EXHIBIT 10.26


     THIS  SUBSCRIPTION  AGREEMENT AND THE CONVERTIBLE  SUBORDINATED  NOTES SOLD
HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 AS AMENDED
(THE  SECURITIES   ACT"),  BUT  IS  SOLD  PURSUANT  TO  AN  EXEMPTION  FROM  THE
REQUIREMENTS OF SAID ACT.  NEITHER SUCH NOTES NOR ANY INTEREST OF  PARTICIPATION
HEREIN OR THEREIN  MAY BE SOLD,  ASSIGNED,  PLEDGED OR DISPOSED OF IN THE UNITED
STATES OR TO A "U.S.  PERSON" AS DEFINED IN REGULATION S PROMULGATED  UNDER SUCH
ACT ("REGULATION S") EXCEPT IN COMPLIANCE WITH REGULATION S.



SUBSCRIPTION AGREEMENT


Mr. Alan Steel, CFO
ARC Capital
2067 Commerce Drive
Medford, Oregon 97504


Gentlemen:


     THIS OFFSHORE  SECURITIES  SUBSCRIPTION  AGREEMENT  (this  "Agreement")  is
executed in reliance upon the transactional  exemption  afforded by Regulation S
("Regulation  S") as  promulgated  by the  Securities  and  Exchange  Commission
("SEC") under the Securities Act of 1933, as amended ("1933 Act").

     THIS AGREEMENT has been executed by the  undersigned in connection with the
placement of Subordinated  Convertible  Notes pursuant to section 903 (c) (2) of
Regulation  S  (hereinafter  referred  to as  the  "Notes")  of ARC  Capital,  a
corporation  under the laws of the State of  California,  U.S.A.,  NASDAQ symbol
"ARCCA"  (hereinafter  referred to as the "Seller" or the "Company").  The Notes
being sold pursuant to this  Agreement have not been  registered  under the 1933
Act and may not be  offered  to sold in the  United  States or to U.S.  Persons,
other than  distributors (as such terms are defined in Regulation S), unless the
Notes are registered  under the 1933 Act, or an exemption from the  registration
requirement  of the 1933 Act is  available.  The terms on which the Notes can be
converted  into  Common  Stock (such  common  stock  underlying  the Notes being
referred to herein as  "Shares")  and the other terms of the Notes are set forth
therein.  The  offer  and  sale  of  Notes  and  the  Shares  (collectively  the
"Securities"),  are being made in reliance  upon the  provision of  Regulation S
("Regulation S") under the United States Securities Act of 1933, as amended (the
"Act").

     The  undersigned,  Swiss  American  Securities  Inc.  as agent  for  Credit
Suisse(herein  referred  to as Buyer or  "Purchaser"),  in order to  induce  the
Company to enter into the transaction contemplated hereby and acknowledging that
the Company will rely thereon, represents and warrants and agrees as follows:

     1. Subject to the terms and  conditions  set forth in this  Agreement,  the
undersigned  hereby  subscribes  for  $1,600,000  in  principal  amount of 6.75%
Subordinated Convertible (Sales of Notes are made only in $100,000 increments).

     Upon  execution of this  Subscription  Agreement by the Company,  Purchaser
will wire transfer  available  funds in U.S.  dollars payable to the Company via
escrow account as follows:

     The  Notes  shall  be  delivered  to  the  Purchaser  c/o  Swiss   American
Securities,  as escrow agent, on a delivery versus payment basis and funds shall
be wired by Purchaser as follows:


     Bank:        United National Bank of Oregon
                  400 SW Sixth Avenue
     ABA#         123 000 220
     FBO:         ARC Capital
     Acct #       1260015896


     2.  Representation  and  Warranties:  The  Purchaser  hereby  acknowledges,
represents and warrants to and agrees with the Company as follows:

     (a) The Purchaser has been  furnished  with the Company's  press  releases,
current  Annual  Report on Form 10-K for year  ending  December  31,  1994,  and
Quarterly  Reports on Form 10-Q for the  quarters  ended  March 31,  June 30 and
September  30,  1995,  and the Form 8K dated  March 6, 1996,  and the Form 8-K-A
dated May 13, 1996 (the "Disclosure Documents"). The Purchaser acknowledges that
the Company will,  upon written  request made by the Purchaser,  provide without
charge, copies of all documents identified in the Disclosure Documents.

     (b) The Purchaser  represents and warrants that it is not a U.S. person (as
defined in Rule 902(0) of Regulation S.

     (c) The Purchaser acknowledges that the offer and sale of the Notes are not
taking place within the United  States,  but rather in an offshore  transaction.
"United States" means the United States,  its territories and  possessions,  and
any state of the United States, and the District of Columbia. No "direct selling
efforts"  (as  defined  in  Regulation  S) may be made in  United  States by the
Company,  and  distributor  of the Notes,  any of their  affliates or any person
acting on behalf of any of the foregoing.

