**Exhibit 99.3**

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**FORBEARANCEAGREEMENT**

 

ThisFORBEARANCE AGREEMENT (as amended, modified or extended in accordance with theterms hereof, this “Forbearance Agreement”), dated and effective as ofAugust 5, 2004 (the “Effective Date”), is entered into by and amongWells Fargo Foothill, Inc., a California corporation formerly known as FoothillCapital Corporation, a California corporation (“Lender”), AmericanRestaurant Group, Inc., a Delaware corporation (“ARG”), ARG Enterprises,Inc., a California corporation (“Enterprises”), ARG Property ManagementCorporation, a California corporation (“Property Management”), and ARGTerra, Inc., a Delaware corporation (“Terra”; and together with ARG,Enterprises and Property Management, the “Borrowers,” and each, a “Borrower”).

 

WITNESSETH:

 

WHEREAS, Borrowers and BNY Western Trust Company, aCalifornia state banking corporation formerly known as U.S. Trust Company,National Association, as successor to U.S. Trust Company of California, N.A. (“BNY”),as trustee (the “Trustee”), are parties to that certain Indenture datedas of February 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 Notes;

 

WHEREAS, Lender is a lender andBorrowers are credit parties under that certain Loan Agreement dated December17, 2001 (as amended, restated, supplemented, or otherwise modified from timeto time, the “Loan Agreement”);

 

WHEREAS,Borrowers are credit parties and TCW Shared Opportunity Fund III, L.P. (the “ECFParty”) is lender under that certain Loan Agreement dated October 31, 2003(as amended, restated, supplemented, or otherwise modified from time to time,the “Eligible Credit Facility”);

 

WHEREAS,Borrowers, Lender, the ECF Party, 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 Borrowers under the Indenture, the Notes, the Loan Agreement andthe Eligible Credit Facility are secured by liens and security interests infavor of the Collateral Agent on certain assets of Borrowers (the “Collateral”);

 

WHEREAS, the parties to theIntercreditor Agreement intend that obligations of Borrowers under the LoanAgreement and the Eligible Credit Facility be paid in full in cash before anyobligations under the Indenture or the Notes be paid from the Collateral; 

 

WHEREAS, Borrowers are not in compliance with certainprovisions of the Loan Agreement, resulting in the occurrence of the followingDefaults and Events of Default under: (a) Section 8.9 and Section 8.15 of the Loan Agreement in respect of aninterest payment on the Notes due on May 1, 2004, (b) Section 6.3(b)(i) ofthe Loan Agreement for Borrowers’ failure to deliver to Lender certifiedconsolidated financial statements, without any qualifications, of ARG and itsSubsidiaries for Borrowers’ fiscal year ending December 29, 2003, and(c) Section 2.5 of the Loan Agreement for Borrower’s failure to payto Lender, in cash, an amount equal to the Overadvance outstanding from April1, 2004 through the effective date of the Sixth Amendment to the Loan Agreement(collectively, the “Specified Defaults”); 

 

WHEREAS, Borrowers 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 andcovenants herein contained, and for other good and valuable consideration, thereceipt and sufficiency of which is hereby acknowledged, the parties heretomutually agree and covenant as follows:

 

Section 1. Capitalized Terms.  Capitalized terms used herein withoutdefinition shall have the meanings assigned to them in the Loan Agreement.

 

Section 2.  Forbearance.  Lender hereby agrees, on the terms andsubject to the conditions hereof,

 

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to forbear solely duringthe period from and after the Effective Date until (but excluding) theForbearance Termination Date (as defined below) (the “Forbearance Period”)in the exercise of rights and remedies available under the Loan Documents withrespect to the Specified Defaults; providedhowever, thatBorrowers shall comply at all times during the Forbearance Period with all ofthe provisions, limitations, restrictions and prohibitions set forth in, orthat would otherwise be effective or applicable to Borrowers under, the LoanDocuments.  Notwithstanding theforbearance set forth in the immediately preceding sentence, it is understoodand agreed by Borrowers 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 Periodshall immediately terminate and be of no further force or effect whatsoever at10:00 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)           commencement of anyliquidation, bankruptcy, receivership, assignment for the benefit of creditors,or similar case or proceeding by or against any of Borrowers or SubsidiaryGuaranty in a court of competent jurisdiction;

