September 14, 1998

MARGERY S. BRONSTER 4750
Attorney General of Hawaii

DOROTHY D. SELLERS 4069
HUGH R. JONES 4783
Deputy Attorney General
Department of the Attorney
General, State of Hawaii
Hale Auhau Building
425 Queen Street
Honolulu, Hawaii 96813
Telephone: (808) 586-1500

Attorneys for the Beneficiaries

IN THE CIRCUIT COURT OF THE FIRST CIRCUIT

STATE OF HAWAII

PETITION OF THE ATTORNEY GENERAL ON BEHALF
OF TRUST BENEFICIARIES TO REMOVE AND SURCHARGE
TRUSTEES, FOR ACCOUNTING, AND FOR
OTHER EQUITABLE RELIEF

TABLE OF CONTENTS

PETITION OF THE ATTORNEY GENERAL ON BEHALF
OF TRUST BENEFICIARIES TO REMOVE AND SURCHARGE
TRUSTEES, FOR ACCOUNTING, AND FOR
OTHER EQUITABLE RELIEF

PARTIES/INTRODUCTION

This petition is filed by the Attorney General of the State of Hawaii as parens patriae on behalf of the Beneficiaries of Kamehameha Schools Bishop Estate (the Trust), a perpetual public charitable trust established in 1884 by the Will of Princess Bernice Pauahi Bishop (the Will).

The Trust established by the Will has one single, immutable purpose. It is to educate Hawaiian children.

As required by the Will, the Trust has five Trustees. The present Trustees, in order of seniority of service, are Henry Haalilio Peters, Oswald Kofoad Stender, Richard Sung Hong Wong, Marion Mae Lokelani Lindsey, and Gerard Aulama Jervis. They were the Trustees at all times material to this petition.

Peters has been a Trustee since 1984. At the time of his appointment and until 1992, he was a member of the Hawaii House of Representatives. He also served as speaker of the House of Representatives from 1981 to 1986.

Stender has been a Trustee since 1989. Prior to his appointment, he was the chief executive officer of the Estate of James Campbell.

Wong has been a Trustee since 1993. Prior to his appointment, he was a member of the Hawaii Senate and served as its president from 1979 to 1992.

Lindsey has been a Trustee since 1993. At the time of her appointment, she was superintendant of schools for the Maui district office of the Hawaii department of education.

Jervis has been a Trustee since 1994. At the time of his appointment, he was a partner in the law firm of Jervis, Winer, and Meheula.

The Trustees have been unfaithful to the Will and the purpose of the Trust. They have failed to comply with clear directives of the Will. They have subordinated the sole purpose of the Trust to their personal gain. They have squandered Trust assets intended for education by their excessive compensation, and by imprudent and improper Trust management and investments. They have violated Hawaii statutes and court orders. They have engendered hostility between themselves and the Beneficiaries whose interests the Trustees were appointed to serve.

By this petition the Beneficiaries seek to remove Trustees, in part for using Trust assets to benefit themselves at the expense of the Beneficiaries; to surcharge Trustees for mismanaging the Trust, in part by taking excessive compensation at the expense of the Beneficiaries; and for accounting and other relief necessary to protect the assets and interests of present and future Beneficiaries.

This petition incorporates by reference the following public record documents in Equity No. 2048; (1) the Will; (2) 109th Master's Report, filed November 17, 1997 (Report 109); (3) Attorney General's Report on 109th Annual Account, filed December 3, 1997; (4) Final Report of Fact Finder, filed December 4, 1997 (Yim Report); (5) Petition of Stender and Jervis to Remove Lindsey, filed December 29, 1997 (Stender Petition), (6) Master's Consolidated Report on the One Hundred Ninth, One Hundred Tenth, and the One Hundred Eleventh Annual Accounts of the Trustees, filed August 7, 1998 (Consolidated Report), (7) The Arthur Andersen Report referred to in the Consolidated Report; and (8) Attorney General's Response to the Master's Consolidated Report, filed September 9, 1998. As used in this petition, "the Trust" includes all its subsidiary entities.

The interest of the Attorney General as parens patriae on behalf of all the Beneficiaries encompasses the interest of the court and the community in enforcing the terms of the Will and the purpose of the Trust, the interest of the court-appointed Master in clear, accurate, and complete Trust accounts, the interest of the court-appointed Fact Finder in the accurate determination of the facts concerning the controversy at Kamehameha Schools, and the interest of the Stender Petition in redressing breaches of Trust by any Trustee.

JURISDICTION AND VENUE

This petition is filed pursuant to Hawaii Probate Court Rule 3(c). The court has jurisdiction of the petition pursuant to Hawaii Revised Statutes 560:7-201, 603-21.6, 604-21.7 and Probate Court Rule 20.

Venue is proper in this court under Hawaii Revised Statutes 560:7-202 and 603-36(3) and (5).

STANDARDS APPLICABLE TO TRUSTEES

The Trustees owe the Beneficiaries a duty of faithful adherence to the terms of the Will and the purpose of the Trust.

The Trustees owe the Beneficiaries a duty of loyalty. The Trustees are required to administer the Trust without regard to their own interests and solely in the interest of the Beneficiaries and with surpassing honesty. "Not honesty alone, but the punctilo of an honor the most sensitive, is then the standard of behavior." Meinhard v. Salmon , 165 N.E. 545, 546 (N.Y. 1928) (Cardozo, C.J.).

The duty of loyalty prohibits self-dealing and prohibits a Trustee from acting when there is a conflict between a Trustee's individual interest and the interest of the Trust and its Beneficiaries.

A Trustee whose individual interest in the exercise of a Trust power conflicts with his or her duty of loyalty to the Beneficiaries may act, with exceptions not applicable to this petition, only with court authorization. Haw. Rev. Stat. 554A-5(b).

The Trustees owe the Beneficiaries a duty of care. The Trustees are required to act prudently at all times and in all matters affecting the Trust.

The Trustees owe the Beneficiaries a duty to serve as Trustees without engendering hostility between the Beneficiaries and Trustees detrimental to the execution of the Trust.

Each Trustee owes the Beneficiaries a duty to participate in the adminstration of the Trust and to use reasonable care to prevent a co-Trustee from committing a breach of trust and, if necessary, to compel a co-Trustee to redress a breach of trust.

The Trustees owe the Beneficiaries a duty to delegate prudently and to exercise continuing general supervision over delegated matters.

The Trustees owe a duty to the Beneficiaries to keep and render clear, accurate, and complete accounts with respect to the administration of the Trust.

The Trustees owe the Beneficiaries a duty to furnish upon reasonable request complete and accurate information as to the nature and amount of the Trust property and to permit inspection of the subject matter of the Trust and the accounts and vouchers and other documents relating to the Trust.

The Trustees owe the Beneficiaries and this court a duty to comply with all existing court orders affecting the administration of the Trust, and a duty to comply with all statutes and common law affecting the administration of the Trust.

A Trustee who violates any duty owed to the Beneficiaries is subject at the request of the Beneficiaries to removal, surcharge, and other available remedies.

COUNT 1

THE TRUSTEES HAVE VIOLATED THE DIRECTIVES
OF THE WILL AND THE PURPOSE OF THE TRUST

Introduction

The Beneficiaries incorporate in this paragraph all prior paragraphs of this petition.

