I am a shareholder of RMHB and to protect my inves
Post# of 75002
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Posted On: 05/18/2018 8:24:16 AM
I am a shareholder of RMHB and to protect my investment I seek both sides of the story. The below is taken from the current Quarterly Report:
Dallas County Texas, Case Number DC-17-15441 filed November 8, 2017. Rocky Mountain High Brands, Inc. f/k/a Republic of Texas Brands, Inc. Plaintiff, vs. Jerry Grisaffi, Joe Radcliffe, LSW Holdings, LLC, Lily Li, Epic Group One, LLC, Kenneth Radcliffe, Dennis Radcliffe, Phil Uhrik, Michael Radcliffe, Frank Izzo, Morgan Albright, John Garrison, BB Winks, LLC, Crackerjack Classic, LLC, and Universal Consulting, LLC.
The Company is seeking the return of Series A Preferred Stock and common stock issued to certain defendants or later obtained by certain other defendants for little or no consideration paid to the Company. The Company alleges among other things that RMHB’s former Chairman of the Board breached his fiduciary duty to the Company by issuing these shares to himself and others. RMHB is also seeking to void the Indemnification and Release Agreement between the parties that was executed in June 2017. The Company is awaiting response from discovery requests at the current time. A trial date has been set for December 2018.
1. Plaintiff alleges the following based on the facts pleaded herein, which are based on his
personal knowledge or information and belief. Plaintiff’s information and belief is based upon,
among other things, the investigation conducted by and under the supervision of his attorneys,
which included, among other things: (a) a review and analysis of regulatory filings filed by
Rocky Mountain High Brands, Inc. (“RMHB” or the “Company”) with the United States
Securities and Exchange Commission (“SEC”); (b) a review and analysis of submissions by the
Company to OTC Markets, Inc., including submissions made or verified by the Defendants; (c) a
review and analysis of press releases and media reports issued and disseminated by RMHB; (d) a
review of other publicly available information concerning RMHB, including articles in the news
media and analyst reports; (e) pleadings and other papers, including exhibits, filed by the
Company in this Court as part of its claims against Plaintiff.
2. At all relevant times, Plaintiff was a shareholder of the Company, and currently owns in
excess of 10 million shares. Furthermore, prior to June 2017, Plaintiff was an officer and
director of the Company so that he has special knowledge of its business practices and
transactions during this period and can fairly and adequately represents the interests of the other
shareholders. On or about March 5, 2018, in accordance with relevant provisions of applicable
Nevada statutes and civil procedure rules, Plaintiff made demand on the Company to prosecute
claims against the Defendants as made herein; a copy of his demand letter is provided herewith.
The Company responded that it would investigate but has, to-date, not pursued any manner of
claim against the Defendants.
DISCOVERY
3. Pursuant to Rule 190.3, Texas Rules of Civil Procedure, this is a Level II discovery case.
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Rocky Mountain High Brands vs. Jerry Grisaffi
CLAIM FOR RELIEF
4. Pursuant to Rule 47, Texas Rules of Civil Procedure, Plaintiff seeks non-monetary relief
and, in the alternative, monetary relief of over $ 1,000,000.
STATEMENT OF FACTS
SUMMARY
5. This matter involves breaches of duties of loyalty and care by defendants Seeberger,
Welch, Morrison and Smith. At all times from 2012 to the present date, Seeberger served in the
capacity of Vice President and General Counsel to the Company, and, since 2017, he has also
served as a director. Welch was the Company’s Chief Financial Officer from 2012 to 2014, and
then was President and Chief Financial Officer from 2015 to the present date; as has Seeberger,
Welch has served as a director to the Company since 2017. At all times from February 23, 2016
to the present date, Charles Smith has served as the Company’s Chief Operating Officer and a
director. At all times relevant, these Defendants were fiduciaries to the Company, and
responsible to it and its shareholders to make the Company’s interests primary to their own and
to act in the best interests of the Company. As pleaded herein, they failed to do so in multiple
instances.
6. Separate and apart from these breaches of duty, Seeberger also acted as the Company’s
attorney, as well as attorney to Grisaffi and others. As pleaded herein, Seeberger committed
malpractice against the Company in numerous instances, breaching his legal obligations by
providing poor or incompetent legal services and by suffering the Company to actual harm by
means of his conflicts of interests and breaches of confidentiality.
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Bankruptcy Court. Welch had an undisclosed business relationship with certain of the
Company’s claimants, in direct conflict with his fiduciary responsibilities as an officer, and
ultimately pursued, with these other claimants, an adversary proceeding against the Company in
the bankruptcy proceedings. The Company was discharged from bankruptcy in July 2014, with
the approval of a Plan of Reorganization. Both Seeberger and Welch had knowledge of the
employment agreement and the matters that were, or weren’t, disclosed in the bankruptcy
proceeding and neither of them objected to disclosures regarding the Series A or made any
claims as to the purported lack thereof.
