**Exhibit 99.4**

 

**FORBEARANCE AGREEMENT**

 

This FORBEARANCE AGREEMENT (as amended, modified or extended inaccordance with the terms hereof, this “Forbearance Agreement”), datedand effective as of [August 11], 2004 (the “Effective Date”), isentered into by and among TCW SHARED OPPORTUNITY III, L.P. (“Lender”),American Restaurant Group, Inc., a Delaware corporation (“ARG”), ARGEnterprises, Inc., a California corporation (“Enterprises”), ARGProperty Management Corporation, a California corporation (“Property Management”;and collectively with ARG and Enterprises, the “Borrowers”), and ARGTerra, Inc., a Delaware corporation (“Terra”; and collectively with theBorrowers, the “Credit Parties”).

 

**RECITALS**

 

WHEREAS,Credit Parties and BNY Western Trust Company, a California state bankingcorporation formerly known as U.S. Trust Company, National Association, assuccessor to U.S. Trust Company of California, N.A. (“BNY”), as trustee(the “Trustee”), are parties to that certain Indenture dated as ofFebruary 25, 1998 (as amended and supplemented to date, the “Indenture”),providing for the issuance of an aggregate principal amount of up to$166,000,000 of the Indenture Notes;

 

WHEREAS, theCredit Parties are borrowers and Wells Fargo Foothill, Inc. (formerly known asFoothill Capital Corporation, “Foothill”) is both agent and a lenderunder that certain loan agreement dated December 17, 2001 (as amended,restated, supplemented, or otherwise modified from time to time, the “FoothillCredit Agreement”);

 

WHEREAS,Credit Parties and Lender are parties to that certain loan agreement datedOctober 31, 2003 (as amended, restated, supplemented, or otherwise modifiedfrom time to time, the “Eligible Credit Facility”);

 

WHEREAS,Credit Parties, Lender, Foothill, and the Trustee are parties to the SecondAmended and Restated Intercreditor and Collateral Agency Agreement datedDecember 17, 2001 (the “Intercreditor Agreement”), in which BNY isseparately designated Collateral Agent (as that term is defined therein, the “CollateralAgent”);

 

WHEREAS, theobligations of Credit Parties under the Indenture, the Indenture Notes, theFoothill Credit Agreement and the Eligible Credit Facility are secured by liensand security interests in favor of the Collateral Agent on certain assets of CreditParties (the “Collateral”);

 

WHEREAS, theparties to the Intercreditor Agreement intend that obligations of CreditParties under the Foothill Credit Agreement and the Eligible Credit Facility bepaid in full in cash before any obligations under the Indenture or theIndenture Notes be paid from the Collateral;

 

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WHEREAS,Credit Parties are not in compliance with certain provisions of the EligibleCredit Facility, resulting in the occurrence of the following Defaults andEvents of Default under:  (a) Section 8.9and Section 8.16 in respect of an interest payment on the Indenture Notes dueon May 1, 2004, (b) Section 6.2 for Borrowers’ failure to deliver toLender certified consolidated financial statements, without any qualifications,of ARG and its Subsidiaries for Credit Parties’ fiscal year ending December 29,2003, and (c) Section 8.10 because of the occurrence and continuation of the“Specified Defaults” as defined in that certain Forbearance Agreement dated asof August 5, 2004, between Foothill and the Credit Parties (collectively, the “SpecifiedDefaults”); and

 

WHEREAS, Credit Parties have requested that Lender forbear in theexercise of any remedies with respect to the Specified Defaults, and Lender iswilling to grant such forbearance with respect to the Specified Defaults on theterms and conditions provided herein.

 

NOW, THEREFORE, in consideration of the premises and covenants hereincontained, and for other good and valuable consideration, the receipt andsufficiency of which is hereby acknowledged, the parties hereto mutually agreeand covenant as follows:

 

Section 1.Capitalized Terms. Capitalized terms used herein without definition shall have the meaningsassigned to them in the Eligible Credit Facility.