 

(c)           the date on which theCollateral Agent commences, or delivers any notice to Borrowers evidencing itsintention to commence, enforcement of its security interests in any of theCollateral by taking action to collect, take possession of, or dispose of suchCollateral for the benefit of, on behalf of, or at the direction of the ECFParty; and

 

(d)           the date on whichLender, the ECF Party, or the Collateral Agent, as the case may be, delivers anotice to Borrowers declaring any default or event of default, other than theSpecified Defaults, under or in respect of the Loan Agreement or the EligibleCredit Facility, as applicable.

 

Upon the occurrence of any Forbearance Termination Event,the agreement of Lender to forbear with respect to the exercise of any remedyprovided for under or in respect the Loan Documents shall immediately terminatewithout the requirement of any demand, presentment, protest or notice of anykind, all of which Borrowers expressly waive. Borrowers hereby agree that Lender may at any time after the occurrenceany Forbearance Termination Event proceed to exercise any and all rights andremedies that Lender now has or may in the future have under the Loan Documentsand applicable law in connection with any or all of the Defaults and Events ofDefault (including, without limitation, the Specified Defaults) that haveoccurred and are continuing.

 

Section 4.  [Intentionally Omitted.]

 

Section 5. [Intentionally Omitted.]

 

Section 6.  [Intentionally Omitted.]

 

Section 7.  ContinuingEffect.  Except as expresslyprovided herein or as hereafter may be modified, the Loan Agreement and theother Loan Documents shall continue unchanged and in full force and effect, andall rights, powers, and remedies of Lender and Borrowers thereunder are herebyexpressly reserved.  Except to theextent expressly set forth herein, each Borrower remains obligated by therepresentations, warranties, covenants, and other provisions set forth in theLoan Agreement and the other Loan Documents to which it is a party.

 

Section 8.  Acknowledgmentsand Agreements.  Each Borrowerhereby unconditionally acknowledges, affirms, and agrees that:

 

(a)           as of the close ofbusiness on July 30, 2004, (i) the outstanding amount of Advances underthe Loan Documents is $4,341,090.86 and (ii) the Letter of Credit Usage is$10,658,663.15;

 

(b)           Borrowers areobligated to repay the Advances referred to in clause (a)(i) of this Section 8without defense, offset, deduction or credit of any kind or nature whatsoever;

 

(c)           no Borrower has anyClaims (as defined below) against Lender in respect of any matter relating toor arising under this Forbearance Agreement or any of the Loan Documents or anyof the transactions contemplated hereby or thereby;

 

(d)           nothing in thisForbearance Agreement shall create a contractual restriction on Lender thatwould restrict Lender from assigning or participating all or any portion of theObligations under the terms and conditions of the Loan Agreement;

 

(e)           except as specificallyset forth in this Forbearance Agreement, Lender has not waived, forborne,modified, or otherwise agreed not to exercise any rights or remedies availableto it under the Loan Documents or this Forbearance Agreement;

 

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(f)            on and as of theEffective Date, the Specified Defaults have occurred and are continuing and, asa result thereof, Lender is entitled to declare all outstanding obligations ofBorrowers under or in respect of the Loan Documents to be due and payable andare entitled to exercise all of the rights and remedies available under theLoan Documents and applicable law, subject to the terms of this ForbearanceAgreement, and none of the Specified Defaults have been cured by Borrowers orwaived by Lender;

 

(g)           the Loan Agreement andeach of the other Loan Documents are and shall continue to be in full force andeffect and are hereby in all respects ratified and confirmed;

 

(h)           [IntentionallyOmitted];

 

(i)            it shall not contestor challenge, or cause or encourage, directly or indirectly, any person, at anytime, to contest or challenge, the validity, priority, enforceability, orperfection of any lien or security interest granted in connection with the LoanDocuments; 

 

