Proposal by the Board of Directors of Sandvik Aktiebolag on the implementation of a long-term incentive programme

This is a translation of the Swedish original. In case of differences between the English translation and the Swedish original, the Swedish text shall prevail.

Background

Sandvik has, since 2006, a performance-based programme for long-term variable salary (LVL), which gives senior executives and key employees the opportunity to receive cash remuneration after a three-year performance period, provided continued employment during the performance period and the achievement of goals specified by the Board of Directors concerning certain key ratios that create shareholder value linked to the company's growth, profitability and capital efficiency – Sandvik Value Added (SVA).

To further align the participants' and the shareholders' interests it is proposed to replace LVL with a new long-term incentive programme for senior executives and key employees (the "Programme"). The Programme is moreover expected to strengthen the Group's ability to retain and recruit qualified employees to the Sandvik Group as well as to strengthen Sandvik's focus and objective to meet the company's long-term business goals. The Programme is also intended to increase the proportion of remuneration linked to Sandvik's performance and to promote private shareholding in Sandvik.

The Board of Directors also intends to propose the Annual General Meetings of 2012 and 2013 to resolve on long-term incentive programmes in accordance with the principles proposed below. The total number of shares that can be comprised in long-term incentive programmes during the years 2011-2013 must not exceed three per cent of the current number of outstanding shares in Sandvik.

Implementation of the Programme

The Board of Directors proposes that the Annual General Meeting 2011 resolve to implement the Programme and to adopt the main principles for the Programme in accordance with the following.

Main principles for the Programme

General
The Programme is proposed to comprise approximately 400 senior executives and key employees in the Sandvik Group and comprise, at the most, 12,000,000 Sandvik shares. Participants in the Programme have the opportunity to be allotted employee stock options ("Employee Stock Options") enabling the employee to acquire Sandvik shares at a certain price after a period of three years ("Performance Shares"), on the condition that certain performance goals connected to Sandvik Value Added (SVA) are met. More senior executives (category 1-3 below) are required to make a private investment in Sandvik shares in order to be eligible for allotment of Employee Stock Options. If such an investment in Sandvik shares is made, executives of this group are also allotted rights ("Matching Rights") enabling the executive to acquire Sandvik shares at a certain price after a period of three years ("Matching Shares").

(A) Employee Stock Options for acquiring Performance Shares
Employees eligible to participate in the Programme are entitled to be allotted Employee Stock Options by 30 June 2011 at the latest. The total number of Employee Stock Options that can be allotted to the approximately 400 senior executives and key employees in the Sandvik Group, may entitle to the acquisition of approximately 11,800,000 Performance Shares.

Allotment of Employee Stock Options will occur according to the following:

The chief executive officer shall decide who is classified in categories 2-6 above, based on position, qualifications and individual performance.

An employee in categories 1, 2 or 3 above is required to invest in Sandvik shares at market value ("Savings Shares") by 15 June 2011 at the latest, in order to be allotted Employee Stock Options. If the employee invests in Savings Shares at an amount corresponding to 10 per cent of the employee's fixed cash salary before tax for the year 2011, the employee is allotted the maximal number of Employee Stock Options according to the above. If the employee invests in Savings Shares at an amount corresponding to up to 10 per cent of the employee's fixed cash salary before tax for the year 2011, the employee will be allotted a proportionate linear number of Employee Stock Options. An employee in categories 4-6 above does not need to invest in Savings Shares to be allotted Employee Stock Options.

The Employee Stock Options are non-transferable. Each Employee Stock Option entitles the employee the right to acquire one Performance Share.

How many of the Employee Stock Options that will eventually entitle to the acquisition of Performance Shares depends on how the growth of the Sandvik Group, expressed as Sandvik Value Added (SVA), develops during the financial years 2011-2013 (the "Performance Period") compared to the financial year 2010 (the "Base Year"). If the average SVA for the three financial years which make up the Performance Period reaches 150 per cent or more compared to the Base Year's SVA, 100 per cent of the allotted Employee Stock Options will entitle to acquire Performance Shares. If the average SVA for the three financial years which make up the Performance Period fall below 110 per cent compared to the Base Year's SVA, no Employee Stock Options will entitle to acquire Performance Shares. If the average SVA for the three financial years which make up the Performance Period reaches 110 per cent, 20 per cent of the allotted Employee Stock Options will entitle to acquire Performance Shares. If the average SVA for the three financial years which make up the Performance Period is between 110 and 150 per cent, a proportional linear number of the Employee Stock Options entitle to acquire Performance Shares.

Employee Stock Options can be exercised to acquire Performance Shares not earlier than three years and not later than five years after the allotment of Employee Stock Options.
The exercise of Employee Stock Options to acquire Performance Shares requires continued employment.

For an employee in categories 1, 2 or 3 above the exercise of Employee Stock Options to acquire Performance Shares also requires that all purchased Savings Shares are held continuously during a three-year period following the allotment of Employee Stock Options. The Chairman of the Board may grant exemptions from this requirement in special cases.
When exercising Employee Stock Options to acquire Performance Shares participants shall, for each Performance Share, pay an amount corresponding to 110 per cent of the volume-weighted average price paid for the Sandvik share at NASDAQ OMX Stockholm during a period of 10 trading days immediately following the Annual General Meeting 2011.

(B) Matching Rights for acquiring Matching Shares
Employees in categories 1, 2 or 3 above who invest in Savings Shares are entitled to be allotted Matching Rights by 30 June 2011 at the latest. The total number of Matching Rights that can be allotted may entitle to the acquisition of approximately 100,000 Matching Shares.

The Matching Rights are non-transferable.

One Matching Right is allotted for each Savings Share acquired by the participant. Each Matching Right entitles to acquire one Matching Share.

The Matching Rights can be exercised to acquire Matching Shares not earlier than three years and not later than five years after the allotment of Matching Rights.

The exercise of Matching Rights to acquire Matching Shares requires continued employment and that all the acquired Savings Shares are held continuously during a three-year period following the allotment of Matching Rights. The Chairman of the Board may grant exemptions from the requirement to continuously hold the Savings Shares during a three-year period in special cases.

When exercising Matching Rights to acquire Matching Shares participants shall, for each Matching Share, pay an amount corresponding to 75 per cent of the volume-weighted average price paid for the Sandvik share at NASDAQ OMX Stockholm during a period of 10 trading days immediately following the Annual General Meeting 2011.

Adjustment of the number of Performance Shares and/or Matching Shares etc.
Before the exercise of Employee Stock Options for acquiring Performance Shares or Matching Rights for acquiring Matching Shares may take place, the Board of Directors shall consider whether the number of Performance and Matching Shares is reasonable taking into account the financial results and position of Sandvik, stock market conditions and other circumstances, and if the Board of Directors comes to the conclusion that that is not the case, reduce the number of Performance and/or Matching Shares to the lower number the Board of Directors finds appropriate.

The Board of Directors may decide on the implementation of an alternative incentive solution for key employees in countries where the allotment of Employee Stock Options or Matching Rights, or the exercise of Employee Stock Options or Matching Rights for the acquisition of Performance and Matching Shares, respectively, is not appropriate. Such alternative incentive solution shall to the extent practically possible be designed to correspond to the terms of the Programme.

The Board of Directors, or a committee appointed by the Board of Directors for this purpose, shall be responsible for preparing the detailed terms and conditions, and the administration of the Programme based on the main terms and guidelines herein.

Recalculation
For the purpose of retaining the value of the Employee Stock Options and Matching Rights the Board of Directors shall, in the event of a bonus issue, split, rights issue and/or other similar event in Sandvik, be entitled to decide on the recalculation of the terms of the Programme.

Theoretical value for the recipient

A theoretical value of an Employee Stock Option has been calculated in accordance with the Black & Scholes method for valuating options. The valuation has been based on inter alia a share price of SEK 120 and an expected volatility of 30 per cent. The theoretical value is calculated at SEK 21.30 per Employee Stock Option.

A theoretical value of a Matching Right has been calculated in accordance with the Black & Scholes method for valuating options. The valuation has been based on inter alia a share price of SEK 120 and an expected volatility of 30 per cent. The theoretical value is calculated at SEK 35.70 per Matching Right.

Delivery of shares, costs etc.

The Employee Stock Options and Matching Rights entitle to acquire already existing Sandvik shares. To ensure the delivery of Sandvik shares and possibly also to hedge, partly or entirely, against the impact on the cash flow at delivery of Sandvik shares under the Programme, the Board of Directors intends to take measures by entering into share swaps with a third party.

The Employee Stock Options and Matching Rights may entail social security costs for the Sandvik Group. The social security costs will be expensed under the Employee Stock Options' and Matching Rights' vesting period based on the change in value of the Employee Stock Options and Matching Rights.

In addition to the costs above the allotment will lead to accounting effects under IFRS 2. The Employee Stock Options and Matching Rights shall be expensed as personnel costs (excluding social security costs) over the vesting period and will be reported directly against equity. The reported amount will be continuously reappraised during the vesting period of the Employee Stock Options and Matching Rights.

Assuming a share price at SEK 120, an expected volatility of 30 per cent and a five year term, the costs for the Programme are estimated to approximately SEK 253 million.

Social security costs are calculated to just below SEK 100 million, assuming an increased share value of 50 per cent from SEK 120 (i.e. SEK 180) and, assuming a final allotment of Employee Stock Options and Matching Rights of 70 per cent of maximum allotment, an average tax rate for the social security costs of 25 per cent. At a final maximum allotment of Employee Stock Options and Matching Rights, social security costs are estimated to approximately SEK 143 million.

The interest cost for a share swap ensuring delivery of 12,000,000 shares is estimated to approximately SEK 60 million per year. Against this cost, however, stands the value of possible dividends. In addition, there will be administrative costs estimated to approximately SEK 3 million. The IFRS cost, which will be continuously recalculated, is initially estimated to approximately SEK 253 million.

The Programme may result in the allotment to the employees of 12,000,000 Sandvik shares at the most, corresponding to approximately 1 per cent of the total number of shares and votes in the company.

Preparation of the proposal

The proposal has been prepared and resolved on by the Board of Directors and discussed with a number of Sandvik's major shareholders. The Chief Executive Officer has not taken part in the Board of Director's preparations of and resolution on the proposal.

A resolution on the implementation of the Programme and on the main principles of the Programme requires a so-called simple majority.

Sandviken, April 2011

Sandvik Aktiebolag (publ)
The Board of Directors