<PAGE>

                                                                    EXHIBIT 10.2
                            SUBORDINATION AGREEMENT


     THIS SUBORDINATION AGREEMENT (this "Agreement") is entered into by and
among ANDATACO OF CALIFORNIA, INC., a California corporation ("Borrower"), NSTOR
TECHNOLOGIES, INC., a Delaware corporation ("Creditor"), and WELLS FARGO CREDIT,
INC. ("Bank").


                                   RECITALS

     A.  Borrower is indebted to Creditor, and Borrower proposes to obtain
credit or has obtained credit from Bank; and

     B.  Bank has indicated that it will extend or continue credit to Borrower
if certain conditions are met, including without limitation, the requirement
that Creditor execute this Agreement.

     NOW, THEREFORE, as an inducement to Bank to extend or continue to extend
credit and for other valuable consideration, the parties hereto agree as
follows:

     1.  INDEBTEDNESS SUBORDINATED.  Creditor subordinates all Indebtedness now
or at any time hereafter owing from Borrower to Creditor (including without
limitation, interest thereon which may accrue subsequent to Borrower becoming
subject to any state or federal debtor-relief statute) ("Junior Debt") to all
Indebtedness now or at any time hereafter owing from Borrower to Bank ("Senior
Debt"). Creditor irrevocably consents and directs that all Senior Debt shall be
paid in full prior to Borrower making any payment on any Junior Debt, except
such payments as are expressly permitted by Section 3 of this Agreement.
Creditor will, and Bank is authorized in the name of Creditor from time to time
to, execute and file such financing statements and other documents as Bank may
require in order to give notice to other persons and entities of the terms and
provisions of this Agreement. As long as this Agreement is in effect, Creditor
will not take any action or initiate any proceedings, judicial or otherwise, to
enforce Creditor's rights or remedies with respect to any Junior Debt, including
without limitation, any action to enforce remedies with respect to any
collateral securing any Junior Debt or to obtain any judgment or prejudgment
remedy against Borrower or any such collateral.

     2.  INDEBTEDNESS DEFINED.  The word "Indebtedness" is used herein in its
most comprehensive sense and includes any and all advances, debts, obligations
and liabilities of Borrower heretofore, now or hereafter made, incurred or
created, whether voluntary or involuntary and however arising, whether due or
not due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, and whether Borrower may be liable individually or jointly with
others, including without limitation, obligations and liabilities arising from
notes, repurchase agreements and trust receipts.

     3.  RESTRICTION OF PAYMENT OF JUNIOR DEBT; DISPOSITION OF PAYMENTS RECEIVED
BY CREDITOR.  Borrower will not make, and Creditor will not accept or receive,
any payment or benefit in cash, by setoff or otherwise, directly or indirectly,
on account of principal, interest or any other amounts owing on any Junior Debt.
If any payment is made in violation of this Agreement, Creditor shall promptly
deliver the same to Bank in the form received, with any endorsement or
assignment necessary for the transfer of such payment or amounts setoff from
Creditor to Bank, to be either (in Bank's sole discretion) held as cash
collateral securing the Senior Debt or applied in reduction of the Senior Debt
in such order as Bank shall determine, and until so delivered, Creditor shall
hold such payment in trust for and on behalf of, and as the property of, Bank.
<PAGE>

     4.  DISPOSITION OF EVIDENCE OF INDEBTEDNESS.  If there is any existing
promissory note or other evidence of any of the Junior Debt, or if any
promissory note or other evidence of Indebtedness is executed at any time
hereafter with respect thereto, then Borrower and Creditor will mark the same
with a legend stating that it is subject to this Agreement, and if asked to do
so, will deliver the same to Bank. Creditor shall not, without Bank's prior
written consent, assign, transfer, hypothecate or otherwise dispose of any claim
it now has or may at any time hereafter have against Borrower at any time that
any Senior Debt remains outstanding and/or Bank remains committed to extend any
credit to Borrower.

