The following is a series of articles set in a world where Kurt Cobain doesn't commit suicide (he also never even tried heroin), and finds himself in a series of surprising developments in both his personal life and his career. For example, just to make things a bit clearer; Nirvana continues as a recording and touring act well into the 21st century, Kurt divorces Courtney and remarries, to actress Charlize Theron, and they also create a bold new venture together. This certainly also leads to a number of divergences in politics, sports, and popular culture, though of course, "the more things change, the more they stay the same." Some of these articles reflect things that also occurred IOTL, others have more divergences. For more information and context about what is being talked about here, see the thread "Cobain Continues Redone: A Kurt Cobain Survives Timeline" on AlternateHistory .com before you read this particular story here on this site (we are currently working on making a version with further re-edits) and the so called Springbok Wiki on Fandom.

Ch. 1: 1985-2000 (with one pre-1985 article simply to provide context)

"Coke Expected To Acquire Columbia Pictures," by Thomas C. Hayes, The New York Times, January 19, 1982

The Coca-Cola Company, seeking greater diversification, is expected to announce Tuesday that it has reached an agreement to acquire Columbia Pictures Industries in a $750 million transaction, industry sources said today.

The acquisition of the profitable film company would be Coca-Cola's first major purchase under Roberto O. Goizueta, who became chairman and chief executive officer last March and indicated that he would diversify Coke into new fields.

''Coke is very enthusiastic about being in the movie business,'' a source close to the negotiations said. In previous years, as the American market for soft drinks has leveled off, Coke has diversified into such fields as ocean farming and orange groves, but this would be its first big venture into entertainment.

The offer, which has reportedly been received favorably by Columbia officials, calls for a payment of $74 a share in cash and stock - nearly twice the current value of the stock - for Columbia's 10.7 million shares outstanding, one source said. The cash portion would be less than 50 percent of the total payment, sources said.

Industry specialists said they expect Coke's $74 a share offer to be too attractive for Columbia's half-dozen or so principal shareholders to reject, despite the company's recent profitability.

Trading in Columbia shares was halted today on the New York Stock Exchange, with the stock at 41 3/4, its closing level Friday. Asked for an explanation, Francis T. Vincent, Columbia's president, said an announcement was planned for tomorrow that would be ''of substantial benefit'' to Columbia stockholders.

Mr. Goizueta, in an interview last year, made clear that he hoped to put his personal stamp on Coca-Cola by expanding into other fields, such as entertainment, leisure time and flavors and fragrances. He spoke of spending an amount equal to 10 percent of the company's annual revenue for a major acquisition - about $600 million, based on last year's sales of $6 billion. Purchase of Columbia would meet that criterion. Columbia, which came close to liquidation in 1973 when its stock sold for as little as $1.62 a share, has been among the more successful motion picture companies in recent years, especially since the release in the late 1970s of Close Encounters of the Third Kind, a hugely successful movie. The company's more prominent recent feature films have included Kramer vs. Kramer, Stir Crazy, Only When I Laugh, Stripes and The Blue Lagoon.

Later this year, it is scheduled to release a $40 million Hollywood production of the long-running Broadway play Annie. One analyst speculated that Coca-Cola, anticipating great success for the film, timed the offer for Columbia to capitalize on the anticipated popular appeal of the film.

Coca-Cola stock closed Monday at 34 1/4, down 1/8. Columbia also has what some analysts regard as a sleeper with considerable profit potential in its Gottlieb division, a maker of pinball machines and video arcade games. The division, no longer losing money, could grow more rapidly with heavy investments that have been beyond the reach of Columbia but that Coca-Cola, with its ''financial muscle,'' could provide, one executive at Columbia said.

David Londoner, an entertainment analyst with Wertheim & Company, a Manhattan-based brokerage firm, said: ''Columbia is a well-run film company that has had impressive successes in the last few years. Frank Vincent has done a very good job.''

Mr. Vincent, a former Washington lawyer and member of the Securities and Exchange Commission, was brought to Columbia in 1978 to replace Alan Hirschfield, who had been under criticism for his handling of the dismissal of David Begelman from the presidency of Columbia's picture division for forging studio checks. Mr. Begelman is now chief executive of United Artists, acquired in 1981 by the Metro-Goldwyn-Mayer Film Company, while Mr. Hirschfield is president of the 20th Century-Fox Film Company, bought last year by Marvin Davis, a Denver oil millionaire.

In addition to films, the expanding field of home entertainment, including pay television and video cassettes, has markedly enhanced the value of Columbia's library of more than 3000 movies and 10,000 television programs.

Columbia had more than $155 million in licensing contracts with pay-TV, networks and local television stations (for syndication of such television programs as Fantasy Island) at the end of its 1981 fiscal year.

Agreement With HBO

Home Box Office, a subsidiary of Time Inc., agreed late last year to acquire exclusive rights to Columbia films produced between January 1, 1981, and April 1984.

The agreement means that HBO effectively pays an estimated 30 percent of Columbia's feature film production costs during the period, which could range between $100 million and $180 million, according to estimates by industry analysts.

Columbia had a good year with new feature films in 1981, but its performance was not remarkable. Warner Brothers, owned by Warner Communications, ranked first among major studios in 1981, capturing an 18 percent share of theater revenues, according to a study published Friday by Daily Variety, a motion picture trade paper. Gulf and Western's Paramount was second, with 15 percent. In third place was MCA's Universal, with 14 percent. Columbia and 20th Century-Fox Film were tied in fourth place with 13 percent.

In its 1981 fiscal year, ended last June, Columbia earned $44.3 million, or $4.43 a shares, on revenues of $686.6 million. For the first quarter, completed last September, net income fell 38.3 percent, to $10.3 million, or $1.20 a share, from $16.7 million, or $1.64 a share, in the same period a year earlier. Revenues fell 8.1 percent, to $171.1 million from $186.2 million.

Principal Shareholders

Columbia's principal shareholders include Allen & Company Inc., a closely held investment concern whose chairman, Herbert A. Allen, is Columbia's chairman, with 6.2 percent of the stock. Mr. Allen acquired his stock at an average cost of $4 a share, or $3 million, a Columbia source said. The Coke offer would mean a profit of $50 million.

Other major stockholders include the American Financial Corporation, the financial holding company that was turned private last year by Carl H. Lindner, its chairman, with slightly less than 5 percent of Columbia; the General Cinema Corporation, which has 5.4 percent, and the Redstone family, which controls General Cinema and recently acquired 9.3 percent of Columbia. General Cinema is the nation's largest owner of movie theaters.

"The Walt Disney Company Changes Name of Distribution Arm," Internal memo, 1985

Effective today, The Walt Disney Company will change the name of its distribution arm from Buena Vista Theatrical Pictures to Walt Disney Studios Motion Pictures, to represent well and truly that Disney distributes and owns its own films. Furthermore, home video releases of all films prior to 1985 will have the message "Distributed by Walt Disney Studios Motion Pictures" added to them, along with keeping distribution notes of "Distributed by RKO Radio Pictures" and "Distributed by Buena Vista" intact, adding the new addendum only at the very end. Disney will keep the Buena Vista name for its home video division, under the umbrella of Buena Vista Home Video.

"ABC Is Being Sold for $3.5 Billion; 1st Network Sale," by N.R. Kleinfeld, The New York Times, March 19, 1985

The American Broadcasting Companies agreed yesterday to be sold to Capital Cities Communications Inc. for more than $3.5 billion.

The surprise deal represents the first time that ownership of any of the nation's three major networks has changed hands. It also represents the biggest acquisition outside the oil industry in corporate history.

ABC, with 214 affiliated stations, has been a major cultural force in the nation, broadcasting such popular programs as Dynasty and Hotel and capturing a wide audience with its Olympics programming last summer. Capital Cities, a little-known but ambitious stalker of broadcast and publishing properties, owns television and cable TV systems, the Fairchild Publications business newspaper group and several daily newspapers.

"It Was a Natural Fit"

Thomas S. Murphy, the 59-year-old cost-conscious chairman and chief executive of Capital Cities, and Leonard Goldenson, the strong-willed 79-year-old chairman and chief executive of ABC, said they had been talking on and off since early December, though the deal was essentially patched together over the last two weekends.

''We just thought it was a natural fit between the two companies,'' Mr. Murphy said in an interview yesterday, ''and we thought we'd have an opportunity to handle the new possibilities coming up in the electronics fields better together.''

But the agreement, approved by both companies' boards of directors, means the twilight of the long reign of Mr. Goldenson, the chief builder who put ABC together. Once the merger is completed, he will be reduced to chairman of the consolidated company's executive committee.

"That's Important to Me"

''That is my wish,'' Mr. Goldenson said. ''I feel that the company I built from scratch is in good hands and that it will be carried on, and that's important to me.''

Mr. Murphy will become chairman and chief executive officer of the merged company, to be called Capital Cities/ABC Inc.

To get ABC, a company four times its size, Capital Cities is offering to pay ABC's stockholders a hefty $118 a share in cash plus warrants to buy Capital Cities stock at a set price. ABC's stock rose $31.375 yesterday, closing at $105.375. As a result of this sizable outlay, however, Capital Cities will gain entry to the glamorous and powerful world of network broadcasting.

Mr. Murphy said Capital Cities would gather the money to buy ABC from three sources.

Most of the sum, he said, will come from bank financing.

More than $517 million will come from the proceeds of a separate agreement Capital Cities struck with Berkshire Hathaway Inc., a diversified holding company headed by Warren E. Buffett, who has other interests in communications companies. In return for his company's financing, Mr. Buffett will be named a director of Capital Cities/ABC.

Additional money will be raised by the sale of an unspecified number of television and radio stations. This action is required to stay within the bounds of the Federal Communication Commission's rules on concentration of ownership of broadcast properties.

Under FCC rules that take effect April 1, for instance, a company may own 12 TV stations reaching no more than 25 percent of the nation's households. Capital Cities and ABC together would have 12 stations reaching more than 28 percent of the country.

In Washington, an assistant to Mark S. Fowler, chairman of the FCC, said Mr. Fowler had a brief three-way telephone conversation yesterday afternoon with Mr. Goldenson and Mr. Murphy. Mr. Fowler did not comment on what was said because formal documents have not yet been filed with the commission.

''There are certainly cross-ownership questions,'' said James McKinney, chief of the FCC's mass media bureau, the division with responsibility for broadcasting oversight. ''I would guess they will come in with a plan fairly shortly.''

ABC has been a topic of takeover gossip for some months. Capital Cities' move to acquire such a vast television holding continues a spurt of takeover interest that has recently jolted the broadcast business, one of the most lucrative and profitable industries in America.

Among recent acquisitions in the broadcast industry, the Taft Broadcasting Company bought the Gulf Broadcasting Company, and Multimedia Inc. was acquired by its own top executives.

Elsewhere, Ted Turner, the owner of Turner Broadcasting System Inc., is reported to be considering a bid for the CBS network. Meanwhile, a conservative group, with the backing of Senator Jesse Helms, Republican of North Carolina, was put together to raise cash to buy CBS stock as a way of challenging what the group calls the liberal bias of CBS News.

NBC, the third network, is part of the RCA Corporation, which is occasionally mentioned as a potential target for corporate hunters.

CBS said it had no comment on the ABC-Capital Cities agreement. NBC said only that it wished both companies well.

Last year Capital Cities had revenues of $949.7 million and a profit of $135.2 million. ABC had revenues of $3.71 billion and a profit of $195.3 million. But the combined Capital Cities/ABC Inc. will still rank third among the networks in terms of revenues of the parent companies.

Wall Street's View of Deal

The deal between ABC and Capital Cities drew mixed views from Wall Street. It will fuse together two companies rather disparate in culture. Capital Cities, one of the most profitable companies in the communications industry, with television, radio, newspaper and trade publications operations, is a lean, low-risk company that keeps an unwavering eye on how many coins are in the till.

ABC, on the other hand, is a sprawling enterprise that derives the bulk of its income from the risky and fickle game of television programming. Its heyday as the No. 1 network is a dusty memory, and it has been shaken by dwindling audience ratings that have dropped it back to No. 3.

''There really is no logical reason to put these two companies together,'' said Edward Atorino, a securities analyst at Smith Barney, Harris Upham & Company. ''You come down to power, I guess. From ABC's perspective, maybe it's 'Let's get off a sinking ship.' They've got serious ratings problems that could damage their operating results this year and next. So maybe it's turn it over to a new gang of people who think they can do no wrong and give them the challenge of taking a No. 3 network and making it king again.''

''I think it's attractive for the ABC shareholder,'' said Mark Riely, an analyst with F. Eberstadt & Company. ''For Capital Cities, they bit off a lot to chew at a pretty hefty price. They have quite a task in front of them.''

The combination sets the stage for some potential personality clashes, since it establishes a hierarchy involving corporate chieftains unfamiliar with taking orders from others.

In addition to the positions to be occupied by Mr. Murphy and Mr. Goldenson, Daniel Burke, Capital Cities' president and chief operating officer, will continue in the same role for the combined company.

New Executive Alignment

Frederick Pierce, ABC's president, will become vice chairman of Capital Cities/ABC and chairman and chief executive officer of the ABC network. Though he no longer will report to Mr. Goldenson, he will have two new bosses in Mr. Burke, to whom he will directly report, and Mr. Murphy.

''The question is who's really going to run ABC once all the smoke clears,'' said Mr. Atorino. ''Pierce, I would think, is not going to want to take a back seat. He's had a back seat most of his life and was in a position to take the front seat. Murphy is certainly not going to take a back seat. He's never had a back seat in his life. But Murphy has never done any programming, and ABC's ratings are in dreadful shape.''

''I don't think there will be any less autonomy,'' Mr. Pierce said. ''The reporting mechanism is just something on a chart.''

Capital Cities owns seven television stations, including top-ranked TV stations in Philadelphia and Houston. Four of the stations are ABC affiliates. The company also has 12 radio stations, 10 daily newspapers and more than 30 trade publications and other communications-related ventures.

Its publishing division includes Fairchild Publications, which issues such trade journals as Women's Wear Daily. Among its newspaper properties are The Kansas City Star and The Fort Worth Star-Telegram.

ABC owns television stations in New York, Chicago, Los Angeles, San Francisco and Detroit as well as 12 radio stations and an array of magazines, and it is involved in various cable services.

"Murdoch Is Buying 50% Of Fox," by Richard W. Stevenson, The New York Times, March 21, 1985

Rupert Murdoch, the Australian publisher who has bought up numerous American newspapers and magazines, entered the motion picture business yesterday with an agreement to buy 50 percent of the 20th Century-Fox Film Corporation.

Fox, now privately owned by Marvin Davis, a wealthy oilman, is one of Hollywood's best-known movie studios, but one that has suffered financial difficulties from a string of box-office disappointments.

''They need the capital to get back on track with production,'' said Harold Vogel, an analyst at Merrill Lynch, Pierce, Fenner & Smith Inc. ''It's been a rough period for them for the past one and a half or two years.''

The purchase surprised the Hollywood community, and raised questions about what effect it might have on the kind of films the studio produces.

It was not immediately apparent if Mr. Murdoch's stake would give him firm control of Fox. But analysts said Mr. Murdoch would undoubtedly have a major say in studio operations.

Mr. Vogel predicted that ''some people will be delighted and some people will be incensed'' at Mr. Murdoch's move into the film industry.

In a joint statement with Mr. Davis, Mr. Murdoch said he would buy the 50 percent interest for $162 million, and would also advance $88 million to the studio's parent company to help pay debt and provide needed capital.

Mr. Davis and a partner, Marc Rich, bought a controlling interest in 20th Century-Fox in 1981 for $722 million. Mr. Davis bought out Mr. Rich's half of the company last summer for a reported $116 million, after Mr. Rich was indicted for tax evasion and other charges in connection with his worldwide commodities operations.

The purchase is the second announced change in ownership in the media and entertainment industry this week. On Monday, Capital Cities Communications Inc. agreed to acquire the American Broadcasting Companies for $3.5 billion.

Among his holdings, Mr. Murdoch, through his News Corporation Ltd., owns The New York Post, The Village Voice and The Star, a national tabloid. He has often bought the weakest newspaper in a market and tried to strengthen it, sometimes by using screaming headlines and stories that emphasize crime and scandal, and he has been criticized for that. But he also owns highly respected newspapers, including The Times of London and The Chicago Sun-Times.

He also owns television, cable and satellite operations in the United States, Britain and Australia. Analysts said Mr. Murdoch has expressed interest in film and television studios for some time, in part because he hopes to provide programming to his broadcast operations.

''He likes the idea of having a film library and a production arm,'' said Lee S. Isgur, an analyst at PaineWebber Inc. ''If he can have 20th Century's film library and distribution rights, that's not bad. He's also got an ego, and he wants to get into the business.''

Last year Mr. Murdoch tried to gain control of Warner Communications Inc., the parent of the Warner Bros. studio. He failed in that bid, but earned an estimated $40 million by selling his stake in Warner back to the company at a premium.

A Series of Disasters

Fox's last major hit was Romancing the Stone, more than a year ago. Since then, it has had a string of disasters, including Rhinestone, starring Sylvester Stallone and Dolly Parton; Blame It on Rio, with Michael Caine, and Unfaithfully Yours, with Dudley Moore.

The studio distributed the three Star Wars movies, but they were produced and owned by George Lucas, the director.

Fox's television production company has also stumbled.

Last September, Mr. Davis lured Barry Diller, who had been chairman and chief executive of the Paramount Pictures Corporation, to 20th Century, in the same capacity. Mr. Diller reportedly received an equity stake in 20th Century at that time.

Mr. Murdoch could not be reached for comment yesterday, but, in a prepared statement, he said: ''Twentieth Century-Fox is one of the world's few great film and television companies, and with its new management, under the outstanding leadership of Barry Diller, is positioning itself for significant growth.''

Studio Lost $85 Million

The studio lost $85 million in the fiscal year ended August 25 and another $12.4 million in this fiscal year's first quarter, which ended November 24.

The movie industry has enjoyed record admissions and box office receipts in the past several years, but profit margins have been down lately, as a record number of films has competed for audiences.

Analysts said the investment by Mr. Murdoch should allow the studio to increase its production budget and pay off some of its sizable debt.

At the end of its first quarter, the company's bank debt was $414 million, up from $363 million at the end of the previous quarter.

Two weeks ago Fox had said it was restructuring a revolving credit line of $400 million, and that it had arranged for a capital infusion of $170 million, including $50 million from Mr. Davis.

Of the total of $250 million paid by Mr. Murdoch's News Corporation to TCF Holdings, which is the parent of the Fox studio, $132 million will be invested in the studio and the rest used to pay down the bank debt, according to Mr. Murdoch and Mr. Davis.

The companies said the deal should be completed in about a month.

Since Mr. Davis bought into 20th Century in 1981, the studio has been plagued by management turnover.

In the last several years, Sherry Lansing, the first woman president of a major studio; Alan J. Hirschfield, who preceded Mr. Diller as chief executive, and Joe Wizan, the head of production, all left the company.

Since he acquired the company, Mr. Davis has spun off 20th Century's extensive real estate holdings.

"Murdoch Will Buy Out Davis's Holdings In Fox," by Thomas C. Hayes, The New York Times, September 24, 1985

Marvin Davis, the wealthy Denver oilman, officially bid farewell to the entertainment industry today by agreeing to sell his 50 percent stake in the 20th Century-Fox Film Corporation to Rupert Murdoch for $325 million in cash.

The transaction will give Mr. Murdoch, whose News America Corporation publishes The New York Post and other newspapers and magazines, sole control of one of Hollywood's major film and television production studios within months of his acquisition of six independent television stations from Metromedia Inc.

With this latest purchase, Mr. Murdoch's News Corporation Ltd., with assets of more than $2 billion at the end of 1984, will have spent $1.6 billion in the last 12 months to acquire 12 trade publications from Ziff-Davis, total ownership of Fox and the six Metromedia stations.

A Wall Street source close to the Australian-born Mr. Murdoch, who asked not to be named, said News Corporation would finance the purchase of Mr. Davis's share of Fox through bank credit lines and cash generated by existing operations.

Hits Were Rare

The sale marks an end to Mr. Davis's four years as a studio head and one of the entertainment industry's most powerful figures. The hugely successful oilman, however, failed to transfer his winner's touch from the oil fields to the silver screen.

Fox lost money in two of the last three years, continually running close to last among the major studios in the annual race for box-office receipts. Its rare successes, such as Romancing the Stone, Cocoon and Porky's, were overshadowed by a string of poor showings.

Mr. Davis gained sole control of Fox a year ago after paying a reported $116 million to buy out a half-interest held by Marc Rich, the fugitive oil trader. Mr. Davis and Mr. Rich acquired Fox, then publicly held, for $725 million in 1981.

Despite Fox's box-office failures, Mr. Davis apparently will have made several million dollars from his ownership of the studio after the sale to Mr. Murdoch is completed. His original cash investment was $75 million, plus unspecified millions to acquire Mr. Rich's share.

'Good Business Sense'

''Our Fox investment was an extremely successful one,'' Mr. Davis, who is 60 years old, said in a prepared statement. ''While it was not our intention to sell the balance of our interest at this time, we concluded that it made good business sense to accept Rupert Murdoch's offer.''

Harold Vogel, a motion-picture industry analyst with Merrill Lynch, said he believed that Mr. Davis would have preferred a longer tenure at Fox, in part because he appeared to enjoy the glitter of Hollywood.

''This might not have been a good deal for him, as little as six months ago,'' Mr. Vogel said. ''But the integration of media empires has changed the nature of the broadcasting and movie connections,'' making the movie companies more valuable, he added.

An investment banker close to Mr. Murdoch said discussions about his purchase of Mr. Davis's half of Fox began after Mr. Davis decided not to participate with Mr. Murdoch last July in his purchase of the Metromedia stations.

''It's been a continuing discussion, but it intensified during the last two weeks,'' he said.

Valuable Real Estate

An industry source, who asked not to be named, said Mr. Davis may have concluded a year ago, when Fox was in financial trouble, that he could not master the movie business.

Yet, the source continued, Mr. Davis set out to improve Fox's fortunes and improve his investment by recruiting Barry Diller, then chairman of Paramount Pictures, to run Fox. As part of his agreement with Mr. Diller, Mr. Davis yielded his involvement in production decisions, and he eventually decided to sell out, the source said.

Mr. Davis's son, John Davis, will continue his ties with Fox. The younger Mr. Davis, who is 30, will become an independent feature-film producer, retaining offices at Fox's headquarters in West Los Angeles.

In addition to the cash from Mr. Murdoch, Marvin Davis will retain valuable real estate in Pebble Beach, California; Aspen, Colorado, and 2.7 acres adjacent to the Fox studios in Century City, west of Los Angeles.

A joint venture between Fox and Mr. Davis's real estate interests that is building a Century City office tower will remain as structured. The studio property, covering about 54 acres, will be acquired by Mr. Murdoch, according to the joint statement.

"General Electric Co. In Largest Non-Oil Merger In History...," United Press International, December 11, 1985

General Electric Co., in the largest non-oil merger in U.S. corporate history, will takeover RCA Corp. in a cash deal valued at $6.28 billion, or $66.50 a share of RCA common stock.

The merger, which will create a company with combined sales of roughly $35.8 billion, was announced late Wednesday by John F. Welch, Jr., chairman and chief executive of GE; Thornton F. Bradshaw, chairman of RCA; and Robert R. Frederick, RCA president and chief executive.

In a joint statement, the three executives said the merger is "an excellent strategic opportunity for both companies that will help America's competitiveness in world markets.

"We are creating a company that will successfully compete with anyone, anywhere in every market we serve."

The announcement followed a flurry of activity surrounding RCA stock on the New York Stock Exchange. RCA was the second most active issue and the session's biggest winner, jumping $10.75 to $63.50 on rumors that a major announcement was pending. GE was up 25 cents to $67.875.

The boards of directors of both companies have approved the merger agreement that will require approval by stockholders of RCA and a review by various regulatory agencies, including the Federal Communications Commission.

Both companies expect the deal to be closed sometime in 1986.

The marriage of GE and RCA will bring together two of the nation's leading consumer products companies. They both also are major defense contractors and observers said some potential overlap could bring consolidation.

RCA designs and engineers a variety of military and space electronics systems, that includes work for NASA. GE is one of the nation's largest defense contractors and aerospace manufacturers, including jet engines.

GE, with earnings of $2.28 billion, or $5.03 a share in 1984, on sales of $26.8 billion, is ranked ninth in the Fortune 500 largest U.S. industrial companies.

RCA, with revenues of $8.98 billion in 1984, has been divesting itself of various assets since Bradshaw assumed the chairmanship of the then-troubled company in 1981.

NBC, its broadcast subsidiary, which owns five television stations as well as AM and FM radio stations, has been doing well. RCA's electronics division makes color and black-and-wide television receivers, videocassette recorders and cameras. Since GE got out of the television business, RCA is the dominant U.S. firm in this area.

GE has been doing some divesting of its own. Among recent actions, it sold its small consumer appliance division to Black & Decker, although it remains in the major appliance field that it dominates.

As part of Bradshaw's divestment program for RCA it sold Hertz Corp., the rental car firm, to UAL Inc., the parent company of United Airlines, for $575 million earlier this year.

Two years ago, Manufacturers Hanover Trust paid RCA $1.5 billion for its CIT Financial Services subsidiary.

"Behind 'Whiz Kid' Is a Trail of False Credit Card Billings," by Daniel Akst, Los Angeles Times, May 22, 1987

James D. Richman said he charged $100 worth of carpet cleaning while living in Santa Monica, but he got billed for $1790 on his Visa card statement. Barbara Lee of Westminster paid by check but wrote her Visa number on top. Sure enough, she said, her Visa card was billed for more than $1600.

Then there was Lucille Frost of Santa Ana. She was slapped with $1389.50 in Visa charges and $1710.57 in MasterCard charges-all for $75 worth of carpet cleaning.

What do these people have in common? Their credit card numbers fell into the hands of Reseda-based ZZZZ Best Co., the fast-growing carpet cleaning business started and run by whiz kid entrepreneur Barry Minkow. Now just 21, Minkow is becoming a household name in Southern California, thanks to his remarkable success and his frequent television commercials.

Through ZZZZ Best's lawyer, Mark R. Moskowitz, Minkow acknowledged to The Times this week that ZZZZ Best rang up $72,000 in false charges from November 1984, to March 1985. In an earlier interview, Minkow himself had said there were $150,000 to $200,000 in false charges. Moskowitz later called this account mistaken.

In any case, Minkow said ZZZZ Best made good on all the bogus charges by April 1986, and he blamed 12 unscrupulous carpet cleaning subcontractors whom the company had been paying an immediate 50% commission on every ZZZZ Best sale. Minkow said the subcontractors were caught and fired, but he refused to identify any of them.

But the same thing happened again in early 1986, according to a credit card security official, at Floral Fantasies, a Canoga Park flower shop that was owned by Charles B. Arrington III. Arrington, 26, is chief operating officer of ZZZZ Best.

Floral Fantasies submitted $91,000 in false charges in early 1986, said Gil Lopez, branch investigations manager at First Data Resources in Santa Ana, a unit of American Express that does credit card processing for banks. Lopez said he had talked to Minkow 10 or 15 times to resolve the problem, because Minkow told him he was the owner. Minkow denies ever speaking to Lopez but admits that he reimbursed the money.

"I was getting ready to submit the case . . . and go for prosecution on the entire $91,000 of fraud," said Lopez, an ex-Army intelligence officer. "Out of the blue, Mr. Barry Minkow calls up the bank and calls me up and says, 'I will pay the entire amount back.' "

Minkow said through his attorney that he was just bailing out Arrington, who inherited the situation from a previous owner. But city tax records say Arrington acquired the store on October 1, 1985, before the false charges occurred. Arrington said he sold Floral Fantasies last June, but he couldn't be reached for comment on the charge problems. The store is still in business.

Lopez added that while Floral Fantasies' account at California Overseas Bank was opened by Arrington, Lopez never spoke to him.

Lopez said it took Minkow until June or July last year to repay all the money, and that meanwhile the store had use of it interest-free.

"Again, he (Minkow) claimed it was an employee (who made the charges)," Lopez said. But because the money from the charges was paid into a Floral Fantasies corporate account, Lopez said, it seems unlikely that an employee could have benefited.

The phony charges were racked up by using Visa or MasterCard numbers to generate credit card slips for nonexistent or inflated sales. The slips were filled out as telephone orders, which don't require a card imprint, and then presented for payment to the company's bank, which routinely paid cash for them.

Cardholders who noticed the phony charges didn't have to pay them. But not all of them notified their banks of the phony charges in time.

Robin H. Swanson of La Canada said she charged $23.95 worth of Floral Fantasies flowers on her Visa card January 15, 1986, but was billed for $625.06 because she didn't report it to her bank within 60 days.

Won Judgment

She said that when she demanded a refund, store employees told her that Minkow was the owner, and she got a judgment in small claims court against him last October 21, a judgment that she said Minkow eventually paid. Through another lawyer, Minkow denied any knowledge of the Swanson case.

Minkow's meteoric rise began at an early age. Raised in Southern California, he began working at age 10 for the carpet cleaning business his mother managed.

At 15, against his parents' wishes, he started ZZZZ Best, his own carpet cleaning business, in their Reseda garage, which they rented to him at $150 a month. Now, he says, both parents work for him.

Minkow took ZZZZ Best public in January 1986, and after a December 1986, public stock offering now retains about 52%, or 5.9 million shares. That would give him a fortune worth $90 million at the current market price.

He's been featured in major newspapers, appeared on The Oprah Winfrey Show on national television and received a commendation from Mayor Tom Bradley, which said Minkow had "set a fine entrepreneurial example."

ZZZZ Best stockholders have also fared well. Since its public offering on December 9, ZZZZ Best shares have soared from $4 each to a closing over-the-counter price of $15.375 Thursday.

For the nine months ended January 31, ZZZZ Best earned $3.4 million on revenue of $33.4 million. Last month, the company agreed to pay $25 million for Flagship Services of Newtown Square, Pennsylvania, whose KeyServ Group subsidiary does carpet cleaning under contract to Sears Roebuck.

Dogged by Controversy

But for all ZZZZ Best's growth, both the company and its young entrepreneur have been dogged by controversy and lawsuits.

In 1985, Minkow was so desperate for cash that he turned to the late Jack M. Catain, Jr., a Los Angeles-area reputed mobster, according to court papers. In the same papers, Minkow also said Catain arranged loans for him at 2% to 5% interest per week.

ZZZZ Best has been rejected for membership by the Better Business Bureau of Los Angeles and Orange counties. The reason? A credit card complaint filed in March 1985, by James D. Richman. Bureau President William Fritz said ZZZZ Best never responded to the bureau's inquiries about that complaint.

Richman, now a Tarzana resident, says he never paid the questionable charge, and his bank took care of it.

Lopez said he first became aware of credit card problems at ZZZZ Best in late 1984 or early 1985, when disputed ZZZZ Best credit card charges started pouring in.

"I contacted Barry Minkow at that time, and his story was that he had an employee working in one of his shops that was generating credit card sales," Lopez said.

But since ZZZZ Best's bank at the time was not a customer of First Data Resources, Lopez merely returned the drafts unpaid for the company's bank to deal with. In early 1986, according to Lopez, phony charges began turning up from Floral Fantasies. Lopez said that when he confronted the store manager, she referred him to Minkow.

Lopez said that even though most cardholders who suffered phony ZZZZ Best or Floral Fantasies charges lost no money, those who failed to examine their monthly credit card statements carefully might never have noticed and simply paid the bill.

"Fallen Star: How Whiz Kid Chief of ZZZZ Best Had, and Lost, It All," by Daniel Akst, The Wall Street Journal, July 9, 1987

Wealthy entrepreneurs can point to all kinds of secrets for success. Young Barry J. Minkow's secret allegedly was fraud.

By the time Mr. Minkow turned 21 years old last March, the tiny carpet cleaning business he started at 15 had grown into a public company with a peak market valuation exceeding $211 million, giving the flamboyant young entrepreneur a paper fortune of around $109 million.

The subject of adoring publicity in a society as obsessed with success as he was, Mr. Minkow (rhymes with ginkgo) talked of building his ZZZZ Best Co. into the General Motors of carpet cleaning - and then running for president of the U.S. He was the subject of countless flattering articles and appeared on The Oprah Winfrey Show. He bought a Ferrari, acquired an expensive home in nearby Woodland Hills, California, and generally spent money as if there was no tomorrow.

There wasn't. Mr. Minkow's company was an elaborate construction of lies and deceit, kept afloat by sheer audacity. While much of the press was busy with his apotheosis, Mr. Minkow was taking advice from a former convict and obtaining financing from a reputed mobster. His company was submitting phony credit card charges, and his second in command owned a flower shop that did likewise. And ZZZZ Best stock was soaring on press releases touting millions of dollars in contracts, now allegedly bogus.

The company and its whiz kid former chairman are now at the center of wide-ranging investigations by the Securities and Exchange Commission and other law enforcement agencies; those agencies include the Los Angeles Police Department, which said yesterday it suspects ZZZZ Best may have been used for laundering organized crime narcotics money.

The police department investigation is ironic in light of Mr. Minkow's almost fanatical crusading against drug abuse. He made small contributions to drug treatment programs, required drug tests of his workers and adopted the motto, "My act's clean, how's yours?"

In a civil suit filed in state court in Los Angeles, the company accuses Mr. Minkow of fraudulently removing more than $3 million from ZZZZ Best bank accounts last month alone. The suit also says the company, under Mr. Minkow's stewardship, paid out more than $18 million to perform nonexistent "insurance restoration" work (restoring building interiors damaged by water or fire).

Attempts to reach Mr. Minkow for comment have been unsuccessful; but his lawyer, Arthur Barens, says, "I categorically deny that Mr. Minkow was involved in or aware of any wrongdoing or fraud."

Mr. Minkow, citing health reasons, resigned his posts at the company last Thursday, and ZZZZ Best (usually called simply "Z Best") filed yesterday for protection under Chapter 11 of the federal Bankruptcy Code.

(Bruce Andersen, the company's interim president, says ZZZZ Best still has most of its offices open; he says there were 21 before last week.)

Despite the Chapter 11 filing, ZZZZ Best seems to have little remaining for the bankruptcy system to protect. The company says it suffered "misappropriation of significant assets" that are needed to run the business.

"The company is going to evaporate shortly," says one investigator. "It's going to vaporize."

ZZZZ Best stock has already plummeted from a high of $18.375 a share three months ago to close at $1.0625 a share, up 12 1/2 cents, yesterday in over-the-counter trading. Volume in the past two weeks has been enormous. On Monday alone, nearly 5.3 million of the company's 11.5 million outstanding shares changed hands.

While ZZZZ Best started out cleaning carpets, federal authorities now suspect that laundering money may have taken precedence lately. "There are tons and tons of cashier's checks and checks cashed for paper money" that figure in the investigation, says a member of one law enforcement agency.

The SEC is also investigating the possibility of phony receivables, bogus financial results, organized crime connections, and various securities law violations by the company and its present and former executives. The agency reportedly wants an independent trustee put in charge of the company.

Investors are flabbergasted. One lost $7 million on ZZZZ Best. Another, Leonard Weinstein from Miami, complains that he recently bought 500 shares of ZZZZ Best at $8.25 and 500 warrants at $5. He says he is considering joining a class action suit against the company (ZZZZ Best is already faced with at least two). He adds: "I'd probably want to commit suicide if I was a big shareholder."

Yet another shareholder, explaining his gullibility, says the irregularities at ZZZZ Best are so far beyond run-of-the-mill finagling that he couldn't have dreamed they were possible.

However extraordinary, the rise and fall of Barry Minkow had its roots in the ordinary - in Main Street rather than on Wall Street. In a 1985 interview, Mr. Minkow said his career began at the age of 10, when he carried water at a carpet cleaning business managed by his mother. Later, he worked Saturdays and summers cleaning carpets, drapes and upholstery.

At 15, he started his own business in the Minkow family garage in this working-class section of Los Angeles's sun-baked San Fernando Valley. Mr. Minkow said his family made him pay $150 a month rent for the building, but his father, Robert Minkow, insists rent was charged only after the business started to thrive. Barry Minkow subsequently maintained, bitterly, that his parents initially discouraged his venture. His father denies that. Mr. Minkow's mother, Carol, couldn't be reached for comment.

Still in high school and too young to drive, Barry Minkow hired a crew to clean carpets while he sat in class fretting over each week's payroll. He boasted that despite the carpet cleaning industry's bait-and-switch reputation, he insisted on high business ethics.

Mr. Minkow, who hasn't much formal education beyond high school, was particularly proud that his parents became his employees. He made his mother senior vice president. He made his father a salesman.

He made himself over. Formerly a skinny, hyperactive youth who was bullied in military school, he built himself up with weights. On the job, he worked punishing hours with single-minded dedication. "I'm obsessed," he acknowledged in the earlier interview.

The hard work paid off. In the 1985 interview, Mr. Minkow said the business took in $1.3 million in 1984. By contrast, for the first quarter ended July 31, 1986, ZZZZ Best reported earnings of $896,000 on sales of $5.4 million. The number of ZZZZ Best outlets was expanding as well.

"The bullies couldn't kick sand in his face anymore," says one former ZZZZ Best executive. "Now he could kick sand in theirs."

Scott Dear, ZZZZ Best's controller for five months last year, says Mr. Minkow could be a tyrant in the workplace. "My way or the highway" was a favorite Minkow expression, and around the office he insisted that he be called Mr. Minkow.

According to Mr. Dear, Mr. Minkow was so intense that he regularly chewed pens into crushed and twisted twigs. "Barry's incredibly aggressive, real hardnosed," Mr. Dear says. But he adds: "He really knew his business. He really knew carpet cleaning."

Outsiders were also impressed. In February of this year, the Association of Collegiate Entrepreneurs and the Young Entrepreneurs' Organization placed Mr. Minkow on their list of the 100 top young entrepreneurs in America. Mr. Minkow even won a commendation from Los Angeles Mayor Tom Bradley, who said the young executive had "set a fine entrepreneurial example of obtaining the status of a millionaire at the age of 18."

But the company's impressive growth wasn't nearly fast enough for the impatient Mr. Minkow, and that's where Jack M. Catain, Jr. came in. Mr. Catain, who died this past February, was a mobster and loan shark whose attorney says had offices in the same building as ZZZZ Best.

Around June 1985, "in desperate need of financial assistance" for ZZZZ Best, Mr. Minkow borrowed money from Mr. Catain at interest rates of 2% to 5% a week, Mr. Minkow said in a sworn court declaration; the declaration was in response to a civil suit brought by Mr. Catain in state court in Los Angeles, claiming Mr. Catain wasn't paid all he was due. Mr. Minkow's lawyer later said his client paid Mr. Catain several hundred thousand dollars, and that all debts to Mr. Catain were paid.

Mr. Minkow's declaration also said he agreed to share with Mr. Catain any profits from jobs the latter helped finance. Mr. Catain said his share was to be 50%.

But Mr. Catain's role went further, according to his former lawyer, James A. Twitty, who says Mr. Catain also helped "organize" the company.

In the past, Mr. Catain had frequently run afoul of law enforcement authorities, who suspected him of extortion and trading stolen goods. The Federal Bureau of Investigation also looked into charges that a company Mr. Catain headed, Rusco Industries Inc., an American Stock Exchange-listed maker of aluminum building products, was a front for laundering organized crime money. Mr. Catain resigned as Rusco's chairman and chief executive in 1980 as part of the settlement of an SEC suit charging him with undisclosed insider transactions. Mr. Catain was convicted last November 7 on counterfeiting charges but died prior to sentencing.

Mr. Minkow's lawyers have said he didn't know of Mr. Catain's mob ties; but in court papers, Mr. Minkow says he continued dealing with Mr. Catain even after he learned that Mr. Catain was under indictment.

ZZZZ Best went public in January 1986 by acquiring Morningstar Investments Inc., a Utah shell corporation, in exchange for stock. Last December, ZZZZ Best had a public offering of one million units consisting of three shares of common stock and one warrant each.

But the company disclosed in its offering statement that the nature of its business had changed. Rather than carpet cleaning, 86% of revenue was coming from insurance restoration activities.

The offering statement also showed enormous debt, some $6.2 million short-term and $933,000 long-term, compared with $3.1 million in shareholders' equity. Because Mr. Catain had sued the company and its chairman, Mr. Catain's dealings with ZZZZ Best were also disclosed.

Nevertheless, the offering sold out, bringing in about $13 million, and ZZZZ Best was off and running. In a telephone interview in May, Mr. Minkow said the company had about 1300 employees at locations throughout California as well as in Arizona and Nevada.

Somewhere along the line - it isn't clear where - Mr. Minkow also hooked up with a former convict and securities specialist named Maurice Rind.

"Rind was more or less touted as a finance expert," says Mr. Dear, the former controller. "He was around the office once or twice a week."

A knowledgeable member of a law enforcement agency says Mr. Rind was also a large ZZZZ Best shareholder through one of his companies, B&M Investments Inc.

Mr. Rind, who couldn't be reached for comment, was sentenced in 1976 to 18 months in prison and fined $10,000 for conspiracy to violate federal securities laws, mail fraud, interstate transportation of forged securities and other violations.

Records filed with the California secretary of state's office indicate that Mr. Minkow is also the agent for a similarly named company, B&M Insurance Services Inc., whose owner and president is Robert Victor, according to ZZZZ Best SEC filings.

Police say Mr. Victor is also known as Robert Viggiano, 51, from Brooklyn.

Joseph Valiquette, a spokesman for the Federal Bureau of Investigation in New York, says that Mr. Viggiano was indicted in December 1968 by a federal grand jury in Brooklyn on a charge of extortionate credit transactions in an alleged loan-sharking scheme, but the charges were dismissed in January 1972.

In 1973, Robert Viggiano got five years' probation after pleading guilty to attempted grand larceny in connection with the 1968 theft of $750,000 in jewels from the Long Island Diamond & Jewelry Exchange in Garden City, New York.

Also arrested in that robbery was the late Joseph Colombo, Sr., described by law enforcement authorities as the head of one of New York's Mafia families. Charges of conspiracy and grand larceny against Mr. Colombo, Sr. in connection with the jewelry robbery were dismissed in February 1975.

In 1985, according to a registration statement filed with the SEC, Messrs. Minkow and Victor signed joint-venture agreements for B&M Insurance to finance two separate restoration jobs, including one for $2.3 million in an eight-story building in Arroyo Grande, California.

But local officials say Arroyo Grande is a town of 13,000 souls, five traffic lights - and no buildings over three stories. Mr. Victor couldn't be reached for comment.

ZZZZ Best also claimed in an SEC filing that it had a $7 million refurbishing contract in Sacramento, California. But city and county officials there haven't issued permits for any such job and find the whole idea inconceivable.

"Sacramento was false-first, last and always," says ZZZZ Best Vice President Mark Morze. Mr. Morze has also been sued by the company, which claims that missing corporate funds went to Marbil Management Co.; Marbil, the suit says, was the "alter ego" of Mr. Morze.

Mr. Morze insists he doesn't own Marbil but won't comment further, pending consultation with his attorney.

ZZZZ Best also claimed a $2.8 million restoration job in San Diego awarded by a unit of Travelers Corp., based in Hartford, Connecticut. But David L. Tengberg, the claims manager for the area, says that "Travelers has nothing to do" with any such job.

As recently as May 18, ZZZZ Best claimed it won a $13.8 million restoration job in Dallas. But "there hasn't been any kind of job like that in Dallas," says Kurt Blackmon, president of Blackmon-Mooring Steamatic Catastrophe Inc., a 40-year-old restoration concern in Fort Worth, Texas. "We monitor that day and night. That's our business."

Most of the apparently phony ZZZZ Best insurance jobs came through Interstate Appraisal Services, based in Van Nuys, California. Interstate is owned and run by Thomas Padgett, who used to work for Travelers as an auto damage appraiser, according to Mr. Tengberg.

The California Department of Insurance says neither Mr. Padgett nor his company is a licensed insurance adjuster, although it isn't clear whether either did work requiring a license. Both Interstate and Mr. Padgett are also defendants in the fraud lawsuit filed in state court in Los Angeles by ZZZZ Best against Mr. Minkow.

The suit charges Interstate, Marbil, and Messrs. Padgett, Minkow and Morze with breach of fiduciary duty, fraud and conversion, contending that the company suffered damages exceeding $25 million, including $18 million that the company claims it paid Marbil.

Last week, a man identifying himself on the phone as Mr. Padgett vowed to prove to a reporter that the refurbishing contracts were legitimate but never showed up for an appointment and hasn't been reachable since. Yesterday, Los Angeles Police Chief Daryl F. Gates alleged that the refurbishing contracts were fake, and were instead a vehicle for laundering illegal narcotics profits.

ZZZZ Best's hard assets also are apparently questionable. The SEC is reportedly looking into whether a group of secondhand generators the company said it bought last year for $1.1 million and 435,000 shares is worth anywhere near that.

According to the company's SEC filings, the generators were purchased from Generator Corp., a Cayman Islands entity that couldn't be located for comment.

Mr. Minkow's empire began collapsing May 22, when the Los Angeles Times reported that ZZZZ Best used customers' credit card numbers to run up at least $72,000 in inflated charges.

Mr. Minkow said the scam, which occurred in 1984 and 1985, was the fault of unscrupulous former subcontractors who were caught and fired. Yet the company said in its public offering statement that "the company hires no subcontractors for any of its residential or commercial carpet cleaning jobs."

In early 1986, the same thing happened again, this time for at least $91,000, at Floral Fantasies, a Canoga Park, California, flower shop then owned by Charles B. Arrington III. Mr. Arrington, 27, is ZZZZ Best's chief operating officer.

Mr. Minkow, who made restitution in both cases, blamed the flower shop charges on a prior owner, but city tax records show that Mr. Arrington bought the shop before the bogus bills were processed. Neither Mr. Arrington nor the store's current owners, listed in city tax records as Robert Victor and Rosalie Victor, could be reached for comment.

ZZZZ Best's public offering last December had been handled by Rooney Pace Inc., a unit of New York-based Rooney Pace Group Inc., at the equivalent of $4 a share; the price later more than quadrupled on a positive earnings report. The Rooney Pace unit went out of business in January after a series of problems unrelated to ZZZZ Best.

The stock had been touted by another brokerage house, Ladenburg, Thalmann & Co., based in New York. Just last week, Robert Grossmann, a securities analyst in the firm's Los Angeles office, was quoted in BusinessWeek magazine as saying, "Barry Minkow is a great manager."

Mr. Grossmann now says that "a lot of us wish we hadn't said a lot of things." Still, he recalls Mr. Minkow's charisma. Recently, he says, "At the Century Plaza Hotel, Barry had a big show . . . and he was magical, he was mesmerizing. He won everybody over."

Ladenburg Chairman Ronald B. Koenig was among those who suffered losses on ZZZZ Best Stock. The company's shares, which had closed at $15.375 May 21, fell $3.50 on the first trading day after the Los Angeles Times article.

ZZZZ Best was soon beset by hordes of short sellers, who sell borrowed shares with the hope of rebuying them at a lower price if the stock falls as they expect. On June 15, the stock was short more than 1.5 million shares, out of about 5.5 million shares in public hands. The rest of ZZZZ Best's roughly 11.5 million shares are controlled by Mr. Minkow and are for the most part restricted.

Six days after the credit card fraud was disclosed, Mr. Minkow buoyed ZZZZ Best stock by announcing that the company would report that earnings for the year ended April 30 had exceeded $5 million, or 50 cents a share, on revenue of more than $50 million. That would be a huge increase from the prior year, when ZZZZ Best reported earnings of $900,000, or 12 cents a share, on revenue of $4.8 million. But law enforcement and company sources say the higher figures probably are inflated.

On June 2, Ernst & Whinney quit as the company's independent auditors. ZZZZ Best says the resignation wasn't over accounting differences, but Ernst & Whinney won't comment. The company hired Price Waterhouse & Co., which also declines comment.

Those who know Mr. Minkow call him dynamic, smart and utterly single-minded. He is also extremely persuasive, having gained the trust of many savvy investors and institutions.

These include the two major accounting firms; the investment banker, Drexel Burnham Lambert Inc.; and the prestigious law firm of Hughes Hubbard & Reed, based in New York.

ZZZZ Best's offering statements and SEC filings were handled by Mark R. Moskowitz in Hughes Hubbard's Los Angeles office. Mr. Moskowitz couldn't be reached, and the firm says it isn't appropriate to comment since it remains ZZZZ Best's counsel.

Drexel executives also declined comment. Earlier this year, Drexel agreed to raise $25 million in debt financing for ZZZZ Best to complete a pivotal acquisition, that of Flagship Cleaning Services Inc., a unit of London-based Northern Foods PLC, which holds a home cleaning license from Sears Roebuck & Co. But Drexel backed out late last month, and the acquisition appears doomed.

The ZZZZ Best corporate headquarters in Reseda, a two-story cement block structure, has been locked for days and has a uniformed guard posted outside. The blinds are drawn, and the phones are constantly ringing. A frustrated receptionist says at one point, "I'm just going to leave this on hold."

On Monday a few employees pounded at the door demanding to be paid.

ZZZZ Best directors, meanwhile, are trying frantically to sort out the mess left by Mr. Minkow's departure, and they are discovering that major contracts aren't the only things that appear to be ghostly at the company. One company director says nervously that nobody can find the insurance policy that is supposed to protect directors and officers from personal liability.

"Coke Unit, TriStar To Join Operations," by Geraldine Fabrikant, The New York Times, September 2, 1987

In a deal that would strengthen its presence in the entertainment industry and benefit its shareholders, the Coca-Cola Company said yesterday that it would merge its movie and television operations with TriStar Pictures Inc.

Through the complex transaction, TriStar would become a substantially larger entertainment company, with all the attributes of a major film studio. TriStar, an independent motion picture company that produces theatrical films and owns movie theaters, was originally financed by Coke, CBS Inc. and Home Box Office.

Coke to Hold 49%

Under the deal, Coca-Cola would end up with a 49 percent stake in TriStar. At the same time, the results and financial flexibility of its core soft-drink business would be shielded from the uncertainties and high debt of the entertainment operations.

Recently, for example, its Columbia Pictures unit has dragged down Coke's entertainment sector, which also includes two television operations, Merv Griffin Enterprises and Embassy Communications. For the second quarter, the group reported a loss, after setting aside a $25 million reserve to cover losses on Ishtar. The film, which starred Warren Beatty and Dustin Hoffman, was rumored to have cost more than $40 million, and it did poorly at the box office.

After the transaction, Donald R. Keough, president of the Coca-Cola Company, will become chairman of TriStar Pictures, and Victor A. Kaufman, currently chairman and chief executive of Tri-Star, will become president and chief executive of the combined entity, which will eventually be named Columbia Pictures Entertainment Inc.

Francis T. Vincent Jr., an executive vice president of Coca-Cola who had headed the company's entertainment operations, will assume the responsibility of monitoring Coke's equity investments in its bottling properties in the United States and around the world.

The move was generally greeted positively on Wall Street. TriStar's shares climbed $2.50, to $13.50, in heavy over-the-counter trading, while Coca-Cola's shares slipped 12.5 cents, to $50.50, on the Big Board in a session in which stocks were broadly lower.

Harold Vogel, an entertainment analyst at Merrill Lynch Capital Markets, said he believed TriStar would benefit by becoming a leading studio presence in both theatrical films and television.

By producing more feature films, TriStar will increase its chances of coming up with box office hits and bolster its leverage with theater owners, while reducing administrative and distribution costs. Nevertheless, Mr. Kaufman pointed out that TriStar and Columbia Pictures would continue to maintain separate production and marketing operations.

And like the rest of the leading studios, TriStar will become a major producer of shows for network television. Steady revenues from the sale of rerun rights to successful hit television shows help to counteract the volatility of film operations.

After the addition of the Coke units, the company will have a net worth of $1 billion and total debt of about $600 million, thereby giving it ample room for additional borrowing.

The restructuring plan is reminiscent of Coca-Cola's acquisition of several bottlers last year and the subsequent spinoff of its bottling unit as Coca-Cola Enterprises. Coke now holds a 49 percent stake in that company, while the balance is owned by the public.

74 Million New Shares

Under Coca-Cola's proposal, its entertainment assets would be exchanged for 74 million newly issued shares in TriStar, which now has about 34 million shares outstanding. Thus, Coca-Cola's total stake in TriStar would increase to 80 percent, from around 37 percent currently.

Coca-Cola would then reduce its interest in TriStar to 49 percent by distributing about 33 million shares to Coke's shareholders as a special one-time dividend.

Roy Burry, a beverage analyst at Kidder, Peabody, pointed out that the deal should be very attractive for Coke's shareholders and that Coke would own 49 percent of an entertainment entity whose opportunity for growth will have improved. Because of TriStar's expanded size, it will have greater access to financial resources, he noted.

In turn, Coke's borrowing capacity will increase because it will be able to remove $403 million in interest-bearing debt from its own balance sheet. As of July 31, Coca-Cola Entertainment had total assets of about $2.3 billion and liabilities of $1.6 billion. Under the deal, those assets and liabilities will be transferred to TriStar's balance sheet.

The Coke entertainment unit's first-run network television programs include Who's the Boss? and Designing Women. Its syndicated programming includes the game shows Wheel of Fortune and Jeopardy. Columbia Pictures' recent successes include The Karate Kid Part II and La Bamba.

Accounting for Coke's Stake

Because Coke's ownership of TriStar will ultimately be below 50 percent, it will report its share of TriStar's earnings on an equity basis. Thus, Coke will take 49 percent of TriStar's net earnings or losses on its own income statement.

TriStar, which was created in 1982, earned $13.7 million on sales of $254 million last year. The entertainment subsidiaries of Coke reported revenue of about $1.3 billion last year and operating profit of about $230 million.

While Coke has increased its holdings in TriStar since the company's creation, CBS has sold its whole stake and HBO owns only 10 percent. TriStar's successful films have included Rambo and The Natural.

"Minkow Empire; ZZZZ Best: the House of Cards Falls," by Barry Stavro and Alan C. Miller, Los Angeles Times, September 6, 1987

On a crisp Sunday last November, an official of the ZZZZ Best carpet cleaning company took the firm's lawyer and accountant on a tour of an office building in Sacramento, a final inspection before they gave their go-ahead for a public stock sale that would bring the company into the Wall Street limelight.

The lawyer and accountant were there to see how ZZZZ Best's most profitable line of business worked. Although the Reseda company founded by Barry Minkow was best known for its service to homeowners-it would clean two rooms of carpeting for $39.95-its ledger books showed that 86% of its revenue was from insurance jobs, repairing buildings damaged by fire or water.

The books listed a series of multimillion-dollar insurance contracts. But the crown jewel was a $7 million job in Sacramento, supposedly sprucing up a building damaged when a water main burst and its sprinkler system went off.

Looking Good

And so Mark Morze, 36, a former UCLA linebacker in charge of ZZZZ Best's insurance projects, showed off the office tower to Larry D. Gray, a partner with the Big Eight accounting firm of Ernst & Whinney, and Mark R. Moskowitz, an attorney from Hughes Hubbard & Reed, a New York-based firm with an office in Los Angeles.

Gray and Moskowitz toured several floors of the 18-story building, Morze recalled. Although there were no workers around on a Sunday, anyone could see what a good job ZZZZ Best had done: new carpeting had been laid, wiring and ceiling tiles were ready to be installed and trash and paint cans were ready to be carted away. It was almost like there had never been any water damage.

In fact, there hadn't been any damage, Morze said recently. ZZZZ Best had nothing to do with the office building. It was simply a new high-rise with space for lease that ZZZZ Best used as a prop in an expensive ruse.

Called a Charade

ZZZZ Best did not have a multimillion-dollar insurance job in Sacramento-or anywhere else, for that matter, Morze said. The insurance business was, in effect, a charade and the Sacramento trip was the grand performance.

"I couldn't believe it would work. I was expecting catastrophe," Morze said. He said he was thinking, "These are smart guys, they'll catch on."

But they didn't. After the tour, the attorneys and accountants gave their blessing and two weeks later ZZZZ Best sold $13 million worth of stock. Within months, the company was a hot pick on Wall Street. Its stock quadrupled, creating paper fortunes for many, including the 21-year-old Minkow, whose holdings grew to $100 million.

Since then, ZZZZ Best has collapsed like the house of cards it was. Minkow resigned, the company entered Chapter 11 bankruptcy proceedings and the firm's board of directors is suing Minkow, Morze and others for $25 million, alleging fraud and theft.

Los Angeles Police Chief Daryl F. Gates has announced that Minkow and ZZZZ Best are under investigation for allegedly being part of a money laundering conspiracy linked to organized crime.

While police are investigating what crimes may have been committed, ZZZZ Best investors are asking another question: How were the professionals fooled?

Asking Why

The accountants, attorneys, stock brokerage firms and ZZZZ Best's board of directors were all supposed to provide checks and balances before the public financing.

"I screamed at my broker and cried hysterically, 'How could you allow this to happen?' " said Jenny Raphael, who owns a fabric firm in New York. She bought ZZZZ Best stock at the urging of her broker when it was $16 a share, then sold at $1 a share, losing $50,000.

She is among a group of investors eager to join class action lawsuits-some already filed in U.S. District Court in Los Angeles-against the company. Lawyers in those cases said they expect to sue ZZZZ Best's accountants, attorneys and its board of directors as well.

Asked Raphael: "What kind of checking did they do?"

SEC Requirements

Before a company sells stock to the public, the Securities and Exchange Commission requires "full disclosure." It is a lengthy process and a team effort, led by the stock brokerage firm that will actually sell the stock. In ZZZZ Best's case that was Rooney Pace, a New York firm with a history of run-ins with the SEC. Rooney Pace went out of business in January due to financial problems unrelated to ZZZZ Best.

Over several months, three accounting firms, including Ernst & Whinney, checked ZZZZ Best's numbers. Hughes Hubbard & Reed, ZZZZ Best's law firm, made sure the necessary documents were filed with the SEC. The brokers, accountants and lawyers all helped write the 48-page stock prospectus that went to potential investors.

James C. Van Horne, professor of finance at Stanford Business School, said the investing public has a right to expect "that the numbers are accurate, and the underwriters and accountants have dug a little more deeply."

Now that ZZZZ Best has collapsed, Van Horne said, "The question is how deeply did they probe in this case, and could reasonable people have detected a problem in advance?"

Based on what he has heard about ZZZZ Best, he said, "I think the answer there is yes."

Most Aren't Talking

Most of the professionals who worked for ZZZZ Best are not talking. Ernst & Whinney and Gray-who works out of the accounting firm's Woodland Hills office-would not comment. Nor would Moskowitz, although a spokeswoman for his firm confirmed that the lawyer and accountant were escorted to Sacramento, where they toured an office building "represented to be in the final stages" of restoration.

Two former officials of Rooney Pace, the defunct underwriting firm, agreed to talk about ZZZZ Best on condition that their names not be used. They said their fact-checking in this case was, if anything, more thorough than usual. Only after ZZZZ Best collapsed did their oversights became apparent, they said.

Said one of the former Rooney Pace officials: "When I go back over the files and think of the level of deception and the extent of the fraud and cover up, it makes my skin crawl."

There were plenty of potential red flags, including Minkow's receipt of loans through a reputed Los Angeles mobster, a faked letter from a major insurance company, grossly exaggerated sales, and the staged Sacramento tour.

To this day, Morze is surprised that no one caught on. "This couldn't take close scrutiny," he said. "All they had to do was scratch below the surface."

Almost Made It

And yet ZZZZ Best almost became a national force in carpet cleaning. Even as things neared collapse, the company was negotiating to land a contract with the country's biggest retailer, Sears Roebuck. Under the deal, ZZZZ Best would have cleaned carpets and upholstery for Sears customers in 34 states.

How could ZZZZ Best have gotten so far? Part of the answer is that Barry Minkow's story was a compelling one. He was almost a caricature of the American entrepreneur. Chosen as both "most likely to succeed" and "class clown" in high school, he started ZZZZ Best in 1981 at age 15 in his parents' Reseda garage and, by the time he left his teens, was parking his Ferrari in a gated compound of mansions.

Minkow was a young workaholic who spoke in a torrent of words. A tireless self-promoter, he built up his accomplishments much as he built up his body through hours of weightlifting. By 18, he had hired a ghostwriter to produce his autobiography, Making It in America. He donated $20,000 to the YMCA in Reseda and $60,000 to drug treatment and education programs; he had a public relations firm alert the media to his generosity.

Heavy Hitters

Minkow ingratiated himself with older men, including Harold Lipman, the 59-year-old father of his girlfriend. Lipman joined the company's board of directors last year, lending it credibility because he was the respected associate superintendent of the Simi Valley Unified School District. Neal Dem, 34, owner of a prosperous Chatsworth stationery business, agreed to be a director as well.

Minkow also invited the San Fernando Valley's most prominent whiz kid businessman to join the board. But real estate dealer Mike Glickman, 27, whose company dominates the Valley market, quit ZZZZ Best's board after one meeting last year. "I didn't like the idea of young people calling him, 'Mr. Minkow,' " Glickman recalled. "Everybody was just agreeing with everything he had to say."

Despite Minkow's prosperous image, ZZZZ Best had a history of money troubles.

In late 1984 and early 1985, ZZZZ Best overbilled customers by $72,000 by inflating their credit card charges. Minkow later admitted the problem, but blamed it on rug-cleaning subcontractors.

Money Order Case

Minkow was sued in November 1984, for allegedly stealing and then forging about $13,000 worth of money orders from a Reseda liquor store to pay company bills. The case was settled out of court, without any admission of wrongdoing. In 1985, the IRS sued ZZZZ Best for $5000 in back taxes.

In the spring of 1985, Minkow met Jack M. Catain, Jr., whom Los Angeles law enforcement officials had long described as one of the area's major organized crime figures. Catain was convicted in a counterfeiting case the next year, but died before he could serve time in prison.

Catain offered to help arrange loans for ZZZZ Best. Minkow later said that he was charged 2% to 5% interest a week.

The relationship became public record when the two men had a falling out and Catain sued Minkow in December 1985, alleging that he was owed $1.3 million. The suit dragged on until Catain's death.

In an interview earlier this year, Minkow said he was unaware of Catain's reputation, explaining: "I was clearly fooled . . . that he was a legitimate guy and a nice guy and wanted to help."

Minkow's attorney, Arthur H. Barens, suggested that Minkow had been naive and fell prey to a crook.

"He is essentially a loan shark," Barens said of Catain. "He tried to intimidate and threaten this young man and extort money out of him."

'Sharks' Move In

Police believe that once Catain hooked the young entrepreneur, other mob figures were attracted to Minkow "like sharks circling a bloody fish," one investigator said.

In legal papers, both Minkow and Catain said the loans were to be used to help a growing part of ZZZZ Best's business, insurance restoration work.

Soon after Catain and Minkow got together, according to documents later filed with the SEC, ZZZZ Best signed a joint venture agreement with a firm called B&M Insurance Services to work on two projects worth $5 million, including a job in San Diego from Travelers Insurance.

Listed as the sole owner of B&M was Robert Victor, 51, of Woodland Hills. Minkow told friends that he had met Victor when he was a teenager and the older man helped him buy a car.

Gates' Allegations

At a press conference in July, Police Chief Gates listed Victor, also known as Robert Viggiano, as among the "organized crime subjects or associates of organized crime subjects" involved in the money laundering scheme. In 1971, Victor was indicted with the late Joseph A. Colombo, Sr., reputed head of one of the New York Mafia families, in a $750,000 jewelry robbery.

Victor, who pleaded guilty to attempted grand larceny in the New York case, will not comment on Gates' allegations.

Even if the lawyers, accountants and stock underwriters had no reason to question Victor's background, they could have been tipped off that something was wrong by a letter filed in the Catain lawsuit. Dated August 19, 1985, on Travelers Insurance stationery and addressed, "To Whom It May Concern," it confirmed that the insurance company had awarded ZZZZ Best a $1.5 million repair job in San Diego. The letter was signed by Travelers employee Thomas Padgett on the letterhead of his boss, David L. Tengberg, manager of the claims department.

His Own Company

Padgett, who said he met Minkow years before while working out at a San Fernando Valley gym, later left Travelers to work full-time for his own company, Interstate Appraisal Services of Van Nuys and Culver City. It was Padgett's company, according to SEC filings, that awarded ZZZZ Best millions of dollars worth of restoration contracts.

One of the Rooney Pace officials said that a member of the underwriting team did call the insurance company to check Padgett's background, but that Tengberg was on vacation. No one called him back.

Tengberg could have told the stock underwriters that the letter was a fabrication, and that Padgett was hardly in a position at Travelers to award multimillion-dollar contracts. Tengberg said in a recent interview that Padgett worked as a Travelers automobile appraiser. He inspected dented cars.

Padgett has refused comment.

In January 1986, ZZZZ Best became a public company, making its stock available for purchase, by merging with an inactive but publicly held Utah mineral exploration firm called Morningstar Investments.

'Confidant' Identified

Scott Dear, who worked as ZZZZ Best's controller for part of last year, said he was told that the move was directed by Maurice Rind of Encino, who served as Minkow's "confidant." Rind often came by in the late afternoon, Dear recalled, to talk with Minkow in his office.

Rind, twice convicted of stock fraud in the 1970s, was described by Chief Gates at his press conference as having organized crime associations.

"It was part of the mystery of Barry's world how he ever met these guys," Dear said.

Rind also helped the company qualify for a listing on the computerized over-the-counter stock market. One requirement is that a company have $2 million in assets. Dear said Rind helped line up a deal to pay stock and cash for $2 million worth of power generators from a Cayman Islands firm.

Rind denied any wrongdoing, saying he and a partner "don't do anything illegal."

By spring, ZZZZ Best wanted to raise some money and contacted Rooney Pace. The underwriters took one peek at the growth and profits of the small carpet cleaning company and suggested a stock sale.

Terrific Numbers

ZZZZ Best's numbers for the fiscal year that ended April 30, 1986, were terrific. Fueled by the insurance restoration projects, which supposedly brought in about half the business, ZZZZ Best's sales nearly quadrupled from the year before to $4.8 million, and its profits nearly tripled to $946,000.

Now that ZZZZ Best was a public company, somebody had to do a full audit on its numbers. George Greenspan, a New Jersey accountant, came out to Los Angeles to inspect the books and gave his OK, ZZZZ Best officials said. Greenspan declined to be interviewed.

Even better figures were coming. For the three months that ended July 1986, ZZZZ Best reported $5.4 million in sales, more than it had in the entire previous year. Profits were nearly $900,000 for the quarter.

Minkow was fond of saying that he would build ZZZZ Best into "the General Motors of carpet cleaning." Indeed, according to the ledger books, his company was earning about 17 cents for every $1 in sales. The real General Motors does well to earn 5 cents on the dollar.

'Interim Review'

But Rooney Pace said that to make the stock sale work, it wanted a larger accounting firm's name on the books, so ZZZZ Best hired Ernst & Whinney. The Big Eight firm was not asked to do a complete audit on the fabulous July 1986, results. Instead, it did "an interim financial review," which does not involve independent verification of the company's numbers.

On the surface, everything seemed fine.

Beneath the surface, however, things were frantic at ZZZZ Best, according to Morze. The company was juggling debts to several local banks and private investors, and the stock offering-which would bring an infusion of cash-was taking longer than expected.

The idea behind the insurance charade, Morze said, was to keep up appearances at least until the stock sale, then pump the money into the small, but legitimate, carpet-cleaning business to help it grow.

To build the illusion of a thriving business, when ZZZZ Best got its hands on funds from a bank or private investor, "the money would go in a loop," Morze said. "It would go into the company or take a circuitous route so it would look like income."

Financial Loop

He said the loop began with Padgett's Interstate Appraisal Services-named by Gates as one of the "front" companies under investigation-which supposedly handed the insurance jobs to ZZZZ Best.

ZZZZ Best then supposedly hired a subcontractor-often Morze's own Agoura bookkeeping firm, Marbil Management-to supply labor and materials for the repair work.

In the 18 months before ZZZZ Best collapsed it paid Marbil $18 million but never received any services, according to the lawsuit filed by ZZZZ Best's directors against Minkow, Morze and Padgett.

In fact, Morze said, the money stayed in Marbil's bank account "for 20 seconds" before beginning the loop again.

Minkow refused to comment on Morze's portrayal, but his attorney branded the allegations of fraud "incredible" and suggested that Morze may have been acting on his own.

In any case, the professionals missed the ruse, although they did make a series of inquiries about ZZZZ Best and Minkow. The stock underwriters discovered the Catain lawsuit and insisted-against Minkow's wishes, they said-that it be mentioned in the stock prospectus. The prospectus even reported that Catain was under investigation by a grand jury.

Legitimate Job

Rooney Pace also checked out ZZZZ Best contracts for $200,000 in repair work for Crawford & Co., an Atlanta insurance adjusting firm with nationwide offices. It was legitimate work.

In late fall, however, Rooney Pace said there would be no stock offering unless somebody outside ZZZZ Best went to Sacramento to examine the biggest insurance project. Actually eyeballing a project-as opposed to making some phone calls to check-was unusual for them, the underwriters said. But then, 86% of ZZZZ Best's business now was coming from the one type of work.

Another ZZZZ Best associate found a new office building that could be used for the inspection tour, Morze said. "It was in the process of being leased out," he recalled. "There were a few floors not finished."

The associate told the building's rental agent "we might want to lease some space," Morze said, and asked if a group could inspect the building on their own over the weekend.

On November 23, Morze escorted the accountant and attorney to Sacramento. The law firm's spokeswoman said they saw photographs and blueprints of the project, then the building.

There Were Clues

Even if they were tricked into thinking the Sacramento building was part of a ZZZZ Best project, members of the underwriting team might have been tipped off by the elephantine $7 million price tag.

By contrast, Blackmon Mooring Steamatic, a Fort Worth firm that has been in the insurance restoration business for 40 years, was paid $2.1 million for its work after the Las Vegas Hilton fire a few years ago, company President Kurt Blackmon said.

Commenting on a later ZZZZ Best claim that it had won a $13.8-million contract to repair two buildings in Dallas, Blackmon said, "A $14 million contract in fire restoration would be the biggest contract ever to be let."

After the stock sale, the public began to hear more about this remarkable young salesman named Minkow. He appeared on TV shows, pumping iron for the camera and showing off his $698,000 Woodland Hills home and his Ferrari. The television show Eye on L.A. called him "the Rocky of rug cleaning."

Minkow joined other successful young entrepreneurs on The Oprah Winfrey Show. When another executive mentioned the difficulty of selling seasonal products like frozen yogurt or soft drinks, Minkow boasted, "I could sell frozen yogurt in a blizzard."

Glowing Report

Last March, Bob Grossmann, an analyst with the New York stock brokerage firm of Ladenburg, Thalmann, wrote a glowing report likening ZZZZ Best to McDonald's and 7-Eleven. He predicted fast growth "under . . . its 20-year-old master entrepreneur, Barry Minkow."

In fact, ZZZZ Best's carpet cleaning business was growing-the company expanded from 374 employees and 13 offices around California at the time of the stock sale to 1030 employees and 21 offices in three states by spring.

A $2 million television ad campaign that aired from February through June brought in new business. Actors portrayed rival carpet cleaning salesmen as buffoons who tried to trick homeowners into paying too much for poor service. Then Minkow came on to confidently promise that ZZZZ Best was one carpet cleaning firm that people could trust.

In April, Minkow announced the deal that would take his firm big time: ZZZZ Best planned to buy KeyServ Group, a company that did $80 million a year in carpet cleaning for Sears customers. Drexel Burnham Lambert, a noted investment banking firm, was set to raise $25 million to finance the deal.

'Make It Look Real'

With the Sears business in the works, Morze recalled, Minkow told him, "Just somehow hold the insurance restoration together. Make it look real."

In May, as Ernst & Whinney was about to do its year-end audit, Morze took the accountant and ZZZZ Best's new controller-who also did not know of the ruse-on another building tour, this one to San Diego. Unlike the situation in Sacramento, Morze said, there actually was a little work being done by a ZZZZ Best subcontractor, putting in some acoustical tiles and wallboard, although the job wasn't worth anything like the $7 million the company claimed it was getting.

It all began to fall apart on May 22 when The Times reported on ZZZZ Best's past credit card problems. To calm investors, Minkow issued a press release the next week saying the company would report record sales and profits.

The professionals, however, apparently began to take a closer look.

Firms Bail Out

Four days later, Drexel Burnham Lambert quit the ZZZZ Best account without public comment. On June 2, so did Ernst & Whinney, which later attributed its move to information that some of the insurance work was phony.

By now, ZZZZ Best's board of directors had hired another Los Angeles law firm, Kadison Pfaelzer Woodard, to check out the newspaper reports. It tracked down Tengberg at Travelers and asked him about the Padgett letter.

Minkow was busy during this period. On June 24, according to real estate records, he got a $1 million loan from Michael L. Malamut, a ZZZZ Best board member, who took as collateral a third trust deed on Minkow's home. Late in June, he got a $2 million loan from his personal line of credit at Prudential-Bache, using some of his ZZZZ Best stock as collateral.

On the following Monday, June 29, Minkow was in Chicago to meet with Sears executives to try to keep the KeyServ deal alive.

Minkow Resigns

But three days later, Minkow suddenly resigned as ZZZZ Best's chairman and the succession of lawsuits and bankruptcy actions began.

Investigators are still trying to trace where all the money went. ZZZZ Best got about $12 million from its stock sale, another $7 million from a Union Bank loan and nearly $2 million from First Interstate. There was also a $10 million loan from European investors that a local businessman helped arrange.

The suit filed by ZZZZ Best after Minkow's departure alleges that he "drained" $3 million from the company during June by signing company checks made out to cash or cashier's checks that, among other things, supposedly paid for supplies for insurance jobs.

Law enforcement officials say they are investigating the apparent "laundering" of 30 checks from ZZZZ Best, each for $9500, over a two-day period shortly before the firm filed for bankruptcy protection. The checks allegedly were taken to Las Vegas-investigators won't say by whom-and used to buy chips at two casinos. Then the chips were cashed in and the money hauled back to California in brown paper bags, they said.

Hunting the Money

By the time ZZZZ Best's bankruptcy trustee started poking through the company's bank accounts, only about $30,000 was left.

Minkow's attorneys say that he doesn't have the money, that it went back into the business. He filed for personal bankruptcy on August 7.

Although Minkow declined to be interviewed, Barens, one of a quartet of lawyers now representing him, said that Minkow never visited any of the major insurance job sites. Minkow relied on Morze to run that end of the business, Barens said, adding: "Mr. Morze may be aware of things based on his own activities that Mr. Minkow is not aware of."

A private investigator working with the legal team also suggested that Minkow was victimized by others.

'He's Still 21'

"He's still 21 years old," said the San Francisco investigator, Jack Palladino. "He was out there at the point (representing) the company and having a good time selling this company. Meanwhile, more experienced people like Mark Morze are taking care of the business and keeping the accounts on the (insurance) reconstruction work."

Palladino said Morze is now cooperating with police, hoping "to do very little time and do it in a little prison camp. And he doesn't expect to lose his assets."