15. In December 2014, Seeberger remained as the Company’s and Grisaffi’s counsel, and an
officer of the Company. Welch had been terminated as a result of the bankruptcy and had
surrendered shares of Company stock he was alleged to have converted. At a meeting of the
Company’s directors during this time, it determined to extend and reinstate Grisaffi’s
employment agreement, with specific reference to the previously issued Series A, long with
employment agreements for Seeberger, as “VP of Legal” and another officer. The August 9,
2013, share certificate representing the Series A (now 1,000,000 shares), was reissued to Grisaffi
on March 31, 2015, countersigned by the Company’s transfer agent. Seeberger, as an officer and
counsel to the Company, had knowledge of the prior issuance and reinstatement or ratification
thereof, and assisted Grisaffi in making these arrangements.
16. At this point in time, as provided in the Company’s constituent documents, and as known
by Seeberger and Welch, the Series A provided for 400:1 voting privileges and 100:1 common
stock conversion privileges, meaning that the one million Series A shares held the rights to 400
million votes for any matter requiring shareholder approval or could be converted into 100
million shares of the Company’s common stock.
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17. Commencing in 2012, the Company made quarterly and annual public reports to the OTC
Markets Alternative Reporting System (“ARS Reports”), which detailed the Company’s
financial condition, with compiled financial statements and management discussion. Separately,
Seeberger publicly confirmed the accuracy and completeness of the ARS Reports on numerous
occasions. The ARS Reports from 2013 forward consistently referenced the issuance and
features of the Series A and Grisaffi’s ownership.
18. In April 2016, the Company filed a Form 10-12G with the SEC, including audited
financial statements and a complete Management Discussion and Analysis, and thereafter filed
quarterly and periodic reports and shareholder notices with the Commission; all of these are
public documents, available to shareholders and others by means of the SEC’s EDGAR filing
system. Welch signed and certified the initial filing and subsequent filings, which made multiple
references to Grisaffi’s ownership of the Series A and the enhanced voting and conversion
privileges for these shares.
Grisaffi’s Sale of the Series A; Grisaffi’s Exit; Changes in Voting Privileges
19. In early 2016, the Company sought and obtained financing from LSW Holdings, LLC,
offering shares for funding. At some point in mid-2016, LSW sought to obtain control of the
Company; Welch, who by this point had been reinstated as an officer of the Company, and
Morrison, who had a business relationship with LSW’s principal, participated in the early stages
of these negotiations, including in or about August 2016, when LSW and Grisaffi struck a deal
for the purchase and sale of the Series A. Seeberger, as the Company’s and Grisaffi’s counsel,
drafted and edited several versions of a Securities Purchase Agreement and confirmed to LSW
that the Series A constituted “control of shareholder voting.” The parties eventually closed their
transaction in February 2017: Grisaffi sold the Series A to LSW for $3,500,000.
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20. After the closing, Welch signed a Form 8-K filed with the SEC on March 1, 2017, that
related the general terms of LSW’s purchase of control over the Company. Shortly after that,
Welch signed a Form 8-K filed with the Commission on March 15, 2017, that announced the
Company’s directors, which, at this time, included Smith and Morrison, had increased the Series
A voting privileges to 1200:1. Then, on March 20, 2017, Welch, in his capacity as President and
CEO, signed and caused the Company to file a preliminary Schedule 14C that announced the
Company had increased the number of authorized common shares from 800,000,000 to
950,000,000, and related that LSW, which possessed 1,200,000,000 votes, had approved such
action. At the time, the Company claimed to have 772,235,383 shares of common stock issued
and outstanding, so that the enhanced voting privileges attached to LSW’s Series A were
necessary to provide majority (60.84%) approval.
21. On or about June 29, 2017, Welch signed and caused to be filed a Form 8-K that stated
Grisaffi had announced his “retirement from active service to the company” effective June 30,
2017. The filing furthermore related that “ here were no known disagreement with Mr. Grisaffi
regarding our operations, policies, or practices.” Grisaffi contends he was pressured and coerced
to resign; regardless, his resignation was effective June 30, 2017.
22. On or about July 14, 2017, Welch signed and caused to be filed a Form 8-K that
represented the Company’s directors, which, at this time, included Smith and Morrison, had
amended the Certificate of Designation for the Series A to reduce its voting privileges from
1200:1 to 400:1. There was no reference to any manner of shareholder consent, vote or
approval, whether from the Series A holder or any other class of securities holder.
23. On or about September 20, 2017, Welch signed a Form 8-K filed with the Commission
on September 21, 2017, along with a related preliminary Schedule 14C. These filings stated the
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six-month period, the Company has issued at least 715,909,732 shares, representing an increase
of over 90% in the Company’s total issued and outstanding common shares.