 

Section 2.  Forbearance.  Lender hereby agrees, on the terms andsubject to the conditions hereof, to forbear solely during the period from andafter the Effective Date until (but excluding) the Forbearance Termination Date(as defined below) (the “Forbearance Period”) in the exercise of rightsand remedies available under the Loan Documents with respect to the SpecifiedDefaults; providedhowever, that Credit Parties shall comply atall times during the Forbearance Period with all of the provisions,limitations, restrictions and prohibitions set forth in, or that wouldotherwise be effective or applicable to Credit Parties under, the LoanDocuments.  Notwithstanding theforbearance set forth in the immediately preceding sentence, it is understood andagreed by Credit Parties that Lender has not waived any existing or anticipatedDefault or Event of Default (including, without limitation, the SpecifiedDefaults), and reserves all of its rights or remedies in respect thereof, underthe Loan Documents and applicable law. During the Forbearance Period (and thereafter), Lender shall bepermitted to exercise any and all of its rights and remedies under the LoanDocuments to the extent permitted under the Loan Documents, except as may belimited or provided otherwise during the Forbearance Period pursuant to thefirst sentence of this Section 2.

 

Section 3.Termination. The Forbearance Period shall immediatelyterminate and be of no further force or effect whatsoever at 10:00 a.m.Pacific Time on the date of the earliest to occur (the “ForbearanceTermination Date”) of the following events (each, a “ForbearanceTermination Event”):

 

(a)           September3, 2004;

 

(b)           commencementof any liquidation, bankruptcy, receivership, assignment for the benefit ofcreditors, or similar case or proceeding by or against any of Credit Parties orSubsidiary Guaranty in a court of competent jurisdiction;

 

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(c)           thedate on which the Collateral Agent commences, or delivers any notice to CreditParties evidencing its intention to commence, enforcement of its securityinterests in any of the Collateral by taking action to collect, take possessionof, or dispose of such Collateral for the benefit of, on behalf of, or at thedirection of Foothill; and

 

(d)           thedate on which Lender or theCollateral Agent, as the case may be, delivers a notice to CreditParties declaring any defaultor event of default, other than theSpecified Defaults, under or in respect of the Eligible Credit Facility.

 

Upon the occurrence of any Forbearance Termination Event, the agreementof Lender to forbear with respect to the exercise of any remedy provided forunder or in respect of the Loan Documents shall immediately terminate withoutthe requirement of any demand, presentment, protest or notice of any kind, allof which Credit Parties expressly waive. Credit Parties hereby agree that Lender may at any time after theoccurrence of any Forbearance Termination Event proceed to exercise any and allrights and remedies that Lender now has or may in the future have under theLoan Documents and applicable law in connection with any or all of the Defaultsand Events of Default (including, without limitation, the Specified Defaults)that have occurred and are continuing.

 

Section 4.  [Intentionally Omitted.]

 

Section 5.  Information.  The Credit Parties agree to deliver promptlyto the Lender financial information and other information regarding the CreditParties reasonably requested by the Lender (including, without limitation, anyportion of (i) the August 2004 valuation report of the Credit Parties preparedby Houlihan Lokey Howard & Zukin and (ii) the lien search of the CreditParties conducted in August 2004 to the extent, and only to the extent,disclosed to the Noteholders).

 

Section 6. [Intentionally Omitted.]

 

Section 7.  Continuing Effect.  Except as expressly provided herein or ashereafter may be modified, the Eligible Credit Facility and the other LoanDocuments shall continue unchanged and in full force and effect, and allrights, powers, and remedies of Lender and Credit Parties thereunder are herebyexpressly reserved.  Except to the extentexpressly set forth herein, each Credit Party remains obligated by therepresentations, warranties, covenants, and other provisions set forth in theEligible Credit Faciity and the other Loan Documents to which it is a party.

 

Section 8.  Acknowledgments andAgreements.  Each Credit Partyhereby unconditionally acknowledges, affirms, and agrees that:

 

(a)           as of the close of business on August [11], 2004, theoutstanding amount of Loans under the Loan Documents is$[         ];

 

(b)           CreditParties are obligated to repay the Loans referred to in clause (a) of thisSection 8 without defense, offset, deduction or credit of any kind or naturewhatsoever;

 

(c)           noCredit Party has any Claims (as defined in Section 9) against Lender in itscapacity as “Lender” or as “ECF Party” under the Eligible Credit Facility andthe other Loan Documents in respect of any matter relating to or arising underthis Forbearance Agreement or any of the Loan Documents;

 

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(d)           nothing in this Forbearance Agreement shall create acontractual restriction on Lender that would restrict Lender from assigning orparticipating all or any portion of the Obligations under the terms andconditions of the Eligible Credit Facility;

 

(e)           exceptas specifically set forth in this Forbearance Agreement, Lender has not waived,forborne, modified, or otherwise agreed not to exercise any rights or remediesavailable to it under the Loan Documents or this Forbearance Agreement;

 

