The founder of AIT Laboratories, along with his insurance companies and bank, will pay back more than $3 million to employees who bought the company from him six years ago at what the federal government said was an inflated price.
The company’s parent, AIT Holding Co., has also agreed to issue 4.6 million shares of stock to the employees, bringing their share of the private company up to 38 percent. It’s unclear how much those shares are worth. Neither AIT officials nor founder Michael Evans’ lawyer would disclose the value.
The terms of the settlement were spelled out in a filing Friday in U.S. District Court in Indianapolis, which will resolve the matter if a judge approves it. Both sides agreed to the settlement in January but did not publicly disclose terms.
The company has been struggling in recent years. Revenues have fallen due to declining Medicare reimbursement rates. In the past three years, AIT has slashed more than 300 jobs, or about two-thirds of its workforce.
The agreement puts an end to a complaint by the U.S. Labor Department, which had sued AIT in 2014, accusing Evans of breaching his fiduciary duties by selling the company to employees in 2009 for far more than it was worth.
Employees bought the company for $90 million, just three months after it was appraised for less than one-fifth as much, according the Labor Department’s lawsuit.
The suit had sought to force Evans and Louisville-based PBI Bank, which helped set the sale valuation, to give back any gains they had made.
Evans, who founded AIT 25 years ago, owned nearly 88 percent of the shares when it was sold to an employee stock ownership plan, or ESOP. He did not cash out that entire stake immediately, when the sale was made, but instead was to be paid over time as AIT employees made contributions to the ESOP, which functions as their company retirement plan.
The lawsuit claims that Evans had been paid $16.3 million when the suit was filed.
The complaint had also noted that in 2013, a period when AIT was under severe financial pressure, a recapitalization resulted in Evans, who had helped finance the buyout, receiving a 90-percent stake in AIT. Meanwhile, the ESOP’s stake shrank from 100 percent to 10 percent.
The settlement will now raise the employees’ share of the company to 38 percent.
Under the settlement, Evans and PBI do not admit or deny any of the allegations. PBI will pay $1.45 million to the ESOP. Ace American Insurance Co., which insured AIT Holding and Evans, will pay $2.02 million to the ESOP. Another insurance carrier, Federal Insurance Co., will pay another $300,000 to the ESOP.
Evans could not be reached for comment, but his lawyer, Andrew McNeil, said in a statement his client is happy “to settle this matter and move on.”
He said Evans had maintained throughout the litigation he had acted appropriately at all times and that the price used in the sale was fair, despite claims by the Labor Department that Evans had unjustly enriched himself.
But McNeil declined to say how much money Evans gained from the sale, after the settlement.
Matt Neff, president and CEO of AIT since 2013, said the settlement “removes the cloud that has hung over AIT for the past three years.”
It also relieves the company from contingent liability exposure that it had due to its obligation to indemnify its officers and directors for expenses related to the matter. The company has already racked up more than $5 million in legal expenses related to the case.