CLAIMS
31. In its pending litigation against Grisaffi and others, the Company asserts he breached his
duties of care and loyalty with respect to the Company’s dealings with LSW and others
regarding the issuance of shares for financing. During the period from immediately following
the company’s discharge from bankruptcy on July 11, 2014, to the present date, as an officer of
the company, and from September 14, 2017, to the present date, also as a director of the
company, Seeberger was primarily responsible for the company’s legal and corporate affairs. As
to each of the events that occurred during these periods, and to the extent that the company
asserts Mr. Grisaffi is responsible, so too is Mr. Seeberger.
32. In its pending litigation against Grisaffi and others, the Company asserts breaches of the
duty of care and loyalty with respect to the Company’s dealings with LSW and others regarding
the issuance of shares for financing. During the period from, upon information and belief,
January 1, 2016, to the present date, as an officer of the company, and from September 14, 2017,
to the present date, also as a director of the company, Welch was primarily responsible for the
company’s financial affairs, including, specifically, matters relating to its capitalization by share
sales and borrowing activities. As to each of the events that occurred during these periods, and
to the extent that the company asserts Grisaffi is responsible, so too is Welch.
33. At all times from the company’s discharge from bankruptcy to the present date,
Seeberger was the company’s counsel and he owed the company a duty to act in accordance with
his professional responsibilities in his capacity as its attorney. To the extent the company
contends: that its establishment of the Series A preferred shares was improper or unlawful, or
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that corporate formalities regarding the issuance of same were not adhered to; that its financing
activities with the Epic Group One, LLC, LSW Holdings, LLC and Ms. Lily Li, or Grisaffi were
improper or unlawful; that it was misled as to the terms or provisions of Grisaffi’s purchase
agreement with LSW Holdings, LLC or Ms. Li, Seeberger, by his provision of legal advice and
support, including document drafting, to the Company committed multiple acts of malpractice.
Furthermore, Seeberger failed to provide independent legal advice, free of conflict, due to his
recommendation, approval and acceptance of employment agreements that provided for his
receipt of shares of millions of shares of the company’s stock, and his receipt and, upon
information and belief, offer and sale of such stock; and furthermore due to his provision of legal
advice and support, including document drafting, to Grisaffi.
34. In press releases disseminated by the company from June 30, 2017, after Grisaffi’s
departure, both prior to and after Welch’s appointment as a director, Welch falsely asserted that
1) Grisaffi had resigned his positions with the company, when, in fact, he had been forced out at
Seeberger’s and Welch’s insistence; 2) that the company had not reviewed the agreement
between LSW and Grisaffi until after Grisaffi’s departure on June 30, 2017, when, in fact, the
general terms of the agreement, which at one point the company was party to, were known to the
company at some point in October 2016 if not before, and Seeberger was instrumental in drafting
and circulating the agreement; 3) that the company had been misled as to LSW’s funding
intentions with respect to its agreement with Grisaffi when, in fact, LSW did provide funding but
determined to withhold additional amounts because, among other reasons, management refused
to make administrative changes requested by LSW, including a relocation of headquarters and
reduction of staff expenses and salaries; 4) that the company was forced to pursue financing by
reason of LSW’s withholding additional financing when, in fact, Welch had been pursuing a
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financing arrangement with GHS Investments, LLC since at least late 2016, but such expensive,
potentially toxic, capital had been rejected by management. Each of these public statements was
both material and demonstrably false and misleading, and subjected the company to liability for
violations of state and federal securities laws.
35. Smith and Morrison were directors of the Company during 2017 and 2018, when the
Company a) arranged for the increase and decrease in voting privileges for the Series A; b)
arranged for the increase of the Company’s authorized shares from 800 million to 950 million; c)
arranged for the issuance of the Series E preferred shares, to give Welch voting control over the
Company; d) arranged for the increase of the Company’s authorized shares from 950 million to 4
billion; e) entered into the GHS financing arrangement; and f) authorized the issuance of more
than 750 million shares of the Company’s common stock to GHS, the Company’s officers and
director, including themselves, and others.
36. The pending litigation is not disclosed in the Legal Matters section of the Company’s
recently effective Form S-1 registration statement. Welch, as the Company’s Chairman and
Chief Executive Officer, Seeberger, as the Company’s General Counsel and a director, Smith as
the Company’s Chief Operating Officer and a director, and Morrison, as a director, are all
responsible for the accuracy and completeness of its registration statement. Among other things,
purchasers of the Company’s shares will reasonably rely on the registration statement as part of
the total mix of information material to making investment decisions. The omitted information
is material and the omission a) has subjected the company to liability for violations of state and
federal securities laws as well, and b) constitutes a breach of duty of due care and candor.
37. The recently announced compensation agreements for the company’s management team,
in a Form 8-K signed by Welch and filed on February 23, 2018, is outrageous and self-dealing.
