Associated Press

Former Kentucky coach Billy Gillispie lasted only two seasons in Lexington. (Andy Lyons / Getty Images)

Gillispie was dismissed earlier this year and sued for breach of contract and fraud in May, seeking at least $6 million. The university countersued.

He had not signed a contract during his two years coaching the Wildcats to a 40-27 record but was working under a memorandum of understanding. He charged that he should have been paid $1.5 million per year for four of the five years left on the deal.

In a statement, the university said the lawsuits were settled through mediation. The agreement, signed Tuesday, said Gillispie would receive a little more than $2.98 million. About $260,000 will be paid by the university for attorney's fees, as well as about $5,600 in mediation fees.

Gillispie's attorney, Demetrios Anaipakos of Houston, said Tuesday night that Gillispie was glad to have the case settled.

"He looks forward to coaching basketball again soon," Anaipakos, who was in Houston, said in a telephone call to The Associated Press.

Anaipakos said Gillispie would have rather worked things out with the university amicably than file a lawsuit. The agreement signed Tuesday, however, was "significantly" more than the university's best offer previously, which "vindicated" his decision to sue, Anaipakos said.

The university's statement said it would have no further comment, but the agreement said the settlement was not an admission of liability and was made only to avoid further expense, controversy and litigation.

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The lawsuit, which Gillispie filed in federal court in Dallas, also contended the school's athletics association was in breach of contract and committed fraud because Kentucky never intended to honor the agreement.

The dispute was not Gillispie's only remaining legal matter in Kentucky. Last week, a judge set a February trial date in a drunken-driving case against Gillispie. His lawyer has said Gillispie is considering a plea deal.

Gillispie was arrested Aug. 27 after refusing sobriety tests during a traffic stop in which officers said they smelled alcohol on his breath.

The arrest marks at least the third time Gillispie has been accused of driving under the influence, though two previous arrests did not end with a DUI conviction.

His attorney in the DUI case, William Patrick said last week that Gillispie had checked himself into the John Lucas Athletes After Care Program in Texas for alcohol rehabilitation.

Gillispie came to Kentucky from Texas A&M, where he was 70-26 in three seasons with the Aggies and made the NCAA tournament twice, including the Sweet 16 in 2007.

His last season with the Wildcats, they posted a 22-14 mark, tying for the second most losses in the program's history.

After Gillispie's departure, Kentucky hired John Calipari, Memphis' ex-coach, who signed an eight-year, $31.65 million deal.