     5.  AGREEMENT TO BE CONTINUING; APPLIES TO BORROWER'S EXISTING INDEBTEDNESS
AND ANY INDEBTEDNESS HEREAFTER ARISING.  This Agreement shall be a continuing
agreement and shall apply to any and all Indebtedness of Borrower to Bank or
Creditor now existing or hereafter arising, including any Indebtedness arising
under successive transactions, related or unrelated, and notwithstanding that
from time to time all Indebtedness theretofore existing may have been paid in
full.

     6.  TERMINATION BY CREDITOR.  Creditor may, to the extent provided herein,
terminate this Agreement by delivering written notice to Bank.  Any such notice
must be sent to Bank by registered U.S. mail, postage prepaid, addressed to its
office at 245 S. Los Robles Avenue, Suite 600, Pasadena, California, Attn:
ANDATACO Account Officer, or at such other address as Bank shall from time to
time designate. If such notice is received by Bank, this Agreement shall
terminate as of the date of receipt, except that the obligations of Creditor and
the rights of Bank hereunder shall continue with respect to all Senior Debt
which existed at the time of Bank's receipt of such notice, or thereafter arose
pursuant to any agreement to extend credit by which Bank is bound at the time of
its receipt of such notice, and any extensions, renewals or modifications of any
such then existing or committed Senior Debt, including without limitation,
modifications to the amount of principal or interest payable on any Senior Debt
and the release of any security for or any guarantors of all or any portion of
any Senior Debt.

     7.  REPRESENTATIONS AND WARRANTIES; INFORMATION.  Borrower and Creditor
represent and warrant to Bank that: (a) no interest in the Junior Debt has been
assigned or otherwise transferred to any person or entity; (b) payment of the
Junior Debt has not been heretofore subordinated to any other creditor of
Borrower; and (c) Creditor has the requisite power and authority to enter into
and perform its obligations under this Agreement. Creditor further represents
and warrants to Bank that Creditor has established adequate, independent means
of obtaining from Borrower on a continuing basis financial and other information
pertaining to Borrower's financial condition. Creditor agrees to keep adequately
informed from such means of any facts, events or circumstances which might in
any way affect Creditor's risks hereunder, and Creditor agrees that Bank shall
have no obligation to disclose to Creditor information or material about
Borrower which is acquired by Bank in any manner. Bank may, at Bank's sole
option and without obligation to do so, disclose to Creditor any information or
material relating to Borrower which is acquired by Bank by any means, and
Borrower hereby agrees to and authorizes any such disclosure by Bank.

     8.  TRANSFER OF ASSETS OR REORGANIZATION OF BORROWER.  If any petition is
filed or any proceeding is instituted by or against Borrower under any
provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, or
any other or similar law relating to bankruptcy, insolvency, reorganization or
other relief for debtors, or generally affecting creditors' rights, or seeking
the appointment of a receiver, trustee, custodian or liquidator of or for
Borrower or any of its assets, any payment or distribution of any of Borrower's
assets, whether in cash, securities or any other property, which would be
payable or deliverable with respect to any Junior Debt, shall be paid or
delivered to Bank until all Senior Debt is paid in full. Creditor grants to
Bank the right to enforce, collect and receive any such payment or distribution
and to give releases or acquittances therefor, and Creditor authorizes Bank as
its attorney-in-fact to vote and prove the Junior Debt in any of the above-
described proceedings or in any meeting of creditors of Borrower relating
thereto.
<PAGE>

