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Egghead.com Inc. Wednesday filed for Chapter 11 bankruptcy protection and announced an agreement to sell assets to Fry's Electronics under the bankruptcy proceeding.

Egghead said it will continue to operate its business under the supervision of the Bankruptcy Court, pending close of the sale. Fry's, a privately-held chain of electronics superstores based in San Jose, Calif., is expected to operate the Egghead.com site after the sale is closed.

"We regret having to take this action, which was forced on us in recent weeks by a dramatic and unexpected decline in sales," said Jeff Sheahan, president and chief executive officer of Egghead.com. "That made it impossible to reach profitability in the fourth quarter. We investigated a number of alternatives and were pleased with Fry's offer to purchase the assets of the company and continue running the business, as the Egghead brand name is a strong and vibrant one. We believe this action will allow the company to realize the value for its assets, which will benefit our creditors."

John Fry, chief executive officer of Fry's, added, "The Egghead management team and associates have done an excellent job of building a strong brand and sizable online business which enables us to move online quickly with a robust and proven site."

The company said it has asked about one-third of its employees to remain with the company as it makes the transition in an effort to "ensure continued quality service to its customers." It has terminated the other employees, and said assets not acquired by Fry's are expected to be sold under the Bankruptcy Court's supervision.

The sale is subject to approval by the Bankruptcy Court. Egghead said it anticipates closing the transaction by the end of September.