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HP will pay $14.5 million to settle the alleged spying case that resulted in the computer giant's chair Patricia Dunn's resignation, in addition to vowing to adopt certain reforms as part of a five-year programme.

But despite the payout, the criminal investigation against Dunn and four other individuals continues.

The majority of the civil settlement will go towards the creation of a new Attorney General privacy and piracy fund, which will be used to investigate and prosecute violations of privacy and intellectual property rights.

It is also likely to safeguard HP chairman and chief executive Mark Hurd's position as there was speculation that he would be next for the chop if the case continued.

'The Hewlett-Packard incident has helped shine a national spotlight on a major privacy protection problem,' said

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Attorney General Bill Lockyer.

'With its governance reforms, this settlement should help guide companies across the country as they seek to protect confidential business information without violating corporate ethics or privacy rights. And the new fund will help ensure that when businesses cross the legal line they will be held accountable.'

Lockyer also praised HP for its efforts in reaching a resolution, saying: 'Fortunately, Hewlett-Packard is not Enron. I commend the firm for cooperating instead of stonewalling, for taking instead of shirking responsibility, and for working with my office to expeditiously craft a creative resolution.'

As part of the settlement, HP has agreed to a number of action points over the next half decade.

The company will expand the role of its chief ethics and compliance officer (CECO) and require that they make practice improvement recommendations to the board by July 31 2007. Additionally, the CECO will report to the board's audit committee and the general counsel rather than just the latter, as well as having the power to retain independent legal advisors.

Among a list of other requirements, HP will also create a new compliance council and increase the ethics and conflict-of-interest components of its training programme.

'We are pleased to settle this matter with the Attorney General and are committed to ensuring that HP regains its standing as a global leader in corporate ethics and responsibility,' said Hurd.