     9.   OTHER AGREEMENTS; NO THIRD PARTY BENEFICIARIES.  Bank shall have no
direct or indirect obligations to Creditor of any kind with respect to the
manner or time in which Bank exercises (or refrains from exercising) any of its
rights or remedies with respect to the Senior Debt, Borrower or any of
Borrower's assets. Creditor understands that there may be various agreements
between Bank and Borrower evidencing and governing the Senior Debt, and Creditor
acknowledges and agrees that such agreements are not intended to confer any
benefits on Creditor. Creditor further acknowledges that Bank may administer the
Senior Debt and any of Bank's agreements with Borrower in any way Bank deems
appropriate, without regard to Creditor or the Junior Debt. Creditor waives any
right Creditor might otherwise have to require a marshalling of any security
held by Bank for all or any part of the Senior Debt or to direct or affect the
manner or timing with which Bank enforces any of its security. Nothing in this
Agreement shall impair or adversely affect any right, privilege, power or remedy
of Bank with respect to the Senior Debt, Borrower or any assets of Borrower,
including without limitation, Bank's right to: (a) waive, release or subordinate
any of Bank's security or rights; (b) waive or ignore any defaults by Borrower;
and/or (c) restructure, renew, modify or supplement the Senior Debt, or any
portion thereof, or any agreement with Borrower relating to any Senior Debt. All
rights, privileges, powers and remedies of Bank may be exercised from time to
time by Bank without notice to or consent of Creditor.

     10.   BREACH OF AGREEMENT BY BORROWER OR CREDITOR.  In the event of any
breach of this Agreement by Borrower or Creditor, then and at any time
thereafter Bank shall have the right to declare immediately due and payable all
or any portion of the Senior Debt without presentment, demand, notice of
nonperformance, protest, notice of protest or notice of dishonor, all of which
are hereby expressly waived by Borrower and Creditor. No delay, failure or
discontinuance of Bank in exercising any right, privilege, power or remedy
hereunder shall be deemed a waiver of such right, privilege, power or remedy;
nor shall any single or partial exercise of any such right, privilege, power or
remedy preclude, waive or otherwise affect the further exercise thereof or the
exercise of any other right, privilege, power or remedy. Any waiver, permit,
consent or approval of any kind by Bank with respect to this Agreement must be
in writing and shall be effective only to the extent set forth in such writing.

     11.  LIQUIDATED DAMAGES.  Inasmuch as the actual damages which could result
from a breach by Creditor of its duties under Section 3 hereof are uncertain and
would be impractical or extremely difficult to fix, Creditor shall pay to Bank,
in the event of any such breach by Creditor, as liquidated and agreed damages,
and not as a penalty, all sums received by Creditor in violation of this
Agreement on account of the Junior Debt, which sums represent a reasonable
endeavor to estimate a fair compensation for the foreseeable losses that might
result from such a breach.

     12.  COSTS, EXPENSES AND ATTORNEYS' FEES.  If any party hereto institutes
any arbitration or judicial or administrative action or proceeding to enforce
any provisions of this Agreement, or alleging any breach of any provision hereof
or seeking damages or any remedy, the losing party or parties shall pay to the
prevailing party or parties all costs and expenses, including reasonable
attorneys' fees (to include outside counsel fees and all allocated costs of such
prevailing party's in-house counsel), expended or incurred by the prevailing
party or parties in connection therewith, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and including any of
the foregoing incurred in connection with any bankruptcy proceeding (including
without limitation, any adversary proceeding, contested matter or motion brought
by Bank or any other person) relating to Borrower, Creditor or any other person
or entity.

     13.  SUCCESSORS; ASSIGNS; AMENDMENT.  This Agreement shall be binding upon
and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties. This Agreement may be
amended or modified only in writing signed by all parties hereto.
<PAGE>

     14.  CONSTRUCTION.  All words used herein in the singular shall be deemed
to have been used in the plural where the context so requires.

     15.  SEVERABILITY OF PROVISIONS.  If any provision of this Agreement shall
be held to be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of such waiver or other provision or any
remaining provisions of this Agreement.

     16.  GOVERNING LAW.  This Agreement shall be governed by and construed in
accordance with the laws of the State of California.