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The Company acknowledges in its Form S-1, signed and certified by Welch, and made effective
February 9, 2018, that its “burn rate” is unsustainable, and that it expects to lose more than $2
million in the next 12 months, of which $670,000 is from salaries to Welch, Seeberger, Smith
and two other employees. Funding the Company’s salaries and other administrative expenses
necessitated the GHS EFA and the massive dilution that has resulted and will continue to result
from the sale of discounted shares at prevailing low prices. While the company asserts Grisaffi
somehow breached his duty by causing an increase in the number of shares issued and
outstanding by nearly 500 million shares during a period of more than three years, it does not
similarly acknowledge that its current management has nearly doubled the number of common
shares in less than six months, which includes a large number of shares issued to current
management.
38. According to the Company’s Form 10-KT, signed by all of the Defendants, as of
December 31, 2017, it had less than $17,000 in cash and over $7.8 million in current liabilities,
as well as a shareholder deficit of more than $31 million. The Company is insolvent by any
reasonable measure. The Defendants’ actions in arranging the GSH financing, which required
the Series E issuance in order to increase to the Company’s authorized shares in October 2017,
was self-dealing and breached their duties of due care and loyalty.
39. In their capacities as officers and directors to the Company, Welch and Seeberger owed
the Company duties of loyalty, due care and candor. During the period from at least February
18, 2014, forward, as to the ARS reports provided by the Company for periods ending December
31, 2013, and thereafter, and from April 16, 2016, forward, as to the Company’s Securities and
Exchange Commission filings, Seeberger consistently made or confirmed representations
regarding the issuance, ownership and features of the Series A that are completely opposite to the
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allegations made in the Company’s claims against Grisaffi and LSW. During the period from at
least January 22, 2016, forward, as to the ARS reports provided by the Company for periods
ending December 31, 2015, and from April 16, 2016, forward, as to the Company’s Securities
and Exchange Commission filings and press releases, Welch consistently made, confirmed or
certified representations regarding the issuance, ownership and features of the Series A that are
completely opposite to the Company’s claims against Grisaffi and LSW. In this manner, Welch
and Seeberger either breached their duties of care to the Company by making false claims and
suffering it to damages for violations of federal and state securities laws, or breached their duties
of candor by making false statements as to matters relative to the Series A.
40. The Company relied on LSW’s ownership of the Series A and the 1200:1 voting
privileges in March 2017, to permit its increase of authorized shares from 800 million to 950
million. The Form S-1 relates that as of October 30, 2017, the Company had over 877 million
shares of common stock issued and outstanding (this conflicts with the 793 million disclosed in
the Schedule 14C covering the same period). Giving credit to the Company’s claims in the
instant litigation that the Series A were not validly issued would result in such increase being
void. Either the Company’s claims, as orchestrated by the Defendants, are spurious or it may
have issued as many as 77 million shares for which there was no authority, suffering the
Company to claim by shareholders and others, including market regulators such as the U.S.
Securities and Exchange Commission and the Financial Industry Regulatory Authority, tasked
with preserving the integrity of the public markets. By directing this hazardous and ill-considered
transaction, the Defendants subjected the Company to risk of damages and a negative impact on
the market for its shares, all for their own personal benefit, and thus breached their duty of care
and loyalty.
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41. The increase of authorized common shares to 4 billion in October 2017, was even more
hazardous and ill-considered, and equally self-dealing. Nevada Revised Statutes Section
78.3791 requires any issuance of a controlling interest in a Nevada corporation be approved by
the affected shareholders on a class-by-class basis. No such approval was obtained from either
the Series A or the common shareholders prior to the Company’s issuance to Welch of a newly-
created class of preferred shares that provided him a controlling interest, albeit temporary,
sufficient to increase the number of authorized common shares from 950 million to 4 billion.
Any post-increase assertion that the Series E was somehow intended to “protect the interests of
the Company and its shareholders” (see, NRS 78.378(3)) is specious and groundless, especially
since it essentially created new rights for Welch, designed to usurp the democracy rights of the
other shareholders, rather than “granting or denying” rights or privileges to an existing holder.
By directing this hazardous and ill-considered transaction, the Defendants subjected the
Company to risk of damages and a negative impact on the market for all its shares in the event of
an issuance in excess of 950 million were deemed void, all for their own personal benefit, and
thus breached their duty of care and loyalty.
RELIEF REQUESTED
PRAYER FOR RELIEF
WHEREFORE, Plaintiff demands judgment as follows:
42. Directing Defendants to account to the Company for all damages sustained
or to be sustained by the Company by reason of the wrongs alleged herein.
