The money will come from the county's insurance company, which will pay $3 million, and $1.1 million from its risk management fund.
The commissioners said they settled the case in order to protect county taxpayers from the financial impact of potentially losing the case at trial.
"I'm pleased with the settlement and look forward to resolving this case completely," Masters said.
He also noted that: "I would gladly pay $10 million, or whatever it took, if I could get those years of my life back. Unfortunately, that can never happen."
Masters was convicted of murder in 1999, but always maintained his innocence through a series of appeals. His conviction was overturned in 2008 by a visiting judge after the defense, using new DNA technology, produced test results that pointed to another suspect.
The Colorado attorney general's office has an open investigation into Hettrick's brutal slaying, but no one has been charged in her death.
The proposed settlement with the county would end Masters' suit against the district attorney's office and its current and former employees. That would include former prosecutors Jolene Blair and Terence Gilmore, who are now District Court judges.
Attorneys for Gilmore and Blair said the judges would have prevailed had the case gone to court. Their clients oppose the settlement, the attorneys said.
The settlement wouldn't affect other defendants in the case, including the city of Fort Collins and current and former police officers. City Manager Darin Atteberry has said the city is in negotiations with Masters, but it's not clear if they're close to a settlement.
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