     17.  ARBITRATION.

     (a) Arbitration.  Upon the demand of any party, any Dispute shall be
         -----------
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Agreement. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, this Agreement and each other
document, instrument or contract required hereby or now or hereafter delivered
to Bank in connection herewith (collectively, the "Documents"), or any past,
present or future extensions of credit and other activities, transactions or
obligations of any kind related directly or indirectly to any of the Documents,
including without limitation, any of the foregoing arising in connection with
the exercise of any self-help, ancillary or other remedies pursuant to any of
the Documents. Any party may by summary proceedings bring an action in court to
compel arbitration of a Dispute. Any party who fails or refuses to submit to
arbitration following a lawful demand by any other party shall bear all costs
and expenses incurred by such other party in compelling arbitration of any
Dispute.

     (b)  Governing Rules.  Arbitration proceedings shall be administered by the
          ---------------
American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Documents.
The arbitration shall be conducted at a location in California selected by the
AAA or other administrator. If there is any inconsistency between the terms
hereof and any such rules, the terms and procedures set forth herein shall
control. All statutes of limitation applicable to any Dispute shall apply to any
arbitration proceeding. All discovery activities shall be expressly limited to
matters directly relevant to the Dispute being arbitrated. Judgment upon any
award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be deemed to
be a waiver by any party that is a bank of the protections afforded to it under
12 U.S.C. (S)91 or any similar applicable state law.

     (c)   No Waiver; Provisional Remedies, Self-Help and Foreclosure.  No
           ----------------------------------------------------------
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.

     (d) Arbitrator Qualifications and Powers; Awards.  Arbitrators must be
         --------------------------------------------
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive law
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of
<PAGE>

the state of California could order or grant within the scope hereof and such
ancillary relief as is necessary to make effective any award, and (iii) shall
have the power to award recovery of all costs and fees, to impose sanctions and
to take such other actions as they deem necessary to the same extent a judge
could pursuant to the Federal Rules of Civil Procedure, the California Rules of
Civil Procedure or other applicable law. Any Dispute in which the amount in
controversy is $5,000,000 or less shall be decided by a single arbitrator who
shall not render an award of greater than $5,000,000 (including damages, costs,
fees and expenses). By submission to a single arbitrator, each party expressly
waives any right or claim to recover more than $5,000,000. Any Dispute in which
the amount in controversy exceeds $5,000,000 shall be decided by majority vote
of a panel of three arbitrators; provided however, that all three arbitrators
must actively participate in all hearings and deliberations.

     (e)  Judicial Review.  Notwithstanding anything herein to the contrary, in
          ---------------
any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
California, and (iii) the parties shall have in addition to the grounds referred
to in the Federal Arbitration Act for vacating, modifying or correcting an award
the right to judicial review of (A) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (B) whether the
conclusions of law are erroneous under the substantive law of the state of
California. Judgment confirming an award in such a proceeding may be entered
only if a court determines the award is supported by substantial evidence and
not based on legal error under the substantive law of the state of California.

     (f) Real Property Collateral; Judicial Reference.  Notwithstanding anything
         --------------------------------------------
herein to the contrary, no Dispute shall be submitted to arbitration if the
Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.

     (g) Miscellaneous.  To the maximum extent practicable, the AAA, the
         -------------
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Documents or the subject matter of the Dispute shall
control. This arbitration provision shall survive termination, amendment or
expiration of any of the Documents or any relationship between the parties.
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
July 13, 1999.

BORROWER:                                 BANK:


ANDATACO OF CALIFORNIA, INC.              WELLS FARGO CREDIT, INC.



By: /s/ Diane Wong                        By: Angelo Samperisi
    ---------------------------------         ---------------------------------

Title:  Vice President Finance and        Title:  Vice President
        ----------------------                    --------------
        Corporate Controller


CREDITOR:


NSTOR TECHNOLOGIES, INC.



By: /s/ Mark Levy
    -------------------------

Title: Vice President
       --------------