     (d) The Purchaser acknowledges its understanding that the offer and sale of
the Notes is  intended  to be  exempt  from  registration  under the 1993 Act by
virtue of Regulation S.

     (e) The Purchaser acknowledges that the Securities have not been registered
under the 1933 Act and,  therefore,  cannot  be  offered  or sold in the  United
States or to U.S.  persons for a period of a minimum of 40 days from the sale of
Notes,  unless the Notes are registered under the 1933 Act, or an exemption from
the registration requirements of the Act is available.

     (f) The Purchaser  acknowledges  that this  Agreement  and any  certificate
representing  the Notes or Notes  issued  under  this  Agreement  shall bear the
restrictive  legend set forth on the Notes. The purchaser  further  acknowledges
that the Company will affect a conveyance only in accordance with Regulation S.

     (g) All offers and sales of these  Securities prior to the expiration of 40
days from the later of the date when these  Notes were first  offered to persons
other than  distributors  or the date of closing of this offering  shall be made
only in  accordance  with Rule 903 or Rule 904 of Regulation S or pursuant to an
available exemption from the registration requirements of the 1933 Act.

     (h)  Purchaser  is  purchasing  the Notes as an agent for Credit  Suisse on
behalf of "non-U.S." investors and not on behalf of any U.S. person, and no sale
has been prearranged with a purchaser in the United States.

     (i) The  Purchaser  acknowledges  that  Purchaser in making the decision to
purchase the Notes  subscribed for, has relied upon  independent  investigations
made by it and its  Purchaser  representatives,  if any, of  material  books and
records of the Company,  all materials  contracts and documents relating to this
offering and have had an opportunity to ask questions of, and to receive answers
from,  Company  or any  person  acting on its  behalf  concerning  the terms and
conditions of this  offering.  Purchaser and its  representatives,  if any, have
been provided with access to all publicly  available  materials  relating to the
offer  and sale of the  Notes  which  have  been  requested.  Purchaser  and its
representatives,  if any, have received complete and satisfactory answers to any
such inquiries.

     3.  Representations  and  Warranties:   The  Company  hereby  acknowledges,
represents and warrants to and agrees with the Purchaser as follows:

     (a) The Company is a "Reporting  Issuer." The Company has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  and Exchange Act
of 1934  during the  proceeding  12 months and has been  subject to such  filing
requirements for the past 90 days.

     (b)  The Offering is being made pursuant to SEC Regulation 230.903 (c)(2).

     (c) The  Company  will  issue  Notes in the form of  Exhibit  "A"  attached
hereto.

     (d) The Company has the  requisite  corporate  power and authority to enter
into this Agreement and to sell and deliver the  Securities.  This Agreement and
the  issuance of the  Securities  have been duly and validly  authorized  by all
necessary  corporate  action by the Company.  This  Agreement and the Notes have
been duly and validly  executed  and  delivered by and on behalf of the Company,
and are valid and binding obligations of the Company,  enforceable in accordance
with their respective terms,  except as enforceability may be limited by general
equitable   principles,    bankruptcy,    insolvency,   fraudulent   conveyance,
reorganization, moratorium or other laws affecting creditors rights generally.

     (e) The  Shares  issued  upon  conversion  of the Notes  (after  the 40-day
holding  period) will contain no restrictive  legend and will not be the subject
of any stop transfer direction or order.

     5. Miscellaneous:

     (a) All notices or other communications given or made hereunder shall be in
writing and shall be delivered or mailed by registered or certified mail, return
receipt  requested,  postage  prepaid,  to the  undersigned  at the  Purchaser's
address set forth on the signature page below.

     (b) This Agreement  constitutes  the entire  agreement  between the parties
hereto with  respect to the subject  matter  hereof and may be amended only by a
writing executed by all parties.

     (c) All  pronouns  contained  herein and any  variations  thereof  shall be
deemed to refer to the masculine,  feminine,  or neuter,  singular or plural, as
the identify of the parties hereto require.

     (d) This Agreement may be executed in several  counterparts,  each of which
shall be deemed an original,  but all of which together shall constitute one and
the same instrument.

     (e) Upon execution of this Agreement by the Company,  Purchaser  shall wire
funds to the Escrow  Agent to be  distributed  in  accordance  with the  Private
Placement and Distribution Agreement.

     IN WITNESS WHEREOF, the Purchaser has executed this Subscription  Agreement
on this 14th day of May, 1996.

                                      PURCHASER

                                      Name: Swiss American Securities Inc.
                                            As Agent for Credit Suisse

                                      Address: 100 Wall Street, N.Y., N.Y. 10005

                                      Signature: /s/ S. R. DiDonna
                                                 -------------------------------
ACCEPTED BY:                                     S. R. DiDonna
                                                 Executive Vice President
ARC CAPITAL

/s/ Alan Steel                                   /s/ Edward F. Anselmin
----------------------------------               -------------------------------
                                                 Edward F. Anselmin, V.P.