Exhibit 99.3

FORBEARANCE AGREEMENT

This FORBEARANCE AGREEMENT (as amended, modified or extended in accordance with the terms hereof, this “ Forbearance Agreement ”), dated and effective as of August 5, 2004 (the “ Effective Date ”), is entered into by and among Wells Fargo Foothill, Inc., a California corporation formerly known as Foothill Capital Corporation, a California corporation (“ Lender ”), American Restaurant Group, Inc., a Delaware corporation (“ ARG ”), ARG Enterprises, Inc., a California corporation (“ Enterprises ”), ARG Property Management Corporation, a California corporation (“ Property Management ”), and ARG Terra, Inc., a Delaware corporation (“ Terra ”; and together with ARG, Enterprises and Property Management, the “ Borrowers ,” and each, a “ Borrower ”).

W I T N E S S E T H :

WHEREAS, Borrowers and BNY Western Trust Company, a California 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 dated as 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 and Borrowers are credit parties under that certain Loan Agreement dated December 17, 2001 (as amended, restated, supplemented, or otherwise modified from time to time, the “ Loan Agreement ”);

WHEREAS, Borrowers are credit parties and TCW Shared Opportunity Fund III, L.P. (the “ ECF Party ”) 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 Second Amended and Restated Intercreditor and Collateral Agency Agreement dated December 17, 2001 (the “ Intercreditor Agreement ”), in which BNY is separately designated Collateral Agent (as that term is defined therein, the “ Collateral Agent ”);

WHEREAS, the obligations of Borrowers under the Indenture, the Notes, the Loan Agreement and the Eligible Credit Facility are secured by liens and security interests in favor of the Collateral Agent on certain assets of Borrowers (the “ Collateral ”);

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

WHEREAS, Borrowers are not in compliance with certain provisions of the Loan Agreement, resulting in the occurrence of the following Defaults and Events of Default under:  (a) Section 8.9 and Section 8.15 of the Loan Agreement in respect of an interest payment on the Notes due on May 1, 2004, (b) Section 6.3(b)(i) of the Loan Agreement for Borrowers’ failure to deliver to Lender certified consolidated financial statements, without any qualifications, of ARG and its Subsidiaries for Borrowers’ fiscal year ending December 29, 2003, and (c) Section 2.5 of the Loan Agreement for Borrower’s failure to pay to Lender, in cash, an amount equal to the Overadvance outstanding from April 1, 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 the exercise of any remedies with respect to the Specified Defaults, and Lender is willing to grant such forbearance with respect to the Specified Defaults on the terms and conditions provided herein;

NOW, THEREFORE, in consideration of the premises and covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto mutually agree and covenant as follows:

Section 1 . Capitalized Terms .  Capitalized terms used herein without definition shall have the meanings assigned to them in the Loan Agreement.

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

to forbear solely during the period from and after the Effective Date until (but excluding) the Forbearance Termination Date (as defined below) (the “ Forbearance Period ”) in the exercise of rights and remedies available under the Loan Documents with respect to the Specified Defaults; provided however , that Borrowers shall comply at all times during the Forbearance Period with all of the provisions, limitations, restrictions and prohibitions set forth in, or that would otherwise be effective or applicable to Borrowers under, the Loan Documents.  Notwithstanding the forbearance set forth in the immediately preceding sentence, it is understood and agreed by Borrowers that Lender has not waived any existing or anticipated Default or Event of Default (including, without limitation, the Specified Defaults), and reserves all of its rights or remedies in respect thereof, under the Loan Documents and applicable law.  During the Forbearance Period (and thereafter), Lender shall be permitted to exercise any and all of its rights and remedies under the Loan Documents to the extent permitted under the Loan Documents, except as may be limited or provided otherwise during the Forbearance Period pursuant to the first sentence of this Section 2.

Section 3 . Termination . The Forbearance Period shall immediately terminate 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 “ Forbearance Termination Date ”) of the following events (each, a “ Forbearance Termination Event ”):

(a)           September 3, 2004;

(b)           commencement of any liquidation, bankruptcy, receivership, assignment for the benefit of creditors, or similar case or proceeding by or against any of Borrowers or Subsidiary Guaranty in a court of competent jurisdiction;

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

(d)           the date on which Lender, the ECF Party, or the Collateral Agent, as the case may be, delivers a notice to Borrowers declaring any default or event of default, other than the Specified Defaults, under or in respect of the Loan Agreement or the Eligible Credit Facility, as applicable.

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

Section 4 .  [Intentionally Omitted.]

Section 5 .  [Intentionally Omitted.]

Section 6 .  [Intentionally Omitted.]

Section 7 .  Continuing Effect .  Except as expressly provided herein or as hereafter may be modified, the Loan Agreement and the other Loan Documents shall continue unchanged and in full force and effect, and all rights, powers, and remedies of Lender and Borrowers thereunder are hereby expressly reserved.  Except to the extent expressly set forth herein, each Borrower remains obligated by the representations, warranties, covenants, and other provisions set forth in the Loan Agreement and the other Loan Documents to which it is a party.

Section 8 .  Acknowledgments and Agreements .  Each Borrower hereby unconditionally acknowledges, affirms, and agrees that:

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

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

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

(d)           nothing in this Forbearance Agreement shall create a contractual restriction on Lender that would restrict Lender from assigning or participating all or any portion of the Obligations under the terms and conditions of the Loan Agreement;

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

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