(f)            onand as of the Effective Date, the Specified Defaults have occurred and arecontinuing and, as a result thereof, Lender is entitled to declare alloutstanding obligations of Credit Parties under or in respect of the LoanDocuments to be due and payable and are entitled to exercise all of the rightsand remedies available under the Loan Documents and applicable law, subject tothe terms of this Forbearance Agreement, and none of the Specified Defaultshave been cured by Credit Parties or waived by Lender;

 

(g)           theEligible Credit Facility and each of the other Loan Documents are and shallcontinue to be in full force and effect and are hereby in all respects ratifiedand confirmed;

 

(h)           [IntentionallyOmitted];

 

(i)            itshall not contest or challenge, or cause or encourage, directly or indirectly,any person, at any time, to contest or challenge, the validity, priority,enforceability, or perfection of any lien or security interest granted inconnection with the Loan Documents;

 

(j)            ithas thoroughly read and reviewed, clearly understands, and fully andunconditionally consents to the terms and provisions of this ForbearanceAgreement, that it has had the full benefit and advice of counsel of its ownselection, or the opportunity to obtain the benefit and advice of counsel ofits own selection, in regard to the negotiation, drafting, execution, andeffectiveness of this Forbearance Agreement, and that it has relied on no otherrepresentations, either written or oral, express or implied, made to it by anyother party hereto;

 

(k)           theforbearance set forth herein is strictly limited to the Specified Defaults andsuch forbearance shall not apply to any other past, present or future violationor violations (whether known or unknown) of any provision of the EligibleCredit Facility or any of the other Loan Documents; and

 

(l)            the failure of Lender to exerciseany right, privilege, or remedy as a result of any other past, present orfuture violation or violations (whether known or unknown) of any provision ofthe Eligible Credit Facility or any of the other Loan Documents shall not,directly or indirectly, in any way whatsoever (i) impair, prejudice, orotherwise adversely affect Lender’s right at any time to exercise any right,privilege or remedy in connection with the Eligible Credit Facility or any ofthe other Loan Documents or any other contract, agreement, or instrument,(ii) amend or alter any provision of the Eligible Credit Facility or anyof the other

 

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Loan Documents or any otheragreement, contract, or instrument, or (iii) constitute any course ofdealing or other basis for altering any of the obligations of Credit Partiesunder or in respect of the Loan Documents or any rights, privileges, orremedies of Lender under the Eligible Credit Facility and the other LoanDocuments or such other agreement, contract, or instrument.

 

Section 9.  Release.

 

(a)           Each Credit Party, their respective successors-in-title,legal representatives, and assignees and, to the extent the same is claimed byright of, through, or under any Credit Party, for their past, present, andfuture employees, agents, representatives, officers, directors, shareholders,and trustees, do hereby forever remise, release, and discharge Lender, andLender’s respective successors-in-title, affiliates, subsidiaries, legalrepresentatives, and assignees, past, present, and future officers, directors,shareholders, trustees, agents, employees, consultants, experts, advisors,attorneys and other professionals (collectively hereinafter the “LenderParties”), from any and all manner of action and actions, cause and causesof action, defenses, counterclaims, suits, debts, dues, sums of money,accounts, reckonings, bonds, bills, specialties, covenants, contracts,controversies, damages, judgments, expenses, executions, liens, claims ofliens, claims of costs, penalties, attorneys’ fees, or any other compensation,recovery, or relief (including subordination of claims) (“Claims”) onaccount of any loss, liability, obligation, demand, or cause of action ofwhatever nature relating to, arising out of, or in connection with the EligibleCredit Facility or any other Loan Document, including, but not limited to,acts, omissions to act, actions, negotiations, discussions, and eventsresulting in the finalization and execution of this Forbearance Agreement, as,among, and between the Credit Parties and the Lender Parties, such claimswhether now accrued and whether now known or hereafter discovered, from thebeginning of time through the date hereof, and specifically including, withoutany limitation, any claims of liability asserted or that could have beenasserted with respect to, arising out of, or in any manner whatsoever connecteddirectly or indirectly with any “lender liability-type” claim.  For the avoidance of doubt, the releaseprovided by this Section 9 is only applicable to the Lender Parties in their capacityas a “Lender” under the Eligible Credit Facility and the other Loan Documentsand is not applicable to the Lender Parties in any other capacity.