(j)            it has thoroughlyread and reviewed, clearly understands, and fully and unconditionally consentsto the terms and provisions of this Forbearance Agreement, that it has had thefull benefit and advice of counsel of its own selection, or the opportunity to obtainthe benefit and advice of counsel of its own selection, in regard to thenegotiation, drafting, execution, and effectiveness of this ForbearanceAgreement, and that it has relied on no other representations, either writtenor oral, express or implied, made to it by any other party hereto;

 

(k)           the forbearance setforth herein is strictly limited to the Specified Defaults and such forbearanceshall not apply to any other past, present or future violation or violations(whether known or unknown) of any provision of the Loan Agreement or any of theother Loan Documents; and

 

(l)            the failure of Lender to exerciseany right, privilege, or remedy as a result of any such violations shall not,directly or indirectly, in any way whatsoever (i) impair, prejudice, orotherwise adversely affect such Lender’s right at any time to exercise anyright, privilege or remedy in connection with the Loan Agreement or any of theother Loan Documents or any other contract, agreement, or instrument,(ii) amend or alter any provision of the Loan Agreement or any of theother Loan Documents or any other agreement, contract, or instrument, or(iii) constitute any course of dealing or other basis for altering any ofthe obligations of Borrowers under or in respect of the Loan Documents or anyrights, privileges, or remedies of Lender under the Loan Agreement and theother Loan Documents or such other agreement, contract, or instrument.

 

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Section 9.  No Defenses; Release.

 

(a) Each Borrower, theirrespective successors-in-title, legal representatives, and assignees and, tothe extent the same is claimed by right of, through, or under any Borrower, fortheir past, present, and future employees, agents, representatives, officers,directors, shareholders, and trustees, do hereby forever remise, release, anddischarge Lender, and Lender’s respective successors-in-title, legalrepresentatives, and assignees, past, present, and future officers, directors,shareholders, trustees, agents, employees, consultants, experts, advisors,attorneys, and other professionals, and all other persons and entities to whomLender would be liable if such persons or entities were found to be liable toBorrowers, or any of them (collectively hereinafter the “Lender Parties”),from any and all manner of action and actions, cause and causes of action,counterclaims, suits, debts, dues, sums of money, accounts, reckonings, bonds,bills, specialties, covenants, contracts, controversies, damages, judgments,expenses, executions, liens, claims of liens, claims of costs, penalties,attorneys’ fees, or any other compensation, recovery, or relief (“Claims”)on account of any loss, liability, obligation, demand, or cause of action ofwhatever nature relating to, arising out of, or in connection with the LoanAgreement or any other Loan Document, including, but not limited to, acts,omissions to act, actions, negotiations, discussions, and events resulting inthe finalization and execution of this Forbearance Agreement, as, among, andbetween the Borrowers and the Lender Parties, such claims whether now accruedand whether now known or hereafter discovered, from the beginning of timethrough the date hereof, and specifically including, without any limitation,any claims of liability asserted or that could have been asserted with respectto, arising out of, or in any manner whatsoever connected directly orindirectly with any “lender liability-type” claim.

 

(b)           Each Borrower represents and warrantsthat it has not assigned to any Person any Claim.  In the event that the foregoing representation and warranty is,or is purported to be, untrue, each Borrower agrees to indemnify and holdharmless the Lender Parties against, and to pay, any and all actions, demands,obligations, causes of action, decrees, awards, claims, liabilities, losses andcosts (including, but not limited to, reasonable expenses of investigation andfees and expenses of counsel) that any of the Lender Parties may sustain orincur as a result of the breach or purported breach of the foregoingrepresentation and warranty.

 

Section 10.  GOVERNING LAW.  THE VALIDITY OF THIS FORBEARANCE AGREEMENT,THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THEPARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETOSHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THELAWS OF THE STATE OF CALIFORNIA.