43. Directing the Company to take all necessary actions to reform its corporate
governance and internal procedures to comply with applicable laws and protect the Company
and its shareholders from a recurrence of the events described herein, including, but not limited
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Dallas County Texas, Case Number DC-17-15441 filed November 8, 2017. Rocky Mountain High Brands, Inc. f/k/a Republic of Texas Brands, Inc. Plaintiff, vs. Jerry Grisaffi, Joe Radcliffe, LSW Holdings, LLC, Lily Li, Epic Group One, LLC, Kenneth Radcliffe, Dennis Radcliffe, Phil Uhrik, Michael Radcliffe, Frank Izzo, Morgan Albright, John Garrison, BB Winks, LLC, Crackerjack Classic, LLC, and Universal Consulting, LLC.
The Company is seeking the return of Series A Preferred Stock and common stock issued to certain defendants or later obtained by certain other defendants for little or no consideration paid to the Company. The Company alleges among other things that RMHB’s former Chairman of the Board breached his fiduciary duty to the Company by issuing these shares to himself and others. RMHB is also seeking to void the Indemnification and Release Agreement between the parties that was executed in June 2017. The Company is awaiting response from discovery requests at the current time. A trial date has been set for December 2018.
1. Plaintiff alleges the following based on the facts pleaded herein, which are based on his
personal knowledge or information and belief. Plaintiff’s information and belief is based upon,
among other things, the investigation conducted by and under the supervision of his attorneys,
which included, among other things: (a) a review and analysis of regulatory filings filed by
Rocky Mountain High Brands, Inc. (“RMHB” or the “Company”) with the United States
Securities and Exchange Commission (“SEC”); (b) a review and analysis of submissions by the
Company to OTC Markets, Inc., including submissions made or verified by the Defendants; (c) a
review and analysis of press releases and media reports issued and disseminated by RMHB; (d) a
review of other publicly available information concerning RMHB, including articles in the news
media and analyst reports; (e) pleadings and other papers, including exhibits, filed by the
Company in this Court as part of its claims against Plaintiff.
2. At all relevant times, Plaintiff was a shareholder of the Company, and currently owns in
excess of 10 million shares. Furthermore, prior to June 2017, Plaintiff was an officer and
director of the Company so that he has special knowledge of its business practices and
transactions during this period and can fairly and adequately represents the interests of the other
shareholders. On or about March 5, 2018, in accordance with relevant provisions of applicable
Nevada statutes and civil procedure rules, Plaintiff made demand on the Company to prosecute
claims against the Defendants as made herein; a copy of his demand letter is provided herewith.
The Company responded that it would investigate but has, to-date, not pursued any manner of
claim against the Defendants.
DISCOVERY
3. Pursuant to Rule 190.3, Texas Rules of Civil Procedure, this is a Level II discovery case.
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Rocky Mountain High Brands vs. Jerry Grisaffi
CLAIM FOR RELIEF
4. Pursuant to Rule 47, Texas Rules of Civil Procedure, Plaintiff seeks non-monetary relief
and, in the alternative, monetary relief of over $ 1,000,000.
STATEMENT OF FACTS
SUMMARY
5. This matter involves breaches of duties of loyalty and care by defendants Seeberger,
Welch, Morrison and Smith. At all times from 2012 to the present date, Seeberger served in the
capacity of Vice President and General Counsel to the Company, and, since 2017, he has also
served as a director. Welch was the Company’s Chief Financial Officer from 2012 to 2014, and
then was President and Chief Financial Officer from 2015 to the present date; as has Seeberger,
Welch has served as a director to the Company since 2017. At all times from February 23, 2016
to the present date, Charles Smith has served as the Company’s Chief Operating Officer and a
director. At all times relevant, these Defendants were fiduciaries to the Company, and
responsible to it and its shareholders to make the Company’s interests primary to their own and
to act in the best interests of the Company. As pleaded herein, they failed to do so in multiple
instances.
6. Separate and apart from these breaches of duty, Seeberger also acted as the Company’s
attorney, as well as attorney to Grisaffi and others. As pleaded herein, Seeberger committed
malpractice against the Company in numerous instances, breaching his legal obligations by
providing poor or incompetent legal services and by suffering the Company to actual harm by
means of his conflicts of interests and breaches of confidentiality.
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Bankruptcy Court. Welch had an undisclosed business relationship with certain of the
Company’s claimants, in direct conflict with his fiduciary responsibilities as an officer, and
ultimately pursued, with these other claimants, an adversary proceeding against the Company in
the bankruptcy proceedings. The Company was discharged from bankruptcy in July 2014, with
the approval of a Plan of Reorganization. Both Seeberger and Welch had knowledge of the
employment agreement and the matters that were, or weren’t, disclosed in the bankruptcy
proceeding and neither of them objected to disclosures regarding the Series A or made any
claims as to the purported lack thereof.
