CORRECTED - Sharper Image in $540 mln deal w/ HoMedics-NY Post

(Deletes reference to bankruptcy protection exit in headline and 1st paragraph)

Oct 13 (Reuters) - Sharper Image Corp (SHRPQ.PK) is expected to announce later on Monday a $540 million licensing agreement, the New York Post said.

The five-year licensing agreement with HoMedics, a supplier of massage devices, will create a wholesale business serving big chains like Macy's Inc (M.N), Bed Bath & Beyond (BBBY.O) and J.C. Penney Co Inc (JCP.N), the paper said.

This holiday season will see a relatively modest selection of Sharper Image items, including tiny digital picture frames that hang on keychains, according to the paper.

While Sharper Image held talks with Wal-Mart Stores Inc (WMT.N) Inc and Target Corp (TGT.N), the brand's owners settled on a mid- and upper-tier distribution strategy, mainly with department stores better-equipped to display a wide assortment of products, the paper said.

Sharper Image filed for Chapter 11 bankruptcy protection in February, hurt by falling sales and worsening credit market conditions. It had previously lost money for three years, in part because of lawsuits over its Ionic Breeze air purifiers.

The gadget retailer was purchased by a group of investors led by Hilco Consumer Capital LP for $49 million in May.

Sharper Image could not be immediately reached for comment by Reuters. (Reporting by Ajay Kamalakaran in Bangalore; Editing by Chris Wickham)