Maui Divers Jewelry has offered to buy Hilo Hattie out of bankruptcy for $1 million, in a move that could spark other bidders seeking to revive the ailing retailer.

Hawai'i's largest jewelry manufacturer and retailer, which is owed $1.3 million by Hilo Hattie, said it made the offer to preserve a business relationship that has accounted for close to 20 percent of Maui Divers' sales.

"We have a vested interest," said Bob Taylor, Maui Divers president and CEO. "It's a significant business that we want to protect, and we think there's an opportunity to grow Hilo Hattie again."

Maui Divers since 2001 has been the jewelry concession operator inside Hilo Hattie's seven Hawai'i stores.

Taylor said Maui Divers would re-hire the vast majority of the roughly 200 Hilo Hattie employees, invest at least $2 million in operations and re-merchandise the stores while keeping most, if not all, of the local vendors supplying Hilo Hattie.

However, a bankruptcy attorney representing Hilo Hattie said the bid by Maui Divers offers little to other creditors, including two key creditors with an interest in one of Hilo Hattie's most valuable assets — its Nimitz Highway flagship store lease.

"This offer just doesn't add up," said Chuck Choi, an attorney representing Hilo Hattie.

Choi said Hilo Hattie has deferred paying $800,000 in rent to its Nimitz store landlord, the Harry and Jeanette Weinberg Foundation, and that Hilo Hattie has a $700,000 mortgage with Central Pacific Bank tied to the lease.

If Maui Divers wants to retain the Nimitz lease, then the $1 million offer wouldn't come close to paying off the landlord and the bank, let alone other creditors.

Maui Divers said its offer is contingent upon the ability to negotiate satisfactory leases with Hilo Hattie landlords, and that it is offering to buy Hilo Hattie assets free and clear of any liens or encumbrances.

JUNE 22 TARGET

Any sale would be subject to approval of the bankruptcy court.

Maui Divers is seeking to complete a sale on or before June 22, which is a date scheduled for a hearing to determine whether Hilo Hattie should be liquidated or have an independent management trustee assume control of the company.

Taylor said his fear that Hilo Hattie will be liquidated prompted him to make the bid to save the company.

"We understand the market and Hawai'i brands, and are in a good position to rebuild the company," he said.

Taylor had been co-chairman of a committee of unsecured creditors that petitioned the bankruptcy court to appoint a trustee who could have engineered a quick sale or liquidation of the company.

On Thursday, Taylor resigned from the committee and on Monday presented his company's purchase offer. The committee has endorsed the offer.

"A sale of assets is in the best interest of the bankruptcy estate because this case is in imminent danger of being dismissed or being converted to Chapter 7," said a brief submitted to the court by committee attorney Ted Petit. "The proposed transaction will maximize value, preserve approximately 200 jobs and permit the buyer to continue operations of the Hilo Hattie business."

The creditors committee also said any other interested party willing to bid 5 percent, or $50,000, more than Maui Divers can submit a competing bid to acquire Hilo Hattie at a sale confirmation hearing.

The brief by Petit said Hilo Hattie has lost about $7.5 million since it filed for bankruptcy protection in October. "The debtor's assets are wasting," the filing said.

However, the owner of Hilo Hattie is struggling to keep the company alive, and has said it will submit a reorganization plan to the court by June 22.

EXPANSION PLAN

The plan involves opening roughly half a dozen more stores in heavily traveled tourist destinations. The company said it has held discussions to lease space at Ala Moana Center, Aloha Tower Marketplace, Queen's Market Place on the Big Island, Kapaa Center on Kaua'i and one or more hotels in Waikiki owned by Kyo-Ya operated under Sheraton, Westin and Starwood brands.

Initially, Hilo Hattie pinned its survival on opening a long-planned flagship store at Royal Hawaiian Center in Waikiki to replace its Nimitz store, where the expense to bus in customers isn't justified by sales. But that plan fell apart after the company couldn't finance the estimated $6 million needed to construct the Waikiki store.

Since October, Hilo Hattie has essentially been surviving by paying merchandise suppliers and other vendors using savings from not paying landlords rent under rent deferral or abatement agreements.

Hilo Hattie is owned by a California investor group led by Ted Nelson, who through another company owns franchise rights to Fantastic Sams salons in Hawai'i and California. Nelson's group bought Hilo Hattie in July from company founder Jim Romig for $1 million in the form of $25,000 down plus monthly payments.

At the time, Hilo Hattie was struggling financially, the result of an aggressive strategy to open large Mainland stores, all of which are now closed. Nelson's group attempted to improve operations and arranged to pay off $6.5 million in vendor debt over one to four years, but the visitor industry slowdown and other economic blows forced the company to file bankruptcy with about $12 million in debts.