Maui Divers, the state's largest jewelry manufacturer and retailer, has withdrawn its offer to buy bankrupt Hilo Hattie and has signed a deal to continue to operate jewelry concessions at the chain's seven Hawaii stores.

Maui Divers President and Chief Executive Bob Taylor, who began his quest for ownership of Pomare Ltd. dba Hilo Hattie in May, said yesterday he has had a change of heart about buying the company since the emergence of Donald “;Bum Sik”; Kang, the owner of Royal Hawaiian Creations, as owner and president of Hilo Hattie.

“;Don Kang presented us with a strong reorganization plan for renewed success, and after careful consideration we believe it is in the best interests of Hilo Hattie creditors and other stakeholders for us to withdraw our purchase proposal,”; Taylor said.

“;We are confident that with Don and his management team at the helm, we can continue to move forward toward our mutual goals.”;

Kang, who is the second-largest unsecured creditor in the Hilo Hattie bankruptcy case behind Maui Divers, assumed leadership of the company after acquiring 100 percent of Hilo Hattie's stock on June 19. Since the ownership change came about as a stock transfer, Kang said there will be no disruption to Hilo Hattie's employees. There will not be any change at Royal Hawaiian Creations, Kang's other business operation, either, he said. The chain's relationship with longtime vendor Maui Divers also has been secured, Kang said.

“;All parties are happy we have reached an amicable solution that allows Hilo Hattie to move forward toward a bright new future,”; he said, adding that Hilo Hattie hopes to continue its relationships with vendors while adding new ones.

Attorneys for Pomare have prepared a new reorganization plan that proposes small-scale growth and is committed to paying off creditors. The plan, which still has to be approved by the U.S. Bankruptcy Court, will offer to pay unsecured creditors 5 percent of what they are owed through the next five years and offers some 500 smaller creditors, who make up a convenience class, 20 percent repayment of claims up to $1,000.

“;We are confident that our plan will be approved and that all outstanding motions will be dismissed,”; Kang said.

Judge Robert Faris was set to rule July 15 on numerous motions, including whether to approve the Maui Divers bid, appoint a trustee or liquidate the business.

Taylor, who is still owed $1.25 million for prepayment of rent, said he is satisfied with the repayment schedule given Hilo Hattie's poor financial condition.

“;It's a new operation, so the only way (Kang's) plan would work is if the distribution to the unsecured creditors is limited to 5 percent,”; said Taylor, who has operated jewelry concessions in Hilo Hattie stores since 2001.

“;He is taking over a company that is not solvent. His liabilities are far in excess of the assets.”;

Kang himself is owed $800,000, he said. But, Kang said he still sees great promise in the iconic company he has long dreamed of owning.

“;I am a Korean immigrant and I worked very hard,”; Kang said. “;It has always been my dream to own Hilo Hattie, which is the No. 1 company in Hawaii that sells aloha wear.”;

Once the company is back on its feet, Kang envisions expanding into Waikiki, but on a much smaller scale than proposed by Ted Nelson, the previous CEO, who stepped down along with President John Scott following the stock transfer.

“;I'd like to solve the problems within a couple of years,”; Kang said. “;We need to go back to the basics of what worked for Hilo Hattie and allowed them to grow. We need to provide high-quality merchandise and an unforgettable shopping experience.”;

By the first quarter of 2010, Kang said he hopes to open a 3,000-square-foot Hilo Hattie Store in Waikiki which showcases the chain's top merchandise in a smaller location.