15. In December 2014, Seeberger remained as the Company’s and Grisaffi’s counsel, and an
officer of the Company. Welch had been terminated as a result of the bankruptcy and had
surrendered shares of Company stock he was alleged to have converted. At a meeting of the
Company’s directors during this time, it determined to extend and reinstate Grisaffi’s
employment agreement, with specific reference to the previously issued Series A, long with
employment agreements for Seeberger, as “VP of Legal” and another officer. The August 9,
2013, share certificate representing the Series A (now 1,000,000 shares), was reissued to Grisaffi
on March 31, 2015, countersigned by the Company’s transfer agent. Seeberger, as an officer and
counsel to the Company, had knowledge of the prior issuance and reinstatement or ratification
thereof, and assisted Grisaffi in making these arrangements.
16. At this point in time, as provided in the Company’s constituent documents, and as known
by Seeberger and Welch, the Series A provided for 400:1 voting privileges and 100:1 common
stock conversion privileges, meaning that the one million Series A shares held the rights to 400
million votes for any matter requiring shareholder approval or could be converted into 100
million shares of the Company’s common stock.
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17. Commencing in 2012, the Company made quarterly and annual public reports to the OTC
Markets Alternative Reporting System (“ARS Reports”), which detailed the Company’s
financial condition, with compiled financial statements and management discussion. Separately,
Seeberger publicly confirmed the accuracy and completeness of the ARS Reports on numerous
occasions. The ARS Reports from 2013 forward consistently referenced the issuance and
features of the Series A and Grisaffi’s ownership.
18. In April 2016, the Company filed a Form 10-12G with the SEC, including audited
financial statements and a complete Management Discussion and Analysis, and thereafter filed
quarterly and periodic reports and shareholder notices with the Commission; all of these are
public documents, available to shareholders and others by means of the SEC’s EDGAR filing
system. Welch signed and certified the initial filing and subsequent filings, which made multiple
references to Grisaffi’s ownership of the Series A and the enhanced voting and conversion
privileges for these shares.
Grisaffi’s Sale of the Series A; Grisaffi’s Exit; Changes in Voting Privileges
19. In early 2016, the Company sought and obtained financing from LSW Holdings, LLC,
offering shares for funding. At some point in mid-2016, LSW sought to obtain control of the
Company; Welch, who by this point had been reinstated as an officer of the Company, and
Morrison, who had a business relationship with LSW’s principal, participated in the early stages
of these negotiations, including in or about August 2016, when LSW and Grisaffi struck a deal
for the purchase and sale of the Series A. Seeberger, as the Company’s and Grisaffi’s counsel,
drafted and edited several versions of a Securities Purchase Agreement and confirmed to LSW
that the Series A constituted “control of shareholder voting.” The parties eventually closed their
transaction in February 2017: Grisaffi sold the Series A to LSW for $3,500,000.
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20. After the closing, Welch signed a Form 8-K filed with the SEC on March 1, 2017, that
related the general terms of LSW’s purchase of control over the Company. Shortly after that,
Welch signed a Form 8-K filed with the Commission on March 15, 2017, that announced the
Company’s directors, which, at this time, included Smith and Morrison, had increased the Series
A voting privileges to 1200:1. Then, on March 20, 2017, Welch, in his capacity as President and
CEO, signed and caused the Company to file a preliminary Schedule 14C that announced the
Company had increased the number of authorized common shares from 800,000,000 to
950,000,000, and related that LSW, which possessed 1,200,000,000 votes, had approved such
action. At the time, the Company claimed to have 772,235,383 shares of common stock issued
and outstanding, so that the enhanced voting privileges attached to LSW’s Series A were
necessary to provide majority (60.84%) approval.
21. On or about June 29, 2017, Welch signed and caused to be filed a Form 8-K that stated
Grisaffi had announced his “retirement from active service to the company” effective June 30,
2017. The filing furthermore related that “ here were no known disagreement with Mr. Grisaffi
regarding our operations, policies, or practices.” Grisaffi contends he was pressured and coerced
to resign; regardless, his resignation was effective June 30, 2017.
22. On or about July 14, 2017, Welch signed and caused to be filed a Form 8-K that
represented the Company’s directors, which, at this time, included Smith and Morrison, had
amended the Certificate of Designation for the Series A to reduce its voting privileges from
1200:1 to 400:1. There was no reference to any manner of shareholder consent, vote or
approval, whether from the Series A holder or any other class of securities holder.
23. On or about September 20, 2017, Welch signed a Form 8-K filed with the Commission
on September 21, 2017, along with a related preliminary Schedule 14C. These filings stated the
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Rocky Mountain High Brands vs. Jerry Grisaffi
six-month period, the Company has issued at least 715,909,732 shares, representing an increase
of over 90% in the Company’s total issued and outstanding common shares.
CLAIMS
31. In its pending litigation against Grisaffi and others, the Company asserts he breached his
duties of care and loyalty with respect to the Company’s dealings with LSW and others
regarding the issuance of shares for financing. During the period from immediately following
the company’s discharge from bankruptcy on July 11, 2014, to the present date, as an officer of
the company, and from September 14, 2017, to the present date, also as a director of the
company, Seeberger was primarily responsible for the company’s legal and corporate affairs. As
to each of the events that occurred during these periods, and to the extent that the company
asserts Mr. Grisaffi is responsible, so too is Mr. Seeberger.
