized to conduct any investigation appropriate to fulfilling its responsibilities, with full access to all books, records, facilities and personnel of the Company, and may retain, at the Company’s expense, legal, accounting and other experts as it deems necessary to assist it in conducting any such investigation.

Minutes

            The Audit Committee will maintain written minutes of its meetings, which minutes will be filed with the minutes of the meetings of the Board.

Compensation

            Members of the Audit Committee shall receive such fees, if any, for their service as Audit Committee members as may be determined by the Board in its sole discretion. Such fees may include retainers or per meeting fees. Fees may be paid in such form of consideration as is determined by the Board.

            Members of the Audit Committee may not receive any compensation from the Company except the fees that they receive for service as a member of the Board or any committee thereof.

Delegation of Authority

            The Audit Committee may delegate to one or more designated members of the Audit Committee the authority to pre-approve audit and permissible non-audit services, provided such pre-approval decision is presented to the full Audit Committee at its scheduled meetings.

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KLA-TENCOR CORPORATION C/O EQUISERVE 150 ROYALL STREET CANTON, MA 02021		VOTE BY INTERNET - http://www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time on November 7, 2002. Have your proxy card in hand when you access the web site. You will be prompted to enter your 12-digit Control Number which is located below to obtain your records and to create an electronic voting instruction form.
		VOTE BY TELEPHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time on November 7, 2002. Have your proxy card in hand when you call. You will be prompted to enter your 12-digit Control Number which is located below and then follow the simple instructions the Vote Voice provides you.
		VOTE BY MAIL Mark, sign, and date your proxy card and return it in the postage-paid envelope we have provided or return it to KLA-Tencor Corporation, c/o ADP, 51 Mercedes Way, Edgewood, NY 11717.
YOUR VOTE IS IMPORTANT
All stockholders are cordially invited to attend the meeting    in person, however, to assure your representation at the    meeting, you are requested to complete, sign and date    below and return it in the enclosed envelope or follow the    instructions to the right, to vote by telephone or via the    Internet. Any stockholder attending the meeting may vote    in person even if he or she returned a proxy.

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
		KLAPRX		KEEP THIS PORTION FOR YOUR RECORDS
				DETACH AND RETURN THIS PORTION ONLY

THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.

KLA-TENCOR CORPORATION.     The Board Recommends a Vote “FOR” all     Nominees for Director and “FOR” Proposal 2.     Vote On Directors
	1.	To elect three Class I directors to each serve for a three year term and until their successors are duly elected.		For All		Withhold All		For All Except		To withhold authority to vote, mark “For All Except” and write the nominee's number on the line below.
		1) Kenneth Levy
		2) Jon D. Tompkins		0		0		0
		3) Lida Urbanek
		To elect one Class III director to serve the remaining two years of a three year term and until his successor is duly elected. 4) Stephen P. Kaufman

				For		Against		Abstain
Vote On Proposal
	2.	To ratify the appointment of PricewaterhouseCoopers LLP as independent accountants of the Company for the fiscal year ending June 30, 2003.		0		0		0
		To transact such other business as may properly come before the meeting or any adjournment or adjournment thereof.

	In their discretion, the proxy holders are authorized to vote on all such other matters as may properly come before the meeting or any adjournment or postponement thereof.
	Please sign exactly as your name appears on your stock certificate(s), date and return this Proxy promptly in the reply envelope provided. Please correct your address before returning this Proxy. Persons signing in a fiduciary capacity should so indicate. If shares are held by joint tenants or as community property, both should sign.

		MARK HERE FOR ADDRESS CHANGE AND NOTE AT RIGHT		0
		MARK HERE IF YOU PLAN TO ATTEND THE MEETING		0

Signature [PLEASE SIGN WITHIN BOX]	Date		Signature (Joint Owners)	Date

 

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Call Toll-Free on a Touch-Tone Phone 1-800-690-6903.
Follow these four easy steps:		Follow these four easy steps:
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Do not return your Proxy Card if you are voting by Telephone or Internet.

DETACH PROXY CARD HERE

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

KLA-TENCOR CORPORATION
Notice of Annual Meeting of Stockholders
November 8, 2002

To the Stockholders:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of KLA-Tencor Corporation (the “Company”), a Delaware corporation, will be held on Friday, November 8, 2002 at 11:00 a.m., local time, at the Company’s offices located at Three Technology Drive, Milpitas, California 95035, for the purposes stated on the reverse side.

The undersigned hereby appoints John H. Kispert and Stuart J. Nichols, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side, all of the shares of Common Stock of KLA-Tencor Corporation that the undersigned is entitled to vote at the Annual Meeting of Stockholders, and any adjournment or postponement thereof.

             THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED ON THE REVERSE SIDE FOR THE BOARD OF DIRECTORS AND FOR PROPOSAL 2.

PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED REPLY ENVELOPE

CONTINUED AND TO BE SIGNED ON REVERSE SIDE