The fourth quarter loss stands in contracts to a profit of $18.2 million ($0.49 per share) in the fourth quarter of 2007. The company said revenues declined 6%to $369.9 million and same-store sales fell 5.7%, excluding the impact of a stronger dollar and despite an extra week in the period. Company CEO Neil Fiske said the actions the company took during the year were "not enough to protect us fully from the sharp pullback in consumer spending and a highly promotional retail environment."

The situation has put the company at risk of violating the consolidated secured leverage ratio on its term loan. If unsuccessful in amending the loan, the company says its independent accountant likely will question the company's ability to continue as a going concern in the company's annual report, the filing of which has been delayed 15 days while talks with its lenders continue.

Fiske says an agreement in principal has been reached based on the third proposal Eddie Bauer put on the table after the first two were rejected. The agreement being discussed includes substantial upfront cash and payment-in-kind fees, a substantial increase in interest rates, as well as the issuance of warrants for the company's common stock.

"While the amendment we are seeking is expensive, it will give us a new level of covenants with considerably more room on the downside through the first quarter of 2010," Fiske said.

In January 2009, Eddie Bauer said it planned to cut 15% of its non-retail staff (193 jobs) due to the recession. It also decided to trim the size of its board to seven members from 10 and "significantly reduce" their compensation as part of its cost reduction effort.

In February 2007, shareholders rejected a $9.25-per-share buyout by a couple of private equity firms. At the time, its shares were trading in the $6 range. On Thursday, shares were trading $0.40, down nearly 50% [$0.38] on the day. Its 52-week high-low is $8.72-$0.30.