 

(b)           As to each and every claim releasedhereunder, Credit Parties represent that they have received the advice of legalcounsel with regard to the releases contained herein, and having been soadvised, each of them specifically waives the benefit of the provisions ofSection 1542 of the Civil Code of California:

 

A GENERALRELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECTTO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BYHIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

 

Section 10.  GOVERNING LAW.  THEVALIDITY OF THIS FORBEARANCE AGREEMENT, THE CONSTRUCTION, INTERPRETATION, ANDENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL

 

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MATTERS ARISING HEREUNDER ORRELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED INACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.

 

Section 11.  No Commitment or Waiver.  Neither this Forbearance Agreement nor anyaction or inaction on the part of Lender shall be construed to constitute orrepresent (a) a commitment by Lender, either in its capacities under theLoan Documents or in any other capacity, to restructure any indebtedness ofCredit Parties or (b) an intention by Lender, either in its capacitiesunder the Loan Documents or in any other capacity, except as expressly providedin this Forbearance Agreement, to waive, modify, or forbear from exercising anyof its rights, powers, privileges, or remedies under the Loan Documents orunder any other document or agreement, at law, in equity, or otherwise.  Each Credit Party acknowledges, agrees, andconfirms, except as expressly provided in this Forbearance Agreement, that nosuch commitment, waiver, modification, or forbearance has been offered,granted, extended, or agreed to by Lender, either in its capacities under theLoan Documents or in any other capacity. Nothing set forth in this Forbearance Agreement shall be construed so asto require Lender, either in its capacities under the Loan Documents or in anyother capacity, to agree to the terms of any modification proposed by CreditParties to the Loan Documents or any other document or agreement to whichLender is a party.

 

Section 12.Representations and Warranties.  In addition to any other representations andwarranties made or deemed made hereunder, each Credit Party hereto representsand warrants that:

 

(a)           it has the full authority and legal right and power toexecute and deliver this Forbearance Agreement, and to perform the terms hereofand the transactions contemplated hereby;

 

(b)           it has taken all necessary corporate or other action requiredto be taken in connection with the execution, delivery, and performance of thisForbearance Agreement and the consummation of the transactions contemplatedhereby;

 

(c)           thisForbearance Agreement (i) has been duly executed and delivered by it, and(ii) constitutes a legal, valid, and binding obligation, enforceableagainst it in accordance with the terms hereof, except as enforceability may belimited by applicable bankruptcy, insolvency, fraudulent conveyance,reorganization, moratorium and other similar laws affecting creditors’ rightsgenerally, general equitable principles (whether considered in a proceeding inequity or at law), and an implied covenant of good faith and fair dealing;

 

(d)           theexecution, delivery, and performance of this Forbearance Agreement does not andshall not (i) violate or result in a breach of any provision of law, ruleor regulation applicable to it, or any judgment, order, writ, or decree of anycourt, arbitrator, or other governmental authority, (ii) violate any ofits organizational documents, or (iii) violate, conflict with, or resultin a breach of, or constitute (with due notice, lapse of time, or both) adefault under any agreement, instrument, or other

 

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document to whichit or any of its subsidiaries is a party or by which any of its property orassets are bound;

 

(e)           exceptfor any representation or warranty that no Default or Event of Default hasoccurred and is continuing, the representations and warranties contained inthis Forbearance Agreement and each of the Loan Documents are true and correctin all material respects on and as of the Effective Date, before and aftergiving effect to this Forbearance Agreement, as though made on and as of suchdate; and

 

(f)            no Default or Event of Default has occurred and iscontinuing or will occur after giving effect to this Forbearance Agreement(other than the Specified Defaults).

 

Section 13.  Benefit of Agreement.  This Forbearance Agreement is solely for thebenefit of the signatories hereto and, to the extent it is not Lender, a Person(including without limitation any other creditor of or claimant against anyCredit Party, or any shareholder of any thereof) shall not have any rightsunder, or because of the existence of, this Forbearance Agreement.

 

Section 14.  Entire Agreement.  This Forbearance Agreement constitutes theentire and final agreement among the parties hereto with respect to the subjectmatter hereof and there are no other agreements, understandings, undertakings,representations, or warranties among the parties hereto with respect to thesubject matter hereof except as set forth herein.

 

Section 15. Amendments; Extensions.  The terms of this Forbearance Agreement maybe modified, amended, or waived only in writing, executed by Lender and CreditParties.  Lender is not and shall not beunder any obligation, express or implied, to consent to any modification oramendment hereof, or to any extension of the Forbearance Period.

 

Section 16.  Remedies.

