Former Valeant CEO Michael Pearson sues for breach of contract

J. Michael Pearson testifies on Capitol Hill in Washington, on April 27, 2016. (Manuel Balce Ceneta / AP)

MONTREAL -- Former Valeant Pharmaceuticals CEO Michael Pearson is suing his former employer for breach of contract for failing to deliver more than three million shares and consulting fees.

In a lawsuit filed Monday in the U.S., Pearson alleges that Valeant (TSX:VRX) breached his separation agreement by refusing to hand over 580,676 restricted share units and about 2.4 million performance share awards he was granted.

Pearson also alleges that he is owed US$180,000 for unpaid portions of his consulting contract with Valeant after being replaced as chief executive last May. Valeant terminated the contract in January.

In his statement of claim in the U.S. District Court of New Jersey, Pearson said he was informed by Valeant lawyers that the board determined the shares would not be released.

"Valeant believes it would be inappropriate or inequitable in the current environment for Mr. Pearson to receive additional compensation -- to the tune of millions of dollars -- at a time when countless other Valeant employees have been asked to sacrifice for the good of the company and its shareholders," said a letter referred to in the lawsuit.

In its 2017 proxy statement, Valeant told shareholders that it was "not in a position to make any further payments to Mr. Pearson."

Valeant declined to comment on the lawsuit.

The company has paid Pearson a US$9-million severance, a 2016 bonus and has agreed to provide family health insurance for two years. It has also provided him an office, use of an executive administrative assistant and IT support.

In all, Pearson received US$12 million in compensation last year, according to a regulatory filing ahead of Valeant's annual general meeting on May 2.

Pearson was replaced by Joseph Papa after the Quebec-based drugmaker had a rough year in which it lost nearly 90 per cent of its stock value, racked up losses of US$2.4 billion and came under scrutiny over its drug pricing practices.

On the Toronto Stock Exchange, Valeant's shares were worth C$14.34 in Tuesday morning trading, down about one per cent.