Founder Shawn Fanning will return to Napster

"We are very pleased to have reached an agreement with Napster's board of directors," Bertelsmann's chief executive, Joel Klein, said.

"Creating new ways of doing business is never easy, but Napster will be at the forefront of finding business models that respect copyright, reward artists and deliver entertainment value to consumers."

Konrad Hilbers says it has been an unusual week

The move should enable Napster to relaunch as a digital music subscription service that complies with US copyrights law.

"This development could very well breathe new life into this Napster," said Phil Leigh, a financial analyst at Raymond James & Associates.

Founder and chief return

As part of the agreement, Napster's founder, Shawn Fanning, and its recently departed chief executive, Konrad Hilbers, have reversed their decisions to resign from the company.

"While this has been a very unusual week, I'm pleased that I and my colleagues can move forward and give our full attention to Napster's future," said Mr Hilbers.

"We are happy to see Napster move forward with Konrad Hilbers at the helm," said Mr Klein.

Mr Hilbers and Mr Fanning said on Tuesday that they would leave Napster after the company's board of directors rejected an offer from Bertelsmann.

At the time, Napster appeared to be close to bankruptcy.

Restructuring

Upon his return, Mr Hilbers first task will be to push through a major reorganisation effort to turn around the ailing firm.

Bertelsmann has agreed to inject $8m in fresh cash to pay Napster's creditors.

Napster's problems have been mounting ever since several leading record companies refused to license music to the internet firm.

Their decision followed a key court ruling which outlawed Napster's operations as they were then.

Napster has taken time out since July to battle internet piracy law suits which have threatened its survival.