32. In its pending litigation against Grisaffi and others, the Company asserts breaches of the
duty of care and loyalty with respect to the Company’s dealings with LSW and others regarding
the issuance of shares for financing. During the period from, upon information and belief,
January 1, 2016, to the present date, as an officer of the company, and from September 14, 2017,
to the present date, also as a director of the company, Welch was primarily responsible for the
company’s financial affairs, including, specifically, matters relating to its capitalization by share
sales and borrowing activities. As to each of the events that occurred during these periods, and
to the extent that the company asserts Grisaffi is responsible, so too is Welch.
33. At all times from the company’s discharge from bankruptcy to the present date,
Seeberger was the company’s counsel and he owed the company a duty to act in accordance with
his professional responsibilities in his capacity as its attorney. To the extent the company
contends: that its establishment of the Series A preferred shares was improper or unlawful, or
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Rocky Mountain High Brands vs. Jerry Grisaffi
that corporate formalities regarding the issuance of same were not adhered to; that its financing
activities with the Epic Group One, LLC, LSW Holdings, LLC and Ms. Lily Li, or Grisaffi were
improper or unlawful; that it was misled as to the terms or provisions of Grisaffi’s purchase
agreement with LSW Holdings, LLC or Ms. Li, Seeberger, by his provision of legal advice and
support, including document drafting, to the Company committed multiple acts of malpractice.
Furthermore, Seeberger failed to provide independent legal advice, free of conflict, due to his
recommendation, approval and acceptance of employment agreements that provided for his
receipt of shares of millions of shares of the company’s stock, and his receipt and, upon
information and belief, offer and sale of such stock; and furthermore due to his provision of legal
advice and support, including document drafting, to Grisaffi.
34. In press releases disseminated by the company from June 30, 2017, after Grisaffi’s
departure, both prior to and after Welch’s appointment as a director, Welch falsely asserted that
1) Grisaffi had resigned his positions with the company, when, in fact, he had been forced out at
Seeberger’s and Welch’s insistence; 2) that the company had not reviewed the agreement
between LSW and Grisaffi until after Grisaffi’s departure on June 30, 2017, when, in fact, the
general terms of the agreement, which at one point the company was party to, were known to the
company at some point in October 2016 if not before, and Seeberger was instrumental in drafting
and circulating the agreement; 3) that the company had been misled as to LSW’s funding
intentions with respect to its agreement with Grisaffi when, in fact, LSW did provide funding but
determined to withhold additional amounts because, among other reasons, management refused
to make administrative changes requested by LSW, including a relocation of headquarters and
reduction of staff expenses and salaries; 4) that the company was forced to pursue financing by
reason of LSW’s withholding additional financing when, in fact, Welch had been pursuing a
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Rocky Mountain High Brands vs. Jerry Grisaffi
financing arrangement with GHS Investments, LLC since at least late 2016, but such expensive,
potentially toxic, capital had been rejected by management. Each of these public statements was
both material and demonstrably false and misleading, and subjected the company to liability for
violations of state and federal securities laws.
35. Smith and Morrison were directors of the Company during 2017 and 2018, when the
Company a) arranged for the increase and decrease in voting privileges for the Series A; b)
arranged for the increase of the Company’s authorized shares from 800 million to 950 million; c)
arranged for the issuance of the Series E preferred shares, to give Welch voting control over the
Company; d) arranged for the increase of the Company’s authorized shares from 950 million to 4
billion; e) entered into the GHS financing arrangement; and f) authorized the issuance of more
than 750 million shares of the Company’s common stock to GHS, the Company’s officers and
director, including themselves, and others.
36. The pending litigation is not disclosed in the Legal Matters section of the Company’s
recently effective Form S-1 registration statement. Welch, as the Company’s Chairman and
Chief Executive Officer, Seeberger, as the Company’s General Counsel and a director, Smith as
the Company’s Chief Operating Officer and a director, and Morrison, as a director, are all
responsible for the accuracy and completeness of its registration statement. Among other things,
purchasers of the Company’s shares will reasonably rely on the registration statement as part of
the total mix of information material to making investment decisions. The omitted information
is material and the omission a) has subjected the company to liability for violations of state and
federal securities laws as well, and b) constitutes a breach of duty of due care and candor.
37. The recently announced compensation agreements for the company’s management team,
in a Form 8-K signed by Welch and filed on February 23, 2018, is outrageous and self-dealing.