The Will directed the Trustees at the outset to establish the Kamehameha Schools to educate Hawaiian children. This was done.

Paragraph 13 of the Will directs the present Trustees:

to expend the annual income in the maintenance of said schools; meaning thereby the salaries of teachers, the repairing buildings and other incidental expenses ; and to devote a portion of each year income to the support and education of orphans, and others in indigent circumstances, giving the preference to Hawaiians of pure or part aboriginal blood; the proportion in which said annual income is to be divided among the various objects above mentioned to be determined solely by my said trustees they to have full discretion. (emphasis added).

In violation of the Will, the Trustees have failed to expend the annual Trust income on the Kamehameha Schools, have instead diverted $350 million to other purposes, and thus have failed the single purpose of the Trust of educating Hawaiian children.

Paragraph 13 of the Will also directs the Trustees to:

annually make a full and complete report of all receipts and expenditures, and of the condition of said schools to the Chief Justice of the Supreme Court, or other highest judicial officer in this country; and shall also file before him annually an inventory of the property in their hands and how invested, and to publish the same in some Newspaper published in said Honolulu.

In violation of the Will, the Trustees have failed to make a full, complete, and accurate disclosure of the financial condition of the Trust. This failure also violates the Trustees' duty to provide the Beneficiaries complete and accurate information as to the nature and amount of the Trust property.

Paragraph 14 of the Will directs

"that a majority of my said trustees may act in all cases and may convey real estate and perform all of the duties and powers hereby conferred; but three of them at least must join in all acts."

In violation of the Will, the Trustees have utilized a lead trustee system by which they delegate a specific area of Trust administration to one Trustee. The lead trustee system also violates the Trustees' duties to the Beneficiaries to participate in the administration of the Trust and to prevent and seek redress of breaches of trust by co-Trustees.

Depriving Kamehameha Schools of Annual Income

The Will directs that the annual income of the Trust shall be expended for the Kamehameha Schools. The corollary to this directive is that the Trustees must clearly and separately account to the Beneficiaries for Trust income and Trust corpus.

The Stipulation entered into July 22, 1970 by the then-Trustees and ordered by this court likewise requires segregated accounting for Trust income and corpus accounts. The July 22, 1970 Stipulation/Order is binding on the present Trustees.

The Trustees have not separately accounted for income and corpus at any time during the terms of Stender, Wong, Lindsey, and Jervis or during the last ten years of Peters' term.

The Trustees' failure to account clearly and separately for Trust income and corpus violates the Will, violates a binding order of this court, and has the effect of depriving the Kamehameha Schools of monies intended for the education of Hawaiian children.

Contrary to a binding order of this court, the Trustees have failed to plan for the expenditure of accumulated income for educational purposes consistent with the Will.

The Trustees at all times during the terms of Stender, Wong, Lindsey, and Jervis and during the last 13 years of Peters' term have accumulated $350 million in income directed by the Will for the use of Kamehameha Schools and then depleted the accumulated income by reclassifying it as corpus.

The Trustees calculated their compensation on the Trust income while it was classified as income and before it was later reclassified as corpus.

The reclassification of Trust income as corpus was not disclosed to the Beneficiaries and was not disclosed to the court.

The effect of the reclassification has been to subvert the single purpose of the Trust, to necessitate reductions in educational programs and services, to deprive thousands of children of the opportunity to obtain educational benfits from the Trust, and to deprive the Kamehameha Schools of $350 million intended by Ke Ali'i Pauahi to educate Hawaiian children.

Incomplete Financial Reporting

Hawaii Revised Statutes 554-4 and the Hawaii Probate Court Rules impose reporting requirements on the Trustees in addition to those imposed by paragraph 13 of the Will.

Section 554-4 requires the trustees of a charitable trust to "file annually with the court having jurisdiction thereof an account showing in detail all receipts and disbursements, together with a full and detailed inventory of all property in the trustee's possession or under the trustee's control."

Rule 27 of the Hawaii Probate Court Rules provides that "[a]ll charitable trust accounting shall be referred to a special master appointed by the court for review, analysis, and report to the court."

Rule 29 of the Hawaii Probate Court Rules provides that:

The master shall have unlimited access to the books and records of the fiduciary with respect to the trust or estate that are not protected by privilege, including minutes of all meetings, and may interview any employee of the fiduciary regarding the trust or estate as the master deems appropriate.

Under the court-ordered Restated Guidelines applicable to the Trust's annual accounts, the Attorney General, representing the Beneficiaries, is entitled to receive the same information as the Master.

The Trustees have not provided the Master unlimited access to the Trust's books and records. Rather, the Trustees have imposed viewing restrictions and copying restrictions on the Master.

Contrary to generally accepted accounting principles, the Trustees failed to prepare consolidated financial statements for the Trust and its wholly-owned and majority-owned subsidiaries.

The Trustees have not disclosed the actual or fair market value of the investment in Goldman Sachs & Co..

The Trustees have closely controlled access to employees with relevant information on Trust operations. The Trustees have created an atmosphere of fear and intimidation among their employees.

The Trustees have failed to provide the Master and the court unqualified certification letters stating that the Trustees have correctly and accurately accounted for the Trust assets and are not aware of any breaches of trust.

The Trustees administer the Trust by means of a labrynthine maze of related organizations.

The Trustees use the labrynthine maze to shield financial information from the Beneficiaries and the Master and to obscure the value, composition, and performance of the Trust's assets and investments. For example, the Trustees have misreported losses and loss reserves.

The Trustees' violations of the Will, Hawaii statutes, and court-imposed Restated Guidelines and the Trustees' secrecy about the financial affairs of the Trust also violate the Trustees' independent duty to furnish the Beneficiaries complete and accurate information concerning the affairs of the Trust. The effect of these violations has been to deny the Beneficiaries' right to timely, accurate, understandable information relating to Trust assets and to obscure the performance results of the Trustees' investment policies and their adverse effect on the single Trust purpose of educating Hawaiian children.

Lead Trustee

Contrary to the clear directives of the Will that the Trustees may act only by majority vote and that at least three Trustees must join in all acts, the Trustees have utilized a lead trustee system by which they delegate a specific area of Trust administration to one Trustee based on his or her perceived expertise in that area.

The Trustees appointed Lindsey as the lead trustee for the Trust's education group in 1994 and delegated to her management of the Kamehameha Schools.

As set forth in Count 4 of this petition, Lindsey as lead trustee engendered ongoing controversy, confusion, fear, low morale, and hostility within the Kamehameha Schools community.

The other Trustees took no action to restrain Lindsey until December 1997, when they reacted to intense public criticism by removing Lindsey as lead trustee for education, and when Stender and Jervis petitioned the court to remove Lindsey as a Trustee.

Peters became lead trustee for asset management in 1993 and assumed responsibility for Trust investments and for due diligence on prospective investments.

Peters as lead trustee purposely withheld information on existing and potential investments from his co-Trustees, dismantled the Trust's internal audit function, instructed staff employees to withhold information from the co-Trustees, and used his position to approve Trust payment of improper non-Trust expenditures.

