STORAGE TECHNOLOGY CORPORATION

                     Performance-based Incentive Bonus Plan
                        (Effective as of January 1, 1999)


1.    Purpose

      The purpose of the Plan is to motivate and retain  eligible  employees for
achievement  of goals  relating to the  performance  of the Company  and, or its
business units or segments. The Plan is designed to ensure that the annual bonus
paid hereunder to officers of the Company is deductible  under Section 162(m) of
the Internal Revenue Code (the "Code"), and the regulations thereunder ("Section
162(m)").

2.    Covered Individuals

      Participation in the Plan is determined  annually in the discretion of the
Committee.  In selecting  participants  for the Plan,  the Committee will select
officers  of  the  Company  and  its  subsidiaries  who  are  likely  to  have a
significant impact on the performance of the Company.

3.    Administration of the Plan

      The Plan will be  administered  by the Human  Resources  and  Compensation
Committee  (the  "Committee")  of the Board of  Directors  of the  Company.  The
Committee  shall  have the sole  discretion  and  authority  to  administer  and
interpret the Plan in accordance with Section 162(m) of the Code.

4.    Maximum Bonus and Performance Goals

      The  annual  bonus  will be paid in cash,  or in shares  of the  Company's
Common Stock (including  restricted stock) or Common Stock equivalents,  in lieu
of cash, as the Committee,  in its sole  discretion,  may determine from time to
time. For each fiscal year, the Committee will  establish:  (a) the award levels
for the participants,  (b) the performance goals which must be achieved in order
for a participant  to be paid an award at specified  level,  and (c) the formula
for determining actual awards, using the performance measures as variables.

      Each participant's potential bonus award will be stated as a percentage of
his or her annual base  salary.  Base salary  will be the  participant's  annual
salary rate on the last day of the fiscal year.

      The Committee may use one or more of the following performance measures in
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establishing  performance goals for any participant for any fiscal year: (i) net
after-tax  income;  (ii) total annual  revenue;  (iii) earnings per share;  (iv)
stockholder value add objectives;  (v) customer  satisfaction  objectives;  (vi)
product and solution  development and introduction time; (vii) return on equity;
(viii)  return on assets;  (ix) market  penetration;  (x)  product and  services
quality and  reliability  measurements;  (xi) employee  development and training
objectives;  (xii)  operating  expenses;  (xiii)  product sales  margins;  (xiv)
operating profit; (xv) employee  satisfaction  objectives;  and (xvi) individual
performance  objectives.  The Committee may select performance goals that differ
from participant to participant and may select performance goals that apply on a
corporate basis, or business unit or segment basis.

      No bonus in excess of $3 million will be paid to any one officer  pursuant
to the Plan.  The Committee may reduce or entirely  eliminate all bonus payments
under the Plan for any year, or any participant's bonus for any year in its sole
discretion.

5.    Payment of Bonus

      No bonus will be paid  unless and until the  Committee  has  certified  in
writing that the performance  goals have been satisfied.  The payment of a bonus
for any given fiscal year  requires  that the  participant  be on the  Company's
payroll as of the date that the Committee  determines that the performance goals
were achieved as to all  participants  in the Plan.  However,  the Committee may
make  exceptions  to this  requirement  in the  case of  death,  retirement,  or
disability, or such other circumstances as the Committee may determine.

6.    Amendment and Termination

      The  Committee  reserves the right to amend or  terminate  the Plan at any
time without stockholder approval, except to the extent stockholder approval may
be required to ensure the Plan's qualification under Section 162(m) of the Code,
as in effect from time to time.