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Rocky Mountain High Brands vs. Jerry Grisaffi
The Company acknowledges in its Form S-1, signed and certified by Welch, and made effective
February 9, 2018, that its “burn rate” is unsustainable, and that it expects to lose more than $2
million in the next 12 months, of which $670,000 is from salaries to Welch, Seeberger, Smith
and two other employees. Funding the Company’s salaries and other administrative expenses
necessitated the GHS EFA and the massive dilution that has resulted and will continue to result
from the sale of discounted shares at prevailing low prices. While the company asserts Grisaffi
somehow breached his duty by causing an increase in the number of shares issued and
outstanding by nearly 500 million shares during a period of more than three years, it does not
similarly acknowledge that its current management has nearly doubled the number of common
shares in less than six months, which includes a large number of shares issued to current
management.
38. According to the Company’s Form 10-KT, signed by all of the Defendants, as of
December 31, 2017, it had less than $17,000 in cash and over $7.8 million in current liabilities,
as well as a shareholder deficit of more than $31 million. The Company is insolvent by any
reasonable measure. The Defendants’ actions in arranging the GSH financing, which required
the Series E issuance in order to increase to the Company’s authorized shares in October 2017,
was self-dealing and breached their duties of due care and loyalty.
39. In their capacities as officers and directors to the Company, Welch and Seeberger owed
the Company duties of loyalty, due care and candor. During the period from at least February
18, 2014, forward, as to the ARS reports provided by the Company for periods ending December
31, 2013, and thereafter, and from April 16, 2016, forward, as to the Company’s Securities and
Exchange Commission filings, Seeberger consistently made or confirmed representations
regarding the issuance, ownership and features of the Series A that are completely opposite to the
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Rocky Mountain High Brands vs. Jerry Grisaffi
allegations made in the Company’s claims against Grisaffi and LSW. During the period from at
least January 22, 2016, forward, as to the ARS reports provided by the Company for periods
ending December 31, 2015, and from April 16, 2016, forward, as to the Company’s Securities
and Exchange Commission filings and press releases, Welch consistently made, confirmed or
certified representations regarding the issuance, ownership and features of the Series A that are
completely opposite to the Company’s claims against Grisaffi and LSW. In this manner, Welch
and Seeberger either breached their duties of care to the Company by making false claims and
suffering it to damages for violations of federal and state securities laws, or breached their duties
of candor by making false statements as to matters relative to the Series A.
40. The Company relied on LSW’s ownership of the Series A and the 1200:1 voting
privileges in March 2017, to permit its increase of authorized shares from 800 million to 950
million. The Form S-1 relates that as of October 30, 2017, the Company had over 877 million
shares of common stock issued and outstanding (this conflicts with the 793 million disclosed in
the Schedule 14C covering the same period). Giving credit to the Company’s claims in the
instant litigation that the Series A were not validly issued would result in such increase being
void. Either the Company’s claims, as orchestrated by the Defendants, are spurious or it may
have issued as many as 77 million shares for which there was no authority, suffering the
Company to claim by shareholders and others, including market regulators such as the U.S.
Securities and Exchange Commission and the Financial Industry Regulatory Authority, tasked
with preserving the integrity of the public markets. By directing this hazardous and ill-considered
transaction, the Defendants subjected the Company to risk of damages and a negative impact on
the market for its shares, all for their own personal benefit, and thus breached their duty of care
and loyalty.
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Rocky Mountain High Brands vs. Jerry Grisaffi
41. The increase of authorized common shares to 4 billion in October 2017, was even more
hazardous and ill-considered, and equally self-dealing. Nevada Revised Statutes Section
78.3791 requires any issuance of a controlling interest in a Nevada corporation be approved by
the affected shareholders on a class-by-class basis. No such approval was obtained from either
the Series A or the common shareholders prior to the Company’s issuance to Welch of a newly-
created class of preferred shares that provided him a controlling interest, albeit temporary,
sufficient to increase the number of authorized common shares from 950 million to 4 billion.
Any post-increase assertion that the Series E was somehow intended to “protect the interests of
the Company and its shareholders” (see, NRS 78.378(3)) is specious and groundless, especially
since it essentially created new rights for Welch, designed to usurp the democracy rights of the
other shareholders, rather than “granting or denying” rights or privileges to an existing holder.
By directing this hazardous and ill-considered transaction, the Defendants subjected the
Company to risk of damages and a negative impact on the market for all its shares in the event of
an issuance in excess of 950 million were deemed void, all for their own personal benefit, and
thus breached their duty of care and loyalty.
RELIEF REQUESTED
PRAYER FOR RELIEF
WHEREFORE, Plaintiff demands judgment as follows:
42. Directing Defendants to account to the Company for all damages sustained
or to be sustained by the Company by reason of the wrongs alleged herein.
43. Directing the Company to take all necessary actions to reform its corporate
governance and internal procedures to comply with applicable laws and protect the Company
and its shareholders from a recurrence of the events described herein, including, but not limited
JERRY GRISAFFI’S DERIVATIVE PETITION - PAGE 18 OF 21
Rocky Mountain High Brands vs. Jerry Grisaffi
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