The lead trustee system violates the directive of the Will that at least three Trustees must join in all acts. The lead trustee system also violates the independent duty of all Trustees to participate in the administration of the Trust and to prevent any other Trustee from breach of fiduciary duty, violates the Trustees' duty to exercise continuing general supervision over delegated matters and, certainly as to appointing Lindsey lead trustee for education and Peters lead trustee for asset management, violates the Trustees' duty of prudent delegation.

The Trustees have been advised repeatedly by court-appointed Masters, the court-appointed Fact Finder, and specially retained consultants to discontinue the lead trustee system, and have disregarded all such advice.

As to Lindsey, the effect of these violations has been that the Kamehameha Schools have been mismanaged and the Trust purpose of educating Hawaiian children has been correspondingly impaired. As to Peters, the effect of these violations has been that Trust assets have been mismanaged and misspent to the detriment of the Trust purpose.

COUNT 2

PETERS, WONG, AND LINDSEY HAVE ENRICHED THEMSELVES
FROM THE TRUST AT THE EXPENSE OF THE BENEFICIARIES

The Beneficiaries incorporate in this paragraph all prior paragraphs of this petition.

A Trustee's duty to administer the Trust without regard to personal interest and solely in the interest of the Beneficiaries is permanent, fixed, and uncompromising.

Trustees Peters, Wong, and Lindsey have violated their duty of loyalty to the Beneficiaries by using their position as Trustees and by using Trust assets and opportunities to benefit themselves and their relatives and friends.

Kickbacks to Peters and Wong

Wong has a brother-in-law, Jeffrey Stone, and another brother-in-law, Randy Stone.

In 1990, the Trust owned land in Hawaii Kai that it leased to Kapalele Associates (Kapalele), a Hawaii limited partnership, to develop and construct Kalele Kai, a leasehold condominium project.

Subsequently, the Trust conveyed its fee interest to Kapalele and took back a $21.9 million note secured by the land (the original note).

The Kalele Kai project was completed in 1993. The condominium units did not sell as projected.

In 1995, Kapalele sold the improvements to One Keahole Partners (OKP) for $36.5 million. OKP is a partnership between National Housing Corporation (50%) and Pacific Northwest, Ltd., (50%) an entity owned and controlled by Jeffrey Stone.

OKP financed its purchase of Kalele Kai in part with a loan from the Bank of Hawaii and in part by negotiating with the Trust a restructuring of the original note.

The Trust agreed to restructure the original note in October 1995. Under the restructuring, the Trust reduced the principal amount due, waived an annual 5.0% increase in principal, extended the balloon due date, reduced the amount of collateral required for security, and set the interest rate at 2.75%.

The restructuring artificially inflated the value of the land in order to affect anticipated future mandatory sales by the Trust of its leased fee interest in other leasehold condominiums.

The restructured note was worth millions of dollars less to the Trust than the original note and conferred millions of dollars of profit on OKP and Jeffrey Stone, including the profit on the interest rate spread between the 2.75% payable by OKP to the Trust and the higher interest rate collected by OKP on mortgages offered for the units securing the restructured note.

Wong claimed to have recused himself from any participation in the Kalele Kai transaction and Peters assumed the role of lead trustee for the transaction. Contrary to Wong's assertions, he did participate in the negotiations. Peters voted to approve the restructured note from OKP. Peters and Wong each immediately thereafter received a substantial personal benefit through Jeffrey Stone.

In early January 1996, Trustee Peters sold Apartment 202 at a condominium project known as 1015 Wilder (his residence in Honolulu) to Mau LLC, an entity controlled by a business associate of Jeffrey Stone, for $570,000.

At the time of this sale, the fair market value of Apartment 202 was less than $570,000.

The $570,000 sale proceeds were immediately used by Trustee Peters to buy a penthouse apartment (Apartment No. 1203) in the same building for the same price.

On January 11, 1996, eight days after it bought Apartment 202 from Trustee Peters, Mau LLC sold the unit to OKP for $575,000.

OKP concealed the transaction by not recording the deed until March 1997.

In May 1997, OKP conveyed Apartment 202 to an unrelated third-party for $395,000, which was $175,000 less than Mau LLC had paid Peters for the property.

On May 17, 1996, Pacific Northwest, Ltd., purchased Apartment 204 at 1015 Wilder from Wong for $613,800.

At the time of this sale, the fair market value of Apartment 204 was less than $613,800.

Pacific Northwest, Ltd., immediately sold Apartment 204 to an unrelated third-party for $425,000, which was $188,800 less than Pacific Northwest, Ltd., paid Wong.

Pacific Northwest, Ltd., simultaneously sold Wong a house for $1,108,000. Wong paid for the house with the $613,800 proceeds from the sale of Apartment 204, approximately $103,000 in cash, and a note to Pacific Northwest, Ltd. for $395,000.

OKP paid Wong and Peters inflated prices for their apartments 202 and 204 at 1015 Wilder.

The inflated prices were paid to Peters and Wong as a quid pro quo for conferring financial benefits on Wong's brother-in-law Jeffrey Stone.

KDP Technologies

In early 1997, the Trustees agreed to invest up to $2 million of Trust assets in a start up company, KDP Technologies, LLC (KDP-Tech).

The Trust assets were invested through KDP Limited (KDP-Trust), a subsidiary of Royal Hawaiian Shopping Center, in turn a for-profit subsidiary of the Trust.

Lindsey served as president, vice president, and director of KDP-Trust.

At the time the Trustees decided to invest in KDP-Tech, it was in the pre-operational stage and was developing two Internet applications: (1) STAR*BOOK, an on-line database of videos depicting models and other entertainment industry "talent"; and (2) Love Mate, an on-line database program to be used by dating services.

Lindsey suggested that the Trust invest in KDP-Tech based on her acquaintance with a principal of KDP-Tech. The acquaintance was a co-investor with Lindsey in a speculative, failed personal investment.

The Trust wired $500,000 to KDP-Tech on July 2, 1997.

This investment was made without adequate due diligence and in disregard of an internal staff report. KDP-Tech was managed by principals with no proven business track records, was a highly speculative start up company, and the soft-porn nature of the investment was not suitable for a charitable educational Trust.

Within a week of the Trust's initial investment of $500,000, KDP-Tech began negotiating a consulting agreement with Wong's brother-in-law, Randy Stone.

KDP-Tech entered into a consulting agreement with Randy Stone as of July 15, 1997. KDP-Tech agreed to pay Randy Stone $150,000 a year and to grant him options to purchase interests in STAR*BOOK.

Within a few months of the Trust's investment, KDP-Tech had serious financial and managerial problems.

On October 23, 1997 Richard Wong, president of Royal Hawaiian Shopping Center (and not the same person as Trustee Wong) wrote to Peters informing him of the need to pay Randy Stone $50,000 to keep the company operational.

Peters arranged for KDP-Trust to loan KDP-Tech $105,000, and KDP-Tech then paid $50,000 of the loan proceeds to Randy Stone. The loan has never been repaid.

KDP-Trust continued to advance Trust money to KDP-Tech until its treasurer, Lindsey's acquaintance, was indicted for federal mail fraud and money laundering crimes (for which he was subsequently convicted and sentenced).