 

(a)           No failure on thepart of Lender to exercise, and no course of dealing with respect to, and nodelay in exercising, any right, power, or remedy hereunder or under the LoanDocuments shall operate as a waiver thereof. Any single or partial exercise by Lender of any right, power, or remedyhereunder or under the Loan Documents shall not preclude any other or furtherexercise thereof or the exercise of any other right, power, or remedy.

 

(b)           Each party to this ForbearanceAgreement is hereby authorized, to demand specific performance of any other party hereto atany time any such otherparty has failed to comply with the terms of this ForbearanceAgreement.  Each party hereto waives any defense based on theadequacy of a remedy at law which may be asserted as a bar to such remedy ofspecific performance.

 

Section 17.  Headings, Etc.  “Section” or other headings contained in thisForbearance Agreement are for reference purposes only and shall not in any wayaffect the meaning or interpretation of this Forbearance Agreement.

 

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Section 18.  Notices.  All notices and consents hereunder shall beprovided in accordance with the terms and conditions for providing notice andconsents under the Eligible Credit Facility.

 

Section 19.  Further Assurances.  Credit Parties shall, at their sole expense,execute at any time from time to time all additional documents and do all actsnot specifically referred to herein that (a) are reasonably necessary toeffect fully the intent of this Forbearance Agreement, or (b) Lender mayreasonably deem advisable and may request to protect any right or interest, orenforce any rights or remedies, under the Eligible Credit Facility and theother Loan Documents.

 

Section 20.  Successors and Assigns.  This Forbearance Agreement, including,without limitation, the representations, warranties, covenants, and obligationscontained herein (i) shall inure to the benefit of and be enforceable bythe parties hereto and their respective successors and permitted assigns, and(ii) shall be binding upon, and enforceable against, the respective successorsand assigns of the parties hereto.

 

Section 21.  Severability.  Any provision of this Forbearance Agreementthat is determined to be invalid or unenforceable in any jurisdiction shall, asto such jurisdiction, be ineffective to the extent of such invalidity orunenforceability without rendering invalid or unenforceable the remainingprovisions of this Forbearance Agreement or affecting the validity orenforceability of any provisions of this Forbearance Agreement in any otherjurisdiction.

 

Section 22.  Counterparts.  This Forbearance Agreement may be executed inany number of counterparts, all of which taken together shall constitute oneand the same instrument, and any of the parties hereto may execute thisForbearance Agreement by signing any such counterpart.  Delivery of an executed counterpart hereof byfacsimile transmission shall be effective as delivery of a manually executedcounterpart hereof.

 

Section 23.  Survival.  Sections 7, 8, 9, 10, 12, 13, 16, 19 (to theextent such section relates to Section 8 and Section 9 hereof) and 23shall survive any termination or expiration of this Forbearance Agreement.

 

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IN WITNESS WHEREOF, the undersigned have caused this ForbearanceAgreement to be duly executed as of the day and year first above written.

 
| ** ** | **AMERICAN  RESTAURANT GROUP, INC.,**      |
|------------|--------------------------------------------|
|       | a Delaware  corporation                    |
|       |                                       |
|       | By:                                        |   |   |
|       |                                       | Patrick J.  Kelvie |
|       |                                       | Vice  President |
|       |                                       |   |
| ** ** | **ARG  ENTERPRISES, INC.,**                |
|       | a California  corporation                  |
|       |                                       |   |
|       | By:                                        |   |   |
|       |                                       | Patrick J.  Kelvie |
|       |                                       | Vice  President |
|       |                                       |   |
| ** ** | **ARG  PROPERTY MANAGEMENT  CORPORATION,** |
|       | a California  corporation                  |
|       |                                       |   |
|       | By:                                        |   |   |
|       |                                       | Patrick J.  Kelvie |
|       |                                       | Vice President |
|       |                                       |   |
| ** ** | **ARG  TERRA, INC.,**                      |
|       | a Delaware  corporation                    |
|       |                                       |   |
|       | By:                                        |   |   |
|       |                                       | Patrick J.  Kelvie |
|       |                                       | Vice  President |

 

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| ** ** | **TCW SHARED OPPORTUNITY FUND III, L.P.**                 |
|------------|-----------------------------------------------------------|
|       |                                                      |
|       |                                                      |
|       | By: TCW Asset Management Company, its Investment  Advisor |
|       |                                                      |
|       |                                                      |
|       | By:                                                       |   |   |
|       | Name:                                                     |
|       | Title:                                                    |
|       |                                                      |
|       |                                                      |
|       |                                                      | By: |   |   |
|       | Name:                                                     |
|       | Title:                                                    |
|            |                                                           |  |  |  |

 

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