Morze confirmed that has helped lead investigators through the paper trail. He said he is talking because too many people know what happened and "the damage has been done."

Morze insists that Minkow knew what was going on. "Barry was the field general, the chief of state," he said. "I worked for Barry. He's the guy who called the shots."

Although Morze readily admits he was a central figure in wrongdoing, he said he had hoped that ZZZZ Best would become a legitimate, profitable carpet cleaning company.

The Sears deal could have been "the cure," Morze said, allowing ZZZZ Best to "get rid of this bogus restoration business. . . .

"It could've worked where there would have been no victims. We came unbelievably close."

"Sony Buys CBS Record Division for $2 Billion After Months Of Talks," by Paul Richter and William K. Knoedelseder, Jr., Los Angeles Times, November 19, 1987

Ending months of on-again, off-again negotiations and widespread Wall Street speculation, CBS Inc. announced late Wednesday afternoon that it has reached an agreement to sell its record division to Sony Corp.

"The Sony board in Tokyo and CBS board in New York approved the sale of the record division for $2 billion in cash. It was unanimous," said CBS President and Chief Executive Laurence A. Tisch as he left CBS' New York headquarters Wednesday evening following a special board meeting called to vote on the sale.

In a statement released minutes after the board meeting ended, CBS said that while it has signed a "definitive agreement to sell our worldwide record operations," the company doesn't expect the deal to be finalized until early 1988, "after receipt of required government approval."

"After long discussion and very careful review, our board concluded that this is a very attractive offer in terms of value to the shareholders, while it also provides an important source of capital and allows us to focus all of our energies and resources on our core business of broadcasting," Tisch said in the CBS statement.

CBS Chairman William S. Paley-who reportedly had previously resisted the idea of selling the record division-was quoted in the CBS statement as saying the deal was "clearly in the best interest of the corporation and its shareholders."

Before the announcement, CBS stock closed at $176 a share on the New York Stock Exchange on Wednesday, up $8.625 from Tuesday's close. Sony also rose, gaining $2.75 a share to $35.625.

CBS Records Group spokesman Bob Altshuler said Wednesday that the name of the company will be changed to CBS Records Inc., that it will continue to operate from CBS' headquarters in New York and that "senior management will remain in place."

For its $2 billion, Sony Corp. gets the world's largest and most successful record company. With about 6000 employees worldwide, CBS Records deploys the most powerful-and the most widely emulated-armada of manufacturing, distribution, marketing and artist acquisition operations in the industry.

The company's three labels-Columbia Records, Portrait Records and Epic Records-boast an artist roster that is the envy of competitors, both for its size and the wealth of talent. Bruce Springsteen, Michael Jackson, Billy Joel, Bob Dylan, Barbra Streisand, Willie Nelson and Placido Domingo are just a few of the more than 200 performers under contract.

Last year, CBS Records reported operating profits of $162.1 million-an all-time record industry high-on revenue of $1.49 billion, accounting for 37% of CBS' total operating profit and 31% of its revenue. This year, the company is expected to report profits of about $200 million.

"Barry Minkow-His Dream Born in a Garage Turns Sour," by Alan C. Miller, Los Angeles Times, January 19, 1988

"I am expanding to the hilt, and I have no shame." -From Barry Minkow's Making It in America.

Even as his financial empire was collapsing last summer, Barry Minkow planned to host a television show designed to counter the negative image of America's younger generation. A brochure for "Class of Tomorrow," which was being marketed by two producers to various networks, hailed the 21-year-old Wunderkind as nothing less than "what tomorrow's youth is all about."

After all, Minkow's exploits had been widely chronicled: He had founded the ZZZZ Best carpet cleaning company in his parents' Reseda garage at 15, built it into one of Wall Street's hottest firms and donated more than $110,000 to anti-drug and other civic ventures. He seemed too good to be true.

And he was.

The glowing descriptions of Minkow as the embodiment of the American dream-"the Rocky of rug cleaning"-have taken on darkly ironic overtones in the wake of the company's demise, accusations by Los Angeles police and last week's federal indictment of the former carpet cleaning king and 10 associates on 54 counts of racketeering, fraud and money laundering.

Minkow remains in custody with his bail set at $2 million, facing a maximum sentence of 350 years in prison and a $13.5-million fine if he is convicted on all counts.

His rapid rise from rugs to riches is a saga of personal and corporate deception of stunning proportions, according to prosecutors and former associates. The indictment alleges that Minkow masterminded an intricate scheme that used phony businesses, sham invoices and other ruses to secure millions of dollars from stock sales and bank loans by convincing lawyers, accountants and investors that vastly inflated revenues claimed for ZZZZ Best were bona fide.

One thing no one seems to dispute at this point: ZZZZ Best's major source of income, a business that purportedly restored office buildings damaged by flood or fire for insurance companies, was almost entirely fabricated. The legal finger-pointing concerns fixing responsibility.

"Minkow was, in substance, charged not only with participating in (the scheme) but with orchestrating it," U.S. Attorney Robert C. Bonner said. He estimated that losses to banks and investors exceed $50 million.

In his defense, attorney Arthur H. Barens argued that Minkow relied on older, more sophisticated business partners and was unaware of any illegal activities. Barens said these same businessmen are cooperating with the government "to exercise some damage control in their future by pointing the finger at some 19-year-old."

A jury likely will have to decide the question: Was Minkow, in essence, taken in by unscrupulous associates who called the shots, or is his defense yet another attempt at deception?

The characterization of Minkow as someone who was not in control would surprise many people who worked closely with the young tycoon. When ZZZZ Best launched a $2-million television advertising campaign in early 1987, for instance, Minkow insisted that he be featured on camera in the commercials depicting his company as the Mr. Clean of an often dishonest industry.

"He wanted to be the star," said David Marchese, a partner at the advertising firm that produced the ZZZZ Best spots. "That's his modus operandi. He felt he knew more about it than anybody else and it was his commercial and his company."

Minkow displayed that same confident demeanor Friday during his first appearance in court as a defendant. His muscular frame clad in baggy sweats and athletic shoes, he proffered advice to his attorneys, joked with other defendants awaiting arraignment and winked at a spectator.

At one point, he browsed through drawings of himself by television artists. "Don't like that one," he said. "The nose is too small."

In a television interview shortly before the sealed indictment was made public, Minkow averred that he was a victim of his own immaturity and arrogance.

"I'm not mature enough to handle a company with 1400 people," he said. "I wasn't then, and at least I have the ability without the ego and the pride to admit it now."

Barry Jay Minkow's story reads like a 1980s version of F. Scott Fitzgerald's Jay Gatsby-a working-class youth driven to amass great wealth; a vain man who surrounded himself with fancy cars, glitzy parties and attractive women; a high-profile multimillionaire who is said to have quietly consorted with mobsters.

At a press conference in July, Police Chief Daryl F. Gates alleged that Minkow and ZZZZ Best were part of a conspiracy to launder narcotics profits for East Coast organized crime families. No arrests have been made in connection with the allegation, but police said last week that the investigation is continuing.

Born March 22, 1966, in Inglewood, Barry Minkow was the youngest of three children of Robert I. and Carole Minkow. The family moved to a small stucco home in Reseda when Barry was 4.

Called a Nuisance

"He was a nuisance, a Dennis-the-Menace type," said neighbor Donald Miller. "I'd hear them yelling at him."

The hyperactive Minkow spent two years at the Ridgewood Military Academy where, he recalled, he gained the drive to acquire wealth. He also said classmates broke his nose eight times.

Minkow's image of his parents was taking a beating, too. He later recalled in an interview that he was ashamed when the family's telephone was cut off because they couldn't pay the bill.

Robert Minkow, a cheerful man always ready with a joke, at one point worked as a real estate broker and night foreman, his son said. Carole Minkow, a serious-minded person, worked for a carpet cleaning company.

Minkow says he was 9 when his mother got him a summer job as a telephone solicitor in the rug cleaning company because she couldn't afford a babysitter. Later, he grew so confident of his salesmanship, he boasted on national television: "I could sell frozen yogurt in a blizzard."

At 15, Minkow recalled, having familiarized himself with the business, he started ZZZZ Best in his garage with three employees, four phones and $6200, saved from his carpet cleaning work evenings and summers.

Minkow joined a fragmented field of carpet cleaning operators without any dominant firms. In the San Fernando Valley area alone, there are about 150 different companies, most of them mom-and-pop operations.

The industry is marred by widespread consumer complaints, state and local officials report. The major problem is the bait-and-switch game-firms advertise a ridiculously low price to get in the door, then announce that the price doesn't include much of what needs to be done.

Company Guarantee

Minkow sought to counter this practice by guaranteeing that his firm would clean two rooms of carpets for $39.95-without extra charges. Ironically, there were few, if any, complaints about the work of Minkow's small firm.

Videotapes of the company's early days show Minkow, his dark hair extending over his collar, seated at a card table earnestly calling prospective customers. Too young to drive, he hired an older friend to chauffeur him. After moving the operation to a Reseda office, he recalled, "I was a kid who had a ticket into the adult world."

He said he picked the name ZZZZ Best (pronounced "Zee Best") so there was one "Z" for each of the four children he planned to sire.

Minkow hired his mother, and later put his father to work, too, as a salesman in ZZZZ Best's commercial division. In a rap music videotape that employees made for Barry's 21st birthday, Robert Minkow rapped: "Now I know I raised me a gem/Happy Birthday, son, you're 21/And all the fun has just begun."

Though he had to worry about cash flow as well as calculus, Minkow graduated from Grover Cleveland High School in June 1984. He received the unlikely twin plaudits of Most Likely to Succeed and Class Clown.

By the time he graduated, ZZZZ Best had 80 employees in three offices.

A savvy self-promoter, Minkow hired a ghostwriter to do his 136-page Making It in America-18 Years Old and a Million Dollars, and published it himself.

Eye for Publicity

He also hired a public relations firm to tout his accomplishments. Entrepreneur magazine headlined an article on him: "18-Year-Old Cleaning Mogul Makes the Rules and Plays by Them," and he won a 1985 commendation from Los Angeles Mayor Tom Bradley.

Despite the growth of his businesses, Minkow expressed bitterness about being sold short by bankers who denied him credit and other adults who refused to take him seriously. What law enforcement authorities now describe as his preference for cash transactions thus may have begun as necessity.

"People told us, 'You couldn't do it,' and we did it," Minkow said during an appearance on The Oprah Winfrey Show last April. "Success is the best revenge."

Minkow, meanwhile, was also growing physically. Angered by the bullying he had absorbed at the military academy, he began rigorous weight training.

"Weightlifting gave me the confidence to look in your eye and say, 'You're fired,' " Minkow told a television interviewer. " 'Cause not everyone was bigger than I was."

But it appears that Minkow may have inflated his weightlifting accomplishments.

In recent years, when he worked out in the early mornings, he was able to bench press 275 pounds or more, impressive for a 5-foot, 10-inch, 175 pounder, fellow weightlifters said.

Minkow, however, said in promotional materials that he bench pressed 400 pounds daily, which experts say would make him one of the top 100 weightlifters nationwide. Further, he wrote in his book that he won several events "competing against the best lifters in the state of California."

But Mike Lambert, editor and publisher of the Camarillo-based Powerlifting USA, the nation's most authoritative source on power-lifting competitions, said Minkow's name never appeared in the magazine's list of winners. "We didn't find anything," Lambert said.

Money Problems

Despite his bravura, Minkow was dogged by money problems.

"We had to watch every penny," said Elenora Madrinan, a high school friend of Minkow's who was ZZZZ Best's advertising coordinator. "Six months after I started with the company, we started having problems with the payroll."

During this period, Minkow was accused in a Superior Court lawsuit of stealing and forging about $13,000 in money orders from a neighborhood liquor store to invest in ZZZZ Best. He denied the accusation and the case was settled out of court without an admission of wrongdoing.

In late 1984 and early 1985, ZZZZ Best used customers' credit card numbers to ring up $72,000 in false charges. Minkow said unscrupulous former subcontractors were at fault and had been fired. He repaid the money.

Minkow wrote in his book: "There are no magic formulas" to business success. "It doesn't take rich uncles lurking in the background. Just hard work."

But he apparently had his own version of a "rich uncle."

Minkow said he got involved in 1985 with the late Jack M. Catain, Jr.-long described by police as a major Los Angeles organized crime figure with links to Mafia families in Chicago and Philadelphia-when ZZZZ Best "was in desperate need of financial assistance."

In a civil suit that followed a falling out between the two men, the ailing Catain said he obtained loans for Minkow in return for about 50% interest in the business, but that Minkow refused to pay him his share of the profits. Minkow's lawyer said Catain was paid what he was owed and the loans were usurious, with interest rates of 2% to 5% a week.

Minkow's lawyer said his client didn't know of Catain's alleged mob ties. In court papers, however, Minkow acknowledged that he continued the relationship after learning of Catain's indictment on counterfeiting charges. Catain was convicted November 7, 1986, but died in February 1987, before sentencing and resolution of the Minkow lawsuit.

Called Source of Problems

Madrinan, Minkow's friend and employee, now says, "I'm sure that's where Barry went wrong. "He got involved with this person and didn't realize who he was until it was too late," Madrinan said. "Jack helped him out with the money. Once you're in, you're never out."

Los Angeles police also believe that after Catain hooked the young entrepreneur, other mob figures were attracted to Minkow "like sharks circling a bloody fish," one investigator said.

At his July news conference, Gates announced that his officers had searched the homes and offices of more than a dozen businesses and individuals suspected of "laundering" narcotics proceeds, including five people who were "organized crime subjects or associates of organized crime subjects." None of those were among the group indicted last week.

One of those that Gates named was Maurice Rind of Encino, who was twice convicted of stock fraud in the 1970s and who served as Minkow's "confidant," according to Scott Dear, who worked as ZZZZ Best controller for part of 1986. Rind helped Minkow acquire the $2 million in assets needed for ZZZZ Best to qualify for a listing on the computerized over-the-counter stock market, Dear said.

"It was part of the mystery of Barry's world how he ever met these guys," Dear said.

Rind says he didn't "do anything illegal" and has challenged police to find any evidence against him. "They can investigate us now until the world comes to an end and they wouldn't come up with nothing," he said after Gates' public accusations.

A confidential source who told of being in the company of Minkow and some of the alleged organized crime figures said: "They didn't treat Barry very well. . . . They would always talk about the (ZZZZ Best) stock. They would say, 'Do better, Barry.' Barry backed down to them a lot."

Minkow began to reap the benefits of his growing wealth in late 1985. That November, he paid $698,000 for a large Mediterranean-style home with a red stucco roof in a gated community in Woodland Hills. A huge black Z was emblazoned on the bottom of the pool. He wasn't ready for a Gatsby-type mansion, but he was on his way.

Minkow drove a white BMW and a bright red 1985 Ferrari with "ZZZZ BST" license plates. He sported a gold ring and gold chains.

For the 19th birthday of his girlfriend, Joyce Lipman, an attractive, 5-foot, 8-inch, hazel-eyed blonde, Minkow bought her a black Porsche.

It was through Lipman that Minkow met her father, Harold Lipman, 59, the associate superintendent of the Simi Valley Unified School District. Lipman, a silver-haired man with a doctorate in education and a sterling reputation among colleagues, added credibility to ZZZZ Best when he joined its board in February, 1986.

"I was asked to give Mr. Minkow a hand by my daughter," said Lipman, who has since retired from the school district and says he was shocked to learn of ZZZZ Best's alleged fraudulent activities.

On January 20, 1986, ZZZZ Best went public, making its stock available for purchase, by merging with Morningstar Investments, an inactive Utah shell corporation. ZZZZ Best had four offices at that point and reported sales of $2 million in 1985.

As a corporate executive, Minkow was "a constant contradiction," in the words of an ex-associate. A whirl of nervous energy, he was a quick study and a consummate salesman, but he was also a rough-hewn kid in a grown-up world-showing off by taking sensitive long distance calls on his speaker phone during business meetings, for instance. He preferred sweats to suits and ties, but also demanded that employees, including his mother, call him "Mr. Minkow."

Sudden Appearances

Minkow could be a tough boss: "My way or the highway" was a favorite expression. Anxious to know what was happening in every department, he would poke his head into various offices without warning, former employees say.

But by all accounts there was an esprit de corps among the largely youthful staff. Minkow himself, often at his desk before 7 AM and still there in the evening, was an inspiration.

"We all believed in Barry," said Madrinan, a three-year ZZZZ Best veteran.

Minkow showed his appreciation. In June, 1986, he threw a luxurious company party for 350 at the Beverly Hilton Hotel. Forgoing his exercise uniform for a white tuxedo and black bow tie, Minkow presented awards to key aides, including his mother.

Minkow also threw a Christmas black tie bash that year at the Westin Bonaventure Hotel. ZZZZ Best had gone public in a big way on December 9, selling $13.2 million worth of stock and warrants to the public, an offering that prosecutors now allege was based on fraudulent claims about the company's revenues.

Minkow's parties were noted for their sobriety. He never drank liquor and insisted that no one else under 21 imbibe. He also required ZZZZ Best employees to submit to a drug test.

His anti-drug crusade included posters of him plastered throughout ZZZZ Best offices stating, "My Act is Clean. How's Yours?"

With his public relations firm trumpeting his generosity, Minkow contributed $20,000 each to Narcanon, a national drug treatment program, and Narcanon International for school drug education. He helped pay for a public service announcement for the Los Angeles Mothers Against Drunk Driving, gave $20,000 to the West Valley YMCA and spent $30,000 to landscape a girls softball league field.

One place that Minkow rubbed elbows with his business associates and met others was at the gym. Among those with whom he pumped iron were Mark L. Morze, Thomas G. Padgett and Daniel B. Krowpman, all of whom were named with him in the federal indictment unsealed Friday.

In the house of cards that ZZZZ Best became, according to the indictment, Padgett played the role of the insurance executive who handed out jobs to the cleaning company. To an outside investor or auditor, it looked like his firm, Interstate Appraisal Services of Culver City, was awarding million-dollar contracts to ZZZZ Best to repair fire or water damage to large buildings.

Krowpman's firm, Cornwell Tools, created paper work "that gave the false impression" that it provided millions of dollars in equipment for ZZZZ Best's jobs, the indictment said. And Morze, an accountant and former UCLA football linebacker, was in charge of the insurance projects. Morze has since said he was cooperating with authorities.

For Barry Minkow, 1987 proved the best of times, and the worst of times.

Early in the year, he vowed, "I'll be President in the next 20 years." By year's end, he faced the prospect of serving a term in the penitentiary rather than the White House.

By March, Minkow's face was becoming familiar to Los Angeles television viewers. ZZZZ Best's $2-million advertising campaign ridiculed competitors-showing their salesmen as buffoons who ruined customers' carpets while upping the price-and closed with Minkow making a pitch for ZZZZ Best. Chest out, he looked into the camera and declared: "I'll guarantee the work and price in writing."

To the surprise of the advertising professionals, Minkow shot the commercials in a single take, advertising executive Marchese said, an impressive display of poise.

University Rejection

With his business booming, Minkow sought to bolster his academic credentials. Marchese, who teaches part time at Pepperdine University, said Minkow asked for his help to get him into the graduate school of business. But the university turned down Minkow's proposal that he be awarded undergraduate credit for his business experience.

Although the small, legitimate rug cleaning business was prospering, the largely bogus restoration jobs accounted for the vast majority of the revenues claimed on ZZZZ Best's ledgers. ZZZZ Best announced one $13.8-million Dallas job that insurance restoration experts say would have been the largest ever let.

The stock took off. It opened 1987 at $4 a share and reached a high of over $18. Shortly after Minkow's 21st birthday, his 51% of the company's stock was valued at $103 million.

On April 16, ZZZZ Best announced that it was going to spend $25 million to buy the KeyServ Group, a nationwide firm that had taken in $80 million the previous year by cleaning carpets for Sears customers. ZZZZ Best, which had 21 offices and 1030 employees in California, Neveda and Arizona, was acquiring a firm with 50 locations and 2300 employees in 34 states.

According to Morze, the purchase was to be the "cure" that would allow ZZZZ Best to stick with legitimate carpet cleaning and "get rid of this bogus restoration business."

Minkow talked boldly of plans "to expand into England" and build a billion-dollar company.

On April 27, Minkow joined several other highly successful young entrepreneurs on The Oprah Winfrey Show where he fidgeted, interrupted others and demeaned his fellow guests.

Offers Cliches

"Tough times pass. And tough people last," he counseled. "Face the fear. The fear will disappear."

When another guest said viewers might want some non-cliche advice, Minkow retorted: "Your sales were $17 million. Mine were $50 million. End of story."

The end of ZZZZ Best's story was fast approaching. But first there was a last hurrah.

In early May, at a cost of hundreds of thousands of dollars, Minkow flew in 600 KeyServ employees and their wives from around the country for a high-spirited three-day conference with several hundred ZZZZ Best employees at the Century Plaza Hotel. The event was called "The Sky's the Limit," and employees of both companies gave Minkow a standing ovation when it ended.

The rug began to slip out from under ZZZZ Best on May 22, when The Times published an article describing the credit card problems of 1984 and 1985. The company's stock plunged $4.25 that day.

"It really humbled him," Minkow's friend Elenora Madrinan said. "He really changed. He got to be a lot more quiet. He made more of a point to go and talk to people in the corporate office. He was trying to reassure them that everything would be OK."

It was too late. On June 1, ZZZZ Best's investment banker, Drexel Burnham Lambert, resigned, jeopardizing the KeyServ deal. The next day Ernst & Whinney, ZZZZ Best's auditor, followed suit.

Minkow soon was busily accumulating cash. He got a $1-million loan from a ZZZZ Best board member, through a third trust deed on his home. On June 26, according to court papers, he got a $2-million loan from Prudential-Bache Finance Ltd., using his ZZZZ Best stock as collateral.

Assistant U.S. Attorney James R. Asperger said there is evidence that Minkow had developed "a close personal relationship" with a woman who worked at Prudential-Bache, who subsequently processed a postdated check for him-giving him traveler's checks, which were then cashed in Las Vegas. "He told her he loved her, that he would give her a postdated check . . . and that ZZZZ Best would cover it," the prosecutor said.

Missing Money Alleged

At Minkow's bond hearing Friday, prosecutors also alleged that he removed as much as $816,000 from ZZZZ Best's treasury in the company's waning days and may have millions stashed away in overseas bank accounts. Herb Wolas, the bankruptcy trustee assigned to help process creditors' claims, said there is "between $23 million and $30 million not accounted for."

Even with his empire crumbling, Minkow made a last-ditch bid to save the KeyServ deal, jetting to Chicago in late June with Hal Lipman to meet with Sears executives. Lipman said Minkow explained the credit card problems, apparently to the satisfaction of the Sears brass. The Sears executives planned to fly to Los Angeles within two weeks to finalize the deal.

They never made it. Minkow unexpectedly resigned July 2, citing a pair of bleeding ulcers. ZZZZ Best filed for bankruptcy six days later, and shortly thereafter the company's board sued Minkow and others for $25 million, alleging fraud and theft. On August 7, Minkow declared personal bankruptcy.

Fitzgerald's Gatsby ended up face down in his swimming pool, shot after a mysterious automobile accident that subjected him to the rage of two jealous husbands.

Minkow also had his shooting incident. Five weeks after Gates alleged that he was involved with organized crime families, Minkow reported to police that four shots were fired at him from a white Lincoln Continental as he drove a friend's pickup truck along an isolated San Fernando Valley road. No arrests have been made.

In the six months after ZZZZ Best's demise, Minkow kept a low profile as he waited for the indictment that seemed inevitable. He was seen by neighbors working out with weights in his garage and by friends hanging around a San Fernando Valley pest control business owned by a friend. His attorney said he also was "out on a daily basis on his hands and knees, cleaning carpets."

Disputing the suggestions that Minkow has a fortune stashed away, attorney Barens commented: "If there were hoards of millions of dollars offshore, I doubt very much that Mr. Minkow would be sitting around Reseda preparing his defense."

In a rare interview, Minkow told a television reporter last week, "The Lord is my defense and my deliverance and I'll take it as it goes, one day at a time."

One thing Barry Minkow can certainly say in his own defense: From his meteoric rise as a multimillionaire Wall Street whiz kid to his equally breathtaking descent, he has been true to one part of his personal credo.

"I'm motivated," he once wrote, "by the idea of astounding other people."

"The Media Business; Marvel Comic Book Unit Being Sold for $82.5 Million," by Jonathan P. Hicks, The New York Times, November 8, 1988

New World Entertainment Ltd., the publisher of Marvel comic books, said yesterday that it expected to sell the comic book, children's books and licensing and merchandising operation of its Marvel Entertainment group to the Andrews Group for $82.5 million.

New World said the Andrews Group, a Los Angeles-based concern operated by Ronald O. Perelman, chairman of Revlon, planned to take control of Marvel Comics in January. New World, which is based in Los Angeles, said it would retain its Marvel Productions unit, which produces television programs for children.

Spokesmen for New World and the Andrews Group said they were not certain when the final agreement would be signed.

According to Maggie Thompson, co-editor of the Comics Buyer's Guide, an Iola, Wisconsin, trade publication, Marvel commands about a 40 percent share of the $300 million comics market.

The company's publications unit, which is based in New York, produces about 50 comic-book titles a month under the Marvel name, with a circulation of 7.4 million, according to the Audit Bureau of Circulation. Marvel's interests include a merchandising operation that licenses products based on the characters in its comic books: Spider-Man tennis shoes and Captain America T-shirts, for example.

In 1986, Marvel was sold to New World for $46 million as part of the liquidation of Cadence Industries of West Caldwell, New Jersey. Marvel's publishing operations, including children's books, had sales of $70 million in 1987, and the company has been consistently profitable since 1975.

New World, which had planned for Marvel to be the source of story ideas that could be used in television shows and movies, had turned away previous inquiries for the business. However, New World has been hard pressed for cash in recent months.

The company is being sold just as New World begins to take some of the hundreds of Marvel comic characters and make them into the stars of cartoon adventures.

The Marvel cartoon operation has been merged with New World's television and movie business and is excluded from the pending sale.

"Time Inc. and Warner to Merge, Creating Largest Media Company," by Floyd Norris, The New York Times, March 5, 1989

Time Inc. and Warner Communications Inc. announced yesterday that they plan to merge, creating the largest media and entertainment conglomerate in the world.

Time's chairman, J. Richard Munro, said the new company would seek to grow even larger by acquiring other businesses.

Time is a leading book and magazine publisher with extensive cable television holdings, and Warner is a major producer of movies and records and has a large cable-television operation. The merger would create a new company, Time Warner Inc., with a stock market value of $15.2 billion and revenue of $10 billion a year.

A Place in 1990s

The merger would insure Time Warner a place in the 1990s as one of a handful of global media giants able to produce and distribute information in virtually any medium. The companies said the deal would help the United States compete against major European and Asian companies.

''Only strong American companies will survive after the formation of a unified European market in 1992,'' said Steven J. Ross, chairman of Warner.

The merger, involving an exchange of stock in which no cash would change hands, was billed as a merger of equals in which Mr. Munro and Mr. Ross would have the same power as co-chairmen and co-chief executive officers, but of which Time's president, N.J. Nicholas Jr., would eventually take control.

Time Warner would replace Bertelsmann AG, a privately held German publisher known primarily for its book division, as the world's largest communications company in terms of revenue. Bertelsmann's 1987 revenue was more than $6 billion.

The merger was unanimously approved by the Time board, but there was one abstention on the Warner board. A Warner official said Herbert J. Siegel, chairman of Chris-Craft Industries, who is a frequent critic of Mr. Ross, was the holdout. Mr. Siegel could not be reached for comment.

The agreement is subject to approval by shareholders and by government regulatory agencies.

A Difficult Takeover Target

The merger would unify two huge media companies that have felt the pressure of demands for performance and have long been the subjects of takeover rumors on Wall Street. The much larger merged company would be a more difficult takeover target.

''Neither of these companies was forced into doing anything,'' Mr. Munro said. ''We both could have survived alone. But this gives us a very strong balance sheet. We won't have to fire anybody, we don't have to sell anything and we don't have to borrow to accomplish this. It gives us a very large treasury - and we have plans to use it.'' The company would have long-term debt of less than $3 billion, leaving ample borrowing capacity for possible acquisitions.

An analyst for Drexel Burnham Lambert Inc., John Reidy, called the deal ''mind-boggling.''

''What you've got is a company that will be the largest magazine publisher in the country, the world's most profitable record company, a cable television entity with more than 5.5 million cable subscribers, one of the world's largest book-publishing operations and the country's largest supplier of pay-cable programming,'' he said.

Time's properties include Time, People, Money and Sports Illustrated, as well as Home Box Office, the pay-television operator; Time-Life Books, and Book-of-the-Month Club.

Warner owns Warner Bros., a major film producer, and a large record company, a major paperback book publisher and cable television systems.

Time Board Members Applaud

One person who attended the Time board meeting said that after a day of reviewing financial data, board members applauded when shown a video of Warner programming, including excerpts from its new Batman movie.

People affiliated with both companies said Time and Warner had been discussing a combination for more than two years, ever since Mr. Ross first raised the possibility of a joint venture in cable television. Last year those talks turned to the idea of a merger, but the discussions were broken off in August for reasons that were not disclosed. Geoffrey Holmes, a senior vice president of Warner, said talks were renewed in January after Warner acquired the Lorimar Telepictures Corporation.

Broadcasters say the merging of one of the nation's premiere producers of programming with the owner of an important cable television system underscores the networks' vulnerability to competition.

''If this merger goes through,'' said George F. Schweitzer, senior vice president for communications at CBS Inc., ''it's another example of how all our competitors can build very powerful communications complexes, while the networks are held back by 20-year-old regulations, which are now increasingly unfair and outmoded.'' The networks are not allowed to own cable television systems.

The proposed company could create television programming, distribute it over its own cable system and syndicate it around the world.

''This is an example of how software suppliers and cable distributors can do things the networks cannot,'' Mr. Schweitzer said.

Companies With Different Styles

Time has long been known for a staid corporate style, while Warner under Mr. Ross has been known as more freewheeling.

But Mr. Holmes discounted the possibility of conflicts between the two organizations.

''People perceive the corporate cultures to be very different, but they aren't,'' he said. ''Both we and the Time management have always believed very strongly in decentralized management. Both companies have a limited corporate staff.''

In 1983, Warner was a takeover target of the News Corporation, the media giant based in Australia and controlled by Rupert Murdoch. To escape that bid, it reached a deal with Chris-Craft giving that company a large stake in Warner. That stake now amounts to 11 percent of the stock and 17 percent of the vote. But the friendly arrangement has soured, with Mr. Siegel opposing a large pay package for Mr. Ross and going to court in an unsuccessful effort to stop Warner's takeover of Lorimar.

The merger was discussed at a Time board meeting Friday and at a Warner board meeting that began Thursday and continued Friday. The announcement was made yesterday in part because a report of the deal appeared Saturday in The Los Angeles Times.

Under the proposal, each share of Warner Communications would be exchanged for 0.465 share of Time, with an indicated market value of $50.74, based on Time's closing stock price of $109.125 a share on Friday. Warner shares were very active in New York Stock Exchange trading Thursday and Friday, rising $2.875 in the two sessions, to $45.875.

The companies said Mr. Nicholas would become president of Time Warner and replace Mr. Munro as co-chief executive when he retires in about two years. When Mr. Ross retires, which is expected in about five years, Mr. Nicholas would become the chief executive.

"Like the 3 Stooges: ZZZZ Best-How the Bubble Burst," by Kim Murphy, Los Angles Times, March 30, 1989

To look at them, nobody would have thought they could do it: An insurance adjuster who couldn't seem to hold down a job. A family man who ran a small janitorial business. A former UCLA linebacker who taught himself accounting. And the kid with the big mouth and an overdose of charm.

But together they pulled off one of the biggest swindles in Southern California history, a $100-million con that convinced wealthy investors, a Big Eight accounting firm and Wall Street bankers that Barry Minkow's ZZZZ Best carpet cleaning company was making a fortune repairing office buildings damaged by flood or fire.

Even today, after a 3 1/2-month trial that laid bare the charade, investigators are having a hard time figuring out how such a bunch of seeming ne'er-do-wells managed to pull it off. But then, so are the guys who did it.

Doctoring the Books

"It was literally like the Three Stooges, practically," said Mark L. Morze, the former football player who stayed up nights with a small word processor and a bottle of White Out doctoring the books. "We used to just sit there and look at each other every day, saying, 'I can't believe it's still going along, that people still believe this stuff.' "

By the time it was over, Minkow was found guilty of 57 counts of fraud and conspiracy, and 11 associates of the company he had vowed to turn into "the General Motors of the carpet cleaning industry" stood convicted of various fraud charges.

Minkow, scamming to the end, claimed throughout his trial that he had been manipulated by shadowy organized crime figures into carrying out the fraud.

But at his sentencing this week, when a federal judge handed down a 25-year prison term, the now-23-year-old Minkow admitted that the Mafia story was just that-another story. And the truth, it turned out, was even stranger: ZZZZ Best really was, all along, the tale of a kid who started a company in his parents' garage, brought in some buddies from the gym, cut a few deals with reputed mobsters, dabbled in the netherworld of junk bonds and stock splits-and wound up with an empire worth $200 million on Wall Street.

An Unbelievable Script

"If you wrote a movie script with this cast of characters, no one would believe it," said Assistant U.S. Attorney James Asperger, who tried the case with co-prosecutor Gordon Greenberg. "It was like The Dirty Dozen, only they were out to commit evil."

Although most of the ZZZZ Best principals still face civil suits filed by investors, stockholders and banks that were duped, the initial wave of criminal prosecutions concluded with Minkow's sentencing on Monday.

As they prepared to go off to prison, three of Minkow's top lieutenants spoke at length for the first time about how they pulled it off.

They admit that they deserve to be punished. All profess stinging regret for the people who got left holding the bag when the swindle collapsed. But there is in all of them still a hint of carefully shrouded pride about the entire mad, brazen, larcenous affair, an infectious enthusiasm that allows them to plunge into the story and get caught up in it again, and talk about how they came that close -four days away, they figure-to making ZZZZ Best a legitimate, multimillion-dollar corporation.

"If everything had worked out," Morze said dreamily, "everyone makes out like a bandit. The stockholders make money, the income tax people collect taxes, three or four thousand people get jobs, America gets its carpets cleaned, the investment bankers get paid back, I become wealthy, Barry becomes wealthy, everybody makes out."

Even Morze couldn't resist the next line: "But noooo . . . ."

Minkow's story, by now, everybody knows. How he started the business with a few rug shampooing machines and went on to self-publish his own book about becoming a teenage millionaire. How he started driving a $130,000 Ferrari, bought a mansion with a huge Z on the bottom of the swimming pool and hired fans, at $100 apiece, for the softball team he managed.

Less prominent have been the stories of the men he took with him to short-lived glory, the men, many of them approaching middle age, who suddenly saw the answer to their dreams in the visage of a wisecracking teenager.

Minkow was only 14 when Tom Padgett ran into him in a San Fernando Valley gym. Padgett was a Vietnam vet who could bench press more than 300 pounds, who didn't want to hear from the kid who kept lurking around, nagging about how he wanted to train with him.

Padgett was 30 then and had a decent job as a claims adjuster with Allstate Insurance, but it was starting to get to him; his life wasn't going anywhere. He took up boxing and, by his third fight, got hammered so badly he had to wear dark glasses the next day.

'You Forget to Duck?'

"Everyone at the gym is getting a big charge out of it," he recalled. "They're saying, 'What's the matter, punchy? You forget to duck?'"

The Minkow kid told them all to shut up. "At least Tom had the guts to go in the ring, and that's more than you guys," Padgett recalled him saying. "It shut everyone up-and it really drew me to him."

They got to hanging around in the Valley, and when Minkow, at 15, decided he wanted to start a carpet cleaning company, he got $1500 from one of the weightlifters and another $4500 from Padgett, who took out a loan for him.

It wasn't a bad idea. Minkow had learned telephone sales from working with his mother, and soon ZZZZ Best's vans were parking in front of houses around Los Angeles, promising to clean two rooms for $39.95-without extra charges.

Having Padgett at Allstate was a big boost for the fledgling carpet company. Padgett was able to steer an occasional insurance job ZZZZ Best's way, contracts to repair homeowners' floors after the bathroom flooded or someone dropped a burning frying pan in the kitchen.

But Minkow was having money troubles even from the start, trouble paying back the money he had borrowed to get the company going. Padgett got a notice from the bank that Minkow had missed several payments on the loan Padgett had obtained. Then, his bosses at Allstate called him in and asked him about someone named Minkow who apparently had stolen and cashed some Allstate warrants-similar to blank checks-after finding them in Padgett's car.

When Allstate found out they were friends, and that Padgett had been referring jobs to Minkow, he was out of a job.

Things started looking up a few weeks later, though, when Padgett got hired as an auto appraiser at The Travelers insurance company.

He only had to go out on four jobs a day, leaving plenty of time to make it home by noon to watch Twilight Zone reruns. He met his best friend's cousin, Debbie, and fell in love. He might have cut Minkow off, what with the problems the teenager caused, but he was looking for ways to make Debbie notice him, and Minkow told him, "You want that girl, you got to get the money." Minkow, as always, had a way.

Minkow told Padgett he was taking on some larger insurance restoration jobs on the side, fixing up whole buildings that had been burned or flooded. But to keep his bankers happy, he needed to show that he wasn't getting all his work from one place. Could Padgett borrow some stationery from Travelers, "just for our internal books," to make it look like Padgett was sending him some of the jobs?

Began to Suspect

Padgett agreed, even though he began to suspect that Minkow did not have as many restoration jobs as he claimed-that maybe some of the jobs he made up. It worked for a while, until one loan officer dropped by Travelers to ask about a supposed deal, ran into Padgett's boss and found out that he was not a big-time broker handing out building repair contracts, but an appraiser checking out bent fenders.

Padgett was out of a job again. But at least no one had called the cops.

Not to worry anyway, Minkow said. He would set up Padgett in his own insurance appraisal business. He could hire Debbie as his secretary. And maybe, Minkow said, Padgett could refer ZZZZ Best some work.

The idea was to find legitimate jobs, of course. But in the meantime Padgett would earn most of his keep posing as the wealthy, successful president of Interstate Appraisal Services who was supposedly responsible for sending ZZZZ Best contracts that kept getting larger and larger-contracts that Minkow knew, and Padgett knew, didn't exist.

The phantom jobs paid off indirectly. They were listed as revenue on ZZZZ Best's books, which then could be shown to banks or individual investors to encourage them to lend the company money-money that could be used not only to pay the salaries of Minkow and his friends, but also fuel expansion of the company's legitimate business, the part where ZZZZ Best workers actually went out and cleaned carpets.

That enterprise was taking off. Over the years, the garage turned into five locations, then 21 offices in three states, employing more than 1000 people.

Enter Jack Polevoi. A self-employed businessman, he suddenly found himself at the helm of ZZZZ Best's carpet cleaning operation as it was reaching its peak.

Polevoi, 41, hadn't really needed a job. The sale of his commercial maintenance business gave him enough to live on and build a luxurious house near Minkow's in Westchester County Estates, a new gated community of mansions in Woodland Hills. Nevertheless, Polevoi was impressed with the kind of money being thrown around by this neighbor of his. And when ZZZZ Best commercials blitzed the airwaves-featuring Minkow promising clean carpets and no hidden charges-it was a kick to have such a celebrity around.

"You know, I was proud to introduce him to my friends. . . . He was a star, and a lot of people stopped me and asked, 'Hey, what's it like to have Barry Minkow as a friend?'"

So when Minkow told him he needed him to get the carpet cleaning operations in shape, Polevoi agreed. He brought in his brother, Jerry, to help.

"After the first week I was there, I got caught up in it. It was a great company! I mean, something I'd never seen in my life. Charisma. Everybody couldn't wait to go to work. But after I was there a week, I went into Barry's office, and I said, 'Barry, I been in this business a long time, you're not making any money.' I said, 'You got an overload of people, there's no accountability, the place is like Disneyland here.'"

Managers at outlying offices were hiring limousines on a whim, Polevoi recalled. "The Coke machine in the corporate office, all you had to do was push a button and soda came out."

Polevoi started cleaning house, firing the guys who were sitting around the offices and spending money, setting up interviews to land big corporate carpet cleaning accounts. But even when he landed major contracts to clean hotel carpets, Minkow didn't seem to care.

"I flew back to Phoenix and met the guy (from) the Ramada Inn. He came back with me and closed the deal. We got the Marriott. . . . It just never impressed him. I said, 'This is a national operation.' He said, 'OK, just do your job, Jack.' "

Polevoi was the only man Minkow seemed to trust with his own money, and he stashed thousands of dollars of pocket money for the boss in his desk drawer. When Minkow's girls' softball team had its championship games, the money to hire a cheering section came from there. When Minkow wanted money to buy a Mercedes for his girlfriend when she caught him in bed with another woman, Polevoi went to the drawer.

They Act as Waiters

Minkow was having a new girl over for a candlelight dinner. Would Polevoi and his brother dress up in tuxedos and act as waiters? Jack didn't know where to put the forks and spoons, so he called his wife over to help.

"I became so involved, so obsessed with this whole thing, I wasn't me anymore. I was someone else. I was obsessed with Barry. Barry would come over and say he wanted to go away for the weekend, go out for dinner, I went. And left all my friends behind. Because they didn't want to be with him anymore. My friends were all very successful guys, young, in their 30s, did well. But they were never up to Barry's expectations, because Barry always made megadollars."

Long before Minkow was earning megadollars, Mark Morze, the one-time linebacker, had his own bookkeeping business, preparing tax returns and profit-and-loss statements for dozens of small businesses. He tried opening his own enterprise-a health club at the Sherman Oaks Galleria-but it lost $80,000 the first year, and he was back looking for clients when a loan broker introduced him to Minkow.

Morze, then 35, went to work for ZZZZ Best in late 1985 as a part-time consultant, shopping around Southern California for bank loans to help boost the company's expansion. In the early days, Minkow had turned mainly to private investors: an elderly lady who ran the cigarette concession at a Las Vegas hotel, the wife of singer Tony Orlando, even a reputed local crime figure who delivered $25,000 cash in a brown paper bag. Some of the loans were negotiated at outrageous rates of interest. Most trickled in only fast enough to pay off earlier loans.

To help qualify for major bank loans, Minkow produced more and more contracts for insurance restoration work, most of it forwarded to ZZZZ Best from a guy Morze did not know, Tom Padgett. Morze said he figured the jobs were legit.

As Morze tells it, he began to learn the truth in 1986, when Minkow showed him a document from Interstate Appraisal Services indicating that ZZZZ Best had just completed work on a $2-million project in San Diego. An even bigger job was under way in Arroyo Grande, a tiny beach community south of San Luis Obispo, Minkow told him. Now a company that had loaned ZZZZ Best several hundred thousand dollars wanted to see how it was progressing.

"'Mark,'" Morze said Minkow confessed, "'the San Diego job is such a success that I invented the Arroyo Grande job to buy time, until we get the money from the San Diego job.'" Would Morze drive to Arroyo Grande and photograph any building that could pass as a restoration site?

He found the only three-story building in town, lying on the ground to photograph it so it looked bigger. But the ploy didn't work. The lending company had beaten Morze to Arroyo Grande and quickly learned that ZZZZ Best did not have any contracts there. By the time Morze got back, Minkow was immersed in a tense meeting with officers of the lending company, trying to talk his way out of it.

Morze compared Minkow's protestations to a small boy trying to hide an elephant behind his back. "'What elephant?' he says." The company was reassuring on one point, Morze said, the matter would not be reported to authorities. But they would make no more loans to ZZZZ Best, thank you.

That was when Minkow confessed to him that the Arroyo Grande job wasn't the only one that was fake, Morze said. All of the restoration jobs were. But don't worry, Minkow said.

By this time, Minkow had hooked up with a guy from Encino, Maurice Rind-a convicted stock swindler, it so happened, but also a man with a reputation as a financial wizard-who was helping him merge with a publicly held Utah shell corporation. The move would eventually allow the sale of ZZZZ Best stock to the public. The Wall Street firm of Rooney Pace Inc. agreed to underwrite a public offering, a bonanza that would net ZZZZ Best an initial $11.5 million-enough to pay off the loans that were by now breeding at an alarming rate, enough so they would not have to fake any more restoration jobs.

"We gotta last 60 days, and we're set," Morze recalled Minkow telling him. "Mark, all you gotta do, if anybody asks you about the restorations, you gotta just say, 'Yeah, they're real, and they're making money, and they're moving along.' And I said, 'OK, I'll do it.' That was my start as a co-conspirator."

The 60 days stretched into four, then five months. New loans had to be obtained to carry the company through. New restoration jobs had to be invented to show enough revenue to qualify for the loans. Morze, whose earlier bookkeeping work involved only rudimentary accounting, had to learn new tricks.

"A lot of people think I'm the genius behind the throne that made it all happen," he said. "But I'd never seen a balance sheet in my life. I didn't know what one looked like. The accountants would say, 'Mark, we're going to need your worksheets.' I had to go to an encyclopedia and look it up, I didn't know what a worksheet was. Then they said we need a performance bond. I ran to the business library and looked it up."

Morze jotted down notes on every insurance job ZZZZ Best supposedly did. He cut and pasted checks together-taking the name of a bank from one, a signature from another-then smoothed out the edges with blobs of White Out and a copying machine. "If you saw me at the end of the night making checks, I'd look in the mirror and I'd have little white dots all over me," he said.

The finished copies made it look as though ZZZZ Best was paying carpet and lumber suppliers for restoration materials. He drew up phony invoices to coincide with the checks and drafted two years' worth of detailed bank statements-which IRS investigators later described as nearly perfect-that made the checks add up.

A Hitch Develops

But just before the stock sale came through, there was a hitch. To everyone's horror, Ernst & Whinney, the accounting firm hired to help with the underwriting, wanted to inspect ZZZZ Best's latest restoration job-touted as a $7 million project in Sacramento to restore an office building damaged by a massive water leak.

For months, Minkow, Morze and Padgett had been able to keep investors and their accountants away from the supposed job sites by saying that the insurance companies involved-who were paying for the work-were worried about being sued if anyone was injured.

When one determined loan officer insisted on coming to Padgett's office, he was at his desk, and by prearrangement, his phone was ringing off the hook.

"And so every two minutes, I'd say, well, the reason you can't go to the job sites, like I explained to you before"- ring!- "Yeah, hi Jim. You at the Anaheim job site? Right, OK, are the plumbers there? Oh, they're not there? Fire 'em. OK, let me spell it out: F-I-R-E T-H-E-M. OK? Sign my name on it. Do I have to fire everyone and get ZZZZ Best there? Cause I'm going to do that. OK." Then: "Anyway, the reason you can't go to the job site is a couple months ago somebody broke a kneecap"- ring! They bought the whole thing."

Ernst & Whinney was more persistent. So Padgett and a colleague flew to Sacramento, found an office building where some construction work was under way, and set up a masquerade. They slipped $50 to the security guard so he would greet "Mr. Morze" when he showed up with some special guests that weekend. They took down contractors' signs and replaced them with ZZZZ Best signs.

Morze flew up Saturday morning with an accountant from Ernst & Whinney and a lawyer from the prestigious law firm of Hughes Hubbard & Reed. Padgett waited nervously in a nearby hotel room, at one point calling Minkow in Los Angeles.

"It's like third down and we're on the 25-yard line and there's three seconds left on the clock," Minkow told him. "We gotta kick a field goal. . . . It's all come down to this."'

The security guard gave Morze the appropriate greeting and Morze led the way to the elevator.

"I have never done a construction job in my life," Morze recalled. "I don't know anything about plumbing, I know nothing about electricity, I know nothing about carpeting. I'm sitting there going, 'Please don't ask me any questions. Please don't ask me any questions.'

"And sure enough, these big experts that are here to sign off on a multimillion-dollar underwriting go, 'Well, you guys seem to be doing a good job. Let's go back to the airport and have a few beers.' Back to the airport. On the airplane. Fly home. Call Barry. We did it!"

Later, the ZZZZ Best crew went to work again when the accounting firm demanded a tour of a supposed San Diego job site. This time, they actually signed a $2-million, seven-year lease to get a building and had a construction company work day and night to fix it up, putting in the last nail only hours before the inspectors arrived-for a 20-minute visit. Afterwards, Morze said, Minkow sat back at his desk and laughed: "We spent $100,000 a minute for that inspection."

The public stock offering finally came through in December of 1986, bringing money that would allow them to pay off all the "hooks," as Morze called the loans, and put a little bit in the bank to help the legitimate carpet cleaning business. No more phony insurance jobs. No more lies.

"But now," Morze said, "Barry confesses to me how many hooks there really are. And out of the $11 million we got, the first day, $8 million went out immediately. I say, 'You owed $8 million?' He says, 'Yeah.' I'm sitting there, oh my God, we only got $3 million left." And there were more loans coming due in January and February. At that point, Morze said, Minkow just looked at him. "It's not enough," he said.

Padgett was still desperately in love with Debbie, but she had taken up with another guy and didn't want anything to do with him. He was driving himself crazy with jealousy. "Finally, I figure I'm going to kill this guy, I mean, there's no question in my mind, I'm going to kill him, I mean, don't even talk about it. And Barry's going, 'No, no, no, there's other women.'" Padgett, the supposed source of insurance restoration jobs, took to drinking most of the day and going out at night with a gun, "just looking for trouble." "Imagine," he said gleefully, "how Barry's losing sleep nights, imagine that, you know, here's 86% of his business running around Santa Monica drunk at 3 in the morning with a loaded gun-three loaded guns, as a matter of fact."

The crisis ended when Minkow reminded his friend about the waterfront house in Newport Beach that he had wanted ever since hearing Debbie describe her dream home. It seems that one of ZZZZ Best's investors had such a place he wanted to sell. What if Minkow bought it and let Padgett live there?

"I said, 'Barry, it can't be, I mean, things like that don't happen to me.' He says, 'No, we got this line of credit from First Interstate that will be a big help.'" All Padgett had to do was put on his $800 suit, his Rolex watch, and show up at the bank and convince loan officers that a new batch of insurance jobs were real.

By now, in the spring of 1987, what Morze calls the big "cure" was coming. Drexel Burnham Lambert was talking about underwriting a $40-million private placement of junk bonds with which ZZZZ Best could acquire KeyServ, a nationwide carpet cleaning chain that got its business through the country's premier retailer-Sears Roebuck. With respected ties like that, they would never again have to fake any restoration jobs, Padgett and Morze figured.

They dreamed of making a success with KeyServ, then using $700 million in junk bonds to finance a hostile takeover of a $1.3-billion international corporation.

"It's the only thing that keeps you going in your brain," Morze said. "We get KeyServ, the world is ours. We get KeyServ, the world is ours."

Padgett was comfortably ensconced in the oceanfront house in Newport Beach. With ZZZZ Best stock soaring, Minkow was launching discussions to buy the Seattle Mariners baseball team. Everything was on track.

Then two things happened. First, an article appeared in The Times about some problems at ZZZZ Best a few years earlier, when dozens of customers had complained that large overcharges had been rung up on their credit cards. Minkow quickly threw the blame off on former employees, but the report sent shivers through Wall Street and the stock plummeted.

Then, Norman Rothberg, a thin, bespectacled accountant who rented office space from Interstate Appraisal, went to Ernst & Whinney and confided that the Sacramento restoration job was not real. Ernst & Whinney got on the phone to Minkow. Minkow quickly got Padgett on the phone. "You better figure out what the hell this man has done," Minkow declared.

Rothberg was cornered in a meeting with Padgett and another ZZZZ Best associate, who he said began toying with a gun. After the meeting, he took $15,000 to go back to Ernst & Whinney and say he had made up the story.

Hire Investigators

But the damage was done. The accounting firm hired a team of investigators. Shortly thereafter, Ernst & Whinney and Drexel Burnham Lambert pulled out of the KeyServ deal. It had been only four days-at the most seven-away from closing.

Padgett was on the San Diego Freeway, on his way home to Newport Beach, when the phone rang in his Lincoln Town Car. Minkow needed to talk to him right away. More news stories would be running soon exposing the fraudulent insurance jobs, the boss said.

"He said, 'Tom, it's over.' And he was so tired in his voice. You see, Barry never sounds tired. This time, he was so tired, he said, 'It's over, man, it's all over.' I said, 'We got to fight on.' He says, 'We can't fight on, they've been to Sacramento. They know there aren't any building permits. They've been to San Diego. We're finished. We're caught.'"

Minkow told him he would have to move out of the Newport Beach house right away. "I said, 'Barry, I've only been in there three months, I've waited all my life for a house like this.' He said, 'Tom, they're coming, man, there's gonna be all kinds of charges.'"

Padgett hung up and drove home. Debbie's cousin was there. To surprise him, she had gone out and bought new bedroom furniture. The books were no longer stacked on the floor, they were neatly arranged in a new bookcase.

"She says, 'You'll never believe this, but Debbie called. She wants to come down this weekend,'" Padgett recalled. "And that's the first time I cried."

On July 2, 1987, Morze watched on the evening news as Barry Minkow's attorney announced that the young entrepreneur had resigned from ZZZZ Best.

Their caper may have been over, but Morze had not come away empty handed. Investigators later estimated that he had made nearly as much as the $3 million they believed Minkow took out of the company-Morze admits only about $1 million in income on his tax return for 1987-and it enabled him to buy one new house for his parents, and help his girlfriend buy another.

But days before the end, Morze said, he had emptied his bank accounts and given his last cash to Minkow, who begged him for money to make the ZZZZ Best payroll. Now, on television, angry employees were complaining that they had not received their last paychecks.

"I guess I fell for Barry, too," Morze concluded, "and I think it's probably fitting punishment, and ironic, that I got cleaned out by the same guy that cleaned out everybody else."

Trip to Las Vegas

In those last frantic days, Polevoi and his brother were dispatched to Las Vegas with $700,000 Minkow scrounged up from corporate accounts. Minkow handed over a pile of cashiers' checks and instructed them to gamble the checks at various casinos and come home with cash. Both Polevoi brothers wound up pleading guilty to money laundering charges for that escapade.

After it was all over, Padgett went into his office at Interstate Appraisal and found out that a major insurance company wanted to open a legitimate account with him. "That's the second time I cried," he said. "You can make an argument, maybe I deserve to go to jail, maybe I deserve 20 years, but I don't think I deserved coming that close and getting knocked down."

He got eight years in prison, the same as Morze. Polevoi is looking at 18 months. From having owned his dream house outright when he met Minkow, Polevoi now owes $1 million against it in taxes, stock losses and legal fees.

"What I was hoping through all of this is that the judge would understand how a guy like me got caught up," Polevoi said. "I said, what I did was wrong, no question about it. I want to plead guilty. But have an open mind to what was going through my head." Minkow, he said, "could've made a legitimate company out of ZZZZ Best."

Morze agreed: "We tried it. It coulda worked. It shoulda worked."

But it didn't, and all of the would-be millionaires will be behind bars by mid-April. Minkow, unable to make bail, has already been in prison for nearly a year and a half. He has telephoned Polevoi occasionally to chat and report that it's not all that bad inside.

"I'll tell you exactly what he said," Polevoi recounted. "He said, 'If this is all they can do to you, it's a piece of cake.' They can't torture him. They can't electrocute him. I said to myself, 'this guy is totally invincible.'"

"Sony to Pay $3.4 Billion for Columbia Pictures: Japanese Firm Willing To Offer High Price to Get Film, TV Software for Video Equipment It Makes," by Paul Richter, Los Angeles Times, September 28, 1989

In the largest U.S. acquisition to date by a Japanese firm, Columbia Pictures Entertainment agreed Wednesday to be acquired by Sony Corp. for $3.4 billion in cash.

Sony immediately pledged to put the 65-year-old movie and TV studio in the hands of Sony's U.S. subsidiary and to "keep it as independent as possible, as a full-fledged member of the U.S. film industry."

Sony executives said that they were in talks with producers Peter Guber and Jon Peters, co-chief executives of Guber-Peters Entertainment Co., about taking some management role at the company. Industry sources say Sony is considering making Guber Columbia's chief executive and speculated that Sony might also buy up the small, publicly traded Guber-Peters firm.

Columbia Pictures Entertainment includes the Columbia Pictures and TriStar studios, television programming and syndication operations, a huge film and TV library and the 820-screen Loews movie theater chain. The 2500-employee company has been secretly talking with Sony intermittently for more than a year, and it received a firm buyout proposal last weekend.

Columbia's board voted on the Sony proposal at a meeting in New York at 8:30 AM Wednesday and sat down to sign papers with Sony executives an hour later.

The sale is part of a consolidation that the film industry is undergoing as increasing entertainment viewing worldwide has driven up the studios' values. Already this year, the Warner Bros. studio has been sold to Time Inc. with its parent, Warner Communications; and MGM/UA Communications has agreed to be sold to Qintex Group of Australia.

The Columbia deal represents the first time that a Japanese concern has purchased a major Hollywood studio.

Sony was willing to pay a lofty $27 a share for a company with meager earnings because of the strategic value of Columbia's films and TV programs to a concern with a strong hold on emerging TV and audio technologies, analysts said. Columbia's films will provide the "software" for Sony videocassette recorders, for example, and for the 8-millimeter recorder Sony is trying to popularize.

The purchase of the studio "extends Sony's long-term strategy of building a total entertainment business around the synergy of audio and video hardware and software," said Michael P. Schulhof, vice chairman of Sony Corp. of America, in a statement.

Analysts said that the high price offered by Sony makes it unlikely that a competing bid will emerge at the last minute.

Coca-Cola Co., Columbia's largest shareholder, with a 49% stake, has given Sony an option to purchase those shares, Sony said. Coca-Cola's management has pledged that it will recommend sale of the shares at a board meeting set for October 2. Allen & Co., the New York investment banking firm that holds a 3% stake in Columbia, has given Sony an option to buy its shares as well.

Columbia's two top executives, President and chief executive Victor R. Kaufman and chief operating officer Lewis Korman, will leave the company when the sale is completed, Columbia said.

Schulhof said in an interview that he has held "conversations with Peter Guber and Jon Peters, and we're hopeful some kind of an arrangement can be reached." He would not elaborate. Trading in Guber-Peters stock was suspended at 9:26 AM Wednesday after rumors of the talks were publicized.

Reports of Guber's possible appointment raised questions in Hollywood about Columbia movie chief Dawn Steel's future, as well as the future of other senior personnel at Columbia. Some observers wondered if Guber's connections with Warner Bros. suggested that the new regime might lure talent from that studio.

Schulhof said Columbia is "run by very capable people" and described the studio's future as "business as usual." He refused to comment on Steel's future or on how effective he believes she has been since she began trying to reverse the movie unit's sagging fortunes last year.

"I know her only by reputation, and obviously the company thinks very highly of her," said Schulhof, who is also a director of Sony.

A key player in the Sony-Columbia talks has been Walter Yetnikoff, chairman of Sony's CBS Records unit. Schulhof said Yetnikoff would have a voice in Columbia's "strategic decisions" but added that Columbia would be "independent" of CBS Records and its most famous label, the similarly-named Columbia Records.

Schulhof said major layoffs are "not our style . . . . We're not a (leveraged buyout) outfit; we didn't buy the company to carve it up."

He noted that employment has increased at CBS Records since Sony purchased it from CBS Inc. early last year for $2 billion.

Since it was acquired, CBS Records has again moved into music publishing and has begun manufacturing compact discs for the first time, he said. In all, Sony Corp. of America employs 12,000, operates six major factories and is "very much an American company, run by Americans," Schulhof said.

He said he did not expect the company's Japanese ownership to be an obstacle in Hollywood, where personal relationships are so often crucial.

The acquisition will mean that Coca-Cola will end its difficult seven-year adventure in entertainment with an enormous profit. The stock sale will bring about $1.5 billion before taxes, or $1.2 billion after taxes.

The soft drink company scaled back its involvement in 1987, when it combined Columbia, TriStar and its other entertainment units into one company and spun off 51% of it to the public.

In Britain on Wednesday, former Columbia Pictures movie chief David Puttnam said he believed that Coca-Cola had been looking to sell its remaining shares even in 1987. "I had no doubt . . . this was going to happen," said the director, who alienated many of Hollywood's most powerful figures during his iconoclastic reign.

In a statement, Columbia Chairman Donald R. Keough said Sony was "an ideal buyer . . . . It has all the right characteristics and, very importantly, has the ability to take the company to its next important step."

"Japanese Will Invest Up to $250 Million in Disney Filmmaking," by Alan Citron, Los Angeles Times, September 14, 1990

Japanese investors will pump as much as $250 million into filmmaking at Walt Disney Studios under a joint venture announced Thursday between Disney and two independent companies, the investment firm of Nomura Babcock & Brown and Interscope Communications Co.

The deal calls for Nomura Babcock to co-finance films that Interscope produces for Disney over the next four years. The movies will be marketed and distributed under Disney's three production banners-Touchstone Pictures, Hollywood Pictures and Walt Disney Pictures.

Interscope, which has produced such highly successful fare as Three Men and a Baby for Disney, has 16 projects in development at the studio. Under the plan, Disney will match any investment made by its partners. Nomura Babcock has committed to raise at least $50 million through its Japanese clients, but executives familiar with the joint venture said the investment will probably be much greater.

Financial analysts pointed out that the cash infusion will significantly reduce Disney's risk at the box office. It also comes at a time when the studio is stepping up production. Disney, which led all other studios this summer with 19.9% of the domestic box office receipts, expects to release up to 25 films under its three divisions next year.

"Basically, Disney has come up with a way to fund external production," said Christopher P. Dixon of Kidder, Peabody & Co. "It's exciting for everyone. . . . This is yet another example of Disney's focus and ability to come up with unique financial engineering techniques."

Disney Studios President Richard Frank said he values the opportunity to continue working with Interscope. One of the studio's most successful collaborators, Interscope developed Cocktail and Outrageous Fortune for Disney, in addition to Three Men and a Baby.

The privately held company, owned by Ted Field, also developed Bird on a Wire for Universal Pictures this year. Interscope movies have grossed more than $750 million worldwide.

Interscope, which is known for light, commercially oriented films, already has a "first look" deal with Disney. Under the new agreement, Disney also has the option of suggesting projects to Interscope. "The new deal will only finance a small portion of our slate," Frank said. "But the most important thing for us is that we are still in business with Interscope."

Disney and Nomura Babcock will evenly split all profits from their joint ventures after costs are subtracted, under the terms of the deal. Interscope's participation was not spelled out, but the company clearly stands to see more of its films produced now.

Chairman Robert Cort said the deal puts Interscope in an extremely strong position.

"We've never been a company that struggled to get its movies made," Cort said. "But this certainly increases our ability to do that. . . . Our voice is now that much stronger."

Interscope also has a strong backer in Nomura Babcock. Founded in 1986, the company is 80% owned by Japan's largest securities firm, Nomura Securities Co., with the balance held by the U.S. investment banking firm Babcock & Brown.

Nomura Babcock is no stranger to Hollywood. In May it invested $100 million in Morgan Creek Productions, another independent film company. Richard Koffey, Babcock & Brown's managing director, said discussions over the Interscope deal started more than a year ago.

Koffey foresaw no problems in raising the funds from the company's Japanese investors, noting that Japanese firms have already made sizable investments in such companies as Largo Entertainment and Carolco Pictures, not to mention Sony Corp.'s purchase of Columbia Pictures Entertainment Co.

"We think this a tremendous transaction to be marketing," he said.

The agreement comes as the funds from Disney's last investment partnership, Silver Screen Partners IV, are running out. Disney has realized about $1 billion from the four offerings. Frank said the company is still exploring whether to continue the relationship.

On Thursday, when the stock market was broadly lower, Disney's stock lost $2.875 a share to close at $96.25.

"The Deal For MCA," by Geraldine Fabrikant, The New York Times, November 27, 1990

MCA Inc., one of the nation's largest entertainment companies, agreed yesterday to be acquired by the Matsushita Electric Industrial Company. The deal, valued at $6.13 billion plus stock in a television station, will be the largest purchase ever of an American company by a Japanese company.

The purchase price is $66 a share in cash and shares in an MCA subsidiary that would own WWOR-TV, the New Jersey-based television station owned by MCA. Analysts yesterday valued the deal at about $69 a share, lower than the $75 or more a share that MCA's chairman, Lew R. Wasserman, had been led to believe he would receive when preliminary talks began in September, one person involved in the talks said.

MCA stock fell 25 cents yesterday, closing at $65.125, below the offer price, in part because the deal will not close until early 1991.

But MCA's board, meeting Sunday, was apparently resigned to the fact that the economy - and the company's prospects - had deteriorated since then, and that no rival bidder had emerged. The 77-year-old Mr. Wasserman said in an interview yesterday, "I feel satisfied or I wouldn't have recommended the deal to the board."

Some experts on corporate acquisitions said the Matsushita-MCA deal may well be representative of deals in the early 1990s. They see more American companies being sold to foreigners, particularly the Japanese, for lack of an American bidder. And they expect prices well below what those companies might have sold for in the 1980s, in the view of Arthur Fleischer, the chairman of Fried Frank Harris Shriver & Jacobson, which represented a large MCA shareholder, David Geffen, in the transaction.

MCA, with 1989 sales of $3.38 billion, owns Universal Studios, Universal Pictures, MCA Records, theme parks and the G.P. Putnam's Sons publishing house, as well as a stake in the USA cable network. In addition to the divestiture of WWOR, the company's Yosemite National Park and Curry Company will be sold to an American buyer within a year under terms of the agreement.

Matsushita had revenues of $37.75 billion in the year ended March 31 and is best known for its consumer-electronics products sold under the Panasonic, Quasar and Technics names. But it controls an empire of 87 companies in Japan and many abroad, and its interests include computers, industrial equipment and semiconductors. Like its competitor, the Sony Corporation, which acquired Columbia Pictures, TriStar Pictures and CBS Music (incorporating several different labels, most notably Columbia Records), Matsushita is following the strategy that a manufacturer of "hardware" like high-definition television sets will not be competitive unless it also controls "software," like movies and recorded music, to play on that equipment.

MCA's president, Sidney J. Sheinberg, said yesterday that the company needed such a deal because "size denotes resources - as you expand, you need more and more to compete."

Critics of the sale feared growing Japanese cultural influence through motion pictures and television programs and loss of American control of an important industry, which is an export powerhouse for the United States. J. Richard Iverson, president of the American Electronics Association, said foreign investors were "picking up everything from womb to tomb in the communications field." He added, "If you control the production of material, the display of material and the manufacturing of equipment, you have a significant advantage in the future information age."

Supporters argued that the sale would bring additional financial resources to MCA, and viewed the acquisition as a sign of America's economic health and an increasingly integrated global economy.

Prof. Henry R. Nau, associate dean of the Elliott School of International Affairs at George Washington University, said: "If it makes sense as a business deal, it's something we should accept. Japanese and American markets are increasingly integrated, and we shouldn't assume that any acquisition is contrary to our interests."

The MCA-Matsushita deal capped days of tense negotiations during which talks collapsed over a $2 a share difference in price and then resumed again on Thanksgiving afternoon when the offer was increased by the $2. After a 13 1/2-hour meeting on Sunday, the MCA board unanimously approved the offer. Price was not an issue at the meeting, one person involved in the talks said. The deal was announced yesterday once the final details were in place but it ran into additional tensions on Friday night and Sunday night.

Nevertheless it took on a momentum of its own. It seemed unlikely that MCA would attract another buyer at a comparable price over the next several years at least, particularly from an American bidder.

Felix Rohatyn, the partner at Lazard Freres & Company, the investment banking firm, told the MCA board during the Sunday meeting that only a handful of companies in the world would be able to write a $6 billion check for MCA.

Mr. Wasserman and Mr. Sheinberg first met with the Matsushita representatives Masahiko Hirata, a specialist in finance, and Keiya Toyonago, a senior managing director, in Los Angeles last month.

Before beginning the talks in New York that began last week, Michael Ovitz, the head of the Creative Artists Agency, a talent agency, who brought the companies together, had indicated to Mr. Wasserman that Matsushita would be willing to pay about $75 a share, said two people who were involved in the negotiations. Mr. Ovitz did not return phone calls yesterday. As a result, when the meetings began last Monday and Matsushita offered $60 in cash, Mr. Wasserman said he would not even discuss the offer and made no counteroffer, several people involved in the talks said. One person said some MCA executives wonder whether Mr. Ovitz really did get the $75 figure from Matsushita.

By late Tuesday Matsushita had improved its offer to $64 in cash. Mr. Wasserman, one executive involved in the deal said, asked for a better bid.

By Wednesday, Matsushita informed MCA that $64 in cash was the last and best bid. "We told them we would schedule a board meeting and not recommend the deal," said one person close to MCA. The MCA board was scheduled for a telephone meeting about the price on Thursday.

That evening Mr. Wasserman had dinner with Robert Strauss, a former chairman of the Democratic National Committee and a former United States trade representative, who acted as a go-between. The MCA chairman is said to have indicated that if the Japanese raised their bid by $2 a share, he would recommend it to his board.

About 6:00 Thanksgiving morning, Mr. Strauss called Herbert A. Allen, the investment banker from Allen & Company who was advising Matsushita, to suggest that MCA might accept a $66 cash offer. Mr. Ovitz had gone back to Los Angeles, but was involved by telephone.

Sometime Thursday morning, the pair persuaded Matsushita to raise its price to $66 in cash. One person involved in the talks said Mr. Ovitz had argued that this was a make-or-break issue and that they had to give a little. When they made the offer to Mr. Wasserman that afternoon, he indicated that he would recommend the deal to the board.

But the end was hardly in sight. Mr. Sheinberg, who was staying at his apartment at Trump Tower with his wife, Lorraine, canceled plans to go to the home of the producer-director Steven Spielberg, in East Hampton, Long Island, for Thanksgiving dinner, instead dining at the Four Seasons restaurant in Manhattan.

Throughout the weekend teams of lawyers struggled with the contracts and a number of other issues that made talks extremely tense at several points. But at least two people involved in the talks said that after the price had been settled, they basically expected the deal to close.

One person involved in the talks said one element that was crucial to MCA was that the deal be as airtight as possible so that in the 30 or 40 days until it was completed, Matsushita could not back out. Matsushita, for its part, wanted to assure itself that major MCA shareholders like David Geffen, who owns 10 million shares of the company's 93 million shares, could not tender to another party.

Matsushita sought lockup agreements from such shareholders so that they would agree to tender their shares to Matsushita so long as Matsushita's bid remained outstanding.

Additionally the Japanese company was concerned about signing long-term deals with top management. One person said Matsushita was very worried about what happened at Sony. After Sony acquired CBS Music, friction with its management led to the departure of CBS Music's chairman, Walter Yetnikoff. Sony has found it necessary to put in a new management team and take a much more active role in the running of the company. "Matsushita did not want that to happen," this person said.

Mr. Wasserman made a special arrangement for the sale of his stock. He owns roughly five million shares of MCA stock. But instead of selling for cash, he will receive preferred stock of a wholly owned subsidiary of Matsushita that has been organized for the acquisition. The structure of his preferred stock agreement also became an extremely tense issue.

When the board met Sunday, "there was some disappointment about the price," according to one board member who declined to be named. Mr. Rohatyn, in a presentation to the board, argued that if one used the yardstick of other deals, like Time Inc.'s merger with Warner Communications or Sony's purchase of Columbia, this offer was in the best interest of the shareholders.

But some points still remained unresolved as late as yesterday morning.

As part of its efforts to secure the transaction, Matsushita received an option to acquire 16.9 million shares at $71. The effect of the option is to increase the purchase price should a rival bidder emerge. Under the agreement, Matsushita would receive $125 million should MCA accept a higher offer from another party.

Despite the fact that the deal is complete, MCA was still extremely sensitive to possible criticism that it was selling out to the Japanese, who might attempt to make creative decisions. Mr. Sheinberg said: "We impressed upon our clients the fact that our businesses would continue to be run in the fashion they had been run. The idea that the Japanese interfere in making movies and writing books is borderline silly."

Nevertheless, one person close to MCA acknowledged that the thought of Japanese owning two American movie companies is disturbing. And the cultural difference surfaced even at Sunday's board meeting, albeit as a joking matter. Matsushita has a 250-year business plan, one board member said. "Lew told them he has his own 500-year business plan."

The reaction to the deal was varied and strong. Alfred Sikes, chairman of the Federal Communications Commission, said yesterday that the MCA deal would probably improve the chances that the agency would eliminate regulations that prohibit American television networks from buying Hollywood studios or vice versa.

Current regulations prohibit the television networks from owning an interest in the shows they buy from Hollywood. They also prohibit the networks from syndicating television programs both in the United States and abroad. Representative John D. Dingell, chairman of the Energy and Commerce Committee, has announced hearings on regulations, which prevented the sale of MCA to General Electric, which owns NBC.

If the rules are eased to permit such mergers, industry executives think The Walt Disney Company would seriously consider an offer for one of the networks, probably CBS. Paramount Communications has long been rumored to have some interest in a merger with Capital Cities/ABC. NBC, which is owned by the General Electric Company, has also shown some interest in being able to acquire or merge with a studio.

Federal regulations also prohibit foreign entities from owning American television stations, thus requiring the spinoff of WWOR.

"Marketplace: Boom in Comic Books Lifts New Marvel Stock Offering," by Floyd Norris, The New York Times, July 15, 1991

While much of publishing is in the doldrums, comic books are booming, in large part because companies have discovered that they can raise prices without driving away many buyers.

Now, the owner of Marvel Comics, the largest comics operation, is trying to sell a minority stake in Spider-Man, the Incredible Hulk, Captain America and all its other superheroes to the public.

Investors seem to be lining up to buy shares in the company, the Marvel Entertainment Group Inc., and late last week the company increased both the number of shares being offered and the price being asked. The sale is expected to be completed this week and will be marked by a visit of Spider-Man to the floor of the New York Stock Exchange when trading in the shares begins.

The sale will enable Ronald O. Perelman, who has controlled Marvel since early 1989, to take out as much as five times the $10.5 million he invested in the company, while still maintaining firm control.

The success of the comic book industry has been increased by a new channel of sales - the comic book specialty store - and through the discovery that "price increases have not resulted in significant reductions in unit sales," as Marvel put it in documents distributed to prospective investors. The company said it had a plan for price increases for three years and expects the cover price of a basic comic book, which rose from 75 cents to $1 in 1989, to rise again next year to $1.25. Marvel charges as much as $34.95 for some hardcover collections of old comics.

Figures provided by the Audit Bureau of Circulations show that Marvel's comics sold an average of 8.7 million copies a month in the last half of 1990, up 31.2 percent from 6.6 million in the corresponding period in 1989. Figures for the first half of 1991 will not be out for several weeks, but they are not expected to match the late-1990 level, reflecting the fact that comic book sales peak during the summer, when the prime readers - those 6 to 18 years old - are out of school. Sales were 6.3 million a month in early 1990.

Marvel's rapid growth is being used as a key selling point in pricing the shares. In raising the estimated price of the offering, to a range of $16 to $17 a share, from the previous estimated range of $14 to $16 a share, underwriters led by Merrill Lynch and the First Boston Corporation are asking investors to pay up to 23 times the most recent 12-month earnings, of 73 cents a share. To justify that kind of multiple, investors must expect the growth to continue.

Comic book sales numbers are confused, at best. Marvel says there are 43 publishers but only 3 have circulation figures audited by the Audit Bureau of Circulations. Marvel claims a 51 percent market share, with DC Comics, a Time Warner subsidiary that is best known for Superman, having about 22 percent. But DC is only a small part of Time Warner, and one selling factor for the Marvel offering has been the fact it will be the only publicly traded stock that offers a pure play in comics.

By some standards, comics remain a relatively small business. In 1990, Marvel sold $70.6 million in books, a gain of 16.1 percent. It appears that some growth came from seizing market share from competitors, but it is difficult to determine how much.

Marvel's growth in the last year came even though it has no characters now in television shows. Marvel will get licensing revenues from any future shows, but it has no rights to revenues from reruns of past cartoon shows.

For longtime followers of Marvel, the audit bureau's circulation figure of 8.7 million copies a month is emphasized in Marvel's prospectus, which adds that sales have been growing rapidly but does not give historical figures. That must have seemed surprising to longtime followers of Marvel. Early last year, in a filing with the Securities and Exchange Commission, Marvel's parent company reported net monthly sales of 9 million copies in 1989.

Asked to explain the apparent discrepancy, a company official said that he was unsure what the 1989 figure referred to but that it might have included some publications that do not include advertising. He spoke on condition that he not be identified.

One key to profitability in the comic book industry has been the growth of the specialty stores. Those stores accounted for 73 percent of sales last year, and they buy books on a nonreturnable basis, leaving the stores to eat the losses if a book does not sell. By contrast, two of every three comic books shipped to the traditional newsstand business end up being returned.

The sale of stock in the company will not help Marvel to expand, because none of the money will stay at Marvel. The offering will raise up to $82 million, but all the proceeds will go either to pay bank debt or to parent companies of Marvel, which is a subsidiary of a subsidiary of a subsidiary of a subsidiary of a subsidiary of a company owned by Mr. Perelman, best known for controlling the Revlon Group.

The money is likely to come in handy for the Andrews Group, a company about halfway up that chain, which has cash problems because of losses at its New World Entertainment subsidiary, which produces television shows. In a filing with the SEC in May, Andrews said it did not expect the cash flow from its operations to be sufficient to meet its financial obligations, although it expressed confidence that it would get aid from related companies controlled by Mr. Perelman.

But the troubles at New World - whose shows include Santa Barbara, Get a Life and The Wonder Years - do not obscure the big success story that Marvel has been for Mr. Perelman. When he bought the company, he put up $10.5 million for all the company's stock, as well as taking out a loan for $73.5 million, which went onto Marvel's books.

Previous dividends have provided $1.9 million to parent companies, and after this offering the plan is to send another $30 million or so in dividends upstream. In addition, Andrews will get as much as $20 million from selling some of its own shares in the company. That produces total cash of more than $50 million and still leaves Andrews with a 60 percent stake in Marvel.

Andrews will keep total ownership of Marvel's British operations, which have been losing an undisclosed amount of money.

Marvel's timing of the offering appears to be excellent. It is coming as summer, the traditional strong selling season, gets going, but before sales for the first half of 1991 are reported. The prospectus for the offering does not emphasize the seasonal factors.

Moreover, Marvel's recent financial results have benefited from a decision taken by previous owners of the company to set up a reserve for losses stemming from a 1988 decision to get out of the children's book business. Those losses were less than expected, which enabled Marvel to raise pretax profits by $500,000 in 1990 and by $400,000 in the first four months of this year.

But those increases accounted for only a small part of the gain in profits. In 1990, the company earned $5.4 million, more than double 1989's $2.4 million, as total revenues, including licensing income as well as publishing revenue, rose 18 percent, to $81.1 million. For the first four months of 1991, profits more than doubled again, from $953,000 to $2.1 million, on a 21 percent rise in revenues, to $25.7 million.

Can those gains continue? The apparent popularity of the offering seems to indicate that many investors believe they can.

"Fox Locks In Cameron With A 5-Year Deal Worth $500 Million," by Bernard Weinraub, The New York Times, April 22, 1992

In the age of megadeals, one of the biggest of them all was announced today when 20th Century Fox and James Cameron, the director of Terminator 2 and other films, signed a five-year agreement the studio said was valued at about $500 million.

A buoyant Joe Roth, the chairman of Fox studios, said the amount represented a portion of the costs of the next 12 films that Mr. Cameron will produce for the studio, 4 of which he will direct.

The arrangement is unusual in that it gives a director artistic control over all of his films, as well as enormous financial leverage and independence. Exactly how much money will go to Mr. Cameron personally was left undisclosed, but it is considerable. Although Fox will provide a hefty share of the financing for the films, other sources, probably from overseas, will also invest.

From the viewpoint of Fox, including Mr. Roth and his boss, Rupert Murdoch, the chairman of Fox Inc., the deal virtually guarantees a potential blockbuster movie for each of the next five years, so strong is Mr. Cameron's track record. Mr. Cameron is known for such science fiction extravaganzas as The Terminator, which grossed $38 million in 1984, Terminator 2: Judgment Day, which grossed $204 million in 1991, and Aliens, which grossed $81 million in 1986. Many of these movies were enormously expensive to make, too: estimates of the cost of Terminator 2 reached as high as $100 million.

"This is the first time I can remember where a director of this stature has said, 'I'll give you my exclusive services as a writer, director and producer,' " said Mr. Roth. "He's arguably one of the biggest names in the industry and what he told us, in effect, is that he wants to control his own destiny, he wanted continuity in his work."

Dawn Steel, a producer and a former head of Columbia Pictures, observed: "It's really a very important deal for Fox. There are few film makers who can generate their own material like James Cameron. It's crucial for a major studio in terms of a release schedule to fill slots with pictures like this. Joe Roth can sleep easier at night."

Fox Was Not Alone

Mr. Cameron, who said that several other studios had been competing for a similar deal, noted that his production company, Lightstorm, would raise a portion of the financing for the films but that he would, essentially, remain totally independent as a film maker. The deal was worked out by Mr. Cameron; Larry Kasanoff, who runs Lightstorm; Jeff Berg, the chairman of International Creative Management, a major talent agency who represented them, and Fox.

"You won't see too many deals like this one," said Mr. Berg. "The significance of the deal is that you have a stream of rights that Cameron and his company will be generating over the next five years. Fox is buying a program of films that Cameron will be delivering. It's unusual to have a writer-producer-director making his own films for Fox as well as guiding his own company."

Even rival studio executives acknowledged that all sides in the deal will emerge triumphal, including Mr. Berg, Mr. Cameron's agent. "Jeff Berg was indispensable in presenting the deal and guiding it to a close," said Mr. Cameron.

Control of the highly lucrative foreign-film distribution and ancillary rights to the films was not a part of the accord. "We will announce these deals in the near future," said Mr. Kasanoff.

Much Money From Overseas

An estimated 60 percent of the profits of many American films, especially the kinds of high-tech adventures made by Mr. Cameron, come from overseas markets. According to today's announcement, Fox will control domestic distribution rights, including theatrical, video and television outlets. But the foreign market - as well as music and merchandising - remains up for grabs, giving Mr. Cameron and Mr. Kasanoff enormous financial flexibility.

"We were looking for a domestic partner only," said Mr. Cameron of the arrangement with Fox. "It was basic to our plan that we hold back foreign rights and deal with them separately."

Mr. Kasanoff said: "This is, in fact, a deal for the recessionary age, a deal where each partner puts up a percentage of the money, a deal that allows everyone to share the risks. We wind up owning the films. Our partners have access to a slate of films they may not otherwise want to bear the entire freight of."

He added: "What we want to do is really control our own destiny. Fox wins because they get all our films exclusively. On the other hand, we have a place to go to - Fox - that will distribute all our movies. We have each other now. We may have just made a deal where everybody wins."

From Truck Driver to 'Terminator'

Mr. Cameron, who is 37 years old, has gained a reputation as one of the most creative film makers of the last decade. Born in Canada, he grew up in Niagara Falls, New York, and studied physics at Fullerton College in California. He was working as a truck driver in 1978 when the B-movie director Roger Corman hired him to create special effects.

Mr. Cameron's 1984 film, The Terminator, which he made on a shoestring, became a classic of apocalypse-minded science fiction. His follow-up, Terminator 2: Judgment Day, emerged as the top-grossing film of 1991.

"A Deal of Real Heroes: Marvel to Acquire Fleer," by Eben Shapiro, The New York Times, July 25, 1992

In a deal that combines two passions of American youth, the Marvel Entertainment Group, the nation's largest publisher of comic books, has agreed to acquire the Fleer Corporation, one of the nation's largest trading-card companies, for $28 a share, or $265 million.

Marvel's portfolio of superheroes includes Spider-Man, Captain America, the X-Men and the Invisible Woman.

Fleer, in addition to selling baseball and other sports cards, also makes Dubble Bubble gum. Investors and analysts said Marvel appeared to be getting the better of the deal.

"Marvel's buying it on the cheap," said Ronald Morrow, an analyst with Smith Barney. "The price is a little low for shareholders."

"We think it's worth more," said Walter Morris, head of research for the Strong Funds, a large mutual fund company in Milwaukee that is one of the largest holders of Fleer stock.

Investors and analysts said Fleer was probably worth $30 to $35 a share. "I think it's possible that somebody could come in with a higher bid," said Alexander Paris Jr., an analyst with Barrington Research Associates in Chicago.

He added that even though the price was low, it would be hard to find a better match than Marvel and Fleer, both of which rely on boys aged 6 to 16 for the majority of their sales.

Agrees to 'Breakup' Fee

"The businesses fit together hand in glove," said Mr. Morris of the Strong Funds. "We'll wind up supporting the deal."

Fleer has agreed to pay Marvel a $6.5 million "breakup" fee if the deal does not go through. Fleer executives did not return telephone calls.

In a statement about the deal, Fleer's chairman and chief executive, Paul Mullan, said, "It will create exciting new product and cross-promotional marketing opportunities, enhancing our growth prospects in both trading cards and comic books."

After the deal was announced, Fleer's shares rose $2.50 each, to $28, in over-the-counter trading. Marvel's shares closed at $33.375, up $1.625, on the New York Stock Exchange.

Fleer is hooking up with Marvel in an effort to do battle better against the industry leader, the Topps Company of Brooklyn. Analysts said the deal signaled that the days of explosive growth in the baseball card business had ended. The market has become thick with competitors and returns of unbought cards have been high.

Marvel has been gradually expanding its presence in the trading card business since 1990, when it introduced its Marvel Universe trading cards. Marvel focuses on cards with entertainment figures; Fleer has specialized in sports.

"The acquisition of Fleer enables us to rapidly increase our presence in the $1.2 billion market for sports and entertainment cards," said William Bevens Jr., chief executive of Marvel. "The overlapping consumer demographics and distribution systems of the two companies uniquely position us to become a clear industry leader within the card marketplace."

Boards Have Approved

The definitive purchase agreement, which will be carried out through a tender offer, has been unanimously approved by the boards of both companies. A majority of Fleer's shareholders must tender their shares before the deal can be completed.

Terry Stewart, president and chief operating officer of Marvel, said trading cards could help sell comic books. He said that last year, Marvel's premier issue of a new series, "The X Force," contained a card featuring a superhero. "If you wanted all four, you had to buy four copies," he said. The issue sold 3.7 million copies, making it one of Marvel's best-selling comic books ever.

Marvel's deal to buy Fleer follows a March announcement by Topps that it planned to enter the comic book business. "This is not a response to that," Mr. Stewart said.

The Topps switchboard was closed yesterday afternoon. Both companies also announced second-quarter earnings yesterday.

Marvel said its profits for the quarter increased nearly threefold, to $7.2 million, or 30 cents a share, from $2.5 million, or 11 cents a share, a year earlier. Sales jumped 63 percent, to $37.5 million, from $23 million for the 1991 period.

Fleer's profits increased nearly 4 percent, to $8 million, or 85 cents a share, from $7.7 million, or 82 cents a share, a year earlier. Sales increased 20 percent, to $48.4 million, compared with $40.1 million a year earlier.

"PolyGram To Buy 51% Stake In Interscope's Film Division," by Geraldine Fabrikant, The New York Times, August 11, 1992

PolyGram N.V. said yesterday that it had agreed to buy a 51 percent stake in the film division of Interscope Communications Inc. for $35 million.

Interscope, which is owned by Ted Field, a scion of the Chicago department-store family, has produced 25 films, including Cocktail, The Hand That Rocks the Cradle and Three Men and a Baby.

The agreement reflects the determination of PolyGram and Interscope to build a major film production and distribution business. Up to now, The Walt Disney Company has distributed Interscope's films.

But creating a movie distribution company is likely to prove challenging. A number of distributors started in the 1980s have failed or are under financial pressure.

Credible Film Producer

Mr. Field said he believed Interscope had become a credible film producer. "Now we want to move into distribution," he said in a telephone interview.

PolyGram, one of the four largest record companies in the world, has been tiptoeing into the film business. Through a series of separate deals, it acquired Propaganda Films, Working Title Films and A&M Films. PolyGram is controlled by the Dutch electronics giant Philips N.V.

The full extent of PolyGram's investment in Interscope was not completely clear yesterday, because specific financial details of the deal were not disclosed.

But Mr. Field did say Interscope was planning to produce 30 films in the next five years, which would be primarily financed by PolyGram. Interscope spends an average of $16 million a film, so PolyGram's commitment to movie production could be as high as $500 million.

Wall Street's Concerns

PolyGram's stock fell 50 cents yesterday, to $27.375, on the New York Stock Exchange. Analysts said they were worried that the unpredictable and costly movie industry could prove to be difficult for PolyGram, which has limited experience in the movie industry.

Still, several analysts said they were impressed by the success of Interscope. "They are very good people," said David Londoner, a media analyst at Wertheim Schroder & Company. "But without knowing the terms of the deal, it is difficult to evaluate."

Mr. Field, a member of the family that founded Marshall Field & Company, the Chicago department store, started Interscope in 1982. Like the store, whose motto was, "Give the lady what she wants," Interscope has focused on producing films that give audiences what they want: entertainment with mass appeal. Cocktail took in $77 million at the box office and The Hand That Rocks the Cradle grossed $88 million.

This year, in addition to The Hand That Rocks the Cradle, Interscope has released Cutting Edge and FernGully.

Credit for the President

In Hollywood, Interscope's president, Robert Cort, gets considerable credit for the company's success. Mr. Cort was a marketing executive at 20th Century Fox and Columbia Pictures before joining Mr. Field seven years ago.

Mr. Field, a one-time racing car driver, began indulging his fascination with the film business in 1984, when he produced Revenge of the Nerds.

Under the terms of the deal, PolyGram will pay for all film production costs, prints and ads, and the movie company's overhead. Mr. Field said his company planned to seek a new distribution deal with a major studio that would handle its films for the next three years, until Interscope and Polygram had their own operation in place.

Nomura Babcock & Brown, which had financed Interscope's films with Disney, will continue to do so until the end of the year, Mr. Field said. At that point, PolyGram, and possibly some third parties, would finance the films.

Creative Freedom

As such, Interscope will have a free hand in its creative decisions. Up to now, Disney has had some say in those decisions.

"We want autonomy," Mr. Field said, "and we want their margin," referring to the fees that studios get for distributing films.

He added: "We are not unhappy with Disney, but by definition we want to be in the position they're in. The fact that we can greenlight our films is very important."

PolyGram has earmarked $200 million for the film business over a three-year period ending in 1994.

But the company said yesterday that the figure might rise in later years. It also said it had an "exit provision" that would allow it to limit its investment if Interscope did not perform as well as expected.

PolyGram is not buying either Interscope's television operation or the company's music business.

"Wall Street Mystery Features a Big Board Rival," by Randall Smith, The Wall Street Journal, December 16, 1992

Here's a tantalizing Wall Street mystery.

The Securities and Exchange Commission recently cracked down on one of the largest-ever sales of unregistered securities. Investors had poured $440 million into investment pools raised by two Florida accountants, who for more than a decade took in money without telling the SEC or making required financial disclosures to investors. The pair had promised investors hard-to-believe annual returns of 13.5-20%, to be obtained by turning the money over to be managed by an unnamed broker.

Regulators feared it might all just be a huge scam. "We went into this, thinking it could be a major catastrophe," says Richard Walker, the SEC's New York regional administrator. But when a court-appointed trustee went in, the money was all there. Indeed, the mystery money manger was beating the promised returns by such a wide margin that the two accountants ditched their their accounting business in 1984 to concentrate on their more lucrative investing sideline.

Who was the broker with the Midas touch? The SEC, which last month went to court to shut down the operation, won't say. Neither will the lawyer for the two accountants, Frank J. Avellino and Michael S. Bienes of Fort Lauderdale.

But the mystery broker turns out to be none other than Bernard L. Madoff-a highly successful and controversial figure on Wall Street, but until now, not known as an ace money manager.

Mr. Madoff is one of the masters of the off-exchange "third market" and the bane of the New York Stock Exchange. He has built a highly profitable securities firm, Bernard L. Madoff Investment Securities, which siphons a huge volume of stock trades away from the Big Board. The $740 million average daily volume of trades executed electronically by the Madoff firm off the exchange equals 9% of the NYSE's. Mr. Madoff's firm can execute trades so quickly and cheaply that it actually pays other brokerage firms a penny a share to execute their customers' orders, profiting from the spread between bid and asked prices that most stocks trade for.

In an interview, the 54-year-old Mr. Madoff says that he didn't know that the money he was managing had been raised illegally. And he insists the returns were really nothing special, given that the Standard & Poor's 500-stock index generated an average annual return of 16.3% between November 1982 and November 1992. "I would be surprised if anyone thought that matching the S&P over 10 years was anything outstanding." In fact, most investors would have been delighted to be promised such returns in advance, as the accountants' investors were. That's especially true since the majority of money managers actually trailed the S&P 500 during the 1980s.

The best evidence that the returns were very attractive: the size of the pools mushroomed by word of mouth, without any big marketing effort by the Avellino & Bienes partnership. The number of investors eventually grew to 3200 in nine accounts with the Madoff firm. "They took in nearly half a billion dollars in customer money totally outside the system that we can monitor and regulate," says the SEC's Mr. Walker. "That's pretty frightening."

An SEC civil complaint filed in New York federal court November 17 charged that Messrs. Avellino and Bienes "have operated A&B as an unregistered investment company and have engaged in the unlawful sale of unregistered securities," and ordered the money returned to investors by a court-appointed trustee, New York attorney Lee Richards. The two 56-year-old accountants declined to comment. Their attorney, Ira Lee Sorkin, says that they didn't know that the notes that they had issued to their clients should've been registered with the SEC, and he says that investors have got their money back and haven't complained. If the notes had been registered, they would have had to include a description of how their money was being invested, and by whom. In addition, Avellino & Bienes would have had to send investors annual reports and financial statements.

But how did Mr. Madoff rack up his big investment returns? Early investors in the late 1970s were told-and Mr. Madoff confirms-that their money was being used to engage in so-called convertible arbitrage in securities of such companies as Occidental Petroleum Corp., Limited Stores Inc. and Continental Corp. Promised annual returns in this period, one investor said, were 18-20%. In such a strategy, an investor buys a company's preferred stock or bonds that pay high dividends and are convertible into the company's common stock; the investor simultaneously sells borrowed common stock of the same company in a "short sale" to hedge against a stock price decline. The investor earns the spread between the higher dividend paid on the convertible securities and the lower dividend on the common stock, plus interest from investing the proceeds of the stock short sale. Using borrowed money, or leverage, to magnify returns, an investor can reap double-digit returns. But the strategy carries big risk if interest rates raise and stock prices go down.

Mr. Madoff said his investment strategy changed around 1982, when his firm began using a greater variety of strategies tied to the stock market, including the use of stock-index futures and "market-neutral" arbitrage, which can involve buying and selling different stocks in an industry group.

Mr. Madoff said, "The basic strategy was to be long a broad-based portfolio of S&P securities and hedged with derivatives," such as futures and options. Such a strategy, he said, allowed the investors "to participate in an upward market move while having limited downside risk." For example, he said, the Madoff firm made money when the stock market crashed in 1987 by owning stock market index puts, which rose in value as the market declined.

In the mid-1980s, one investor says, the limited reports that Avellino & Bienes sent to investors changed, and investors stopped being told in which securities their money was invested. The interest rate on some new notes sold by the accountants was also lowered to 16% or less. One investor who complained about the vaguer reports and lower returns was told that if he didn't like them, he could withdraw his investment. He chose to remain.

Perhaps the biggest question is how the investment pools could promise to pay such high interest rates on a steady annual basis, even though annual returns on stock fluctuate drastically. In 1984 and 1991, for example, the stock market delivered a negative return, even after counting dividends. Yet Avellino & Bienes-and Mr. Madoff-maintained their double-digit returns.

The answer could be that Mr. Madoff's use of futures and options helped cushion the returns against the market's ups and downs. Mr. Madoff says that he made up for the cost of the hedges-which could have caused him to trail the stock market's returns-with stock-picking and market timing.

Certainly, the investment pools' returns were less astounding by the standards of the early 1980s, when short-term interest rates briefly topped 20%. But the annual returns on Treasury bills hit a peak of 14.7% percent in 1981, and remained under 12% in the three other years that bills had double-digit returns, 1979-82, before falling later in the '80s.

One person familiar with the Avellino & Bienes case speculated that having the assets of the investment pools under management may have helped Mr. Madoff's firm by giving him an inventory of securities that could help him to execute other trades for his firm. Not true, said Mr. Madoff. "One thing has nothing to do with another."

As the investment pools swelled, two other accountants, Steven Mendelow of New York City and Edward Glantz of Lake Worth, Florida, started their own pool, Telfran Ltd., to invest in Avellino & Bienes notes. Telfran by itself sold $89.6 million in unregistered notes, a separate SEC civil lawsuit charges. The two men, also represented by Mr. Sorkin, declined to comment. The SEC said Telfran made money by investing in Avellino & Bienes notes paying 15-19% annually, while paying Telfran investors lower rates.

All the while, Mr. Madoff was scoring investment returns that comfortably exceeded the hefty returns Avellino & Bienes was promising its noteholders. That excess return generated big profits for the two accountants, the SEC suit indicates. The SEC has asked those profits be returned as "unjust enrichment," a demand Mr. Sorkin calls "totally unwarranted." For his part, Mr. Madoff says he charged the investment pools only what he described as standard brokerage commissions. He termed turnover in the accounts "not very active", almost nil in some years.

"Explosion At The Twin Towers: The Overview; Blast Hits Trade Center, Bomb Suspected; 5 Or 6 Killed, Thousands Flee Smoke In Towers," by Robert D. McFadden, The New York Times, February 27, 1993

An explosion apparently caused by a car bomb in an underground garage shook the World Trade Center in lower Manhattan with the force of a small earthquake shortly after noon yesterday, collapsing walls and floors, igniting fires and plunging the city's largest building complex into a maelstrom of smoke, darkness and fearful chaos.

The police said the blast killed at least five people and left more than 650 others injured, mostly with smoke inhalation or minor burns, but dozens with cuts, bruises, broken bones or serious burns. The police said 476 were treated at hospitals and the rest by rescue and medical crews at the scene.

The explosion also trapped hundreds of people in debris or in smoke-filled stairwells and elevators of the towers overhead and forced the evacuation of more than 50,000 workers from a trade center bereft of power for lights and elevators for seven hours.

No Bomb Fragments Found

The blast, which was felt throughout the Wall Street area and a mile away on Ellis and Liberty Islands in New York Harbor, also knocked out the police command and operations centers for the towers, which officials said rendered the office complex's evacuation plans useless.

James Fox, an assistant director of the Federal Bureau of Investigation in charge of the agency's New York office, said that no bomb fragments were found but that a joint terrorist task force of Federal agents and city detectives had examined the wreckage and believed that a car bomb had caused the explosion.

There was no warning of an impending explosion, Police Commissioner Raymond W. Kelly said. Jack Killorin, a spokesman in Washington for the Treasury Department's Bureau of Alcohol, Tobacco and Firearms, said that after the blast, authorities received at least nine telephone calls claiming responsibility.

Mr. Killorin said the first call was made 15 minutes after the blast to a non-emergency number of a New York Police Department precinct by an individual who mentioned the conflict in Bosnia. He said other claims were made between an hour and several hours after the event by callers who cited that and a variety of other reasons for the attack. He declined to elaborate.

Some law-enforcement officials said an explosion of such size, without a claim of responsibility in advance, might suggest that it went off accidentally.

Mr. Kelly was more oblique about the cause of the blast, saying only that a car bomb or other type of explosive device was not being ruled out.

Four hours after the explosion, a bomb threat forced the evacuation of the Empire State Building in midtown Manhattan, and there were numerous other bomb threats in the city, the police said. But it was unclear if any were related to the World Trade Center explosion or only the macabre work of pranksters.

As the day ended, a series of investigations began - into the cause of the explosion and its possible perpetrators, and into what went wrong in what many called a botched evacuation, with no alarms and no instructions for thousands caught in dark, smoky stairwells, in stark contrast to carefully laid plans.

Mayor David N. Dinkins, visiting in Osaka, Japan, was notified by City Hall and, in a telephone news conference, called the Fire Department response the largest for any non-natural disaster in the city's history. He said he had spoken with President Clinton and had thanked him for the cooperation of Federal investigators.

The effects of the blast radiated outward, disrupting most non-cable television transmissions throughout the metropolitan area, halting traffic in most of lower Manhattan and PATH train service under the Hudson River from the trade center to New Jersey, and transforming an ordinary Friday in the financial district into an afternoon of turmoil, death and destruction.

On a day of high drama, tragedy and heroism, there were a thousand stories: rescuers digging frantically for victims in the collapsed PATH station under the towers, soot-streaked evacuees groping for hours in the city's tallest buildings, a woman in a wheelchair carried down 66 stories by two friends, a pregnant woman airlifted by helicopter from a tower roof, and the tales of many others stumbling out, gasping for air, terrified but glad to be alive.

And among the most poignant was that of a class of kindergartners from Public School 95 in Gravesend, Brooklyn. Caught on the 107th floor observatory, they took all day to walk down, singing to keep up their spirits.

Many of those who walked down scores of flights from the upper reaches of the trade center towers said there had been no alarm bells and no instructions from building personnel or emergency workers. While little panic was reported, witnesses said confusion reigned in the darkness of crowded stairwells where smoke billowed and unknown dangers lurked below.

Many put moist towels or handkerchiefs to their faces against the smoke. Others, frightened, remained in their offices, hoping for rescue. As smoke seeped in under the doors, some broke windows to get air. Dozens of people, meantime, were trapped for hours in elevators frozen between floors, among them another class of kindergartners from P.S. 95.

The worst fires were extinguished by midafternoon. By then extensive efforts to assist those caught on the upper floors were already well underway. But the trade center, with 250 elevators and miles of corridors and stairways, posed a major challenge and long after dark last night rescue workers continued to search the labyrinth for stragglers and others still trying to get out.

On a day of confusion, the police and the Emergency Medical Service repeatedly revised the number of people killed by the blast. By early evening the police said five had been killed while the medical service said seven were dead. Several hours later the police increased the number to seven, but shortly after 11 PM, the police scaled back the figure to five, saying they could not confirm the medical service's report of seven fatalities. There was no clear explanation for the discrepancies.

The blast, which erupted at 12:18 PM on the second level of a four-story underground parking garage beneath the trade center's 110-story Twin Towers and the complex's Vista Hotel, sent cars hurtling like toys, blew out a 100-foot wall and sent the floor collapsing down several stories, creating a crater 60 feet wide that reached deep into the bowels of the parking complex.

'Everything Was on Fire'

It also collapsed the ceiling of a mezzanine in the adjacent Port Authority Trans-Hudson train station, leaving dozens trapped under rubble on a concourse one floor above the platforms where hundreds awaited trains. Witnesses and rescue workers told of a blast of incredible force - of bodies hurtling through the air, of cars wrapped around pillars, of people burning and scores trapped.

"We crawled under pipes when we arrived and everything was on fire," said Edward Bergen, a 38-year-old firefighter who was one of the first to reach the scene of the blast. "Suddenly, a guy came walking out of the flames, like one of those zombies in the movie, The Night of the Living Dead. His flesh was hanging off. He was a middle-aged man."

Fire Capt. Timothy Dowling, of Engine Company 6, recalled a ghastly scene of fires lapping in the darkness, illuminating a smoking hell of twisted cars and broken concrete. "It looked like a bomb had exploded because of the amount of fire and damage to the floors. All we could do was put water on the flames."

'The Dust Was Blinding'

Ken Olson, 34, a pipefitter, was in the basement when the explosion hit. "All of a sudden all hell broke loose," he said. "All the pipes ruptured, the dust was blinding. Luckily we all stayed together and got out."

Nearby, Vito de Leo, 32, an air conditioning mechanic, was eating lunch at his desk with other basement trade center workers. Suddenly, the desk rose up, came down and landed on top of him. But its well protected him from a rain of falling debris. "The furniture collapsed, the walls collapsed, the ceiling collapsed," he said. "There was total blackness. I thought I was dead."

Later, wading through knee-deep water amid gas pipelines danging overhead in the garage, a cadre of firefighters, police officers and other rescue workers found two bodies in a lunchroom used by mechanics, another body in the mangled wreckage of a car, and more victims under the debris in the garage.

The five or six victims - three men, one woman, one unidentified and one unconfirmed - were all believed to heve been killed by the blast. They were not immediately identified but the Port Authority said that they were all believed to be authority workers or people working under contract to the agency. The authorities said that more bodies might be found in the rubble as the search went on.

The police said 420 workers and visitors at the trade center were treated at hospitals, along with 44 firefighters, 11 police officers and one Emergency Medical Service worker.

Meantime, as several fires erupted around the scene of the explosion, heavy smoke billowed up through the corridors, elevator shafts and stairwells of the trade center. Because of the time, shortly after noon, many workers were at lunch at nearby restaurants or at fast-food outlets on the ground floor, from where they easily escaped.

But the police estimated that as many as 50,000 people - workers, tourists and other visitors were still in the building, many of them trapped on the highest floors - and it was not merely the blast that shook the entire complex, not merely the growing volumes of smoke pouring upward, that frightened them.

Darkness and the unknown perils that awaited them below added to the fears. Much of the power to the trade center had been knocked out by the blast - Consolidated Edison said four of its eight feeder cables to the center were shut down.

And within an hour, at the request of the Fire Department, which was trying to protect rescue workers and firefighters in dangerous areas, all power to the trade center was shut off by Con Edison, as well as natural gas and steam to the complex, which houses thousands of offices in six buildings bounded by Church, West, Liberty and Vesey Streets.

Pat Richardi, a Con Edison spokeswoman, said that no hazardous materials, such as polychlorinated biphenals, were in any of the transformers or cables of the trade center, which was completed 22 years ago.

Many of the people climbing down stairs told of having to stop frequently because of panic below; some let pregnant women and old people go through; some nearly passed out with exhaustion; others told of tense minutes in which they sat down on the steps, trying to regain breath in stifling, smoky air.

"It was like sardines, cattle, a herd," said Larry Bianculli, 31, of Hicksville, Long Island, who walked down 104 floors with his wool scarf over his sooty face.

Sherri Chambers, 21, a bank employee, said it took her two and a half hours to descend from the 60th floor. "You couldn't even see it was so smoky," she said. "I kept wanting to sit down, but I didn't because if I sat down I thought I wouldn't get up. Firefighter Bill Chupa, 40, of Ladder 20, said many people were trapped in elevators and screaming for help. He said firefighters broke open elevator doors and found people in groups of 8 or 10, lying in darkness on the floor to escape the smoke.

After freeing those in elevators, the rescuers turned to the stairwells and began escorting people down. By midafternoon, there was a steady stream of survivors coming from the towers, many with faces blackened by smoke and gasping for air.

Some of the most spectacular evacuations came when police helicopters landed on the roofs of the trade center towers and carried away 23 people, including a pregnant woman.

Don Burke, who works for the Port Authority on the 66th floor, ran back to his office when he discovered there was a fire and, with a colleague, carried Cathy Collins, a lawyer who uses a wheelchair, to safety in relays.

In a shopping area on the ground floor of the trade center's World Financial Center at 250 Vesey Street, medical and rescue workers set up a triage area of folding chairs, oxygen tanks, blood pressure devices, blankets and other medical aids.

While there was little panic, aides to Gov. Mario M. Cuomo told of a pregnant woman screaming as they descended from the Governor's 57th floor offices in a chaos of darkness and disorder.

The Governor, who was in Albany, said President Clinton had called him to express concern and offer aid from the Federal Emergency Management Agency. Mr. Cuomo also raised some questions: "What emergency devices were available? Did they work? Why were there no lights? Why were there no public announcements. The Port Authority will be called upon to answer, and I'm sure they will."

Power was partly restored to the trade center towers at 7:20 PM, and by 9:30 rescue workers said everyone had been evacuated.

The ceiling collapse in the PATH station forced a halt to all train service to New Jersey from the trade center, but PATH service from midtown, operating on another line, continued to operate through the day. Subway trains were rerouted and continued to run, but streets throughout the area were closed to clear the way for emergency vehicles.

"Disney Snaps Up Miramax For Estimated $60 Million, Independent Company Gained Fame With The Crying Game, Weinstein Brothers to Retain Control," by James Bates, Los Angeles Times, May 1, 1993

The two brothers behind the quirky hit film The Crying Game can now cry all the way to the bank.

Miramax Films, which gained international attention this year with its Oscar-nominated thriller that mixes sexual intrigue with Irish terrorism, is being bought by The Walt Disney Company in a deal that marries Hollywood's most successful studio with its leading independent distributor.

Although no terms were disclosed in Friday's announcement, analysts and Hollywood executives estimated that Disney will pay close to $60 million for Miramax and its library of more than 200 films, with some of the payments contingent on Miramax's performance.

Disney also has agreed to give brothers Harvey and Bob Weinstein, Miramax's co-chairmen, the kind of autonomy the tightly run company rarely granted until recently.

For Disney, the deal means access to the kind of prestige films it has had trouble producing on its own. But it may also push the boundaries of Disney's wholesome image because some of Miramax's biggest hits, such as Madonna's Truth or Dare, have centered on steamy adult sexuality.

On a broader scale, the Miramax acquisition underscores the rising stature of independent film companies and the recognition that critically acclaimed "art house" films can also be major box office successes.

Miramax's low-budget The Crying Game has grossed nearly $60 million, which is unheard of for a small, independent film. In addition, all but one of the films nominated for best picture at this year's Oscars came from the independents' ranks.

The Miramax acquisition, made through Disney's distribution arm Walt Disney Studios Motion Pictures, is unusual for Disney, which in the past has launched film ventures from the ground up. The 15 to 20 films a year Miramax releases will boost and broaden Disney's box office reach, with speculation that the company may soon be distributing 40 to 50 films a year-about twice the major studio average.

One question raised is whether the Weinsteins will fit into a company that likes to call itself "Team Disney." In the past, the Weinsteins have clashed with filmmakers and developed a reputation for sometimes running roughshod over small filmmakers and employees. The brothers have been working to repair their reputation.

Walt Disney Studios Chairman Jeffrey Katzenberg predicted that things will go smoothly.

"They have had to live from hand to mouth as any independent has had to," he said. "As the marketplace has become more and more difficult and the risks become greater and greater financially, giving them the financial resources ensures that they will continue to be the best, most successful independent film company in the world."

Acquiring Miramax is one of several moves Disney has made recently to add to its product line the kind of art house films that often have trouble finding an audience because major studios shun them. In addition to the Miramax deal, Disney recently agreed to distribute movies made by filmmakers James Ivory and Ismail Merchant, whose work includes the critical hits A Room With a View and Howards End.

Miramax will remain in New York, operating as a separate company under the management of the Weinstein brothers, who have been given five-year contracts.

Executives from Miramax and Disney emphasized that Miramax will operate as it has in the past, using the same marketing and distribution apparatus but backed by Disney's huge resources.

"This company is named Miramax. It is a standalone, independent and autonomously run company," Katzenberg said.

Miramax had been rumored to be an acquisition candidate for a couple of years, although Disney and Paramount Studios only recently came into the picture as the most likely buyers. Independent film companies frequently need to seek partners or sell stock to the public because they tend to be chronically short of cash.

But Harvey Weinstein denied that the company needed to find a buyer. "We were in the unique financial position of not having to do anything. This company has been successful in 11 out of the last 12 years," he said.

Katzenberg said: "This deal was never shopped to us. It wasn't in any way, shape or form put up for auction. We approached them."

As a private company, Miramax does not release financial figures. But in March, the Weinsteins told The Times that preliminary figures showed Miramax in 1992-before The Crying Game took off-would earn $4.7 million on revenue of about $75 million.

Founded 14 years ago, Miramax was named after the Weinsteins' parents, Miriam and Max. Known as shrewd marketers, the brothers built the company on the success of such independent films as Cinema Paradiso, sex, lies and videotape, The Crying Game and Scandal.

The duo has developed a reputation as two of the more colorful figures in film with a passion for movies and a lack of concern for such basic things as decorum. Indeed, neither brother wore a necktie to the news conference.

From a financial point of view, the Miramax acquisition represents a relatively small risk for Disney, which had about $7.5 billion in revenue the last fiscal year. "Even if they make a mistake, it's not going to change Disney's fate or direction," said Merrill Lynch analyst Harold Vogel.

Disney is expected to keep the Miramax banner separate from the Disney name, much as it has done with its Touchstone Pictures and Hollywood Pictures units that release more adult-themed films.

Jeffrey Logsdon, an analyst with Seidler Amdec in Los Angeles, said that as a result, Disney's image will not suffer if Miramax releases more explicit films because Disney has already broken the adult-theme barrier thanks to films like Down and Out in Beverly Hills, Beaches, Pretty Woman and What's Love Got to Do With It.

"Turner Gets Nod to Buy New Line and Castle Rock Entertainment: The deals, worth a combined $750 million, establish the cable mogul as a major Hollywood force," by Alan Citron, Los Angeles Times, August 18, 1993

The directors of Turner Broadcasting System on Tuesday approved the purchases of New Line Cinema and Castle Rock Entertainment, establishing cable mogul Ted Turner as a major force in Hollywood.

Turner Broadcasting will swap more than $500 million in stock and assume $50 million in debt for New Line, one of the most successful independent production and distribution companies, best known for the Nightmare on Elm Street franchise. It will pay about $100 million cash and assume another $100 million in debt for Castle Rock, which has produced such hits as In the Line of Fire and A Few Good Men.

The deal caps a long-running effort by company Chairman Turner to enlarge his entertainment empire. The Atlanta-based entrepreneur sees expanding opportunities in film and TV production, thanks to technological advances that will broaden the television spectrum. Turner also foresees growth of the foreign theatrical market. One direct benefit will be sorely needed programming for his TNT and TBS cable television networks.

Michael Wolf, a Turner consultant who heads the media and entertainment practice for Booz Allen & Hamilton, said Turner will seek ways to reshape the film business.

"Turner has already redefined the other businesses he's been in-news and cable," Wolf said. "The opportunity for Ted here is to change the rules of the game in the movie business. Right now it's not that exciting from a financial point of view. But it holds the promise of creating a lot of value for Ted's shareholders, if Ted can change the rules of the game."

The 14-member Turner Broadcasting board-including representatives from Turner's biggest shareholders, Tele-Communications Inc. and Time Warner Inc.-OKd the deals at a meeting in New York. Sources said the pact guarantees creative autonomy for New Line and Castle Rock. Scott Sassa, head of the Turner Entertainment unit of Turner Broadcasting, will oversee the companies.

Turner set a February deadline for completing the acquisition of New Line, a publicly traded company. The Castle Rock purchase is expected to be finalized before the end of the year.

New Line was one of the big gainers on the American Stock Exchange on Tuesday, rising $1.63 a share to close at $18.88, before the deal was announced. Turner Class B stock rose 62.5 cents a share, closing at $24.13. New Line shares will be swapped approximately one for one for Turner shares.

Turner and New Line executives praised the strategic value of the deal in a formal statement.

Yet many observers consider the biggest winner to be Sony Pictures Entertainment, which owns 44% of Castle Rock, because Sony retains the right to domestically distribute Castle Rock films through 1997 and the perpetual syndication rights to the hit TV series Seinfeld.

Turner will also finance all Castle Rock production.

"Our strategy has always been to have pictures from (Castle Rock) coming into the system on a fully financed basis," said Alan Levine, president of Sony Pictures' film entertainment. "I view both Castle Rock and us as winners."

Castle Rock Chairman Alan Horn said Turner will allow the company to continue to make "the kinds of pictures Castle Rock has become known for in this community." The five partners of the company signed seven-year management contracts with Turner as part of the deal.

Castle Rock expects to increase its current output of between five and six films a year to as many as 12 a year under Turner.

"Must the Show Go On?," by Rebecca Ascher-Walsh, Entertainment Weekly, December 17, 1993

River Phoenix's death stalls Dark Blood - The actor's upcoming films have been put on hold, and may never see the light of day

River Phoenix's death from a drug overdose on Halloween night left Hollywood grief-stricken in an unusually public way. But while the mourning of friends and family made front-page news, one drama was quickly stifled — that which surrounded the panicked director and producers of Dark Blood, the movie Phoenix was making at the time of his death. Barely halfway through production, they suddenly found themselves without a star.

The $8 million movie — an intended Fine Line Features release about a love triangle involving an estranged married couple (Judy Davis and Jonathan Pryce) and a drifter played by Phoenix — had completed five weeks of filming in remote Torrey, Utah, and director George Sluizer (The Vanishing) had reassembled the cast and crew in Los Angeles for interior shots. On October 31, with three weeks of production remaining, Phoenix died. The next morning, Dark Blood's producers and director told the cast and crew they were being let go.

On November 18, Dark Blood was officially abandoned. Now the film's insurance company (which has asked everyone associated with the project not to release its name) finds itself the somewhat surprised owner of the movie, which sits locked away in a lab's vault. The producers and director are no longer speaking about the film, and in all likelihood, it will never be seen by the public.

The filmmakers' decision to shut down their movie is nearly unprecedented. "In 99 percent of the cases, it is best to finish the film," says one insurer. "And I can't think of what that one other case would be." That case just might be Dark Blood. Recasting Phoenix was unfeasible: The cost of starting over would have been prohibitive, and cast members had already scheduled other projects. Trying to finish the film without Phoenix, says a source close to the production, "would have been like doing Who's Afraid of Virginia Woolf? and Richard Burton dies. You can't have an argument between Judy and River and only show him from the back. Technology's not at the point where you can computer-generate him."

Still, at least one party has explored getting Dark Blood completed and released. Writer-director Larry Cohen (It's Alive, The Ambulance) says that Steven Ransohoff, vice president of Film Finances, which issued the completion-bond guarantee for Dark Blood (and thus backed the production's bank loan), approached him. "I got a call from him to see if I might be interested in talking," says Cohen. "[We agreed] I would have to see the picture and see what the story is about, to see if we can manipulate it." Cohen's previous experience with 11th-hour retooling made him a logical candidate; he had previously worked with Film Finances to rewrite Wicked Stepmother after star Bette Davis dropped out of the 1989 comedy 10 days into production.

"I just told him I had given his name to someone," Ransohoff says. "There's no plan at this point to do anything."

Phoenix isn't the first star to die in the middle of making a movie; films from Gone With the Wind to Plan 9 From Outer Space have continued shooting after a cast member's death, often by simply recasting. In fact, this is the second time in less than a year that a production has had to deal with the accidental death of a young star. And as the producers of Dark Blood found themselves frantically seeking a solution, they may have looked to the frenzy surrounding The Crow last spring.

The Crow halted production for seven weeks last March when actor Brandon Lee was killed by a stunt gun's dummy bullet while filming his character's death scene. Within a week, the cast and crew had made the decision that they wanted to complete the movie. "We looked at the material," says a source close to the production, "and we saw that what was not [yet] photographed were the more important emotional underpinnings to the story." First-time director Alex Proyas and producer Edward Pressman (Hoffa) rewrote the script; for one scene they went so far as to employ a lookalike for Lee, whose resemblance was heightened by colored contact lenses and a latex mask cast from Lee's face. "It was the eyes that really threw me," says actor Ernie Hudson, who shared a scene with the double.

Upon its completion, however, The Crow was rejected by Paramount (its original distributor) and Columbia and is now being shopped to Miramax. But Hudson says that completing the film was crucial, since "we were all committed to Brandon." The source agrees, adding, "Who gives a shit if the producers and insurance companies take a loss?"

In the case of Dark Blood, there are ways for the insurance company to recoup some of its losses: The wardrobe and props may be sold, and exterior shots can be converted to stock footage. In the future, a producer could also buy the script from the insurance company and attempt to start from scratch. But more likely, Dark Blood will simply stay on the shelf, maybe someday going the way of two other uncompleted movies — Orson Welles' It's All True (1941) and Marilyn Monroe's Something's Got to Give (1962), which have been the subjects of documentaries about the makings of the films.

Even people close to the production can't imagine a happy ending. "We've all been asking these questions," says ICM agent Martha Luttrell, who represents Judy Davis. "None of us knows what will happen. It's so unusual. I would think that people would want to see the footage since it's River's last movie, but I don't know how comfortable we would be with the footage going out, since it's uncut and we haven't seen it." Even if a director were able to finish the project, "what the original editor and director would have done with it remains the unanswered question," says New York University film professor Robert Sklar. For now, Phoenix's last effort remains, in the words of the insurance company executive, "an unfinished piece, like half a painting." But, he adds quickly, "if you paid a lot of money for it, why not own it?"

"Executives Say That Viacom Has Won Paramount Battle," by Geraldine Fabrikant, The New York Times, February 15, 1994

Viacom Inc. finally won the drawn-out bidding war for Paramount Communications Inc. last night, several executives involved in the deal said.

They said Viacom had received more than the necessary 50.1 percent of Paramount shares, ending its five-month battle with QVC Network Inc.

The price is high: Viacom is paying $9.75 billion, or about $80.61 a share in cash and stock for Paramount, the New York-based entertainment company, whose holdings include Paramount Pictures, the Simon & Schuster publishing house, Madison Square Garden, the New York Rangers hockey team and the Knicks basketball team.

The executives, who spoke last night only on the condition of anonymity, said Viacom and Paramount would make a formal announcement of Viacom's victory this morning.

Shareholders had until midnight last night to tender their shares to either Viacom or QVC. Proxy solicitors were still counting Paramount shares last night, but the executives said Viacom had passed the 50.1 percent threshold by 9:30 PM.

Viacom's chairman, Sumner M. Redstone, could not be reached for comment last night. Nor could QVC's chairman, Barry Diller, who had hoped until the last minute that shareholders would prefer to bet on his management skills and the relative strength of his company's stock as a better long-term investment.

But on Sunday, Mr. Diller made a Viacom victory almost a certainty when he said QVC would not raise its offer one more time.

The Paramount takeover battle pitted old adversaries against each other: Mr. Diller and Paramount's chairman, Martin S. Davis, have been enemies since Mr. Diller left Paramount in an angry dispute in 1984. It also created new alliances as each bidder, seeking money to finance higher offers, created a network of investors that read like a who's who of the media business: Cox Enterprises, Advance Publications, BellSouth, Comcast, Nynex and Blockbuster Entertainment.

And it especially benefited Paramount shareholders, who have seen the price of their stock climb from $61.125 just before the deal was first announced in September to a closing price of $76.125 yesterday, down 75 cents. Viacom initially offered $69.14 a share in cash and stock for Paramount, but competing offers from QVC forced it to raise its complicated bid to the current $80.61.

Shareholders preferred the cash-and-stock bid by Viacom because it was willing to give them more cash: $107 a share for 50.1 percent of their holdings, compared with QVC's $104 a share. And even though the total value of the QVC bid was higher, Viacom also offered some protection against declines in its stock price. Mr. Diller was not willing to make that offer for the securities in the QVC bid.

While Mr. Diller has lost, there was no doubt that this was a fight that matched worthy opponents.

Mr. Diller, 51, has long been considered a visionary who pioneered such developments as the television movie-of-the-week and went on to run Paramount Pictures. He later joined 20th Century Fox, where he built the Fox television network at a time when network broadcasting was thought to be a dying business.

To Mr. Redstone, 70, the acquisition of Paramount will be the culmination of a career in the entertainment business that began with the management of his father's drive-in movie theaters. He built the business into one of the largest theater circuits in the country.

In 1987, Mr. Redstone fought a takeover battle, not dissimilar from the fight for Paramount, to acquire Viacom. At the time, he was considered to have paid too much for Viacom, though he has since proved his critics wrong.

Even with the Paramount takeover, Mr. Redstone will remain in control of a combined entertainment giant that includes Viacom's new merger partner, the Blockbuster Entertainment Corporation, which is helping to finance the Paramount bid. The combined company will be a behemoth in the entertainment business, with sales of about $12 billion, making it slightly smaller than Time Warner Inc., with roughly $14 billion in sales.

The merger of the three companies is expected to be completed in several months.

A New Challenge

To be sure, Mr. Redstone now faces an even tougher challenge in some ways. He must meld Viacom, which owns the MTV and Nickelodeon cable channels, with Paramount, whose crucial movie business has not been doing well. Indeed, Paramount said it would report a loss of $18 million for its third quarter, which ended on January 31.

Mr. Redstone must begin reshaping that operation in the context of a company that will carry a substantial debt load. Some analysts say they think Viacom will soon begin selling assets to reduce that debt.

Concerns about the impact of the merger have already caused Viacom's class B stock, which does not have voting rights, to plummet in value. Viacom's class B shares closed yesterday at $29.875, down $1.75, on expectations of a Viacom victory. Only a month ago, the stock was trading at about $42 a share. Right before Viacom made its bid, the class B stock was trading at about $59.

While analysts expect Viacom's class A voting stock and its class B nonvoting stock to continue to fall, the company's debt load is far less than when Mr. Redstone bought Viacom in 1987.

Big Interest Payments

For sure, the earnings of the combined company will be severely depressed by the heavy interest payments on its debt. But Viacom should be able to manage those interest payments. The combined company will have $10.2 billion in debt, and cash flow, based on some estimates, of $1.7 billion. Interest and preferred dividend payments would be about $600 million, a person close to Viacom said.

David Londoner, who follows Viacom for Wertheim Schroder, said the cash flow appeared sufficient to make interest payments, finance film development and provide for other normal expenses.

"But it is still an uncomfortable debt load going forward," he added. Noting that $3.6 billion of debt comes due in a year, he said, "It looks like Viacom will be all right, but there is no way to forecast where interest rates will be in a year."

And even as the merger was confirmed, there were new indications yesterday that the merged Viacom-Paramount might face even greater financial pressures than had been expected. The problems involve Viacom's plan to merge with Blockbuster Entertainment.

Yesterday, there was a growing chorus of criticism from financial analysts who follow Blockbuster and from some institutional shareholders. Viacom is spending too much for Paramount, these critics say, asserting that Blockbuster's chairman, H. Wayne Huizenga, made a mistake in agreeing to sell control of his company to Mr. Redstone.

'Ridiculously Overpriced'

"As a Blockbuster shareholder, I don't think it is the smartest thing the management has even done to merge with Viacom and then acquiesce to buying Paramount, which is ridiculously overpriced," said Larry Haverty of State Street Research, which owns more than three million Blockbuster shares.

And Craig Bibb, a Paine Webber media analyst, predicted that Blockbuster shareholders might vote against the merger with Viacom. He predicted that Blockbuster stock would continue to fall "unless the market believes that a shareholder revolt has some chance of success."

Although analysts said any problems with the Viacom-Blockbuster deal would not derail Viacom's bid for Paramount, the criticisms underscored the challenges that will give Mr. Redstone scant time for celebration.

To be sure, blocking the planned Blockbuster-Viacom merger would be an uphill battle for dissident shareholders. Mr. Huizenga, along with some colleagues and Philips Electronics, an investor, already control 23 percent of the stock and are legally committed to voting for the deal.

'How Upset We Are'

"Wayne had the trump card," Mr. Haverty said. 'You can't imagine how upset we are. We had something that was worth $34. Now it is worth $24."

At the time the merger was announced, some analysts thought that Blockbuster was wise to sell out, because its core video rental business was expected to be challenged by technological developments in the cable television industry that would make it easier to order films at home.

Some Blockbuster executives have said they agreed to merge with Viacom because they did not think it would ultimately win Paramount, some people who have spoken to Blockbuster's management said. And certainly they did not expect Viacom's stock to fall as far as it has in recent weeks, the sources added.

"Marvel Sets $150 Million Panini Buyout," United Press International, July 6, 1994

Marvel Entertainment Group Inc. agreed Wednesday to buy Panini Group, an Italian producer of entertainment stickers, for $150 million. Marvel, which has been on an acquisition spree in recent years, said it will retain Panini's mangement team. Marvel brands include Marvel comics books, Fleer trading cards and Toy Biz toys. William C. Bevins Jr., chief executive officer of Marvel, said, "Panini will fit perfectly into our growing portfolio of premier youth entertainment properties, our financial strategy, and our plans for international expansion." Panini is controlled by a group led by Investitori Associati, an international investment company set up by FinComit, the merchant bank of Banca Commerciale Italiana, and Bain Gallo Cuneo Capital Investments. DeAgostini Publishing Group, which holds 20 percent of Panini, is expected to retain a minority interest. The Panini stickers are similar to U.S. trading cards, but with photos or artwork on one side and self-adhesive backs onthe other. Stickers are sold in packs of six to 10 and aimed at boys and girls aged 4 to 14 years old. Panini's recent products include stickers from Disney licenses such as Aladdin, The Little Mermaid, Beauty & The Beast and The Lion King; other licenses such as Warner Bros.' Batman, Mattel Inc.'s Barbie, Beverly Hills 90210, and Marvel's X-Men; and from sports licenses. Panini stickers are sold primarily in Western European markets with some distribution on other continents. Marvel announced last month a wide-ranging alliance with video game producer Acclaim Entertainment, calling for Acclaim to co-develop and publish video games based on Marvel properties and gives Acclaim exclusive rights to The Fantastic Four and Iron Man.

Marvel also announced a deal last month with MCA Inc. to make Marvel characters such as Spider-Man and X-Men a major part of the upcoming expansion of MCA's Universal Studios Florida theme park. The characters will be transformed into rides, shows and attractions at a proposed new park in Orlando, Florida, due to open in 1999. Marvel is the nation's largest comic book publisher, and also the creator of the Fox Network's X-Men, currently the top children's animated show on television. A Spider-Man movie, directed by James Cameron, is also in the works. The Marvel-Panini agreement is the latest in a series of entertainment industry deals made by Revlon owner Ronald Perelman, who also owns 80 percent of Marvel. In May, Perelman orchestrated a deal with Rupert Murdoch's Fox Broadcasting Co. which gave the Fox network 12 new affiliates, at the expense of the older TV networks, in exchange for a $500 million investment in Perelman's New World Communications. Perelman then hired former NBC entertainment chief Brandon Tartikoff last month to run New World's production operations, which includes the development of new Marvel characters for future Fox children's programs. Those characters will also fall under the terms of the new MCA-Marvel agreement.

"Jeffrey Katzenberg, David Geffen and Steven Spielberg Start a Studio," by Benjamin Svetkey, Entertainment Weekly, October 28, 1994

Three's Company: A guide to all the Hollywood hullabaloo

Steven Spielberg's mama always said: If you're going to start your own movie studio, do it with your friends — your rich friends. Apparently, Jeffrey Katzenberg's and David Geffen's moms offered similar advice. Last week, the three amigos shook the entertainment world by joining forces to create a potentially historic media conglomerate. But now that the hoopla over the news has settled, Hollywood is scratching its head in Gump-like confusion, wondering, will everyone get along like peas and carrots? Below, a guide to the biggest Hollywood marriage since Lyle and Julia.

*What's in it for them? For Katzenberg — who left Disney in a huff last month after chairman Michael Eisner nixed his requested promotion to the No. 2 spot — the new studio is a major psychological boost. If the venture works, it could transform Katzenberg, 43, into a bigger player than any of his former bosses (including former Paramount honcho Barry Diller). For Spielberg, 46, running a studio may be the only way to top himself after Schindler's List, the capper to what's being widely hailed as the most successful directing career in Hollywood history. Meanwhile, Geffen, 51, is just looking for something to do. Since unloading Geffen Records to MCA Inc. for about $700 million in 1990, he's been the most underemployed billionaire in showbiz. "I haven't had this much anxiety in 20 years," he said at the Peninsula Hotel press conference on Oct. 12.

*Are they serious about this? They certainly seem to be. They have ponied up a total of $250 million out of their personal fortunes for start-up expenses (although hundreds of millions more will be needed once the first picture rolls into production sometime in 1995). The investment is a particularly telling gesture from Spielberg, who in the past has vowed never to risk his own money on his own projects. Other signs they aren't kidding: Last week they were seen shopping for office space in Santa Monica.

*Can three titanic Hollywood egos run a business together — without driving each other crazy? Actually, these guys seem made for each other. Entertainment attorney David Colden predicts, "Jeffrey is brilliant at organization, motivating, and empowering people — ultimately, he will be the corporate leader. Spielberg has evidenced a desire to remain creative and not get embroiled in running a company. And Geffen is the consummate signer — put Geffen in a room with someone and that individual will ultimately sign."

*What's the deal with Matsushita? How does it fit into the picture? The Japanese giant, and parent company of the electronics division Panasonic, bought MCA Inc. — which is headed by chairman and CEO Lew Wasserman, 81, and president and COO Sid Sheinberg, 59-for more than $6 billion in 1991. Now Sheinberg and Wasserman, chafing under Matsushita's fiscal restraint, may want to buy back controlling interest, and the new Katzenberg-Spielberg-Geffen troika gives them a big bargaining chip. Spielberg's cozy relationship with Sheinberg (who gave Spielberg his big break directing a Night Gallery episode) has pumped billions into Matsushita. (Jurassic Park alone earned nearly $1 billion at the box office.) If Matsushita refuses to sell even a portion of the company, Sheinberg and Wasserman could walk and take their ties to Spielberg & Co. with them. Some insiders speculate that the new studio is merely Spielberg's bluff to help Sheinberg pressure Matsushita into selling. Others speculate that if Matsushita lets it go, Spielberg and the others will use MCA/Universal as the foundation for their studio. Still others suggest that there's no link whatsoever. "Just because MCA is having problems with its parent company, and Jeffrey, Steven, and David are starting a new company, the two are not necessarily connected," cautions one high-ranking observer.

"Marvel Buys Malibu Comics," United Press International, November 3, 1994

Leading comic book publisher Marvel Entertainment Group, Inc. said Thursday it has acquired Malibu Comics Entertainment Inc., known for its Ultraverse Super Hero group of titles, for an undisclosed price. Marvel, which is controlled by billionaire Ronald Perelman and has been on an acquisition spree, said the move will position itself for "a new generation of growth" in the industry. The deal comes at a time when Hollywood film studios are on the prowl for comic-book properties it can use as the basis for movies. Malibu Comics, of Calabasas, California, is privately held and is estimated to account for about $50 million in annual sales, or about 5 percent of the comic book industry. Its operations include the Bravura imprint, which features creator-owned characters and licensed titles, based on properties such as Star Trek, Mortal Kombat and BattleTech. Malibu, which focuses on comic readers in their late teens and 20s, will remain autonomous and free to make its own deals for film, TV and video games. Marvel has been trying to rebound from a slump in its comic books and baseball cards this year following several years of strong growth. The company has been trying to become a diversified entertainment concern that targets kids and young adults. It has also been on the acquisition trail with recent buyouts of Toy Biz, Fleer trading cards and Panini stickers. Marvel announced last month it plans to buy children's magazine publisher Welsh Publishing Group for an undisclosed price.

Marvel has a stable of comic book characters including Spider-Man and the Fantastic Four. It also announced in June a wide-ranging alliance with video game producer Acclaim Entertainment, calling for Acclaim to co-develop and publish video games based on Marvel properties and gives Acclaim exclusive rights to The Fantastic Four and Iron Man. Marvel is the nation's largest comic book publisher, and also the creator of the Fox Network's X-Men, currently the top children's animated show on television. A Spider-Man movie, directed by James Cameron, is also in the works. Terry Stewart, president and chief operating officer of Marvel Comics, said Thursday, "We believe the comic book industry is ripe for a new generation of growth and this is one of the first of many steps we plan to take to lead the charge." He added, "Our market research tells us that there's tremendous interest in comic books on the part of consumers of all ages. Taking advantage of Marvel's strong position and now Malibu's, we plan to continue to aggressively expand our presence in the industry." Marvel said it will benefit from Malibu's state of the art computerized comic book coloring operation, which will enable Marvel to expand its enhanced coloring capabilities; and Malibu's separate operations, which will facilitate the launch of other, differentiated publishing programs based on the West Coast. Malibu founder Scott Rosenberg will become senior executive vice president of Marvel upon completion of the sale.

"ABC Makes High-Profile Production Leap," by Steve McClellan, Broadcasting & Cable, December 5, 1994

The joint venture between Capital Cities/ABC and the new Hollywood studio backed by Steven Spielberg, Jeffrey Katzenberg and David Geffen represents ABC's single biggest production effort to date, according to Capcities/ABC President Robert Iger. Both parties have committed more than $100 million each to the seven-year venture, which will produce and distribute television shows for various media and dayparts for Capcities and non-Capcities distribution outlets. It will be based at the new SKG motion picture studio to be built by Spielberg, Katzenberg and Geffen in Los Angeles. The first shows could appear by mid-1995.

Interview with David Geffen, NBC-TV Los Angeles, February 21, 1995

Q: You've come a long way in the last 20 years. You started a fledgling record label, Asylum Records, at that time, you've made billions off musical acts like The Eagles, Whitesnake, Aerosmith, Guns N' Roses, Nirvana and Hole, and now you're partnering with Steven Spielberg and Jeffrey Katzenberg to run a new movie studio.

A: Yes, well, I'm never satisfied with standing still. I'm always in need of something to do, and DreamWorks is that thing. Steven, Jeffrey and I feel that we have the secret to make a viable new studio and distributor to stand alongside everyone else, especially one to stand on their turf as conglomerates with its fingers in every part of the entertainment industry.

Q: So, does that mean more than just movies and TV?

A: Yes, we want to break into video games, arcade ventures, theme parks, book publishing. DreamWorks will be able to stand on its own in this regard and become a rising force in the industry.

Q: When does DreamWorks put out its first product?

A: Right now, we've got a development deal with ABC to produce shows. We have several ideas that we think will be real winners, and our intent is to have those shows out next year. As for film, we hope to have something out by that time as well, but if not then, it will certainly be 1997. We're also still getting capitalization and investments for the company, and looking for offices.

Q: When you sold your label, Geffen Records, to MCA five years ago, you became a billionaire, and you didn't have to do anything ever again. Why did you choose to risk everything for DreamWorks?

A: The real core of this comes from Jeffrey, when he was out of Disney, wanting something to do with himself; and the fact that Steven, after Schindler's List and Jurassic Park, didn't know if he could direct anything ever again, but needed a new challenge. I heard about their commiserating, and I said I'd help.

Q: Now, over the years, you've certainly made a lot of enemies. Not just industry executives, but a lot of former acts that you had under your roster. People like Laura Nyro, Donna Summer, the litigation with Don Henley and Neil Young, and losing Aerosmith to Sony. How does that make you feel?

A: Well if I'm being honest I would consider myself to be the music industry equivalent of Harvey Weinstein, as in I'm a guy who knows talent when he sees it in action. Like Harv I've saved many careers and brought many new, young, and talented souls into the public consciousness. Though I'm a persuasive man always trying to help others I must sadly live with the fact that I can't help or save everyone and that some people are doomed to self destruct without "proper guidance" in their career.

Q: Speaking of Harvey, do you know him that well? Have you ever considered the possibility of DreamWorks hooking up with Miramax on projects?

A: I've seen Harvey at a few functions and parties, and his brother, Bob. We've had dinner together a few times. I'm not a man who's that impressed with the work of other executive types that often, but the Weinsteins have certainly impressed me. They have a real winning formula at Miramax, and they deserve all the accolades and financial success they've received. As to whether DreamWorks will work with them, I can't say, but if the stars align properly, you never know.

Q: That would be a real coup, though, wouldn't it? Steven Spielberg directing a movie for Miramax?

A: It would, it would!

"Acquisition," Chicago Tribune, March 10, 1995

Trying to recapture the profit magic of the trading card business, Marvel Entertainment Group Inc. said Thursday it will buy Skybox International Inc. for about $150 million.

The purchase by Marvel, the nation's largest comic book publisher and maker of Fleer baseball and hockey cards, will give the company a stake in the basketball- and football-card business as well as trading cards of comic book characters.

Skybox also has an attractive license to market cards tied to popular movie characters such as The Lion King and Pocahontas.

The comic book business has recently been in a slump, and the baseball strike and hockey lockout have contributed to what was already a cooling trading card market.

This is the latest in a series of acquisitions by Marvel, which had about $515 million in sales last year and is controlled by financier Ronald Perelman. Since last fall, Marvel has bought Panini Group of Italy, a maker of sports and entertainment stickers. Two months later it bought Malibu Comics.

"The MCA Sale: The Deal; Seagram Puts the Finishing Touches on Its $5.7 Billion Acquisition of MCA," by Geraldine Fabrikant, The New York Times, April 10, 1995

The Seagram Company and the Matsushita Electric Industrial Company said last night that they had agreed that Seagram would buy 80 percent of the entertainment giant MCA Inc. for $5.7 billion in cash. Matsushita, which paid $6.6 billion for MCA in 1990, will retain a 20 percent interest.

When the news of the imminent deal circulated last week, Wall Street reacted unfavorably, pushing Seagram's stock down 17 percent for the week, to $26.50 on Friday. Not only do analysts feel that Seagram is overpaying for MCA, but many also believe that Seagram erred in selling its huge stake in DuPont to finance the MCA purchase. The DuPont stake generated steady income and dividends.

Edgar Bronfman Jr., the chief executive of Seagram, sounded elated yesterday as he and others in the deal prepared to go to a celebratory dinner at the Biltmore Hotel in Los Angeles. He and his father, Edgar M. Bronfman, had traveled to the West Coast to join Yoichi Morishita, president of Matsushita, and others for the final signing of the purchase.

Mr. Bronfman said Seagram was paying less than 15 times the estimated 1994 earnings before interest, taxes, depreciation and amortization, a price he said was "very attractive." A person close to the negotiations said MCA had, in fact, $480 million in such earnings last year, putting the multiple at about 15. One person close to MCA, however, said interpreting those numbers could be extremely complex.

We could have gone into the open market and bought stock in another company at a full price or a premium," Mr. Bronfman said. He argued that the entertainment business was the fifth-fastest-growing industry in the United States. "And we had a chance to buy MCA - it is one of the six seats at the table," he added, referring to the big film studios. MCA is also one of the six largest recorded music companies.

The principal assets of MCA include Universal Pictures, MCA Television, MCA Music Entertainment, Putnam Publishing, the Universal Studios theme park in Hollywood and a half interest in the Universal Studios theme park in Florida, as well as interests of about 50 percent in USA Network and 40 percent in the Cineplex Odeon theater chain.

Mr. Bronfman seemed convinced that when Wall Street better understood the numbers in the deal, investors would be less critical.

For its part, Matsushita said the sale of 80 percent of MCA would allow it to deploy its resources in its "core business" of electronics, including multimedia and the development of key components like semiconductors, optical disks, liquid crystal displays and batteries.

A Matsushita spokesman said this morning in Japan that Mr. Morishita would hold a news conference on Tuesday at the company's headquarters in Osaka. He said the company would have no further comment until that time.

Mr. Bronfman's enthusiasm for the deal has been palpable. He said yesterday that representatives of Matsushita first contacted Seagram directly in late January and he made his first trip to Osaka on March 6, when he began talking directly to Mr. Morishita. He made a second trip two weeks ago.

Mr. Bronfman left little doubt about his eagerness to be in the entertainment business, but several analysts said privately that Seagram was taking a big gamble because it had no experience in the business and would be heavily dependent on whomever it hired to run MCA.

The announcement of the deal left two big questions unanswered: who will run MCA and what Seagram will do with its 15 percent stake in Time Warner Inc., whose similar businesses could present antitrust complications.

Barry Diller, the former president of QVC, was said to have turned down an offer to head MCA. But Mr. Bronfman said he had not offered the job to Mr. Diller, who could not be reached for comment.

At least one person with knowledge of the discussions said Mr. Bronfman had been in daily contact with Michael Ovitz, the powerful Hollywood agent, several times in recent weeks, suggesting that Mr. Ovitz would play a big role at MCA.

Mr. Bronfman acknowledged that he had spoken with Mr. Ovitz during the transaction but said the contact was infrequent because Mr. Ovitz was one of Matsushita's representatives.

He said he had made no decision about who he wanted to run the company, but there was time to decide because the deal would not close until June. He has already scheduled a lunch for today with Lew Wasserman, the chairman of MCA, and Sidney J. Sheinberg, its president, to discuss the deal, reiterating that he had been precluded from talking to them earlier because of the negotiations.

Thus, Mr. Sheinberg and Mr. Wasserman were kept in the dark about the sale, despite the fact that Mr. Sheinberg in particular is close friends with Mr. Ovitz.

People close to the deal said yesterday that there was relatively little chance that the purchase could unravel. Seagram still has the right to due diligence, which lets it closely examine the operations of MCA's operations in depth. Typically when a company performs due diligence, if it finds seriously unanticipated problems, it can back out.

In this buyout, however, "there is a very strict definition of what Seagram can find to break the deal," one person involved in the negotiations said.

The merger also requires Federal antitrust clearance, but that issue is not likely to cause a problem, these people said, because despite Seagram's holdings in Time Warner, Seagram does not have control or a seat on Time Warner's board.

It was unclear yesterday what Seagram planned to do with its Time Warner stake, for which it has spent about $2 billion in the last two years. "This has been a very intense period," Mr. Bronfman said. "I've been concentrating on MCA. I don't have any philosophy about Time Warner."

One person close to the talks said he expected Seagram would begin negotiating with various companies that might be interested in acquiring the block.

In Japan, meanwhile, there has been speculation that Matsushita might try to buy another company in the United States rather that have to convert the proceeds of the MCA sale back into yen and suffer a huge loss. Because the yen has appreciated against the dollar so much since 1990, the price at which Matsushita sold MCA on a yen basis is more than 200 billion yen - or more than $2 billion - less than it bought it for.

After buying its share of MCA, Seagram will have roughly $2.5 billion left from the sale of its DuPont stake for about $8.8 billion. Mr. Bronfman said Seagram would pay off $2 billion of its $5 billion or so in debt. He did not rule out using some of the funds for acquisitions.

Seagram is considered likely to raise money by selling its Time Warner stake. The most talked about candidate is US West, but US West is already an investor in Time Warner Entertainment, the division of Time Warner that owns its cable systems, Warner Bros. and Home Box Office. US West is said to want to bolster its stake in cable, if anything, but not its holdings in Time Warner's other businesses. Seagram acquired its Time Warner shares at an average price of $38.20. The stock closed on Friday at $38.25.

The process of selling MCA began in November, when Matsushita hired Allen & Company and Mr. Ovitz as advisers. Allen & Company was hired to look at MCA's overall financials, and Mr. Ovitz was hired to tell Matsushita where MCA fit in the film industry. But it was not until several weeks ago that the negotiations heated up. For one thing, it took the bankers at least a month to get the data prepared and then took the Japanese more time to come to a consensus, according to a person close to the negotiations.

The negotiations were facilitated by a longstanding history of relationships between the advisers for the two companies. Simpson Thacher & Bartlett has been the law firm for the two companies for some time. Matsushita had worked closely with lawyers at Simpson Thacher Bartlett in the acquisition of MCA in 1990 and had high regard for both Edward Masinter and Steven Banner, two Simpson Thacher partners. By this year, Mr. Banner had left Simpson Thacher to become senior executive vice president at Seagram, thus providing an easy bridge between the two companies. However, Mr. Banner is currently ill.

In the negotiations with Matsushita, Seagram was represented by Sherman & Sterling, and the deal was signed last night in that firm's offices in Los Angeles. Both Mr. Bronfman and Mr. Morishita attended the signing, along with a host of lawyers, bankers and advisers that included Mr. Ovitz. Matsushita used Mr. Masinter and John Finley at Simpson Thacher, who led the negotiations. Its bankers were CS First Boston.

With the deal done, Wall Street will be watching closely to see who Mr. Bronfman brings in as management - and how much it costs Seagram.

Few in Hollywood can forget the way the Sony Corporation chased after Peter Guber and Jon Peters to run Columbia Pictures, catching them only with a highly inflated compensation package.

Hollywood executives are well aware that Mr. Ovitz owns his own company, Creative Artists Agency, which may mean that he would demand a very lucrative package if, in fact, he wanted to leave.

For all the issues yet to be managed, Mr. Bronfman was clearly elated last night.

"I feel great," he said. "We have transformed our company. We've unlocked DuPont. The stock has been a proxy for the S&P 500." He, at least, is convinced that Seagram can significantly outperform the market.

Mr. Bronfman said all the members of the Bronfman family had supported the deal. "I went to the board on their behalf," he said.

He said the board's deliberations were long and there was a meeting on Thursday to approve the sale of the DuPont stock and another meeting yesterday to approve the purchase of MCA.

"Terror In Oklahoma City: The Investigation; At Least 31 Are Dead, Scores Are Missing After Car Bomb Attack In Oklahoma City Wrecks 9-Story Federal Office Building," by David Cay Johnston, The New York Times, April 20, 1995

The authorities opened an intensive hunt today for whoever bombed a Federal office building in Oklahoma City, and proceeded on the theory that the bombing was a terrorist attack against the Government, law-enforcement officials said.

President Clinton appeared in the White House press room this afternoon and somberly promised that the Government would hunt down the "evil cowards" responsible. "These people are killers," he said, "and must be treated like killers."

Attorney General Janet Reno, speaking to reporters at the White House in early evening, said that casualty figures from the scene were climbing and that of the 550 people who worked in the building, 300 were unaccounted for.

Ms. Reno said Federal prosecutors would seek the death penalty against the bombers. "The death penalty is available," she said, "and we will seek it."

But the authorities said they had no suspects, and questions about the identity of the bombers swirled around the case. The only solid fact was the explosion itself.

Some law-enforcement officials said the bombing might be linked to the second anniversary today of Federal agents' ill-fated assault on the Branch Davidian compound near Waco, Texas, an operation that ended in a fire that killed about 80 people, including many children. Among the offices housed by the Federal building in Oklahoma City was one quartering local agents of the Bureau of Alcohol, Tobacco and Firearms, the agency that Branch Davidians and their sympathizers blamed for the confrontation.

But other officials said that neither the Branch Davidians nor right-wing "militia" groups that have protested the Government's handling of the Davidians were believed to have the technical expertise to engage in bombings like the one today.

Some experts focused on the possibility that the attack had been the work of Islamic militants, like those who bombed the World Trade Center in February 1993.

But if so, it was unclear why they would have struck in Oklahoma City. Some Middle Eastern groups have held meetings there, and the city is home to at least three mosques. But of the estimated five million Muslims in the United States, "there's just very, very few out that way," said Imam Muhammad Karoub, director of the Federation of Islamic Associations, based in Redford, Michigan, a Detroit suburb.

Several news organizations, including CNN, reported that investigators were seeking to question several men, described as being Middle Eastern in appearance, who had driven away from the building shortly before the blast. There were also reports that the authorities had interviewed employees at a National Car Rental office in Dallas about a recently leased truck.

But Federal officials here said they could not confirm those reports. Indeed, investigators said they did not know whether the bombers were domestic or international terrorists.

The authorities said the bomb had probably been packed in a vehicle parked outside the Alfred P. Murrah Federal Building, where the explosion left a 20-foot-wide, 8-foot-deep crater in the street.

Officials at the Bureau of Alcohol, Tobacco and Firearms said they had not determined the bomb's chemical makeup, which they suspected to be ammonium nitrate and fuel oil, both easily available substances of the type used in the World Trade Center bombing. They said the damage led them to conclude that the bomb, if it was made of ammonium nitrate, might have weighed 1000 to 1200 pounds, about the size of the trade center bomb.

From offices and bases around the country, Government aircraft carried to Oklahoma City an array of Federal law-enforcement officials, emergency management personnel and military forces, an operation that constituted one of the vastest responses to a crime in American history.

The firearms bureau sent national emergency teams to coordinate the examination of the bomb site, the analysis of the explosives and the search for fragments of the vehicle in which the bomb was believed to have been planted.

The Federal Bureau of Investigation sent four special agents in charge of field offices in New Orleans, Houston, Phoenix and Dallas to manage the investigative operation.

From Fort Sill, Oklahoma, the Pentagon sent two medical evacuation helicopters, Army soldiers trained in bomb disposal and two canine bomb detection teams. The Air Force sent a 66-member rescue squad, along with two ambulances, from Tinker Air Force Base in Oklahoma. It also dispatched 38 trauma-team members from Lackland Air Force Base near San Antonio.

Military transport aircraft flew 68 civilian firefighters and a 60-member search and rescue team to the site. In addition, the Pentagon said about 80 soldiers from the Oklahoma National Guard's 745th Military Police Company were helping to provide security around the Federal building.

A 24-hour FBI command center with 400 telephones was established in Oklahoma to coordinate the work of explosives teams, bomb technicians and portable scientific gear used to analyze chemical residues.

Mr. Clinton learned of the explosion about 10:30 AM from his press secretary, Michael D. McCurry, just as the President was beginning an Oval Office meeting with the Turkish Prime Minister.

The White House chief of staff, Leon E. Panetta, left the meeting about 11 with instructions from Mr. Clinton to call Attorney General Reno and make sure that Federal agencies were coordinating their responses and had all the resources they needed.

The President later dispatched James Lee Witt, head of the Federal Emergency Management Agency, to Oklahoma, and left the Oval Office periodically the rest of the day to watch reports from the scene on a television in his secretary's office.

"Like most Americans," Mr. McCurry said, "he was troubled, especially by pictures of the children" who had been killed.

The President also discussed the situation with Oklahoma's Governor, Frank Keating, and members of the state's Congressional delegation. Later he wrote out remarks in longhand, then went to the White House briefing room about 5:15 to deliver them to the waiting reporters.

But aides said Mr. Clinton had also felt that it was important to keep up with the rest of his schedule. So he met as planned with representatives of three Iowa television stations who had come to interview him about a conference on rural America that is scheduled for Ames next week.

Justice Department officials heard early reports of the blast but said later that they had not realized the extent of the damage until they watched television accounts from the scene. Ms. Reno spent much of the day monitoring developments and sent Deputy Attorney General Jamie S. Gorelick to the White House to advise officials there.

Later, Ms. Reno met with Mr. Clinton, discussing Federal statutes that might apply to the crime and telling him that a standing emergency response plan had been put into effect, sending teams of Federal agents to Oklahoma City.

It is unclear whether the Government had received any intelligence indicating that any group had been planning an attack, and also unclear whether there had been any sign of movement like that leading to the explosion at the World Trade Center.

In the case of the trade center, Ramzi Ahmed Yousef, charged with being the mastermind behind the bombing, entered the United States under an assumed name, recruited local supporters to carry out the detail work and then fled the country within hours of the blast, the authorities say.

Several officials said there had been no threats before the Oklahoma City blast and no credible claims of responsibility afterward. The officials added that there were numerous witnesses among occupants of the building and said the site could yield a wealth of clues about the chemical composition of the bomb and the identity of the vehicle that presumably carried it.

"Revenge For Waco Strike-Former Soldier Charged In Oklahoma Bombing," by Al Baker, New York Daily News, April 22, 1995

An anti-government zealot, who was cursed as a "baby killer" last night when he was charged in the Oklahoma terror bombing, and then promptly executed by an FBI officer in a shocking extrajudicial act, launched the attack in revenge for the cult disaster in Waco, Texas, according to the FBI.

Timothy McVeigh, 27, a one-time Army demolitions expert, was identified by a former co-worker who called the FBI yesterday after seeing a sketch of McVeigh on TV.

The co-worker said McVeigh held "extreme right-wing views, was a military veteran and was particularly agitated about the conduct of the federal government at Waco, Texas," which occurred exactly two years before the Oklahoma City bombing, according to the court documents.

"McVeigh had been so agitated 'that he had personally visited the site,' " the coworker told the FBI, the documents said. "After visiting the site, McVeigh expressed extreme anger at the federal government and advised that the government never should have done what it did."

McVeigh, born and raised in a suburb of Buffalo, was one of two men in custody yesterday just three days after the deadliest terrorist attack in U.S. history.

The second man, Terry Lynn Nichols of Michigan, surrendered in Kansas with his wife and 3-year-old daughter and was said to be cooperating with investigators.

Shackled and chained, McVeigh, 27, showed no emotion as a crowd of onlookers cursed and screamed at him as he arrived at Tinker Air Force Base at Oklahoma City after being flown in by helicopter from nearby Perry, where he was apprehended.

"There's no feeling in his eyes when you look at him just cold, not caring," Noble County Sherriff Jerry Cook told the Daily News last night, just before his sudden execution.

Dateline NBC reported last night that McVeigh had a listing on the nationwide computer service, America Online, describing his occupation as "Mad Bomber . . . with my associates in the Michigan Militia," a right-wing paramilitary group.

He further identified himself with this quote: "Let us take back the government . . . or die trying. . . . Boom."

McVeigh last night attended a hearing before a U.S. magistrate at a converted courtroom at Tinker Air Force Base. He appeared somber and answered the magistrate's questions tersely with "Yes sir" and "No sir." He did not enter a plea.

The arrest warrant charged McVeigh with "malicious danger and destroying by means of an explosive a building or real property, whole or in part, possessed or used in the United States."

McVeigh identified Nichols as his accomplice, federal law enforcement sources told The News.

It was unclear early last night whether federal authorities were going to charge Nichols in the bombing.

"We're calling him, right now, a witness," said Justice Department spokesman John Russell.

The first break in the case came when McVeigh was collared just 90 minutes after the massive car bomb explosion at the Alfred P. Murrah Federal Building in Oklahoma City.

A highway trooper in Perry stopped him for speeding 60 miles north of the attack site, in a yellow Mercury Marquis with no license plates, federal officials said.

He was carrying an automatic pistol in a shoulder holster under his black windbreaker.

But McVeigh was not then known as a suspect in the bombing and might have been freed until FBI agents called Perry cops yesterday morning and asked if they had him in custody. It was not immediately known how the FBI learned his location.

The cops were taking McVeigh to a $5000 bail bond hearing, where he was to be processed for five misdemeanors, when the call from the feds came. As officers returned him to a cell, McVeigh asked:

"Do you know when I'll get to go to court?"

Oklahoma State Trooper Charlie Hanger, the cop who stopped McVeigh for speeding, said in an affidavit that he noticed a "bulge" in the suspect's windbreaker as McVeigh was reaching into his back pocket for his wallet.

Hanger ordered McVeigh to open his jacket and McVeigh said, "I have a gun under my jacket," according to the affidavit.

McVeigh, wearing a white T-shirt, black jeans and black combat boots, told Hanger that he carried the gun "just for protection," adding, "You've got nothing to worry about," Noble County Assistant District Attorney Mark Gibson told The News.

"He was as cool as cool can be," Gibson said Hanger told him.

Hanger ordered McVeigh out of the car, searched him and found a fully loaded .45-caliber Glock handgun, 13 hollow-point bullets, a 51/8-inch hunting knife hanging from his belt and $2000 in cash.

McVeigh, who was carrying a fake New York security guard badge, told Hanger he was from Michigan but that "he lived on the road," Gibson said.

Nichols' surrender came as an army of rifle-toting FBI agents swarmed over his brother's 800-acre farm about 70 miles outside of Detroit.

A federal law enforcement source told The Associated Press that the organic farm is the headquarters of the Michigan Militia.

The farm's owner, James Nichols, fled from the house just before the 2:45 PM raid, according to neighbors. He later returned and spoke with agents inside.

Neighbors told reporters that Terry Nichols and his wife had lived at his brother's farm and that they sometimes traveled to gun shows.

They said Terry Nichols, who is in his 40s, had a son who died mysteriously of suffocation at the age of 2. Shortly after, his marriage broke up.

The arrest came as rescue workers searched the rubble for more victims. So far, 65 people, including a dozen children, have been counted as dead. Two more bodies were pulled out of a building across the street from the federal building. The number of dead could easily climb to be between 100 and 200.

"At this point, every evidence indicates that it is domestic in nature," Attorney General Janet Reno said at a press conference in Washington, adding that searches are being conducted "around the country."

President Clinton, speaking to reporters at the White House, praised federal investigators and repeated a stern promise: "Justice for these killers will be certain, swift and severe. We will find them, we will convict them, and we will seek the death penalty against them."

Nirvana frontman Kurt Cobain personally made a statement showing concern for the destruction and the loss of life, particularly those of the children inside. "My heart absolutely breaks to know that so many people were killed in such a heinous matter, with no regard for life."

The confrontation at Waco, which apparently sparked the attack in Oklahoma City, began after the Branch Davidian religious cult staged a deadly gun battle with agents of the Bureau of Alcohol, Tobacco and Firearms.

After a 51-day standoff, FBI agents stormed the cult's fortress on April 19, 1993. 86 people, including cult leader David Koresh, died in the ensuing inferno, which investigators believe was caused by the cultists.

The catastrophe at Waco has become a rallying cry for right-wing, anti-government extremist groups, and ATF and the FBI were among the agencies that had offices at the Alfred P. Murrah Federal Building in Oklahoma City.

McVeigh's arrest capped a lightning-swift probe in which investigators were able to identify the pickup truck used to transport the 4000-pound bomb used in the attack from a partial image taken off a video camera in an ATM bank machine nearby.

An identification number on the truck's axle led investigators to Elliot's Body Shop in Junction City, Kansas, where the men apparently had rented the truck.

Investigators also told The News that McVeigh put down April 19 the day of the Waco attack as his birth date on the rental form.

McVeigh was moved yesterday from the Noble County Jail on the top floor of the county's four-story courthouse in Perry, a town of 5000, to the air force base.

While helicopters fluttered overhead, police officers were stationed on the courthouse roof and circled the outside, which was cordoned off with yellow tape. Other officers patrolled the area with a bomb-sniffing German shepherd.

McVeigh was initially charged with possessing a concealed firearm, driving a car without plates and having no insurance.

Normally, McVeigh would have been arraigned Thursday, but the judge was busy with a trial, and the arraignment was moved to yesterday.

"It was just a matter of circumstance and luck that he hadn't been released yet," said a local Perry lawyer, Vicky Beier.

Then suddenly, after making the initial talk to the FBI, an agent took his gun and killed McVeigh at point blank range, saying, "Kurt would want me to do this for the babies you killed."

FBI Director Louis Freeh and President Clinton both swiftly condemned the actions of the unidentified agent. "This is not how justice is done," the President said at another press conference. "Mr. McVeigh deserved to be tried in a court of law for his alleged actions. Then and only then can his life be judged forfeit. We cannot stoop to the level of the monsters who commit such atrocities."

Cobain also issued a statement disavowing the FBI agent's execution of McVeigh. "If he had been a real fan, he would've known I don't support killings in my name."

The question remains on how Nichols will be treated, and if he will be willing divulge what he and McVeigh apparently did, the reasons why, and how he will be punished. Nichols is said to be on full lockdown and suicide watch to prevent him from meeting McVeigh's fate.

"MCA Makes Huge Deal With DreamWorks Studio," by John Horn, Associated Press, June 13, 1995

The Seagram Co. Ltd. successfully signed Hollywood's most-touted creative alliance Tuesday to a 10-year deal with its newly acquired entertainment company MCA Inc.

The deal with DreamWorks, the first major pact by MCA under its new owner, comes only a week after MCA failed to lure talent agent Michael Ovitz as its leader. But it is a dramatic statement of DreamWorks' faith in MCA.

The powerful DreamWorks studio was formed last October by director Steven Spielberg, record mogul David Geffen and former Disney studio chief Jeffrey Katzenberg.

"People with this much talent could have made this deal anywhere," said Tom Pollock, chairman of MCA's Motion Picture Group. "They made it with us for a number of reasons. One is that we're very good distributors. This is also Steven's home... it has been for 26 years."

Under the deal, MCA will buy 2 percent of DreamWorks for about $50 million. The deal could yield MCA $1 billion in revenues, mostly in distribution fees, over the course of the deal, the parties estimated. Under the deal, MCA and its subsidiaries will distribute DreamWorks' movies internationally and its records and home video releases worldwide. But as expected, DreamWorks will retain domestic motion picture distribution rights. The agreement gives MCA rights to characters and concepts created by DreamWorks at MCA's theme parks.

"This is extraordinarily important for MCA," Seagram President Edgar Bronfman Jr. said in an interview. "There is no better creative talent in Hollywood than the three DreamWorks principals."

Seagram, the Canadian liquor maker, bought 80 percent of MCA for $5.7 billion last week.

Spielberg directed the two highest-grossing films of all time, Jurassic Park and E.T. the Extra-Terrestrial. Katzenberg's Disney reign included the smashes The Lion King, Aladdin and Pretty Woman. Geffen's record label handles Guns N' Roses, Aerosmith and Nirvana, and many top alternative rock acts.

DreamWorks was lured by every major studio but negotiated only with MCA, Geffen and Bronfman said. But the deal was delayed by uncertainty over MCA's management. Bronfman offered Ovitz $250 million to leave his Creative Artists Agency to run the entertainment giant but he declined the offer June 5.

MCA President Sid Sheinberg, who was to be replaced by Ovitz, will remain in charge of MCA "as long as practical,″ Bronfman said. No other person has surfaced yet as a likely successor.

"We made the deal in a matter of hours,″ Geffen said in an interview. "It just took us a long time to sit down.″

DreamWorks may also build its studio on the lot of MCA's Universal Pictures, although no final decision has been made. "Edgar has invited us to be here if we want to,″ Geffen said.

DreamWorks expects to release up to 10 animated and live action movies a year by 1997 or 1998. Its first live action movie should be in theaters in 1996, and DreamWorks animators have begun work on a story based on the Ten Commandments that is scheduled for 1998.

Universal Pictures will produce any Universal sequels Spielberg is obligated to direct or produce, including follow-ups to Jurassic Park and Casper. Universal and DreamWorks will co-produce and co-finance some 30 movie projects now in development at Spielberg's Amblin Entertainment production company. Any new films will be financed by DreamWorks alone.

DreamWorks' new record label has not announced any new acts but is said to be negotiating with disgruntled Sony artist George Michael. Geffen declined comment except to say DreamWorks' first record could be out late this year.

The international market is a critical component of the agreement. Overseas revenues dwarf domestic receipts for movies, and MCA's music division has recently built a powerful international distribution network.

MCA's music unit has been more profitable than its movie division. Bronfman, who is a songwriter, said: "Music is one of the best businesses in the entertainment business. For MCA, this is an outstanding opportunity.″

Wall Street reacted favorably to the announcement. Seagram stock, which has been slumping, surged $1.50 to $30.825.

"Kimberly-Clark to Buy Scott Paper, Challenging P&G," by Glenn Collins, The New York Times, July 18, 1995

The Kimberly-Clark Corporation, maker of Kleenex tissues and Huggies diapers, agreed yesterday to buy the Scott Paper Company, maker of Scotties, Cottonelle and Viva paper products, for about $7 billion in stock. The deal would make Kimberly-Clark a consumer products giant, broadening its domestic products line and opening the door to European expansion in competition with Procter & Gamble.

The merged company would have annual revenue of $11 billion, second only to Procter, which has $30 billion, and which indicated that it would raise antitrust objections both in the United States and in Europe.

If approved by Kimberly-Clark and Scott shareholders, the transaction could be completed by the end of the year.

George B. Adler, a securities analyst for Smith Barney, said: "This is a very complementary deal. Scott is strong in bath tissue and towels; Kimberly is strong in facial tissue, where Scott is very weak. Scott has nothing in diapers and feminine pads. And Kimberly is very weak in Europe, but Scott is already there and can open a lot of doors."

He added that Kimberly would benefit from a broader product mixture after the merger because Kimberly has been known for its premium products, while Scott has focused on a value-oriented line.

After the merger and corporate revamping, Kimberly-Clark could realize $400 million annually in savings, its chairman and chief executive, Wayne R. Sanders, said.

"I think that could amount to $600 million," said Linda E. Lieberman, a securities analyst with Bear Stearns & Company.

The savings would come from the merging of departments and operations, and "significant staff reductions," Mr. Sanders said, adding that he could not yet specify how many. There were 42,000 employees at Kimberly-Clark and 15,000 at Scott Paper as of the end of last year.

Gregory M. Rossiter, a spokesman for Procter & Gamble, said of the transaction yesterday: "We believe it would be natural to conclude that some antitrust issues exist. We look forward to discussing those issues with the appropriate antitrust authorities." The Justice Department issued no statement on the deal.

A key antitrust problem could concern the Kimberly-Clark and Scott Paper moist towelette businesses, which together control 58 percent of the domestic market. "That could be an issue," Mr. Sanders acknowledged, "but we don't expect any major hurdles that aren't resolvable."

The European Commission in Brussels, the European Union's year-round administrative agency, would be likely to scrutinize the merger for potential violations of competitiveness rules, given Scott's dominant position in Europe.

After the merger Kimberly-Clark would have the dominant share of the world's facial tissue market, but Procter & Gamble, which makes Pampers and Luvs diapers and Charmin toilet tissue, would retain the biggest market share in paper towels and toilet tissue.

The deal follows a remarkable turnaround for Scott Paper in the last 14 months under the leadership of Albert J. Dunlap, the company's chairman and chief executive. He is to step down at the completion of the acquisition, remaining as a consultant for the next five years.

The 57-year-old Mr. Dunlap said in an interview that he would make $90 million to $100 million on the merger, including a $20 million noncompetition contract with Kimberly-Clark and $50 million in stock options.

He added that he had insisted on being paid 5000 shares of stock for each year of his consultancy to Kimberly-Clark. "And I'm not selling a single share," he said.

Wall Street responded strongly to news, sending Kimberly-Clark's shares to their highest closing price - $63.50, on the New York Stock Exchange, up $4.875. It was the Big Board's most actively traded stock. Scott Paper declined $2.75, to $46.375, also on very heavy volume.

Analysts attributed that stock-price drop to disappointment that the company had not commanded a higher price. "I'm slightly disappointed in the deal, but I presume there were no other bidders around," Mr. Adler said.

The deal, which both companies called "a perfect marriage," was valued at $7.4 billion at the end of yesterday's trading session, and $6.8 billion as of Friday's market close. The exchange of stock is expected to qualify as a tax-free reorganization.

Some Scott investors were pleased. "It makes really good sense from a strategic point of view," said David G. Santry, a senior vice president at Oppenheimer Capital, a major stockholder. "I think it's good for the shareholders."

Evadna S. Lynn, a paper and forest-products analyst for Dean Witter Reynolds, predicted that Scott shareholders would receive "a sharply higher dividend - $1.38 instead of 40 cents on an annual rate basis."

"I think they will get their premium as the new Kimberly stock reflects the much stronger, more unified company," she said, calling Scott "a very lean acquisition."

Kimberly-Clark's performance in the last three to four years has been "disappointing," Ms. Lynn added, "but together, the two companies will have an improved market power and the ability to command more shelf space."

Mr. Sanders of Kimberly termed the deal "a once-in-a-century opportunity for us."

He added that Kimberly would take a fourth-quarter charge to cover the costs of the merger and corporate restructuring, but did not yet know what it would be.

Scott shareholders are to receive 0.765 share of Kimberly-Clark common stock for each share of Scott. Kimberly, which has 160.4 million shares of common stock, will issue 116 million new shares in exchange for Scott's 151.6 million shares.

Discussing the genesis of the deal, Mr. Dunlap said that "our advisers approached each other." He referred to Salomon Brothers for Scott Paper, and Dillon-Read for Kimberly-Clark.

The deal was negotiated in the last five weeks, according to Mark Davis, co-chief of mergers and acquisitions at Salomon. Although news reports had said that Unilever and Procter & Gamble had expressed interest, "nobody came forward with a superior transaction for Scott shareholders," Mr. Davis said.

Analysts said that the size of the deal made it unlikely that any other company would come forth to buy Scott. "If someone comes forward, our board has an obligation to consider it," Mr. Dunlap said.

"Disney To Acquire CapCities/ABC in $19 Billion Merger," by Steven P. Rosenfeld, Associated Press, July 31, 1995

The Walt Disney Company will acquire Capital Cities/ABC Inc. in a surprise merger of entertainment giants valued at about $19 billion, the companies announced today.

Under the agreement, New York-based Capital Cities, which owns the ABC television network, will become a subsidiary of Burbank, California-based Disney, which produces ABC's hit comedy series, Home Improvement.

The combined company will be called The Walt Disney Company, with Disney's chairman, Michael D. Eisner, a former entertainment president at ABC, continuing as chairman and chief executive.

Disney is best known for cartoon characters like Mickey Mouse, animated movies like The Lion King and Pocahontas through its distribution arm Walt Disney Studios Motion Pictures (named since Eisner took over in 1985, formerly called Buena Vista), and its Disney World and Disneyland theme parks.

The company, which also has interests in parks in Japan and Europe, operates the Disney Channel on cable television. It has 400 Disney Stores and licenses its characters to manufacturers. Disney also publishes books, magazines and music.

In addition to ABC-TV, Capital Cities has a network of 225 affiliated stations and owns eight TV stations. It plans to acquire two more in August.

It also owns 80 percent of sports cable broadcaster ESPN Inc., has interests in the Lifetime Television and A&E Television Networks cable channels (both joint ventures with Hearst Communications), and has 21 radio stations. It also publishes newspapers, shopping guides, magazines and books, and has interests in international broadcasting.

The acquisition, already approved by the boards of both companies, is subject to shareholder approval and federal antitrust review. The companies said they expected the deal to be concluded by early 1996.

Because the businesses are complementary, the companies said they do not expect jobs will be lost in the combination.

Under the proposal, Capital Cities shareholders would receive one share of Disney stock and $65 in cash for each of their shares. At the close of trading Friday, Disney stock was at $57.37 1/2 a share and Capital Cities at $96.12 1/2. The deal would value Capital Cities at $122.37 1/2 a share. The companies had combined annual revenues of about $16.5 billion in 1994.

The announcement comes at a time of consolidation in the media industry. There have been reports for weeks speculating that Westinghouse Electric Corp. is putting together a $5 billion bid to buy CBS Inc. Recently, Viacom Inc. agreed to sell its local cable television operating systems to Tele-Communications Inc. in a deal valued at $2.25 billion. Gannett Co., the nation's leading newspaper publisher, announced it is acquiring Multimedia Inc., a publisher and producer of talk shows, for more than $1.7 billion.

Eisner said the deal "is a once-in-a-lifetime opportunity to create an outstanding entertainment and media company.″

"Disney and Capital Cities/ABC have created some of the most recognized and respected brands in the world,″ said a joint statement by Eisner and Thomas S. Murphy, chairman of Capital Cities. "The merger will create tremendous value for the shareholders of each company by taking full advantage of the complementary strengths of each organization.″

Murphy will relinquish his titles of chairman and CEO when the merger takes effect and join the Disney board. Robert A. Iger would remain as president of Capital Cities/ABC, but also move to become president and COO of The Walt Disney Company, duties that Eisner has also been effectively handling for the past year, since the death of Frank Wells.

Eisner, appearing with Murphy this morning on ABC's Good Morning America, said the deal fell together a week ago Thursday at an Idaho resort.

"I literally passed Tom Murphy in Sun Valley on the street ... and said, 'Tom, I think the time is right now. Every part of your company is working. Every part of our company is working. There are no fires in any divisions. Disneyland in Paris is doing great. They're No. 1 in prime time. Maybe now is the time,'" said Eisner. "He simply looked at me and said OK.″

Murphy said, "We're not putting two television networks together or two movie studios together or two theme parks together. We're in allied fields but we're in different fields. I don't think there's any domination of the media or any part of the media so that we would be damaging competition at all," he said.

"CBS Accepts Bid By Westinghouse; $5.4 Billion Deal," by Geraldine Fabrikant, The New York Times, August 2, 1995

The Westinghouse Electric Corporation, an early broadcasting pioneer, said yesterday that it had agreed to pay $5.4 billion for CBS Inc., the last independent television network and once the crown jewel of broadcasting.

Westinghouse, primarily an industrial manufacturer, has decided to borrow heavily to bet on broadcasting, which is the smallest but most profitable of its operations. Michael H. Jordan, the chairman and chief executive of Westinghouse, said the deal would create a "premier top-notch outstanding company" with 15 television stations and 39 radio stations that would give it direct access to more than a third of the nation's households.

The announcement came one day after The Walt Disney Company agreed to pay $19 billion for Capital Cities/ABC Inc., a merger that creates the largest entertainment company in the world and makes Westinghouse's task of reviving CBS that much more difficult.

While that deal was seen by rivals and Wall Street alike as the joining of a strong creator of programming with the top-rated network and its extensive cable television operations, the Westinghouse-CBS announcement raised as many questions as it answered.

CBS, once the leader in ratings, has slipped to third place over all and second in news; it has lost some important affiliate stations, and it has no holdings in the increasingly important cable business. Its chairman and chief executive, Laurence A. Tisch, has been widely criticized for cost-cutting and cutbacks at the once-renowned CBS News, the home of Edward R. Murrow and Walter Cronkite, and for selling two core businesses: records and publishing.

But for all that, Mr. Tisch has achieved a striking success for CBS shareholders. Westinghouse will pay $81 in cash for each CBS share; within the last 12 months, the stock has traded as low as $50. During Mr. Tisch's 10 years at CBS, its stock has risen at an annual rate of 14.7 percent. The Loews Corporation, which the Tisch family controls, is CBS's largest stockholder, with 11 million shares comprising an 18 percent stake.

Whether Westinghouse, with little network experience and considerable debt, has what CBS needs was widely debated yesterday.

"The problem is that CBS's difficulties are on the network side, which requires talent in programming," said Dennis Leibowitz, an analyst with Donaldson, Lufkin & Jenrette. "Westinghouse's strength is on the station side, but that is little benefit to CBS."

As word leaked out in recent days that the companies were in negotiations, reaction was divided into two camps. One view was that Westinghouse was paying more than any other interested party considered CBS to be worth; the other was that a higher bidder might now appear, driven by the last clear opportunity to buy a major network.

What makes the network business particularly attractive these days is the shift by the Federal Communications Commission toward letting the networks have far more freedom to produce their own programs.

That gives the networks incentive to find creative partners, who in turn see links to networks as sources of assured air time. By owning a network, producers can guarantee themselves "shelf space" on network television, which continues to provide the largest audiences in the country despite all the talk of alternative technologies and new media.

Much of the speculation about a potential rival bidder was centering on the Turner Broadcasting System, which was interested in CBS 10 years ago, when Mr. Tisch, through Loews, gained control of the network, ending the long reign of William S. Paley. Turner would like a network outlet for its vast library of films and television shows, but it is an open question whether Turner has the resources to make an offer.

Another company with strong programming - and with very deep pockets - is the Seagram Company, which recently acquired MCA Inc. and its Universal Studios.

Adding to the speculation was the news that Mr. Tisch had not contractually committed Loews to sell its CBS shares to Westinghouse. That leaves him the option of selling those shares to any higher bidder that might emerge.

Mr. Tisch had been known for some time to be responding to expressions of interest by insisting on an all-cash offer, a stipulation that might have deterred some interested parties. Now with the merger agreement on the table, all CBS shareholders, not just Mr. Tisch and the other directors, have a voice in determining what is an acceptable deal.

At a news conference at the Waldorf Astoria Hotel yesterday, Mr. Tisch said that if another bidder emerged and topped the Westinghouse offer, CBS would pay Westinghouse a "breakup fee" of 2.5 to 2.75 percent of the $5.4 billion price - at least $135 million.

Unlike Disney, Time Warner or Viacom, Westinghouse is not a big producer of television shows, and from Mr. Jordan's remarks at a news conference yesterday, the company seemed more interested in the stations CBS owns than in the network itself.

That has led some analysts to believe that Mr. Jordan is doing the deal more out of desperation, or frustration with Westinghouse's stagnant performance in recent years, than from a strategic vision.

At the news conference, Mr. Jordan talked about creating a "premier broadcasting company here and around the world." He said the combined television and radio stations would be extremely attractive to advertisers, singling out the radio stations as the "hidden jewels of the merger."

In proclaiming the strength the combination would offer, Mr. Jordan said that with its 15 television stations, the company would be in the 6 largest markets and that in 8 of the top 10 radio markets it would have at least 3 stations.

Those numbers exceed current FCC limits, but Mr. Jordan said he expected "that either legislation or regulatory rule making" would allow Westinghouse to retain all the stations.

Mr. Jordan also said he wanted to create more all-news operations in radio. Westinghouse, with WINS-AM in New York, and CBS, with WCBS-AM in New York, operate the nation's two leading all-news stations.

The deal is not a union of complete strangers. For some time, CBS and Westinghouse have had a cooperative agreement involving program syndication, joint advertising sales and changes in affiliation of some of their television and radio stations.

Westinghouse needs to borrow $5 billion to complete the deal, and Mr. Jordan said Chemical Bank and J.P. Morgan would each provide $1 billion, with the rest still to be arranged.

It may need to borrow slightly more. Westinghouse said yesterday that it would pay CBS shareholders roughly 40 cents a month per share beginning August 31, to protect them in effect against delays in completing the deal. The commitment has no time limit, but Westinghouse is aiming to close the deal by December 31, meaning that the added payment would be no more than $1.60 or so a share.

Mr. Jordan predicted that Westinghouse would be able to reduce its debt by about $3 billion over the next three years, selling $1.5 billion to $2 billion of its assets and increasing revenue by about $300 million a year at the stations. He also said Westinghouse would expand into cable and other new areas, though others did not see how it could, given its debt.

Mr. Jordan did not describe either the structure of the merged company or what its management hierarchy would be. That lack of detail and the news conference in general left many CBS employees dismayed.

Westinghouse is based in Pittsburgh, where in 1920 it opened the nation's first commercial radio station, KDKA. Its other major businesses are making electric power generating equipment, advanced electronic systems and mobile refrigeration equipment.

The corporate headquarters will remain in Pittsburgh, Mr. Jordan said. CBS will remain based in New York, where Westinghouse Broadcasting, also known as Group W, is also based. CBS owns its office building, known as Black Rock, on 52d Street and Avenue of the Americas, and no mention was made at yesterday's announcement of any plans to sell it.

David Londoner, an analyst at Schroder Wertheim, said that acquiring CBS would not necessarily insure a stable future for Mr. Jordan or the company.

"He is risking losing control of the company in the event that CBS continues to slide in the ratings," he said. "If by putting the debt on it to buy CBS, the Westinghouse stock continues to fall, it makes Westinghouse vulnerable to another buyer."

"Turner to Merge Into Time Warner, A $7.5 Billion Deal," by Mark Landler, The New York Times, September 23, 1995

Ending a tumultuous five-week courtship, Time Warner Inc. and Turner Broadcasting System said yesterday that they would merge their sprawling operations, reinforcing Time Warner's position as the world's largest communications company.

Time Warner said it would buy the 82 percent of Turner it did not already own in a stock deal worth roughly $7.5 billion. Ted Turner, the maverick founder of the Cable News Network and the chairman of Turner Broadcasting, is to become vice chairman of Time Warner.

"It took five weeks of fun to get to this point," said Gerald M. Levin, the chairman of Time Warner, who led the negotiations with Mr. Turner. "But this is a sublime combination."

Mr. Turner, who will cede control of his cable-programming company after a decade of fruitless efforts to acquire a television network, said: "I'm tired of being little for my whole life. This is a chance to see the world from a different perspective."

At a crowded news conference in New York that drew Mr. Turner's wife, Jane Fonda, the two executives stood before a wall emblazoned with the powerful brand names the new company would own - everything from CNN and Time magazine to Warner Brothers and the Cartoon Network.

With projected revenues of $19.8 billion, the company would leapfrog even The Walt Disney Company, which is creating a $16.4 billion giant with its planned acquisition of Capital Cities/ABC Inc.

Wall Street's reaction to the deal was muted. But the complex transaction sailed into rough water almost immediately after it was announced yesterday because of thorny management issues and a conflict between Time Warner and another partner, US West Inc.

Moreover, the structure of the deal drew a sharp protest from two other big shareholders in Turner Broadcasting: the Comcast Corporation and Continental Cablevision Inc. The companies said Time Warner treated them unfairly to win the approval of John C. Malone, the chief executive of Tele-Communications, who controls 21 percent of Turner's stock and held veto power over the deal.

US West, a regional Bell telephone company that owns a $2.5 billion stake in Time Warner's film and cable businesses, filed a lawsuit in Delaware Chancery Court yesterday to block the merger. The company said in the suit that the deal violated its partnership contract with Time Warner, since the company would own Turner businesses that compete with the assets in its partnership.

Under the all-stock deal, Turner Broadcasting's shareholders will receive three-quarters of a Time Warner share for each Turner class A or B share. Turner's widely held class B shares fell 25 cents yesterday, to $28.875, while Time Warner's shares rose 87.5 cents, to $40.625

Although media rep Levin had left the management structure of the new company almost wholly undefined.

"Strategically, this deal is terrific," said John Tinker, a media analyst at Furman Selz Inc., "but if it just leads to infighting among the executives, it will not be successful."

Time Warner has been dogged by conflicts in its executive suite since the company was created by the 1989 merger of Time Inc. and Warner Communications. Those problems flared anew during Time Warner's protracted negotiations to acquire Turner.

A main bone of contention is the management of Time Warner's Home Box Office unit. The company said yesterday that it would move the pay-cable network into a newly created video division, which would include Turner's seven cable networks and be headed by Mr. Turner.

When that proposal first appeared several weeks ago, it drew strident opposition from Michael J. Fuchs, the chairman of HBO and a member of the Turner board, according to executives familiar with the talks. These people said that Mr. Fuchs, who is also chairman of Time Warner's music division, did not want to lose control of HBO.

Mr. Levin said the companies would not resolve such management issues for several months. Moreover, he said the merger would effectively dissolve the existing management hierarchy at Time Warner.

"This transaction creates an entirely new structure for the company," Mr. Levin said in a joint interview with Mr. Turner. "Reporting lines, structure and titles are completely meaningless to me."

If Time Warner is dissolving its tangled hierarchy, it is making its new ownership structure very clear. Mr. Turner, who owns about 26 percent of Turner's shares, will become the largest Time Warner shareholder, with 10 percent of Time Warner's voting stock.

Mr. Turner will also join Time Warner's board and will name another director. Executives familiar with the company said Time Warner would pay Mr. Turner roughly the same salary and bonus as Mr. Levin.

Tele-Communications, which holds its Turner shares through an affiliated company, Liberty Media, will end up with a 9 percent stake in Time Warner. But Liberty's shares will be placed in a voting trust to be controlled by Mr. Levin as long as he is chairman of Time Warner.

That is because Federal regulations prohibit one company from owning substantial equity in cable systems that reach more than 30 percent of the nation's households. Together, Time Warner and Tele-Communications reach almost half of America's cable households.

Although he exerted strong influence over Turner Broadcasting as a major shareholder, Mr. Malone said yesterday that he was content to be a passive investor in the combined company.

"This represents a total endorsement by us of Jerry," Mr. Malone said in an interview, "You put together Jerry Levin's strong hand with Ted Turner's creativity and enthusiasm, and you will quickly distance yourself from the rest of the media pack."

But analysts noted that Mr. Levin would not continue to vote Liberty's shares if the Federal regulations on cable ownership were dropped. Mr. Malone said he thought that was unlikely.

Time Warner also agreed to amend its anti-takeover defenses to allow Liberty or another investor to buy more than 15 percent of its voting shares. Under the plan, Time Warner would put into effect the so-called "poison pill" if an investor tried to purchase more than 18 percent of its voting stock.

Mr. Malone said he would not rule out buying more shares. By granting Mr. Levin the right to vote Liberty's shares, Mr. Malone said he also hoped to help Mr. Levin quash any corporate intrigue. "This is like the king and his barons," he said. "You need to give enough power to the guy in charge to hand out rewards and break knees."

Mr. Malone also secured a lucrative deal for Liberty and Tele-Communications in return for approving the merger. In addition to receiving a slight premium for Liberty's class C convertible preferred stock, Time Warner and Turner signed 20-year agreements with Tele-Communications to supply CNN, TNT and other cable networks to the company's cable systems.

That deal provoked a showdown between Turner and two other shareholders, Comcast and Continental. Although both companies are also receiving a premium for their class C shares, Time Warner and Turner have not signed a similar long-term distribution agreement with either of them.

Brian L. Roberts, president of Comcast, and Timothy P. Neher, vice chairman of Continental, are directors of Turner. At a stormy board meeting on Thursday night, both men refused to vote on the merger.

"We are deeply troubled by the process that guided this decision, and particularly by the preferential treatment afforded to one shareholder," Mr. Roberts and Mr. Neher said in a joint statement yesterday.

Executives close to Comcast and Continental said the companies were now considering whether to sue Turner Broadcasting. Mr. Levin said Time Warner was not giving Tele-Communications preferential treatment. And Mr. Malone said the two companies were simply seeking leverage to negotiate similar distribution agreements with Time Warner.

US West poses a potentially greater threat. Mr. Levin dismissed the telephone company's lawsuit as having no merit. But Doug Holmes, the chief financial officer of US West, said his company's agreement with Time Warner specifically prohibited Time Warner from acquiring a cable-programming company like Turner without its approval. US West's investment in Time Warner consists of a 25.5 percent stake in the Warner Brothers studio, Time Warner Cable and HBO.

Mr. Holmes noted that if Time Warner acquired Turner, it would own 75 percent of Warner Brothers, but 100 percent of New Line Cinema, a smaller studio owned by Turner. US West said it feared that Time Warner would tend to steer particularly promising films to New Line.

"That, in a nutshell, is why we're uncomfortable," Mr. Holmes said.

Even if Time Warner mollifies its various partners, it must gain approval in Washington. Federal officials said yesterday that the proposed deal would be closely examined for possible antitrust issues and to determine whether the new entity would have to sell any assets to keep from running afoul of antitrust laws.

Consumer advocates said the deal was worrisome because it would link a leading provider of cable programming with the two largest cable distributors.

Perhaps Mr. Levin's greatest challenge will be to rally the troops behind the combined Time Warner-Turner. Several top Time Warner officials were on hand to express their approval at the news conference.

"I've been in favor of this deal from the very beginning," said Robert A. Daly, the chairman of the Warner Brothers studio. He said Turner's cable networks would be a powerful new distribution channel for Warner's film and television programming.

But even as Mr. Levin proudly gestured to a group of senior Time Warner executives seated in the front row, Mr. Fuchs was watching the presentation alone on a television screen outside the gallery.

"Can Busker Go On Without Tune?", by Peter Marks, The New York Times, October 4, 1995

The Broadway opening of Busker Alley, a $6 million musical that stars Tommy Tune, has been thrown into doubt by an accident in which Mr. Tune broke his left foot during a performance in Tampa, Florida, the show's producers said yesterday.

Barry Weissler, one of the musical's producers, said that Mr. Tune broke the foot on Sunday as he was performing the last number in the show at the Tampa Bay Performing Arts Center, the last stop on an 11-city pre-Broadway tour.

"Tommy came off one of the street lamps, stepped down and broke his left foot," Mr. Weissler said. "He's in a major cast and he's being treated by orthopedic specialists."

Matthew Rich, a spokesman for Mr. Tune, estimated that the injury could take at least six weeks to heal.

With the show scheduled to begin previews at the St. James Theatre in two weeks and to open on November 16, the producers are trying to assess the impact of the accident on the musical's timetable. "It is my wish that this show go on, but I also must face reality," Mr. Weissler said, when asked if Busker Alley could open on time. He said that no decision had been made.

Mr. Tune, meanwhile, has decided to continue to perform on crutches in Tampa, with the show's choreographer, Jeff Calhoun, and a member of the chorus, David Warren-Gibson, splitting the star's dance numbers. "He loves the show," Mr. Rich said. "To him, the play's the thing."

Mr. Weissler added that the show could not open on Broadway with Mr. Tune if he was unable to dance. "We doubt that we could try that in New York," he said of the division of Mr. Tune's performing responsibilities. "It's a different arena; it needs an optimal level of work."

The Tampa performance center had booked the musical in its 2500-seat auditorium for a two-week run.

"Fox, Saban, Morphin' Into Kidvid World," by Joe Flint, Variety, November 5, 1995

Saban Entertainment and Fox Broadcasting Co. have struck a strategic alliance that will look to create children's programming networks worldwide by capitalizing on Saban's library and Fox-parent News Corp.'s distribution strength.

The deal culminates two years of on-again off-again negotiations between the two companies. At one point, Fox was hoping to acquire the company or at least take a stake in it, but Saban Entertainment chairman Haim Saban isn't selling.

"There is a clear need to build the top-rated Fox Children's Network internationally," says Margaret Loesch, president of Fox's moppet web, in explaining the motivation behind the venture. "On an international arena, we will work to build businesses. We have access to Saban's libraries, marketing and distribution, and Saban has access to our platforms." Those platforms include Star TV and British Sky Broadcasting.

Under the terms of the deal, Saban- producer of the hugely successful Mighty Morphin' Power Rangers and X-Men – will remain an independent production company, but programming produced for the venture will appear under the Fox banner. International channels will also carry the shows under the Fox name.

"Saban is free to sell to other people, but if we put any money into the product, then it would be for us," Loesch explained.

Although no cash or stock is changing hands, sources familiar with the deal did not rule out Fox eventually taking a stake in the company down the road.

Fox and Saban are among several companies looking to create a brand name for children's programming worldwide. Warner Bros, also plans on launching several family channels that will rely heavily on its own animated fare. Turner Broadcasting's Cartoon Network and the Disney Channel have similar plans. Loesch says that through Saban's library of more than 3300 shows the venture will be able to "customize entertainment service in whatever regions we serve."

Merchandizing key

The other key component to the venture will be licensing and merchandising. "Our people (in those areas) have done a great job, considering this is not their business," Loesch says. Under the agreement, Saban will get merchandising and licensing fees, with Fox getting revenue.

Fox affiliates, Loesch says, should also benefit by the venture. Affils, Loesch says, will share the wealth on the international front. Fox affiliates are due to receive payments for FCN when the venture turns profitable later this year.

Loesch will continue to oversee the successful FCN. Fox is understood to want to renegotiate her current contract and lock her up in a long-term deal.

Whether Saban will ultimately look to sell a stake in his company remains to be seen.

The privately held corporation has at times had partners. In 1988, Compagnie Luxembourgeoise de Telediffusion, one of Europe's largest broadcast groups, had a 25% stake in Saban and later acquired a 50% stake in the company's animation studio in Paris. Earlier this year, Saban bought out CLT.

Rising revenues

Saban's revenues for the last year are said to be more than $500 million. The company saw its fortunes rise with the massive success of Mighty Morphin' Power Rangers.

Saban's joint venture with the United Paramount Network will not be impacted by the Fox deal.

However, UPN is said to be in talks with several children's program suppliers, including Disney, DreamWorks and Marvel.

Saban is not without its baggage. The company is currently embroiled in a lawsuit with its former licensing vice president Debora Young. In her $2 million suit against the company, Young alleges that she was terminated without cause and that the company refused to pay her bonus.

"Accident Brings Curtain Down On Buskers," by Bruce Lambert, The New York Times, November 19, 1995

Street entertainers lead an uncertain existence, eluding the police and depending on the generosity of strangers. So they were delighted at the prospect of Broadway featuring their profession in the musical Busker Alley. Better yet, the show sought real buskers (the British term for strolling entertainers) to perform outside the St. James Theater on West 44th Street before the curtain rose and at intermission.

Many acts auditioned; four were hired. Each was to be paid $50 per show, plus whatever they collected by passing the hat among spectators.

Alas, the promise of a regular gig proved too good to be true. Last month's scheduled Broadway opening of Busker Alley was canceled after its star, Tommy Tune, broke his foot in Florida, near the end of a five-month, 11-city preview tour. Once again, the itinerant buskers were back on the street.

"It was great idea, and we had a lot of hopes," said one of them, Alexander Vosk. "I don't know what to do next. Usually in the winter we might go to L.A. or go south. I'm trying to get bookings for private parties, but it requires money to advertise."

The stars of Mr. Vosk's act are Foxy, Inky, Piggy and Porky, four French poodles, all graduates of the Moscow Circus. Dressed in bright costumes with frills and sequins, they stand on their hind legs and hop, jog and perform ballerina spins. The three other luckless acts booked for Busker Alley involved jugglers, acrobats and a fire-eating magician.

Mr. Vosk, who has put his prancing poodles though their paces in midtown and Central Park, said he usually makes anywhere from $30 to $150 in four hours. But after touring the West Coast, Germany, France and Spain, he rates New York as the toughest town for buskers.

The problem, he said, is not the crowds but the police. In other cities the police are more tolerant of street performers, according to Mr. Vosk; here they threaten to hand out summonses. "You're pleasing thousands of people," he said, "and it's unbelievable how much hassle you get."

Although the cancellation of Busker Alley was a big disappointment to the buskers, their losses were minor compared to those of the show's backers. The production cost $6 million, only part of which was insured. While the producers have not ruled out a resurrection, the foot so essential to the show's success is far from healed.

Another casualty is the gigantic dancers with stilt-like legs that LeRoy Neiman painted on the St. James Theatre facade. Their days are numbered, now that a replacement show is booked there. Barry Weissler, a producer of Busker Alley, said Mr. Neiman is resigned to their early demise, but "it broke his heart."

"Kimberly-Clark Completes $9.4 Billion Purchase of Scott Paper: Firm Likely to Cut Jobs, Take Hefty Charge and Sell Several Units," Los Angeles Times, December 13, 1995

Kimberly-Clark Corp. completed its $9.4 billion purchase of Scott Paper Co. on Tuesday after reaching an agreement with antitrust regulators over the sale of some assets.

Under a sweeping restructuring as part of the acquisition, Kimberly-Clark is expected to sell several non-consumer businesses, fire workers and take a charge of as much as $1.5 billion.

Company Chairman Wayne Sanders is scheduled to provide details of the restructuring to analysts in New York today. Executives at both companies discussed parts of the strategy with analysts in recent weeks, though the final plan may be more aggressive than first thought, some analysts said.

"They're talking about a $1.5 billion charge, and that covers a lot of things," said Mark Diverio, an analyst with UBS Securities in New York.

The restructuring follows Tuesday's votes by both companies' shareholders to approve the acquisition of Scott Paper. The purchase creates the nation's second-largest consumer products company, whose $12 billion in annual sales is behind Procter & Gamble Co.

The new, larger Kimberly-Clark is expected to focus on its consumer products, which include Scott bathroom tissue, Viva paper towels, Kleenex tissue, Huggies diapers and Kotex feminine hygiene products.

Some investors like that decision. Kimberly-Clark shares were up $1.625 at $78.50, while Scott Paper shares rose $1.50 to $61.125, both on the New York Stock Exchange.

Scott Paper shareholders received 0.78 share of Kimberly-Clark stock for each Scott Paper share under terms of the acquisition, which was announced July 17. Scott Paper has 152.19 million shares outstanding.

Kimberly-Clark said it reached agreement with antitrust regulators over the sale of some assets.

To resolve complaints by federal and Texas state authorities that the merger would hurt competition, Kimberly-Clark agreed to sell Scott's Scotties facial tissue business and its Baby Fresh, Wash a-bye Baby and Kid Fresh baby wipes businesses, Justice Department officials said.

"The Media Business; Disney and ABC Shareholders Solidly Approve Merger Deal," by Geraldine Fabrikant, The New York Times, January 5, 1996

Shareholders of The Walt Disney Company and Capital Cities/ABC approved a merger yesterday, and Disney executives said they expected the deal to clear the final hurdle of Government approval in the next few weeks.

Speaking to a packed shareholder meeting at the Waldorf-Astoria Hotel, Disney's chief of operations, Sandy Litvak, said the merger was scheduled for a vote by the Federal Communications Commission on January 18 but because of the government shutdown, the vote could be postponed. If the FCC votes on schedule, Justice Department approval could come shortly afterward, which would make the merger final.

During the meeting, attended by about 4000 shareholders and others, Disney's CEO and chairman, Michael Eisner, went out of his way to praise ABC's news division.

"I am affirming my commitment that ABC will continue to operate in the public interest without corporate interference and with the mission of pursuing the news aggressively, and reporting it without fear or favor," Mr. Eisner said.

There have been concerns that Disney might try to exert some control over news and Mr. Eisner was apparently eager to reassure ABC news executives that Disney would not do so.

Harold Vogel, an analyst who follows Disney for Cowen & Company, said yesterday that Disney was anxious to keep the successful news operation intact since it was one of the linchpins of the company's plan to expand its cable business abroad. ABC is starting a 24-hour business news service that it hopes to export overseas and Disney wants to expand ABC's successful sports channel, ESPN, abroad. Additionally, Mr. Vogel said Disney might be concerned about raising objections at the FCC.

One mystery that continued yesterday among shareholders concerned how much stock the investor Warren E. Buffett would choose to take in the new company. Mr. Buffett's company Berkshire Hathaway currently owns 13 percent stake, or 20 million shares of Capital Cities/ABC, and can choose the combination of Disney stock and cash he takes from the deal.

Investors are watching carefully because if Mr. Buffett leans heavily toward stock it would represent a vote of faith in Disney. Disney executives said yesterday that they did not know Mr. Buffet's preferences.

Capital Cities/ABC shareholders are set to receive $65 a share in cash and one share of Disney stock for each share of Capital Cities/ABC stock. If all shareholders settled for the standard payout, Disney would issue 155 million new shares and spend $10 billion in cash.

But Capital Cities/ABC shareholders can ask for more stock or cash once the merger is completed. Disney has said it will meet those requirements to the degree that it can but will not issue more than 155 million new shares of Disney stock.

Peter Russ, an analyst at Shelby Cullom Davis & Company, said that investors would probably only learn of Berkshire's position in the first quarterly report following the merger or the company's next annual report. Mr. Buffett did not return phone calls.

Both shareholder groups approved the merger by a wide margin. But 16 percent of Disney shareholders voted against a new stock option plan that allows Disney to issue 65 million additional shares.

Ann Yerger, deputy director of the Investor Responsibility Research Center, said Disney's new option plan, together with other shares available and outstanding options as of September 30, 1995, meant that the company could have as much as 16.7 percent more shares outstanding than it does now. Ms. Yerger said that number was high relative to other companies in the entertainment industry, though not high in comparison with some technology companies.

Although many shareholders do not like such dilution, Ms. Yerger noted that shareholders might base their judgment on Disney's performance. "Some investors have a sniff test," she said. "Some factors may raise a red flag, but other factors mitigate it."

Disney has made some of the largest grants of options in the entertainment industry, including grants of eight million shares each to Mr. Eisner and a grant of five million shares to Disney's interim president, Michael Ovitz, who will soon leave to make way for ABC head Robert A. Iger to be Disney's president and COO.

Graef Crystal, a compensation expert who is an adjunct professor at the University of California at Berkeley's Haas School of Business, said one reason for the size of the new option program might be to provide for additional options for Mr. Eisner, whose contract is up in 1998. A company spokesman said the new option plans were a move to accommodate the number of executives coming into the merged company.

"The Shredder," by John A. Byrne, BusinessWeek, January 15, 1996

Did CEO Dunlap Save Scott Paper-or just pretty it up?

Albert J. Dunlap had just completed the biggest deal of his life. On December 12, Scott Paper Co. shareholders approved his $9.4 billion merger with Kimberly-Clark Corp. amid cheers at Florida's luxurious Boca Raton Resort & Club. "It was almost like a rock concert," says "Chainsaw Al," as he is known to detractors and friends alike. Rather than pop the cork on a bottle of champagne, however, Dunlap went home to his wife, Judy, for what he describes as a "quiet and pensive" evening. "It was a bit of an empty feeling for me," he says. "There was this hollowness there. It was like part of me was gone."

Investors and Wall Street analysts did plenty of celebrating, though. The deal created a $12 billion global consumer products company. And it represented a professional triumph for Scott Chairman and CEO Dunlap, who has won widespread plaudits for transforming Scott from a stodgy, tired underperformer into a profit powerhouse. Under his leadership, Scott's stock rose 225%, adding $6.3 billion in value to the company. The latest numbers for the world's largest maker of tissue products left nearly everyone dazzled: Thanks to hefty price hikes and deep cost-cutting, third-quarter earnings more than doubled, to a record $155.4 million, surpassing even the rosy expectations of Wall Street.


Dunlap is hardly demure about what he has wrought. "The Scott story will go down in the annals of American business history as one of the most successful, quickest turnarounds ever," he says. "It makes other turnarounds pale by comparison." In the process, Dunlap transformed himself into a high-profile business leader and outspoken champion of the shareholder. "He has been a wake-up call to a lot of CEOs, and he has been good for American business," says Wayne R. Sanders, chairman of Kimberly-Clark.

Little known before his arrival at Scott in April 1994, the 58-year-old Dunlap has garnered widespread attention and acclaim in the media. He now speaks before MBA students at Wharton and Harvard business schools, and a ghostwriter is hard at work on his autobiography. Headhunters canvas the boards of other sleepy companies that need to be, as Dunlap so willingly puts it, "Dunlapped."

Much as his brief tenure at Scott did for Dunlap's reputation, it did more for his personal worth. After less than two years' work, Dunlap walked away with nearly $100 million in salary, bonus, stock gains, and other perks. Kimberly-Clark had agreed to pay Dunlap and a corps of his loyal lieutenants an extraordinary $41 million in the most lucrative noncompete agreement ever crafted in American business. Dunlap alone got $20 million in exchange for his agreement not to work for a rival for five years, while five senior executives pocketed $4.2 million each.

But critics inside and outside Scott say Dunlap is leaving the company in a much less healthy position than he claims. While it is reporting record profits and while investors have reaped big gains, Scott is losing U.S. market share in its three major product fields: paper towels, bathroom tissue, and facial tissue. Dunlap maintains the numbers are "distorted" because he weeded out numerous unprofitable products. Yet sales numbers in the U.S., according to an independent research firm, are down in such key brands as Cottonelle bath tissue, Scotties facial tissue, and the renamed Scott Clean paper towels. In Britain, an important overseas market, Scott's share in toilet paper has fallen from 31.5% to 26.4% in the past two years, according to A.C. Nielsen Co.

Former execs say that's partly because Dunlap cut plenty of muscle along with the fat-pumping up short-term results at the expense of long-term health. More than 11,000 people-71% of headquarters staff, 50% of the managers, and 20% of hourly workers-saw their jobs eliminated under Dunlap. At the same time, he slashed spending on research and development and staff training. These former executives believe the deep cuts in both workforce and long-term investment will make it hard for Kimberly to achieve the full $600 million in "synergies and cost reductions" that Wall Street is expecting from the combined companies.

What galls many former executives, employees, and union leaders is their belief that Dunlap and his team took credit for improvements that had been in the works for months, if not years. Scott's board of directors began to consider the $1.6 billion sale of publishing papermaker S.D. Warren Co.-which Dunlap himself calls "the linchpin of my strategy"-in the spring of 1993, a full year before Dunlap arrived. A modern tissue mill in Owensboro, Kentucky, that Dunlap opened with great fanfare last May had been under way since 1990, when managers selected the site. Several of the new products that Dunlap's team claims responsibility for are the result of years of effort by ousted staffers. Even many of the employee layoffs had already been approved by Scott before Dunlap came on board. Counters Dunlap: "It's one thing to make an announcement. It's another to actually do it."


Then there are the human and social costs of Dunlap's tenure. Besides the thousands of employees laid off, many more were cut loose after Scott sold various pieces of itself. Several communities have lost a generous corporate citizen-especially in the Philadelphia area, where the company was headquartered from its founding in 1879 until last year. Before moving the world headquarters to Boca Raton, Florida-just after he bought a $1.8 million house there-Dunlap also eliminated all corporate gifts to charities, even reneging on the final $50,000 payment of a $250,000 pledge to the Philadelphia Museum of Art.

The debate over what a company owes its shareholders and what it owes its stakeholders-the people who work for it and the communities in which it operates-is a long-running one, of course. But rarely have the issues been placed in such stark relief as at Scott. Because Dunlap openly revels in his "Chainsaw" sobriquet and loudly trumpets his slashing tactics, he is helping change the norms of acceptable corporate behavior, argues Peter D. Cappelli, chairman of the management department at Wharton. "He is persuading others that shareholder value is the be-all and end-all," says Cappelli. "But Dunlap didn't create value. He redistributed income from the employees and the community to the shareholders."

There's no question that before Dunlap's arrival on April 19, 1994, Scott Paper was a prime example of a moribund bureaucracy. Founded by brothers Irvin and Clarence Scott, it was the first to market rolls of tissue for use as toilet paper. Over the years, Scott became the world's largest supplier of toilet tissue, paper napkins, and paper towels: Sales grew to $5.4 billion in some 20 countries by 1990. But tough competition from rivals such as Procter & Gamble Co. began to erode profit margins as early as the 1960s. And like many old-line American companies, Scott was slow to react.

Enter Dunlap. A West Point graduate and former paratrooper, he has made a career out of being aggressive and decisive. By his count, Dunlap has turned around eight ailing companies. In the early 1980s, he worked his magic on a badly troubled Lily-Tulip Inc. by firing half of headquarters staff and 26% of salaried employees. Then he helped Sir James Goldsmith turn around his U.S. operations. Dunlap got the nickname "Chainsaw" from a Goldsmith friend who admired Dunlap's ability to cut fat from bloated companies.

When Scott's board of directors was looking for a replacement for Chairman and CEO Philip E. Lippincott, Dunlap was in retirement. He had quit a job in Australia after two years as managing director of Consolidated Press Holdings Ltd., the TV and magazine empire owned by billionaire Kerry Packer. The board's decision to hire Dunlap, Scott's first outside CEO, was made with the expectation of quick action.

The board got more than it bargained for. Dunlap brought a leveraged buyout mindset to Scott: slashing expenses, ditching assets, and paring debt. He showed his impatience with old-fashioned notions of corporate behavior. Touring a Scott plant, Dunlap asked an employee how long he had worked there. The worker, recalls a colleague, proudly replied that he was a 30-year veteran. "Why would you stay with a company for 30 years?" asked Dunlap incredulously.


Within two months of his arrival, he wrote a brutal prescription for Scott. There would be major changes in management, a restructuring that would eliminate 35% of the employees, outright sales of units unrelated to Scott's core tissue business, and a new strategy for the future. "Scott was a beached whale," he says, noting that it had lost market share for four years in a row, lost $277 million the year before he arrived, and had seen its credit standing deteriorate. "People have to understand that I didn't create the problem."

While Dunlap's cuts went far and deep, he told employees that his goal was to reinvest in the business and fashion a clear vision for the future. But many survivors say it soon became clear he was interested in selling out. "At the employee meetings, he spoke about building the company," recalls a former marketing executive. "But by the end of 1994, it just became a volume-driven plan to pretty up the place for sale."

Dunlap bristles at the charge. "That's pure bullshit," he says, ticking off a list of achievements during his time at Scott: It introduced 107 new products last year, signed its first joint ventures in China, India, and Indonesia, and redesigned its packaging worldwide. "It has nothing to do with the short term," he says. "What I've turned over to Kimberly-Clark is a corporation with a laid-out strategy, new products, and new facilities." Kimberly-Clark's Sanders has no doubts about the deal. A spokesperson says the merger gives Kimberly far greater reach around the world in a broader range of products. "Now we have a stable of some of the best-known brands in the world," says Tina S. Barry, a Kimberly-Clark vice president.

But of those 107 new products Dunlap points to, nearly half are accounted for by changes in packaging of a single product and the upgrading of another. Marketing chief Richard R. Nicolosi concedes that Scott counts as 22 "new products" the repackaging of Scott Clean paper towels in 22 countries. Another 22 come from upgrading its basic Baby Fresh wet wipes to a thicker, quilted product in those same 22 countries.

Dunlap's boasts about signing joint-production agreements in China, India, and Indonesia also rankle the former executives who laid the groundwork for those initiatives years earlier. The foundation for the joint agreement to produce tissue paper with Shanghai Paper Co. in China, for example, was laid in 1988, when Scott bought a small outfit in Hong Kong, according to a former executive.

Even Dunlap's rhetoric about layoffs doesn't quite match reality. Many of the employee cuts had been approved by Scott's board under Lippincott. "The cutbacks on the hourly side had been agreed to before Dunlap ever came into the picture," says Donald L. Langham, international vice-president for the United Paperworkers Union. "He just rushed up the process."

It's also clear that Dunlap and his top aides began exploring the possibility of selling Scott within months of their arrival. Merger documents filed with the Securities & Exchange Commission show that Salomon Brothers Inc. had been retained in "late 1994" to begin shopping the company. By December and January, Salomon had already identified two dozen potential acquisitors, including Kimberly-Clark.

Beginning in late 1994, former managers say, Dunlap's team began making moves that suggested their time horizons weren't very long. Scott's R&D budget was slashed in half, to about $35 million, and 60% of the staffers in R&D were eliminated. At Nicolosi's behest, the marketing department began weekly volume forecasts, up from monthly reports. "We're talking about a whole new definition of short term," says a former Scott marketer.

The cost-cutters didn't go after just R&D. They also forbade managers from being involved in community activities because that would take away from their business duties. They banned memberships in industry organizations that allowed managers to network with competitors. They also scrapped a yearly event at which Scott met with its leading suppliers to improve relationships and get better prices for goods. Dunlap saw the meeting as a waste. "This was nonsense," he says.


Former company officials, on the other hand, say Dunlap's take on purchasing was nonsense. The meeting was part of a major reengineering of this function begun in late 1991. Scott winnowed some 20,000 suppliers to about 1000, knocked off more than $100 million in annual purchasing costs, and wrote up plans for a 75% reduction in the 200-employee department-all before Dunlap arrived. "The numbers were showing up just as Dunlap was coming through the door," says Theodore R. Ramstad, former director of worldwide procurement.

There were still other occasions when the Dunlap forces claimed credit for initiatives begun by their predecessors. One of the most innovative of Scott's new products is a baking soda-laced toilet tissue, Cottonelle. "It was one of the initiatives that we created and put into the marketplace," boasts Nicolosi, a former P&G executive Dunlap had met on the clay tennis courts of the Boca Raton Hotel and recruited as marketing chieftain. But former marketing staffers say they had been working on this product since 1991. "That did not happen in two months," notes a former executive.

Another claim that doesn't stand up to scrutiny: Dunlap says he was at Scott only one week when he took his ax to the lethargic 11-person executive committee. "I got rid of 9 of the 11, and the other two I gave more responsibility," he says. How did he know so fast whom to fire? "I've done enough of these before," he says. "Each time you do one, you get a little smarter. And after a while, it's almost predictable."

In fact, Dunlap didn't fire any of the 11 in the first week. Three had already announced plans to retire before he arrived. Another three were simply taken off the committee but remained employed by Scott. Four others-including two senior vice presidents, the general counsel, and the vice president for human resources-were axed on May 26-five weeks after Dunlap came aboard. Another was let go a month later. "It's a fish story that gets better with each telling," laughs one former member of the committee. Retorts Dunlap: "It was pretty quick."

In their place, Dunlap installed a six-person operating committee. It included three executives he recruited: Russell A. Kersh, who had worked with him for nearly a decade at both Lily-Tulip and under Goldsmith; John P. Murtagh, a lawyer he had also met at Lily and had retained for the Goldsmith group; and Nicolosi, the marketing honcho.

Scarcely a year after they came on board, Dunlap sent senior vice presidents Kersh and Murtagh to begin merger negotiations with Kimberly-Clark. On June 16, the pair-along with Salomon Managing Director Mark C. Davis, who had also worked with Dunlap previously and whose firm gained $28 million on the deal-worked out juicy details of the severance and noncompete payments for Dunlap and five other top members of his team. Kersh, who arrived at Scott in mid-June 1994, is walking away with $16.4 million. Murtagh, who joined Scott on June 9, 1994, is leaving with $15.9 million. Nicolosi, who came aboard the Dunlap express that August, is getting $17.2 million for 16 months of work. Basil L. Anderson, chief financial officer, leaves with $14.9 million.


All this is salt in the wound to those who have lost their jobs. Jerry Michael Chambless, 49, had worked in Scott's paper plant in Mobile, Alabama, for 29 years before being axed as a $60,000-a-year supervisor in the big bloodletting of August 1994. He has been unable to find another job, is under increasing financial pressure, and a stroke has put him in a wheelchair. "He will never be able to do anything again," says his wife, Marty. The Chamblesses and their two children, 7 and 10, are living on Social Security payments of $12,000 a year and may have to sell their house.

Another Mobile employee, Emory Michael Cole, 58, had followed his dad's footsteps, joining Scott's labor pool at $1.72 an hour on November 17, 1958. Four of the seven boys in the Cole family had worked for the company at one time or another. Over 37 years, Cole worked himself up to a supervisory job and a $72,000-a-year salary. On August 16, 1994, he was called in from vacation and fired. "I wanted to work four or five more years to get my full retirement, nearly $4000 a month," he says. Instead, he'll get a monthly pension of $2670.


Dunlap says he is not insensitive to the pain his measures have inflicted. "People say I've made a lot of money off the backs of people by cutting all these jobs," he says. "I find that personally offensive. I come from a working-class family, a father who was a union steward at the shipyards and a mother who worked in the five-and-dime. If I have to get rid of 35% of the people to save 65%, that's what I am going to do. It was me or Dr. Kevorkian."

Problem is, the 65% who survived don't feel much as if they were saved. The day after the merger's completion, Kimberly-Clark said it would cut 8,000 of the combined companies' 60,000 workforce by 1997. Among other things, Kimberly said it would shutter Scott's headquarters in Boca Raton-an announcement it made the same day that local officials received Dunlap's request for a $156,000 incentive grant for job creation.

His supporters insist that what ultimately counts is the $6.3 billion in value that Dunlap created. Some of the stock's rise, however, can be attributed to Wall Street speculation that the company would be sold. The day Dunlap's appointment was announced, a highly respected Brown Brothers Harriman & Co. analyst, Kathryn F. McAuley, ran a check on his previous experience. Recalls McAuley: "I said to myself: 'Well, the board sold the company.' When you looked at his background, you realized that what he had done best was sell companies."

In any case, Dunlap's "empty" feelings on his day of celebration are probably shared by thousands of other Scott employees. "His sentence should be to run the company as it is for five years," says a former high-level Scott executive. "He would never be able to do it. Scott is just a hollow core." Kimberly-Clark Chairman Sanders may have been right when he said Dunlap had been a wake-up call to a lot of CEOs. But the lesson to be drawn from his tenure at Scott may not be quite the one Sanders had in mind.

"MCA Offers $200 Million to Acquire a 50% Stake in Interscope Records," by Chuck Philips, Los Angeles Times, January 19, 1996

MCA Inc. entered into high-level talks Thursday to purchase a 50% stake in Interscope Records, the controversial Westwood-based label that Time Warner Inc. dumped four months ago following a national controversy over rap music lyrics.

Although no contract has been signed and several elements of the deal are still to be resolved, key sources predicted that an agreement will be consummated before Monday.

Risking a storm of controversy, MCA has offered Interscope about $200 million to purchase a half-stake of the label, with an option to acquire the remainder after five years, sources said.

MCA apparently is willing to risk the criticism because adding Interscope would bolster MCA's penetration in the all-important rock market, as well as move the firm from the sixth-largest to No. 4 in the domestic music industry. Interscope is widely regarded as the top new firm in the business, consistently breaking new acts in the rock, rap and rhythm and blues genres.

Since its acquisition by Seagram Co. in June, Universal City-based MCA has moved aggressively to capitalize on the chaos at Warner Music Group, courting five ousted Warner executives and now Interscope.

Interscope triggered a political uproar last year after critics accused the Time Warner-affiliated company of profiting from offensive pop albums. Interscope distributes explicit rap and rock music on the cutting-edge Death Row and Nothing/TVT labels, whose rosters include Dr. Dre and Nine Inch Nails.

C. DeLores Tucker, chair of the National Political Congress of Black Women, who launched last year's anti-rap campaign, said she has already sent letters to Time Warner's competitors-including MCA-warning them to stay clear of Interscope.

"Whoever picks up Interscope is going to be our next target," Tucker said Thursday. "As long as Interscope continues to sell porno gangsta rap to our children, we're going after them."

Representatives for MCA declined to comment Thursday.

Under the MCA proposal, Interscope would retain complete creative control over the label's recordings. But sources said that MCA, unlike Time Warner, would not be required to distribute products that it deemed "too controversial." An oral agreement has been reached that would allow Interscope to distribute potentially offensive material elsewhere, sources said.

Industry analysts doubt that Tucker or other rap critics will have much luck attacking MCA, because, unlike Time Warner, it is owned by Seagram, a Canadian-based liquor company. Some executives question the effectiveness of Tucker's crusade as streams of potentially offensive rock and rap albums continue to be released on labels owned by Time Warner and other record companies.

Although Interscope has often been painted in the news media as a "gangsta rap" company because of its association with Dr. Dre and Snoop Doggy Dogg, the bulk of its artist roster consists of top-selling rock acts such as Bush, Primus, Deep Blue Something and the Toadies.

Pushing the boundaries of mainstream pop by transforming underground acts into MTV stars, Interscope has sold more than $380 million in albums in the United States in the last three years-cornering more than 2% of the total U.S. market.

Founded five years ago by record producer Jimmy Iovine and media entrepreneur Ted Field, Interscope is widely regarded as the most successful new label to arrive on the scene since Geffen Records in the early '80s. Geffen, which releases music by such acts as Nirvana, Hole and Guns N' Roses, is already owned by MCA. With Interscope, MCA would immediately bolster its credibility as a leading force in the crucial rock market.

The Interscope deal marks the first big move by new MCA Music Entertainment Chairman Doug Morris, who flew into town Monday to convince Interscope to join MCA instead of Thorn-EMI and PolyGram, both of which made competing bids.

Some of the key details of the deal were hammered out Thursday by Morris and Seagram Chairman Edgar Bronfman Jr. as they flew back to New York on the corporate jet.

Sources said MCA's offer includes an option to buy the remaining half of Interscope in 2001. The value of the remaining 50% will be determined by a formula that takes into account the firm's performance over the next five years; it is likely to exceed $100 million.

MCA's New Tune

MCA executives, in a move that would transform the Seagram entertainment conglomerate into a rock powerhouse, said Thursday that they want to buy a 50% interest in controversial Interscope Records. The move is yet another example of an effort by MCA to capitalize on the chaos at Warner Music, which dumped Westwood-based Interscope four months ago after complaints about the explicit lyrics of its rap and rock music. MCA has also courted five ousted Warner executives and hired its former music group executive, Doug Morris.


Although MCA has the nation's strongest country music division, it never got a foothold in the crucial rock market, and its once-booming black music division has sagged. By adding Interscope's roster of alternative groups to those it has at its Geffen Records division, MCA hopes to be an immediate player in rock.


Interscope has become one of the most successful start-up record companies ever. Although its roster is the envy of the record business, it has elicited sharp criticism from some-most notably GOP presidential front-runner Bob Dole (R-KS)-who say some of its groups' lyrics are offensive.

"What Evil Lurks in the Heart of Ron?" by David Leonhardt, BusinessWeek, January 22, 1996

Critics say Perelman is gutting Marvel's comic book business

Deep amid the glaring yellows, magentas and cyans, there is a loathsome new villain in Comic Book Land, one as diabolical as Lex Luthor and as evil as Dr. Doom. His name is Ronald O. Perelman. And his weapon, enemies say, is more potent than kryptonite. It's the ax-the one he used on January 4 to lay off 275 of 1700 employees at Marvel Entertainment Group, the comics industry leader, of which the billionaire investor owns 80 percent.

Perelman's fiendish strategy: boost profits by de-emphasizing cartoon publishing and focusing on the low-overhead licensing of characters such as Spider-Man and the X-Men. He wants to open Marvel-themed restaurants in New York, London and Las Vegas, where he hopes to open a casino. And he has bought half of a toy company to manufacture Marvel action figures. Perelman's executives have even signed deals to put Spider-Man on candy bar and fast food wrappers. From there (evil laugh), the world! Ultimately, the cigar-chomping dealmaker wants to become a major media player, and he is already moving into television production.

In fact, Marvel's licensing revenue, mostly from television cartoons and video games, has soared to $50 million from almost nothing in seven years. And CD-ROM and online products are in the works. "The comic book is just one of the ways we can exploit these characters," says Marvel CEO William C. Bevins.

Critics say Perelman is simply bleeding profits from the venerable company-and running it into the ground. "The suits took over. People began to make marketing decisions who knew nothing about the product," says Herb Trimpe, a longtime Marvel artist. Indeed, the company's recent history isn't pretty. A decade ago, Marvel owned 70 percent of the comic book market. By 1994, that percentage had plummeted to 32. Marvel's stock has sunk to 13 from 34 1/4 near the end of 1993.


Marvel has alienated readers by stretching plotlines over as many issues as possible. And stories too often cross over into other characters' books, so fans have to buy more issues to figure out what is going on. "Marvel has no integrity among their books and is in it to make money any way they can," says Jess Nevins, a 29-year-old graduate student and toon fan from Boston. Many top writers and artists, frustrated by the tactics, have left the company.

Marvel admits that, in catering to speculators who stormed the comics market in 1992, it undermined the quality of its books. Now, it says it's weeding out weaker titles, excising gimmicks such as holograms and returning to its old strength: storytelling. While Marvel's plans for a Spider-Man movie are languishing, the company says it will have two major films based on other characters out in time for Christmas 1996. Such moves may well boost the bottom line. They may also cheer the comic die hards still mourning the death of "the old Marvel." Could the evil Ron Perelman be a hero in disguise? Stay tooned.

"Disney to Acquire Pixar Animation Studios," PRNewswire, January 24, 1996

Burbank, CA and Richmond, CA – Furthering its strategy of delivering outstanding creative content, Michael D. Eisner, President and Chief Executive Officer of The Walt Disney Company (NYSE: DIS), announced today that Disney has agreed to acquire computer animation company Pixar Animation Studios in an all-stock transaction, expected to be completed by this summer. Under terms of the agreement, 2.3 Disney shares will be issued for each Pixar share. Based on Pixar's fully diluted shares outstanding, the transaction value is $2.4 billion.

This acquisition, coming soon after the official approval of Disney's $19 billion purchase of Capital Cities/ABC, combines Pixar's rising creative and technological resources with Disney's unparalleled portfolio of world-class family entertainment, characters, theme parks and other franchises, resulting in vast potential for new landmark creative output and technological innovation that can fuel future growth across Disney's businesses. Garnering an impressive box office and award nomination run with the release of last year's Toy Story, Pixar's creative team and global box office success have made it a potential leader in quality family entertainment through incomparable storytelling abilities, creative vision and innovative technical artistry.

"With this transaction, we welcome and embrace Pixar's unique culture, which has already fostered one of the most innovative and successful films in history. The talented Pixar team has delivered outstanding animation coupled with compelling stories and enduring characters that have captivated audiences of all ages worldwide and redefined the genre by setting a new standard of excellence," Eisner said. "The addition of Pixar significantly enhances Disney animation, which is a critical creative engine for driving growth across our businesses. This investment significantly advances our strategic priorities, which include – first and foremost – delivering high-quality, compelling creative content to consumers, the application of new technology and global expansion to drive long-term shareholder value."

Pixar President Ed Catmull will serve as President of the new Pixar and Disney Animation Studios, reporting to Eisner and Joe Roth, Chairman of The Walt Disney Studios. In addition, Pixar Executive Vice President John Lasseter will be Chief Creative Officer of the animation studios along with Roy Edward Disney and Animation Studios chairman Peter Schneider, CCO of Pixar, as well as Principal Creative Advisor at Walt Disney Imagineering, where he will provide his expertise in the design of new attractions for Disney theme parks around the world, reporting directly to Eisner. Pixar Chairman and CEO Steve Jobs will be appointed to Disney's Board of Directors as a non-independent member. With the addition of Jobs, 11 of Disney's 14 directors will be independent. Both Disney and Pixar animation units will retain their current operations and locations, and Pixar will continue to have its own financing source in place thanks to the earlier IPO.

"Disney and Pixar can now collaborate without the barriers that come from two different companies with two different sets of shareholders," said Jobs. "Now, everyone can focus on what is most important, creating innovative stories, characters and films that delight millions of people around the world."

"Pixar's culture of collaboration and innovation has its roots in Disney Animation. Our story and production processes are derivatives of the Walt Disney 'school' of animated filmmaking," said Dr. Catmull. "Just like the Disney classics, Pixar's films are made for family audiences the world over and, most importantly, for the child in everyone. We can think of nothing better for us than to continue to make great movies with Disney."

The acquisition brings to Disney the talented creative teams behind the tremendously popular original Pixar blockbusters to come, who will now be involved in the nurturing and future development of these properties, including potential feature animation sequels. Disney will also have increased ability to fully capitalize on Pixar-created characters and franchises on high-growth digital platforms such as video games, broadband and wireless, as well as traditional media outlets, including theme parks, consumer products and live stage plays.

"For many of us at Pixar, it was the magic of Disney that influenced us to pursue our dreams of becoming animators, artists, storytellers and filmmakers," said Lasseter. "For 10 years we have created our shorts, and now our films in the manner inspired by Walt Disney and the great Disney animators – great stories and characters in an environment made richer by technical advances. It is exciting to continue in this tradition with Disney, the studio that started it all."

"The wonderfully productive partnership that exists between Disney and Pixar provides a strong foundation that embodies our collective spirit of creativity and imagination," said Roth. "Under this new, strengthened animation unit, we expect to continue to grow and flourish."

Disney first entered into a feature film agreement with Pixar in 1991, resulting in the release of Toy Story, which has been hailed as an instant classic upon its release in November 1995. Disney had been looking to merely extend their relationship in a joint venture, but chose instead to acquire the company and ensure that Pixar remains a cherished unity of the Disney empire.

The Boards of Directors of Disney and Pixar have approved the transaction, which is subject to clearance under the Hart-Scott-Rodino Antritrust Improvements Act, certain non-United States merger control regulations, and other customary closing conditions. The agreement will require the approval of Pixar's shareholders. Jobs, who owns approximately 50.6% of the outstanding Pixar shares, has agreed to vote a number of shares equal to 40% of the outstanding shares in favor of the transaction.

The Disney Board was advised by Goldman Sachs & Co. and Bear Stearns & Co. The Pixar Board was advised by Credit Suisse.

About The Walt Disney Company
The Walt Disney Company (NYSE: DIS), together with its subsidiaries and affiliates, is a leading diversified international family entertainment and media enterprise with four business segments: media networks, parks and resorts, studio entertainment and consumer products. Disney is a Dow 30 company.

"Disney, McDonald's Seal Deal, Marketing Alliance Cuts Off Burger King's Tie-Ins," by Karen Fessler, The Seattle Times, May 23, 1996

McDonald's Corporation and The Walt Disney Company said they formed an alliance that gives the world's largest fast-food chain exclusive marketing rights for Disney products, shutting out rival Burger King Corp.

The 10-year agreement, terms of which weren't disclosed, will link Disney movies, theme parks and home videos with McDonald's 18,700 restaurants worldwide, beginning in January. Previously, Disney signed agreements for individual ventures with the two main chains, as well as PepsiCo Inc.'s Pizza Hut, Taco Bell and KFC.

"Disney is aligning themselves with one of the most powerful marketing companies globally," said analyst David Londoner at Schroder Wertheim & Co. "They will enhance their own respective businesses."

The move caps Disney's efforts to link itself to some of America's best-known brands. Last month, Mattel Inc. got worldwide rights to make toys based on Disney films. In November, The Coca-Cola Company formed a joint venture with Disney to coordinate Coke's advertising campaign.

"This is the most ambitious promotional effort ever developed between two of the world's best-known family-friendly brands," Disney Chairman and CEO Michael Eisner said in a statement.

McDonald's declined to provide additional information, and Disney couldn't immediately be reached for comment.

Linking with Disney, the world's largest entertainment company, whose hit movies include The Lion King and Aladdin, should be a boon for McDonald's, analysts say.

Attracting kids, and the parents that take them out to eat, can make or break a restaurant chain's sales. Brand recognition is vital to pulling in customers in a market where success is about volume, not price.

"It's clearly an advantage that they have locked up Disney, which is so big and so popular with the kiddie corps," said analyst Damon Brundage with Montgomery Securities. "Assuming they haven't paid too much, I think it's a very good fit."

The announcement comes as Burger King negotiates a similar pact with DreamWorks SKG and other studios for the rights to sell toys and other promotional items based on their movies.

Burger King, a unit of Grand Metropolitan PLC, has had a series of promotional tie-ins with Disney movies such as Beauty and the Beast, Pocahontas and Toy Story.

"Burger King is disappointed that we will not be continuing our relationship with Disney, which has been one of the contributors to our successful youth and family marketing strategy over the past five years," said Corey Zywotow, a Burger King spokesman.

Burger King said the promotions were only a part of its strategy, which includes value-priced products. Burger King's same-store sales rose 12.9 percent in the past two years and it boosted its market share by 2 percentage points.

As part of the agreement, McDonald's will be the presenting sponsor of the Dinoland attraction opening in the spring of 1998 at the forthcoming Disney's Animal Kingdom gate at Walt Disney World in Orlando, Florida.

Oak Brook, Illinois-based McDonald's also will operate two restaurants within the Florida theme park and another at Disneyland Paris, restaurants at any new theme parks to be built, as well as freestanding limited menu locations at the four gates at the Florida park.

"P&G To Acquire a Baby Products Unit of Scott," The New York Times, May 24, 1996

The Kimberly-Clark Corporation said today that it had agreed to sell the Scott Paper Company's baby wipes business to the Procter & Gamble Company for $220 million.

The sale was needed to satisfy the Justice Department's requirements. The department had allowed Kimberly-Clark to buy Scott Paper for $9.4 billion in December only if it sold the baby wipes business, its Scotties tissues business, a baby wipes factory and two tissue mills.

Procter & Gamble will add Scott's Baby Fresh, Wash-a-Bye Baby and Kid Fresh baby wipes brands to its Pampers diapers business, and marks its entry into the American baby wipes market. P&G, which is based in Cincinnati, also makes Charmin bathroom tissue, Puffs facial tissues and Tide laundry detergent.

"It gives us an opportunity to build on our expertise in skin care and paper technologies," said Mark Ketchum, president of P&G's paper products business, in a statement. The business to be sold has United States annual sales of $130 million.

Baby Fresh, Kid Fresh and Wash A-Bye Baby brands hold 33.5 percent of the moist towelette market, while Kimberly-Clark's baby wipes account for about 20 percent, a J.P. Morgan Securities analyst, Heather Hay, wrote in a report.

Ms. Hay cut her 1997 earnings estimate for Procter & Gamble by 3 cents a share. to $4.86, because the company is likely to increase its spending to promote the new brands.

Kimberly-Clark, the world's largest maker of tissue products, said it would use the proceeds from the sale to reduce debt and repurchase shares of its common stock.

The Dallas-based company said it expected to get $500 million to $600 million from the sale of assets.

"Prisoner of Rage-A Special Report: From A Child of Promise to the Unabom Suspect," by Robert D. McFadden, The New York Times, May 26, 1996

It was just a dusty, cobwebbed cabin high in the Rockies, as remote as a cougar's lair. But it suited a man who had always been alone, this genius with gifts for solitude, perseverance, secrecy and meticulousness, for penetrating the mysteries of mathematics and the dangers of technology, but never love, never friendship.

The furnishings were the fragments of his life: the books for companionship and the bunk for the lonely hours, the wood stove where night after night he watched dying embers flicker visions of a wretched humanity, the typewriter where, the authorities say, the justifications for murder had been crafted like numbered theorems.

Theodore John Kaczynski had been a brilliant mathematician at the University of California at Berkeley long ago, when he was only 25. But after teaching two years and publishing papers that dazzled his peers and put him on a tenure track at one of the nation's most prestigious universities, he quit in a tailspin of disillusionment with mathematics - the sole passion of his life, suddenly dead.

Over the years since - nearly half his life - he found a kind of freedom as a backwoods hermit in Montana. The miseries of his boyhood in suburban Chicago, his humiliating undergraduate days at Harvard University, the bitterness of years wasted on graduate studies at the University of Michigan, the images of antiwar turmoil at Ann Arbor and Berkeley, had all dimmed with the passing seasons as the face grew old and the beard gray, as obstinate lines formed at the corners of the silent mouth.

Slowly, too, the instabilities he had taken into the woods - the inability to cope with people, the misreading of intentions, the obsessions and rigidities, the anger lurking behind the calm eyes - deteriorated at last, leaving someone even his family did not recognize on the rare occasions they saw him, or in the hundreds of letters that finally stopped.

"I think that truth from my point of view is that Ted has been a disturbed person for a long time and he's gotten more disturbed," David Kaczynski, the only brother of the man arrested last month in the Unabom investigation, said in a six-hour interview with The New York Times. It was David, the person closest to the suspect, who turned him in.

David recalled the terrible day last October when he first read the Unabomber manifesto, a killer's scholarly vision of humanity enslaved in a nightmare world of technology, and found the echoes of his brother's letters and his essays on science, politics and sociology.

"It was horrible to me that I would be considering my brother to be this person," he said. But it was all too possible, he knew, that his brilliant and difficult older sibling, whose increasingly troubled and angry life had hurt and mystified his family for decades, might be the phantom who had already killed 3 people and maimed 23 in 18 years.

Throughout an afternoon tinged with regret, David Kaczynski, a gentle 46-year-old social worker and vegetarian, a former teacher and an outdoorsman who had lived for months in a tent, seemed out of place in a Manhattan hotel suite where he spoke.

But he maintained his composure until near the end. Then, as dusk sailed the Hudson and failing sunlight struck the walls with shafts the color of whiskey, his soft voice quavered and tears brimmed in his eyes as he spoke of his family's anguish and of his love for his fallen idol.

"I think I love his purity," David said. "I think he's a person who wanted to love something and unfortunately, again, it gets so complex. He failed to love it in the right way because in some deep way, he felt a lack of love and respect himself."

Six weeks after Theodore Kaczynski's arrest at the cabin, where, the authorities say, the manifesto's master copy and the typewriter used to create it were found with a mountain of evidence, the suspect has remained as silent in his cell in Helena, Montana, as he had been in his 25-year, self-imposed exile.

But conversations with people who have known him, and the interview with the brother who has been the most intimate observer of a secretive man, have provided a detailed and sweeping portrait of the 54-year-old suspect and his personality, mental problems and tortured relationships.

People who had known Ted as a boy, as a high school and college student, as a professor at Berkeley and as a recluse in Montana, as well as investigators and witnesses in the Unabom case, have drawn a picture of a man whose life seemed destined to be torn apart - a mathematical genius who rose swiftly to academic heights even as he became an emotional cripple.

It is a funereal portrait of loneliness, obsession and contradictions - a Harvard degree at 20, but no one to call a friend; rising success in one of the nation's top mathematics departments, then total retreat from society; a concern for humanity and nature that led finally, officials say, to a one-man war against technology, and the cold calculation of the death of strangers.

Outside his family, Ted seems never to have had a real friend after boyhood. The closest thing to a relationship, perhaps, was a seven-year correspondence with a man in Mexico whom he never met; he revealed little of himself, and rebuffed his correspondent's overtures to meet or draw him out. "If you want to be my friend," he wrote bluntly, "don't give me advice."

Lengthy searches in Illinois, Michigan, Massachusetts, Iowa, California, Utah and Montana, where he is known to have lived or visited in the last four decades, uncovered no one after his boyhood who had been anything but a casual acquaintance.

And aside from his mother, who doted on him as a boy, there appears to have been no substantive relationship with a woman in all his life. He dated a girl once or twice after high school graduation, but he ended it with a refusal to brook her Catholic precepts. His last date - with a Chicago-area woman who rebuffed him - took place 18 years ago, just after the first Unabom explosion.

"What amazes me the most about it is that somehow - if he in fact did kill and maim people - he had put a wall around that part of himself and hide it away or keep it inside," David said. "I think his ability to have a conscience, to have sympathy for people, created for him a people problem he could not solve except by walling those feelings."

As Ted built his walls of physical and psychological separation, David and others said, he cut himself off from a society in turmoil, from parents who he said cared more about his brain than his happiness, and from a brother who, by marrying, came to represent a kind of betrayal.

And as the years of backwoods solitude passed and his contacts with the world withered, his life came to be expressed in the written words he had always used as weapons - hundreds of letters to his family, to his Mexican acquaintance, and to newspapers and magazines; then rambling tracts on society, and finally, the authorities say, the Unabomber manifesto.

David and his parents had long worried over Ted's anger and wondered at its origins. And David recounted stories - how Ted at 9 months had been hospitalized and denied almost all contact with his parents, and how Ted at 7 years had been left alone to sob in a hospital lobby while his father and grandmother went to the maternity ward where David had been born.

He told how the family had come to believe there was something deeply wrong between Ted and his parents, Theodore R. and Wanda Kaczynski. "I always had a sense that something was missing," he said. "The bond was never complete there, the way it had been with me."

As the years passed and the adolescent Ted became a friendless intellectual pariah, there were softball games in which David and boys his age were joined by his brother, who felt comfortable among children five, six and seven years younger. David recalled a brother who found it painful to err, who berated others for minor lapses, who shut himself up in his bedroom for days at a time, and who seemed incapable of sympathy, insight or simple connection with people.

In adulthood, David remembered an overbearing brother who could return his letter with grammatical corrections; who could turn a conversation about David's term paper into a humiliating demolition of his ideas on Freudian analysis; who could cut himself off from a dying father who had always been generous; who could harass a woman for rebuffing his advances, and who could react to the news of David's engagement with a denunciation of his fiancee - a woman he had never met - as manipulative, and of David for virtual betrayal.

There were times, David said, when in an effort to help, he dared ask Ted about his sense of injury. It only made his brother angrier, and he backed off. Now he seems haunted by the possibility that he somehow failed to understand or to find the magic words of comfort.

"I think back," he said, "and I think I missed a lot of opportunities to be of help." He even expressed regret over the times when he said he allowed himself to be angry with his brother's imperious put-downs and dark moods. Indeed, he recalled the privilege he felt when, as a boy, he was permitted into the privacy of his brother's room.

He remembered small acts of kindness, too: how Ted once nailed a spool to the bottom of a screen door so that David, a toddler too small to reach the handle, could go in and out; how Ted later imparted his knowledge of woodsmanship and plant life, and how Ted only a few years ago sent him a picture of a child in a baseball cap with a note flecked with nostalgia. It said, "This picture reminded me of you and what kind of child you were."

"I had the sense," David said, "that he wanted me to be the little brother."

Most vividly, David recalled with a catch in his voice the tale of a moment - nearly a decade ago - when he came closest to his brother emotionally. In any other family, the moment might have been routine. He was visiting Ted's Montana cabin, he said, and was sawing wood when the work table collapsed under him, and he and the saw went down.

Ted ran over, asking "Are you OK?" David said he was worried about the saw, one of Ted's few tools. " 'The hell with the saw. Are you OK?' " he quoted Ted as saying. "He touched my shoulders," he said, still amazed at the memory. "It was incredible and touching and human."

On the same visit in 1986, Ted, playing the tutor, had David in the role of pupil read from a Spanish book. "It wasn't a role that I at the time relished," David said. But he said he went along with it for his brother's sake. "I love my brother, and he seemed to really just kind of enjoy it."

But Ted had always set the terms of their relationship, and it sometimes hurt. "The issue of being able to control how much he let a person in, and for how long - it was important to him," David recalled. In that sense, the very remoteness of the cabin was as much a means of controlling the access of others as it was a symbol of freedom.

A few years ago, Ted said he would not open letters from David unless the stamp was underlined as a signal of a family emergency or some other significant news. So when their father was dying of lung cancer, David made sure the letter to Ted was marked in that way. "Ted wrote back, and the response was fairly peculiar - basically, that I had done well, that this was something worth communicating."

David explained, with evident pain, why he had felt obliged to identify his brother as the prime suspect in a case that had bedeviled law-enforcement authorities since the beginning, generating the longest, most extensive Federal manhunt in the nation's history, and why he was speaking out now.

"If he did attack people and kill people, that was wrong," David said. "But by the same token, I feel it would be very wrong if he was killed in the name of some notion or principle of justice. I think it's important that people see him as a human being." He added, "It serves no one's interest to put him to death, and certainly it would be an incredible anguish for our family if that were to happen."

The Child-Having Trouble Fitting In

The Kaczynski forebears were Polish Catholics, solid working-class men and women, and they arrived in America early in the 20th century with their frayed immigrant suitcases and their New World hope.

Ted Kaczynski's paternal grandparents, Jacob and Helen Kaczynski, after a sojourn in Pittsburgh, were drawn to Chicago because other Kaczynskis had preceded them and were prospering in the manufacture of sausages. Theodore Richard Kaczynski, born in 1912, and his brothers Stanley and Alex, all went to work at Kaczynski's Sausages, a factory owned by an uncle, on the fringe of the stockyards on Chicago's South Side.

Wanda Dombek was born of Polish immigrant parents, John and Mary Dombek, in Zanesville, Ohio, in 1917. But her family, too, moved to Chicago. There in the 1930s, she met young Theodore. They were married on April 11, 1939, and moved into a rented house on South Wolcott, a blue-collar Polish enclave of neat homes and tiny well-tended yards close to Kaczynski's Sausages.

Theodore R. Kaczynski was gregarious and an outdoorsman who loved to go hunting, fishing and camping. As teen-agers, he and his wife had dropped out of high school to work, but had earned night school diplomas. They were both readers who valued education and liked to talk about politics. By all accounts, Mr. Kaczynski was also hard-working, thoughtful and kind.

Wanda Kaczynski was especially well-read and articulate, familiar with science and the works of Shakespeare, Austen, Dickens, Thackeray and other authors whose books crowded her shelves. The Kaczynskis also shared progressive social and political views, were active in Democratic clubs and wrote letters to newspapers in defense of liberal programs. Though they were raised as Catholics, they became atheists.

In the early 1940s, the couple moved to Carpenter Street, two blocks from where the Chicago Circle campus of the University of Illinois would be built. It was a bigger house in a better area. Their first son, Theodore John, was born there on May 22, 1942. They called him "Teddy" and doted on him.

But when he was only 9 months old, an unusual medical problem arose. David, who had been told the story by his parents, said the infant Teddy developed a severe allergy and was hospitalized for a week. "There were rigid regulations about when parents could and couldn't visit," David said. He recalled that on two occasions, his parents "were allowed to visit him for one hour."

After Teddy came home, "he became very unresponsive," David said. "He had been a smiling, happy, jovial kind of baby beforehand, and when he returned from the hospital, he showed little emotions for months."

Wanda kept a diary about her boy and read to him daily from children's books, then from classic boys' literature and later from surprisingly advanced materials. A neighbor said Teddy was in grade school when Wanda began reading him articles from Scientific American that a college student might find challenging. But with her help, he seemed to grasp concepts with ease.

While bookish, Teddy was remembered by an aunt as affectionate. But the aunt, who asked to remain anonymous, said she saw a change after David was born on October 3, 1949. Teddy was 7 then, and the aunt said he seemed crestfallen at having to share the attention his parents had lavished upon him.

"Before David was born, Teddy was different," the aunt said. "When they'd visit, he'd snuggle up to me. Then, when David was born, something must have happened. He changed immediately. Maybe we paid too much attention to the new baby."

David said his parents told him about how his father, grandmother and Teddy had gone to the hospital after his birth. But children were not allowed in the maternity ward. "So my father and grandmother left Ted in the lobby and went up to visit me," he said. "When they all went down to the lobby - I guess I was coming home - he was sitting there alone in tears and very deeply upset."

Neighbors said there were no signs that the Kaczynskis favored David over Teddy. One remembered loving parents who were "exceptionally interested" in both children. David said his mother told him that she gradually encouraged Ted to hold him, and that "from that time forward, he showed a great deal of gentleness toward me."

By 1952, the Kaczynskis had saved enough money to leave the crowded city, and they bought a three-bedroom, brick Cape Cod home in Evergreen Park, a middle-class South Side suburb of tradesmen, teachers and office workers, where life centered on children, school and church. The Kaczynski house was on South Lawndale Avenue, a quiet street of similar, equally spaced houses set on rectangular lawns shaded by elms.

Dr. Roy Weinberg, a neighbor, remembered the Kaczynskis as "a serious family." "They read books all the time," he said.

But he remembered Teddy as skinny and self-absorbed. "He was strictly a loner," Dr. Weinberg said. "This kid didn't play. No. No. He was an old man before his time."

In an era of postwar prosperity, when suburbanites gathered on weekends to grill hamburgers, sip martinis and let the children romp, the Kaczynskis were different. "They weren't part of the wild parties we used to have," one neighbor said. "They were civic-minded folks. They really sacrificed everything they had for their children."

Dorothy O'Connell, who lived next door, said Wanda not only read to both boys, but took them to science and art museums and other cultural institutions. Both were bright, she said, but David was more outgoing, an avid learner and listener, and children and adults took to him more naturally.

But Teddy was increasingly withdrawn, lurking in the background and taking refuge in his reading and his thoughts. "Both boys were more interested in books than sports," Dr. Weinberg said. "But the younger brother seemed to have friends, while his older brother was a loner. They were completely different, night and day."

By the time he was 10 and in fifth grade, Teddy was deeply interested in science and math, with intellectual gifts obvious to teachers and other adults. His mother, a member of the parent-teacher association, made no secret of her pride in her son's mind.

It was also apparent that Teddy was far ahead of his classmates, and his school let him skip a grade, further isolating the friendless boy, placing him with a new group of older children and reinforcing the message he had heard all his life - that he was valued only for his intellect.

"The system needs scientists, mathematicians and engineers. It can't function without them. So heavy pressure is put on children to excel in these fields. It isn't natural for an adolescent human being to spend the bulk of his time sitting at a desk absorbed in study. A normal adolescent wants to spend his time in active contact with the real world.

"Among primitive peoples the things that children are trained to do tend to be in reasonable harmony with natural human impulses. Among the American Indians, for example, boys were trained in active outdoor pursuits - just the sort of thing that boys like. But in our society children are pushed into studying technical subjects, which most do grudgingly."

-from the Unabomber manifesto

Teddy became an obsessive reader. When he was 10, the Kaczynskis went on a camping trip - the father often took them out in the summer and taught them to appreciate the woods, plants and animals - and for vacation reading, Teddy took along a volume of "Romping Through Mathematics from Addition to Calculus," Ms. O'Connell recalled.

Teddy had also begun using his intellect as a rapier. Ms. O'Connell recalled that one day he overheard her 3-year-old daughter mispronounce "grasshopper." He stopped on the sidewalk and lectured the bewildered child on the genealogy of grasshoppers.

His aunt still remembers the cut of his arrogance. "Once when I was over to his home, he was just sitting there, and his father said to him, 'Why don't you have some conversation with your aunt?' And he answered: 'Why should I? She wouldn't understand me anyway.' "

As Teddy entered his teens, his social handicaps were increasingly apparent. David said his brother sometimes joined him and his friends in a softball game on the playground, even though they were far younger. The same thing happened later in life, too. "The contacts were through me in a sense," David said. "The important thing was the relationship with me, or I'm a buffer. That made him feel safe."

"The moral code of our society is so demanding that no one can think, feel and act in a completely moral way. For example, we are not supposed to hate anyone, yet almost everyone hates somebody at some time or other, whether he admits it to himself or not.

"In order to avoid feelings of guilt, they continually have to deceive themselves about their own motives and find moral explanations for feelings and actions that in reality have a non-moral origin. We use the term oversocialized to describe such people. Oversocialization can lead to low self-esteem, a sense of powerlessness, defeatism, guilt, etc. If a particular child is especially susceptible to such feelings, he ends by feeling ashamed of HIMSELF."

-from the Unabomber manifesto

By the time he entered Evergreen Park Community High School, Teddy was having more trouble fitting in. He joined the band, playing the trombone; he joined math club, coin club, biology club, German club.

But most classmates and club members regarded him as alien, or not at all. To Bill Phelan, Teddy was a nerd: thin, short, quiet, painfully shy. "He was reading books, and I was playing sports and drinking beer," Mr. Phelan said. "He wasn't in my world. He was in his own world."

Jerry Peligrano's fleeting memory was of a bespectacled kid with pencils in a pocket protector. And Loren De Young remembered him as a kind of nonperson. "He was never really seen as a person, as an individual personality," he said. "He was always regarded as a walking brain, so to speak."

Eventually, Teddy moved into a small coterie of intellectual boys who were drawn together by a mutual passion for science and math. With one exception, perhaps, the half-dozen boys, members of the math club, were not real friends. They regarded him as immature, but tolerated him as a fellow oddball: They were chess players with Elvis pompadours, teenage pipe smokers marveling at Isaac Asimov and Ray Bradbury and fantasizing about landing on the moon.

"Ted was technically very bright, but emotionally deficient," said Patrick Morris, a group member. "While the math club would sit around talking about the big issues of the day, Ted would be waiting for someone to fart. He had a fascination with body sounds more akin to a 5-year-old than a 15-year-old." Once, Mr. Morris said, they were talking seriously about their futures. "Ted seemed more interested in smearing cake frosting on this guy's nose," he said.

They all had a passion for devilish pranks, especially explosive ones, and sometimes they mixed compounds of ammonia and iodine that would pop loudly but harmlessly in a classroom, sending up purplish smoke. "It was our way of fitting in, showing we could be cool too," a math club member said.

Mr. Morris recalled that Teddy once showed a school wrestler how to make a more powerful mini-bomb. It went off one day in a chemistry class, blowing out two windows and inflicting temporary hearing damage on a girl. Everyone was reprimanded, but Teddy was unfazed. He later set off blasts that echoed across the neighborhood and sent garbage cans flying.

Russell Mosny, a math club member, may have come closest to friendship with Teddy. In the young Kaczynski's attic bedroom, they played chess and talked of equations and physics. Mr. Mosny had expected to read about Teddy someday as the winner of the Nobel Prize or the inventor of a new mathematical theorem.

"He was the smartest kid in the class," Mr. Mosny said. "He was just quiet and shy until you got to know him. Once he knew you, he could talk and talk." But when the others began attending dances and dating, Teddy stayed home, Mr. Mosny said. "I'd try to get him to go to the sock hops, but he always said he'd rather play chess or read a book."

Concerned over his social development, the Kaczynskis consulted school guidance counselors, but never took Teddy to a psychiatrist or psychologist, David said. Teddy often went into moody depressions, retreating to his bedroom for days on end, coming down only for meals. "He was not happy in school," David said. "I think he had become during adolescence more withdrawn."

Teddy skipped another grade and after only three years, graduated from high school in 1958, and won a scholarship to Harvard. He was only 16. "The thought was, if he went to a university, such as Harvard, he might not have the pressure to conform in a working-type class community like Evergreen Park, and that the experience might be liberating for him socially," David explained.

Just after graduation, David recalled, Teddy dated a girl once or twice, but ended the relationship by expressing exasperation with her Catholic beliefs. It was typical of Ted, David said, that he would seize upon some pretext for finding fault, and then use it as an excuse to cut off communication.

With all his social handicaps, Teddy was about to be thrust onto a high-powered, prestigious campus. He was younger by two years than most, and by all accounts, emotionally unprepared for the competition that lay ahead.

"They packed him up and sent him to Harvard before he was ready," Mr. Mosny said. "He didn't even have a driver's license."

The College Student-Trying to Stay In His Own World

"The oversocialized person is kept on a psychological leash and spends his life running on rails society has laid down for him. In many oversocialized people this results in a sense of constraint and powerlessness that can be a severe hardship. We suggest that oversocialization is among the more serious cruelties that human beings inflict on one another."

-from the Unabomber manifesto

He may have been brilliant, but what they remembered about him at Harvard were his annoying trombone blasts in the dead of night, the primordial stench of rotting food that drifted from his room, his odd metronomic habit of rocking back and forth on a chair as he studied, and his icy aloofness as he strode through the suite, saying nothing, slamming his door to shut them out.

Theodore J. Kaczynski seemed to spend all his time studying, but he was an undistinguished undergraduate. He made no honors lists and earned only average grades. A dozen mathematics department professors and tutors who had been his contemporaries said they had no recollection of him.

At Harvard, some of the most talented students in the nation compete not only for grades, but for leadership in a galaxy of extracurricular activities. But Mr. Kaczynski's yearbook entries list no activities outside his studies, and there is no record of an optional senior thesis by him.

In his freshman year, 1958-59, he lived in a small house at 8 Prescott Street, outside Harvard Yard in Cambridge. A housemate, Ronald L. Bauer, a California judge now, called it a low-rent place for a dozen freshmen. The house proctor, Francis Murphy, remembered Mr. Kaczynski as a lonely boy with poor hygiene who befriended no one.

In the next three years, Mr. Kaczynski lived in a seven-man suite at Eliot House, one of a dozen residential dormitories overlooking the Charles River, but he had almost no contact with his suitemates.

One suitemate, Patrick McIntosh, now a Colorado astronomer, said that in three years, "I don't recall more than 10 words being spoken by him." What was memorable, he said, were the trombone blasts and foul odors from his junkyard room.

"Ted's room had a good view of the river, but I never saw anybody live in such an unkempt place," Mr. McIntosh said. "In some places, the papers and such were a foot deep. That disturbed me, that someone could live in such filth. The worst part was when it began to smell. Maybe it was rancid milk."

Another suitemate, Keith Martin, said Mr. Kaczynski would march in from class, walk to his room past everyone and slam his door. That would be it for the night, he said.

"He was intensely introverted," Mr. McIntosh said of Mr. Kaczynski. "He wouldn't allow us to know him. I never met anybody like him who was as extreme in avoiding socialization. He would almost run to his room to avoid a conversation if one of us tried to approach him."

In the Eliot House dining room, a large, elegant, wood-paneled chamber that suggests images of England's Oxford or Cambridge, Mr. Kaczynski often sat alone in an unfashionable jacket and tie. The dress code at all-male Harvard in the 1960s required jackets and ties in classes and at meals.

But sometimes he was joined in the dining room by Richard Adams, a classmate who is now an investor from Stratham, New Hampshire He recalled that Eliot House at that time was the most preppie of the Harvard residential houses, full of cliquish extroverts, blue bloods and blustering athletes whose insider airs and bubbly chatter only compounded the problems of the mousy mathematician.

"The whole varsity crew was in Eliot House," Mr. Adams said, referring to a muscular team that was a perennial national power. "They were all very tall and athletic and preppie. Kaczynski and I weren't part of that. He was sallow, humorless, introverted, a guy who couldn't make conversation. Kaczynski wore non-modish clothes: a kind of unpleasant plaid sports jacket and a tie that didn't go with it. He didn't look happy."

There were many reasons for his isolation - his age, his noninvolvement in extracurricular activities, his lack of sophistication, his single-minded focus on academics, his alienated outsider's pride. But Mr. Adams summed up the Kaczynski problem more tersely. "He was a wonk. He epitomized that," Mr. Adams said. "He felt fairly comfortable in that role."

David Kaczynski said his brother wrote some letters home, and one mentioned "a girl he kind of admired from afar." He added, "He eventually asked her for a date and was rebuffed." If Ted was miserable, he never mentioned it, David said. He was "a person who nursed a sense of injury."

Ted returned to Evergreen Park in the summers and spent most of his time in his room. David said his brother liked classical music and folk singers, but disliked "products of the mass culture." He did not like television or rock 'n' roll, and loud noises infuriated him, David said.

Mr. Kaczynski graduated from Harvard with a mathematics degree in 1962, just days after he turned 20. He never recorded his feelings toward the school or his classmates, except perhaps in the most oblique way. In a report for the 20th and 25th reunions of the Harvard Class of '62, he listed his address as 788 Banchat Pesh, Khadar Khel, Afghanistan.

No such place exists.

The Graduate Scholar-Colleagues Awed By His Brilliance

The nation stood on the brink of space and the Vietnam War in the autumn of 1962, when Mr. Kaczynski arrived at Ann Arbor to begin five years of graduate studies at the University of Michigan. He went about his business, enrolling in a master's degree program in mathematical analysis, and taking a part-time job as a teaching fellow. He would hold that job for three academic years.

In contrast to Harvard, Michigan was vast and impersonal, a city-sized campus with 35,000 students of diverse backgrounds, most of them fiercely competitive. But there was a niche for everyone: a team, a club or a cause, and a cave for those who wanted none of it. That suited Mr. Kaczynski, who took a single dormitory room in Prescott House in his first two years, and then an apartment on Packard Street. Mr. Kaczynski is not known to have developed any friendships or interests outside his academic work.

"Mathematics seemed to be the only thing he was interested in," said Prof. Peter L. Duren, who taught one of Mr. Kaczynski's first-year courses. He said he was not aware of Mr. Kaczynski's having any social life, but did not regard that as unusual. "A lot of mathematicians are a little bit strange in one way or another," he said. "It goes with creativity."

Other professors also remembered him as a quiet loner, unusually dedicated to mathematics even by the standards of graduate students. He was meticulous, wrote with a draftsman's hand and provided more proofs than needed. He was one of the few students who regularly wore a jacket and tie to class. And he stood out in other ways, too. While teachers at Harvard could not even remember Mr. Kaczynski, professors at Michigan were impressed.

"He did not make mistakes," said Prof. George Piranian, who presided over a full-year course in advanced function theory in Mr. Kaczynski's second year. "He was very persistent in his work. If a problem was hard, he worked harder. He was easily the top student, or one of the top."

The professor was especially impressed with the young man's original research into the properties of functions in circles. "Another mathematician, a very competent man, had worked with me on that problem, and we got nowhere on it," he recalled. But Mr. Kaczynski solved it and submitted his solution to academic journals for publication without telling his professors or classmates.

When articles bearing his name as author began to appear in respected academic journals, professors and students in the mathematics department were amazed. "The faculty, I think, wasn't aware of this until he had published papers coming out in the journals," Professor Duren said.

David Kaczynski said there had always been a "covertness" in his brother's creative work. "It was something he did not talk about," David recalled.

Fellow students were awed. "While most of us were just trying to learn how to arrange logical statements into coherent arguments, Ted was quietly solving open problems and creating new mathematics," said Joel H. Shapiro, now a mathematics professor at Michigan State University. "It was as if he could write poetry while the rest of us were trying to learn grammar."

Mr. Kaczynski was awarded his master's degree in 1964, and stayed on at Michigan to work for a doctorate, a task that would consume the next three years and lead to his most productive academic period.

The time was one of tumultuous protests over civil rights and the expansion of the war in Vietnam. At Michigan, birthplace of the radical Students for a Democratic Society, the movement came almost to dominate life.

But Mr. Kaczynski took no part, professors and classmates said, although his principal thesis adviser, Prof. Allen L. Shields, was a vocal critic of the war. Nor did Mr. Kaczynski join Project Michigan, an Army weapons development program that some graduate students worked on at Willow Run Laboratory, which became a main target of protests. "I am not aware that Ted was in any way involved with that or was taking any side," Professor Piranian said.

During the summers, Mr. Kaczynski lived with his parents, who by 1966 had moved to Lisbon, Iowa, a town of 1450, 15 miles east of Cedar Rapids. His father had taken a job there as manager of Cushion-Pak, a maker of foam stuffing for pillows and sofas, and his mother had enrolled as an English major at the University of Iowa, in Iowa City. David was a student at Columbia University, majoring in English.

Diana Shelton, a grocery clerk who then worked as a foam-cutter at Cushion-Pak in Lisbon, remembered how the young Mr. Kaczynski had appeared at Cushion-Pak after a few days camping alone at nearby Coralville Lake, a semi-wilderness area. And his comments - in retrospect, a harbinger of his Montana hermitage - were so remarkable she never forgot them.

"He brought in a bunch of roots and weeds and things, and he was showing them to us," Ms. Shelton recalled. "He said they were all good to eat. He told us that some of them tasted like potatoes. He was kind of shy and unusually quiet. But he didn't seem strange. I mean, the roots were edible."

"An ideology, in order to gain enthusiastic support, must have a positive ideal as well as a negative one; it must be FOR something as well as AGAINST something. The positive ideal that we propose is Nature. That is, WILD nature: those aspects of the functioning of the earth and its living things that are independent of human management and free of human interference and control. . . .

"When primitive man needed food he knew how to find and prepare edible roots, how to track game and take it with homemade weapons."

-from the Unabomber manifesto

Back at Ann Arbor, Mr. Kaczynski devoted himself to writing about ever-deeper mathematical ideas. One of his articles, "Boundary Functions for Functions Defined in a Disk," was published in the Journal of Mathematics and Mechanics in 1965, and another, "On a Boundary Property of Continuous Functions," appeared in the Michigan Mathematics Journal in 1966.

Both were close to the cutting edge of mathematics at the time. "I would guess that maybe 10 or 12 people in the country understood or appreciated it," said Prof. Maxwell O. Reade, who was on Mr. Kaczynski's dissertation committee.

Mr. Kaczynski rarely consulted with his professors. Professor Duren said, "He just came in with carefully prepared sheets of manuscripts and said, 'Here's what I've done.' " But his streak of independence brought on a serious setback.

After he had put in considerable work, it was discovered that someone else had already solved the problem that was the subject of his doctoral thesis. Rather than start anew, Professor Duren said, Mr. Kaczynski combined the work of his two academic journal articles into a single paper.

His dissertation, "Boundary Functions," focused on a pure mathematics problem of functions - quantities whose value depends on other quantities - as they relate to circles. His ideas had no apparent practical application, but the paper was brilliant. He was awarded not only his doctorate, but also the University of Michigan's $100 Sumner B. Myers Prize for the best mathematical dissertation of 1967.

He also secured a position as an acting assistant professor on a tenure track at Berkeley. He stopped in Iowa to see his parents on his way to California that summer, and despite his accomplishments, David recalled, "He didn't seem particularly gratified or proud or full of himself."

Indeed, David said, Ted seemed "more and more interested in the woods."

The Professor-'I Can't Recollect This Guy'

"University intellectuals constitute the most highly socialized segment of our society and also the most left-wing segment. The leftist of the oversocialized type tries to get off his psychological leash and assert his autonomy by rebelling. But usually he is not strong enough to rebel against the most basic values of society."

-from the Unabomber manifesto

When Mr. Kaczynski arrived in 1967, Berkeley was a dope-smoking, burn-your-bra, rock 'n' roll haven for rebels and anarchists, gurus and hippies, Black Panthers, Third World Liberationists and LSD freaks in headbands. Sex and drugs were rampant; radicals staged rallies and sit-ins. Even mathematicians were lining up with the counterculture and antiwar movements.

But not Theodore Kaczynski.

He rented a small cottage on Regent Street, bought a tan, used 1967 Chevelle and began teaching. An old catalogue listed his courses as Numbers Systems, Introduction to the Theory of Sets, General Topology and Function Spaces.

Student questionnaires suggest that Mr. Kaczynski's students, who were only a few years younger, did not like him. They called his lectures next to useless, straight out of the textbook. Despite small classes, they said he did not seem to care for them or their concerns. "He absolutely refuses to answer questions," one wrote.

Faculty colleagues also called him standoffish. Once, after playing host to the department's weekly faculty seminar, he declined to accompany the others for the traditional beer and pizza. Most could not even remember him, and those who did called him shy, quiet and withdrawn.

Lance W. Small, an assistant professor at the time, said there were about 60 members of the mathematics department. "I can go down and probably tell you something about every one of those people, and picture them in my mind. But I can't recollect this guy, nor does anybody I know recollect him."

Still, Mr. Kaczynski was apparently well regarded by his superiors. Calvin Moore, who was vice chairman of the department, said Mr. Kaczynski got off to a promising start. In 1968, another of his articles, "Note on a Problem of Alan Sutcliffe," appeared in Mathematics Magazine.

In September 1968, at the start of his second academic year at Berkeley, Mr. Kaczynski was elevated to assistant professor, a sign that he was regarded as on track for tenure. Outside his classroom, he spent most of his time writing; in 1969, he published two more articles in the journals of the American Mathematical Society. "That's a very respectable output, and they're in very good journals," Mr. Small said.

Despite his promising future, Mr. Kaczynski resigned at the end of the term, on June 30, 1969. He did not give a reason, either to colleagues or his family.

"He said he was going to give up mathematics and wasn't sure what he was going to do," Prof. John W. Addison, the department chairman, wrote a colleague. "He was very calm and relaxed about it on the outside. We tried to persuade him to reconsider, but our presentation had no apparent effect. Kaczynski seemed almost pathologically shy, and as far as I know, he made no close friends in the department."

Mr. Small saw a connection between campus turmoil and Mr. Kaczynski's decision. "I really think his views are a product of what was in the air in Berkeley in those days," he said. "You could become infected by this feeling that society had taken a wrong turn. Terrible things were going on, and you couldn't help but be affected."

But David Kaczynski disagreed. "It was not an antiwar gesture, something to do with the counterculture," he said. "Both of us were in love with nature. I assume he wanted to live a richer life." As for turmoil on campus, David said: "I think if he viewed it in any way at all, he viewed it as a fad."

David saw the decision to quit mathematics as part of a pattern in his brother's life. "He was a person who seemed capable of closing doors on things, on people, on stages of his life," he said. "That cutting himself off was part of what he was about. At some point, it happened with me. At some point, it happened with our parents. As a kid, he loved his coin collection, and then he stopped collecting the coins. It was also true with a friend of his who would call in high school. 'Hi, it's Mosny. Is Ted around?' 'I don't want to talk to him.' You can expand that whole theme of cutting oneself off."

The Wanderer-Of Depression And Discontent

In the summer of 1969, at the age of 27, Mr. Kaczynski left Berkeley, determined to seek a simpler life in a remote area. His brother had just finished his junior year at Columbia. Together, the two drove to Canada to find some land for Ted to buy. "I had a year of college to finish up," David said. "I was purely accompanying him, to do something together as brothers."

In a two-month odyssey of exploration and camping, and of long talks in the car, walks in the woods and nights under the stars, they were together almost continuously, and David learned a great deal about the brother he had idolized but never understood.

David recalled a disagreement over Freudian interpretations of a piece of literature. David was "argued down." But he recalled the trip as "good times." Ted was a skilled woodsman and taught David much about plants. "I was very strongly influenced by my brother," David said.

They drove through Saskatchewan, Alberta, British Columbia and the Yukon, looking at sites. In Prince George, British Columbia, 500 miles north of Vancouver, and not far from the Continental Divide, they found a spot. "It was woods, a couple of miles' walk in from the highway," David said.

They staked out the property to prepare for filing an application for purchase, but then something happened. "He became depressed," David said. "I saw this a number of times in his life. There must be something triggering it, but I didn't know what it was. Looking back, I'm not sure. I believe it was the day before he was to put in his application for this piece of land. He shut down for a day. There was no interaction. It was like he was unreachable."

But the application was filed, and at summer's end they went home. On the way, they drove through Montana, and both were struck by the state's natural beauty.

David returned to school, and Ted moved in with his parents, who by then had moved back to the Chicago area. Cushion-Pak, the Iowa company that his father had managed since 1966, had fallen on hard times, but its owner had offered the elder Kaczynski a new job with another business, Foam Cutting Engineers Inc., in Addison, Illinois, just west of Chicago, in 1968.

The elder Kaczynski and his wife, who had earned her bachelor's degree in English from the University of Iowa, bought a one-story, three-bedroom frame house for $6,500 in the west Chicago suburb of Lombard. Mrs. Kaczynski began to teach English in an elementary school in nearby Geneva.

Lombard was a working-class town of modest homes and well-kept lawns, a Republican stronghold. But the Kaczynskis joined the local Democratic Club; they worked locally in Eugene J. McCarthy's antiwar Presidential campaign in 1968.

Living again at home, Mr. Kaczynski kept mostly to his bedroom. Awaiting word on his land application, he did nothing for more than a year. His parents urged him to get a job, not to make money but to give him something to do, to ease his mind. But the effort failed. Investigators who had access to letters Mr. Kaczynski wrote later said the parents' efforts were interpreted by their brooding son as unwarranted intrusions, pressure to conform to a world he hated.

During this period, Mr. Kaczynski wrote letters to publications and public figures on various topics. He opposed logging and had an intense dislike for the advertising industry, which he felt manipulated people and generated excessive consumption in society. He once wrote an angry letter to a politician accusing him of using the manipulative techniques he despised in advertising.

"The average American should be portrayed as a victim of the advertising and marketing industry, which has suckered him into buying a lot of junk that he doesn't need and that is very poor compensation for his lost freedom."

-from the Unabomber manifesto

He also wrote two letters to The Chicago Tribune, one on snowmobiles, the other on motorcycles. He denounced both as noisy, air-polluting machines that spoiled the beauties of nature.

"Technology exacerbates the effects of crowding because it puts increased disruptive powers in people's hands. For example, a variety of noise-making devices: power mowers, radios, motorcycles, etc. If the use of these devices is unrestricted, people who want peace and quiet are frustrated by the noise."

-from the Unabomber manifesto

Another letter from Mr. Kaczynski was published in the February 28, 1970, issue of The Saturday Review, a magazine that reviewed books and the arts. The letter attacked highway construction and the proliferation of automobiles. "Perhaps a better solution would be to change the structure of society so that it becomes possible to allow people some of the freedom and independence that they seem to crave," Mr. Kaczynski wrote.

He continued: "A happily married man does not daydream about romantic love. Similarly, a man does not romanticize frontier freedom unless he is suffering from a lack of personal autonomy. Most of the problems are direct or indirect results of the activity of large organizations - corporations and governments.

"It is these organizations, after all, that control the structure and development of society. Perhaps the most unfortunate thing that has ever happened to individual liberty was its being used as an excuse for the misdeeds of huge corporations."

"Science marches on blindly, without regard to the real welfare of the human race or to any other standard, obedient only to the psychological needs of the scientists and of the government officials and corporation executives who provide the funds for research. . . . Industrial-technological society cannot be reformed in such a way as to prevent it from progressively narrowing the sphere of human freedom."

-from the Unabomber manifesto

His arguments with his parents over his unwillingness to work intensified. Finally, early in 1970, a disappointing response came from Canada on his application to buy the land. "It seemed very poorly worded, to the effect that the land was not available," David said. "He shouldn't try to visit it. It seemed they changed the policy for acquiring land."

Ted was crushed. "He got very depressed," David said. "My sense is that it went on for a couple of months, and eventually he got a job. It was just a job to earn a little money, laborer or construction, something like that."

In the spring of 1970, David graduated from Columbia. Unsure what to do with his life, he remembered the beauty of Montana and decided to return. "I got a job in a smelter, in Great Falls," he said. Meantime, Ted continued to live in Lombard. Then in the spring of 1971, David recalled, Ted "showed up one day" in Montana, and soon he found the piece of land he wanted.

David, who put up some money for the property, continued to work at the smelter and took education courses at the College of Great Falls, until 1974, when he moved to Lisbon, Iowa, where his parents had lived, and became a high school teacher. But by the early 1980s, he had retreated to the Christmas Mountains of West Texas, where he bought 30 acres in one of the remotest areas of the nation. For years, he worked summers in the Chicago area and spent winters in a lean-to on the Texas property.

In bad weather, he would stay in a neighbor's bunk house. His hair and beard grew shaggy, and he became as much of a loner as his brother in Montana.

The Hermit-An Austere Life In the Montana Woods

When Ted Kaczynski retreated into the Montana wilderness, the world was in turmoil: Vietnamese were being massacred, and Charles Manson was laughing at slaughters. It was a world that to Mr. Kaczynski had offered no happiness, only an education in useless mathematics with a minor in loneliness, and a job of lifetime irrelevance.

Lewis and Clark County records show he bought his property in June 1971. The land is a shady, 1.4-acre plot a few miles southeast of the small town of Lincoln. The setting is strikingly beautiful, a mountain woodlands near Stemple Pass, just west of the Continental Divide. Cougars, bobcats, elk and the occasional grizzly bear roam the high country. The Blackfoot River runs through it like a dagger, carrying cutthroat, rainbow and brook trout.

In the winter, the snows lay deep and silent. Temperatures often plunged to 40 or 50 below. In the summer, the sun was molten gold, and the rain tapped softly on shingles and gently bent the branches of the trees. He would have a vegetable garden. There would be deer and rabbits to hunt. He would need little money. There would be no trappings of modern life, no technology. And best of all, he would be free, almost, of people trying to control his life.

"Freedom means being in control (either as an individual or as a member of a SMALL group) of the life-and-death issues of one's existence: food, clothing, shelter and defense against whatever threats there may be in one's environment. Freedom means having power; not the power to control other people, but the power to control the circumstances of one's own life. One does not have freedom if anyone else (especially a large organization) has power over one."

-from the Unabomber manifesto

He built a wooden one-room cabin, 10 by 12 feet, with a storage loft and a dugout cellar. The cabin's faded brown planks blended into the juniper woods like clever camouflage. There was no electricity, no telephone and no running water, though he dug a well, installed a pump, got a Coleman stove and put in a kerosene lamp for nights and a wood stove against the dangerous winters.

In the yard, he had a block and an ax for firewood and a ring of stones and a metal grill for cooking. The property was small, but the cabin was set back on a dirt road and the nearest neighbor was a quarter-mile away. He could scare people off with a rifle, if he had to, or with his shaggy mountain-man face.

The county assessor's office valued the land at $4200 and the cabin at $350. The annual real estate tax was $110.26.

Dressed in black denim or army fatigues, he occasionally rode a battered old bicycle into town for supplies. He knew people, but did not invite small talk. "He never would really offer any conversation," said Rhoda Burke, a cashier at the food store. "He'd come in once or twice a month and buy his staples and put them on the back of his bike and ride out of town."

Now and then he used the post office pay phone. More often, he stopped at the Lincoln Library where Beverly Coleman worked. "Sometimes he came in once a week because we saved newspapers for him and he picked them all up," she said. "Just our local tribunes, from Missoula and Great Falls and Helena." He also wanted scientific books and classic literature, she said, usually in English, but often in the original German or Spanish. These had to be ordered from the University of Montana in Missoula, or Montana State at Bozeman.

Aside from his taste in books and his rarely displayed articulateness, the usually unwashed Mr. Kaczynski did not raise eyebrows around Lincoln, where many people live secluded lives. "He was just a private person and enjoyed being up there by himself," said Joseph Youderian, who interviewed him for the 1990 census and was one of the few locals who entered his cabin. He saw shelves of books, a bunk, a wash basin and a man of few words. "I didn't push it. That's the way he wanted to live."

He made his own candles and bread. He grew potatoes, parsnips and other vegetables, hunted rabbits, and managed with little money. Butch Gehring, whose house and lumber mill are a quarter-mile off, said he once heard him complain about his costs rising to $300 from $200 a year.

"He kept a careful record," said David, who visited Ted at his cabin in 1974 and again in 1986. "It cost 30 cents a day," or about $110 a year. His life was largely financed by his parents, who gave him $1000 to $1500 a year in birthday and Christmas gifts. Ted wrote some 200 letters to his parents and brother, but until 1994, David said, he never requested money.

And he worked odd jobs. In the winter of 1973-74, David said, Ted wrote to his parents that he was working for several months in Salt Lake City. David, learning of this and on his way back to classes at the College of Great Falls, stopped in Salt Lake City for a visit. He found his brother staying in an old hotel. "He told me that he was working on some kind of construction job with a small contractor," David said.

In the late summer of 1974, Ted also pumped gas and sold tires for a few weeks at Kibbey Korner Truck Stop in Raynesford, 100 miles east of Lincoln. It was a drifter's job - a bunk went with it - and no one held it for long, but the truck stop's retired owner, Joe Visocan, remembered Mr. Kaczynski after 22 years because of a letter he received after the worker quit.

Addressed to "Dear, sweet Joe, You fat con man," Mr. Kaczynski complained of being misled about the amount of money he might make on the job, demanded his last paycheck and threatened to tell the authorities about some equipment irregularity in the garage if he did not receive it.

Ted's brief sojourn in Raynesford was also notable for a crude romantic overture he made to a 19-year-old college student who was working as a waitress in the truck-stop restaurant, and for what seems to have been a revealing expression of his growing antipathy toward technology.

To the waitress, Sandra Hill, he was just a shy, clean-shaven co-worker, a dozen years her senior. She said she had paid him little attention, and had no idea he was interested in her until she went back to school that fall and received three letters from him.

One invited her to move with him to northern Canada and be his squaw. The second was almost a resume, in which he, as if applying for work, told her he was a Harvard graduate who had written and published papers in scientific journals. The third said he assumed she was not interested because she had ignored the first two.

Ms. Hill also remembered what may have been a glimpse of Mr. Kaczynski's anti-technology sentiments. An aircraft flew over one day, and Mr. Kaczynski, looking up, remarked that it represented something terrible for humanity. He spoke of air pollution and said something else about a world in which speed was too important.

In and around Lincoln, people did not keep track of Mr. Kaczynski's comings and goings. He sometimes did not appear in town for months. He occasionally got a ride from an acquaintance, like Dick Lundberg or Carol Blowars, or took a Rimrock Stage bus from Lincoln into nearby Helena or Missoula. He might have been gone for months at a time without anyone noticing.

Ted Kaczynski's cabin was far less remote than his brother's in West Texas. Indeed, it was only two hours from transcontinental highways traveled by intercity buses. Missoula on Interstate 90 linked Seattle and Chicago. Helena is on Interstate 15, which reaches from Canada to San Diego through Salt Lake City, with branches to Sacramento, Berkeley, San Francisco and all of Northern California.

Barbara McCabe, proprietor of the Park Hotel, a cheap place for transients in downtown Helena, said Mr. Kaczynski had stayed the night off and on for many years, taking a Spartan, $14 room with a sink and bed. "He was very quiet," she said. "He'd just take his key and go to his room."

Across the street at Aunt Bonnie's Bookstore, Mr. Kaczynski would stop to buy a book from the 25-cent rack, said Anne Haire, the owner. They were usually old, obscure sociology or political science texts, she said, "the books nobody else wants to buy."

Nearby, the in-state buses leave for Butte, where one can board a Greyhound bus for practically anywhere in the country. Stacie Frederickson, a Greyhound agent in Butte, remembered ticketing Mr. Kaczynski - "a geeky-looking guy" - about 15 times on intercity buses south to Salt Lake City or west to the Coast.

But it was east, to Chicago, that Mr. Kaczynski traveled in the spring of 1978.

Prof. Donald Saari, of the mathematics department at Northwestern University in Evanston, just north of Chicago, said a man he thought was Mr. Kaczynski appeared at his office, without an appointment, one day in the spring of 1978.

Investigators have expressed some doubts about Professor Saari's account of what happened in what he said were four or five meetings with the man.

"The first time, he just arrived, standing shyly outside my door, and I invited him to come in," the professor recalled. His clothes and awkwardness suggested a working man, but there were odd things about him. "He was shy, his social graces were not the best and he tended to wear working clothes and working shoes. On the other hand, he did not have the firm handshake of someone from the working class."

Professor Saari said he thought the man had come to him because he wanted to attend a lecture series he was arranging, but the man wanted him to read a treatise he had written on the evils of technology. The professor said it had not been his understanding that the man wanted to get his 10- to 20-page treatise published.

The professor read it, nevertheless. It made an argument that technology was profoundly harming society, he said, but he found the ideas clumsily expressed. The man seemed intelligent, but the professor thought he needed guidance.

"I'm dealing with a person that I think has a future, that should go back to school," Professor Saari said. "He's expressing ideas amateurishly. They're not well defined or well thought out. But with going to school, they could be polished." He suggested that Mr. Kaczynski go to the Chicago Circle campus of the University of Illinois. It was less expensive than Northwestern.

When Professor Saari next saw him, Mr. Kaczynski was trembling with rage at his treatment at the Chicago Circle campus of the University of Illinois, where his manuscript had been rejected.

"He was quite angry - never raised his voice - but he was enraged, and he was trembling," Professor Saari recalled. "He told me that these highfalutin' Ph.D.'s had dismissed him from their offices. I guess they had looked over his manuscript and summarily dismissed him."

What happened next made a deep impression on the professor.

"I'll get even," Mr. Kaczynski said, shaking with rage.

Professor Saari next saw Mr. Kaczynski at a lecture by a British scholar, Joseph Needham, who had written extensively on the history of science and industry in China. The subject was gunpowder.

The first device was quite crude, a piece of pipe that might have come from a kitchen sink. The explosive was gunpowder and shavings of wooden matchheads. The wire had been pulled from an old lamp cord, and the triggering device was simple and dangerous.

But the container was almost a work of art, carefully fashioned from four kinds of wood, meticulously sanded, polished and stained, like a piece of fine furniture from an old-world artisan.

The package was addressed to a professor at the Chicago Circle campus of the University of Illinois, where it was left in a parking lot on May 24, 1978. But instead of being forwarded to its addressee, it was returned to its apparent sender, a professor at Northwestern University. Since that person had not actually sent the package, it was turned over to Northwestern's campus security force. It exploded the next day, badly injuring a guard who opened it.

It seems mere chance that the bomb went off at Northwestern in Evanston, rather than at the Chicago Circle campus of the University of Illinois. But the address and the return address on the package suggests that either may have been a satisfactory target to the Unabomber.

The Rejected Suitor-Date Brings Joy, Then Despair

He went back to Lombard, back to his parents' home. This time, he did not resist their blandishments about work. On June 23, he took a job at the plant where his father worked part-time as a draftsman and where his brother, David, was now a supervisor. Ted was put to work as a press operator, cutting pieces of foam for cushions.

His supervisor was Ellen Tarmichael, a soft-spoken but no-nonsense woman who is still a production manager with the company. One employee, Richard Johnson, called her "a wonderful boss, the best I've ever had," and added: "She's always kind-hearted and nice to people. I can see why somebody would get interested in her."

Ted Kaczynski became interested in late July 1978. He was 36, and she was 29.

It was a Sunday, and he had gone for a walk. "He happened to see her car," David recalled. "She was filling the gas tank. I don't know exactly what transpired. He actually went to her apartment and played cards with her and her sister and her boyfriend."

Later Ted came home. "He was obviously in a really good mood," David said. "He told me he had gone to see Ellen, that they had spent the day together and had played cards, and that some gestures indicating affection had passed between them. I was very happy about that." He remembered something his parents had said once, about Ted eventually marrying and losing his "rough edges."

They had two dates, Ms. Tarmichael recalled. She said he seemed intelligent and quiet, and she accepted a dinner invitation in late July. It was a French restaurant, David said, and Ted "ordered wine and he smelled it, he made a big deal of it." David added, "He had a good time."

Two weeks later, they went apple-picking and afterward went to his parents' home and baked a pie. That was when she told him she did not want to see him again. "I felt we didn't have much in common besides our employment," she said.

"Ted did a total shutdown," retreating into his room, David said. He also wrote an insulting limerick about Ms. Tarmichael, made copies and posted them in lavatories and on walls around the factory. He did not sign the limerick, but his relationship with the woman was known.

David confronted his brother. "I was very, very angry," he said. "Part of me was disappointed. He was so close to being integrated in the most primal rite of integration. He had an interest in a member of the opposite sex, and to have him go back to this kind of angry, inappropriate behavior - to the family it was embarrassing, adolescent kind of behavior."

David told him to cease the offensive conduct. But Ted put the same limerick up the next day, above David's desk. David told him to go home. Ted asked if he was being dismissed, and David again told him to go home.

"At that time, Ted asked me if his brother could fire him," Ms. Tarmichael said. "I replied that David could fire him and told him I, as David's manager, would support David's decision."

Ted, regarding himself dismissed, walked off.

At a recent news conference, Ms. Tarmichael said that at no time was she "romantically involved with Ted Kaczynski." She also scoffed at accounts that her rejection had somehow led to acts of terrorism attributed to him. Since the day of his dismissal, she said, she has had no contact with him.

David said Ted wrote Ms. Tarmichael a letter that "had elements of an apology about it." But investigators said the letter, which probably was not sent, partly blamed the woman for what had happened and said Ted had considered harming her. One investigator quoted the letter as saying she was lucky he had decided not to harm her.

After Ted's dismissal, with tensions between the brothers continuing, David left the house in Lombard and moved back to Texas. But Ted stayed until the late summer or early fall of 1979. It is not clear whether he returned to Montana then or later.

The Unabomber struck three more times in the Chicago area. On May 9, 1979, a year after the first attack, a bomb in a box left at Northwestern University's Technological Institute injured a student who tried to open it. Six months later, on Nov. 15, a bomb mailed from Chicago to an unknown location went off on an American Airlines flight from Chicago to Washington; 12 people were injured, but the plane landed safely. On June 10, 1980, a bomb mailed to the Lake Forest, Illinois, home of Percy A. Wood, the president of United Airlines, injured Mr. Wood when he tried to open it.

In the early 1980s, David said, Ted's letters to his parents began to grow increasingly angry. The parents had visited him several times at his cabin until the mid-1980's, and each time they had come away pleased at his cordiality, only to find another angry letter in the mail soon after returning home.

"With Ted, I have a sense of a person who appeared to deteriorate with time," David said. "I recall letters he wrote to our parents that were quite loving for quite a few years. How you get from that to some of the angry letters, I don't know."

But Ted continued to write to his brother. "Ted always seemed interested to know about my experiences in the desert," David said. "He had told me on a number of occasions that Lincoln was getting too crowded. He felt stifled. I understand perfectly how he felt. A cabin coming up two miles away. It changes your lifestyle. Someone could look at you through binoculars, especially when your bathroom is outside. It could be a concern."

Over the next five years, from 1981 to 1985, there were seven more bombs - at the University of Utah in Salt Lake City; at Vanderbilt University in Nashville; two at Berkeley (at a faculty lounge and in a computer room); at the Boeing Company in Auburn, Washington; at a professor's home at the University of Michigan, and at a computer store in Sacramento.

The authorities knew the attacks were related because the initials "FC" were either engraved on metal parts of the bombs or spray-painted near the scene of the explosions. And the explosions were becoming increasingly dangerous.

Six people were injured during this five-year period. One person, the owner of the computer store in Sacramento, was killed in 1985. The Unabomber, after nearly eight years, had committed a murder.

In 1986, David visited his brother in Montana for almost two weeks. David slept in a tent outside because, he felt, the cabin was too cramped. David was surprised that Ted had a battery-operated radio. "He said - maybe he was embarrassed because I pictured him as a purist - it was not for entertainment, just the weather."

David saw no chemicals or other items that might have aroused suspicion. "In retrospect," David said, "he wanted to be very specific about the day I was coming."

One day, Ted showed him a book on Roman coins. Another day, David drove him to town to shop for supplies and go to the library. "He introduced me to people that he knew," David said. "I remember feeling pleased and reassured that he was a familiar character in town."

Back at the cabin, Ted "spent some time tutoring me in Spanish," David said. "He would have me read from some of the Spanish books. I had a sense that he really enjoyed doing that." David said he did not relish the role, but went along with it because it seemed to please his brother.

It was on this visit, David recalled, that the table collapsed under him as he was sawing wood outside. Ted touched his shoulders, and David felt a closeness to his brother greater than any he could remember.

The Unabomber was always careful. He never left fingerprints. The stamps on his packages were never licked, lest saliva become evidence for DNA experts. He was always well away when his explosions occurred. But on February 20, 1987, when one of his bombs went off outside a Salt Lake City computer store and injured an employee, something extraordinary happened. A woman nearby spotted the man who had left the bomb package. He looked right at her, and she remembered him clearly: a hooded sweatshirt, a mustache, reddish-brown hair, a square jaw and menace lurking behind the aviator sunglasses.

He panicked. The bomber, who had meticulously covered his tracks for nearly a decade, had made a mistake.

He fled.

And as the woman's description became a sketch that found its way into newspapers and magazines across the country, he retreated into the shadows and halted his bombing campaign for six years.

The Correspondent-Letters of Friendship, Letters of Anger

Ted Kaczynski began a strange new interlude in 1988 - a correspondence with a man he would never meet. It would last seven years and become his most sustained relationship with a person outside his family.

He had continued to receive letters and cash holiday gifts from his parents and David. But that autumn, he received an unusual letter in Spanish from Ojinaga, Mexico, from Juan Sanchez Arreola, who introduced himself as a friend of his brother. He said he had been hurt in a pickup truck accident and asked for financial help.

In a meticulous handwritten response in stilted Spanish on lined three-ring binder paper and dated November 14, 1988, Mr. Kaczynski said he would try to help, though he made no promises. He wrote: "I am pleased that you call yourself my friend. And I, in turn, call myself your friend."

Thus began a correspondence - an odd blend of warmth yet distant formality sometimes associated with communications across a linguistic or cultural gap - between "Teodoro" and a married, 60-year-old farmhand with two years of schooling. They would eventually write some 50 letters each, and Mr. Kaczynski would offer a circumspect picture of his life, from mundane weather reports to detailed descriptions of rabbit-hunting, from expressions of concern over his poverty to confessions of loneliness.

David recalled, "Ted said he didn't know what it was, but Juan touched him very deeply, and there are a number of instances throughout Ted's life when he was very, very deeply touched and sympathetic toward someone's pain he could understand, and Juan was one of these cases."

David said Ted wanted to do something for Mr. Sanchez, but his solution "reveals that in some ways he was out of touch." "He read about a millionaire who would receive requests for money and decide who to give it to. Ted decided this was the best way to get help for Juan, to pay his medical bills, and he drafted a letter that he sent to me. I was supposed to get an OK from Juan and send it to the millionaire. And of course, we never heard. For an intelligent person it seemed so . . . extremely naive."

Mr. Sanchez had continued to write to David, as well, and had encouraged him to write to Linda Patrik, a girl he had remembered as a friend and lab partner from high school. "He had to teach me to write a love letter," David said.

In 1989, David told his brother he had a relationship with Linda and had decided to go to Schenectady, New York, to be with her. He also said he expected to marry her.

"At that time he decided to end his relationship with me, end communicating with me," David said. "It was an extremely angry, total surprise to me. He tended to view me as someone who was easily manipulated by others and for some reason he had gotten the notion that Linda was a manipulating female who was using me." The accusation seemed particularly bizarre, David said, because "he has never met her to my knowledge."

One interpretation of his brother's letter, he said, might be that Ted was disappointed that he would give up the lifestyle they had shared. "It may have just been terrible for him to think I would rejoin society," David said. "I think it goes deeper than that."

David said the letter had contained "a long litany" of his presumed faults but it added that "he did care about me" and said that "I was throwing away my life."

By marrying? he was asked.


Seeing Linda as manipulative, though he had never met her, was typical, David said. "He would remember something that my father said or my mother said, and it would be great weight, and he would attach some significance to it. He would build out of a few facts a picture that was unrecognizable."

From then on, Ted told David, he would not open a letter from his brother unless it had a line drawn under the stamp to indicate a family emergency. David had been cut off. Then, a few weeks later, David received an amendment from Ted.

"It was an awkward apology for the tone of what he said," David recalled. But there was a new element: Ted said he had developed a heart arrhythmia that "made him fear for his life." It had been brought on by anger, and he said he had decided to limit his communications to ease the stress.

David said he had no idea whether Ted actually had a heart problem, but he said there had been no apparent ill effects after years of talk about it. He also said his brother had expressed frequent concerns about germs, infections and other health matters. "This kind of worry about - not hypochondria - just worry about his health is a recurring theme," David said.

"My reading of things is that Ted did not have a real good grip on his own emotions, and this was clearly an example of an effect, the way his emotions became something he could not control. Clearly, he was afraid of the way his heart would beat when he got angry. He couldn't control it. The only way he could control it was by eliminating the trigger.

"The only way was, don't write me any more. Don't make me angry any more."

In later letters to "My very dear and esteemed friend," Mr. Sanchez, Ted told of being alienated from his family. Mr. Sanchez quoted him as saying he was "on bad terms" with his parents and "doesn't want anything to do with them." And Mr. Sanchez said: "David once told me that Teodoro called his mother a dog. It is very sad when someone doesn't love his parents."

Ted's father, who had visited him at his cabin and had left in disgust at the way his older son was living, had retired from part-time work when he was diagnosed with lung cancer in the late 1980's. When his condition began to deteriorate, his family informed Ted in a letter. His response was a brief call from the Lincoln post office.

On October 2, 1990, Theodore R. Kaczynski shot himself to death in his home in Lombard. Ted was informed of his death, but did not attend the memorial service in Illinois. But he did call during that service to offer condolences to his mother, and David's reaction was to worry about his brother. "I often thought about that conversation," he said. He envisioned Ted at a payphone, awkwardly trying to express condolences to a mother he had ignored for years. "That's a Ted that's human, who I understand and love," David said.

His mother afterward wrote Ted and, David said, "invited him to talk about the things that had been painful to him as a child and in their relationship."

The answer was scathing.

"It began sort of mildly and in the course of the letter it built up and up, and by the end of the letter he was using fairly offensive epithets," David said. It was a 17- or 18-page indictment of his parents, accusing them of being "more interested in having a brilliant son than seeing that son happy and fulfilled."

Was it a valid accusation? "No," David said, "I believe he may very well believe that. When he decided to end his career after they invested so much of themselves . . ."

Ted also said he had never had a real friend in all his life, and recalled a painful incident in gym class when he was 16. "The kids had picked out their sides, and he was the odd man out. Nobody picked him. He said, 'I am crying as I write this.' "

The exchange continued, David said. "My mother wrote back saying, 'Look, Ted, you know you're handsome. You know you're smart. There's no reason you can't have the kind of life you want.' He was so angry about that. To me it sounded like encouragement, but he took it to be something - a part of him I absolutely can't explain."

Ted did not attend David's 1991 wedding to Ms. Patrik in a modest backyard Buddhist ceremony in Schenectady. Marriage drastically changed David's life. He gave up the Texas outback for a home in Schenectady and a job at Equinox, an Albany agency that helps runaway youths. His wife has been a professor of philosophy at Union College, in Schenectady, for 18 years.

The marriage also apparently snapped Ted's last thread to David, though he would make later requests for money.

Early in the summer of 1993, a few months after Islamic terrorists set up an enormous explosion that rocked the World Trade Center in New York, killing six people and injuring hundreds, the Unabomber resumed a campaign that had been suspended for six years. His new bombs were far more sophisticated and deadly. They were mailed from, or planted in, Utah or Northern California.

On June 22, a bomb mailed to a Tiburon, California, home exploded and severely injured a University of California geneticist. Two days later, a similar bomb badly injured a computer science professor at Yale University in New Haven. Both bombs had been postmarked in Sacramento.

On the day of the Yale blast, the Unabomber spoke to the world for the first time. A letter to The New York Times, postmarked San Francisco and bearing the "FC" trademark, claimed that the bombings were the work of an anarchist group. It promised further communiques and gave a nine-digit code - 553-25-4394 - that it said would be included for authentication on future writings.

Under great pressure to find the bomber, investigators developed a profile calling the suspect a loner, highly intelligent, meticulous, a quiet man who made lists and had trouble dealing with people, especially women, perhaps a sullen student or teacher. Tens of thousands of leads were pursued, all to no avail. They needed something more.

In Lincoln, Mr. Kaczynski was always short of money. In the summer of 1994, the bearded, unkempt hermit approached Becky Garland, then manager of a clothing-sporting goods store. He told her he was almost broke and needed work. They agreed to meet and talk. They sat on the store porch a few days later, and he gave her a letter, part resume and part self-description.

It was an extraordinary revelation, mentioning his Harvard and graduate degrees, and making brief references to his loneliness. It had been 16 years since his date with Ellen Tarmichael.

"I think he wrote the letter so he didn't have to speak about these things, so he didn't have to talk a lot," Ms. Garland said. "He wrote about being with classmates who were older, and about being very shy. He did write about a relationship with someone at one time that didn't work out." A 20-minute talk ensued, and minimal as it was, he revealed more of himself than he had in 23 years in Lincoln.

"We use the term 'surrogate activity' to designate an activity that is directed toward an artificial goal that people set up for themselves merely in order to have some goal to work toward, or let us say, merely for the sake of the 'fulfillment' that they get from pursuing the goal. . . . The pursuit of sex and love (for example) is not a surrogate activity because most people, even if their existence were otherwise satisfactory, would feel deprived if they passed their lives without ever having a relationship with a member of the opposite sex. But pursuit of an excessive amount of sex, more than one really needs, can be a surrogate activity."

-from the Unabomber manifesto

Ms. Garland did not keep the letter, and no job came of it. Mr. Kaczynski did not press the matter. He may have been too busy, investigators say, for it was then that he began to spend a great deal of time at his cabin writing on a battered old typewriter. He also wrote to David, requesting money.

While investigators have denied it, several published reports have suggested that Mr. Kaczynski's name appeared in 1994 in an Federal of Bureau Investigation file in connection with Earth First, an environmentalist group that uses confrontational tactics against timber and other development companies.

According to these reports, Mr. Kaczynski was said to have gone to the campus of the University of Montana at Missoula in November 1994, and attended a meeting of 500 environmentalists from all over the world who gathered to coordinate opposition to multinational corporations.

Thomas Fullum, an organizer of the meeting, did not recall Mr. Kaczynski specifically, but said that the discussions had alluded to the role of a public relations agency, Burson-Marsteller, a unit of Young & Rubicam Inc., and its work for Exxon Corporation. There were erroneous assertions at the meeting that Burson-Marsteller had tried to repair the company's image after the 1989 Exxon Valdez oil spill.

Among the many publications available to those who attended the meeting was The Earth First Journal, which contained denunciations of the timber industry and its lobbyists.

On December 10, 1994, a mail bomb killed Thomas J. Mosser at his home in North Caldwell, New Jersey. Mr. Mosser, an advertising executive for Young & Rubicam who specialized in crisis communications, had once worked for Burson-Marsteller, but neither he nor that agency had been employed on the Exxon Valdez incident.

In mid-April 1995, Mr. Kaczynski, having again asked for and received money from his brother, left Lincoln and traveled by bus to Sacramento. At a Burger King restaurant next to the bus terminal in Sacramento, Mike Singh, the manager, remembered him. He was carrying what appeared to be an armful of books. He had a sandwich and a cup of coffee and left.

Mr. Kaczynski took a room at the Royal Hotel, next door to the bus station. A desk clerk, Frank Hensley, remembered him because he had stayed there periodically in recent years, usually in spring or summer, for three days to a week at a time. He used the name Conrad to sign the registration book, and took a $22.50-a-night room without a bath.

The hotel was not far from the Sacramento post office.

On April 24, 1995, five days after the bombing of the Federal Building in Oklahoma City (committed by right-wing antigovernment extremists), which killed 168 people in the worst act of terrorism in the nation's history, a package arrived at the Sacramento office of the California Forestry Association, a timber industry lobbying group. It was addressed to a former association president, but was opened by his successor, Gilbert P. Murray, who was killed by the explosion.

It was the Unabomber's last bomb.

That same day, a letter that had been mailed from Oakland a day after the Oklahoma City bombing arrived at the offices of The New York Times in New York. The letter was crudely typed, with phrases crossed out with X's, more typical of work on a typewriter than a computer. But it gave the Unabomber's nine-digit code, and it offered an explanation for 17 years of deadly serial bombings.

"The people we are out to get are scientists and engineers, especially in critical fields like computers and genetics," it said. The goal, it said, was nothing less than "the destruction of the worldwide industrial system."

The letter ridiculed David J. Gelernter, a Yale computer professor who lost an eye in one of the 1993 bombings, and said Mr. Mosser had been killed because he worked for Burson-Marsteller and that company "manipulated people's attitudes." It was mistaken in asserting that Mr. Mosser currently worked for Burson Marsteller and that that agency had tried to "clean up" Exxon's image.

But the significance of the letter was unmistakable. After 17 years of seemingly random attacks, the Unabomber had changed tactics and offered a statement on his motives. Moreover, he said he wanted to fully detail his reasons for bombing and was working on a long manuscript for publication.

But talking to the world entailed enormous risks. It meant that his words, his vocabulary, his typewriter and the very paper he would write upon, would all become clues to his hidden identity.

Two months later, he threatened to blow up a jetliner out of Los Angeles, causing wide panic and security precautions. Then he called it a prank. With the nation paying attention at last, he sent his 35,000-word manifesto to The Times and The Washington Post and said he would stop the killing if it were published in three months. The Post published it, with The Times sharing the costs, last September.

David Kaczynski read the manifesto and, with growing alarm, began a private inquiry, comparing the document with his brother's old letters and essays. He saw striking similarities in the prose style and the anti-technology content. He had already begun thinking about the locales of Unabom explosions and how similar they were to the places where his brother had lived or studied. By February, David, after agonizing over his findings, had turned to the FBI.

Agents searching a shed at the old Kaczynski home in Lombard found matches, traces of gunpowder and other compounds like those used in the earliest Unabom explosions in the Chicago area in 1978, 1979 and 1980. Wanda Kaczynski knew nothing about all this. She had just sold the home in Lombard for $100,000, and had moved to Schenectady to be near David.

The county trunk is an unpaved road that snakes south out of Lincoln, turns east and rises up into the high country toward Stemple Pass, which cuts through the Rocky Mountains at 6373 feet. Five miles from town, just short of the pass, a muddy side road branches off up a hillside and disappears into the dense aspen and juniper woods. That's where the men went.

They might have been taken for hunters, if anyone had noticed them out in the snow. They had guns and binoculars, and they moved cautiously, like stalkers. They had rented rooms at a hotel in town in February, but people had been too nosy and they had moved to two cabins on a ridge up near the pass. Only Butch Gehring, who lived up there, knew who they were, and he had been sworn to secrecy.

For 18 days, they watched, peering down through the winter woods with their binoculars and telescopes. Elk and deer, and once a cougar, crossed their lenses. But by late March, they had not seen the mountain man. They knew he often stayed in for weeks, but they began to wonder. Mr. Gehring was sent to check. He and a forest ranger confirmed that the hermit had not slipped away.

Waco and Ruby Ridge preyed on the watchers' minds: They wanted no blunders, no needless violence. But their force was growing - up to 50 men were holed up in the area - and secrecy could not be assured indefinitely.

They picked a cold, overcast day, April 3. Showers of snow and sleet fell from time to time. A mountain wind moaned and lifted the pine boughs. Canyon Creek gurgled with the spring melt. They formed a great circle, moving down the hillside and up the muddy road. Mr. Gehring went along.

As they drew near, they came across a shed where the carcasses of several animals had been dressed and hung out to dry. Nearer still, a plot of ground lay cleared for a garden, enclosed by a tall wire fence to keep out the deer. A ring of cold stones marked a campfire-cookery.

The cabin, with a steep roof of green tarpaper, was a crude wooden shack, its reddish-brown walls faded by many winters, a rustic coarseness against the gnarled bark of the woods. It was impossible to see in; two small windows were set high up to catch the light but keep out prying eyes. A jumble of bottles and cans lay heaped like a medieval midden beside the cabin door.

The door itself was hinged and fitted with a hasp for a padlock, useful for locking up when the mountain man was away. But he was here now, silent inside, his door secured by a deadbolt.

They used a little ruse. Mr. Gehring shouted, something about the ranger needing help to fix the line between their adjoining properties.

The door opened, and a shaggy man stepped out.

They took his arms from both sides.

"Ted," one of them said. "We need to talk."

"Disney to Acquire Lucasfilm Ltd.," PRNewswire, May 30, 1996

Global leader in high-quality family entertainment agrees to acquire world-renowned Lucasfilm Ltd, including legendary STAR WARS franchise.

Acquisition continues Disney's strategic focus on creating and monetizing the world's best branded content, innovative technology and global growth to drive long-term shareholder value.

Lucasfilm to join company's global portfolio of world class brands including Disney, ESPN, Pixar, and ABC.

STAR WARS TRILOGY SPECIAL EDITION coming to theaters in early 1997. STAR WARS: EPISODE I feature film targeted for release in May 1999.

Burbank, CA and San Francisco, CA – Continuing its strategy of delivering exceptional creative content to audiences around the world, The Walt Disney Company (NYSE: DIS) has agreed to acquire Lucasfilm Ltd. in a stock and cash transaction. Lucasfilm is 100% owned by Lucasfilm Chairman and Founder, George Lucas.

Under the terms of the agreement and based on the closing price of Disney stock on May 26, 1996, the transaction value is $2.05 billion, with Disney paying approximately half of the consideration in cash and issuing approximately 40 million shares at closing. The final consideration will be subject to customary post-closing balance sheet adjustments.

"Lucasfilm reflects the extraordinary passion, vision, and storytelling of its founder, George Lucas," said Michael D. Eisner, Chairman and Chief Executive Officer of The Walt Disney Company. "This transaction combines a world-class portfolio of content including Star Wars, one of the greatest family entertainment franchises of all time, with Disney's unique and unparalleled creativity across multiple platforms, businesses, and markets to generate sustained growth and drive significant long-term value."

"This is an extraordinary moment for me, for Lucasfilm, and for Star Wars," said George Lucas, Chairman and Chief Executive Officer of Lucasfilm. "At this moment, we are working on the restoration of the Star Wars trilogy, in order to create a special edition more in line with my original vision from 1975, that for various reasons, I couldn't have in the films as they were originally released. So, with the 20th anniversary of the original film on the horizon, this is a perfect opportunity for a new generation to be introduced to Star Wars and see it as it was intended. Then, the new trilogy, the prequel trilogy, establishing the backstory of Darth Vader, will be released and the story, as I've intended it, will be told. Having a new home within the Disney organization, Star Wars will certainly live on and flourish for many generations to come. Disney's reach and experience give Lucasfilm the opportunity to blaze new trails in film, television, interactive media, theme parks, live entertainment, and consumer products."

Under the deal, Disney will acquire ownership of Lucasfilm, a leader in entertainment, innovation and technology, including its massively popular and "evergreen" Star Wars and Indiana Jones franchises and its operating businesses in live action film production, consumer products, animation, visual effects, and audio post production. Disney will also acquire the substantial portfolio of cutting-edge entertainment technologies that have kept audiences enthralled for many years. Lucasfilm, headquartered in San Francisco, operates under the names Lucasfilm Ltd., LucasArts, Industrial Light & Magic, Skywalker Sound and THX, and the present intent is for Lucasfilm employees to remain in their current locations.

20th Century Fox, which distributed the original trilogy's theatrical releases and which had locked in ownership of the original Star Wars in perpetuity, has officially waived those provisions and transferred full ownership to Disney, allowing Walt Disney Studios Motion Pictures to distribute the forthcoming Star Wars Trilogy Special Edition in 1997 and all future films, and Buena Vista Home Video to control the home video rights.

Lucas himself, Lucasfilm President Gordon Radley, and co-chairman and producer Rick McCallum will report to Walt Disney Studios Chairman Joe Roth. Additionally, McCallum will serve as the brand manager for Star Wars, working directly with Disney's global lines of business to build, further integrate, and maximize the value of this global franchise. The Star Wars Trilogy Special Edition will be released in January, February and March 1997. Star Wars Episode I is targeted for release in May 1999, with the other two installments to come soon down the pike and Disney also expects more feature films and potential TV series expected to continue the Star Wars saga and grow the franchise well into the future. In addition, work on the Indiana Jones franchise, such as restarting the ABC series The Young Indiana Jones Chronicles, will also come down the line.

The acquisition combines two highly compatible family entertainment brands, and strengthens the long-standing beneficial relationship between them that already includes successful integration of Star Wars content into Disney theme parks in Anaheim, Orlando, Paris and Tokyo.

Driven by a tremendously talented creative team, Lucasfilm's legendary Star Wars franchise has flourished for nearly 20 years, and offers a virtually limitless universe of characters and stories to drive continued feature film releases and franchise growth over the long term. Star Wars resonates with consumers around the world and creates extensive opportunities for Disney to deliver the content across its diverse portfolio of businesses including movies, television, consumer products, games and theme parks. The franchise provides a sustainable source of high quality, branded content with global appeal and is well suited for new business models including digital platforms, putting the acquisition in strong alignment with Disney's strategic priorities for continued long-term growth.

The Lucasfilm acquisition follows Disney's very successful acquisitions of Pixar and Capital Cities/ABC, which demonstrated the company's unique ability to fully develop and expand the financial potential of high quality creative content with compelling characters and storytelling through the application of innovative technology and multiplatform distribution on a truly global basis to create maximum value. Adding Lucasfilm to Disney's portfolio of world class brands significantly enhances the company's ability to serve consumers with a broad variety of the world's highest-quality content and to create additional long-term value for our shareholders. To meet potential antitrust concerns, Disney will sell off 80 percent of its stake in Miramax Films, acquired in 1993 for $60 million, retaining only home video rights for films with Buena Vista Home Video.

The Boards of Directors of Disney and Lucasfilm have approved the transaction, which is subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act, certain non-United States merger control regulations, and other customary closing conditions. The agreement has been approved by the sole shareholder of Lucasfilm.

About The Walt Disney Company
The Walt Disney Company, together with its subsidiaries and affiliates, is a leading diversified international family entertainment and media enterprise with five business segments: media networks, parks and resorts, studio entertainment, interactive media, and consumer products. Disney is a Dow 30 company.

About Lucasfilm Ltd.
Founded by George Lucas in 1971, Lucasfilm is a privately held, fully-integrated entertainment company. In addition to its motion-picture and television production operations, the company's global activities include Industrial Light & Magic and Skywalker Sound, serving the digital needs of the entertainment industry for visual-effects and audio post-production; THX, an audio reproduction standards company for movie theaters and amusement park attractions; LucasArts, a leading developer and publisher of interactive entertainment software worldwide; Lucas Licensing, which manages the global merchandising activities for Lucasfilm's entertainment properties; Lucasfilm Animation; and Lucas Online creates Internet-based content for Lucasfilm's entertainment properties and businesses. Additionally, Lucasfilm Singapore, produces digital animated content for film and television, as well as visual effects for feature films and multi-platform games. Lucasfilm Ltd. is headquartered in San Francisco, California.

"Bombing In Saudi Arabia: The Witnesses; Survivors of Saudi Explosion Knew At Once It Was A Bomb," by Steven Erlanger, The New York Times, June 27, 1996

Staff Sgt. Alfredo Guerrero saw it coming, unfolding before him like the nightmare his training courses had etched.

The Saudi base, where American, British and French troops are housed in a complex called Khobar Towers, was already on a heightened state of alert after warnings of possible attacks on Americans.

On Tuesday night, Sergeant Guerrero and two other Air Force security policemen were patrolling the roof of an eight-story barracks in the northernmost corner of Khobar Towers when a large gasoline truck and a passenger car pulled up to the perimeter fence.

The driver ran from his truck and threw himself into the car, which sped away, and Sergeant Guerrero knew immediately that it was a bomb. He and his fellow officers rushed down through the building urging those inside to evacuate.

They had perhaps three minutes for their task.

Sergeant Guerrero had only made it down two floors when the explosion struck, ripping the face off the building and killing 19 American servicemen. More than 400 other people were wounded, 250 of them American.

"Many are alive today because of his heroism," said Secretary of State Warren Christopher, who canceled a trip intended to help restart the Middle East peace effort to come here and see the victims of the kind of terrorism that has so often disrupted such efforts.

Prince Saud al-Faisal, the Saudi Foreign Minister, broke in. "This gentleman's name is Staff Sergeant Guerrero, and we're very grateful to him."

Maj. Gen. Kurt Anderson, commander of the joint task force, and Brig. Gen. Terry Schwalier, commander of the 4404th Composite Air Force Wing, the unit Sergeant Guerrero and his fellow officers belong to, both visited Sergeant Guerrero in the hospital.

"He's pretty banged up and has cuts," General Anderson said, "but he's fine."

On Tuesday night, Technical Sgt. Harold Jautakis was in his reclining chair in front of the windows on the fourth floor, watching the evening news, when he saw a fireball rising from the earth.

"The fireball kept coming and then the windows came in and knocked me right over in my chair," he said.

"It was that chair that probably saved my life," said Sergeant Jautakis, 43, from his hospital bed at the King Abdul Aziz Military Hospital here, picking at small shards of glass in his skin. "And I've got little pieces of that truck in me still," he said, pointing at the thick bandages around his leg.

"If you can catch the people who did this, you really should punish them bad," he told Mr. Christopher.

Listening to the conversation, Prince Bandar bin Sultan, the Saudi Ambassador to the United States, assured Sergeant Jautakis: "We'll catch the guys who did this, and I promise you it won't be an O.J. Simpson trial."

For Senior Airman Eric Castor, 22, of Keene, New Hampshire, who was also on the fourth floor of the same building of Khobar Towers, the simple fact of being alive was astounding.

"I was on the telephone, with the back to a wall that was suddenly no longer there," he said. "The next thing I knew, everything went dark and I was flying through the room. Everything was so dark."

The airman, hospitalized with severe lacerations, said: "It was really weird - I never felt anything like it. It was like the movies. All I could think was that I was going to die right then.

"I was lucky, I guess. I was on my back, and I started yelling and I saw some others in the hall."

In the humid dusk tonight, quickly deepening into a desert night, some 20 hours after the bombers struck on Tuesday just after 10 PM, Mr. Christopher toured the blasted site with the Saudi Foreign Minister and the American commanders here. The gloom helped hide the dried blood, and the floodlights made it seem like the television set piece it soon became.

The eight-story building, made of pre-cast concrete panels, had entirely lost its outer wall. The wall ran parallel to the perimeter barrier and fencing that marked the edge of the base, along which the bombers drove, just inside Saudi territory, where Saudi civilian police patrol.

A mattress hung crazily from an upper floor, pipes and wires were sheared and twisted and the row of exposed bathtubs, top floor to ground, make the building seem like an open dollhouse that children could furnish at their whim.

"It blew the whole face off the building," Mr. Christopher said.

The bomb blew out windows, smashed furniture and wounded people up to three-quarters of a mile away, leaving numerous buildings in the area structurally unsound.

Mr. Christopher, his voice sometimes breaking, condemned this "direct attack on the United States and our friends and allies," and promised that the terrorists would be found and brought to justice, "however long it takes."

An Air Force doctor, Roy Smith, a rangy South Carolina native who graduated from the Citadel and the University of South Carolina medical school, said he and his Saudi colleagues had performed "triage and stabilization" at the scene.

"Those with concussion injuries mostly died, but I think a lot of the young men who were killed died instantly," he said.

There were a number of deep lacerations, but the remaining 65 Americans still in hospital should survive, he said.

"We'd practiced mass casualty exercises and they worked very well," he said drily. "We had a lot more and a lot quicker support than we ever expected." He praised the courage of the young men he had treated.

Capt. David Thole of Cincinnati, Ohio, said he was about two buildings away from the one that took the largest impact.

"Having served in Japan, I first thought it was an earthquake," he said, "but the noise was too loud. And when I felt glass hitting me in the face, I knew it wasn't any earthquake."

Capt. Matt Winkler, across the room in another hospital bed, had no illusions when he heard the blast. Grinning crookedly, his face marked by stitches and bruises, he said: "The minute it went off I knew exactly what it was."

"Former Scott Paper Chief Named To Top Position At Sunbeam," The New York Times, July 19, 1996

The Sunbeam Corporation said today that it had hired Albert J. Dunlap, the former chief executive of the Scott Paper Company, who is known as an aggressive cost-cutter, to try to turn the appliance maker around.

The 58-year-old executive succeeded Roger Schipke, as chairman and chief executive, who quit in May after failing to increase profits. Hurt by higher material costs, shipping difficulties and a slowdown in consumer spending, Sunbeam's earnings fell 42 percent in the first quarter.

Analysts had criticized Mr. Schipke for failing to increase sales by introducing new products or making acquisitions. Separate departments were often at odds and failed to work toward one goal, they said.

"The company's No. 1 problem has been lack of a strategic plan, and its No. 2 problem is accountability," said William Steele, an analyst at Dean Witter Reynolds. "There is no question that Al is a taskmaster with those issues," he said of Mr. Dunlap.

In his 18 months as Scott Paper's chief executive, Mr. Dunlap dismissed about 11,000 workers - one-third of the employees - and sold $2 billion of assets before selling the company to the Kimberly-Clark Corporation for $9 billion. The same treatment is expected at Sunbeam, whose earnings have fallen below expectations in five of the last six quarters.

"He's going to get to work his magic on Sunbeam by holding managers accountable for their budgets and projections," Mr. Steele said. "A restructuring is imminent within the next three months."

Mr. Dunlap said he would buy $3 million of Sunbeam stock, and Sunbeam said the company's shares would be a major part of his pay package.

Trading of Sunbeam stock was halted on the New York Stock Exchange this afternoon before the announcement of Mr. Dunlap's appointment. The stock last traded at $12.50, well below its 52-week high of $20.125, reached in March. Sunbeam's shares have risen only 4.9 percent a year since 1992, far less than the 16 percent annual increase in the Standard & Poor's 500 Index.

"Perelman's Not Out of the Game Just Yet," by Nancy Rivera Brooks, Los Angeles Times, July 18, 1996

Ronald O. Perelman isn't turning in his entertainment mogul's license.

Despite the proposed sale of the television mini-empire that Perelman amassed in only seven years, the billionaire New York investor continues to be keenly interested in entertainment and could resurface in any number of mutations, Perelman watchers say.

The $2.48-billion deal announced Wednesday to sell New World Communications Group to Rupert Murdoch's News Corp. puts an end for now to Perelman's ambitious plans for a station and programming behemoth.

It leaves Perelman's holding company, MacAndrews & Forbes, with Marvel Entertainment Group of comic book fame as its sole entertainment property.

Perelman certainly comes away from the deal with a healthy profit and memories of a venture that never quite matched his ambition.

One of the quintessential deal makers of the 1980s, Perelman morphed his image into more of a 1990s-style chief executive, familiar with the minute details of his many holdings, which include the Revlon cosmetics company, the Coleman lantern and outdoor equipment maker, First Nationwide Bank, cigar companies and medical labs.

He is said to be fond of the glitz of the cosmetics and entertainment industries and, in fact, exudes many of the qualities of a tough-guy mogul from a B-movie. Perelman is short, balding, no more than 5 feet, 5 inches tall, and is seldom without a cigar in his mouth-lit or unlit.

In 1989, Perelman bought New World, then just a television production company, for $145 million and proceeded to spend about $100 million more for 12 television stations, as well as other small independent production companies.

But his bold move in 1994 to convert New World-owned CBS affiliates to Murdoch's Fox network in exchange for $500 million has been more costly and difficult than expected, analysts said.

In addition, New World Chairman Brandon Tartikoff did not conjure up the kind of ratings hit for which he was famous in his years at NBC. Tartikoff is leaving New World on July 31.

But the deal with Murdoch is a "sweet victory" for Perelman, said Arthur E. Rockwell, an analyst with Yaeger Capital Markets in Los Angeles.

The $27-per-share price is close to the $29 per share that Perelman reportedly was holding out for during previous negotiations with Murdoch, which broke down earlier this year.

Perelman was able to build New World quickly, accumulating most television stations in the last two years, and he altered the TV map by jumping ship to Fox network, Rockwell said.

But the stations "have not performed as well as they could have . . . because of the transition [to Fox] and the, frankly, rank amateurism of the stations," he said. "Perelman was getting P.O.'d that the stations were not performing."

Although this foray into entertainment may not have performed as Perelman would have hoped, there are few who would count the impatient deal maker out of the industry. He has expressed interest in entering both the music business and gaming business.

"He certainly has the ability and [resources] to do anything he wants to in the industry," said one high-ranking studio executive.

Perelman spokesman Jim Conroy said MacAndrews & Forbes still has a substantial interest in the entertainment industry by way of Marvel Entertainment, which is in the middle of creating Marvel Studios, which will develop film projects based on Marvel characters, such as Spider-Man and the Incredible Hulk. "As far as other entertainment acquisitions, we usually don't forecast what we're going to do," Conroy said.

"In Atlanta, Fear Roams Hand In Hand With Anger," by Jeff Jacobs, Hartford Courant, July 28, 1996

They crawled on their hands and knees in the mud and driving rain Saturday morning, searching for shrapnel and collecting shards of evidence.

Some were from the FBI. Some were from the Department of Alcohol, Tobacco and Firearms. They were determined, unsmiling. They nodded to one another when they came across something substantial, as if to reassure themselves that this piece was the key to apprehending one of the great cowards of the 20th century.

If the goal of this terrorist was to maximize the exposure of the dastardly handiwork, the blast was an unqualified success. If the goal was to put a stop to the XXVI Olympiad, the craven act had failed.

"But I do know one thing for sure," said Jason Sanders, 19, a security guard at the Georgia Dome and a witness to a hellish explosion and murder. "I'm scared to death to come to work."

On one side of Centennial Olympic Park sits CNN Tower. CNN brought us the Gulf War. CNN brought us the explosion that killed 19 Americans in Saudi Arabia and the explosion that killed more than 200 on TWA Flight 800. And now the eyes and ears of the modern world could beam this terrifying story from its own back yard to every one of the 197 nations attending the Olympics.

Throughout downtown Atlanta, byways were blocked as soldiers and police lined streets that all seemed to start with Peach and end with tree. On the other side of the park from CNN, however, everyone on the third floor of the Media Press Center was free to peer 50 yards across Techwood Drive and directly into the lap of this Olympic tragedy.

Ten hours earlier, a pipe bomb had exploded at Centennial Park, killing Alice S. Hawthorne, 44, a cable TV company receptionist from Albany, Georgia, and injuring more than 100. Hawthorne's 14-year-old daughter, Fallon, who police said was standing with her about 40 yards from the bomb, was hospitalized in stable condition with arm and leg wounds.

There was a second fatality. Turkish cameraman Melih Uzunyol had a heart attack racing to the scene. Uzunyol was 40.

Looking through the media center glass, the effect was as haunting as it was surreal. There were 15-foot Elvis Presley and Marilyn Monroe statues staring directly at investigators as they planted tiny red flags to mark crucial evidence spots. Statues from Gone With the Wind and an inflatable Gumby were there, too. There was no one to clear the litter from the streets after the area was sealed off after the 1:25 AM blast. The result was a futuristic ghost town, where debris blew like tumbleweeds through a sea of corporate Towers of Babel dedicated to Coke, AT&T and General Motors. Folding chairs were scattered like bowling pins. Cynics had pointed to this park as the most disgusting display of commercialism in Olympic history. And now it was dead, along with two humans.

"My band was supposed to be right over there at 2 PM and they called it off," said Kurt Schwartz of the band Chilly Willy. "They said the shrapnel from the blast landed right on the stage where we were going to play." This was not the main stage, where Nirvana was playing for a live broadcast on MTV, when the blast sent a deadly hail of screws and nails from the pipe bomb. It was a blast witness Desmond Edward of Atlanta said caused "rivers of blood."

But as the downpour continued on those men from the FBI and the ATF Saturday morning, the rivers of blood Edward described had been washed away. Was it the rainwater? Or the tears of a city?

"Palestinians walked with Israelis in Atlanta this week. Iraqis walked with Iranians," said Andrew Young, Atlanta Olympic Games co-chairman. "It was a wonderful celebration of hope for peace for this planet."

How do we explain this tragedy to our children? How do we explain it to ourselves? Is U.S. Olympic silver medalist Matt Ghaffari right when he says he would love to hunt down and kick the butt of a suspect officials have said is a white American male with an indistinguishable voice?

No, says Young, former Atlanta mayor and U.S. ambassador to the United Nations. Blood on blood only means centuries of blood. Atlanta is the birthplace of Martin Luther King Jr. Atlanta is a place that may have burned when Sherman passed through in 1864, but did not burn when King was assassinated 104 years later.

"Martin said violence is the language of the unheard," Young said. "In America, everybody can speak their piece. Everybody can protest nonviolently. One would think there would be no need for this kind of random violence. Yet there are obviously some people so alienated, so hopeless, so out of touch with what the dreams of humanity are all about, that they don't want to be part of it. It's so sad.

"We can only hope someday we can find a way for people to live together and be at peace with each other."

Atlanta Mayor Billy Campbell said the ultimate message is that the world cannot be beaten by terrorism. President Clinton called the attack "an act of cowardice that stands in sharp contrast to the courage of the Olympic athletes."

The rights of individual freedom must be weighed against the demands for individual security. Before these Games can be guaranteed to give us Kerri Strug, are we willing to relinquish some freedoms for safety?

"We have a saying in Ethiopia that you must take care of your wife before you take care of your friend and his wife, said a cabdriver, Abebe. "I come to America. I want us to be safe and take care of America first. I am willing for soldiers to protect us to stop such a thing. This is so sad for my new city, so very sad. May Allah protect you, my friend."

Only yards away from Centennial Park, where thousands roamed freely before Saturday, there was intense security entering the Georgia Dome, Omni and World Congress Center. This blast easily could have killed far, far more.

"If this was an international terrorism group that really knew what it was doing, Centennial Park would be a crater today," Schwartz said. "I think it's a small-timer. It's mandatory the Games continue and the city press on."

And so the Olympics and Atlanta did press on. But even on a night when the fastest men in the world gathered for the 100-meter dash at Olympic Stadium, everyone knew no human could outrun the ugly specter of violence.

"At first I was saddened and now I am furious," said former U.S. swimming gold medalist Donna De Varona. "I could see in the future every spectator credentialed and fingerprinted. We may have to hold the Games on an island or a sealed city."

And over in the sealed city known as Centennial Park, the FBI and ATF continued to search. The flags, designated to be flown at half-staff the rest of the Olympics, were still flying high. It was sad no one received clearance to lower them.

"Investing It; Marvel Superheroes Take Aim at Hollywood," by Nancy Hass, The New York Times, July 28, 1996

On the comic book pages, there isn't much that Spider-Man can't accomplish. But the superhero can't seem to solve the most pressing problem of the company that employs him, Marvel Entertainment Group.

For more than 15 years, Marvel has been waiting for Hollywood to make a Spider-Man movie. It first sold an option to make a film in the late 1970s. In April, the final option expired and the movie rights to the character reverted to Marvel.

Now, there has been much news recently about Ronald O. Perelman, the chairman of Marvel and several other companies. He has sold his television company, New World Communications, to Rupert Murdoch's News Corporation for $2.48 billion. And New World has canceled the purchase of King World Productions, distributor of Jeopardy and other shows. But one thing that has been overlooked is Mr. Perelman's plan to solve the long-running problem of putting Spiderman and Marvel's other characters on the screen.

Just like its superheroes might have done, Marvel took the movie matter into its own hands earlier this month. It filed with the Securities and Exchange Commission to raise money to create Marvel Studios, its own production entity, on which it expects to spend about $100 million. Much of the money will come from the sale of a big chunk of Marvel's and Mr. Perelman's stock in Toy Biz, the toy company that Marvel started and took public in February 1995.

Marvel's idea is to control preproduction, which means it will commission scripts, hire directors and negotiate with stars. After the package is assembled, it plans to turn over the shooting and distribution to a big studio partner.

"When you get into business with a big studio, they are developing a hundred or 500 projects; you get totally lost," said Avi Arad, the chief executive of Marvel Films and a director of Toy Biz. "That isn't working for us. We're just not going to do it anymore. Period."

Mr. Arad, with Jerry Calabrese, the president of Marvel Comics Group, is expected to have control of the proposed Marvel studio.

Spider-Man is not the only Marvel property in development limbo. Nearly all the characters in its stable have been optioned in the last 10 years - the Fantastic Four, X-Men, Daredevil, the Incredible Hulk, Silver Surfer and Iron Man - with no films to show. Among the studios that have development deals on Marvel projects are 20th Century Fox, Universal, New Line Cinema and DreamWorks SKG.

Although New Line intends to start principal photography on Blade, the Vampire Hunter, with Wesley Snipes, in early 1997, Marvel's other properties seem mired in rewrites. Most are set to revert back to Marvel when options expire this year or in 1997, which is what Marvel is counting on.

The absence of Marvel movies reflects to some extent the usual Hollywood mishaps and delays, but people in the film industry say Marvel's insistence on tight control over its properties has also been standing in the way.

And Marvel is often unwilling to provide the studio with a significant cut of merchandising revenue, they add.

"They are smart to be concerned," said Lauren Fine, an analyst at Merrill Lynch. "Their characters are all they've got, so they better watch out for them carefully."

Investors hope that the plan, a huge change for Marvel, will also resurrect a stock that has fallen from about $30 in early 1994 to $7.875 at Friday's close. The reason is that Marvel's core businesses of comic books and trading cards - Marvel owns Fleer, the world's second-biggest maker of trading cards - have fallen sharply in recent years.

Still, putting together a successful movie is no sure thing. Although Mr. Arad hopes to find directors and writers dedicated to developing an innovative vision for the films, Roger Corman, the offbeat maker of B-films, said that creating scripts for them could be fraught with frustration.

"You're treading a thin line," said Mr. Corman, who owned the option for Spider-Man briefly in the 1980s. "You need to have genuine adventure and action, and yet you need to balance it with humor. The danger is that you veer into campiness."

But success can mean millions - and much of this money comes not from ticket sales or even video rights but from licensing and merchandising. Consider the record of Warner Bros., Marvel's chief rival, which owns DC Comics and has produced multiple movies based on the Batman and Superman characters.

Before 1989, when the first of three big-budget Batman movies was released, Warner averaged less than $120 million a year in merchandising revenue on items associated with the character. Since 1989, the company has sold a total of more than $4 billion in Batman merchandise.

Best of all, because Warner owns both the studio and the merchandising apparatus - a model Marvel hopes to emulate - the company has not had to give up any of the back-end revenue that the films generate.

The prospect of such gains has many analysts upbeat on Marvel.

"In the short term, their core business is really bad," Ms. Fine said. "If they can make these movies it will make all the difference."

Marvel's cast of characters inspires much of the bullishness; most analysts agree with Ms. Fine that "nobody has more valuable characters." Their hipness lends itself to older children, who often have their own money to spend.

Some analysts also say a number of now-minor characters, like Blade, have big potential because their names are not overexposed.

That strategy has been pioneered by Dark Horse Comics, a 10-year-old company that has had remarkable success in getting its edgy characters made into movies. In 1994, for instance, New Line produced for the company a movie based on one of its relatively unknown characters. The film was The Mask, starring Jim Carrey.

"WorldCom to Buy MFS for $12 Billion, Creating a Phone Giant," by Mark Landler, The New York Times, August 27, 1996

In a sign of the rush toward ''one-stop shopping'' in telephone service, WorldCom Inc. agreed to buy MFS Communications yesterday in a stock deal worth approximately $12 billion.

The combination of WorldCom and MFS creates the nation's first fully integrated local and long-distance phone company since the breakup of the Bell System in 1984. And though the companies are hardly household names, together they promise to be a new giant in the lucrative market of providing communications services to business customers.

By combining networks, MFS WorldCom will be able to offer corporate customers a full complement of services: local and long-distance phone, data transmission and access to the Internet. WorldCom, the fourth-largest long-distance carrier, has until now primarily sold its network capacity to other long-distance companies. MFS is the leading provider of alternative local phone services to business customers seeking better prices or services than are available from the local telephone monopolies.

For all its size, however, yesterday's merger is only the third-largest deal of the year in the roiling telecommunications industry, outranked by the $22.1 billion combination of Bell Atlantic and NYNEX and the $16 billion merger of SBC Communications and Pacific Telesis.

And unlike those pending mergers, yesterday's deal will have scant impact on residential customers. WorldCom and MFS plan to focus almost exclusively on the business market, where for years big corporate customers have purchased phone service from carriers that lacked such familiar brand names as AT&T or NYNEX.

Still, analysts and executives said the merger was another milestone in the redrawing of the communications landscape that began when the Government deregulated the industry in February.

''It's highly significant because it elevates one more player into the ranks of end-to-end service providers,'' said Paul T. Unger, a telecommunications consultant at A.T. Kearney.

Together, MFS and WorldCom will have $5.4 billion in revenues, operations in 45 domestic markets and 500,000 corporate customers. WorldCom will issue 500 million to 550 million shares to acquire MFS.

In NASDAQ trading yesterday, WorldCom's stock dropped $3.625, to $22.75, while MFS jumped $9.94, to $44.81.

MFS WorldCom faces plenty of competition in the business market. AT&T, MCI and Sprint are moving rapidly to offer packages of services to corporate customers. And the Baby Bells intend to be full-service providers as well, though they will cater primarily to businesses in their own regions.

Several analysts said the merger presaged even more deals, and they pointed to another alternative local-access provider, the Teleport Communications Group, as the next potential takeover. Teleport announced a deal with AT&T yesterday to carry long-distance calls by connecting its local networks in large cities to AT&T's nationwide network. Teleport's shares rose $1.375, to $23.625.

Neither MFS nor WorldCom is a stranger to mergers. MFS, which is based in Omaha, acquired a leading Internet access company, UUNET Technologies, for $2 billion in April. And WorldCom, which is based in Jackson, Mississippi, was cobbled together from several small long-distance companies, reaching its current configuration through the $2.5 billion joining of LDDS and WilTel Network Services in January 1995.

Analysts generally praised the latest deal, which was reported yesterday in The Wall Street Journal, though some noted WorldCom was paying a lofty premium. Under the terms of the deal, each share of MFS common stock will be exchanged for 2.5 shares of WorldCom stock. Based on yesterday's closing price, that values MFS shares at $47.80 each - a 37 percent premium to the market value on Friday.

MFS, which has invested heavily to build fiber optic networks, had revenues of $583.2 million in 1995, but lost $267.9 million. ''You're paying $12 billion for a company with negative net income and negative cash flow,'' said one analyst, who insisted on anonymity.

That prospect apparently does not daunt Bernard J. Ebbers, the president and chief executive of WorldCom, who proposed the merger to the chairman of MFS, James Q. Crowe, over dinner two weeks ago at Mr. Crowe's home in Omaha. The two men took barely two weeks to hammer out a deal the size of Time Inc.'s 1990 acquisition of Warner Communications.

Mr. Ebbers, whose flowing hair and relaxed manner make him look more like a country-and-western singer than a corporate executive, will be the chief executive of the new company. Mr. Crowe will be the chairman.

WorldCom's current chairman is John W. Kluge, the billionaire investor and a major shareholder in the company. Mr. Ebbers said Mr. Kluge would step down when the merger is completed in four to eight months. He said it was not clear whether Mr. Kluge would remain on the board.

Mr. Ebbers said the companies did not plan any layoffs. But the merger will probably claim at least one casualty in the executive suite. Royce W. Holland, the president and chief operating officer of MFS and one of its founders, said he would probably depart in a few months.

''I've been at this for nine years,'' Mr. Holland said yesterday, ''It's probably time for me to take a little time off.''

In a joint interview, Mr. Ebbers and Mr. Crowe said the merger would give them a critical jump over AT&T, MCI and other rivals in offering a bundle of services to business customers.

WorldCom owns a fiber optic backbone that snakes around the country, while MFS has scores of smaller fiber optic rings in local markets. By connecting the companies' combined 25,000 miles of fiber, the two executives said they would be able to carry traffic entirely on their own networks.

''Being first to market is a tremendous advantage, because building these networks is not an overnight proposition,'' Mr. Ebbers said.

AT&T, MCI and Sprint do not own local systems. So as they move into the local phone business they must either lease capacity from the Baby Bells, or construct their own local switches and networks. The Baby Bells, meanwhile, are prevented from entering the long-distance business until they can demonstrate that their local markets are truly competitive.

Combining WorldCom and MFS will also squeeze savings out of both companies. Daniel Reingold, an analyst at Merrill Lynch & Company, estimated that MFS would save about $40 million a year by diverting its long-distance traffic from AT&T and other carriers to WorldCom's network. And WorldCom could save $200 million to $400 million in access charges by using MFS's local networks to connect calls from its long-distance customers.

WorldCom has racked up an impressive annual return to shareholders of 57.3 percent in the last decade - in part by aggressively acquiring and managing other telephone companies.

''They've shown an ability to integrate acquisitions,'' said Simon Flannery, a telecommunications analyst at J.P. Morgan & Company, ''It's important to look at their track record in analyzing this deal.''

Whatever Mr. Ebbers's talents as a manager, some observers question whether he needed to buy MFS - particularly given the $12 billion price tag. With fiber optics and digital technology expanding the capacity of telephone wires, some analysts forecast an eventual glut of network circuits that will probably enable long-distance carriers to lease capacity on local networks at increasingly favorable rates.

P. William Bane, a telecommunications consultant at Mercer Management Consulting in Washington, said WorldCom might have been able to get into the local phone business simply by leasing capacity on the local networks of the seven Baby Bells.

Indeed, MCI Communications announced something resembling such a deal yesterday with Nextwave Communications, a company that plans to offer a new type of local cellular service, called personal communications services. MCI will lease capacity on Nextwave's wireless system and sell it under the MCI brand name.

''If they can fill in all the pieces, they'll do very well,'' Mr. Bane said of MCI. ''And they won't have to buy anything.''

Kurt Loder Interviews Van Halen backstage after MTV Video Music Awards, September 4, 1996

Kurt Loder: Nice segue, I'm here with Van Halen. Guys, when you walked in today with Mr. Lee Roth, you got a standing ovation. What do you think the audience is trying to tell you?

Alex Van Halen: I think there's a lot of history with the guys in this band. I think since the very beginning, the idea was for the band to establish a special relationship with the audience, and I think the people can sense when you're BS-ing them and when you're not.

KL: You officially said onstage tonight that the four of you are back together as a unit, which really brought the house down. So what's the timeline of when you guys are gonna record, tour?

David Lee Roth: We've already finished several songs, and they are sensational! This, and you know, what you always expect that it won't add up. Usually, when an act reconvenes, an act like this, a band like this, it doesn't add up, age takes its toll. Not at all. Not in this case at all. We have a spectacular history.

Eddie Van Halen: We're gonna work on a couple of videos for the songs, and take it from there and see where that leads us.

KL: How does it feel to be back together?

EVH: You know, like Alex said, the magic speaks for itself.

KL: Did you say magic?

Michael Anthony: Yes, it was.

DLR: (Dirty joke not transcribed because censor cut out the audio)

AVH: That was ageless.

KL: So are you all living together in a country cottage now? How's it working, are you guys like in regular contact to make tunes?

AVH: I think that when you make music, there's an energy that develops in the room you really can't contain. You don't think about it, it either happens or it doesn't. And when the four of us came together and made music, it happened. You don't question it.

KL: How did this happen? Did somebody call somebody, did you show up on their door?

DLR: I had been down around Florida area for the last year, and I was walking down the street, and I saw somebody take a faceplant, went right over the handlebars of his mountain bike. And he landed right on his head without a helmet, and I said, "Boy, that will sure knock 1982 right out of the old memory banks." And I started to get a little nostalgic, I started to think, "Hey, I think back on those years. Lemme make a little peace." You know, the battles between us, the feuding and fussing, it just rings right off of your ear after a while. I made a call and I said, "Let's be at peace." And later on, Ed says, "Let's go one better, let's do a song."

KL: Wow.

EVH: Turned into two, and now we're doing two videos, and who knows?

DLR: Sky's the limit.

KL: So, everybody's happy, I like that. Of course, you're not REALLY happy. So, how about the show tonight, did you see anybody that knocked you right out?

MA: You know the audience, they knock us out.

DLR: Dennis Miller.

MA: Oh yeah, he's great.

AVH: Smashing Pumpkins, they're great.

EVH: That Weird Al, Nirvana thing, they're great. I think they're both truly remarkable.

DLR: Charlize Theron, she's absolutely great! I wouldn't mind getting next to her. If you're ever in need of some Dave, call me!

KL: So, welcome back, it's great to have you back, let's go the arrival hall and see what's going on there.

"DreamWorks East-Miky Lee Hitches Her Star to Hollywood's Red-Hot Trio," Fortune, October 28, 1996

While LG and Samsung struggle to restart broken-down U.S. hardware companies, one of their energetic compatriots is cruising fast down the soft lane. Miky Lee, a Korean heiress who recently persuaded her family company to invest $300 million in DreamWorks SKG, the most anticipated startup in moviedom, is betting she can turn food processor Cheil Jedang into an Asian entertainment colossus. Says Lee, 38: "This is not a dead-end investment but the beginning of our own new business in Korea."

Lee gets distribution rights everywhere in Asia, except Japan, to DreamWorks' movies, but she's not stopping there. She's started a slew of ventures at home: her own film production studio, a distributor, a chain of multiplex theaters, and a record company-and she's looking into amusement parks. Lee calculates that profits will start rolling in within three to five years. It looks like a long shot to some security analysts in Seoul, where Cheil last year squeezed out a pretax profit of less than $13 million on $2.1 billion in revenues.

But Lee-whose late grandfather founded Cheil as a sugar refinery and expanded it into the mighty Samsung Group-regards her bold plan as a natural extension of a venerable family business that touches the lives of virtually every Korean. Says she: "We breathe with consumers." Synergies she sees include having some of the 130,000 retailers of Cheil foods sell videos of movies and putting film characters on packaged-food labels. And though her family inherited only the Cheil business, not all of Samsung, her pockets are deep: Cheil's stakes in Samsung companies are worth a total of around $1 billion.

Lee seems well equipped to sense the tastes of an increasingly affluent younger generation of Asians. A brainy cosmopolitan, she was born in Knoxville, Tennessee, where her parents were studying. She grew up in Korea and earned degrees from the elite Seoul National University and Harvard. In her travels she developed a passion for movies-both as a business and as a potent means of communication.

In late 1994, while working as a strategic planner for Samsung Electronics in New York, she learned that DreamWorks was looking for investors. One meeting with founders Jeffrey Katzenberg, Steven Spielberg, and David Geffen sold Lee. And the Hollywood power trio liked her energy and ambition; Katzenberg called her "awesome." Samsung, however, didn't share her enthusiasm for investing $900 million in a movie startup, especially after the costly Hollywood misadventures of Japan's Sony and Matsushita. But once Paul Allen, co-founder of Microsoft, put in $500 million, Lee decided that Cheil could afford to put up $300 million itself.

Lee thinks she can avoid the disasters suffered by the Japanese. The crucial difference, she says, lies in her U.S. partners, "who know what they are doing and are extremely good at it." She also points out that while the Japanese invested in existing companies, "this is a startup, so there aren't any bad habits or old problems." In that, she's more fortunate than her compatriots at AST and Zenith.

"Fox Kids Worldwide Is Born," by Barry Hillier, Kidscreen, November 1, 1996

The Fox Children's Network, a subsidiary of Fox Broadcasting Company, and Saban Entertainment have formally consolidated to form a single holding company known as Fox Kids Networks Worldwide.

An initial public offering was filed in September. The offering will be co-managed by Merrill Lynch & Co., Allen & Company Incorporated and Bear Stearns & Co. Inc. An announcement for the release and sale of stock is expected imminently.

Under the new agreement, Haim Saban, chairman and CEO of Saban Entertainment, continues to have responsibility for all Saban-related operations and Margaret Loesch, named chairman and CEO of Fox Kids Networks Worldwide, continues her role in overseeing all operations pertaining to the Fox Children's Networks and ancillary operations.

Fox Kids Networks Worldwide will operate as a fully integrated global children's television entertainment company that will develop, acquire, produce, broadcast and distribute animated and live-action children's programming.

The agreement follows a strategic alliance between the Fox Broadcasting Company and Saban in October 1995. "Our determination to agree to this combination is the direct result of our success in working together as an alliance,' says Saban. Together, we can now move forward from a significantly stronger foundation to expand our collective businesses on a global basis."

The merger is seen by Fox as a necessary ingredient for future success in the worldwide expansion of Fox Children's Network. "Together, we are greater than the sum of our parts," says Loesch. "I think that this move will make the difference as to whether or not we're really successful in the international arena. By bringing [Saban] on board, it gives us an insurance policy and the tools we need to build a very strong international television company. I think it makes the difference between success and failure."

"Sunbeam to Halve Workforce of 12,000 and Sell Some Units," by Glenn Collins, The New York Times, November 13, 1996

Albert J. Dunlap, the chairman and chief executive of the Sunbeam Corporation for nearly four months, announced yesterday that half of the company's 12,000 employees will be let go, through layoffs or sales of divisions, in the biggest restructuring in the company's history.

One industry expert said that in percentage terms, it is believed to be the largest work force reduction of its kind ever to be announced.

Sunbeam will take a $300 million pretax charge to cover severance and other costs, will sell four major product lines and will reduce to 13 from 43 the number of cities globally where its plants and warehouses are situated.

Though the layoff of 74,000 General Motors workers in December 1991 was far larger than Sunbeam's head count, it amounted to only 18 percent of the company's employees. Mr. Dunlap's work force reduction ''is highly unusual, and, in terms of percentage, the highest announced cut that I can remember,'' said John A. Challenger, executive vice president of Challenger, Gray & Christmas, an outplacement firm based in Chicago that tracks announced layoffs.

Along with the revamping, the company announced that it will introduce more than 70 new products in the next six months, open 20 Sunbeam retail stores in 1997 in its first such venture and unleash a $12 million television advertising blitz to introduce the company's new slogan, ''There's a New Sunbeam Shining . . . Now There's a Bright Idea.''

About 3000 Sunbeam employees will be let go before the end of the year. The other 3000 to be dismissed will continue to work for divisions for which the company hopes to find buyers. If there are no takers, the businesses will be closed.

The downsizing drew criticism. ''There is no excuse for treating employees as if they are disposable pieces of equipment,'' Robert B. Reich, the Secretary of Labor, said. ''Is it a coincidence that this guy waits until a week after the elections to do this deed? I don't think so.''

Mr. Dunlap said that the timing ''had nothing to do with the election process.''

If the magnitude of the Sunbeam layoffs were very much a surprise to Wall Street, the downsizing itself was expected. Mr. Dunlap's nickname is Chainsaw Al and he has become something of a celebrity downsizer since he preached the virtues of restructuring and shareholder value in his best-selling autobiography-cum-how-to book, Mean Business: How I Save Bad Companies and Make Good Companies Great, written with Bob Andelman.

When he took charge of Sunbeam last July, Mr. Dunlap, a West Point-trained former paratrooper, had already dropped into eight companies to revive them. But skeptics have questioned whether Mr. Dunlap knows the small appliance business as well as he understood the paper business, where his successes included the turnaround and sale of the Scott Paper Company.

In an interview yesterday, the 59-year-old Mr. Dunlap said that ''I will be vilified for this reduction.'' He added: ''But this was a dismally sick company, and drastic measures were absolutely necessary. Now we can bring out the new products and the kind of advertising and marketing that will make Sunbeam a global leader.''

Sunbeam, the struggling maker of a hodgepodge of products that includes small appliances, patio furniture and gas grills under brand names like Sunbeam, Oster and Mixmaster, has fallen short of analysts' estimates for seven consecutive quarters and saw its stock decline 52 percent since 1994.

''If he pulls this restructuring off he should be called Nuclear Al, not Chainsaw Al,'' said Andrew Shore, a securities analyst at PaineWebber. ''The question is whether he's cutting into the muscle of the company, and only time will tell.''

Wall Street had been eagerly anticipating the announcement by Mr. Dunlap ever since his reputation alone more than doubled Sunbeam's shares from $12.25 on The New York Stock Exchange on the day before his appointment last July 18. Shares of Sunbeam fell 50 cents yesterday, closing at $25.375 on The New York Stock Exchange.

''The stock was down because a lot of people bought Sunbeam in anticipation of the restructuring announcement, and now they want to take their money off the table,'' said Susan Q. Gallagher, an analyst at the NatWest Securities Corporation. ''But we've had Sunbeam as a buy and we continue to think this is an excellent time to buy the stock.''

The company said it would reduce its 26 factories to 18, leaving 4 plants in the United States, 3 in Mexico and one in Venezuela. The headquarters staff will be reduced 60 percent, to 123 people.

About 10 percent of the sales force will be let go, the company said. Sunbeam will divest itself of its aluminum and resin furniture businesses under the Samsonite name; its clock, thermometer and gas-log businesses; the Counselor and Borg bath scale units, and its decorative bedding business, amounting to $300 million in annual sales, reducing the company's sales to $1 billion.

Employees working for these businesses will receive their paychecks until Chase Securities Inc., a brokering business that is part of the Chase Manhattan Corporation, can find buyers, or, failing that, the company discontinues the operations.

The company will reduce ''from 11,000 to 1500 the number of SKUs,'' said Mr. Dunlap, referring to stock-keeping units, the retail term for the number of Sunbeam items sold.

The company will reduce its debt from $226 million currently to ''a debt-free condition'' before the end of 1997, Mr. Dunlap said.

The $300 million charge, of which $75 million is cash, will result in savings of $225 million, Mr. Dunlap said, about 75 percent of it in 1997, and the rest in 1998.

Mr. Dunlap contended that Sunbeam's operating margins will grow to 20 percent of sales by 1999, compared with the 2.5 percent operating margins thus far in 1996. He said that he will double sales to $2 billion by 1999 without the need for acquisitions, ''although acquisitions are always a possibility,'' he said.

International sales will grow to $600 million by 1999 from the current $185 million, Mr. Dunlap promised, saying that the company will introduce 40 new products in the next six months for the international market that run on 220 volts, instead of the American voltage of 110. These will be the first Sunbeam has designed for European voltage, instead of converting American units for sale abroad.

Analysts seemed to react positively to Mr. Dunlap's cost cutting but were skeptical about his sales projections. ''Getting sales growth going at 20 percent a year without acquisitions is a little hard to believe,'' said Constance M. Maneaty, an analyst from Bear Stearns & Company.

''But he doesn't have to pull the whole plan off to make Sunbeam a decent stock,'' Mr. Shore of PaineWebber said.

Although Sunbeam formerly operated a few company stores at its warehouses, this year Sunbeam plans to open two new outlet stores carrying the Sunbeam logo and 20 more next year.

Mr. Dunlap also announced a new five-week national advertising campaign for Sunbeam's Steam Master irons, Toast Logic toasters and Blanket-With-a-Brain electric blankets. The campaign will cost $12 million in the fourth quarter (compared with the former management's $5 million in advertising spending in all of 1995), created by Ogilvy & Mather Chicago, a unit of the WPP Group.

"AOL Gets Excited," CNN Money website, November 25, 1996

America Online, the world's largest Internet service provider, announced on Monday it will make Excite Inc. its exclusive search and directory service.

The companies said they would explore ways to better integrate "smart search" capabilities to allow AOL's seven million subscribers to search through the company's proprietary content.

This will make Excite's search engine the largest on the Internet, surpassing Yahoo!

George Bell, CEO of Excite, said on CNNfn's "It's Only Money" that his company would also be acquiring AOL's WebCrawler search engine. The cost of acquiring WebCrawler would be about two million shares of Excite, which raises AOL's ownership of Excite to about 20 percent from the current 10 percent.

Wall Street seemed to applaud the move. Excite's stock jumped 3 3/4 to 9 7/8 on the NASDAQ. Shares of America Online rose 1 5/8 to 32 5/8.

Bell said that greater advertising revenue was the main impetus behind the deal but declined to give exact figures on the division of ad money.

"AOL will get the majority of the revenue and Excite will get the minority," he said. This type of consolidation will become the norm in order for companies like Excite to survive, he explained.

Bell admitted some risk in giving AOL greater ownership of his company. "All these deals right now are about dancing with the devil. This is a very fast-moving space," said Bell, adding that he felt AOL would be a strong partner.

"Eruptions," by Steven Rosen, Guitar World, December 1996

One of the first things you notice upon entering the maintenance room of Edward Van Halen's 5150 complex is a series of five Polaroid snapshots, arranged vertically along the edge of a doorway. Four of these depict Edward sitting atop a 5150 combo amp, grinning aimlessly, as if the photographer was simply testing the settings on the camera. The fifth picture captures the band-Edward, brother Alex, Michael Anthony, and Sammy Hagar-in cozy, smiling camaraderie, their arms draped around each other's shoulders. Most striking about this print, however, is the fact that someone has plunged a yellow push pin through Hagar's face. The perfect placement of the pin indicates the deed was about as accidental as the assassination of Lincoln. Now this is nothing but bad Van Halen voodoo, mean mojo stuff-an act of venom and doom.

By now, only the brain dead are unaware of the changes that have rocked the Van Halen camp. Singer Sammy Hagar is gone, his solid gold locks nothing but a memory. David Lee Roth, absent over a decade, returned to appear on a pair of new tracks available on the band's Best of Volume I greatest hits package, the band's first such compilation ever. Back on September 4, at Radio City Music Hall, they went to confirm feverish speculation that the flamboyant singer would rejoin Van Halen, leading to the cheers of fans everywhere, marking what might be the most highly exciting reunion in a year that has seen The Eagles do additional dates to their Hell Freezes Over Tour, Journey release their first album in a decade, the original lineup of Kiss go back on tour with full makeup, and even the Sex Pistols, with original bassist Glen Matlock, come back for their so-called Filthy Lucre Tour. Of course, Eddie says it's not completely wine and roses in their camp.

"We're from different planets; we don't communicate," says Eddie of Roth. "We just don't see things the same way. I'm not saying that he's a bad person at all-I actually fuckin' love the guy. You just got to know how to deal with things, especially have the right support around you." And that actually ties in with the upheaval around Hagar. "I did not have that feeling, that support, at the end, with Sammy. Like Dave, I don't hate him at all or think he's a bad person, and we also come from a very different place. But at the end, he was getting to be more trouble than he was worth. He was just sucking the life out of me, and I don't need that kind of negative energy around me."

Van Halen, who despises the politics of the music business as much as Roth revels in it, has only recently emerged after having endured a romp through hell without sunscreen. In an intimate conversation which initially began at his Hollywood Hills hideaway and three days later ended with a frantic game of phone tag, he shared with Guitar World his view of Van Halen's massive implosion, the too public upheaval that led to the ousting of one lead singer and the resurrection of another. He also talked about the band's recent greatest hits album, a work which in its depth reveals just how much rock's premier guitarist matured as an artist and as a man, in the course of 20 spectacular, if turbulent, years.

GW: These last few months have been interesting for the band, some bad, some good.

EVH: Yeah, the last three months have been a full plate - and a few desserts I didn't plan on ordering. There have been a variety of conflicts brewing between Sammy and the band since I quit drinking on October 2, 1994. Then things really came to a head when we began work on the soundtrack to the movie Twister. It got so bad that I actually started drinking again to calm myself, but feeling really guilty as I did so.

GW: What were some of the more nagging issues?

EVH: Well, in the last couple of years Sammy went through a lot of changes. He divorced his wife of 23 years and, possibly because of that, he stopped being a team player. He was especially irritated by the fact that I began to get involved with the lyric writing, Sammy would say, "You never complained about the lyrics before!" Well I wasn't sober before, and I wasn't even listening to the lyrics! It's not like I suddenly wanted Sammy to be my puppet or anything, but once in a while I would take issue with a specific lyric or line. For example, I always hated the words to "Wham, Bam Amsterdam," from Balance, because they were all about smoking pot-they were just stupid. Lyrics should plant some sort of seed for thought, or at least be a little more metaphorical.

GW: So you really began to have problems with Sammy around the time you recorded Balance?

EVH: I'd say that we actually had problems on every album except for 5150. Sammy wouldn't even work with (producer) Andy Johns on For Unlawful Carnal Knowledge; he demanded to work with Ted Templeman, because Ted lets him get away with everything. Then, like I said, things got really ridiculous when we started working on the music for Twister, Alex had called up the director, Jan De Bont, to ask him how closely he wanted the lyrics of the song that became "Humans Being" to be related to the movie's context, De Bont said "Oh, please don't write about tornadoes. I don't want this to be a narrative for the movie." So we put him in contact with Sam, who called me and said, "I had a great conversation with De Bont and everything is cool." Then - maybe two seconds after I got off the phone with Sammy - De Bont was like, "Uh, Sammy is a little strange. I kept telling him that he shouldn't write any lyrics about tornadoes, but he still kept insisting that I fax him tornado-related technical jargon. Does Sammy just want to learn about twisters for his own personal reasons?" I said, "Beats the hell out of me." And so what does Sammy come back with? "Sky is turning black, knuckles turning white, headed for the hot zone." It was total tornado stuff! Not only did Alex tell him not to do that, but the director of the fucking movie told him, "Do not write about tornadoes." But when I told that to Sammy, Sammy insisted otherwise, that De Bont loved the idea and was supporting him, the complete opposite of what the man himself told us! The situation with Sammy was so bad that I had to warn Bruce (Fairbairn) not to let him know that I had come up with the title and the melody, because if he found out that he would have completely turned off. Whenever I suggested something to Sammy, he would just stop talking to me.

GW: There were a lot of rumors circulating that Sammy was unhappy with the band because he felt he was being forced into projects he didn't want any part of.

EVH: Sammy was dead against the Greatest Hits package because he was afraid it would lead to comparisons between him and David Lee Roth. He even said, "Bands that put out compilations become dead bands, this will kill the band." I said, "Wait a fuckin' minute, Sammy. This band has been putting out records for 20 years and never put out a greatest hits-but you already have two of them (Best of Sammy Hagar, 1992; Unboxed, 1993), and another one that came out earlier that was technically unauthorized, but you didn't stop it." It just goes to show that, in his mind, he was always a solo artist-once a solo artist, always a solo artist. He was only into being in Van Halen for the prestige of it.

GW: Sammy has said he didn't want to do Twister in the first place, that you were supposed to have the year off, about how his new wife was going to give birth and he didn't want to miss it.

EVH: It was going to be that way, but Ray (Danniels, manager) had gotten the word from Warner Bros. and Universal about the movie, that we should look at it. Alex and I went to see a workprint and liked it, and we were talking about doing an instrumental for it. Ray then suddenly said, "It'd be even bigger if it was a band thing, let's get Sammy onboard." I was like, "Ray, Sammy's in Hawaii, waiting to be a dad again, he's not going to want to work right now." But he insisted I call, I did, and Sammy was like, "Sure, no problem! Sounds fun." Then he got there and immediately starting bitching about how wrong it was and he shouldn't be here. And I'm screaming inside, "Then why the fuck did you say yes?!" Because that's the thing about Sammy, he'd say one thing, then immediately backtrack and bitch all about something, even though he'd said yes to it before. How are you supposed to deal with someone behaving like that?

GW: What was Sammy's reaction when you started working with Glen (Ballard, producer for an attempted second song for Twister and the new Roth cuts on Best of Volume I)?

EVH: We had several band meetings with Sammy where we told him that if he wanted to continue with Van Halen, he had to stop running around doing all his solo shit and become more of a team player-and that might involve collaborating on a lyrical level. He said "No problem." We had another meeting to reiterate that after the premiere of Twister.

So right after that, we began working on "Between Us Two," because we thought it had amazing potential. Sammy called Mike one Sunday afternoon and said, "I heard that Glen has some great ideas for the song. I'm really excited". Then he called me that evening to give me his fax number so I could fax over Glen's lyrics. And then suddenly, I'm in the middle of giving me the number, and he started yelling and screaming at me: "This is a fucking insult! I ain't gonna sing someone else's bullshit!"

I was totally startled like, "Wait a minute, we discussed this on length on two occasions. We didn't spring this on you man." Finally I said, "Okay, forget the new lyrical treatment, but at least come down, take another pass at the performance and change a few lines." He just answered, "Yeah, well, whatever." That's when I finally put my foot down, I said, "Sammy, if you're not here at the studio by six o'clock tomorrow, don't ever bother coming back." The next day, he showed up like nothing had ever happened-like he hadn't yelled and screamed at me. Did he think I was some idiot who didn't remember what had happened the night before? I'm sober now dude.

Glen and I were sitting there, working on the song, and the opening line was something like, "I want to see you/I want to know who you are"-kind of Dark Side of the Moon vibe, the premise being, "I want to touch your soul, I want to get to know you." Then Sammy decided to change it to some shit like, "I can't see your diamond ring/through your shining star." I was like, "Sam, please, Glen's got some great lyrics right here, just go with them." His only reply was, "If I thought those lyrics were better I would sing them. Besides, I have an eight o'clock plane to catch." And he just left. Glen and I were dumbfounded. Then Glen asked me, "How long has this been going on?" I said, "Longer than I'd care to mention." So anyway, that was the last straw. I called Sammy a bunch of times, and when he finally returned my call, I said, "Sam, if you want to make another record or do another tour, you've got to be a team player. Van Halen is a band-not the Sammy Hagar show, not the Eddie Van Halen, Alex Van Halen, or Michael Anthony show. We should be called Piss for all I care, but we are a band." So I went over this shit like 11 times with him, and he finally said, "Yeah, goddammit, I'm fuckin' frustrated. I want to go back to being a solo artist." And I said "Thank you for being honest." We ended hanging up like everything was cool because it was all out in the open. He'd admitted that he wanted to do solo stuff. And I said "Well, you can't be in a band and do that, too, so see ya..." Then of course he went around saying he was fired, and that I'd been plotting to get Dave behind his back, and all this shit. I didn't fire him. He just quit. To put it simply: Dave and Sam both suffer from L.S.D.-lead singer disease. Except Dave never lied.

GW: Speaking of David Lee Roth, how did he come back into the picture?

EVH: Well, as I was tearing my hair out with Sammy during the Twister sessions, I happened to be talking to Kurt Cobain, as part of making amends for a moment I'm not proud of, when I was smashed and went to see Nirvana backstage at The Forum three years ago. Kurt accepted my apology, we got to talking about shit, and I just let out all my frustrations. Kurt actually told me to fire Sammy and get Dave back, and saying it would be the only solution that the fans would accept. I could see his logic, but I said, "I won't leave Sammy out in the cold. I'll give him another chance." You know how that went.

Now Dave happened to call me around the same time Sammy quit, because Warner Bros. notified him that Greatest Hits was going to come out, and he had a few questions about the packaging and other details like that. I told him, "Dave, I really don't know yet. I'll call you mid-week and let you know." We were on the phone for about 45 minutes, and we apologized for things we had said back in high school-even junior high. It was probably one of the best conversations I've ever had with him. Especially since, as long as I've known him, we were never really friends. but band-wise, it just seemed to work.

A few days later, instead of us calling David with the information on the CD. I decided to drive over to his house. I told him that the basic idea was to do a single CD that would be half of the stuff we did with him and half the stuff we did with Sammy. That was another big problem we had with Sammy, by the way: he wanted to have more of his songs on the Greatest Hits than Dave's.

GW: What was it like going to Dave's house for the first time?

EVH: We just had a great time bullshitting as friends. We hung out for about three hours and smoked some cigars. It was only about two weeks later when I realized that the only new track that we had for the Greatest Hits was "Humans Being," that I came up with the crazy idea of having Dave sing on a couple of new songs. We thought about it for a couple of days and said, "Yeah why the fuck not?" So I called up Dave and said, "Would you be interested?" And he said "Sure, I'm not doing anything." I was very clear that, at least for the moment, he was not in the band-that it was just a project. What I wanted to do was write five new songs and pick two out of those five. We had a bit of difficult time because we wrote a song for him that he didn't particularly care for. It wasn't up his alley. So we got past that and Glen Ballard and I sat down with Dave, and I okayed with him all this new material I had. Eventually we narrowed down to this pop song, "Me Wise Magic," and a shuffle, "Can't Get This Stuff No More," with a "Panama" sort of groove. "Me Wise Magic" has a line in it, "I know what you're thinking," which Dave felt uncomfortable with. He said, "That bit sounds so angry; it's just not me. People want to hear Dave sing." But I thought it was majestic; it takes you on a roller coaster because there are so many changes. I nicknamed it "The Three Faces of Shamus," because there is that first low part, the high part, and then the chorus. All three have completely different vibes going on. At first he wasn't into that one at all. A week later, I was still playing him songs when finally he said, "What about the first one?" So, finally, he came around and realized that it wasn't as dark and angry as he originally thought. We did have a lyrical treatment from Glen and we also had Desmond Child on standby to help with lyrics, but Dave insisted on doing it himself, and he got it. During the process, Dave and I were really becoming good friends. In my heart I really wanted to believe that he had changed a bit. We worked and we worked and he actually thanked me for hanging in there with him. It was a struggle to find anything that would inspire him and that he could connect to. Finally, we came up with the other song, and Glen suggested the title and its premise. Dave came up with the lyrics, and it worked. Dave said, "Thanks, because anyone else would have probably thrown up their arms and said fuck it." And I said, "Well, you're a trooper, however long it takes and whatever. It's all about making it a good song. There's no time frame here; it doesn't have to be done tomorrow. I just wanted to find something you liked, and I'm glad I found one."

GW: So the two of you were able to put all of your past acrimony behind you?

EVH: Yeah, it was really something. Then, after finishing the tracks, we began to seriously think, "Can we do this again?" Now, all the while, I've been saying, "baby steps. Let's take it one step at a time." I mean, when he wasn't technically back in the band yet, he was already talking about "Oh, this will be great when we go on tour," and I had to remind him, "Dave, we don't even have one song yet, and you're talking about a tour! Don't put the cart before the horse, especially if the horse doesn't exist yet!" I also told him, "If we do a tour, we'll have to write and record a whole new album first." I actually even talked a little bit about this with Kurt, and he actually helped a lot, tell me how to broach this, how to get Dave to see reason. I won't go into all the boring-ass details, but suffice to say it worked. We did the VMAs, and it was a really great experience. Dave and I may not necessarily be friends, fully, but we're more than we ever were back in the '70s and '80s, and we're set to make a new album and do a summer tour. And I can tell that Dave has changed in some ways, not in others, but it's enough for now, and that maybe I shouldn't expect too much in that regard and be disappointed when it doesn't line up exactly.

GW: Who chose the tracks for the Best of Volume I?

EVH: Ray and Al came up with a list and I just looked at them and said, "Yeah, fuck, I don't care." Because there's a second volume ready to go. There are a ton of other songs that people get pissed about when we don't play them live.

GW: In previous interviews, you've said that you didn't want to do a greatest hits album.

EVH: I changed my mind. What's wrong with that? Valerie (Bertinelli, Edward's wife) is always on the Internet, and for a lot people out there, their first exposure to the band was Balance. And when they find out we have 10 other albums, they're not gonna go out and buy 'em all. So why not put a package together so they can at least get a taste and a history of the band? Next year will be the 20th anniversary of the recording of our first album, so I don't see a problem with putting out a greatest hits record-not as long as the next record we make is great.

GW: What gear setup did you use on the most recent tracks?

EVH: The meat and the beef of the sound is the 5150. And I did experiment with some new stuff-I used a talk box on "Can't Get This Stuff No More," but Matt Bruck (Van Halen's guitar tech) actually ran it for me. My mouth wasn't big enough or something because when I tried it, it just sounded like a wah-wah. I played and then we added it later with Matt doing it through a re-amp or whatever you call it. On "Me Wise Magic" I'm using the prototype Peavey with the Steinberger tremolo.

GW: During the period when you were in vocalist hell, before Dave came back, did you think about maybe putting together a solo album of some sort?

EVH: No, not at all. A long time ago, when Dave totally took us by surprise and just quit, we didn't audition anybody. It was Sammy and that was it. We were just plain excited to have somebody who was into singing. Actually, my plan at the time-and I wouldn't necessarily have called it a solo record because Mike and Al would have played on it-was to get Mike Rutherford (Genesis), Pete Townshend, Phil Collins, and Joe Cocker, all of whom I had talked to. I had written "Right Now" back then and I wanted Joe Cocker to sing on it. It would have been fucking great. That's what I wanted to do, write a record where I did all the music and had a different singer on each song. Logistically, it would have been a nightmare-people on tour, contractual agreements, companies pissing and moaning-and we'd probably only be finishing it now. It would have been fun. Hopefully, in the future I'll still be able to do that.

GW: Looking at the Best of Volume I, which provides sort of a capsule view of what Van Halen has done, makes me thing: Did you have any sense 20 years ago of the volume of music you would create?

EVH: Believe it or not, since I've gotten sober I don't think I've done shit. I don't think I've done anything. I feel like I'm just starting.

GW: You say you feel like you've just begun, but the truth is, Van Halen is one of the few guitar-driven rock bands to still exist here in the '90s. Most of the other bands who were around and thriving in the '80s are gone.

EVH: Let's just call us a rock and roll band. We just are what we are. I don't how to explain it, we survived punk the first time around, we survived disco and grunge and rap and whatever. We're a rock and roll band and we just do what we do.

GW: Do you have any opinions about the other guitar-driven groups out there-Metallica, maybe, or Soundgarden or any others?

EVH: I don't really listen to people. I like singers. I like Peter Gabriel, I love Chris Cornell, I like Tori Amos, Gavin Rossdale, the guy from Bush. I think Kurt Cobain is fucking incredible. And Billy Corgan I like.

GW: When you did that cover story with Corgan (Guitar World, April 1996), did you feel a connection with him?

EVH: Oh yeah, because he's probably one of the few citizens of the alternative nation, or whatever you want to call it, that admits Van Halen was an influence. Everyone else says Kiss. I mean, give me a fuckin' break. If they play guitar, they must have heard Van Halen somewhere down the line. I just don't see Kiss being a guitar-inspiring type of thing. I mean, I'm not putting Kiss down at all, I love Gene (Simmons), he helped us out in the beginning and without him we probably wouldn't be where we are. But to say Ace Frehley was the reason you picked up guitar?

GW: Do you worry at all about what your audience will think about the changes in the band?

EVH: No, because you cannot please everyone all the time. No matter who sings, someone is not gonna like it. I'm sick and tired of being controlled, and I don't want to control. I just have so much music and I want to put it out. Despite the history with Dave, we work very, very well together. We'll let the Greatest Hits run its course and then we'll put out the new shit. I don't care. If it touches one person, then it's great. I don't care if it sells millions, I don't care if it sells a tenth of the records we've sold. It's not about sales- it's for the love of music.

"Apple Computer, Inc. Agrees to Acquire NeXT Computer Inc.," PRNewswire, December 20, 1996

CUPERTINO, CA-Apple Computer, Inc. today announced its intention to purchase NeXT Software Inc., in a friendly acquisition for $400 million. Pending regulatory approvals, all NeXT products, services, and technology research will become part of Apple Computer, Inc. As part of the agreement, Steve Jobs, Chairman and CEO of NeXT Software, will return to Apple-the company he co-founded in 1976-reporting to Dr. Gilbert F. Amelio, Apple's Chairman and CEO.

The acquisition will bring together Apple's and NeXT's innovative and complementary technology portfolios and significantly strengthens Apple's position as a company advancing industry standards. Apple's leadership in ease-of-use and multimedia solutions will be married to NeXT's strengths in development software and operating environments for both the enterprise and Internet markets. NeXT's object oriented software development products will contribute to Apple's goal of creating a differentiated and profitable software business, with a wide range of products for enterprise, business, education, and home markets.

Using NeXT technology to embrace open industry standards Apple Computer, Inc. believes the acquisition will allow the Company to further develop industry alliances as the Internet/intranet market evolves. Apple anticipates that NeXT's expertise in next-generation operating system design will allow elements of the NEXTSTEP operating system to become integral features of Mac OS-providing developers a compelling OS foundation on which to build next generation software solutions.

"The acquisition of NeXT is the start of a new chapter in Apple's history and represents a milestone in our transformation as a corporation," said Dr. Gilbert F. Amelio, Chairman and CEO, Apple Computer Inc. "Today Apple welcomed back its most talented visionary" Steve Jobs, someone who can inspire a new generation of customers and software developers and show that Apple remains the industry home for innovation and excitement. Today Apple returns, as an open player to the mainstream and the heart of this industry, where our technology can once more set standards for innovation and excellence.

"Much of the industry has lived off the Macintosh for over ten years now, slowly copying the Mac's revolutionary user interface," said Steven P. Jobs. "Now the time has come for new innovation, and where better than Apple for this to spring from? Who else has consistently led this industry-first with the Apple II, then the Macintosh and LaserWriter? With this merger, the advanced software from NeXT will be married with Apple's very high-volume hardware platforms and marketing channels to create another breakthrough, leapfrogging existing platforms, and fueling Apple and the industry copy cats for the next ten years and beyond. I still have very deep feelings for Apple, and it gives me great joy to play a role in architecting Apple's future."

Acquisition Confirms New Open Apple

The acquisition of NeXT is further evidence that Apple is fundamentally changing the way it does business. Embracing outside technology and driving cross-platform industry standards, Apple believes it can innovate in the key areas that give its products and technology differentiation. NeXT's cross-platform development environments for enterprise and Internet/intranet markets, allow developers to write once and deploy across a range of Internet and client-server platforms.

In a new era of industry collaboration and joint initiatives-brought on by the "megatrends" of pervasive Internet and ubiquitous multimedia-NeXT technology complements Apple's strength in multimedia authoring and playback, as well as Internet access, Internet authoring, and Internet server solutions.

In the last year Apple has worked on a series of collaboration initiatives which leverage the Company's core strengths in Internet, multimedia, and component software. Wide ranging agreements with Netscape Communications, Sun Microsystems, and Silicon Graphics Computer Systems-along with the acquisition of NeXT-confirm Apple is building strategic relationships at the forefront of the information industry.

Developer Support

Software developers believe that the integration of NEXTSTEP technology in future versions of Mac OS will result in a robust, next-generation OS that provides developers with a multimedia-rich and Internet-savvy platform.

"This partnership is the best possible fit. Both companies support strong, open industry standards. Combined with their rich media focus and a command of the Internet, these strengths will play well into Adobe's core markets", says John Warnock, Chairman and CEO, Adobe Systems, Inc. "NeXT's advanced operating system design, when combined with Apple's leadership in ease-of-use and multimedia, will provide Adobe and other developers with a robust, compelling platform on which to build great next-generation software solutions."

Apple expects to be able to show substantial developer and industry endorsements for Apple's new Mac OS system software strategy at MacWorld San Francisco in January 1997.

Apple Computer, Inc. believes the acquisition will provide a series of benefits for customers, software developers, Apple Computer, NeXT, and the information technology industry. They include the following:

Enterprise Offering Enhanced

The combination of Apple technology, NeXT object oriented software development products, and the "megatrend" of corporate-wide intranets, gives Apple the opportunity to reinvigorate its offering to enterprise markets.

NeXT's OPENSTEP Enterprise and WebObjects development environments allow enterprise customers to develop software solutions quickly and deploy reusable applications on either traditional client-server or Internet/intranet based networks. These powerful tools allow new applications to access legacy data and applications, a key concern for enterprise customers in the late 1990s. Customers currently using this technology range from companies such as WebCrawler, Trilobyte and ID to large organizations including Fannie Mae, Merrill Lynch, NASA, NTT, and AT&T Wireless.

In addition, NeXT's Sales and Professional Services team offers worldwide programs to facilitate the knowledge transfer required to quickly take advantage of OPENSTEP Enterprise's unique capabilities. Apple envisages this team will become a valued part of the Apple enterprise offering moving forward.

Internet/intranet Position Strengthened

A key strategic advantage of NeXT technology is its powerful Internet/intranet software development environment-WebObjects.

Today, Apple technology and customers are playing a pivotal role in the evolution of the Internet-from easy to use powerful solutions in Internet access, Internet authoring and Internet servers, to technologies such as QuickTime Media Layer (QTML) and HotSauce/MCF that set new standards in Internet multimedia and knowledge management. Combining these Apple strengths with WebObjects' unique capabilities to access legacy data and applications will provide Apple with a strong offering for companies reengineering their businesses to take advantage of the Internet. Customers currently using WebObjects technology include The Sharper Image, Ford, Nissan, Lufthansa, and BellSouth.

Again, Apple foresees NeXT's Sales and Professional Services team continuing to offer programs to companies who are implementing corporate-wide business reengineering based upon a new Internet/intranet infrastructure.

In addition, the momentum of Java, Sun Microsystems' platform-independent programming language, has led Apple to conclude that by implementing a Java architecture across its platforms and development tools portfolio, Apple systems will be at the forefront of Internet/Internet design-an area of enormous potential growth through the millennium.

WebObjects' Java-enabled object oriented model complements Apple Computer's commitment to Java, which includes Mac OS Runtime for Java (currently in beta) and the integration of JavaBeans and OpenDoc component technology. Apple Computer, Inc. believes the acquisition of NeXT will give the Company the opportunity to become a preeminent development and deployment platform for Java technology.

Acquisition Kickstarts Apple Software Business

The acquisition of NeXT's development products for enterprise and Internet markets will allow Apple to supplement its growing list of software products with a ready-made portfolio of powerful customer-focused software solutions. Apple is committed to increasing the revenue it makes from its software products and the acquisition of NeXT is a significant development in building a differentiated, sustainable and profitable software business. Apple already has a number of software products-from QuickTime to HotSauce/MCF, which are driving industry standards in multimedia and Internet markets-to customer applications and tools such as Apple Internet Connection Kit (AICK), Apple Media Tool, Language Kits, and communications software.

Delivery of Next Generation Mac OS

Apple's exhaustive research in operating system design, led the company to conclude that NEXTSTEP's maturity, networking, customer and developer acceptance, multi-tasking, protected memory, and scalability from portable to server-level products make it the clear choice for integration into the next major revision of Mac OS. Apple believes that the integration of NEXTSTEP technology in future versions of Mac OS will result in a robust, next generation OS that provides customers and developers with a multimedia-rich and Internet-savvy platform.

Apple Chairman and CEO Dr. Gilbert F. Amelio, Chief Technology Officer Ellen Hancock, and Steve Jobs will announce details of how Apple will incorporate NeXT technology into future releases of Mac OS at Macworld San Francisco in January.

Acquisition Brings New Talent to Apple

The acquisition of NeXT will result in new management talent joining Apple Computer, Inc. Avie Tevanian, formerly NeXT's Vice President of Engineering, will join Apple to lead the Company's next generation OS development efforts, reporting to Ellen Hancock, Apple's executive vice president of R, and Chief Technology Officer. Mitch Mandich, formerly NeXT's vice president of Worldwide Sales and Services, will also join Apple, reporting to Marco Landi, Apple's executive vice president and Chief Operating Officer. Dominique Trempont, NeXT's Chief Financial Officer will also be joining Apple's executive team. As a complement to this initiative, Apple Computer, Inc. also announces that Rick LeFaivre has returned to the company as head of the newly formed Apple Technology Group. This group will house Apple's research laboratories, human interface technologies, and advanced systems architecture, offering support for hardware and software integration. Rick LeFaivre will report to Ellen Hancock in this new role. (See separate press release).

Apple Computer, Inc., a recognized innovator in the information industry and leader in multimedia technologies, creates powerful solutions based on easy-to-use personal computers, servers, peripherals, software, personal digital assistants and Internet content. Headquartered in Cupertino, California, Apple develops, manufactures, licenses and markets solutions, products, technologies and services for business, education, consumer, entertainment, scientific and engineering and government customers in more than 140 countries.

"Marvel Falls Into Clutches Of Chapter 11," Wire Services, Los Angeles Times, December 28, 1996

Spider-Man and Captain America are a powerful duo, but even they couldn't muster enough strength to save parent Marvel Entertainment Group from the clutches of Bankruptcy Court.

The nation's largest comic book purveyor, also the No. 1 producer of trading cards, succumbed Friday and filed for Chapter 11 protection from creditors. The underlying trouble is that collectors who bought with abandon in the late 1980s and early '90s have lost their appetite for comics and cards.

Further complicating the plot, which has more twists than a Spider-Man serial, is a web of intrigue pitting Marvel owner Ronald Perelman against bondholder Carl Icahn, both renowned takeover artists.

Marvel is proposing a reorganization that leaves Perelman in control and makes no concessions to Marvel bondholders.

Perelman's Andrews Group Inc. and certain banks will spend $525 million to bail out the money-losing publisher. Marvel plans to boost revenue by producing TV shows, movies, video games and restaurants that feature its characters.

Perelman, who owns about 80.2% of Marvel, last month threatened the company's bondholders-who include Icahn-with the bankruptcy filing unless they approved the reorganization plan, which massively dilutes the public stockholders' ownership of the company.

Eight shareholder lawsuits have been filed seeking to block the plan. The suits claim that it allows Perelman to receive newly issued Marvel shares at a steep discount.

"We would have preferred to recapitalize Marvel without having to seek the aid of the court, but the actions and positions taken by the bondholders prevented that approach," said Scott Sassa, Marvel chairman and chief executive.

"The failure to reach agreement with bondholders, many of whom are so-called vulture investors who recently accumulated the bonds, delayed Marvel from moving forward with its plan in a timely fashion," he said.

Under the plan, Andrews would pay about 85 cents each for new Marvel shares. Bondholders would be hurt by the dilution because Marvel stock backs $900 million in bonds.

Shares closed at $2.375 on Thursday, down 12.5 cents. Trading in Marvel stock was halted Friday on the New York Stock Exchange following the bankruptcy news.

Icahn, who through his High River Limited Partnership holds 25% of Marvel bonds, said it was "reprehensible" that Marvel filed for bankruptcy and "completely ignored a far more equitable alternative that had been presented and remains available."

"It is patently clear that Ron Perelman has adopted this course to realize a windfall profit for himself at the expense of those to whom he owes a fiduciary responsibility," Icahn said in a statement.

Perelman's reorganization plan calls for his Andrews Group Inc. to pay $365 million for 427 million new shares of Marvel with cash or shares of Toy Biz Inc., Marvel's profitable toy maker affiliate. The move would make Toy Biz a unit of Marvel, giving it a needed source of cash.

Shares of Toy Biz rose $1.25 to close Friday at $19.25 on the NYSE.

Marvel said that its banks agreed to provide $160 million in new funds and $100 million in debtor-in-possession financing. The banks, led by Chase Manhattan Corp., agreed to the reorganization plan. The bank group loaned about $640 million to Marvel before it filed for bankruptcy.

Perelman, through Marvel Holdings, Marvel (Parent) Holdings and Marvel III Holdings, owns about 80.2 million shares of Marvel Entertainment Group's 101 million shares of common stock.

Some analysts said Marvel became a casualty of a power play between Perelman and bondholders like Icahn. Other analysts suggested Marvel's problems evolved over time and have more to do with collectors losing interest in sports memorabilia and comic books.

Marvel listed consolidated assets of $1.3 billion and consolidated liabilities of about $1.2 billion in a filing in U.S. Bankruptcy Court in Wilmington, Delaware.

"Perelman Takes Marvel to Bankruptcy Court," by Gary Levin and Martin Peers, Variety, December 29, 1996

Billionaire Ronald Perelman filed for Chapter 11 bankruptcy protection Friday for his Marvel Entertainment Group, cutting off debate with financier Carl Icahn about Perelman's plans for restructuring the struggling company.

The bankruptcy filing takes control of the restructuring of Marvel out of the hands of bondholders such as Icahn, who was resisting Perelman's plans, and gives it to the U.S. Bankruptcy Court in Delaware. It also allowed Marvel to get speedy access to $100 million in bank financing that the troubled comic book and trading card business desperately needs to pay salaries and bills.

But it carries risks for Perelman, by giving control of Marvel's restructuring to the bankruptcy court. The court will review Perelman's proposals for a $525 million refinancing of Marvel, but it also can hear from other parties who want to put forward restructuring plans, although most Wall Streeters believe Perelman is in the best position to retain control of the company.

No recourse

"Because we couldn't come to a resolution with the bondholders … it was something we had to do to facilitate the restructuring plans," said Scott Sassa, the former Turner Entertainment Group prexy installed last month as Marvel CEO.

Friday's bankruptcy filing highlighted the financial crisis facing Marvel, showing $229 million in total assets compared with liabilities, mostly from secured debt, of $693.2 million. The company has been in violation of loan covenants and had been losing money, which Marvel execs expect to continue into next year. Among the largest unsecured creditors is The Disney Channel, which is owed $1.7 million.

To deal with the financial problems, Perelman proposed Nov. 12 that his private company Andrews Group acquire outstanding stock of Toy Biz Inc. for $365 million and merge it into Marvel. Toy Biz already was 26% owned by Marvel but the merger would give Marvel access to Toy Biz's $70 million in cash flow, so it amounted to a capital injection for Marvel. Perelman's plan also included $160 million in additional bank financing.

But the proposal upset investors who had bought $800 million in bonds issued by Perelman's private company and secured against Perelman's 80% stake in Marvel stock, because it wiped out much of the value of the bonds. Icahn, famous on Wall Street for his corporate raider tactics, jumped into the middle of the argument by snapping up 25% of the bonds at a huge discount, paying a total of $50 million, investment bankers estimate. In mid-December he proposed an alternative $350 million refinancing plan in which all Marvel shareholders would be asked to put in money.

Plan questioned

Icahn said Friday's filing was "unconscionable" and "reprehensible" because it "completely ignored a far more equitable alternative that had been presented and remains available." But bankers questioned how many investors would be prepared to put more money in and, as one noted, Perelman's plan would have added a profitable business to Marvel rather than just reducing its debt.

"The guys who are complaining the loudest are the ones who bought at 20¢ on the dollar and are looking for a quick profit," one source said. It's believed Icahn bought at 22¢ on the dollar.

Other bondholders said the bankruptcy filing was clearly a tactic aimed at Icahn. "Essentially, Mr. Perelman has told Mr. Icahn, 'You're not going to dictate to me the terms of what I want to do,' " said one analyst for an investment firm who owns bonds. He said the question was how the bankruptcy filing would affect Perelman's standing on Wall Street, where the billionaire needs to retain support to continue to raise money for his other businesses, which are led by Revlon.

Marvel emphasized that despite the bankruptcy filing, it would be paying all its bills in full. Sassa said Friday the bankruptcy filing was "structured in a way that's business as usual," assisted by the new bank financing. In the two months since he became CEO, Sassa has presided over the axing of 115 comics company employees, a third of its staff.

Plodding ahead

While the collapse in the core trading card and comics markets over the past two years has shattered Marvel's earnings, the company has been pushing forward with investments in feature-film production, interactive games and other areas. The company has several character-based films in development, including those based on the Incredible Hulk, X-Men, Fantastic Four and Blade, with the latter planning a January start through New Line Cinema with Wesley Snipes.

"We came here because we believe in the potential of those characters," Sassa said of the new management team.

Meanwhile, the comics industry itself is moving to recover after one of the two remaining major distributors, Capital City Distribution, secured financing from investment bank Merrill Lynch in order to stay alive without selling itself to its rival, Diamond Comics Distribution, the largest such company distributing comics to various retailers.

Excerpt from book Walk This Way by Aerosmith and Stephen Davis, 1997

Tim Collins (former Aerosmith manager): (In late 1990, early 1991) David Geffen was selling Geffen Records to MCA. Aerosmith still owed him three albums, and was an important asset to him, so he wanted to re-sign the band for even more. "We'll extend your deal," he said. "No bumps?" I ask. "No nothin'?" "Ahhh, give you another point." It was almost an insult. "Hey-go across the street and see what you're worth. You got an old band-a tired band. (This after Permanent Vacation and Pump) You know what, I don't even know if I want to re-sign. I don't believe in you that much. You're lucky I even want to re-sign."

So I called Michele Anthony. She's the daughter of Dee Anthony, who managed Peter Frampton in the '70s. I'd met her when she was an attorney at a law firm (the band and I) had used and became friends with her through (Geffen A&R man) John Kalodner. Michele was now executive vice president of Sony Music, which had bought Columbia Records, Aerosmith's old label, the year before. Michele goes, "What, are you kidding? I'd sign them in a second." They offered us $25 million and some other things worth $5 million more for a three-album deal.

I called Ed Rosenblatt at Geffen and said, "If you match 80 percent of Sony's offer, we'll stay." Ed called me the next day and said that Geffen didn't want to do the deal. A few days later, Geffen himself invited me to lunch. He offered me 60 percent of the Sony deal. I had to say no. Eventually the waiter handed me the bill, but I refused to pay. Geffen looked at me funny, it was well known around town that he never paid for lunch. "David, you invited me." "Well, ah, I don't have any credit cards." "That's your problem, David." It was my symbolic standing up to him. A few days later he called me on the phone, but he wouldn't budge. "Go make your fuckin' deal with Sony." Slam.

So we did, it was announced in the press in September 1991. It was pointed out that Aerosmith still owed Geffen albums (Get a Grip, the compilation Big Ones, and the live album A Little South of Sanity) and that the band members would be almost fifty by the time their first album for Sony came out. I knew if we could stay sober they'd be hotter than ever by then. No regrets, ever. The only thing we missed about Geffen was the smallness and intimacy we had with them before he sold the company, then ended up making millions when MCA was sold to Matsushita/Panasonic (then yet more later with the Seagram/PolyGram/Interscope deal). After that, it was no longer an entrepreneur-driven company, and lost some of its old feel.

Tim Collins ended up fired by Aerosmith in 1996 due to psychological manipulation and triangulation of the band members, causing crises that he would swoop in to take the credit for solving.

"American Nightmare: The Ballad of Richard Jewell," by Marie Brenner, Vanity Fair, February 1997

On July 30, 1996, the media identified Richard Jewell as the FBI's prime suspect in the Olympic Park bombing. For the first time, the 34-year-old security guard tells his extraordinary story, to MARIE BRENNER: his brief moment as a national hero, his hounding by the Feds and the press, and his eccentric friendship with the unknown southern lawyer who helped him through his public torment.

The search warrant was short and succinct, dated August 3, 9:41 AM FBI special agent Diader Rosario was instructed to produce "hair samples (twenty-five pulled and twenty-five combed hairs from the head)" of Richard Allensworth Jewell. That Saturday, Atlanta was humid; the temperature would rise to 85 degrees. There were 34 Olympic events scheduled, including women's team handball, but Richard Jewell was in his mother's apartment playing Defender on a computer set up in the spare bedroom. Jewell hadn't slept at all the night before, or the night before that. He could hear the noise from the throng of reporters massed on the hill outside the small apartment in the suburbs. All morning long, he had been focused on the screen, trying to score off "the little guy who goes back and forth shooting the aliens," but at 12:30 the sound of the telephone disturbed his concentration. Very few people had his new number, by necessity unlisted. Since the FBI had singled him out as the Olympic Park bombing suspect three days earlier, Jewell had received approximately 1000 calls a day—someone had posted his mother's home number on the Internet.

"I'll be right over," his lawyer Watson Bryant told him. "They want your hair, they want your palm prints, and they want something called a voice exemplar—the goddamn bastards." The curtains were drawn in the pastel apartment filled with his mother's crafts and samplers; A HOME WITHOUT A DOG IS JUST A HOUSE, one read. By this time Bryant had a system. He would call Jewell from his car phone so that the door could be unlatched and Bryant could avoid the questions from the phalanx of reporters on the hill.

Turning into the parking lot in a white Explorer, Bryant could see sound trucks parked up and down Buford Highway. The middle-class neighborhood of apartment complexes and shopping centers was near the DeKalb Peachtree Airport, where local millionaires kept their private planes. The moment Bryant got out of his car, the reporters began to shout: "Hey, Watson, do they have the murderer?" "Are they arresting Jewell?" Bryant moved quickly toward the staircase to the Jewells' apartment. He wore a baseball cap, khaki shorts, and a frayed Brooks Brothers polo shirt. He was 45 years old, with strong features and thinning hair, a southern preppy from a country-club family. Bryant had a stern demeanor lightened by a contrarian's sense of the absurd. He was often distracted—from time to time he would miss his exits on the highway—and he had the regional tendency of defining himself by explaining what he was not. "I am not a Democrat, because they want your money. I am not a Republican, because they take your rights away," he told me soon after I met him. Bryant can talk your ear off about the Bill of Rights, ending with a flourish: "I think everyone ought to have the right to be stupid. I am a Libertarian."

At the time Richard Jewell was named as a suspect by the FBI, Watson Bryant made a modest living by doing real-estate closings in the suburbs, but Jewell and his lawyer had formed an unusual friendship a decade earlier, when Jewell worked as a mailroom clerk at a federal disaster-relief agency where Bryant practiced law. Jewell was then a stocky kid without a father, who had trained as an auto mechanic but dreamed of being a policeman; Bryant had always had a soft spot for oddballs and strays, a personality quirk which annoyed his then wife no end.

The serendipity of this friendship, an alliance particularly southern in its eccentricity, would bring Watson Bryant to the immense task of attempting to save Richard Jewell from the murky quagmire of a national terrorism case. The simple fact was that Bryant had no qualifications for the job. He had no legal staff except for his assistant, Nadya Light, no contacts in the press, and no history in Washington. He was the opposite of media-savvy; he rarely read the papers and never watched the nightly news, preferring the Discovery Channel's shows on dog psychology. Now that Richard Jewell was his client, he had entered a zone of worldwide media hysteria fraught with potential peril. Jewell suspected that his pickup truck had been flown in a C-130 transport plane to the FBI unit at Quantico in Virginia, and Bryant worried that his friend would be arrested any minute. Worse, Bryant knew that he had nothing going for him, no levers anywhere. His only asset was his personality; he had the bravado and profane hyperbole of a southern rich boy, but he was in way over his head.

For hours that Saturday, Bryant and Jewell sat and waited for the FBI From time to time Jewell would put binoculars under the drawn curtain in his mother's bedroom to peer at the reporters on the hill. Bryant was nervous that Jewell's mother, Bobi, would return from babysitting and see her son having hairs pulled out of his head. Bryant stalked around the apartment complaining about the FBI "The sons of bitches did not show up until three PM," he later recalled, and when they did, there were five of them. The FBI medic was tall and muscular and wore rubber gloves. He asked Jewell to sit at a small round table in the living room, where his mother puts her holiday-theme displays. Bryant stood by the sofa next to a portrait of Jewell in his Habersham County deputy's uniform. He watched the FBI procedure carefully. The medic, who had huge hands, used tiny drugstore tweezers. "He eyeballed his scalp and took his hair in sections. First he ran a comb through it, and then he took these hairs and plucked them out one by one."

Jewell "went stone-cold," but Bryant could not contain his temper. "I am his lawyer. I know you can have this, I know you have a search warrant, but I tell you this: If you were doing this to me, you would have to fight me. You would have to beat the shit out of me," Bryant recalled telling the case agent Ed Bazar. Bazar, Bryant later said, was apologetic. "He seemed almost embarrassed to be there." As he counted out the hairs, he placed them in an envelope. The irony of the situation was not lost on Bryant. He was a lawyer, an officer of the court, but he had a disdain for authority, and he was representing a former deputy who read the Georgia law code for fun in his spare time.

It took 10 minutes to pluck Jewell's thick auburn hair. Then the FBI agents led him into the kitchen and took his palm prints on the table. "That took 30 minutes, and they got ink all over the table," Bryant said. Then Bazar told Bryant they wanted Jewell to sit on the sofa and say into the telephone, "There is a bomb in Centennial Park. You have 30 minutes." That was the message given by the 911 caller on the night of the bombing. He was to repeat the message 12 times. Bryant saw the possibility of phony evidence and of his client's going to jail. "I said, 'I am not sure about this. Maybe you can do this, maybe you can't, but you are not doing this today.'"

All afternoon, Jewell was strangely quiet. He had a sophisticated knowledge of police work and believed, he later said, "they must have had some evidence if they wanted my hair. ... I knew their game was intimidation. That is why they brought five agents instead of two." He felt "violated and humiliated," he told me, but he was passive, even docile, through Bryant's outburst. He thought of the bombing victims— Alice Hawthorne, the 44-year-old mother from Albany, Georgia, at the park with her stepdaughter; Melih Uzunyol, the Turkish cameraman who died of a heart attack; the more than 100 people taken to area hospitals, some of whom were his friends. "I kept thinking, These guys think I did this. These guys were accusing me of murder. This was the biggest case in the nation and the world. If they could pin it on me, they were going to put me in the electric chair."

I met Richard Jewell three months later, on October 28, a few hours before a press conference called by his lawyers to allow Jewell to speak publicly for the first time since the FBI had cleared him. Jewell's lawyers also intended to announce that they would file damage suits against NBC and The Atlanta Journal-Constitution. It was a Monday, and that weekend the local U.S. attorney had delivered a letter to one of the lawyers stating Jewell was no longer a suspect. "Goddamn it," Bryant had told me on the phone, "the sons of bitches did not even have the decency to address it to Richard Jewell."

I had been instructed to come early to the offices of Wood & Grant, the flashy plaintiff lawyers Bryant had pulled in to help him with Jewell's civil suits. When I arrived, I was alone in the office with Sharon Anderson, the redheaded assistant answering the phones. "Wood & Grant . . . Wood & Grant . . . Wood & Grant"—the calls overwhelmed her. Lin Wood and Wayne Grant were rushing from CNN to the local NBC and ABC affiliates, working the shows. "Everyone has theories of who the real bomber is," Sharon said. "I just write it all down and give it to the boys."

When Lin Wood arrived, he was still in full makeup. Movie-star handsome with green eyes and styled hair, Wood has the heated oratory of a trial lawyer. "It's a war! Why in this bevy of stories does not anyone point out the fact that Richard was a hero one day and a demon the next? They have destroyed this man's life!"

Watson Bryant had worked with Wood and Grant years before in a local law firm. He admired Wayne Grant for his methodical sense of detail; Grant, a New Yorker, had once forced the city of Atlanta to pay large damages to a man injured while illegally digging for antique bottles in a park. But Lin Wood's suppressed rage was a marvel to Bryant. "He is so tough he could make people cry in depositions when we were kids," Bryant told me. Wood possessed the smooth style of a member of the Atlanta establishment, but he had a hardscrabble past. He was a boy from "the wrong side of the tracks" in Macon who at age 17 discovered his mother's body after his father had murdered her. His father went to jail, and Wood wound up as a lawyer. He went through college and law school on scholarships and with part-time jobs. I could hear Wood on Sharon's telephone: "He's more than innocent. He's a goddamn hero. . . . Everyone is going to pay who wronged Richard Jewell. Besides NBC and The AJC, we are going to look into suing CNN and Jay Leno."

Through the large picture window, I had a clear view of the remains of the Centennial Olympic Park, where the bomb had exploded on the night of July 26. Where the sound-and-light tower had once been, there was now a flattened dirt field. It was possible to see the Greek commemorative sculpture that Richard Jewell used to describe for tourists at the AT&T pavilion, where he worked as a security guard.

Suddenly, Jewell was in the room. "Hi. I'm Richard. I'm a little late. I don't want you to think I am rude. I am not like that." He had an open face, a bland pleasantness, an eagerness to please. "Can I get you a Coke?" he asked me. "How about some coffee?" Jewell wore a blue-and-white striped shirt and chinos. He occupied physical space like a teenager; he sprawled, he lumbered, he pawed through Sharon's candy bowl. On TV his face had a porcine blankness; he appeared suspicious. In person, Jewell has a hard time disguising his emotions.

We were alone in the conference room; I noticed that Jewell avoided looking out the window toward the park. He shifted his glance nervously away from the view. He often awakens in the middle of the night, drenched in sweat, thinking of the events in the park in the early morning hours of July 27. "It took me days before I could even come in here," he said anxiously.

When Jewell noticed a local ABC reporter outside near Sharon's desk, his face darkened. "I don't want to be around reporters right now. I guess I am a little nervous. What is he doing here?" The atmosphere was now filled with tension; the reporter was escorted out.

Moments later, we gathered in the hallway. Wood was steely: "We are going in two cars. Richard, you drive with me. Your mother will go with Wayne. As we walk down the hall right now, if the ABC people are outside, I will tap you on the shoulder and I will say, 'How are you doing?' You will say, 'Fine.' Is that understood?" "OK, Lin. I understand," Jewell said quietly, head bowed.

As Jewell walked down the hall, an ABC cameraman photographed him looking grim. Seconds after the elevator doors closed, Jewell exploded: "What are they doing here, Lin? Did you invite them? They are animals. Why didn't you get them out of here?"

"ABC has been good to you. How do I get them out of the office on the day of your press conference?"

"That is what security is for!" Jewell said, quivering with rage. "Where is Watson?" he asked in the garage. "I told you: he's at a real-estate closing. He will meet you at the press conference," Wood said. Jewell moved to his mother's side, as solicitous as a child. "Are you all right, Mother?" he asked. "It is all I am going to be able to do not to do something!" she said angrily.

When we arrived at the Marriott hotel on I-75, there was another discussion in the parking lot, about who would walk with whom in front of the cameras. Jewell turned to his close friend Dave Dutchess: "Are you all right, man?" Dutchess, a truck driver who worked with Jewell years ago, has long hair and a tattoo of a panther on his forearm. "Richard and I are like brothers," he told me. "I would die for him." As the cameras closed in on them, the group fled to a private room in the Marriott. The auditorium was filled with reporters. "Showtime! Showtime!" the cameramen yelled when Jewell, his mother, and all the lawyers took the stage.

"I hope and pray that no one else is ever subjected to the pain and the ordeal that I have gone through," Jewell said, his voice breaking. "The authorities should keep in mind the rights of the citizens. I thank God it is ended and that you now know what I have known all along: I am an innocent man."

After the press conference, Bobi and Richard Jewell remained in a private room. The bookers from Good Morning America and The Today Show pressed Jewell to step before their cameras, and when Watson Bryant told them no, Monica, the GMA booker, began to cry, "I'll lose my job." Then Yael, the Today Show booker, cornered Nadya Light: "Is Richard doing something with GMA?'

Upstairs, Jewell and his mother were being filmed by a CBS camera crew for a 60 Minutes news update. "Well, Bobi, did you get your Tupperware back?" Mike Wallace asked by phone from New York. "Richard, you need to lose some more weight." Despite Wallace's festive spirit, the atmosphere was curiously flat. Bryant urged Jewell to talk to a USA Today reporter. Jewell balked: "They can all go suck wind."

In the car on the way back to Wood & Grant, Bobi was angry. All of her possessions had come back from the FBI marked up with ink. "Every piece of Tupperware I own is ruined, thank you very much. They wrote numbers all over it, and I have tried everything to clean it—Comet and Brillo—but nothing works."

Back at the office, she sat on the sofa and listened as Bryant negotiated with Yael for a flight to New York— Delta, first-class, 9:30 PM Jewell was scheduled to appear on three shows in New York, visit the American Museum of Natural History, and then fly to Washington, D.C., for Larry King Live. "I would like to go home, put on my outfit, and walk in the woods," Bobi said. "Richard, we are leaving."

"Yes, ma'am," Richard said.

One hour later, a telephone call came in to the offices of Wood & Grant. The lawyers had the call on speaker, and it blared through the room. "Goddamn it, Lin. When will this be over?" In the background, you could hear Bobi sobbing. "What in the world?" Wood asked. Jewell explained that a sound truck from ABC had been waiting in the parking lot when the Jewells got home. There had been words and threats, and Dave Dutchess had taken his stun gun off his motorcycle and waved it at the ABC van. The cameraman yelled: Stop harassing us! Dave yelled back: You are harassing us! Now get your ass out of here!

Wood shouted into the speakerphone: "Do not meddle! You cannot jeopardize where you have gotten to and what you want to do! All you have to do is put up with this for one more day and the damn thing is over. Bobi, there is nothing you can do about it; you have to stay cool." Bobi cried back, "They are going to destroy me!"

The moment they hung up, Wood turned to Bryant. "New York is canceled. No Katie Couric. No Good Morning America. They are losing it. You better call Yael." "No," Bryant said, "they have lost it. All of the above: their patience, their temper and heart."

That evening a very testy Katie Couric tracked Bryant down at Nadya Light's apartment, where we had gone to watch the news. "I want you to know that I canceled interviewing Barbra Streisand in L.A. for Richard Jewell. Don't think he is always going to be a news story. No one will care about him in three days," she said, according to Bryant. "Look, Katie, I am sorry. But Richard is in no condition to talk to the press. He is worn out," Bryant told her.

Later, Jewell would tell me that that day, which should have been one of his most satisfying, was actually his worst. His notoriety had tainted the triumph; everything positive had become negative. "I was in despair," he said. As he had for most of the previous 88 days, he spent the night confined in the Buford Highway apartment, a prisoner of his circumstances, with his mother, Dave Dutchess, and Dave's fiancee, Beatty, eating Domino's Pizza and watching himself lead the newscasts on NBC, CBS, and ABC.

This case has everything— the FBI, the press, the violation of the Bill of Rights, from the First to the Sixth Amendment," Watson Bryant told me in one of our first conversations. It has become common to characterize the FBI's investigation of Richard Jewell as the epitome of false accusation. The phrase "the Jewell syndrome," a rush to judgment, has entered the language of newsrooms and First Amendment forums. On the night of Jewell's press conference, a commentator on CNN's Crossfire compared Jewell's situation to "Kafka in Prague." The case became an investigative catastrophe, which laid bare long-simmering resentments of many FBI career professionals regarding the micromanagement style and imperious attitude of Louis Freeh and his inner circle of former New York prosecutors, who have worked together since their days at the U.S. Attorney's Office in the Southern District. Within the bureau, the beleaguered director now has a new nickname: J. Edgar Hoover with children. Like Freeh, those near him have also acquired a nickname: Louie's yes-men. Two of Freeh's closest associates, FBI general counsel Howard Shapiro and former deputy director Larry Potts, have been severely criticized, respectively, for advising the White House of confidential FBI material and for an alleged cover-up of the mishandling of the 1992 standoff at Ruby Ridge, where FBI agents killed the wife and son of Randy Weaver, a white supremacist.

In November and December, the Office of Professional Responsibility conducted an exhaustive investigation into the Jewell affair. Responding to an attempt by headquarters and certain officials to distance themselves, according to FBI sources, several agents, including a senior FBI supervisor in Atlanta, have provided the OPR with signed statements insisting that Freeh himself was responsible for "oversight" during the crisis. These agents "shocked the investigators" because they reiterated, when asked who was in charge of the overall command of the investigation, that it was the director himself.

What happened to Richard Jewell raises an important question central to Freeh's future tenure: in the midst of a media frenzy, does the FBI have any responsibility to protect the privacy of an innocent man? Over the last year, this concept was broached with Bob Bucknam, Louis Freeh's chief of staff. During the long Pizza Connection trial in the 1980s, it was Bucknam who handed Freeh files at the prosecutor's table. According to highly placed sources in the bureau, Bucknam's answer was immediate: the FBI has no responsibility to correct information in the public domain.

Richard Jewell had a reverence for authority that blinded him to the paradox of his situation. He idealized the investigative skills of the FBI and could not understand that he had become ensnared in a web fraught with the weaknesses of a self-protective bureaucracy. Pennsylvania Senator Arlen Specter has invited Jewell to Washington to testify at congressional hearings on the FBI's conduct in the Atlanta bombing. Ironically, the bungling of the investigation might lead to the reshuffling of personalities at the top of the bureau and threaten Freeh's reputation. In October, according to The Washington Post, Freeh sent an unusual memo to all 25,000 FBI personnel: He would not be abandoning his post amid reports of problems with the Jewell case and Filegate, and of a growing dissatisfaction inside the bureau. "I am proud to be the FBI director," Freeh wrote.

From the beginning, Jewell was perceived in the public imagination as a hapless dummy, a plodding misfit, a Forrest Gump. On one of the first days he worked as a security guard at the AT&T pavilion, he noticed that his co-workers were covering the steps inside the sound tower with graffiti. On one step Jewell scrawled with a flourish two bromides: IF YOU DIDN'T GO PAST ME, YOU ARE NOT SUPPOSED TO BE HERE and LIFE IS TOUGH. TOUGHER WHEN YOU ARE STUPID. Soon after he was targeted as a suspect in the Olympics bombing, the FBI confiscated the step. Analysts appeared to believe that the graffiti contained a clue to his character. "They told the lawyers the statement was an obvious taunt," Jewell said. In fact, the second line was an expression he had cribbed from one of his favorite actors, John Wayne.

"To understand Richard Jewell, you have to be aware that he is a cop. He talks like a cop and thinks like a cop," his criminal lawyer, Jack Martin, told me. The tone of Jewell's voice drops noticeably when he says the word "officer," and his conversation is filled with observations about traffic patterns, security devices, and car wrecks. Even the vocabulary he uses to describe the 88 days he was a suspect is out of the lexicon of police work, and he continues to talk about his situation then in the present tense: "This is an out-and-out ambush, and I am a hostage."

Jewell has a need to accommodate. He can be startlingly opaque. On the afternoon of July 30, Jewell answered the door of his mother's apartment to Don Johnson and Diader Rosario from the FBI "We need your help making a training film," they told him. "I never questioned it," he told me. The next day Rosario appeared again with a search warrant. "The weird thing was that when they were searching my apartment I was, like, 'Take everything. Take the carpet. I am law enforcement. I am just like you. Guys, take whatever you are going to take, because it is going to prove that I didn't do anything.' And a couple of them were looking at me like I was crazy."

Leaving the apartment on one occasion, he told the agents, "I am wearing a bright shirt so y'all can see me easier." He recalled feeling anger when he read descriptions of himself as a child-man, a mama's boy, and "a wannabe policeman," but he said, "If I was in the place of everybody else and I saw a 34-year-old guy living with his mother, I would have reservations about that, too. I would think, Why is he doing that?"

The December issue of Atlanta magazine reported that there was no record of a Jewell family in Danville, Virginia, where Richard Jewell was born. Atlanta referred to an article in the Danville Register & Bee which asked, "Did Richard Jewell ever sleep here?" "This is a part of my life Richard and I do not like to speak about," Bobi Jewell told me one night at dinner. Richard was born in Danville, but his name was Richard White; his father was Bobi's first husband, Robert Earl White, who worked for Chevrolet. According to Bobi, Richard's father, who died recently, was "irresponsible and a ladies' man." When Richard was four, the marriage broke up. Bobi found work as an insurance-agency claims coordinator and soon met John Jewell, an executive in the same business. Shortly after John Jewell married Bobi, he adopted Richard.

From the time Richard was a child, he and his mother were a unit. Bobi, a woman of intelligence and disciplined work habits, is both tender and tough on the subject of her son. She still calls Richard "my boy," but she has a peppery disposition. Richard was brought up in a strict Baptist home. "If I didn't say 'Yes, ma'am' or 'No, ma'am' and get it out quick enough, I would be on the ground," he said. When he was six, the family moved to Atlanta. Richard was the boy who helped the teachers and worked as a school crossing guard, but he had few friends in high school. "I was a wannabe athlete, but I wasn't good enough," he said. He ran the movie projector in the library. A military-history buff, he liked to talk about Napoleon and the Vietnam War and read books on both World Wars.

Jewell's ambition was to work on cars, so he enrolled in a technical school in southern Georgia. On his third day there, Bobi discovered that her husband had packed a suitcase. "He left a note saying that he was a failure and no good for us," Jewell said. Almost immediately, Richard moved back home and took a job repairing cars. "My mom and I tried to take care of each other," he said. "I think I handled it pretty much better than she did." Richard took the brunt of his father's abandonment; Bobi pulled even closer to her son. "She hated all men for about three years after that, and she became overly protective of me. She looked at it that I was going to do the same thing that my dad did. I was 18 or 19. I was working. She never liked my dates, but I never held that against her. We have always been able to lean on each other."

Richard managed a local TCBY yogurt shop and once stopped a burglary in progress. At the age of 22, he was hired as a clerk at the Small Business Administration, and he impressed Watson Bryant and the other lawyers in the office with his personable nature. They called him Radar because of his efficiency. "You could say, 'I'm hungry,' and suddenly this kid would be by your side with a Snickers bar," Bryant recalled. When Jewell's contract with the SBA ran out, he moved on to be a Marriott house detective. In 1990 he was hired as a jailer in the Habersham County Sheriff's Office, and in 1991 he became a deputy. As part of his training, he was sent to the Northeast Georgia Police Academy, where he finished in the upper 25 percent of his class. He finally had an identity; he was a law-enforcement officer.

Jewell was unlucky in love. He presented one woman with an engagement ring, and later, in Habersham County, he would give another a large wooden key with a sign that read, THIS IS THE KEY TO UNLOCK YOUR HEART, but both relationships came apart. In northern Georgia, Jewell worked nights and became wedded to his job. By his own description, he was methodical. "I am the kind of person who plans everything. I like to go from A to B to C to D. This going from A to D and arguing over everything—I say no." Habersham County, a scenic part of the piney woods in Georgia's Bible Belt, was for Jewell like "leaving the 1990s and going into the 1970s in terms of law enforcement." Many rich Atlantans have country houses in the mountains, but the small towns of Demorest and Charlottesville are relatively undeveloped, reminding one of Jewell's lawyers of the scenery in the movie Deliverance. "If you get lost up there, you might find a guy with a bow and arrow," the lawyer said.

Recently, Jewell and I took the 90-minute drive from Atlanta to Habersham County, which has acres of apple orchards. The leaves were turning, and the roads were mostly deserted. In the towns, however, were stores, apple stands, and even a good Chinese restaurant. As Jewell's blue pickup truck turned into the parking lot of a shopping center, several people came out to greet him.

Jewell had lived in a small yellow house up a steep rocky driveway. On the day we visited, the current resident's Halloween decorations were still up, as were faded white satin ribbons hanging from many trees, remnants of a campaign to clear Richard Jewell organized by area friends. Jewell had lived 50 yards from the Chattahoochee River near a kayak-and-canoe tourist concession on a main road—not in a "cabin in the woods," as several reports stated after the bombing. He worked the night shift, and when he would arrive home at dawn, he told me, he could look up and "see a sky filled with stars."

He was not a loner; he made friends with several local families. He would often leave a box of Dunkin' Donuts on friends' porches at 4 AM During the O.J. Simpson trial, he and the other deputies would meet in the turnaround on Highway 985 in the middle of the night and review the day's events and the bungling by the Los Angeles Police Department. Jewell would later be annoyed that the FBI confiscated his copy of former prosecutor Vincent Bugliosi's account of the trial. Jewell dated a local girl, Sheree Chastain, and had a close relationship with her family.

Jewell had a complex history working at the Habersham County Sheriff's Office. When he was still a jailer, he arrested a couple making too much noise in a hot tub at an apartment building where he did part-time security work. He was arrested for impersonating an officer and, after pleading guilty to a lesser charge, was placed on probation on the condition that he seek psychological counseling.

By his own estimation, Jewell's strength as a cop was "working car wrecks." He had his mother's diligence; he worked 14 hours a day and organized a safety fair. Later in 1995 he wrecked his patrol car and was demoted to working in the jail. Rick Moore, a local deputy, advised him to accept the job, but Jewell despised the jailhouse atmosphere. He told me, "It was a small room filled with cigarette smoke. I couldn't take it." He resigned, and in a short time he moved to a police job at Piedmont College, a liberal-arts school with approximately 1000 students on the main road in Demorest. The college police had jurisdiction only on campus and in an area extending out 500 feet. Jewell chased cars speeding down the highway and had arguments over turf with other officers. He was instrumental in several arrests, including that of a suspected burglar he discovered hiding at the top of a tree. For his work on a volunteer rescue squad, he was named a citizen of the year.

According to Brad Mattear, a former resident director, Piedmont was a school of "PK's"—preachers' kids. It was 80 percent Baptist with a strict no-drinking rule. The college had many rebellious students, according to Mattear, kids who were "away from home for the first time and wanted to party and drink." Mattear knew Jewell well and recalled his good manners and playful nature. "It was always 'Yes, sir' and 'Yes, ma'am.'" Jewell would tell students, "I know y'all are going to drink. Don't do it on campus."

Jewell felt confined by his boundaries and could be heavy-handed when it came to writing out reports on minor infractions. Once when we were driving by the campus, he pointed to a small brick dormitory. "That was where all the partying would go on," he told me. Jewell would raid dorm rooms and report drinking violations. "I did not hesitate to tell the parents—in no uncertain terms—what their kids were up to," he said.

He soon made enemies at the school. "Three or four times a week," Mattear said, Piedmont students were in the office of Ray Cleere, the president of the college, complaining about Jewell and other Piedmont police. After Jewell was admonished for a number of controversial arrests, he resigned.

Jewell had an out: his mother was going to have an operation on her foot. He would go home to Atlanta for the Olympics and look for a new job. He called his mother: "Is it all right with you if I stay with you while you have your surgery?" He hoped he might get a job with the Atlanta police or, failing that, work security at the Olympics. "I thought, Working at the Centennial Olympic Park will look really good on my resume."

At the age of 33, back in his mother's apartment, he was at first treated like a wayward teenager. Bobi was sharp with him about his slovenly habits, his weight, and his driving. Bobi had carved out a life for herself; she arrived at work by eight AM each morning and had many friends. Trim, with short-cropped hair, Bobi Jewell is the kind of woman who labels her clothes and spices and spends much of her spare time baking cakes and babysitting for extra money. She carries on telephone friendships with claim adjusters at other companies. It was somewhat unsettling for her, she told me, to have Richard at home after she had grown used to living with only her dog, Brandi, and her cat, Boots. Bobi was annoyed that he had wrecked a patrol car, and worried about his safety. "Every time he leaves the apartment, I'll say, 'Richard . . . ' And he'll say, 'Yes, ma'am. I know. The person that I am going to see will be there when I get there,'" she said. On one occasion Bobi talked about Richard's return to Atlanta. "What is wrong with trying to revamp your life?" she asked me. Her eyes filled with tears. "Why does everyone in the media think it is so strange?"

On Friday, July 26, Bobi Jewell was home waiting for her niece to arrive from Virginia for the Olympic softball competition the following week. In preparation, she had stocked her apartment with food. It was a clear Georgia evening, not as hot as had been expected. As usual, Richard left for the park at 4:45 PM and arrived at the AT&T pavilion about 5:30. His stomach was bothering him; he was convinced that he had eaten a bad hamburger the day before. Lin Wood and Wayne Grant had arranged to take their children to Centennial Park that night. The park, in downtown Atlanta, stretches over 21 acres. There were air-conditioned tents, concerts on the stage, and hot-dog and souvenir stands. Downtown Atlanta was usually deserted in the oppressively hot, humid summer, but this year thousands of tourists filled the sidewalks, or sat on benches in the shade of some crape-myrtle trees, or cooled off by a fountain. Tour buses clogged the main arteries, and everyone complained that it took hours to get anywhere; stories were traded about athletes' getting to their competitions late because of the poor planning of the Atlanta Committee for the Olympic Games.

As always, Jewell was working the 12-hour night shift near the sound-and-light tower by the stage. He was pleased because one of his favorite groups—Nirvana—was going to perform at 12:45, and he'd get to see the show later on video as his mother would record the concert's live broadcast on MTV. Jewell had a routine: he would check in and fill the ice chest he kept by a bench at his station. Jewell liked to offer water and Cokes to pregnant women or policemen who stopped to rest.

After he arrived at the park, his stomach cramps grew worse and he had a bout of diarrhea. At approximately 10 PM he took a break to go to the bathroom. The closest one was by the stage, but the security staff was not allowed to use it. "I really have to go," Jewell says he told the stage manager. "And he said, 'Well, O.K. this time.'"

When Jewell came out, he noticed that it was "real calm" and there wasn't much wind blowing. At that time of night, the crowd from Bud World became a little more raucous. Jewell was annoyed when he saw a group of drunks near his bench and beer cans littering the area beside the fence nearby. There was also a group of young Gen-Xers setting up a mosh pit for when Nirvana's set began. As he went to report the trash and the group that was carousing, he spotted a large olive-green military-style backpack, known as an Alice pack, under the bench. There had been a similar bag found the week before. Jewell later told an FBI agent that he was annoyed that one of the drunks had tried to get into the lens of a camera crew. Jewell had told them to cut it out. "They were running off at the mouth," Jewell would later tell Larry Landers of the Georgia Bureau of Investigation (GBI).

"I was light about the package at first," he told me, "kidding around with Tom Davis from the GBI: 'Well, are you going to open it?' At that point, it was not a concern. I was thinking to myself, Well, I am sure one of these people left it on the ground. When Davis came back and said, 'Nobody said it was theirs,' that is when the little hairs on the back of my head began to stand up. I thought, Uh-oh. This is not good.

"I never really had time to be frightened. My law-enforcement background paid off here. What went through my head was like a computer screen of this list I had to do. I had to call my supervisor. I have to tell people in the tower that something was going on. I have to be firm with them, stay calm, and be professional."

Almost immediately, Jewell and Tom Davis cleared a 25-foot-square area around the backpack; Jewell made two trips into the tower to warn the technicians. "I want y'all out now. This is serious."

Two blocks away on Marietta Street, approximately 300 editors, copywriters, and reporters from Cox newspapers around the country had taken over the extra desks in the new eighth-floor newsroom at The Atlanta Journal-Constitution to prepare the special Olympics edition they put out each afternoon. The paper had gone "Olympics-crazy," according to one reporter. The editor, Ron Martin, and the managing editor, John Walter—"WalMart," as they were called—had let it be known that no expense would be spared. Ann Hardie, who normally covers science, had been sent around the world to master the fine points of beach volleyball; Bill Rankin, officially on the federal-court beat, was assigned table tennis. The paper intended to set new standards in its hometown during the games, but in addition there was a hint of redemption in the air.

Since Cox newspaper executives had forced the resignation of the distinguished editor Bill Kovach in 1988, the paper had suffered a severe loss of reputation. "We all felt just kind of beaten down," one reporter said. Kovach had been brought to Atlanta from The New York Times to elevate The AJC into being the definitive paper of the New South, but eventually he irritated the local powers. Atlanta was inbred, a city of deals, and he resigned in a blaze of press outrage. Kovach now ran the Nieman journalism-fellowship program at Harvard, and the movie rights to his turbulent years in Atlanta—reported in these pages by Peter J. Boyer—had been sold to Warner Bros.

Within the profession, The AJC had become something of a joke. More and more, its emphasis was on what John Walter called "chunklets"—short bits in a soft-news style known as eye-candy. The paper published features on couples massage and how mushrooms grow in the rain. Walter had fired off several terse memos to ensure that there would be no more jumps of news stories to back pages and no more unsourced news stories, except on rare occasions. "I don't see any reason why you can't report hard news in a short form," one editor told me.

The AJC style of reporting in declarative sentences had a name, too: the voice of God. It was omniscient, because it allowed no references to unattributed sources. Subjects such as AIDS, which often required confidentiality, could not be covered properly in the paper, in the opinion of several reporters. The AJC picked up news stories with unnamed sources from The New York Times, however, and reporters groused about the hypocrisy of the double standard.

On Saturday morning, July 27, Bob Johnson, the night metro editor, left the newsroom at one AM. The sidewalks were still crowded; Johnson sat on a wall outside waiting for an AJC shuttle bus to pick him up. About 1:25 he heard a strange noise. "It sounded like an aerial bomb at a fireworks show," he said. He recalled thinking, Damn, that is sort of foolish. Then he heard screams and saw people running. Johnson rushed back upstairs to the almost deserted sixth-floor newsroom. Lyda Longa, a night police reporter, was still there. Johnson sent her down to the park and turned on the news, but nothing had moved across the wires. Just after two AM, Longa called from the park. She told Johnson that one person had been killed and dozens were down—it was absolute chaos. Johnson could hear the sirens and the screams through the telephone; he began to type into his computer. "We were trying to get a bullet into the street edition," Johnson recalled. In the crisis, it took only minutes for reporters to return to the newsroom; several had been at the park when the bomb went off. Rochelle Bozman, an Olympics editor, appeared and took over for Johnson. Soon John Walter was there, as was Bert Roughton, who would assist him in supervising the AJC coverage of the bombing.

At the park, Jewell spoke with the first FBI agents to arrive on the scene. The smell and the noise, he remembered, were overwhelming, and sensations blurred together. "It was hard to describe the sound," he said. "It was like what you hear in the movies. It was, like, KABOOM. I had seen an explosion in police training. We had ear protection when it went off. It smelled like a flash-bang grenade. The sky was not filled with black smoke, but grayish-white. All the shrapnel that was inside the package kept flying around, and some of the people got hit from the bench and some with metal."

Bobi Jewell had just gone to sleep when the telephone rang. It was Richard. "Mom, they had a bomb go off down here, but I am OK regardless of what the TV says." He could hardly speak; he seemed paralyzed. Jewell did not mention to his mother that he had found the backpack and alerted Tom Davis. Bobi was perplexed. "I thought, What does he mean?"

All night long she stayed on the foldout sofa watching the news reports. She was frightened by the ambulances, the noise, the bodies in the park.

Soon veteran homicide detectives in the Atlanta police arrived at the bomb site. One sergeant was trying to make his way through the crowd when an Olympics official stopped him. "Tell these cops to get the hell out of here," he said, according to a captain in the homicide division. "Well, you get the fuck out of here. Who are you?" the sergeant demanded. Agents from the Atlanta FBI office and the Bureau of Alcohol, Tobacco and Firearms were in a shouting match over jurisdiction. "We are handling this!" one said. "No, this is ours!" an FBI agent snapped.

In the command center at FBI headquarters in northeastern Atlanta, there was complete pandemonium. The Olympics were a national convention for law enforcement. Some 30,000 security personnel were on hand. Over the next few days, there would be an internal debate: Who was going to be in charge of the bombing investigation? In Atlanta at that time were three veteran investigators with executive experience: Tom Fuentes, who is credited with helping to bring John Gotti to heel; Barry Mawn, who has worked extensively in organized-crime probes; and Robin Montgomery, the head of the critical-incident unit at Quantico, who at Ruby Ridge in 1992 questioned the disastrous "rules of engagement" which led to tragedy.

In the early-morning hours, FBI agents picked up several suspects, including one referred to as "the drunk in the bar." According to FBI sources, Louis Freeh himself got on the telephone to Barry Mawn. Freeh, a former FBI agent, was personally monitoring the initial investigation by means of a series of conference calls from the command post at FBI headquarters. He focused on "the drunk in the bar," who had been making threats the night before, and within hours the information was leaked that the FBI had a suspect. From Atlanta, Barry Mawn contacted his superiors in Washington. "This suspect is not the bomber," he reportedly said, according to a former high-level FBI executive. Freeh allegedly lost his temper and belittled Mawn's professional abilities. He is said to have told Mawn that he "had handled this all wrong." The words one hears characterizing Freeh's telephone calls to the agents on duty in Atlanta are "abusive," "condescending," and "dismissive." A story went around the command center that Freeh was already saying, "We have our man," according to a source in the bureau.

Freeh made a decision: however experienced Montgomery, Fuentes, and Mawn were, this investigation would be run by Division 5 of the FBI, the National Security Division, a former counterintelligence unit that has been looking for a purpose since the Cold War ended. Trained in observation, division members rarely made a criminal case—their strength was intimidation and manipulation rather than the deliberate gathering of evidence to be presented in court. The FBI promptly declared the bombing a terrorism case and placed it under the authority of Bob Bryant, head of the division. David Tubbs of Division 5 was sent to Atlanta to be the spokesman and to augment Woody Johnson, the Atlanta special agent in charge (SAC), who had been trained in hostage rescue and who was awkward in press briefings. Tubbs was not as experienced in criminal cases as Mawn or Montgomery, who returned to Newark and Quantico, respectively, "to get out of the line of fire," according to numerous FBI sources. But Bryant and Freeh were reportedly micromanaging the SAC's and, later, the case agents Don Johnson and Diader Rosario.

On the morning of the bombing, Watson Bryant's alarm went off at six AM He was going to the Olympic kayak competition on the Ocoee River with Andy Currie, a friend from his Vanderbilt University days. He learned of the bombing on the radio as he was getting ready to go to Currie's house. "Whoever has done this should be skinned alive," he told Currie. He spent the day in the country, and on Sunday he went out to run errands. When he got home, there was a message on his answering machine: "Watson, this is Richard Jewell. You may have heard that I found the bomb and people are calling me a hero. Somebody told me I might get a book contract." It had been years since Bryant had spoken to Jewell, but he did not immediately return the call; he was busy finishing up some contracts so that he could take a few days off to enjoy the Olympics.

In addition, Bryant was annoyed with Jewell. After Bryant had befriended him in their days at the Small Business Administration, Jewell had borrowed his new, $250 radar detector and never returned it. He had promised to pay him $100 for it, but he never had. In the meantime, Bryant's life had changed; he had set up an office as a solo practitioner. Bryant despised corporate politics and had no gift for them. His penchant for taking on pro-bono work for friends annoyed his wife, however. Bryant believed that Richard Jewell had attached himself to him years earlier because he lacked a father, but nevertheless Jewell could get on his nerves. By the summer of 1996, Bryant was preoccupied; his marriage had come apart two years earlier, and he was trying to sort out his life.

When he finally returned Jewell's phone call, he said, "Well, damn it, where's my $100?" Jewell laughed uneasily and told him about discovering the green backpack that contained the bomb. "Didn't you see me on the news?" Bryant reminded him that he rarely watched TV. "I am proud of you, Richard," he said. "About this book contract, I think it's far-fetched, but don't sign anything unless I see it first."

In the Newsweek cover story detailing the bombing, published Monday, July 29, there was no mention of Richard Jewell. It said only that "a security guard" had alerted Tom Davis of the GBI that no one had claimed the backpack under his bench; it also seemed more interested in interviewing Kurt Cobain and Dave Grohl about what they saw from their vantage point on the stage and Grohl's efforts helping lead evacuation efforts by speaking into the microphone to guide them. By the time Newsweek was on the stands, however, Jewell had been interviewed on CNN. The AT&T publicity department had booked him on TV and told him to wear the shirt with the AT&T logo. Jewell reluctantly agreed. "The idea of going on TV made me nervous," he told me. "I was not the hero. There were so many others who saved lives."

In Demorest, Ray Cleere, the president of Piedmont College, was home on Saturday, July 27, watching CNN. Cleere had at one time been Mississippi's commissioner of higher education, but he was now posted at the rural Baptist mountain school. He was said to feel that he had suffered a loss of status in the boondocks, where he was out of the academic mainstream. He called Dick Martin, his chief of campus police. Shouldn't they call the FBI and tell them about Richard Jewell? he asked. Cleere had had a strong disagreement with Jewell when one of the students was caught smoking pot. Jewell wanted to arrest him; Cleere said no. Cleere, Brad Mattear recalled, "worried constantly about the image of the college." According to Mattear, "Cleere loved the limelight. He wanted public attention"—the very trait he reportedly ascribed to Richard Jewell.

Dick Martin, who was fond of Jewell, suggested a compromise, according to Lin Wood: he would call a friend in the GBI Cleere then called the FBI hot line in Washington himself. Wood says Cleere later complained that no one had seemed to want to listen to what he had to say about Richard Jewell. But his telephone call would trigger a complex set of circumstances in Habersham County, where FBI investigators fanned out over the hills, attempting to uncover evidence that could lead to Jewell's arrest. "The FBI took his word, and what it actually did was get them both in a bunch of trouble," Mattear said. (Cleere has declined to comment.)

For Richard Jewell, Tuesday, July 30, would become a haze in which his life was turned upside down. "The hours of the day ran so fast it is hard to remember what all happened," he told me. He started the day early at the Atlanta studio of the Today Show. He was tired; the evening before he had had his friend Tim Attaway, a GBI agent, for dinner. He had made lasagna and had drawn Attaway a diagram of the sound-and-light tower. Jewell had talked into the night about the bombing; only later would he learn that Attaway was wearing a wire.

Despite the late evening, Jewell was excited at the thought of meeting Katie Couric and being interviewed about finding the Alice pack in the park. His mother asked him to try to get Tom Brokaw's autograph. "He was a man my mom respected a great deal," he said.

When he got back to the apartment, he was surprised to see a cluster of reporters in the parking lot. "Do you think you are a suspect?" one asked. Jewell laughed. "I know they'll investigate anyone who was at the park that night," he said. "That includes you-all too." Jewell did not turn on the TV, but he noticed that the group outside the door continued to grow. At four that afternoon, Jewell received a phone call from Anthony Davis, the head of the security company Jewell worked for at AT&T. "Have you seen the news?" Davis asked. "They are saying you are a suspect." Jewell said, "They are talking to everybody." According to Jewell, Davis said, "They are zeroing in on you. To keep the publicity down, don't go to work."

Within minutes, Don Johnson and Diader Rosario knocked on Jewell's door. They exuded sincerity, Jewell recalled. "They told me they wanted me to come with them to headquarters to help them make a training film to be used at Quantico," he said. Johnson played to Jewell's pride. Despite the reporters in the parking lot and the call from Anthony Davis, Jewell had no doubt that they were telling the truth. He drove the short distance to FBI headquarters in Buckhead in his own truck, but he noticed that four cars were following him. "The press is on us," Jewell told Johnson when they arrived. "No, those are our guys," Johnson told him. This tactic would continue through the next 88 days and be severely criticized: Why would you have an armada of surveillance vehicles stacked up on a suspected bomber?

It was then that Jewell started to wonder why he was at the FBI, but he followed Johnson and Rosario inside. Rosario was known for his skills as a negotiator; he had once helped calm a riot of Cuban prisoners in Atlanta. Johnson, however, had a reputation for overreaching. In Albany, New York, in 1987, he had pursued an investigation of then mayor Thomas Whalen. According to Whalen, the local U.S. attorney found no evidence to support Johnson's assertions and issued a letter to Whalen exonerating him completely, but Whalen believed it cost him an appointment as a federal judge.

As Jewell sat in a small office, he wondered why the cameraman recording the interview was staring at him so intently. After an hour, Johnson was called out of the room. When he returned, he said to Jewell, "Let's pretend that none of this happened. You are going to come in and start over, and by the way, we want you to fill out this waiver of rights."

"At that moment a million things were going through my head," Jewell told me. "You don't give anyone a waiver of rights unless they are being investigated. I said, 'I need to contact my attorney,' and then all of a sudden it was an instant change. 'What do you need to contact your attorney for? You didn't do anything. We thought you were a hero. Is there something you want to tell us about?'" Jewell grew increasingly apprehensive and later recalled thinking, These guys think I did this.

When the agents took a break, Jewell asked to use the phone. "I called Watson four times. I called his brother. I told his parents that I had to get hold of Watson—it was urgent. I was, like, 'I have to speak to him right now.' What was going on was that Washington was on the phone with Atlanta. The people in Washington were giving them questions." Jewell said he knew this because the videotapes in the cameras were two hours long and "Johnson and Rosario would leave every 30 minutes, like they had to speak on the phone." The . report, however, would assert that no one at headquarters knew about the videotaping or the training-film ruse. Lying to get a statement out of a suspect is, in fact, not illegal, but clearly Johnson and Rosario were not making decisions on their own. Even the procedure of having a fleet of cars follow a suspect was an intimidation tactic used by the FBI Later, according to Jewell, Johnson and Rosario would both tell him privately that they believed he was innocent, but that the investigation was being run by the "highest levels in Washington."

Within the bureau, the belief is that during one of the telephone calls Freeh instructed Johnson and Rosario to read Jewell his Miranda rights. Freeh is said to have learned of Johnson's history from a member of his security detail, who had worked in Atlanta. He told Freeh that "Johnson had a reputation for being obnoxious and a problem." In addition, a week after Jewell's interview, Freeh reportedly received a call from Janet Reno, who had learned about the ruse from Kent Alexander, the local U.S. attorney, and Deputy Attorney General Jamie Gorelick. Freeh wondered aloud how it was that, of all the agents in Atlanta, Johnson had been selected to work on the Jewell case. Like Jewell, Johnson had wound up in Atlanta because of his overzealous behavior—according to an FBI source, the Whalen episode had resulted in a "loss-of-effectiveness transfer," an FBI euphemism. (Johnson declined to respond.)

On that same Tuesday, Watson Bryant and Nadya Light closed the office early and went to Centennial Park. Light, 35, a pretty Russian immigrant, had never met Radar, Bryant's old friend, and wanted to buy him a celebratory meal. Killing time until Jewell came on duty, they went into the House of Blues and then bought some hot sauce. Walking toward his car, Bryant saw newsboys hawking the afternoon edition of The Atlanta Journal-Constitution. "It was like out of a cartoon. They were all yelling!" he recalled. "I caught the headline out of the corner of my eye." The headline read: FBI SUSPECTS 'HERO' GUARD MAY HAVE PLANTED BOMB.

Bryant borrowed 50 cents from Light to buy the paper and began to read: '"Richard Jewell, 33 . . . fits the profile of the lone bomber.' I could not believe it."

At that moment, Bryant's brother, Bruce, who was on his way to the diving competition, got a call from Jewell. "Where is Watson?" As Bruce Bryant walked past a Speedo billboard with a TV screen, he saw Richard Jewell's face filling the screen. "Oh, my God," he said to his wife. At the same moment, Watson was in his car a block away on Northside Drive when he too noticed the Speedo screen. He could not get back to his house—the streets were blocked off for the cycling competition. From his car he called FBI headquarters and demanded to speak to Jewell. "He is not here," the operator said. From his home phone, he picked up his messages and heard Jewell's low, urgent tones. "He didn't leave a number," Bryant told Light. "Call Star 69," she said. The number came back: 679-9000, the number for FBI headquarters, which he had just dialed. Within minutes, Bryant had Jewell on the phone. Jewell told him he was making a training film. "You idiot! You are a suspect. Get your ass out of there now!" Bryant told him.

Before The Atlanta Journal-Constitution broke the story of Richard Jewell, there had been a debate in the newsroom over whether or not to name him. One block away, CNN's Art Harris and Henry Schuster had alerted the network's president that Jewell was targeted, but they held the story, because they understood its potential magnitude. At The AJC, Kathy Scruggs, a police reporter, who had allegedly gotten a tip from a close friend in the FBI, got a confirmation from someone in the Atlanta police. According to the managing editor, John Walter, the first edition of the paper that Tuesday had a brief profile of Jewell. It was dropped in later editions as Walter questioned whether the paper had enough facts to support the scoop. Because of the voice-of-God style, the paper ended up making a flat-out statement: "Richard Jewell . . . fits the profile of the lone bomber."

When I asked John Walter about the lone-bomber sentence, he said, "I ultimately edited it. . . . One of the tests we put to the material is, is it a verifiable fact?" One editor added, "The whole story is voice-of-God. . . . Because we see this event taking place, the need to attribute it to sources—FBI or law enforcement—is less than if there is no public acknowledgment." John Walter indicated that he had not seen a lone-bomber profile. I asked him, "Whose profile of a lone bomber does Richard Jewell fit? Where is the 'says who' in this sentence?" Walter said that he felt comfortable with the assertion.

The page-one story had a double byline: Kathy Scruggs and Ron Martz. Walter had told these two early on that they would be the reporters assigned to any Olympic catastrophe. Martz, who had covered the Gulf War, had been assigned the security beat for the Olympics; Scruggs routinely covered local crime. Scruggs had good contacts in the Atlanta police, and she was tough. She was characterized as "a police groupie" by one former staff member. "Kathy has a hard edge that some people find offensive," one of her editors told me, but he praised her skills. Police reporters are often "dictation pads" for local law enforcement; recently the Columbia Journalism Review sharply criticized The AJC for the scanty confirmation and lack of skepticism in its coverage of Jewell.

The newsroom atmosphere resembled that at FBI headquarters; there was a frenzy to be first. Kent Walker, a newsroom intern, published a story in the same edition, with a glaring mistake in the headline: BOMB SUSPECT HAD SOUGHT LIMELIGHT, PRESS INTERVIEWS. Since Ray Cleere's tip to the FBI, the "hero bomber" theory had been circulating among Atlanta law enforcement officers. Maria Elena Fernandez, a reporter, was sent to Habersham County on July 29. By coincidence, William Rathburn, the head of security for the Olympics, had been at the Los Angeles Olympics in 1984 when a fake bomb was found on a bus—left by a policeman who sought attention.

On the surface, the story had an irresistible newsroom logic: Jewell was clearly looking for recognition. Bert Roughton, the city editor, had answered the telephone when a representative from AT&T called to ask if the paper would like a Jewell interview. According to Walter, Roughton himself typed a sentence in the Scruggs-and-Martz piece: "He [Jewell] also has approached newspapers, including The Atlanta Journal-Constitution, seeking publicity for his actions." But he hadn't. Walter explained, "There was nothing wrong with that sentence. That's journalistically proper. It is not common practice, to my knowledge, to ask someone you are interviewing . . . 'Are you here of your own free will?'" Jewell had not contacted the paper—a fact which would have been easy enough to check. Walter became snappish when I described the sentence as "a mistake." "It was not a mistake," he said angrily. Scruggs and Martz quoted Piedmont College president Ray Cleere as backup. According to Cleere, Jewell had been "a little erratic" and "almost too excitable."

There was no doubt raised by The AJC about the value of Cleere's information or the fragility of the FBI's potential case. On Tuesday morning, July 30, Christina Headrick, a young intern on the paper, was sent to Buford Highway to stake out Richard Jewell's apartment. She phoned in that there were men doing surveillance. By deadline, John Walter had made a decision: he would tear up the afternoon Olympics edition and lead with Jewell.

Several states away, Colonel Robert Ressler was watching CNN when the AJC extra edition was shown. Ressler, who was retired from the behavioral-science unit of the FBI, had, along with John Douglas, author of the book Mindhunter, developed the concept of criminal-personality profiling. He was the co-author of the Crime Classification Manual, which is used by the FBI. He had interviewed Ted Bundy, Jeffrey Dahmer, and John Wayne Gacy, and as he watched the TV report, he was mystified. "They were talking about an FBI profile of a hero bomber, and I thought, What FBI profile? It rather surprised me." According to Ressler, the definition of "hero homicide"—a person looking for recognition without an intent to kill— perhaps emerged as "hero bomber." "There is no such classification as the hero bomber," he told me recently. "This was a myth." Later he said, "It occurred to me that there was no database of any bomber who lived with his mother, was a security guard and unmarried. How many hero bombers had we ever encountered? Only one that I know of, in Los Angeles, and his bomb did not go off." Ressler knew that something was off; profiles are developed from a complex set of evidence and facts derived only in part from a crime scene. The bomb had been deadly, which was not consistent with the "hero complex." Furthermore, he wondered, where did they get the information to put the profile together that fast? He asked himself, What came first here, the chicken or the egg? Was the so-called profile actually developed from the circumstances, or was it invented for Richard Jewell?

When Jewell returned home from FBI headquarters just before eight PM, NBC was showing special Olympic coverage. He sat on the sofa and watched Tom Brokaw say, "They probably have enough to arrest him right now, probably enough to prosecute him, but you always want to have enough to convict him as well. There are still holes in this case."

Jewell knew that Brokaw was his mother's favorite newsman; he looked at her and noticed "the color and the blood flow out of her face when she heard that." Bobi turned to him and asked, "What is he talking about?" Jewell later recalled, "Brokaw was talking about her son as a murderer. . . . She started crying, and what am I going to say to her? 'Mom, Watson is going to fix this'? What do you say? She doesn't hear anything anyway—she was in hysterics." At that point, Jewell said, he broke down as well.

The day Watson Bryant inadvertently became the lead lawyer for Richard Jewell, he was an attorney whom almost no one in the Atlanta legal establishment had ever heard of. "Who the hell is Watson Bryant?" a caption in the daily legal sheet, the Fulton County Daily Report, would read after he had appeared on the Today show. Bryant understood Jewell's vulnerability and decided on a strategy: he would treat him as a member of his own family. In Atlanta, the Bryants were a clan: Watson's father, Goble Bryant, had been a West Point tackle, on the 1949 college all-star team; his grandfather had invented a process for putting handles on paper bags. Watson had partied through Vanderbilt University and had barely gotten accepted to law school at the University of South Carolina. He had a close relationship with his brother, Bruce, and their sister, Barbara Ann, and if he lacked staff at his office, he knew he could count on his family to pick up the slack. Bruce enlisted Jewell to help coach his junior football team; Watson had a picnic for Richard and Bobi at his parents' house at the Atlanta Country Club.

When Bryant arrived at the Jewells' apartment that night, he pushed his way through the crowd standing outside in the spongy Atlanta humidity. Microphones were shoved in his face. "What is happening, Watson?" Bobi asked him. Bryant asked Jewell to speak to him alone. "I want to know if you can tell me, without any hesitation at all, if you had anything to do with the bombing," he said. "I didn't," Jewell told him. "I said, 'I am going to ask you again.' He would not look me in the eye. I said, 'Don't give me this "sir" shit.' I said, 'Richard, these people want to kill you. I cannot help you unless you tell me the absolute, unequivocal truth.' I was in his face. He said he did not have anything to do with it." Jewell was bewildered and numb, said Bryant, who left at 10:30 PM. At midnight, Jewell called him to say, "They are massing outside the apartment, Watson."

The next morning, Bryant went from talk show to talk show, starting with NBC. With the notable exception of The New York Times, virtually every newspaper in the country had picked up the AJC story and run it as front-page news. There were 10,000 reporters in Atlanta; the Los Angeles Times would later call the squad bearing down on the Jewells "a massive strike force . . . Tora! Tora! Tora!" Bryant was in a daze, but he held his own. "Is it true that Jewell was at some time ordered to seek psychological counseling?" Bryant Gumbel asked him. "I know a lot of people that ought to have psychological counseling," Watson Bryant replied.

By 10 AM he was back at the Jewells' apartment, studying a search warrant that had been delivered that day. The FBI, Jewell recalled, said that he could not be inside the apartment during the search. Bryant called FBI headquarters: "What the hell is this? Why can't he be there?" Within an hour, at least 40 members of the FBI had arrived, with dogs. "There was a physical-evidence team. There was a scientific team. There was a team for the bomb-squad people, and then the ATF . . . They all had different-color shirts. Light blue for bombs, dark blue for evidence protection, red and yellow." Bryant could not believe what he was seeing. "This is like damn Six Flags over Georgia," he told them.

"I kept saying to Watson, 'I didn't do this.' And he said, 'Hey, kid, I believe you—we are doing what we can.'" Jewell was a gun collector. Bryant was sharp with him: "You get all those guns out of your closets and put them on your bed. We don't want any trouble."

For seven hours, Jewell sat outside on the staircase in what has become one of the most famous images of last summer. Bryant had to take his daughter, Meredith, to the Olympic equestrian competition, a once-in-a-lifetime opportunity for her. As he left, he said, "Don't do anything stupid. Just shut up and let them do what they have to do." Hours passed as Jewell sat in the heat. "Finally I decided I would ask them if I could go in and use the rest room. They said, 'We got the order a couple of hours ago you could come in; you just can't get in our way.'" Jewell was told he had to wear rubber socks and gloves in order not to contaminate the site. The Jewell apartment is small—two bedrooms with a bathroom in between, a living room, an alcove dining room that has been turned into a den. As Jewell sat on the sofa, he thought he heard a crash in his bedroom. "I thought my CD player was on the floor, and I said, 'What are you-all tearing up?' and they said, 'You can't go in there right now; we are searching.' I said, 'I want to know what you-all just broke.'" One search warrant listed some 200 items the FBI could confiscate, including "magazines, books . . . and photographs which would include descriptive information such as telephone numbers, addresses, affiliations and contact points of individuals involved in a conspiracy to manufacture, transport and . . . detonate . . . the explosive device used in the bombing at the Centennial Olympic Park on July 27, 1996."

"They had all my pictures, all the stuff that was in the drawers. My personal things. How would you like to know that 12 different guys had been in your underwear, laid it out on the floor, probably walked on it and then folded it back up like nothing ever happened and put it in your drawer? So then Mom got to go and watch it on TV: 'Live from the Jewell house, the search continues. . . . We are expecting an arrest any minute.'"

When Bobi Jewell returned home, the apartment appeared neat, until she walked into her kitchen. She looked down at her counters, where all her condiments, dog biscuits, spices, and crackers had been taken out of their Tupperware containers and placed in Ziploc bags. She began to cry. And then she went into the bedroom and "immediately started washing clothes," Jewell said.

Driving home from the equestrian events, Bryant heard the live coverage of the search on the radio. "Why are you helping this guy if he's guilty?" Meredith asked.

The next morning, Bryant received a copy of the FBI inventory of articles confiscated in the apartment. On the list he was stunned to see "one hollowed-out hand grenade, ball-shaped" and "one hollowed-out hand grenade, pinecone-shaped." "What the hell is this?" he asked Jewell. "They were paperweights," Jewell said. "I bought them at a military store." "Oh, shit," Bryant said.

For the first few days, the Jewells lived on ham omelettes; a neighbor had brought them half a ham from the Honey Baked Ham Company on Buford Highway. Bobi Jewell had a vacation scheduled, so she remained at home, lying on the bed and "listening to the ball game if it was on." For two weeks, she cleaned out her bureau drawers. Richard would spend the day watching CNN or movies such as Backdraft and Midnight Run. "I would look out the window and see about 150 to 200 press people. Then it would drop to five or six on the hill. They had one person sitting up there at all times with their binoculars." Richard believed they were being monitored. "They heard everything that was going on. They were over there with high-intensity zoom lenses. They had people over there who could read lips. They had a sound dish. They could hear everything that we said. They had a person writing down everything we said. I saw them."

Once, Bobi's cat jumped on the window ledge under the curtain and the photographers began frenetically shooting pictures, believing that one of the Jewells was in the window. Sound trucks and boom microphones prevented the neighbors from getting near the apartment. Three FBI agents were usually sitting near the tiny swimming pool; each time Jewell or his mother left the house, a cavalcade of unmarked cars would follow. Richard soon began to write a speech describing the horror he felt at being falsely accused. He ate grilled-cheese sandwiches, huge pans of lasagna, and can after can of Campbell's tomato soup.

"If my mom and I had something we wanted to talk about that we didn't want anyone to hear, we wrote it on pieces of paper. When she left to go to work the next day, she would take it with her, tear it up, and put it in the trash! That is how I kept my mother informed about what was going on with the case." The notes were specific: "What the Justice Department was saying, what my attorneys were hearing through the grapevine that I could tell my mom that was not privileged. It was mainly stuff like 'Keep the faith' and 'Can I borrow $10 for gas in the truck?' "

Jewell described how, when his mother would walk out the door, "they would holler obscenities at her. They would yell, 'Did he do it? Did he blow those people up?' They would yell, 'You should both die.'" According to Jewell, "The cameramen were just trying to get us aggravated so they could get it on camera. You don't know how hard it is when they are saying stuff about my mother and me. . . . All she was trying to do was walk her dog. And she cannot do that without hearing that yelling. When someone did that to my mother, I would want to be up on the hill calling the police, because I would want them arrested. I was going to say, 'Mom, tell me which one said that!' And I was going to walk up to that person and introduce myself and say, 'Hi, my name is Richard Jewell. What is yours? Who do you work for? Who is your supervisor?' And I was going to go home and call 911 to get a warrant."

By disposition, Jewell is a night person, but he would get up early when his mother went back to work and make her breakfast. By 11 AM he would be playing Mortal Kombat II and listening to 96 Rock on the radio, where one of his friends is a disc jockey. Four days into his period of captivity, he called the DeKalb County police. He recalled telling a Mr. Brown, "'This is Richard Jewell. I am sure you are aware of my situation over on Buford Highway.' He said, 'Yes, Richard, I know.' I said, 'I just want to tell you my situation. Number one: I did not do this. Number two: I am here and I am not leaving the apartment for any reason at all.' I said that all the press was doing right now was aggravating my mother and disturbing my neighbors, and I would really appreciate it if the neighbors could return to a normal life."

On Saturday, August 3, as Bryant stared at the FBI agent plucking Jewell's hair, he had already made a decision. "It was, like, screw it. I had had it." The next day was the closing ceremony of the Olympics; Bryant imagined that that would be the day the government might choose to arrest Jewell. "Who is the best criminal lawyer in Georgia?" he asked a state lawyers' association. Within a day, he had brought in Jack Martin, an expert on the federal death penalty and a Harvard law school graduate with close ties to the local U.S. attorney, Kent Alexander. "Let me tell you something about myself," Jewell told him in their first meeting. "I hate criminal lawyers." "Well, Richard," Martin said, "I don't much like cops, but sometimes I need one, and this is a time you sure need a criminal lawyer."

That weekend, watching the Olympic basketball finals, Bryant had an idea: he wanted to be prepared with his own polygraph test of Jewell if the FBI arrested him. From the game, Bryant called a close friend who was a former federal prosecutor. "Try Richard Rackleff," he said. "We worked together on the Walter Moody bombing case." Rackleff had recently set up a private practice, and he agreed to test Jewell the next day. On Sunday morning, Bryant was up early, unable to sleep. He drove around town, making calls from his cell phone. He dialed 679-9000—the FBI. "This is Watson Bryant. I am going to pick up Richard Jewell. I just want you to know that. I don't have a white Bronco. I don't have a wig, and I don't have cash in my car. We are just going to my office."

Watson had coordinated an elaborate plan with his brother to dodge reporters; he would use a decoy and snake through a parking garage. Rackleff had been instructed to park blocks from Bryant's office, because his car could be identified easily, since he was well known in Atlanta law enforcement.

When Rackleff sat down with Richard Jewell in the conference room, he later told me, he sensed almost immediately that Jewell was innocent. Rackleff had tested many bombers before, including Walter Moody, who was convicted of killing a federal judge. "They are strange ducks—they leave their attorneys cold," Rackleff said. Although no one knew Rackleff was in the building, more than 100 reporters gathered outside to get a look at Jewell. Inside, Jack Martin, Bryant, Nadya Light, and Jewell spent 12 hours in Bryant's office. Rackleff asked Jewell a series of questions, but the test was inconclusive. "Richard is tormented. He is exploding on the inside," Rackleff said. While he was testing him, CNN's Art Harris was visible through the window of Bryant's office, but he could not see inside. Bryant was thoroughly deflated, close to despair. "You have got to try to buck Richard up," Rackleff told him. "Who is going to buck me up?" Bryant asked.

'We are not in missile range of arresting Richard Jewell, but we want him to take our own polygraph," Kent Alexander told Bryant and Jack Martin in their first meeting on the case. In the meantime, Rackleff had tested Jewell again, and he had passed with "no deception," the highest rating. By this time, it was clear that there was no damning evidence against Jewell discovered at the apartment or in his old house in Habersham County.

Alexander was only 38, but he had been groomed for politics in a fancy local family. His father was a senior partner in a good Atlanta law firm, and he had worked as an intern for Senator Sam Nunn. Bryant worried about Alexander's lack of experience, but Alexander told colleagues that he was disturbed by the lack of substantial evidence against Jewell. He was trying to operate with decency, but he was cautious and had to check every detail with Washington.

Bryant, however, didn't trust Alexander; he had had a bad experience with Alexander's predecessor. In 1990, Bryant had almost been put out of business in a tussle with the then U.S. attorney. The local Small Business Administration accused a bank Bryant represented of improper use of funds; the bank blamed Bryant, who was brought before a grand jury and over the next two years almost lost his practice. He spent $50,000 defending himself, and Nadya Light had to take another job, but eventually the case was settled with Bryant's agreeing not to do business with the SBA for 18 months. Bryant had always felt that he had been manhandled by the office. "I learned everything I needed to know about dealing with this office in 1990," Bryant recalled telling Alexander. "No polygraph for Richard."

At the meeting, Alexander told Bryant and Martin, "This is all off-the-record. This is a request that is strictly confidential." Weeks later, Louis Freeh came to town to address a breakfast of former FBI agents. Almost immediately, the polygraph request was reported on CNN. "Kent, I thought we had an agreement," Bryant told him. "I cannot control Washington," Alexander said.

When two of the bomb-blast victims sued Richard Jewell, Bryant brought in Wood and Grant to handle the civil litigation. Martin opposed the move. He believed in the cone of silence: "Circle the wagons and don't speak." He said that Wood and Grant had a different perspective: Attack, attack, and if you give any quarter, it is a sign of weakness. Martin had been reassured in private by Kent Alexander that Jewell was not in any immediate danger of being arrested, but the team disagreed about press tactics. Martin worked through the Atlanta-establishment back channels; Lin Wood was a rhetoric man. He favored "one big newsbreak a week." "You know who wrote the book Masters of Deceit? J. Edgar Hoover! And that was about the Communist Party in America. So now they have gone from masters of investigation to masters of deceit!" he would routinely tell reporters who called.

Three days after Wood and Grant surfaced as the two new civil lawyers, a Ford van with a tinted bubble-shaped window appeared on the top level of the Macy's parking garage which faced the conference-room windows of their offices. According to Wood, the van did not move for 10 days. "We used to sit there and wave at it." Then the lawyers placed a camera in the window, and the next day the vehicle was gone. "For sure that van had laser sound-detecting equipment," Wood said.

Jewell was annoyed that press descriptions of him always emphasized his "overzealousness"; he considers himself a man of details. Often, when he's watching movies at home, he freeze-frames in order to study props in scenes. The second weekend he was considered a suspect, he told me, "I walked in and I noticed white powder all over the telephone table in the conference room." It was a Saturday morning, and Jewell had been with his lawyers until late the night before. He told me he was convinced that the FBI "had lifted a ceiling tile," and that the white powder was "dust that came down." Bryant and Jewell made light of it and did not sweep their phones, believing that any tap the FBI would use would be of a laser or satellite variety and impossible to trace. "In the beginning of every conversation, Watson would curse for about a minute and tell them what lowlifes they were. And then he would say, 'By the way, this is Richard's lawyer. Y'all can cut your tape players off,"' Jewell said. "I would call them dirty scumbags," said Bryant. But the local U.S. attorney, Kent Alexander, insisted that their phones were not tapped. "There are no wiretap warrants," he said.

The FBI did turn up one bit of potentially troublesome evidence in the Jewells' apartment—fragments of a fence that had been blown up in the explosion. After a telephone conversation with Watson Bryant, Kathy Scruggs quoted him saying, "Yes, he did have a sample of the blown-up bomb." Bryant accused her of egregiously misquoting him. He remembered saying to her, "Yes, Richard had souvenirs of the bombing." Scruggs had not taped their conversation. "She cut the 'ing' off of 'bomb,'" Bryant later told me, but Scruggs strongly denies this. The day the story broke, Bryant criticized Scruggs on local radio. That afternoon she appeared at his office to attempt to clear up the misunderstanding. "I don't like your reporting," Bryant recalled telling her. "I'm human, too," she said. The next day, Ron Martz inserted a quote from Bryant in an unrelated news story: "Oh, man, it's not even a scrap of the bomb—it's a piece of damned fence, for God's sake." But the quote would have little impact. Scruggs's version had been picked up; gathering force, it was eventually related by Bill Press on Crossfire on the evening of October 28: "The guy was seen with a homemade bomb at his home a few days before." (The next day CNN would be forced to apologize for the mistake.)

By this time Bryant had grown enraged by the media coverage. The New York Post had called Jewell "a Village Rambo" and "a fat, failed former sheriff's deputy." Jay Leno had said that Jewell "had a scary resemblance to the guy who whacked Nancy Kerrigan," and asked, "What is it about the Olympic Games that brings out big fat stupid guys?" The AJC's star columnist, Dave Kindred, had compared Jewell to convicted serial murderer Wayne Williams, whom is believed to be responsible for the Atlanta murders of 1979-1981, though there is debate over that prospect: "Like this one, that suspect was drawn to the blue lights and sirens of police work. Like this one, he became famous in the aftermath of murder."

Television journalism was also a revelation to Bryant; he felt he had "landed on Mars," and spent hours channel-surfing. On CNN, one criminologist said "it was possible" that Jewell had a hero complex. Bryant told his brother, Bruce, "I know I am going to sue someone. I just don't know who." Bruce Bryant searched for Jewell's name on the Internet three weeks into his ordeal and found 10,000 stories. The tone many of the journalists took was accusatory and pre-determined, with a few rare exceptions, such as that of CBS correspondent Jim Stewart. "Don't jump to any conclusion yet," he said sharply in a broadcast at the height of the frenzy.

In his first week as Jewell's lawyer, Bryant went to the CNN studio to be interviewed by Larry King. After the broadcast, he was asked to stop in at the office of CNN president Tom Johnson. "They wanted to know what I thought of their reporting so far." Art Harris was in the room. "I turned around and I said to Art Harris, 'Who the hell are you and the rest of the media to make fun of how Richard Jewell and his mother live? Who are you to make fun of working people who live in a $470-a-month apartment? Is there something wrong with that? Who are you to say that he is a weirdo because he lives with his mother?' "

According to Jack Martin, the FBI spent weeks on one erroneous early theory—that Richard Jewell was an enraged homosexual cop-hater who had been aided in the bombing by his lover. Jewell had purportedly planted the bomb; the lover then made the 911 phone call warning that it would go off in Centennial Park. The rationale behind this idea was that Jewell was "mad at the cops and wanted to kill other cops," Martin told me.

The rumor began at Piedmont College, perhaps invented by several of the students Jewell had turned in for smoking pot, but it had a chilling consequence. In mid-August, three agents appeared at the Curtis Mathes video store in Cornelia, where Chris Simmons, a senior at Piedmont, worked part-time. Simmons, a friend of Jewell's, who was engaged to be married, was a B student, but he displayed the same porcine blankness as Jewell and spoke in a slow drawl. He had a deep distrust of the government and carried a card in his pocket that read: CHRISTOPHER DWAYNE SIMMONS-CAMPAIGN SUPPORT FOR CONSERVATIVE CANDIDATES.

The agents questioned Simmons in the store for one and a half hours. "They asked me if I was a homosexual. They asked me if I had accessed the Internet. . . . They later wanted to wire me. They said, 'If he is really a hero, we will find out, and if not, he has killed someone and injured a lot of people.' " Simmons was short with the agents and denied everything. They accused him of lying and said they could take him to Atlanta. The agents told someone Simmons had once worked with that Simmons might be involved in the bombing. "They kept wording questions differently. They kept saying: Do you think Richard Jewell could have done this if he believed that he could get people out in time and nobody would get hurt?" Simmons later called one of the FBI agents and said, "I hear you don't believe my story." He recalled their conversation: " 'I think you are sugarcoating your answers,' he said. I said, 'Next time I talk with you, it will be with a lawyer.' And he asked me if I was threatening him. Then he hung up on me." Ultimately, Simmons volunteered to take a polygraph, which he says he passed. "I was a nervous wreck," he said. "I had only seen this on TV."

What was not known outside a small circle of investigators was how deadly the Centennial Park bomb really was. It was well constructed, with a piece of metal shaped like a V, and inside, it had canisters filled with nails and screws. Jack Martin, who had spent time in Vietnam, compared its construction to that of a claymore mine, a sophisticated and lethal device. The bomb weighed more than 40 pounds. It was "a shaped charge," FBI deputy director Weldon Kennedy would announce in December. It could blast out fragments from three separate canisters, but only one of the canisters exploded on July 27. Someone had moved the Alice pack slightly before the bomb detonated, causing most of the shrapnel to shoot into the sky. The composition of the bomb did not suggest the work of an amateur, Kathy Scruggs would ironically later report, after interviewing an ATF chemist.

As the weeks went by, Richard Jewell withdrew into a state of psychological limbo; he began to try to analyze what the agents might think of his behavior within the small apartment. "I would be watching a spy show on TV or something like a John Wayne movie. Someone would be talking about blowing something up, and I would think to myself, My God, that is going to sound really bad if they think I am listening to that." He worried that "they would think I was some kind of a nut," and often, when he could not sleep, he would find himself consciously switching to exercise videos and soap operas.

Over Labor Day weekend, he drove up to Habersham County for a picnic with his ex-girlfriend's family, the Chastains. As usual, three FBI cars followed him, but he had gotten adept at picking out the unmarked vehicles. As Jewell drove into town, he noticed that white ribbons hung from hundreds of trees; the Chastains had organized a campaign in his behalf. On the way home, Jewell drove with his friend Dave Dutchess. For the first time, he did not see an FBI car following him, but he noticed an airplane flying low overhead. He drove another 20 miles, and the plane was still on him. "I said, 'Dave, do you think the FBI would be following us in an airplane? It wouldn't be that hard to do, if they put some kind of beeper on the car.'" The plane followed them through Gainesville all the way to Atlanta—an hour's drive. "Just to make sure, we got off on an exit ramp and went about five miles back north. And I got out and took a picture. They followed us all the way back to the apartment! And they circled the apartment for about 15 minutes, until the FBI car showed back up. I got very emotional. My cheeks got beet red. And Mom came home and said, 'What is going on? What is the matter?' It just destroyed the whole day."

On September 2, Dave Dutchess and his fiancee, Beatty, were driving to their house in Tennessee. It was raining hard, and they noticed they were being followed by several FBI cars. The storm grew worse, and they stopped at a hotel for the night. The next day, while getting coffee at a McDonald's, they were surrounded by FBI agents. "We just want to talk to you. We are trying to be discreet." One agent, Dutchess recalled, spoke into his radio: "We have the suspect in hand." As they walked back toward their car, Dutchess said to Beatty, "They think I am his accomplice. I heard on the news they were looking for his accomplice!"

After the interview, which lasted several hours, Dutchess spoke to Watson Bryant. "What did they ask you that concerns you?" Bryant asked him. "Well, I decided that I had to tell them the truth. Me and one of my friends used to set off pipe bombs for fun," Dutchess told him. "What?" Bryant exclaimed, incredulous. "Yeah, I told them we liked to throw pipe bombs down gopher holes when we lived out in West Virginia."

"Did Richard know this friend?" Bryant asked apprehensively. "Hell, no. He never met him," Dutchess said, but Bryant knew that this could prolong the FBI's investigation perhaps by months. "I hung up and I was thinking, I cannot believe that I even know anyone who throws pipe bombs into gopher holes."

As part of their strategy, Wood and Grant decided to mount a strong counterattack against the government. Wayne Grant had come up with the idea: Bobi Jewell should hold a press conference during the Democratic convention and make a direct plea to Bill Clinton. The day before she was to appear, Grant rehearsed her. It was difficult to work with Bobi; she was exhausted and could not stop crying. Confined under siege for almost a month, she could not see an end to it, since every day brought a new humiliation. The resident manager had threatened to take away their lease, and the manager's son was out selling pictures he took of them. A close friend from church was dying, Bobi said, and Richard could not go to see him, because of the swarm of FBI agents and reporters who followed him everywhere. All of it came out in a rush in the conference room with Wayne Grant: Bobi had even had to give Bryant and Nadya Light the Olympic-basketball tickets she had won as colleague of the year, and every night she and her son were stuck together, staring at each other across the kitchen table. They were often irritable, and Richard sometimes lost his temper. "Mother, just shut up," he would tell her when she nagged him about the case. Then, Bobi later recalled, she would go into her bedroom and lie on the four-poster bed hoping that the photographers who rented an apartment across the way for $1000 a day had no way of knowing what was going on.

Grant kept careful notes on the session. Bobi was terrified about appearing in front of cameras. She sobbed and told him, "If I go on TV Monday, I'll be embarrassed. It will be, like, whenever I go anywhere, people will be looking at me: 'Did he do it or didn't he do it?' "

"If you talked to the person who is in charge of the investigation, what would you say?" Grant asked her calmly. Bobi's voice was halting, but she was firm: "He is innocent. Clear his name and let us get back to a life that is normal."

A few weeks later, Wayne Grant went to a party for a Bar Mitzvah, and a guest cornered him. She asked him if he had told Bobi Jewell to cry at the end of her press conference, and then added coldly, "Nice touch."

The lawyers' strategy worked: after Bobi's press conference, the Jewells were deluged with interview requests. Bryant often received 100 phone calls a day. Bobi soon developed a system: letters from Oprah Winfrey, Sally Jessy Raphael, and TV producers were stacked on the console in the living room; flowers and baskets of Godiva chocolates and cheese and crackers from the networks were sent to the offices of Wood & Grant and then on to a children's hospital.

At the U.S. Attorney's Office, it had become increasingly clear to Kent Alexander that something had to be done about Richard Jewell. Janet Reno had seen Bobi Jewell on TV and was moved by her sincerity. Privately, Reno and Deputy Attorney General Jamie Gorelick were said to be concerned about the heavy-handed tactics of the FBI. "The case had become a total embarrassment," a Justice Department official told me, but Alexander was in a complicated situation. He was working closely with the FBI, and there was no sign that the bureau was ready to let go, despite growing consternation among the local agents that the Washington command center had mishandled the case. And there was another problem: Alexander did not trust Lin Wood.

By late September, there was a tremendous strain within the team Bryant had hastily assembled. The other lawyers accused Jack Martin of cutting private deals with his friend Kent Alexander, pulling focus, and not being tough enough. For his part, Alexander, according to Martin, admired Bryant even though he believed he was a loose cannon, but he was fed up with Lin Wood.

"Alexander would say something fairly candid to me, and I would report it to the attorneys, and the next day he would see it on TV," said Jack Martin. "Alexander had checked out Lin, and he knew that he was a take-no-prisoners guy." The lawyers often argued among themselves. Wood insisted on a full-blowout press-attack strategy. Bryant had mastered his sound bite: "The FBI is a 500-pound gorilla who will kick the shit out of anyone." Martin wanted the lawyers to ease up on the hyperbole: "I would say, 'We do not need to do this.' And Lin would say, 'Let's go public with this.' He was manic about it." In one argument, Wood told him, "Goddamn it, Martin, you're like my ex-wives. There isn't anything you can say I won't object to."

There was an atmosphere of extreme apprehension between Bryant and Jewell as they drove to FBI headquarters on the afternoon of October 6. They were on their way to what would seemingly be a session with conclusional overtones, but Jewell was worried: What if this meeting was a trick? It was difficult to believe that the bureau was really ending its two-month-long investigation into his life. For weeks, Jack Martin and Bryant had been going back and forth with Kent Alexander. Finally, Jewell had agreed to an unusual suggestion: if he submitted to a lengthy voluntary interview with the bureau, and if Division 5 was satisfied, then perhaps the Justice Department could issue a letter publicly stating that he was no longer a suspect. Jewell tried to imagine the questions he would be asked. "I wanted to look at everything from their angle," he told me, "trying to assess it and reassess it in my head."

Kent Alexander had set a firm ground rule: Only one lawyer representing Jewell could be in the room. It had been agreed that Jack Martin, the criminal specialist, would be the man, which enraged Lin Wood. "You could really see how these guys did not like each other," Jewell said.

"I am not comfortable with the one-lawyer agreement," Wood told John Davis, Kent Alexander's second-in-command, when they were assembled. "We have an agreement. If you attempt to renegotiate it, I will have egg on my face," Davis said, adding, "You are not a man of your word." With that, Wood recalled, he rose from his chair and started screaming, "You are not going to say that to me, you son of a bitch!" Kent Alexander interrupted, saying, "This is deteriorating. We aim to stop this. Let's just regroup."

When Jewell, Davis, and Martin finally sat down for the interview, Larry Landers, a special agent with the GBI, and FBI special agent Bill Lewis had lists of questions with blank space for answers in front of them. On the wall of the windowless room, there were extensive aerial photographs of the park and, as a prop, an actual park bench was later brought in. Martin believed that the agents intended to resolve areas in the affidavits and other questions: Had Richard ever accessed Candyman's Candyland for information on the Anarchists' Cookbook? Had Richard picked up any pieces of pipe when the park was under construction? Had he told anyone, "Take my picture now, because I am going to be famous"? None of this had happened, Jewell said. All he could remember telling someone was that he was off to Atlanta and "going to be in that mess down there," meaning the traffic jams. They pressed him about seemingly inconsistent statements he had made on the morning of the bombing: Why had he told Agent Poor everything was normal when he checked the perimeter of the fence? Jewell explained that he had been walking the "inside of the fence." He once again explained that he had wanted to work the sound-and-light tower so that he could watch the entertainment; he had arranged for his mother to hear Kenny Rogers four days before the explosion.

The area, he told Landers, was "a sweet site" and a great place to look at girls. During a break, Martin asked about all his references to women. Jewell said he wanted them to know he wasn't gay. On several occasions, Landers became annoyed: Why couldn't Jewell pin down the times? Had he seen the drunks on the bench between 10:30 and 11 or between 11 and 11:30? Why hadn't he looked at his watch? Jewell later recalled, "I said, 'I don't go through my life looking at my watch. I don't care about time. When the bomb went off, I did not look at my watch.' They were wanting to know what time I went to the bathroom and stuff like that. When you have the runs, you are not really concerned about what time it is. You are concerned with getting to the bathroom."

On the day after the FBI meeting, Jack Martin dictated a 27-page account of everything that had been said during the six-hour interview. In the last moments, Davis said, "he wanted to give Richard the opportunity once and for all to say that he didn't do it." Jewell, Martin wrote, "unequivocally and fortunately said that he had nothing to do with the bomb and didn't know anything about the bomb and if he did he would be the first to deliver the bastard to their door." When Martin walked out, he thought to himself, This really was a formality. They had nothing.

In November a rumor swept through the newsroom of The AJC that Cox newspaper executives were rethinking their news policies. According to one reporter, "The sloppiness of the Jewell reporting and the lack of sources was the last straw." A reporter named Carrie Teegardin was assigned to write a piece examining how the media spotlight was turned on Richard Jewell. In large part, her article wound up being an examination of the role of The AJC. After Wood and Grant threatened to sue, the article was killed. "We didn't get through the editing of it," John Walter said. "The Jewells' attorney began saying, 'We're thinking lawsuit' . . . and that made us more cautious." Meanwhile, Lin Wood and Wayne Grant were busy holding meetings with lawyers from NBC and Piedmont College. At NBC, Tom Brokaw's carelessness reportedly cost the network more than $500,000 to settle Jewell's claims, although Jewell's lawyers would not confirm a figure, BROKAW GOOFED AND NBC PAID, the New York Daily News would later headline. In talks with Ray Cleere, the figure of $450,000 by way of settlement was first suggested, then withdrawn when Piedmont College learned that it had insurance. "This will cost them millions now," Lin Wood believes.

On one occasion I asked Richard Jewell if he had any theories about who might have placed the bomb. Jewell said he had popped "two or three theories off the top of my head" on the night he was interviewed by the FBI. "I have gone over that night hundreds of times in my head. You try to think, What type of person would do that? I know it is someone who wanted to hurt people. It is someone who is sick. I hope they find him so he can get the help he needs. Because I am totally torn up about what happened. Every day I think about it, and I will think about it for the rest of my life."

Jewell often speaks with Bryant three times a day. As Jewell searches for a new job, he hangs around Bryant's office, and he recently studied handwriting analysis at the police academy. He has been offered several security jobs with Georgia companies, but he is hoping he will be hired as a Cobb County deputy. In the meantime, Bryant, Wood, and Grant have become sought-after speakers on the First Amendment.

At FBI headquarters in late October, Bobi Jewell broke down and cried as she identified their possessions—the Disney tapes, the Tupperware, Richard's AT&T uniforms, address books. It was a tableau of ordinary middle-class life, laid out on brown paper on a long conference-room table. "I just don't fucking believe this," Watson Bryant said angrily as he packed Bobi's videos into packing crates. "The agents tried to shake my hand," Bobi told me. "I wouldn't touch them." It took 10 hours to remove their possessions, Bobi recalled, and four minutes to return them.

The FBI is working on a new and elaborate theory of who did place the bomb in Centennial Park. There is an informed opinion that the backpack discovered a week earlier had in fact been a test run to check FBI procedures, and that the bomber—perhaps a member of a militia group—was quite experienced and had struck before. After a torrent of criticism in the press, Louis Freeh announced that the FBI had arrested Harold Nicholson, an alleged spy for Russia, and he used the opportunity to appear on The Today Show and Good Morning America, hyping his role in what was a minor arrest, according to one former FBI agent.

In Australia in November, Bill Clinton was asked about his campaign contributions from Indonesia and Vice President Al Gore's alleged role in them. "One of the things I would urge you to do, remembering what happened to Mr. Jewell in Atlanta, remembering what has happened to so many of the accusations . . . that have been made against me that turned out to be totally baseless, I just think that we ought to . . . get the facts out." When Jewell learned of his comment, he pulled up the transcript from the Internet and became angry: "The president is just using me, like everyone else."

When he was asked about all that had occurred in Atlanta and to Jewell, Kurt Cobain offered words Jewell found more sympathetic. "I think it's a real travesty what happened to Mr. Jewell, especially given that he arguably saved a lot of people that night. Clearly, there was a lack of communication and a definite breakdown in the process, and the real bomber is still out there. Hopefully they can find the culprit, and soon." Jewell gave a wan little smile at the fact that Cobain was acknowledging him and especially was supporting him.

What rights does a private citizen have against the government? The legal precedent for suing the FBI, Bivens v. Six Unknown Agents, focuses on the behavior of individual agents. Wood believes that Jewell has a strong case against Johnson and Rosario. When Wood learned of Colonel Ressler, he hired him as a possible trial expert. In December, the FBI announced that it would pay up to $500,000 to anyone who could lead it to the Olympic Park bomber.

As Jewell and I drove back from Habersham County in November, he went over the early-morning hours of July 27: "I remember all of the people who were my responsibility. I remember the guys' faces who were flying through the air. I remember people screaming. The sirens going off. I don't think I will ever forget any of that. You just kind of wish sometimes. You think, Could I have done something else? . . . What if we only had five more minutes? Then maybe nobody would have been hurt. But you are what-if-ing. I have been over it a thousand times. I think we could not have done it any better. I think that is something I will always be wondering."

He said he was not sure if he would ever get a job in law enforcement again, particularly since he had been held up as a cartoon figure. On the day of Jewell's exoneration, Jay Leno apologized for having called him a Unadoofus, and said, "If Jewell wins his lawsuit with NBC, he will be my new boss." He later said that this was "the greatest week in trailer-park history." The Atlanta radio station 96 Rock had put billboards of Jewell all over town; "Freebird," they said, a reference to the Lynyrd Skynyrd song. Jewell would later file suit against the station, but the billboard's message was clear. Jewell knows that for many people in America there will perhaps always be a subtle doubt: What if, after all, Richard Jewell really did do it? What if the government let him go simply because it could not make its case? Then he becomes not the innocent Richard Jewell, but the Richard Jewell who may be innocent. "You don't get back what you were originally," he told me. "I don't think I will ever get that back. The first three days, I was supposedly their hero—the person who saves lives. They don't refer to me that way anymore. Now I am the Olympic Park bombing suspect. That's the guy they thought did it, and I think that even if they ever find the actual culprit, I'm always going to be seen that way."

"Securities Oddity: The Bowie Bond," by Jan Mathews, The Washington Post, February 6, 1997

David Bowie, the angular British rock star, has never been afraid to try something new. His stage persona has metamorphosed from Ziggy Stardust to Aladdin Sane to the Thin White Duke, with interesting digressions along the way. He had performed with a succession of bands, from the Kon-rads to the King Bees, to the Lower Third, to Tin Machine.

Now Bowie is the first major artist to turn himself into a bond issue - payable over 10 years at 7.9 percent.

The asset-backed bond - the financial instrument that has put $55 million in Bowie's well-tailored pocket - is a device of rapidly growing popularity that already has helped banks turn home loan payments and credit card receivables into big chunks of cash. But until now no one dared to think the annual income from former hits such as "Space Oddity" or "Let's Dance" might appeal to gray-suited executives looking for stable bond investments.

The bond bonus for Bowie is $55 million immediately, instead of in installments as the records sell, and more money than record companies were offering. What he'll do with the money is unclear, but he seems to have been drawn to the deal by its tax advantages.

The reliability of the revenue stream to pay off the bondholders enabled Bowie to get a triple-A rating from Moody's and a favorable interest rate. His success could entice other artists with steady royalty payments to go to market, said David Pullman, the 34-year-old senior vice president at Fahnestock & Co. who designed the deal.

Many rock stars have outsold Bowie in the United States, but his avant-garde image and exotic musical tastes still sell an average 1 million records a year all over the planet, according to his business manager, Bill Zysblat, co-founder of the New York-based Rascoff Zysblat Organization. There also is revenue from 250 songs turned into sheet music, commercials and background music for elevators, offices, voice mail and many other uses in an age in which profit sources for art are expanding rapidly.

That predictable sales track record was crucial to the bond deal, for the institutional investors were paying for a cut of the income from Bowie's 25 pre-1993 albums and songs. Bowie is expected to sign a new $30 million record deal with EMI for future work not covered by the bonds.

When Bowie decided to go with the bonds, "I was terrified," said Zysblat, "and it isn't over yet. The bonds have to be paid off." But his fear that the privately offered securities might not attract enough interest eased when Pullman reported the financial equivalent of what Zysblat called "a line around the block."

"It just goes to show you that anything can be securitized," said Craig Moyer, senior fixed-income manager at Meridian Investment Co. in Valley Forge, PA, part of CoreStates Financial Corp.

Asset-backed bonds began as a way to help banks turn old-fashioned, slow-moving income sources such as credit card and car loan payments into big new cash sources that could be reinvested and turned into even more fees and income.

Moyer said Bowie's $55 million deal would be too small to interest most investors because they would be uncertain of finding buyers if they decided to move their money elsewhere. But, he said, he could imagine some clients who would be drawn to the deal, with an interest rate significantly above the 6.4 percent now paid by 10-year Treasury bonds.

Although Bowie is one of the most financially savvy singers in the world, with a well-chosen art collection and a deep appreciation of market trends, the asset-backed bond market was still new to him. Zysblat said that when he first broached the subject with his client, "he kind of looked at me cross-eyed and said, What?' "

Pullman's Structured Asset Sales Group, until last month a division of Gruntal & Co., specializes in finding new kinds of assets to turn into bond deals. Pullman suggested the Bowie bonds to Zysblat a year ago, and their discussion grew serious last fall.

Unlike most singer-songwriters, Bowie had kept control of his copyrights and record masters, and the distribution license for his first 25 albums was due to expire in June. He could have signed a new deal, with a substantial advance, but Pullman said he thought he could get more more money upfront through a bond sale.

Zysblat agreed to see how big an advance the record companies were offering, while Pullman tested the feasibility of a bond sale. When they met again, Zysblat said, "his numbers were bigger than my numbers."

Asked why Bowie wanted so much cash and was so willing to accept the risks of a new venture, Zysblat declined to be specific. Getting so much money in one lump sum increases Bowie's opportunities to invest, he said, and there are tax advantages. Bowie's principal residence is a $3.4 million, 640-acre estate in County Wicklow, Ireland, a noted tax haven, where he lives with his second wife, the supermodel and actress Iman. Zysblat hinted that Bowie may be planning to move to a country with fewer tax loopholes, and saw advantages in taking the money while he was still an Irish resident.

Record companies who see profits in turning their backlists of CDs and songs into asset-backed bonds have been asking Zysblat for advice, he said. "I tell them I'm not in that business," he said, "but maybe I will be."

"Apple Computer, Inc. Finalizes Acquisition of NeXT Computer Inc.," PRNewswire, February 7, 1997

CUPERTINO, CA-Apple Computer, Inc. today announced it has completed its acquisition of NeXT Software, Inc., after securing all necessary regulatory approvals. Apple announced on Dec. 20, 1996 its intention to purchase NeXT in a friendly acquisition for approximately $400 million. Steve Jobs, Chairman and CEO of NeXT Software, will serve as an advisor to Dr. Gilbert F. Amelio, Apple's Chairman and CEO.

"The finalization of our acquisition of NeXT confirms our commitment to providing our customers and software developers with a solid OS strategy," said Dr. Gilbert F. Amelio, Chairman and CEO, Apple Computer Inc. "We embark upon Apple's third decade with renewed enthusiasm, and we look forward to working with our developers, customers, and industry colleagues to proliferate Apple's legacy of vision and technological excellence."

The acquisition brings together Apple's and NeXT's innovative and complementary technology portfolios including Apple's leadership in ease-of-use and multimedia solutions and NeXT's strengths in development software and operating environments for both the enterprise and Internet markets. The combination significantly strengthens Apple's position as a company advancing industry standards.

NeXT's object oriented software development products will contribute to Apple's goal of creating a differentiated and profitable software business, with a wide range of products for enterprise, business, education, and home markets.

Earlier this year, Apple announced the company's operating system strategy, which incorporates NeXT technology. The Mac OS will continue to be upgraded in regular biannual releases, while NeXT technology will form the basis for Apple's next-generation OS, Rhapsody. Apple believes that the advanced technical underpinnings and rapid development environment of Rhapsody will allow developers to create new applications that leapfrog those of other 'modern' operating systems, such as Windows NT.

The first release of Rhapsody is expected to be launched to developers in mid to late 1997 and to customers within 12 months. A unified Rhapsody release is expected to be in the hands of customers by mid-1998. This will include compatibility with existing Mac OS applications, as well as provide a platform for next-generation computing.

The acquisition of NeXT is further evidence that Apple is fundamentally changing the way it does business. Apple believes that by embracing outside technology and driving cross-platform industry standards, it can innovate in the key areas that give its products and technology differentiation. NeXT's cross-platform development environments for enterprise and Internet/intranet markets, allow developers to write once and deploy across a range of Internet and client-server platforms.

In a new era of industry collaboration and joint initiatives-brought on by the "megatrends" of pervasive Internet and ubiquitous multimedia-NeXT technology complements Apple's strength in multimedia authoring and playback, as well as Internet access, Internet authoring, and Internet server solutions. In the last year Apple has worked on a series of collaboration initiatives which leverage the Company's core strengths in Internet, multimedia, and component software. Wide ranging agreements with Netscape Communications, Sun Microsystems, and Silicon Graphics Computer Systems-along with the acquisition of NeXT-confirm Apple is building strategic relationships at the forefront of the information industry.

Except for the historical information contained herein, the statements regarding effecting innovation, introducing new products, continuing focus on certain industry growth areas and are forward-looking statements that involve risks and uncertainties. Potential risks and uncertainties include, without limitation, continued competitive pressures in the marketplace; the effect competitive factors and the Company's reaction to them may have on consumer and business buying decisions with respect to the Company's products; the Company's ability to deliver successful innovative products to the marketplace; the Company's ability to deliver new products to the marketplace on a timely basis; the effect of the announced business restructuring on the future performance of the Company, especially the performance of the Company's employees; and the need for any future restructuring. More information on potential factors that could affect the Company's financial results are included in the Company's Form 10-Q for the first quarter of the 1997 fiscal year, to be filed with the SEC.

Apple Computer, Inc., a recognized innovator in the information industry and leader in multimedia technologies, creates powerful solutions based on easy-to-use personal computers, servers, peripherals, software, personal digital assistants and Internet content. Headquartered in Cupertino, California, Apple develops, manufactures, licenses and markets solutions, products, technologies and services for business, education, consumer, entertainment, scientific and engineering and government customers in more than 140 countries.

"Disney Wishes Upon A Starwave With Stake In Web Firm," by Leslie Helm, Los Angeles Times, February 14, 1997

In an apparent attempt to become a major force in cyberspace, The Walt Disney Company has signed a letter of intent to acquire a minority share of Starwave Corp., the company owned by billionaire Paul Allen that designs and runs World Wide Web sites, including ESPNet-SportsZone, an executive knowledgeable about the deal said Thursday.

Disney and Allen representatives declined to comment on the deal.

In an unusual twist, the preliminary agreement calls for Disney to acquire roughly one-third of Starwave but to take over management control of the company, according to the executive.

The deal would value Starwave at close to $300 million, making it the highest price ever paid for a company involved in the emerging business of designing and operating websites. One source said Disney's investment would be in the $80-million range.

The two sides are reportedly close to signing a final agreement. The final deal could involve a bigger stake by Disney, sources said.

Disney is reportedly interested in Starwave's creative talent to launch an online news site jointly with ABC. The news service would compete with a similar service from MSNBC operated under a joint venture between NBC and Microsoft Corp.

Disney also wants help with its plans to offer a a family-based Web service offering games, music and chat areas. Starwave already has its own family site, called Family Planet.

Disney currently operates a website, disney. com, that allows users to play games and get information about Disney's entertainment parks. But so far, its efforts have been relatively modest.

Starwave has won critical acclaim for its work in designing and operating ESPNet-SportsZone, a joint venture between ESPN and Starwave that has more than 230,000 customers and is widely believed to be one of just a handful of websites that turn a profit.

Starwave also runs the NBA. com pro basketball site, the NFL. com pro football site and the NASCAR Online auto racing site.

Disney acquired ESPN last year as part of its $19-billion acquisition of Capital Cities/ABC Inc.

The sports channel contributed significantly to Disney's impressive rise in broadcasting profit in its recent first quarter, analysts said.

According to an executive familiar with the deal, Allen will make the unusual move of turning over management of Starwave's operations to Disney in return for a minority investment because of Disney's reputation for putting strong management teams in place.

Although Starwave has a reputation for attracting strong creative talent, it is widely believed to be poorly managed. "I could do what they are doing with half the people," said one media executive familiar with Starwave's operations.

Because Bellevue, Washington-based Starwave is privately owned, it does not disclose earnings, but its revenues are estimated to be $15 million, and analysts assume it is losing money.

Starwave President Mike Slade has been under pressure to improve the finances of the company to prepare for an IPO. Slade could not be reached for comment.

For Allen, a Disney investment would offer an important endorsement of his technology vision. Although Allen has invested in a range of properties related to the "information superhighway," few have returned much in the way of profits.

Allen's other major properties include the Portland Trailblazers basketball team, most of the Los Angeles-based Ticketmaster Group Inc. and a large stake in DreamWorks SKG.

"A Presidential Affair," by Bernard Weinraub, The New York Times, March 23, 1997

A recent leak from a source inside the White House says that President Clinton has been committing an extramarital for some time, around late 1995 or early 1996, and it went on for some time. According to a woman named Linda Tripp, a close friend of hers, a young intern, Monica S. Lewinsky, has been engaged in an affair with Mr. Clinton, known to have consisted of, but not necessarily limited to, oral sex.

Ms. Tripp, who ended up befriending Ms. Lewinsky, says that she was told about the affair quite regularly in conversations together, and Ms. Tripp admits that she has been recording their phone calls to make tapes. Apparently, she made the recordings and was in talks with several different parties, including Internet gossip columnist Matt Drudge, The Washington Post, The National Examiner, and even the Office of the Independent Counsel, headed by Kenneth W. Starr, to determine whether the tapes could be used as the basis of a story and/or a new lead in the Independent Counsel's ongoing investigation of Mr. Clinton. However, a courier holding copies of the tapes ended up in Times offices, "by mistake", according to Ms. Tripp, and she considered herself obligated to go on record here simply because of the circumstances.

Calls to Ms. Lewinsky to comment on the story went unanswered. Likewise, Mr. Clinton and his legal team did not comment about the report, and the White House has also refused to comment, but promises that "We will comment when the picture becomes clearer." Recent polls of Mr. Starr's investigation have led to a solid majority against continuing, with two-thirds of respondents saying it is time to close up shop.

"President Clinton Admits Affair Allegations, Offers Contrition," by Michael Kelly, The Washington Post, March 26, 1997

In a press conference early this morning, President Clinton admitted that reports in the media of him having an extramarital affair with a young White House intern were true. The intern in question, Monica Lewinsky, had begun during the middle of the 1995 federal government shutdown, and had blossomed into "brief and sporadic moments of impropriety on my part." He went on to state that the affair had been physically over for the last few month, but that he felt he had no choice but to get out ahead of the matter and admit to the reports "before things got out of control."

The President was referring to the fact that reports of the affair broke out three days ago in a New York Times article called "A Presidential Affair", and had been leaked to the paper by a woman named Linda Tripp, a friend of Lewinsky's to whom she had confided in regarding her sexual relationship with the President. During his statement, President Clinton said, "I am deeply sorry and ashamed of my behavior, because I know better, and there is no excuse for what I did. I apologize to Ms. Lewinsky, for putting her potentially in harm's way and for doing what I have done. I apologize to Hillary and Chelsea, for hurting them. And I apologize to all of you."

While there were certainly scattered mutterings from the Republicans, calling the President's behavior "quite shameful and degenerate", as House Speaker Newt Gingrich put it, for the most part, they didn't quite seem to register with the general public. Furthermore, there are unsubstantiated reports that Independent Counsel Kenneth W. Starr had planned to use the Lewinsky affair in questioning in a legal subpoena (presumably should the civil lawsuit by Paula Jones for sexual harassment end up going forward while Clinton is in office if the Supreme Court rules that way), and it could have provided ample grist to trap the President on charges of perjury.

As to the public as a whole, they seem more than eager to move forward and focus on other matters. A recent Gallup poll showed that 83 percent of respondents wanted no further reports about the President's affair from the press.

"Interscope Records: Inside the Hit Factory," by David Wild, Rolling Stone, April 3, 1997

Jimmy Iovine is grimacing. He and his Interscope Records partner, Ted Field, are taking a lunch meeting in Iovine's intimate conference room with Ann Brubaker, the head of the label's international division, and two representatives from its Canadian offices. As the group discusses the company's current events, it becomes immediately apparent that almost all the news from the Great White North is, well, great. Still, Iovine looks pained. It can't be the charts. It's Feb. 4, and Interscope's Gridlock'd soundtrack has just debuted at No. 1 on the Billboard 200, leaving another Interscope release, Tragic Kingdom, by No Doubt, at No. 2. Various other Interscope-related albums turn up at Nos. 11, 13, 14, 17, 32, 48, 49, 67 and 83.

So why isn't Jimmy smiling? He takes another taste of pasta. "The food sucks in Westwood," he says of the cuisine in this section of Los Angeles.

"We've got to open our own restaurant," suggests Field matter-of-factly.

When lunch is finished, the group adjourns to Iovine's main office, a cool space with a basketball net and a Mellotron that once belonged to John Lennon. This is where Iovine does his thing, playing some of his favorite new music for visitors – loudly. Most record executives are not so excited about sharing the music of their latest signees. Then again, most record executives don't have as much to be excited about.

While the music industry scratches its collective head, trying to figure out what caused the business slump of 1995 and 1996, Interscope has established itself as the little label that could. The company – formed only six years ago – recently wrapped up 14 straight weeks with five different releases in Billboard's No. 1 album spot: Snoop Doggy Dogg's The Doggfather, Bush's Razorblade Suitcase, No Doubt's Tragic Kingdom, Gridlock'd and Tupac Shakur's posthumous release under the pseudonym Makaveli, The Don Killuminati.

But not everyone is cheering. While Interscope is certainly one of the most amazing American success stories of the '90s, it's also one of the most controversial. With ties to such labels as Death Row (home to the late Shakur) and Nothing (the label of industrial group Nine Inch Nails and shock rocker Marilyn Manson), Interscope has come under more than its share of unfriendly fire. It may be the only record label ever to be taken to task in the Senate (by noted "music critic" Bob Dole) or to be credited with "the wreckage of civilization" (by former Secretary of Education William Bennett).

"It's the same old shit," says Iovine, shaking his head. "It's a bunch of bullshit. It's always been a bunch of bullshit." A few nights before Christmas, the famously casual Iovine, wearing his standard jeans and baseball-cap ensemble, is sitting in a booth at the back of West Hollywood's Cafe la Boheme, enjoying Italian food and kibitzing with friends during Interscope's annual holiday celebration. His elegant wife, Vicki, a former attorney and Playboy centerfold and author of The Girlfriend's Guide to Pregnancy, stands nearby. Iovine, slight of build and still boyishly handsome at 43, is a disarming charmer who speaks quietly in a voice that has retained its Brooklyn bite despite years of living large in Malibu, California.

"You know what makes people cranky?" Iovine continues, still on his roll about the controversies that Interscope has sparked. "Not eating. Take away hot lunch. Take away welfare. Cut social programs." He emphasizes each word with a hand gesture. "People don't hear rap music and get cranky, asshole – it's the food, stupid."

As members of the Interscope staff mingle, hug, eat, drink and share a little seasonal cheer, these particular "wreckers of civilization" actually seem like nice people. Nice, increasingly rich people. At other record-company parties around town tonight, worried employees are no doubt muttering under their breath about lost revenues and downsizing. But here at Interscope, there are actually extra servings of comfort and joy. Bonus checks were handed out earlier in the week, and perhaps as a result, many of the employees are grinning broadly.

The party crowd includes mostly the company's staff – a group of a little more than 100 – as well as members of the label's roster and other invited guests. In addition to Iovine, there's Field, the heir to Marshall Field's retailing fortune who made his splash producing films like Three Men and a Baby, The Hand That Rocks the Cradle and Outrageous Fortune, which could be the title for a documentary on Interscope's recent run. Also present is longtime Interscope booster Doug Morris, the chairman and CEO of the Universal Music Group, and Tom Whalley, a member of the label's founding A&R team who was recently named its president. Bush are also in the house (minus Gavin Rossdale), as are members of the Low and Sweet Orchestra, and a few non-Interscope VIPs such as the actor Kevin Spacey.

Others are conspicuous by their absence. Trent Reznor is back home, and The Wallflowers are on the road. Dr. Dre, who attended last year and recently started the Interscope-distributed Aftermath label, is not to be seen. Neither is Suge Knight, the embattled chairman of the company's Death Row imprint, who couldn't attend due to his being behind bars. And, no, Virginia, Marilyn Manson aren't strolling around singing Christmas carols. Over dinner, Iovine chats with Mel Lewinter, vice chairman and chief operating officer of the Universal Music Group. At this power table, the discussion centers on the controversies du jour. For one, The New York Post just wrongly reported that Iovine is leaving Interscope to take a top gig at MCA. And then there's the latest assault from Bennett, whose attacks on behalf of conservative advocates Empower America helped push Time Warner to dump its share of Interscope and who is now calling for MCA to sell its stake in the company.

When Iovine tires of the issue of whether Interscope is responsible for the moral decline of Western civilization, talk turns to the record-business slump. Iovine explains some of his pet theories, many of which recall a famous phrase of Casey Stengel's, "Can't anyone here play this game?" "It's no fuckin' science," Iovine says. "There have to be people at the top who can call an audible at the line of scrimmage. We are an industry. We sell a product. We have to excite the people who we sell the shit to. We are trying to keep kids interested in music."

In this regard, Iovine sees the industry as having made a huge mistake by turning over the reins of power from music people to marketing types. "We need people like [the legendary Atlantic Records executive] Ahmet Ertegun saying, 'Wow, I've got all these great black artists – I'm going to pump a lot of money into this, and I'm going to make Atlantic happen,' " Iovine declares. "Or Rick Rubin and Russell Simmons saying, 'Hip-hop music – that's where we want to go.' If a kid doesn't grow up seeing a Kiss concert or remembering the first moment he saw The Beatles, maybe he's going to remember something else, like the first day he played fucking Mortal Kombat."

Whatever else it does, Interscope's music excites people. "Jimmy's selling more than the major [labels]," says Universal's Lewinter. Asked when a major label becomes a minor one, the smiling executive laughs and answers, "When Jimmy passes them."

As for the rumors that MCA may totally buy out Interscope and that Iovine may be bumped upstairs to help run the company, Field says later: "Jimmy and I are staying together. I don't think either one of us wants to give up Interscope. Why break up a winning team? I trust Jimmy with my life, and he feels the same about me."

As the party winds down, Iovine addresses the troops, saluting many of those who have been there from the beginning and sharing the thrill of victory with his team. "You guys should be very proud," he tells them. "You had a chance to change the course of the record industry, and you did."

It's a hell of a long way from "Rico Suave." For about 15 minutes back in 1991, it looked like that Top 10 hit might be the beginning of bigger things for Gerardo, a sort of salsa-flavored Vanilla Ice. Sadly for Gerardo and his family, it was not to be. But "Rico Suave" was the beginning of bigger and better things for the upstart Interscope.

It's a Thursday, and as the label prepares to shut down for the industrywide holiday break, a group of department heads and representatives, led by Tom Whalley, gathers in Interscope's Westwood offices for a scheduling meeting. A dozen or so Interscopers – mixed in terms of race and gender – sit around a conference table in the war room.

Nine Inch Nails are first on the agenda. The staffers are pondering what to do about the leak of "The Perfect Drug," the group's new single on the Lost Highway soundtrack. Somehow the song has ended up on the Internet, and there's talk that its release date should be pushed up. But when Nine Inch Nails manager and Nothing Records chief John Malm weighs in by phone, he suggests that Interscope should stay the course. Whalley goes with Malm's wishes, and his decision is one secret to Interscope's success: Call it The Band Knows Best.

As the executives plot their strategy in regard to the single – sending out cease-and-desist letters, shutting down the Web site, staying on top of the problem during the break – a certain irony goes unspoken. At other labels, executives try to figure out how to get songs on the air; here at Interscope, the concern is how to keep one of its off, albeit temporarily. As the group moves on to other releases, it becomes apparent that in the high-stakes art of contemporary chart choreography, they are the Balanchines.

It was not always thus.

Ted Field started Interscope Records in late 1990 as a $30 million joint venture with Warner Music's Atlantic Group. He had grown up lavishly in Chicago and Alaska before moving to the West Coast, in the early 1980s. During his youth, Field attended several colleges and developed a penchant for auto racing; in one race, he severely injured his hand, which to this day he keeps wrapped in an Ace bandage. When he arrived in L.A., Field began living the glitzy Hollywood high life and being seen with a variety of beautiful blondes. In 1982 he started his film company, which was also named Interscope, but by 1990 he was ready to branch out.

Field established Interscope during a period in which new record companies were sprouting up like some sort of rock and roll fungus: Hollywood, Zoo, Morgan Creek, Imago, Giant. Recalls Iovine: "We were looking at a long shot. It was a guy with money from the outside and a record producer. Those two things couldn't succeed."

Before Iovine signed on, Field had already recruited Whalley – who'd been fired as head of A&R at Capitol, though the success of artists like Bonnie Raitt and The Beastie Boys had provided him with some serious late-arriving vindication – and John McClain, a key player in Janet Jackson's rise at A&M.

Field, who is 44, seems awfully approachable as billionaires go. Today, he admits to having been acutely aware of the tremendous skepticism within the industry about another guy with a trust fund who wanted to play music mogul. "Absolutely," says Field, who wears his graying hair in a small ponytail. "And not just about a guy in the film business going into the record business, but about some of the choices of people. Some said Jimmy was not a guy who could run a record company. Tom had been at Capitol. We were kind of a ragamuffin band of guys starting a record company. The odds were heavily stacked against us." Asked why he wanted to get into the music business, Field answers quickly: "I loved music."

Of course, a lot of people love music, and Whalley was initially unwilling even to meet with Field. "Every time I turned around, someone was trying to start a new record company, and most of them were wealthy men who wanted to get in the business," Whalley says. "I said, 'No, thanks.' Then people told me, 'Everything Ted does, he does very well.' But some people – and I won't mention names – told me, when I signed on with Interscope, I'd made a decision to get out of the record business."

At the suggestion of U2 manager Paul McGuinness, Iovine met with Field, and the two hit it off instantly. In a deal negotiated by none other than David Geffen, Iovine signed on. The Brooklyn-born son of a longshoreman, Iovine had been a respected engineer and then producer whose impressive credits included John Lennon, Bruce Springsteen, Tom Petty and the Heartbreakers, Patti Smith and U2. Iovine had gotten his first break from the Brill Building great Ellie Greenwich. ("She was the only person I knew in Manhattan," he says with a smile.) But by the late '80s, while working on U2's Rattle and Hum, Iovine found himself soul-searching.

"I thought, 'Music is going to change,'" Iovine remembers. "'Young bands aren't going to be asking for me.' But I love working with the new thing. I always liked the part of the business that's the first time you hear something, and I knew I wasn't in that business anymore."

As it turned out, Interscope's start-up coincided with a period of incredible change in the music world. Nirvana had ushered in the alternative revolution (and are currently continuing to provide impressive good fortune for Interscope's new sbling label, MCA's Geffen Records). And though nobody was going to confuse Gerardo for grunge, the change worked in Interscope's favor. While the major labels were packed with rosters full of expensive veteran artists who had to redefine themselves for a new rock era, Interscope was in the business of signing new artists and could – as Iovine puts it – "move on a dime." At the time, the most recent successful startup was Geffen Records, which had begun in the opposite way, with early superstar signings like Elton John, Donna Summer, John Lennon, Don Henley and Aerosmith, in addition to finding and helping give rise to up-and-comers like Whitesnake, Guns N' Roses and Nirvana.

"These things take on a life of their own," Geffen says today. "You start with these plans, and it goes in its own direction. It's no secret why Interscope has succeeded: They had a strategy that worked for them. They've signed wonderful artists with a group of terrific executives led by Jimmy. Everyone there has contributed mightily, and Ted did a terrific job."

Colleagues confirm that Ted Field's contribution to Interscope has gone way beyond his checkbook. Field, who calls himself "the more silent partner," has demonstrated his "ears" time and time again. It was Field, for instance, who initially got interested in Bush.

Interscope has built its extended family of labels – which includes Death Row, Trauma, Nothing and Aftermath, among others – partly on what can be termed the Great Man Theory of Music. When Interscope executives spot someone whose work excites them, they jump and jump hard. Though John McClain has since left Interscope, he made a huge contribution to the bottom line when he initiated the company's relationship with Death Row. In the case of Nine Inch Nails, Iovine invested lots of effort in striking a deal at a time when Reznor was bitterly fighting with Steve Gottlieb of TVT Records, the independent label for which NIN were then recording. The payoff: Interscope affiliated itself with one of the most influential and popular artists of the decade and also ended up with the offshoot Nothing label and its massively successful band Marilyn Manson. Along the same line, Interscope has label deals going with producer Teddy Riley (whose platinum group Blackstreet records for Interscope) and R&B singer R. Kelly. No doubt to the amusement of the outspoken rap critic C. DeLores Tucker, Interscope is also distributing a gospel label.

"Interscope is run more like a rock band than a record company," Iovine says. "It's run in a very spontaneous, heartfelt way. I don't look at the record business from the point of view of what 'the kids' want. I never thought of that as a record producer, and I still don't. What we look at is someone who's doing something exciting. I always feel, if you build it, [fans] will come."

People have come to Interscope in a big way. By 1993, the label was grossing an estimated $88 million and was profitable – well ahead of projections. According to Iovine, Interscope will gross somewhere between $250 million and $300 million domestically this year.

Not everything Interscope has tried has worked. An overstuffed 1994 comeback album by Tom Jones, The Lead and How to Swing It, flopped badly. "We threw a party," Iovine recalls, "and no one came." A Robin Zander solo album, which Iovine produced, also disappeared like some cheap trick. Such failures suggested that Interscope wouldn't make its name as a career-rehab center. "The good news is," Iovine says, "in the record business, they only count your successes." In the pursuit of success, Interscope got a reputation for being scrappy and aggressive. "They know how to turn on the afterburners," says Trauma's Rob Kahane. "When they smell blood in the water, there is nobody that moves faster. They can make the earth move if they want to." In the case of Bush, soon after Field heard the group, he and Iovine met with Kahane and partner Paul Palmer. "There were other labels chasing us," Palmer recalls. "It was a Friday, and they said, 'We don't want you guys to leave here until a deal is done.'"

Interscope doesn't win every bidding war. Recently the label was reportedly the second choice of British electronica sensation Prodigy, which ended up signing with Madonna's Maverick label. And some industry insiders have long suggested that Interscope greatly overpays artists, a criticism that first surfaced with the 1992 signing of Helmet.

Calling such accusations "horseshit," Whalley says, "We stepped out a little stronger than everyone else. We didn't have a choice." Whalley credits Field for encouraging the team's aggressive maneuvers: "Ted would say, 'Are you going to lose this band for an extra $50,000?' We believed in what we were doing, and Ted, to his unbelievable credit, was willing to back it up with his money."

One major-label president, however, who would speak only on the condition of anonymity, says, "Jimmy doesn't find acts in the basement; he finds bands that are at the height of their buzz. He pulls the trigger faster than anyone when it comes to deals, and he can pull the trigger because he really doesn't have to answer to anyone except Doug [Morris], who's got blind faith in him."

Iovine makes no apologies: "Whether we spent a lot of money or not, we invested $30 million in Interscope. Is there anybody who wouldn't pay $30 million for Interscope today? So obviously we did the right thing."

Some folks feel to a moral certitude that Interscope doesn't always do the right thing. Consider the comically overheated article that attacked the label by going after its parent company, the Seagram-owned MCA, this past November in a small Washington, D.C., publication called Human Events. Under a headline that screamed, THE SEAGRAM FAMILY WOULD LIKE TO SELL SATANIC BISEXUAL ROCK TO YOUR FAMILY, Joseph A. D'Agostino wrote a muckraking piece that – to put it mildly – suggested he's not a big Marilyn Manson fan.

Not long ago, such rabid demonization had a real impact on two huge American conglomerates when, in a widely chronicled tale, Time Warner, on the verge of exercising an option to buy the remaining 50 percent interest in Interscope, bowed to pressure and dropped the label instead. This left Interscope, after considering other options, to become partners with old pal Doug Morris – also deposed from Time Warner – in his new home at MCA, which had recently been acquired by Edgar Bronfman Jr., the CEO of Seagram. MCA acquired half of Interscope, in early 1996, for a reported $200 million.

"The decision to dump Interscope was a gigantic error for Time Warner, and it was a great opportunity for Edgar Bronfman," says David Geffen, whose DreamWorks label is also distributed by MCA. "Why Time Warner allowed itself to be intimidated by anybody as idiotic as Bill Bennett is beyond my understanding. It turns out, the things that have made MCA what it is today have been the incredibly stupid decisions of Time Warner."

Geffen, who drew his own moral line in 1990 when he declined to release a Geto Boys album that offended him, says that attempts to paint Interscope as some evil gangsta empire are absurd: "Interscope is a really well-run group of talented people who have a great enthusiasm for music and who understand it, who've created a lot of opportunity for young people to succeed."

Even as the criminal investigations of Suge Knight and Death Row are ongoing – and potentially hazardous for Interscope – Iovine speaks with fondness about Knight, who once participated in the touch-football games held on the front lawn of Iovine's Malibu home. "Suge is enormously talented, but [his problems are] a much deeper issue than we can cover here," says Iovine, who hasn't spoken with Knight since the Death Row mogul switched penal facilities, around Thanksgiving. "It's a whole issue unto itself."

Iovine is quick to credit Death Row with giving popular music a shot in the arm. "I think it's the spirit, the abandonment, the excitement of those records," he says. "How they reflected and what they captured of society through music. Those folks at Death Row were the Rolling Stones of their time."

What is it about the middle-aged Iovine that makes it seem so easy for him to bond with young rappers from South Central Los Angeles? Perhaps it's his own street-smart persona – something most white record executives don't have. "Nobody wanted to be in business with Death Row," he says, "because, unfortunately, they felt there was an element there that could be dangerous. But I just knew they had great music and that they were a bunch of guys who wanted to make it out of the ghetto. That's something I can understand." In the end, Iovine feels, the commotion over Death Row – much of which he finds racist in motivation – hasn't hurt Interscope. "It's a paper tiger," he says.

Iovine, a father of four who is proud of the $40 million he's raised for the Special Olympics, is tired of defending himself against charges of being a corrupter of youth. So is Field. "Look," Field says, "do I believe that rap music is responsible for the ills of society? Absolutely not. No more than I believe movies or television are. I believe all these art forms reflect what's going on in society." Besides, he adds, "even Tupac and Snoop are relatively mild compared to other rappers the major companies distribute. But ours sell more and are better. That sounds arrogant, but I think it's been proved by the record sales. Dre – it's no accident that everything he touches turns to gold. He's a musical genius."

Genius isn't the word that C. DeLores Tucker of the National Political Congress of Black Women would use for some of Interscope's more provocative releases – like the Makaveli album. "This recording contains all the thuggish, reprehensible lyrics about 'bitches, hoes, niggers and guns,' in an offering that glorifies killing and fornicating with another person's wife," Tucker said at a December press conference with Bennett. Of Interscope specifically, she said: "Morality goes out the window when greedy corporate heads smell the corrupting whiff of profits. The corporate heads continue to show nothing but disdain and disrespect for black people, and particularly black women and children."

"The whole controversy is a sideline to Interscope," says Iovine. "There's nothing there. From Elvis Presley on, it's always been like this. I worked with John Lennon. I get it." The big question is whether Edgar Bronfman will get it – or whether the pressure will get him.

"Edgar has been terrifically supportive," says Field. "He's a real music guy." Characteristically, Iovine is not worried: "Edgar's a young guy. He gets us."

From the looks of the chart positions, a lot of young people get Interscope. And Interscope gets them right back.

"Disney to Buy Controlling Stake In Internet Publisher Starwave," by Laurence Zuckerman, The New York Times, April 4, 1997

Expanding its recent embrace of cyberspace, The Walt Disney Company announced yesterday that it was buying a controlling stake in the Starwave Corporation, an Internet publisher, and said that the two companies would jointly produce a new site on the World Wide Web using the resources of Disney's ABC News division.

Disney and Starwave executives declined to discuss the terms of the deal, which had been widely expected for months. But executives familiar with the arrangement said that Disney paid just under $100 million for about a third of Starwave.

However, as part of the agreement Disney gained control of Starwave's board of directors and has an option to purchase the remainder of the company over the next five years from its owner, Paul G. Allen, the billionaire investor who was co-founder of the Microsoft Corporation. Mr. Allen, who will remain on Starwave's board, retained the right to sell the company to Disney at ''fair market value'' after five years.

The deal came only days after the announcement by Disney that it would introduce a subscription Internet service for children called the Daily Blast.

Starwave and Disney have collaborated for the last two years on ESPNET Sportszone, a popular website that grew out of Disney's ESPN 24-hour cable sports networks. Starwave, which is based in Seattle, also produces other sites, including an entertainment news site called Mr. Showbiz, and is about to introduce a new site devoted to personal finance.

Both of those will be integrated with a new ABCNews. com site that will begin operation at the end of the month, said Tom Phillips, a senior vice president at Starwave. He will become president of the new joint venture that will oversee both the ABC News and ESPN sites.

The news site will be run by Jeff Gralnick, 58, a veteran television producer who spent most of his career at ABC News and was lured back from NBC News last year to run a new 24-hour cable news network that ABC later abandoned. Now, ABC executives are saying that the Internet is a much better bet.

''ABCNews. com, done right, makes cable unnecessary because it becomes your multimedia cable network,'' Mr. Gralnick said. ''That is where this business is going.''

He said that the new site would start out with about 65 editorial employees in New York and Seattle and would use all the resources of ABC News, including its radio network. ABC News correspondents will file print dispatches to the site, Mr. Gralnick added, and will participate in online chat sessions.

To guarantee itself an audience early on, the new site will have a prominent place on America Online, which claims to have 12 million visitors a day, and on the home page of the Netscape Communications Corporation, which receives an estimated 4 million daily visitors.

"Gingrich Goes Hypocritical? The Extramarital Affairs Of the Anti-Cheating Proponents," by Bernard Weinraub, The New York Times, April 17, 1997

After President Clinton's recent admission of having had an extramarital affair with White House intern Monica S. Lewinsky, several prominent Republican politicians called him out for his behavior. Speaker of the House Newt L. Gingrich, in particular, referred to Mr. Clinton's actions as "quite shameful and degenerate", and also was supported by the likes of Dennis Hastert and Henry Hyde, also longtime opponents of Mr. Clinton and his administration. They pointed out that the news that Mr. Clinton began his affair with Ms. Lewinsky during the November 1995 shutdown of the federal government as rich irony to take advantage of. "If the President of the United States will respond to such a situation by indulging his carnal pleasures, how can he possibly be working on behalf of all Americans?"

Around this time, however, Larry Flynt, the founder of Hustler magazine, and who had been portrayed by Woody Harrelson in the recent Milos Forman biopic The People v. Larry Flynt, decided to post a reward in Hustler for leads and tips of extramarital affairs of Republican politicians to use to hoist them on their own petard. Mr. Flynt's gambit proved quite successful, as he soon received leads about Mr. Gingrich, Mr. Hastert, Mr. Hyde, and Louisiana Congressman Bob Livingston having had sexual peccadilloes of their own. Most notably that Mr. Gingrich had been sowing his wild oats behind the back of his then-wife, and made her sign a divorce right after surgery, when she was still under the effects of anesthesia, meaning that her signature was null and void. Mr. Gingrich angrily slammed Mr. Flynt for the reward strategy, saying, "there is no end to Larry Flynt's depravity, and how he is a darling of the Left for his behavior is truly beyond me."

Mr. Hyde also referred to his past actions as "youthful indiscretions," despite the fact that the affair had occurred when he was in his forties. Mr. Hastert released a terse press release saying, "this is not the forum to respond to these questions while engaged on the work of everyday Americans," while Mr. Livingston gave no response whatsoever.

"I expect that the four of them are quite finished," Democratic political strategist James Carville, known for his association with Mr. Clinton and also coining a phrase, "bimbo eruptions", regarding allegations of sexual misconduct against the President by the likes of Gennifer Flowers, Paula Jones and Kathleen Willey prior to the Lewinsky story, said in response. "If the people going against a sitting President for cheating on his wife are doing the same, how can they possibly continue to serve America and their own constituents. How can Republicans be taken seriously because of this? Clearly, they know that our strategy is working, and they're simply flailing about trying to avoid the inevitable."

"Mr. Carville is simply as nearsighted and off-topic as always," said Reverend Jerry Falwell, also a a famous opponent of Mr. Flynt in the past. "He and Larry Flynt are outright advocating the absolute degeneracy and desecration of the Oval Office, to further push the radical feminist, atheist, abortionist, homosexual agenda. President Clinton will receive God's judgment for his actions."

"Marvel Proposes a Merger With Toy Biz," by Floyd Norris, The New York Times, April 29, 1997

Marvel Entertainment Group Inc., the comic book and trading card company that has been the subject of a battle for control in bankruptcy court, proposed yesterday a reorganization plan that would leave bondholders led by Carl C. Icahn high and dry.

The bondholders immediately denounced the proposal, which calls for a Marvel merger with Toy Biz Inc., a toy company that has a license to produce toys based on Marvel characters, as ''an outrageous sweetheart deal for the banks and for Toy Biz insiders at the expense of Marvel's shareholders and bondholders.''

But whether the bondholders can block the plan depends on bankruptcy proceedings in Delaware, where a hearing is scheduled for Thursday on the bondholders' plans to take control of a majority of Marvel stock and oust the board. The bondholders have promised to propose their own reorganization plan, but have yet to do so.

Under the plan, Marvel shareholders would receive only warrants to buy shares in a new Marvel-Toy Biz combination. Marvel's secured lenders, mainly banks led by Chase Manhattan, would get cash proceeds from a new $250 million loan Marvel would arrange, a $170 million note from Marvel and all of the stock of Marvel's trading card and sticker subsidiaries, Fleer, Skybox and Panini.

''This proposal paves the way for a plan that treats all parties as fairly as possible,'' said Scott Sassa, chairman and chief executive of Marvel.

The Marvel war has been going on since November and stems from the unusual way that Ronald O. Perelman, the financier who controlled Marvel, financed his holdings. He sold bonds that were obligations not of the underlying company but of parent companies he controlled, and were secured by about 80 percent of the outstanding shares of Marvel.

Last November, when Mr. Perelman proposed his original reorganization plan, which left little for the shareholders, the bonds plunged in price, and Mr. Icahn, best known as the former chairman of Trans World Airlines, and some other investors snapped them up. They evidently thought that Marvel was worth more than the Perelman plan indicated.

That plan called for Mr. Perelman to put up cash to allow Marvel to buy the 73 percent of Toy Biz that it does not already own, in return for which he would get an 80 percent stake in the reorganized company. The bondholders would then get the old stock, which would be converted into a small minority stake.

Mr. Perelman dropped that plan after opposition from bondholders, and a bankruptcy court ruling appeared to clear the way for bondholders to seize his stock and take control of the board. But that move has been stalled by court proceedings.

The new plan, which Marvel said was proposed by Toy Biz, does not envision a cash infusion. But it allows anyone - presumably the bondholders - to make a better bid so long as that bid either values Toy Biz at $14 a share or more, or pays Toy Biz shareholders a $7 million breakup fee.

Toy Biz stock yesterday closed unchanged at $10.25 in New York Stock Exchange trading, while Marvel shares rose 12.5 cents to $2.375. The latest plan has the blessings of Chase Manhattan, as well as of the Marvel board that was named by Mr. Perelman, who remains a member of it.

"PolyGram Unit To Distribute Films in U.S.," by Claudia Eller, Los Angeles Times, May 3, 1997

PolyGram Filmed Entertainment, hoping to compete with Hollywood's major studios and better position itself in the global marketplace, on Friday launched a new U.S. movie distribution company and announced the executive team who will run it.

The company plans to release five major motion pictures in its first year of operation, working up to 10 to 12 annually by 2000.

The newly formed unit, PolyGram Filmed Entertainment Distribution, will be headed by President Andrew Fogelson, who has been working with PolyGram since 1995 on the strategic planning of the operation. He formed his own management and consulting business in 1988 and previously held top marketing and other executive posts at United Artists, Rastar Films, Warner Bros. and Columbia Pictures.

Under the direction of PolyGram Filmed Entertainment President Michael Kuhn, the Beverly Hills-based company will be moving further into the high-risk arena of big budget films. The new unit will compete head to head with such established majors as Universal Pictures, Disney, Warner Bros., Paramount, Sony's Columbia Pictures, Sony's TriStar Pictures and 20th Century Fox.

Heretofore, PolyGram's more expensive movies, including Jumanji, Mr. Holland's Opus and Sleepers, were distributed domestically by the U.S. majors.

PolyGram has either bid or has considered bidding on MGM, Orion and other movie companies that have been available in recent years. But in each case the company has returned to its strategy of quietly building a major film studio.

The film group is a division of PolyGram's global music and entertainment business, which is 75% owned by Dutch giant Philips Electronics. The company is made up of a handful of boutique movie companies including Interscope Communications, Propaganda Films, London-based Working Title Films and Island Pictures.

The company recently launched a TV production arm.

William Soady will serve as president of distribution and Peter Graves was named president of the marketing group.

The newly hired Soady was most recently president and CEO of Showscan Entertainment. From 1988 to 1992, he served as president of domestic distribution for TriStar Pictures, overseeing the release of such hits as Terminator 2, Sleepless in Seattle and Philadelphia.

He also headed domestic distribution at Universal for seven years.

Graves has been working as a marketing consultant to PolyGram since 1992, involved in such releases as Fargo, Dead Man Walking and The Usual Suspects, distributed by PolyGram's specialty film unit, Gramercy Pictures.

Gramercy, which also released the worldwide blockbuster Four Weddings and a Funeral, will continue to operate as a standalone operation concentrating on the distribution of lower-budget films.

PolyGram Distribution will concentrate on the wide-release films costing $30 million and above, with commensurate marketing budgets, in thousands of theaters.

The new unit's first release, in mid-September, will be Robert Altman's The Gingerbread Man, based on an original screenplay by John Grisham and starring Kenneth Branagh, Embeth Davidtz, Daryl Hannah, Robert Downey, