<PAGE>   1
                                                                   EXHIBIT 10.16


                               SECURITY AGREEMENT

                  THIS SECURITY AGREEMENT (this "Agreement"), dated as of
January 13, 2000 is made by and among Storage Technology Corporation, a Delaware
corporation (the "Company"), and Bank of America, N.A., as Collateral Agent for
itself and the other Secured Parties referred to below (in such capacity, the
"Collateral Agent").

                                    RECITALS

                  WHEREAS, the Company, as borrower, certain lending
institutions, as lenders, and Bank of America, N.A., as administrative agent (in
such capacity, "Bank Agent No. 1") are parties to a Credit Agreement dated as of
January 13, 2000 (as amended, restated, modified, renewed or extended from time
to time, the "364-Day Credit Agreement");

                  WHEREAS, the Company, as borrower, certain lending
institutions, as lenders, and Bank of America, N.A., as administrative agent (in
such capacity, "Bank Agent No. 2") are parties to an Amended and Restated Credit
Agreement dated as of January 13, 2000 (as amended, restated, modified, renewed
or extended from time to time, the "$350MM Credit Agreement");

                  WHEREAS, it is a condition precedent to the closing of each of
the 364-Day Credit Agreement and the $350MM Credit Agreement that the Company
enter into this Agreement and grant to the Collateral Agent, for itself and for
the ratable benefit of the other Secured Parties, the security interests
hereinafter provided to secure the obligations of the Company described below.

                  NOW, THEREFORE, the parties hereto agree as follows:

                  SECTION 1 Definitions; Interpretation.

                  (a) Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:

                  "364-Day Secured Obligations" means all indebtedness,
liabilities and other obligations of the Company to the Secured Parties created
under, or arising out of or in connection with, the 364-Day Credit Agreement,
the Notes (as defined in the 364-Day Credit Agreement) or any of the other Loan
Documents (as defined in the 364-Day Credit Agreement), including all unpaid
principal of the Loans (as defined in the 364-Day Credit Agreement), all
interest accrued thereon, all fees due under the 364-Day Credit Agreement and
all other amounts payable by the Company to any Secured Party thereunder or in
connection therewith, whether now existing or hereafter arising, and whether due
or to become due, absolute or contingent, liquidated or unliquidated, determined
or undetermined.

                  "$350MM Secured Obligations" means all indebtedness,
liabilities and other obligations of the Company to the Secured Parties created
under, or arising out of or in connection with, the $350MM Credit Agreement, the
Notes (as defined in the $350MM Credit Agreement) or any of the other Loan
Documents (as defined in the $350MM Credit Agreement), including all unpaid
principal of the Loans (as defined in the $350MM Credit Agreement), all

                                      S-1

<PAGE>   2

interest accrued thereon, all fees due under the $350MM Credit Agreement and all
other amounts payable by the Company to any Secured Party thereunder or in
connection therewith, whether now existing or hereafter arising, and whether due
or to become due, absolute or contingent, liquidated or unliquidated, determined
or undetermined.

                  "Accounts" means any and all accounts as such term is defined
in Section 9106 of the UCC, and includes all accounts receivable, contract
rights, rights to payment and other obligations of any kind owed to the Company
by any Domestic Account Obligor arising out of or in connection with the sale or
lease of merchandise, goods, commodities or equipment or the rendering of
services or arising from any other transaction, however evidenced, and all other
forms of obligations owing to the Company by any Domestic Account Obligor, and
whether or not earned by performance, all guaranties, indemnities and security
with respect to the foregoing, and all letters of credit relating thereto, in
each case whether now existing or hereafter acquired or arising; provided that
"Accounts" shall not include Chattel Paper, intercompany obligations and
purchased accounts subject to the Multicurrency Note Purchase Facility.

                  "Affiliate" means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person. A Person shall be deemed to control another Person if
the controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, membership interests, by contract,
or otherwise.

                  "Aggregate Credit" means, at any time, (a) the aggregate
principal amount of the Loans (as defined in the 364-Day Credit Agreement)
outstanding under the 364-Day Credit Agreement at such time plus the aggregate
principal amount of the Loans (as defined in the $350MM Credit Agreement)
outstanding under the $350MM Credit Agreement at such time, or (b) if no such
Loans are outstanding at such time under either the 364-Day Credit Agreement or
the $350MM Credit Agreement, the aggregate amount of the Commitments (as defined
in the 364-Day Credit Agreement) in effect under the 364-Day Credit Agreement at
such time plus the aggregate amount of the Commitments (as defined in the $350MM
Credit Agreement) in effect under the $350MM Credit Agreement at such time.

                  "Attorney Costs" means and includes all fees and disbursements
of any law firm or other external counsel, the allocated cost of internal legal
services and all disbursements of internal counsel.

                  "Banks" means the "Banks" from time to time party to the
364-Day Credit Agreement and the "Banks" from time to time party to the $350MM
Credit Agreement.

                  "BofA" means Bank of America, N.A., a national banking
association.

                  "Books" means all books, records and other written, electronic
or other documentation in whatever form maintained now or hereafter by or for
the Company in connection with the ownership of its assets or the conduct of its
business or evidencing or containing information relating to the Collateral,
including: (i) ledgers; (ii) records indicating, summarizing, or evidencing the
Company's assets, business operations or financial condition;

                                      S-2

<PAGE>   3

(iii) computer programs and software; (iv) computer discs, tapes, files, manuals
and spreadsheets; (v) computer printouts and output of whatever kind; (vi) any
other computer prepared or electronically stored, collected or reported
information and equipment of any kind; and (vii) any and all other rights now or
hereafter arising out of any contract or agreement between the Company and any
service bureau, computer or data processing company or other Person charged with
preparing or maintaining any of the Company's books or records or with credit
reporting, including with regard to the Company's Accounts; provided that
"Books" shall not include any books, records, or software sold by the Company to
BofA or any of its Affiliates pursuant to the Multicurrency Note Purchase
Facility.

                  "Chattel Paper" means all writings of whatever sort which
evidence a monetary obligation of a Domestic Obligor and a security interest in
or lease of specific goods, whether now existing or hereafter arising; provided,
however, that "Chattel Paper" shall not include any interests of the Company in
purchased accounts subject to the Multicurrency Note Purchase Facility.

                  "Collateral" has the meaning set forth in Section 2.

                  "Credit Agreements" means the 364-Day Credit Agreement and the
$350MM Credit Agreement.

                  "Directing Banks" means, at any time, Banks holding more than
50% of the Aggregate Credit at such time.

                  "Documents" means any and all documents of title, bills of
lading, dock warrants, dock receipts, warehouse receipts and other documents
(other than Chattel Paper) of the Company purporting to cover Inventory, whether
or not negotiable, and includes all other documents which purport to be issued
by a bailee or agent and purport to cover Inventory in any bailee's or agent's
possession which are either identified or are fungible portions of an identified
mass, including such documents of title made available to the Company for the
purpose of ultimate sale or exchange of Inventory or for the purpose of loading,
unloading, storing, shipping, transshipping, manufacturing, processing or
otherwise dealing with Inventory in a manner preliminary to their sale or
exchange, in each case whether now existing or hereafter acquired or arising.

                  "Domestic Obligor" means any Person obligated on an Account or
other Right to Payment who is a resident of or otherwise located in the United
States.

                  "Event of Default" means any "Event of Default" under and as
defined in the 364-Day Credit Agreement, the $350MM Credit Agreement or any
other Loan Document

                  "Financing Statements" has the meaning set forth in Section 3.

                  "GAAP" means generally accepted accounting principles set
forth from time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board (or
agencies with similar functions of comparable stature and

                                      S-3

<PAGE>   4

authority within the U.S. accounting profession), which are applicable to the
circumstances as of the date of determination.

                  "Governmental Authority" means any nation or government, any
state or other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.

                  "Instruments" means any and all negotiable instruments,
certificated securities and every other writing which evidences a right to the
payment of money by a Domestic Obligor, in each case whether now existing or
hereafter acquired and which does not constitute Chattel Paper; provided,
however that "Instruments" shall not include any interests of the Company in its
Subsidiaries.

                  "Inventory" means any and all of the Company's inventory in
the United States in all of its forms, wherever located, whether now owned or
hereafter acquired, and in any event includes (i) all goods (including goods in
transit) which are held for sale, lease or other disposition, including those
held for display or demonstration or out on lease or consignment or to be
furnished under a contract of services, (ii) spare parts held for use in meeting
the service obligations of the Company, whether or not physically segregated
from parts and components used in the manufacture of finished goods inventory or
identified as such, (iii) raw materials and work in process therefor, finished
goods thereof, materials used or consumed in the manufacture of production
thereof, (iv) goods in which the Company has an interest in mass or a joint or
reversionary or other interest or right of any kind (including goods in which
the Company has an interest as a secured party, lessor or consignee), (v) all
goods that are repossessed, returned, rejected, reclaimed or replevied by or to
the Company, (vi) all parts, supplies, components and other materials used or
usable in connection with the manufacture, production, packing, shipping,
advertising, selling or furnishing of such goods, (vii) all accessions thereto
and products thereof, and (viii) any Document representing or relating to any of
the foregoing at any time.

                  "Lien" means any security interest, mortgage, deed of trust,
pledge, hypothecation, assignment, charge or deposit arrangement, encumbrance,
lien (statutory or other) or preferential arrangement of any kind or nature
whatsoever in respect of any property (including those created by, arising under
or evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease, any financing lease having
substantially the same economic effect as any of the foregoing, or the filing of
any financing statement naming the owner of the asset to which such lien relates
as debtor, under the UCC or any comparable law) and any contingent or other
agreement to provide any of the foregoing, but not including the interest of a
lessor under an operating lease.

                  "Loan Documents" means the Loan Documents (as defined in the
364-Day Credit Agreement) and the Loan Documents (as defined in the $350MM
Credit Agreement).

                  "Material Adverse Effect" means (a) a material adverse change
in, or a material adverse effect upon, the operations, business, properties,
condition (financial or otherwise) or

                                      S-4

<PAGE>   5

prospects of the Company and its Subsidiaries taken as a whole; (b) a material
impairment of the ability of the Company to perform under any Loan Document and
to avoid any Event of Default; or (c) a material adverse effect upon (i) the
legality, validity, binding effect or enforceability against the Company of any
Loan Document or (ii) the perfection or priority of any Lien on any material
portion of the Collateral granted under any of the Collateral Documents.

                  "Multicurrency Note Purchase Facility" means the facility
pursuant to the Second Amended and Restated Contingent Multicurrency Note
Purchase Commitment Agreement dated as of January 15, 1998 (as amended,
restated, modified or supplemented from time to time) between the Company and
BofA, whereby BofA has agreed to purchase certain notes of the Company subject,
in certain cases, to collateralization in cash and other investments or any
similar facility designed to accomplish the same objectives.

                  "Permitted Lien" means a Lien which is a "Permitted Lien"
under both the 364-Day Credit Agreement and the $350MM Credit Agreement.

                  "Person" means an individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority or any other
entity of whatever nature.

                  "Proceeds" means whatever is receivable or received from or
upon the sale, lease, license, collection, use, exchange or other disposition,
whether voluntary or involuntary, of any Collateral, including "proceeds" as
defined at UCC Section 9306, any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to or for the account of the Company from time to
time with respect to any of the Collateral, any and all payments (in any form
whatsoever) made or due and payable to the Company from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any Governmental Authority
(or any Person acting under color of Governmental Authority), any and all other
amounts from time to time paid or payable under or in connection with any of the
Collateral or for or on account of any damage or injury to or conversion of any
Collateral by any Person, any and all other tangible or intangible property
received upon the sale or disposition of Collateral, and all proceeds of
proceeds; provided that "Proceeds" shall not include any purchased accounts
subject to the Multicurrency Note Purchase Facility.

                  "Proceeds Account" has the meaning specified in subsection
10(c) hereof.

                  "Rights to Payment" means all Accounts and any and all rights
and claims to the payment or receipt of money or other forms of consideration of
any kind in, to and under all Chattel Paper, Documents, Instruments and
Proceeds.

                  "Secured Obligations" means the 364-Day Secured Obligations
and the $350MM Secured Obligations, whether now existing or hereafter arising,
and whether due or to become due, absolute or contingent, liquidated or
unliquidated, determined or undetermined.

                  "Secured Parties" means the Collateral Agent, the Banks, the
Lead Arranger (as defined in the 364-Day Credit Agreement), the Lead Arranger
(as defined in the $350MM Credit Agreement), Bank Agent No. 1, Bank Agent No. 2,
and each of their respective successors, transferees and assigns.

                                      S-5

<PAGE>   6

                  "Subsidiary" of a Person means any corporation, association,
partnership, limited liability company, joint venture, trust or other business
entity of which more than 50% of the voting stock, membership interests or other
equity interests (in the case of Persons other than corporations), is owned or
controlled directly or indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof. Unless the context
otherwise clearly requires, references herein to a "Subsidiary" refer to a
Subsidiary of the Company.

                  "UCC" means the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of California; provided, however, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of California, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.

                  (b) Terms Defined in UCC. Where applicable and except as
otherwise defined herein, terms used in this Agreement shall have the meanings
assigned to them in the UCC.

                  (c) Interpretation. (i) The meanings of defined terms are
equally applicable to the singular and plural forms of the defined terms.

                  (ii)  The words "hereof," "herein," "hereunder" and similar
words refer to this Agreement as a whole and not to any particular provision of
this Agreement; and subsection, Section, Schedule and Exhibit references are to
this Agreement unless otherwise specified.

                  (iii) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other writings,
however evidenced.

                  (iv)  The term "including" is not limiting and means
"including without limitation."

                  (v)   In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and including"; the
words "to" and "until" each mean "to but excluding", and the word "through"
means "to and including."

                  (vi)  The term "property" includes any kind of property or
asset, real, personal or mixed, tangible or intangible.

                  (vii)  Unless otherwise expressly provided herein, (A)
references to agreements (including this Agreement) and other contractual
instruments shall be deemed to include all subsequent amendments and other
modifications thereto, but only to the extent such amendments and other
modifications are not prohibited by the terms of any Loan Document, and (B)
references to any statute or regulation are to be construed as including all
statutory and regulatory provisions consolidating, amending, replacing,
supplementing or interpreting the statute or regulation.

                                      S-6

<PAGE>   7

                  (viii) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.

                  (ix) This Agreement and other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms. Unless otherwise expressly
provided, any reference to any action of the Collateral Agent or the Banks by
way of consent, approval or waiver shall be deemed modified by the phrase "in
its/their sole discretion."

                  (x) This Agreement is the result of negotiations among the
Collateral Agent, the Company and the other parties, have been reviewed by
counsel to the Collateral Agent, the Company and such other parties, and are the
product of all parties. Accordingly, they shall not be construed against the
Banks or the Collateral Agent merely because of the Collateral Agent's or Banks'
involvement in their preparation.

                  SECTION 2 Security Interest.

                  (a) Grant of Security Interest. As security for the payment
and performance of the Secured Obligations, the Company hereby pledges, assigns,
transfers, hypothecates and sets over to the Collateral Agent, for itself and on
behalf of and for the ratable benefit of the other Secured Parties, and hereby
grants to the Collateral Agent, for itself and on behalf of and for the ratable
benefit of the other Secured Parties, a security interest in all of the
Company's right, title and interest in, to and under the following property,
wherever located and whether now existing or owned or hereafter acquired or
arising (including, without limitation, any accounts subject to the
Multicurrency Note Purchase Facility which may hereafter become Collateral
pursuant to the operation of the Loan Documents): (i) all Accounts; (ii) all
Chattel Paper; (iii) all Documents; (iv) all Instruments; (v) all Inventory;
(vi) all Books; and (vii) all products and Proceeds of any and all of the
foregoing (collectively, the "Collateral").

                  (b) Company Remains Liable. Anything herein to the contrary
notwithstanding, (i) the Company shall remain liable under any contracts,
agreements and other documents included in the Collateral, to the extent set
forth therein, to perform all of its duties and obligations thereunder to the
same extent as if this Agreement had not been executed, (ii) the exercise by the
Collateral Agent of any of the rights hereunder shall not release the Company
from any of its duties or obligations under such contracts, agreements and other
documents included in the Collateral, and (iii) the Collateral Agent shall not
have any obligation or liability under any contracts, agreements and other
documents included in the Collateral by reason of this Agreement, nor shall the
Collateral Agent be obligated to perform any of the obligations or duties of the
Company thereunder or to take any action to collect or enforce any such
contract, agreement or other document included in the Collateral hereunder.

                  (c) Continuing Security Interest. The Company agrees that
this Agreement shall create a continuing security interest in the Collateral
which shall remain in effect until terminated in accordance with Section 22.

                                      S-7

<PAGE>   8

                  SECTION 3 Perfection Procedures.

                  (a) Financing Statements. The Company shall execute and
deliver to the Collateral Agent concurrently with the execution of this
Agreement, and at any time and from time to time thereafter, all financing
statements, continuation financing statements, termination statements, security
agreements, assignments, warehouse receipts, documents of title, affidavits,
reports, notices, schedules of account, letters of authority and all other
documents and instruments, in form satisfactory to the Collateral Agent (the
"Financing Statements"), and take all other action, as the Collateral Agent may
request, to perfect and continue perfected, maintain the priority of or provide
notice of the Collateral Agent's security interest in the Collateral and to
accomplish the purposes of this Agreement.

                  (b) Certain Agents. Any third person at any time and from
time to time holding all or any portion of the Collateral shall be deemed to,
and shall, hold the Collateral as the agent of, and as pledge holder for, the
Collateral Agent. At any time and from time to time, the Collateral Agent may
give notice to any third person holding all or any portion of the Collateral
that such third person is holding the Collateral as the agent of, and as pledge
holder for, the Collateral Agent.

                  (c) Documents, Etc. The Company shall deliver to the
Collateral Agent, or an agent designated by it, appropriately endorsed or
accompanied by appropriate instruments of transfer or assignment, all Documents
and Chattel Paper, and all other Rights to Payment at any time evidenced by
promissory notes, trade acceptances or other instruments, not already delivered
hereunder pursuant to this Section 3; provided, however, that unless an Event of
Default shall have occurred and be continuing, the Company shall not be required
to deliver any Document, Chattel Paper, promissory note, trade acceptance or
other instrument. Upon the request of the Collateral Agent, the Company shall
mark all Documents, Instruments and Chattel Paper with such legends as the
Collateral Agent shall reasonably specify.

                  SECTION 4 Representations and Warranties. In addition to the
representations and warranties of the Company set forth in the Credit
Agreements, which are incorporated herein by this reference, the Company
represents and warrants to the Collateral Agent and each other Secured Party
that:

                  (a) Location of Chief Executive Office and Collateral. The
Company's chief executive office and principal place of business is located at
the address set forth in Schedule 1.

                  (b) Locations of Books. All locations where Books pertaining
to the Rights to Payment are kept, including all equipment necessary for
accessing such Books and the names and addresses of all service bureaus,
computer or data processing companies and other Persons keeping any Books or
collecting Rights to Payment for the Company, are set forth in Schedule 1.

                  (c) Trade Names and Trade Styles. All trade names and trade
styles under which the Company presently conducts its business operations are
set forth in Schedule 1, and, except as set forth in Schedule 1, the Company has
not, at any time in the past two years: (i) been known as or used any other
corporate, trade or fictitious name; (ii) changed its name; (iii) been the
surviving or resulting corporation in a merger or consolidation; or (iv)
acquired through asset purchase or otherwise any business of any Person with a
purchase price in excess of $25 million.

                                      S-8

<PAGE>   9

                  (d) Ownership of Collateral. The Company is, and will
continue to be, the sole and complete owner of the Collateral (or, in the case
of after-acquired Collateral, at the time the Company acquires rights in such
Collateral, will be the sole and complete owner thereof), free from any Lien
other than Liens created by or pursuant to the Loan Documents and Permitted
Liens.

                  (e) Enforceability; Priority of Security Interest. (i) This
Agreement creates a security interest which is enforceable against the
Collateral in which the Company now has rights and will create a security
interest which is enforceable against the Collateral in which the Company
hereafter acquires rights at the time the Company acquires any such rights; and
(ii) upon the filing of Uniform Commercial Code financing statements in the
appropriate filing offices in each jurisdiction identified in Schedule 1 where
Collateral is located and except for Permitted Liens, the Collateral Agent has a
perfected and first priority security interest in the Collateral in which the
Company now has rights, and will have a perfected and first priority security
interest in the Collateral in which the Company hereafter acquires rights at the
time the Company acquires any such rights, in each case securing the payment and
performance of the Secured Obligations.

                  (f) Other Financing Statements. Other than (i) Financing
Statements disclosed to the Collateral Agent prior to the date hereof and (ii)
Financing Statements in favor of the Collateral Agent on behalf of itself and
the other Secured Parties, no effective Financing Statement naming the Company
as debtor, assignor, grantor, mortgagor, pledgor or the like and covering all or
any part of the Collateral is on file in any filing or recording office in any
jurisdiction.

                  (g) Rights to Payment.

                  (i) The Rights to Payment represent valid, binding and
enforceable obligations of the account debtors or other Persons obligated
thereon, representing undisputed, bona fide transactions completed in accordance
with the terms and provisions contained in any documents related thereto, and
are and will be genuine, free from Liens, and not subject to any adverse claims,
counterclaims, setoffs, defaults, disputes, defenses, discounts, retainages,
holdbacks or conditions precedent of any kind or character, in each case
material to the Company and except to the extent reflected by the Company's
reserves for uncollectible Rights to Payment or to the extent, if any, that such
account debtors or other Persons may be entitled to normal and ordinary course
trade discounts, returns, adjustments and allowances in accordance with Section
5(m), or as otherwise disclosed to the Collateral Agent and the Banks in
writing;

                  (ii) to the best of the Company's knowledge and belief (but
without independent investigation), all account debtors and other obligors on
the Rights to Payment are solvent and generally paying their debts as they come
due (except for Rights to Payment of account obligors for which the Company has
taken adequate reserves in accordance with GAAP);

                  (iii) all Rights to Payment comply in all material respects
with all applicable laws concerning form, content and manner of preparation and
execution, including where

                                      S-9

<PAGE>   10

applicable any federal or state consumer credit laws if and when taken as a
whole noncompliance therewith could reasonably result in a Material Adverse
Effect;

                  (iv) the Company has not assigned any of its rights under
the Rights to Payment except as provided in this Agreement or as set forth in or
permitted by the other Loan Documents;

                  (v) all statements made, all unpaid balances and all other
information in the Books and other documentation relating to the Rights to
Payment are in all material respects true and correct and what they purport to
be; and

                  (vi) the Company has no knowledge of any fact or
circumstance which would impair in any material respect the validity or
collectibility of any material part of the Rights to Payment.

                  (h) Inventory. Other than spare parts Inventory located at
customer sites and Inventory in the possession of a subcontractor of the
Company, as of the date hereof, no Inventory is stored with any bailee,
warehouseman or similar Person or on any premises leased to the Company, nor has
any Inventory been consigned to the Company or consigned by the Company to any
Person or is held by the Company for any Person under any "bill and hold" or
other arrangement except as permitted by Section 5(n) and, in each case, except
as set forth in Schedule 1.

                  (i) Instruments. All Instruments held by the Company are set
forth in Schedule 1.

                  SECTION 5 Covenants. In addition to the covenants of the
Company set forth in the Credit Agreements, which are incorporated herein by
this reference, so long as any of the Secured Obligations remain unsatisfied or
any Bank shall have any commitment to lend money or otherwise extend credit to
the Company under the Loan Documents, the Company agrees that:

                  (a) Defense of Collateral. The Company will appear in and
defend any action, suit or proceeding which may affect to a material extent its
title to, or right or interest in, or the Collateral Agent's right or interest
in, the Collateral consistent with customary and prudent business practices.

                  (b) Preservation of Collateral. The Company will do and
perform all reasonable acts that may be necessary and appropriate to maintain,
preserve and protect the value of the Collateral.

                  (c) Compliance with Laws, Etc. The Company will comply with
all laws, regulations and ordinances, and all policies of insurance, relating in
a material way to the possession, operation, maintenance and control of the
Collateral if the noncompliance therewith could reasonably result in a Material
Adverse Effect.

                  (d) Location of Books and Chief Executive Office. The
Company will: (i) keep all Books pertaining to the Rights to Payment at the
locations set forth in Schedule 1; and (ii) give at least 30 days' prior written
notice to the Collateral Agent of (A) any changes in

                                      S-10

<PAGE>   11

any such location where Books pertaining to the Rights to Payment are kept,
including any change of name or address of any service bureau, computer or data
processing company or other Person preparing or maintaining any Books or
collecting Rights to Payment for the Company or (B) any change in the location
of the Company's chief executive office or principal place of business.

                  (e) Location of Collateral. If any Inventory of the Company
shall be relocated to, or otherwise be located in, a state of the United States
in which a financing statement has not already been filed with respect to such
Inventory, and the aggregate value of such Inventory equals or exceeds
$5,000,000 (as determined by the Company using net book values as determined in
accordance with GAAP), the Company shall give the Collateral Agent prompt notice
thereof (and in any event not later than one Business Day after becoming aware
thereof).

                  (f) Change in Name, Identity or Structure. The Company will
give at least 30 days' prior written notice to the Collateral Agent of (i) any
change in its name, (ii) any changes in, additions to or other modifications of
its trade names and trade styles set forth in Schedule 1, and (iii) any changes
in its identity or structure in any manner which might make any Financing
Statement filed hereunder incorrect or misleading.

                  (g) Maintenance of Records . The Company will keep separate,
accurate and complete Books with respect to the Collateral.

                  (h) Invoicing of Sales. The Company will invoice all of its
sales upon forms customary in the industry and maintain proof of delivery and
customer acceptance of goods.

                  (i) Disposition of Collateral. The Company will not
surrender or lose possession of (other than to the Collateral Agent), sell,
lease, rent, or otherwise dispose of or transfer any of the Collateral or any
right or interest therein, except to the extent permitted by the Credit
Agreements.

                  (j) Liens. The Company will keep the Collateral free of all
Liens except Permitted Liens and Liens arising under the Loan Documents.

                  (k) Expenses. The Company will pay all validly assessed or
incurred expenses of protecting, storing, warehousing, insuring, handling and
shipping the Collateral.

                  (l) Leased Premises. At the Collateral Agent's request, the
Company will use its best efforts to obtain from each Person from whom the
Company leases any premises at which any Collateral is at any time present such
subordination, waiver, consent and estoppel agreements as the Collateral Agent
may require, in form and substance satisfactory to the Collateral Agent.

                  (m) Rights to Payment. The Company will:

                  (i) if requested by the Collateral Agent (but not more
frequently than annually or, if there exists an Event of Default and the
Directing Banks so require, then with such frequency as the Directing Banks may
require), furnish to the Collateral Agent full and


                                      S-11
<PAGE>   12

complete reports, in form and substance satisfactory to the Collateral Agent,
with respect to the Accounts, including information as to concentration, aging,
identity of account debtors, letters of credit securing Accounts, disputed
Accounts and other matters, as the Collateral Agent shall request;

                  (ii) give only normal discounts, allowances and credits as
to Accounts and other Rights to Payment, in the ordinary course of business,
according to normal trade practices utilized by the Company, and enforce all
Accounts and other Rights to Payment strictly in accordance with their terms,
and take all such action to such end as may from time to time be reasonably
requested by the Collateral Agent, except that the Company may grant any
extension of the time for payment or enter into any agreement to make a rebate
or otherwise to reduce the amount owing on or with respect to, or compromise or
settle for less than the full amount thereof, any Account or other Right to
Payment, in the ordinary course of business, according to normal trade practices
utilized by the Company;

                  (iii) except to the extent arising in the ordinary course of
business, if any discount, allowance, credit, extension of time for payment,
agreement to make a rebate or otherwise to reduce the amount owing on, or
compromise or settle, an Account or other Right to Payment exists or occurs, or
if, to the knowledge of the Company, any dispute, setoff, claim, counterclaim or
defense exists or has been asserted or threatened with respect to an Account or
other Right to Payment, disclose such fact fully to the Collateral Agent in the
Books relating to such Account or other Right to Payment and in connection with
any invoice or report furnished by the Company to the Collateral Agent relating
to such Account or other Right to Payment;

                  (iv) in accordance with its sound business judgment perform
and comply in all material respects with its obligations in respect of the
Accounts and other Rights to Payment;

                  (v) upon the request of the Collateral Agent during the
continuance of any Event of Default, (A) notify all or any designated portion of
the account debtors and other obligors on the Rights to Payment of the security
interest hereunder, and (B) notify the account debtors and other obligors on the
Rights to Payment or any designated portion thereof that payment shall be made
directly to the Collateral Agent or to such other Person or location as the
Collateral Agent shall specify; and

                  (vi) during the continuance of any Event of Default,
establish such lockbox or similar arrangements for the payment of the Accounts
and other Rights to Payment as the Directing Banks acting through the Collateral
Agent shall require.

                  (n) Inventory. The Company will:

                  (i) if requested by the Collateral Agent (but not more
frequently than annually or, if there exists an Event of Default and the
Directing Banks so require, then at such times as the Directing Banks shall
request), prepare and deliver to the Collateral Agent a report of all Inventory,
in form and substance satisfactory to the Collateral Agent;

                  (ii) (A) other than with respect to any Inventory in the
possession of a subcontractor of the Company, not store any material portion of
Inventory with a bailee, warehouseman or similar Person or on premises leased to
the Company without prior notice to

                                      S-12

<PAGE>   13

the Collateral Agent and (B), except with respect to demonstration models,
Inventory transferred as upgrades to existing customers and Inventory shipped to
customers awaiting customer acceptance, in each instance in the ordinary course
of the Company's business, not dispose of any Inventory on a bill-and-hold,
guaranteed sale, sale and return, sale on approval, consignment or similar
basis, nor acquire any Inventory from any Person on any such basis without in
each case giving the Collateral Agent prior written notice thereof.

                  (o) Notices, Reports and Information. The Company will (i)
notify the Collateral Agent of any material claim made or asserted against the
Collateral by any Person and of any change in the basic nature of the Collateral
or other event which could materially adversely affect the value of the
Collateral or the Collateral Agent's Lien thereon (other than commodity
fluctuations affecting the Company's industry generally); (ii) furnish to the
Collateral Agent such statements and schedules further identifying and
describing the Collateral and such other reports and other information in
connection with the Collateral as the Collateral Agent (acting on behalf of the
Directing Banks) may reasonably request, all in reasonable detail; and (iii)
upon request of the Collateral Agent make such demands and requests for
information and reports as the Company is entitled to make in respect of the
Collateral.

                  (p) Insurance. (i) The Company shall carry and maintain in
full force and effect, at the expense of the Company and with financially sound
and reputable insurance companies, insurance with respect to the Inventory in
such amounts, with such deductibles and covering such risks as is customarily
carried by Persons engaged in the same or similar business. Upon the request of
the Collateral Agent or the Directing Banks, and in any event not less often
than annually, the Company shall furnish the Collateral Agent with full
information as to such insurance carried by it and, if so requested, copies of
all such insurance policies. All insurance policies required under this
subsection (r) shall provide that they shall not be terminated or cancelled nor
shall any such policy be materially changed without at least 30 days' prior
written notice to the Company and the Collateral Agent (or 10 days' prior
written notice if the Collateral Agent consents to such shorter notice). Receipt
of notice of termination or cancellation of any such insurance policies or
reduction of coverages or amounts thereunder shall entitle the Collateral Agent
to renew any such policies, cause the coverages and amounts thereof to be
maintained at levels required pursuant to the first sentence of this subsection
(r) or otherwise to obtain similar insurance in place of such policies, in each
case at the expense of the Company.

                  (ii) If Inventory with a value exceeding $25,000,000 of the
Company shall be materially damaged or destroyed, in whole or in part, by fire
or other casualty, the Company shall give prompt notice thereof to the
Collateral Agent. No settlement on account of any loss on any such Collateral
covered by insurance shall be made for less than insured value without the
consent of the Directing Banks. Any payment exceeding $25,000,000 (but not in
excess of Secured Obligations) at any time made to the Company by any insurer
with respect to a casualty relating to all or any part of the Collateral shall
be paid to the Collateral Agent. If the Company shall receive any insurance
proceeds which are to be paid to the Collateral Agent pursuant to the previous
sentence, the Company shall hold such proceeds in trust for the Collateral
Agent, shall segregate such proceeds from other funds of the Company, and shall
immediately forward such proceeds in the form received to the Collateral Agent
(appropriately indorsed by the Company to the order of the Collateral Agent or
in such other manner as shall be satisfactory to the Collateral Agent). All such
insurance proceeds may be retained by the Collateral Agent as part of

                                      S-13

<PAGE>   14

Collateral hereunder and held in the Proceeds Account, applied by the Collateral
Agent toward payment of all or part of the Secured Obligations in such order as
is provided herein, or released to the Company upon its request with the consent
of the Directing Banks.

                  (q) Ownership by Subsidiaries. The Company will not permit
the aggregate value of all assets of its Subsidiaries that, if owned directly by
the Company, would constitute Collateral hereunder to exceed $5,000,000 at any
time.

                  SECTION 6 Collection of Rights to Payment. Until the
Collateral Agent exercises its rights hereunder to collect Rights to Payment,
the Company shall endeavor in the first instance diligently to collect all
amounts due or to become due on or with respect to the Rights to Payment. At the
request of the Collateral Agent, during the continuance of any Event of Default,
all remittances received by the Company shall be held in trust for the
Collateral Agent and, in accordance with the Collateral Agent's instructions
(acting on behalf of the Directing Banks), remitted to the Collateral Agent or
deposited to an account with the Collateral Agent in the form received (with any
necessary endorsements or instruments of assignment or transfer).

                  SECTION 7 Authorization; Collateral Agent Appointed
Attorney-in-Fact. The Collateral Agent shall have the right to, in the name of
the Company, or in the name of the Collateral Agent or otherwise, without notice
to or assent by the Company, and the Company hereby constitutes and appoints the
Collateral Agent (and any of the Collateral Agent's officers or employees or
Collateral Agents designated by the Collateral Agent) as the Company's true and
lawful attorney-in-fact, with full power and authority to:

                  (i) sign any of the Financing Statements which must be
executed or filed to perfect or continue perfected, maintain the priority of or
provide notice of the Collateral Agent's security interest in the Collateral;

                  (ii) take possession of and endorse any notes, acceptances,
checks, drafts, money orders or other forms of payment or security and collect
any Proceeds of any Collateral;

                  (iii) sign and endorse any invoice or bill of lading
relating to any of the Collateral, warehouse or storage receipts, drafts against
customers or other obligors, assignments, notices of assignment, verifications
and notices to customers or other obligors;

                  (iv) notify the U.S. Postal Service and other postal
authorities to change the address for delivery of mail addressed to the Company
to such address as the Collateral Agent may designate (provided that, if the
U.S. Postal Service or such other postal authorities agree to do so, and it is
not impractical to do so, only such mail as relates to the Collateral shall be
sent to such address as the Collateral Agent shall designate, and provided
further that the Collateral Agent agrees it will promptly deliver over to the
Company any mail that does not relate to the Collateral); and, without limiting
the generality of the foregoing, establish with any Person lockbox or similar
arrangements for the payment of the Rights to Payment;

                  (v) receive, open and dispose of all mail addressed to the
Company that purports to be from a Domestic Obligor (provided that the
Collateral Agent agrees it will promptly deliver over to the Company any mail
that does not relate to the Collateral);

                                      S-14

<PAGE>   15

                  (vi) send requests for verification of Rights to Payment to
the customers or other obligors of the Company;

                  (vii) contact, or direct the Company to contact, all account
debtors and other obligors on the Rights to Payment and instruct such account
debtors and other obligors to make all payments directly to the Collateral
Agent;

                  (viii) assert, adjust, sue for, compromise or release any
claims under any policies of insurance in respect of Collateral;

                  (ix) notify each Person maintaining lockbox or similar
arrangements for the payment of the Rights to Payment to remit all amounts
representing collections on the Rights to Payment directly to the Collateral
Agent;

                  (x) ask, demand, collect, receive and give acquittances and
receipts for any and all Rights to Payment, enforce payment or any other rights
in respect of the Rights to Payment and other Collateral, grant consents, agree
to any amendments, modifications or waivers of the agreements and documents
governing the Rights to Payment and other Collateral, and otherwise file any
claims, take any action or institute, defend, settle or adjust any actions,
suits or proceedings with respect to the Collateral, as the Collateral Agent may
deem necessary or desirable to maintain, preserve and protect the Collateral, to
collect the Collateral or to enforce the rights of the Collateral Agent with
respect to the Collateral;

                  (xi) execute any and all endorsements, assignments or other
documents and instruments necessary to sell, lease, assign, convey or otherwise
transfer title in or dispose of the Collateral;

                  (xii) execute and deliver to any securities intermediary or
other Person any entitlement order, account control agreement or other notice,
document or instrument which the Collateral Agent may deem necessary of
advisable to realize upon the Collateral; and

                  (xiii) execute any and all such other documents and
instruments, and do any and all acts and things for and on behalf of the
Company, which the Collateral Agent may deem necessary or advisable to (A)
realize upon the Collateral, and (B) maintain, protect and preserve the
Collateral and the Collateral Agent's security interest therein and to
accomplish the purposes of this Agreement.

The Collateral Agent agrees that, except during the continuance of an Event of
Default, it shall not exercise the power of attorney, or any rights granted to
the Collateral Agent, pursuant to clauses (ii) through (xii) and (xii)(A). The
foregoing power of attorney is coupled with an interest and irrevocable so long
as the Banks have any commitments to lend money or otherwise extend credit to
the Company or the Secured Obligations have not been paid and performed in full.
The Company hereby ratifies, to the extent permitted by law, all that the
Collateral Agent shall lawfully and in good faith do or cause to be done by
virtue of and in compliance with this Section 7.

                  SECTION 8 Collateral Agent Performance of Company
Obligations. The Collateral Agent may perform or pay any obligation which the
Company has agreed to perform

                                      S-15

<PAGE>   16

or pay under or in connection with this Agreement, and the Company shall
reimburse the Collateral Agent on demand for any amounts paid by the Collateral
Agent pursuant to this Section 8.

                  SECTION 9 Collateral Agent's Duties. Notwithstanding any
provision contained in this Agreement, the Collateral Agent shall have no duty
to exercise any of the rights, privileges or powers afforded to it and shall not
be responsible to the Company or any other Person for any failure to do so or
delay in doing so. Beyond the exercise of reasonable care to assure the safe
custody of Collateral in the Collateral Agent's possession and the accounting
for moneys actually received by the Collateral Agent hereunder, the Collateral
Agent shall have no duty or liability to exercise or preserve any rights,
privileges or powers pertaining to the Collateral.

                  SECTION 10 Remedies.

                  (a) Remedies. During the continuance of any Event of
Default, the Collateral Agent shall have, in addition to all other rights and
remedies granted to it in this Agreement or any other Loan Document, all rights
and remedies of a secured party under the UCC and other applicable laws. Without
limiting the generality of the foregoing, the Company agrees that:

                  (i) The Collateral Agent may peaceably and without notice
enter any premises of the Company, take possession of any Collateral, remove or
dispose of all or part of the Collateral on any premises of the Company or
elsewhere, and otherwise collect, receive, appropriate and realize upon all or
any part of the Collateral, and demand, give receipt for, settle, renew, extend,
exchange, compromise, adjust, or sue for all or any part of the Collateral, as
the Collateral Agent may determine.

                  (ii) The Collateral Agent may require the Company to
assemble all or any part of the Collateral and make it available to the
Collateral Agent, at any place and time designated by the Collateral Agent.

                  (iii) The Collateral Agent may secure the appointment of a
receiver of the Collateral or any part thereof (to the extent and in the manner
provided by applicable law).

                  (iv) The Collateral Agent may sell, resell, lease, use,
assign, transfer or otherwise dispose of any or all of the Collateral in its
then condition or following any commercially reasonable preparation or
processing (utilizing in connection therewith any of the Company's assets,
without charge or liability to the Collateral Agent therefor) at public or
private sale, by one or more contracts, in one or more parcels, at the same or
different times, for cash or credit or for future delivery without assumption of
any credit risk, all as the Collateral Agent deems advisable; provided, however,
that the Company shall be credited with the net proceeds of sale only when such
proceeds are finally collected by the Collateral Agent. The Collateral Agent
shall have the right upon any such public sale, and, to the extent permitted by
law, upon any such private sale, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption, which right or
equity of redemption the Company hereby releases, to the extent permitted by
law. The Company hereby agrees that the sending of notice by ordinary mail,
postage prepaid, to the address of the Company set forth in Section 12, of the

                                      S-16

<PAGE>   17

place and time of any public sale or of the time after which any private sale or
other intended disposition is to be made, shall be deemed reasonable notice
thereof if such notice is sent ten days prior to the date of such sale or other
disposition or the date on or after which such sale or other disposition may
occur, provided that the Collateral Agent may provide the Company shorter notice
or no notice, to the extent permitted by the UCC or other applicable law.

                  (b) License. For the purpose of enabling the Collateral
Agent to exercise its rights and remedies under this Section 10 or otherwise in
connection with this Agreement and the other Loan Documents, the Company hereby
grants to the Collateral Agent an irrevocable, non-exclusive and assignable
license (exercisable without payment or royalty or other compensation to the
Company) to use, license or sublicense any patents, copyrights, trademarks,
trade styles, trade names and all intellectual property, to enable the
Collateral Agent (among other things) to transfer any of the tangible assets of
the Company that are included in the Collateral.

                  (c) Proceeds Account. To the extent that any of the Secured
Obligations may be contingent, unmatured or unliquidated (including with respect
to undrawn amounts under any letters of credit outstanding under the $350MM
Credit Agreement) at such time as there may exist an Event of Default, the
Collateral Agent may, at its election, (i) retain the proceeds of any sale,
collection, disposition or other realization upon the Collateral (or any portion
thereof) in a special purpose non-interest-bearing restricted deposit account
(the "Proceeds Account") created and maintained by the Collateral Agent for such
purpose (which shall constitute a Deposit Account included within the Collateral
hereunder) until such time as the Collateral Agent may elect to apply such
proceeds to the Secured Obligations, and the Company agrees that such retention
of such proceeds by the Collateral Agent shall not be deemed strict foreclosure
with respect thereto; (ii) in any manner elected by the Collateral Agent,
estimate the liquidated amount of any such contingent, unmatured or unliquidated
claims and apply the proceeds of the Collateral against such amount; or (iii)
otherwise proceed in any manner permitted by applicable law. The Company agrees
that the Proceeds Account shall be a blocked account and that upon the
irrevocable deposit of funds into the Proceeds Account, the Company shall not
have any right of withdrawal with respect to such funds. Accordingly, the
Company irrevocably waives until the termination of this Agreement in accordance
with Section 22 the right to make any withdrawal from the Proceeds Account and
the right to instruct the Collateral Agent to honor drafts against the Proceeds
Account.

                  (d) Application of Proceeds. Subject to subsection (c), cash
proceeds actually received from the sale or other disposition or collection of
Collateral, and any other amounts received in respect of the Collateral the
application of which is not otherwise provided for herein, shall be applied
(after payment of any amounts payable to the Collateral Agent pursuant to
Section 8 or Section 14) in whole or in part by the Collateral Agent for the
benefit of the Secured Parties (as their interests may appear) against all or
any part of the Secured Obligations in the following order: (i) first, to any
fees due in respect of the 364-Day Secured Obligations and any fees due in
respect of the $350MM Secured Obligations, on a pro rata basis; (ii) next, to
any interest due in respect of the 364-Day Secured Obligations and any interest
due in respect of the $350MM Secured Obligations, on a pro rata basis; (iii)
next, to any principal due in respect of the 364-Day Secured Obligations and any
principal due in respect of the $350MM Secured Obligations, on a pro rata basis;
and (iv) last, to any other 364-Day Secured Obligations and any

                                      S-17

<PAGE>   18

other $350MM Secured Obligations, on a pro rata basis. Any surplus thereof which
exists after payment and performance in full of the Secured Obligations shall be
promptly paid over to the Company or otherwise disposed of in accordance with
the UCC or other applicable law. The Company shall remain liable to the
Collateral Agent and other Secured Parties for any deficiency which exists after
any sale or other disposition or collection of Collateral.

                  SECTION 11 Certain Waivers. The Company waives, to the
fullest extent permitted by law, (i) any right of redemption with respect to the
Collateral, whether before or after sale hereunder, and all rights, if any, of
marshalling of the Collateral or other collateral or security for the Secured
Obligations; (ii) any right to require the Collateral Agent or the Banks (A) to
proceed against any Person, (B) to exhaust any other collateral or security for
any of the Secured Obligations, (C) to pursue any remedy in the Collateral
Agent's or any of the Banks' power, or (D) to make or give any presentments,
demands for performance, notices of nonperformance, protests, notices of
protests or notices of dishonor in connection with any of the Collateral; and
(iii) all claims, damages, and demands against the Collateral Agent or any Bank
arising out of the repossession, retention, sale or application of the proceeds
of any sale of the Collateral.

                  SECTION 12 Notices. (a) All notices and other communications
hereunder shall be in writing (including, unless the context expressly otherwise
provides, by facsimile transmission, provided that any matter transmitted by the
Company by facsimile (i) shall be promptly confirmed by a telephone call to the
recipient at the number specified for such recipient in the 364-Day Credit
Agreement or the $350MM Credit Agreement, as the case may be, and (ii) shall be
followed promptly by delivery of a hard copy original thereof) and mailed, faxed
or delivered, to the address or facsimile number specified for notices in the
364-Day Credit Agreement or the $350MM Credit Agreement, as the case may be; or,
as directed to the Company or the Collateral Agent, to such other address as
shall be designated by such party in a written notice to the other parties, and
as directed to any other party, at such other address as shall be designated by
such party in a written notice to the Company and the Collateral Agent. All
notices to the Company shall be sent to Storage Technology Corporation, One
StorageTek Drive, Louisville, CO 80028-4302, Attention: Assistant Treasurer,
Telecopy No.: (303) 673-2837. All notices to the Collateral Agent shall be sent
to Bank of America, N.A., High Technology-SF #3697, Credit Products, Mail Code:
CA5-705-41-01, 555 California Street, 41st Floor, San Francisco, CA 94104,
Attention: Kevin McMahon, Telecopy No.: (415) 622-2385.

                  (b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mails, or if hand-delivered, upon delivery; except that
notices the Collateral Agent shall not be effective until actually received by
the Collateral Agent.

                  SECTION 13 No Waiver; Cumulative Remedies. No failure on the
part of the Collateral Agent or any Bank to exercise, and no delay in
exercising, any right, remedy, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
remedy, power or privilege preclude any other or further exercise thereof or the

                                      S-18

<PAGE>   19

exercise of any other right, remedy, power or privilege. The rights and remedies
under this Agreement are cumulative and not exclusive of any rights, remedies,
powers and privileges that may otherwise be available to the Collateral Agent or
any Bank.

                  SECTION 14 Costs and Expenses; Indemnification; Other
Charges.

                  (a) Costs and Expenses. The Company agrees to pay or
reimburse on demand:

                  (i) the reasonable out-of-pocket costs and expenses of the
Collateral Agent (including reasonable Attorney Costs and search, recording and
filing fees and expenses, provided, that the Collateral Agent shall deliver
reasonably detailed statements for such fees and expenses), in connection with
the negotiation, preparation, execution, delivery and administration of this
Agreement, and any amendments, modifications or waivers of the terms thereof,
and the custody of the Collateral;

                  (ii) upon the occurrence of an Event of Default, all title,
appraisal (including the allocated costs of internal appraisal services,
provided, that the Collateral Agent shall deliver reasonably detailed statements
for such fees and expenses), survey, audit, consulting and similar fees, costs
and expenses incurred or sustained by the Collateral Agent in connection with
this Agreement or the Collateral; and

                  (iii) all costs and expenses of the Collateral Agent, the
other Secured Parties (including reasonable Attorney Costs and search, recording
and filing fees and expenses, provided, that the Collateral Agent shall deliver
reasonably detailed statements for such fees and expenses), in connection with
the enforcement or attempted enforcement of, and preservation of any rights or
interests under, this Agreement, any out-of-court workout or other refinancing
or restructuring or in any bankruptcy case, and the protection, sale or
collection of, or other realization upon, any of the Collateral, including all
expenses of taking, collecting, holding, sorting, handling, preparing for sale,
selling, or the like, and other such expenses of sales and collections of
Collateral, and any and all losses, costs and expenses sustained by the
Collateral Agent or any Bank as a result of any failure by the Company to
perform or observe its obligations contained herein.

                  (b) Indemnification. The Company hereby agrees to indemnify
the Collateral Agent and each Bank, and their respective directors, officers,
employees, agents, counsel and other advisors (each an "Indemnified Person")
against, and hold each of them harmless from, any and all liabilities,
obligations, losses, claims, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever (including
reasonable Attorney Costs, provided that the Collateral Agent shall deliver
reasonably detailed statements for such fees and expenses), which may be imposed
on, incurred by, or asserted against any Indemnified Person, in any way relating
to or arising out of this Agreement or the transactions contemplated hereby or
any action taken or omitted to be taken by it hereunder (the "Indemnified
Liabilities"); provided that the Company shall not be liable to any Indemnified
Person with respect to Indemnified Liabilities arising from such Indemnified
Person's gross negligence or willful misconduct. If and to the extent that the
foregoing indemnification is for any reason held

                                      S-19

<PAGE>   20

unenforceable, the Company agrees to make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.

                  (c) Other Charges. The Company agrees to indemnify the
Collateral Agent and each of the Banks against and hold each of them harmless
from any and all present and future stamp, transfer, documentary and other such
taxes, levies, fees, assessments and other charges made by any jurisdiction by
reason of the execution, delivery, performance and enforcement of this
Agreement.

                  (d) Interest. During the existence of any Event of Default,
any amounts payable to the Collateral Agent or any Bank under this Section 14 or
otherwise under this Agreement if not paid within two Business Days of demand
shall bear interest from the date of such demand until paid in full, at the rate
of interest per annum equal to the rate of interest publicly announced from time
to time by BofA as its "prime rate" plus 2%.

                  SECTION 15 Binding Effect. This Agreement shall be binding
upon, inure to the benefit of and be enforceable by the Company, the Collateral
Agent, each Bank and each Indemnified Person and their respective successors and
assigns.

                  SECTION 16 Governing Law. THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA, EXCEPT
AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND TO THE EXTENT THE VALIDITY OR
PERFECTION OF THE SECURITY INTERESTS HEREUNDER, OR THE REMEDIES HEREUNDER, IN
RESPECT OF ANY COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN
CALIFORNIA.

                  SECTION 17 Entire Agreement; Amendment. This Agreement,
together with the other Loan Documents, embodies the entire agreement and
understanding among the Company, the Banks, the Collateral Agent and the other
Secured Parties, and supersedes all prior or contemporaneous agreements and
understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof and shall not be amended except by the written
agreement of the parties as provided in the Credit Agreement.

                  SECTION 18 Severability. Whenever possible, each provision
of this Agreement shall be interpreted in such manner as to be effective and
valid under all applicable laws and regulations. If, however, any provision of
this Agreement shall be prohibited by or invalid under any such law or
regulation in any jurisdiction, it shall, as to such jurisdiction, be deemed
modified to conform to the minimum requirements of such law or regulation, or,
if for any reason it is not deemed so modified, it shall be ineffective and
invalid only to the extent of such prohibition or invalidity without affecting
the remaining provisions of this Agreement, or the validity or effectiveness of
such provision in any other jurisdiction.

                  SECTION 19 Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.

                                      S-20

<PAGE>   21

                  SECTION 20 Incorporation of Provisions of the Credit
Agreement. To the extent the Credit Agreements contain provisions of general
applicability to the Loan Documents, such provisions are incorporated herein by
this reference.

                  SECTION 21 No Inconsistent Requirements. The Company
acknowledges that this Agreement and the other Loan Documents may contain
covenants and other terms and provisions variously stated regarding the same or
similar matters, and agrees that all such covenants, terms and provisions are
cumulative and all shall be performed and satisfied in accordance with their
respective terms.

                  SECTION 22 Termination. Upon the termination of the
commitments of the Banks to lend money or otherwise extend credit to the Company
under the Loan Documents and payment and performance in full of all Secured
Obligations, this Agreement shall terminate and the Collateral Agent shall
promptly execute and deliver to the Company such documents and instruments
reasonably requested by the Company as shall be necessary to evidence
termination of all security interests given by the Company to the Collateral
Agent hereunder; provided, however, that the obligations of the Company under
Section 14 shall survive such termination.

                  IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.

                                   THE COMPANY

                                   STORAGE TECHNOLOGY CORPORATION


                                   By:
                                        -------------------------------------
                                   Title:


                                   THE COLLATERAL AGENT

                                   BANK OF AMERICA, N.A., as Collateral Agent


                                   By:
                                        -------------------------------------
                                   Title:





                                      S-21