Peters and Wong used their positions as Trustees to help Wong's brother-in-law, Randy Stone, obtain a consulting contract from KDP-Tech and to secure payment of Randy Stone's consulting contract with Trust funds from KDP-Trust.

Mid Ocean, Ltd.

In 1992, the Trust invested approximately $31 million in Mid Ocean, Ltd. (Mid Ocean), a Bermuda-based insurance company, and acquired 310,000 Mid Ocean Class A shares.

In 1993, when Matsuo Takabuki retired as a Trustee of the Trust, Peters succeeded to Takabuki's seat as a director of Mid Ocean.

Peters served as a Mid Ocean director until early 1998.

Peters' service as a Mid Ocean director fell within his duties as Trustee and was a Trust opportunity.

Peters used Trust personnel to prepare him for Mid Ocean directors' meetings.

While a director of Mid Ocean, Peters received substantial director's fees and received options to acquire 6,000 shares of Mid Ocean stock.

The Mid Ocean fees and stock options are assets that belong to the Trust and not to Peters individually.

Peters has enriched himself at the expense of the Beneficiaries by retaining the fees and stock options for his personal benefit.

Benefiting Friends and Family With Trust Contracts and Employment

Milton Holt is a friend of Peters and served with him in the Hawaii Legislature.

Holt has been an employee of the Trust since 1987, first as assistant athletic director and more recently as a special projects officer.

Holt has been paid as a full time employee. He has not worked full time for the Trust.

From 1992 until early 1998, Holt repeatedly used a credit card issued to the Trust for charges at Honolulu adult entertainment nightclubs and to obtain cash advances at Nevada casinos.

Peters and Wong were informed by senior Trust executives of the improper nature of the charges and of the difficulties in obtaining repayment from Holt.

Peters and Wong concealed from the other Trustees Holt's personal charges on the Trust credit card and rejected suggestions to confiscate the card.

In 1994, the Trust gave Holt a retroactive pay raise of $12,325. The retroactive pay raise was not related to the value of Holt's services to the Trust but, rather, was calculated to pay off the improper expenses charged by Holt.

The Trust did not timely pay employment taxes on the retroactive salary increase to Holt.

Al Jeremiah, Jr. is a member of the Hawaii Bar and a friend of Peters.

Peters was instrumental in the Trust entering into a consulting services contract with Jeremiah, initially at $5000 per month and then at $7000 per month, without regard to whether any work was performed, with an additional $125 for each hour worked in excess of 40 hours per month.

In 1996, the Trust acquired a collection of photographs and books known as the Baker/Van Dyke collection.

Jeremiah was paid at least $35,000 at his attorney rate of $125/hour for performing menial and clerical labor in connection with inventorying the Baker/Van Dyke collection.

Clayton Hee is a friend of Peters and served with him in the Hawaii Legislature.

Peters was instrumental in the Trust, by its subsidiary Royal Hawaiian Shopping Center (RHSC), hiring Hee as a Cultural Affairs Researcher with negligible duties.

Terrance Tom served with Peters in the Hawaii Legislature, and was hired by the Trust at a monthly legal retainer of approximately $4000 for providing negligible, if any, legal services to the Trust.

On numerous occasions, the Trustees have arranged for the Trust, including its subsidiary organizations, to hire Trustee friends and relatives.

Peters directed RHSC to hire his cousin, Mona Ryan, as a property manager. Peters directed RHSC to hire a number of his other friends or relatives. The Trust created unbudgeted positions to accomodate these hirings.

Lindsey directed RHSC to hire her grandson, Hoku Haiku.

Larry Mehau, a principal shareholder of Hawaii Protective Association (HPA), is a friend of Wong and Lindsey.

In July 1996, the Trustees hired the Hawaii Protective Association ("HPA") to provide additional security personnel at the Kamehameha Schools. There was no operational necessity to hire any outside security contractor.

It is more expensive for the Trust to use HPA than to use Kamehameha Schools personnel to provide the same security services. It is more expensive for the Trust to use HPA than other outside security services, because HPA charges above market rates.

The Trustees did not solicit competitive bids for HPA's security services. There is no written contract with HPA.

Peters is a former employee of Dura Constructors, Inc. ("Dura"). Dura renovated Peters' Maili residence.

Beginning in 1995, the Trust awarded construction contracts to Dura without competitive bidding and in amounts totaling more than $2.7 million.

Dura received $465,000 for work on the athletic locker room at the Kamehameha Schools. The work was so deficient that the building was unsafe for student use. The Trust corrected Dura's work itself rather than pursue Dura for the deficiencies.

Rhino Roofing also worked on Peters' Maili home renovation. Peters' nephew is the owner of Rhino Roofing.

Beginning in 1995, the Trust awarded construction contracts under which Rhino Roofing received more than $1.3 million, customarily without competitive bidding or as the hand-picked roofing subcontractor.
136. Proposed construction contracts with Dura or Rhino received expedited Trustee approval with reduced scrutiny.

Peters, Wong, and Lindsey have misused their positions as Trustees, misused Trust assets, and benefited themselves by directing the Trust to hire or contract with their friends and relatives without regard to qualifications and without regard to the disproportionality between the compensation paid and the work, if any, actually performed.

Using Trust Employees for Personal Matters--Lindsey

In 1988, Lindsey and her husband co-owned the beach front property at 53-823 Kamehameha Highway on Oahu (the Hauula property).

In 1988, the Trust conveyed to the Lindseys the fee simple interest in the Hauula property by a deed in satisfaction of agreement of sale (the Deed).

The Deed provided only a limited warranty of title and contained no promise or warranty concerning "[w]hether or not the Property or any improvements meet the requirements of any building, health, zoning, land use, subdivision, setback, or other law, ordinance, rule, or regulation which may apply" or "any staking or survey done by any person" or "[t]he location of the seaward boundary or the areas of the Property if the Property borders the sea."

In 1993, the Lindseys obtained a permit from the Building Department of the City and County of Honolulu ("Building Department") to renovate the house on the property. The renovations uncovered structural damage that necessitated additional work beyond the scope of the existing building permit.

Lindsey went forward with the expanded renovation and was cited by the Building Department for violating the existing building permit.

Lindsey obtained a private proposal for $12,000 to obtain the necessary governmental approvals for the expanded renovation to proceed.

Rather than spend $12,000 of her own money, Lindsey used Trust employees to obtain a shoreline certification from the State of Hawaii Department of Land and Natural Resources, and to obtain a zoning variance from the City and County of Honolulu.

Trust employees performed the services for Lindsey in 1993 and 1994 using Trust time and Trust supplies.

In 1997, in the wake of adverse publicity and in response to
an investigation initiated by the Trust, Lindsey grudgingly reimbursed the Trust in part for the benefit she had received for the work on her Hauula property.

Lindsey's use of Trust employees and supplies to save money for herself violated her duty to act without regard to her own interests.

Use of Trust Employees for Personal Matters--All Trustees

The Trustees have used Trust employees, equipment, supplies, and resources for their personal benefit.

For example:

(a) Lindsey has used Trust employees to run personal errands for herself and her family members and to install a computer in her Maui and Oahu residences;

(b) During his 1986, 1988, 1990, and 1992 political campaigns while a Trustee, Peters used Trust employees to photograph him and his supporters for his campaign materials, in violation of Trust restrictions on political activity by the Trust and its employees;

(c) The Trustees have used Trust employees for personal matters such as appraising residential property; and

(d) The Trustees have used Trust employees to analyze and monitor personal investments using Trust computer programs.

By using Trust resources for personal matters, the Trustees have breached their duty to administer the Trust without regard to their own interests and solely in the interests of the Beneficiaries and have enriched themselves at the expense of the Beneficiaries.

COUNT 3

THE TRUSTEES HAVE ENRICHED THEMSELVES AT
THE EXPENSE OF THE BENEFICIARIES BY ACCEPTING
EXCESSIVE COMPENSATION FROM THE TRUST AND BY EXPENDING
TRUST ASSETS TO PRESERVE THEIR EXCESSIVE COMPENSATION

Accepting Excessive Compensation

The Beneficiaries incorporate in this paragraph all prior paragraphs of this petition.

Hawaii Revised Statutes 607-20, enacted in 1943, limits the compensation of trustees of a charitable trust to a percentage of Trust income that declines as trust income increases.

Section 607-20 limits compensation. It is not inconsistent with or in derogation of the Trustees' subsisting duty to administer the Trust solely in the interest of the Beneficiaries and to deal fairly with the Beneficiaries.

Under 607-20, the annual compensation received by each Trustees increased from $41,300 in 1964 to $926,487 in 1987.

Since 1996, the Trustees' compensation has also been limited by federal law, specifically the Intermediate Sanctions provision of the Internal Revenue Code (IRC) 4958.

In 1966, based in part on an agreement between the Attorney General and the Trustees, the Trustees agreed that they would take no commissions based on monies spent on the construction of Kamehameha Schools facilities (classified as Final Disbursements of Capital or FDOC).

Between November 1993 and May 1994 the Trust incurred investment losses of over $45 million, which would have reduced each Trustee's compensation by more than $225,000.

Rather than reduce compensation, retroactive adjustments were made in June and July 1994 to generate commissions on FDOC amounting to more than $98,000 to each Trustee. The retroactive adjustments were made at the direction of Peters, general counsel Nathan Aipa, and the principal executive of the administration group, Rodney Park.

The Trustees have in some years waived a portion of the maximum compensation allowed under 607-20.

From 1988 to the present, each Trustee has received the following annual compensation (amounts reflect deduction of compensation waived):

1988 1989 1990 1991 1992 1993 1994 1995 1996

$648,094 $659,588 $681,763 $704,660 $860,653 $915,238 $938,047 $843,109 $844,600

At least since 1987--including the entire terms of Stender, Wong, Lindsey, and Jervis and the past ten years of Peters' term--the Trustees have taken from the Trust compensation that is unreasonable and excessive both in the abstract and for these particular Trustees.

The Trustees have included in the calculation of their compensation the $350 million accumulated income that was not expended as directed by the Will and that was instead reclassified as corpus.

The Trustees' compensation has been significantly above the amount that is justifiable as reasonable compensation paid by comparable organizations for comparable services of comparably qualified individuals.

The compensation of trustees and senior management of comparable, large private foundations and educational institutions does not approach the level of compensation accepted by the Trustees. For instance:

a. Virtually all trustees of major colleges, universities and private non-profit secondary schools serve without compensation;

b. Approximately 40% of foundations with assets over $250 million do not compensate their trustees;

c. The average annual compensation of the trustees of the 23 private foundations with assets in excess of $1 billion is $14,730;

d. The average 1997 salary for the full-time CEO's of the 23 foundations with assets in excess of $1 billion was $323,600. The average salary for the five most highly compensated employees of these foundations was $213,800; and

e. The median 1997 salary for the CEO's of universities with operating budgets between $150 and $300 million was $180,000. The median salaries of the top five most highly compensated employees at these universities was approximately $155,000.

The governance of the Trust is not inherently more difficult or demanding that the governance of any other large foundation or educational institution so as to justify the Trustees' level of compensation.

The compensation received by these particular Trustees cannot be justified by their qualifications, experience, expertise, performance, or other positive qualities. Rather, in light of the breaches of Trust described throughout this petition, the Trustees' compensation is and has been wildly excessive.

The compensation that the Trustees have waived does not alter the excessiveness of the compensation.

The effect of the Trustees' excessive compensation has been to deprive the Trust and its Beneficiaries of millions of dollars intended to educate Hawaiian children.

Preserving Excessive Compensation--Self-Interested Lobbying

The Intermediate Sanctions provision allows the Internal Revenue Service to impose substantial financial penalties on trustees taking excessive compensation from charitable organizations. The sanction of financial penalties on overcompensated trustees is intermediate because it stops short of the ultimate sanction of revocation of the organization's tax-exempt status. The Intermediate Sanctions provision is in the best interest of the Beneficiaries of the Trust.

The Trustees expended over $900,000 of Trust assets to lobby the United States Congress against passage of the Intermediate Sanctions provision and then, when it was clear the measure would pass, to seek modifications in the legislative history beneficial to the Trustees.

The Trustees have also lobbied, advertised, and testified extensively against any change to 607-20 and its schedule of fees for Trustees of charitable trusts. The changes proposed were in the best interests of the Beneficiaries.

The Trust time and money spent to lobby against Intermediate Sanctions and against any change to 607-20 was spent entirely for the benefit the Trustees and to protect their excessive compensation and not at all for the interests of the Beneficiaries or the Trust purpose of educating Hawaiian children.

Preserving Excessive Compensation--Boodle

The Trustees have expended considerable Trust assets to benefit various Hawaii politicians. The benefits conferred directly or indirectly on politicians include: (1) employment by the Trust (Milton Holt, Robert Herkes, Clayton Hee); (2) preferential admissions to the Kamehameha Schools; (3) bonus real estate commissions (Joseph Souki and Joe Tanaka); (4) monthly legal retainer without providing meaningful legal services (Terrance Tom); and (5) payment of campaign expenses by participation in a bogus invoice scheme (Milton Holt, Marshall Ige).

In return for the expenditure of considerable Trust assets to confer benefits on politicians, the Trustees have obtained benefits solely for themselves, including support for their efforts to preserve their own excessive compensation at the expense of the Beneficiaries.

During the 1998 legislative session, Tom, Herkes, and Souki opposed legislation establishing a reasonable compensation standard for Trustee compensation.

Expending Trust assets on favors for politicians to obtain return favors for the Trustees personally advances the interest of the Trustees at the expense of the Beneficiaries, and deprives the Kamehameha Schools of assets for the education of Hawaiian children.

Illegal Payments for Politicians

The Trust has participated in a scheme of illegal campaign contributions benefiting Marshall Ige and Milton Holt.

The Trust, a public charitable trust, has incurred and not reported lobbying expenses.

Marshall Ige is a friend of Peters and served as his Vice Speaker of the House.

After Ige was defeated for re-election to the Hawaii House of Representatives in the 1994 primary election, he owed $18,262.71 to a vendor of campaign goods and services (the Vendor).

The Vendor had also provided campaign goods and services to Milton Holt.

Holt worked at the Trust in the government relations division, which reported to Peters.

The Vendor contacted Holt for help in collecting the unpaid $18,262.71 from Ige.

Shortly thereafter, a Trust employee called the Vendor and instructed him to bill Ige's campaign debt to the firm of Kajioka, Okada, Yamachi Architects, Inc. (Kajioka), a recipient of non-bid contracts from the Trust.

The Vendor followed this instruction and sent a false invoice to Kajioka in the amount of the campaign debt for goods and services never provided to Kajioka.

Kajioka paid the false invoice and thus paid the full amount of Ige's campaign debt to the Vendor.

Ige was elected to the Hawaii Senate in 1996.

After Holt was defeated for re-election to the Hawaii Senate in the 1996 primary election, he owed the Vendor approximately $12,334.44 for campaign goods and services.

A Trust employee instructed the Vendor to divide the balance of Holt's campaign debt into three equal parts and to send an invoice for one-third of the balance to each of three non-bid contractors of the Trust: Kajioka; Ronald N.S. Ho & Associates, Inc., (Ho); and Sato and Associates, Inc. (Sato).

The Vendor followed the Trust's instruction, and sent false invoices to the non-bid contractors for goods and services that were never provided to them.

Each of the three non-bid contractors paid the false invoice by sending the Vendor a check for $4,111.48 to pay off Holt's campaign debts.

Yukio Takemoto is the principal executive of the budget and review group of the Trust and reports directly to Peters.

After the 1996 primary election, Holt owed Starr Seigle McCombs (SSM), his media and advertising consultants, $18,690.72 that SSM had paid the Vendor on behalf of Holt.

Takemoto asked another non-bid contractor of the Trust, Akinaka & Associate, Ltd. (Akinaka), to help with Holt's unpaid campaign expenses.

When Akinaka agreed to help, Takemoto said that Kajioka would be in touch. Kajioka left a message for Akinaka that the Vendor would send an invoice.

Shortly thereafter, a Trust employee instructed the Vendor to send four invoices (each for $4,672.68, or one-fourth of the campaign debt of $18,690.72) to each of: Kajioka; Ho; Akinaka; and Okita, Kunimitsu and Associates (Okita).

The Vendor followed this instruction and sent false invoices to the four non-bid contractors for goods and services that were never provided to them.

Each of the four non-bid contractors paid the false invoice from the Vendor, and the Vendor then paid in full Holt's campaign debt to SSM.

All the firms that participated at the instruction of the Trust in making illegal campaign contributions by sending or paying bogus invoices were receiving, have received, and continue to receive lucrative non-bid contracts from the Trust.

Holt used a credit card issued to the Trust to charge lunches and dinners for himself and members of the Hawaii Legislature at various Honolulu restaurants.

The Trust paid these charges with Trust assets. The Trust did not consider these expenditures to be Holt's personal expenses and has neither sought nor received reimbursement from Holt for them.

The charges to entertain legislators were lobbying expenses of the Trust that have not been disclosed to the State Ethics Commission and have not been disclosed in any IRS Form 990 submitted by the Trust.

All or some of the Trustees know of the Trust's participation in the illegal campaign contribution scheme to benefit Ige and Holt and of the Trust's lobbying activities. All or some of the Trustees violated their duty of care, their duty to prevent co-Trustees from commiting breaches of trust, their duty to administer the Trust in compliance with all applicable law, and their duty to protect the Trust's tax-exempt status.

Preserving Excess Compensation--Lead Trustee

The Trustees have utilized a lead trustee structure to administer the Trust, delegating specific areas of Trust administration to specific Trustees.

Under the lead trustee system, the Trustees involve themselves in day-to-day management functions. The lead trustee system fails to maintain proper separation between the policy-setting functions of the Trustees and the management/implementation functions of their employees.

The Trustees have been advised to terminate the lead trustee system and to institute the CEO structure that is the norm at major charitable institutions by their own retained expert (the Peterson Report), by the Yim Report, by the court-ordered Arthur Andersen Report, by Report 109, and by the Consolidated Report.

The Trustees have disregarded all such advice and recommendations and have retained the lead trustee system.

The lead trustee system has resulted in the mismanagement of the Trust and the Kamehameha Schools.

The Trustees maintain the lead trustee system, and their dual, conflicting roles in policy-setting and management/implementation, to justify their continued excessive compensation and not for any interest of the Beneficiaries.

Tax-Exempt Status of Trust

The Trust presently qualifies as a charitable non-profit entity under the Internal Revenue Code and thus is exempt from federal, state, and local income and other taxes.

Maintaining the tax exempt status is critical to the Trust and its ability to serve its intended purpose.

The Trustees' duty to protect the interests of the Beneficiaries includes zealously protecting the Trust's tax-exempt status.

By taking excessive compensation and by using Trust assets for private inurement, the Trustees have imperiled the Trust's tax-exempt status and hence the full effectuation of the Trust's purpose.

COUNT 4

THE TRUSTEES HAVE MISMANAGED
THE KAMEHAMEHA SCHOOLS

The Beneficiaries incorporate in this paragraph all prior paragraphs of this petition.

Admission to the Kamehameha Schools is a coveted and economically significant benefit. The vast majority of Hawaiian children who apply are denied admission. It is therefore important that the selection process have not only the appearance of being fair, but is actually fair in every respect. Trustees Peters and Lindsey have corrupted the fairness of the highly competitive admissions process at Kamehameha Schools by directing the admission of less qualified applicants over more qualified applicants.

As previously alleged, the Trustees have diverted $350 million of Trust income from the Kamehameha Schools into the Trust corpus.

The Trustees have violated a binding order of this court to plan for the responsible expenditure of accumulated income for educational purposes consistent with the Will.

The Trustees administer the Trust by means of a labrynthine maze of related organizations.

The Trustees' time, efforts, and energy and the Trust's human and financial resources are disproportionately devoted to maintaining the labrynthine structural maze rather than to maintaining and benefitting the Kamehameha Schools. Contrary to the entire purpose of the Will and Trust, the Kamehameha Schools have been relegated to a position of relative unimportance in the overall operation of the Trust and to a position of relative unimportance to the Trustees.

As previously alleged, the Trustees have violated the Will by utilizing a lead trustee system of governance and particularly by allowing Lindsey to serve as lead trustee for education.

Lindsey mismanaged the Kamehameha Schools and engaged in destructive behavior including:

a. Lindsey abused and intimidated teachers, by making disrespectful comments about teachers individually and collectively;

b. Lindsey micromanaged the Kamehameha Schools, excluded faculty from decisions affecting their teaching and generally undervalued the talent and dedication of teachers at Kamehameha Schools;

c. Lindsey carried out a policy of review of all public communications from the Kamehameha Schools (including censoring communications) and of the School's curriculum;

d. Lindsey favored certain staff members, thereby creating a perception of bias that has blurred the lines of authority at the Kamehameha Schools;

e. Lindsey abused the power of her position by intimidating an honor student and student body president for publicly expressing views critical of Lindsey; and

f. Lindsey released to the press an inaccurate report highly critical of the Kamehameha Schools, thereby causing the students and faculty embarrassment and revealing her disregard for the welfare of the Schools.

The consequences of the Trustees' improper delegation of management of the Kamehameha Schools to Lindsey include:

a. School-wide confusion over roles and responsibilities of the Board, administration, and faculty;

b. Delayed and unwieldy response to issues and problems when they arise;

c. A climate of fear and intimidation among the teaching, counseling, and support staff;

d. A general lack of trust at several levels, particularly between teachers and administrators at the vice-principal level and higher;

e. Placement of mid-level administrators in the untenable position of having to enforce top-down decisions they themselves do not understand and cannot justify; and

f. Cynicism among students about the adults who have been entrusted with the responsibility of providing the students' education.

Two separate independent evaluations of the Kamehameha Schools have concluded that the Trustees' management of the Kamehameha Schools has been deficient.

Between August and November of 1997, retired Judge Yim conducted extensive fact finding of the controversy at Kamehameha Schools and filed his court-ordered report on December 4, 1997.

The Yim Report concluded that the Trustees' management of the Kamehameha Schools has created "an environment of misdirection, miscommunication, misrepresentation, and frustration."

During 1997 and 1998, the Kamehameha Schools' accreditation was reviewed by a visiting committee (the "Visiting Committee") from the Western Association of Schools and Colleges.

The Visiting Committee found:

Dysfunctional governance and decision-making has weakened leadership, destroyed the professional morale of the faculty, severely damaged the professional climate for learning and teaching, and provided bad lessons for students with respect to behavior of adults, integrity, care for people and justice.

Because of the mismanagement problems outlined above, the Visiting Committee extended the Kamehameha Schools accreditation only three years rather than the standard six years. Only 15 percent of all schools reviewed by the Western Association of Schools and Colleges received less than the full six-year renewal of their accreditation.

The effect of the Trustees' mismanagement of the Kamehameha Schools have been to impair the Trust purpose of educating Hawaiian children.

COUNT 5

THE TRUSTEES HAVE
MISMANAGED THE TRUST ASSETS

The Beneficiaries incorporate in this paragraph all prior paragraphs of this petition.

The Trust assets are worth approximately $10 billion.

The common law of charitable trusts and chapter 554C, Hawaii Revised Statutes (the Uniform Prudent Investor Act) impose specific duties on the Trustees to manage Trust assets solely in the interest of Beneficiaries.

The Trustees have mismanaged the Trust assets in violation of common law, the Hawaii Uniform Prudent Investor Act, and binding court orders.

Mismanagement of Investments

As previously alleged, the Trustees have violated binding court orders requiring the segregation of the corpus and income accounts and requiring development of a plan responsibly to expend accumulated income for educational purposes consistent with the Will.

The Trustees have failed to develop appropriate investment policies. They have failed to define clear investment objectives related to return requirements, risk tolerance, time horizons, diversification, and liquidity requirements.

The Trustees have failed to implement investment recommendations made by their professional staff and professional investment advisers, following instead an ad hoc opportunistic approach to investments, including reliance on tips from acquaintances.

The Trustees have failed to allocate asets prudently and have overinvested in private equities and real estate.

The Trustees have failed to conduct adequate due diligence on proposed investments and have failed to document investment decisions.

The Trustees have failed to identify appropriate benchmarks for evaluation of investments and to appropriately monitor investment performance and investment-related expenses.

As a result of these failures, the Trustees have engaged in numerous questionable investments, such as the investment in KDP, an investment in Michigan timberland, an investment in a bank in China, and an investment in a gasoline products distributorship that morphed into a fashion accessory business. The Trustees have converted loans into equity investments to avoid reporting the losses and to hide actual investment results.

Violation of Procurement Policies

The Trust has a written procurement policy that generally requires competitive bidding and signed written proposals for items over $1,000. The procurement policies protect the Trust Beneficiaries from wasteful expenditure of Trust assets and from employee fraud.

The Trustees routinely approve contracts, such as those with Jeremiah, HPA, Dura, and Rhino Roofing, that violate their own procurement policies.

In 1994, the Trustees agreed with Educational Management Group, Inc. (EMG) to purchase over $3 million of computer hardware, software, satellite broadcast distance learning curriculum, and support services.

Lindsey, who was instrumental in the decision to purchase from EMG, traveled with EMG officials by private jet to the 1997 Super Bowl in New Orleans.

The EMG procurement violated the Trust's procurement policy and was undertaken despite an internal staff report that the hardware could be purchased elsewhere at a substantial savings to the Trust.

EMG was authorized to install 22 work stations and began billing the Trust before any written contract or purchase order had been prepared.

The EMG program has not performed as EMG promised and the Trust has, at additional Trust expense, developed its own Educational Technology system.

The Trust continues to pay EMG over $250,000 per year on an aging system, without a technical evaluation of the merits of EMG's program.

In 1996, the Trustees approved the purchase of the Baker/Van Dyke collection for $422,831.

Lindsey strongly favored the purchase of the collection.

The Trustees did not have the collection professionally evaluated or appraised before committing to the purchase.

The escrow agreement executed in connection with the purchase contract required that no Trust funds would be paid before the Trust obtained an inventory and an appraisal.

Nonetheless, Lindsey directed the disbursement of $252,500 without obtaining an appraisal or even completing an inventory of the collection.

In addition to the payments to the seller, the Trust has spent an additional approximately $163,000 to maintain and preserve the collection.

The Baker/Van Dyke collection has not been used by anyone at Kamehameha Schools for any purpose.

Lindsey, acting unilaterally and without authorization from any other Trustee, caused the Trust to incur expenses of approximately $100,000 for two sessions of a special diet (the Shintani Diet) for herself and selected employees of the Kamehameha Schools.

At the suggestion of Lindsey, the funding for the Shintani Diet was diverted from the Kamehameha Schools staff development accounts. The Shintani Diet did not meet any of the strictly defined requirements for expenditures of staff development monies.

The Shintani Diet did not result in any educational or long term benefit to the Kamehameha Schools.

By entering into contracts that violate procurement policies, and contracts that are undertaken without an appraisal and without adequate due diligence, the Trustees have wasted Trust assets and have violated their duty to act solely in the interests of the Beneficiaries.

COUNT 6

THE TRUSTEES HAVE ACTED WITH
CONFLICTS OF INTEREST

The Beneficiaries incorporate in this paragraph all prior paragraphs of this petition.

As part of the duty of undivided loyalty that the Trustees owe the Beneficiaries, the Trustees cannot place themselves in a position where their own interests or those of another are in conflict or possible conflict with the interests of the Trust or its Beneficiaries.

The Trustees have violated the duty of loyalty on numerous occasions by engaging in transactions when they had an actual or potential conflict of interest. For example:

a. Peters, Wong, and Lindsey have consistently engaged in self-dealing at the expense of the Trust and its Beneficiaries;

b. The Trustees have lobbied and testified against state legislation limiting Trustee compensation;

c. The Trustees have used Trust funds to lobby against federal legislation imposing personal penalties on Trustees who accept excessive compensation in lieu of imposing the penalty of loss of the Trust's tax exempt status on the Trust and Beneficiaries;

d. The Trustees have paid for and directed the results of compensation studies to justify their excessive compensation, and have continued the lead trustee system to justify excessive compensation;

e. The Trustees have approved spending substantial Trust assets to protect the personal interest of the Trustees in withholding information of their misconduct from the Attorney General's investigation;

f. The Trustees have approved paying all legal fees for neutral employee-witnesses in ongoing legal proceedings to allow the Trustees to monitor employees and monitor the disclosure of information concerning Trustee misconduct;

g. The Trustees have approved spending Trust assets on widespread advertising to protect their own image;

h. The Trustees have accepted free memberships at private clubs that renegotiate valuable land leases with the Trust;

i. The Trustees have involved themselves in overseeing the current IRS audit in which the Trustees' interest in minimizing their individual liability conflicts with their obligation to minimize the Trust's exposure to penalties and possible revocation of tax exemption; and

j. In addition to transactions referred to elsewhere in this petition, the Trustees undertook other major investments (in particular, investments in a golf course/club in Virginia and a methane gas operation in Texas) that involved conflicts of interest between the interest of the Trustees and the interest of the Trust and its beneficiaries both in the initial transaction and in the ensuing litigation.

Violation of 554A-5(b)

Hawaii Revised Statutes 554A-5(b) requires any Trustee who has a conflict of interest with respect to the exercise of a Trust power to obtain approval from the court before exercising that power.

The Trustees have at all times failed even to comprehend the concept, meaning, or existence of a conflict of interest between themselves and the Beneficiaries.

The Trustees have consistently violated the requirements of 554A-5(b).

COUNT 7

THE TRUSTEES HAVE CREATED HOSTILITY
BETWEEN THEMSELVES AND THE TRUST
BENEFICIARIES THEY WERE APPOINTED TO SERVE

The Beneficiaries incorporate in this paragraph all prior paragraphs of this petition.

The Kamehameha Schools community includes Na Pua Ke Ali'i Pauahi, Na Kumu O Kamehameha, the Kamehameha Schools Faculty Association, the Kamehameha Schools Association of Teachers and Parents, and Kamehameha Schools alumni.

The Trustees have by their own actions engendered hostility between themselves and the Kamehameha Schools community that renders the Trustees ineffectual and incapable of serving as Trustees.

The actions engendering hostility include those described earlier in this petition--for example, disregard of the Will, engaging in self-dealing and conflicts of interest, taking excessive compensation while starving the Kamehameha Schools, mismanagement of Kamehameha Schools, mismanagement of Trust assets, stonewall secrecy about the affairs of a public charitable trust subsidized by public tax exemptions, and the corruption of the admissions process at Kamehameha Schools.

The actions of the Trustees generating hostility also include, for example, public infighting among themselves, visible waste of Trust assets on legal fees to withhold Trust information from the Beneficiaries and on advertising to garner support for the Trustees' position, public statements that the Trust offices should be moved out of Hawaii, the surprise inquisition--stopped by court order--of the Trust's own employees for suspected leaks of facts unflattering to the Trustees, the frivolous, expensive, and unsuccessful defenses asserted against the recognition of a teacher's union at the Kamehameha Schools, and the vindictive request for a $2 million liability insurance policy from participants in a reconciliation march by the Beneficiaries.

The Trustees have by their own actions engendered hostility between themselves and virtually all persons who are sincerely interested in the effectuation of the Will, the betterment of the Kamehameha Schools, and above all the education of Hawaiian children.

The Beneficiaries have no confidence in the existing Trustees or in their ability to act solely in the interest of the Beneficiaries or to administer the Trust in accordance with the Will and in accordance with the law, or to manage the Trust assets prudently.

The Beneficiaries have no confidence in the ability of the existing Trustees to act undeviatingly in accordance with the absolute, fixed, and uncompromising standards required of them: absolute refusal to take even one cent for themselves from the Trust; absolute dedication to the interests of the Beneficiaries; absolute adherence to the prudent investor rule; and absolute adherence to the directives of the Will and the single, shining purpose of the Trust.

COUNT 8

REMEDIES

The Beneficiaries incorporate in this paragraph all prior paragraphs of the petition, and specifically incorporate the findings of the Yim Report and the Consolidated Report.

The Beneficiaries request the court to order the following:

a. The immediate interim removal of all Trustees without compensation and the appointment of a receiver pending final judgment on the issue of permanent removal;

b. The permanent removal of all Trustees directly or indirectly responsible for the breaches of trust described in this petition;

c. The surcharge of all Trustees for excessive compensation, for all benefits obtained from the Trust for themselves and their family members and friends, for all Trust monies expended on boodle and illegal payments for politicians, for all legal fees paid by the Trust to benefit the Trustees personally, for all advertising expenses paid by the Trust to benefit the Trustees personally, and for all other amounts necessary to make whole the Trust and the Beneficiaries;

d. A full accounting of the Trust's finances, investments, and property;

e. The imposition of proper governance, management, reporting, and accounting systems;

f. The award to the Attorney General, payable by the Trustees personally and not by the Trust, of reasonable costs and attorneys' fees incurred by the Attorney General in this action and in her investigation of the Trustees pursuant to Hawaii Revised Statutes 28-2.5;

g. The award to the Attorney General, payable by Trustees Peters and Lindsey personally and not by the Trust, of reasonable costs and attorneys' fees incurred by the Attorney General in connection with the Stender Petition; and

h. Such other and further relief as appears appropriate to the court.

DATED: Honolulu, Hawaii, SEP 10 1998.

		MARGERY S. BRONSTER Attorney General DOROTHY D. SELLERS HUGH R. JONES Deputy Attorneys General Attorneys for the Beneficiaries
Hawaii Probate Court Rule 5(b) Certification MARGERY S. BRONSTER Attorney for Petitioner

CERTIFICATE OF SERVICE

I hereby certify that a copy of the petition of the Attorney General on behalf of trust Beneficiaries to remove and surcharge trustees, for accounting, and for other equitable relief was hand-delivered to the following parties on September 10, 1998.

Ronald R. Sakamoto, Esq.
Suite 850
Davies Pacific Center
841 Bishop Street
Honolulu, Hawaii 96813

Counsel for Jervis

Crystal K. Rose, Esq.
Ali'i Place, 16th Floor
1099 Alakea Street
Honolulu, Hawaii 96813

Counsel for Stender

J. Douglas Ing, Esq.
First Hawaiian Center, 23rd Floor
999 Bishop Street
Honolulu, Hawaii 96813

Counsel for Stender

Philip R. Brown, Esq.
Finance Factors Center
1164 Bishop Street, Suite 1200
Honolulu, Hawaii 96813

Counsel for Wong

Renee M.L. Yuen, Esq.
Haseko Center, Suite 702A
820 Mililani Street
Honolulu, Hawaii 96813

Counsel for Peters
Michael J. Green, Esq.
David J. Gierlach, Esq.
345 Queen Street, 2nd Floor
Honolulu, Hawaii 96813

Counsel for Lindsey

William A. Harrison, Esq.
841 Bishop Street, Suite 800
Honolulu, Hawaii 96813

Counsel for Lindsey

Robert Bruce Graham, Jr., Esq.
Ashford & Wriston
Ali'i Place, Suite 1400
1099 Alakea Street
Honolulu, Hawaii 96813

Counsel for KSBE

DATED: Honolulu, Hawaii September 10, 1998.

DOROTHY D. SELLERS HUGH R. JONES Deputy Attorneys General