 

Section 11.  NoCommitment or Waiver.  Neither thisForbearance Agreement nor any action or inaction on the part of Lender shall beconstrued to constitute or represent (a) a commitment by Lender, either inits capacities under the Loan Documents or in any other capacity, torestructure any indebtedness of Borrowers or (b) an intention by Lender,either in its capacities under the Loan Documents or in any other capacity,except as expressly provided in this Forbearance Agreement, to waive, modify,or forbear from exercising any of its rights, powers, privileges, or remediesunder the Loan Documents or under any other document or agreement, at law, inequity, or otherwise.  Each Borroweracknowledges, agrees, and confirms, except as expressly provided in thisForbearance Agreement, that no such commitment, waiver, modification, orforbearance has been offered, granted, extended, or agreed to by Lender, eitherin its capacities under the Loan Documents or in any other capacity.  Nothing set forth in this ForbearanceAgreement shall be construed so as to require Lender, either in its capacitiesunder the Loan Documents or in any other capacity, to agree to the terms of anymodification proposed by Borrower to the Loan Documents or any other documentor agreement to which Lender is a party.

 

Section 12. Representations and Warranties.  In addition to any other representations andwarranties made or deemed made hereunder, each Borrower hereto represents andwarrants that:

 

(a)           ithas the full authority and legal right and power to execute and deliver thisForbearance Agreement, and to perform the terms hereof and the transactionscontemplated hereby;

 

(b)           ithas taken all necessary corporate or other action required to be taken inconnection with the execution, delivery, and performance of this ForbearanceAgreement and the consummation of the transactions contemplated hereby;

 

(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

 

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goodfaith 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 document to which it or anyof its subsidiaries is a party or by which any of its property or assets arebound;

 

(e)           except for anyrepresentation or warranty that no Default or Event of Default has occurred andis continuing, the representations and warranties contained in this ForbearanceAgreement and each of the Loan Documents are true and correct in all materialrespects on and as of the Effective Date, before and after giving effect tothis Forbearance Agreement, as though made on and as of such date; and

 

(f)            no Default or Eventof Default has occurred and is continuing or will occur after giving effect tothis Forbearance Agreement (other than the Specified Defaults).

 

Section 13.  Benefitof Agreement.  This ForbearanceAgreement is solely for the benefit of the signatories hereto and, to theextent it is not Lender, a Person (including without limitation any othercreditor of or claimant against any Borrower, or any shareholder of anythereof) shall not have any rights under, or because of the existence of, thisForbearance Agreement.

 

Section 14.  EntireAgreement.  This ForbearanceAgreement constitutes the entire and final agreement among the parties heretowith respect to the subject matter hereof and there are no other agreements,understandings, undertakings, representations, or warranties among the partieshereto with respect to the subject matter hereof except as set forth herein.

 

Section 15.  Amendments;Extensions.  The terms of thisForbearance Agreement may be modified, amended, or waived only in writing,executed by Lender and Borrowers. Lender is not and shall not be under any obligation, express or implied,to consent to any modification or amendment hereof, or to any extension of theForbearance Period.

 

Section 16.  Remedies. 

 

(a)           No failure on the part of Lender to exercise, and no course of dealingwith respect to, and no delay in exercising, any right, power, or remedyhereunder or under the Loan Documents 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 otherparty hereto at any time any such other party has failed to comply with theterms of this Forbearance Agreement. Each party hereto waives any defense based on the adequacy of a remedyat law which may be asserted as a bar to such remedy of specific performance.

 

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

 

Section18.  Notices.  All notices and consents hereunder shall beprovided in accordance with the terms and conditions for providing notice andconsents under the Loan Agreement.

 

Section 19.  FurtherAssurances.  Borrowers shall, attheir sole expense, execute at any time from time to time all additionaldocuments and do all acts not specifically referred to herein that (a) arereasonably necessary to effect fully the intent of this Forbearance Agreement,or (b) Lender may reasonably deem advisable and may request to protect anyright or interest, or enforce any rights or remedies, under the Loan Agreementand the other Loan Documents.

 

Section 20.  Successorsand Assigns.  This ForbearanceAgreement, including, without limitation, the representations, warranties,covenants, and obligations contained herein (i) shall inure to the benefitof and be enforceable by the parties hereto and their respective successors andpermitted assigns, and (ii) shall be binding upon, and enforceable against, therespective successors and 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 or enforceabilityof any provisions of this Forbearance Agreement in any other jurisdiction.

 

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Section 22.  Counterparts.  This Forbearance Agreement may be executedin any 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 hereofby facsimile 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 thisForbearance Agreement to be duly executed as of the day and year first abovewritten.

 

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

 

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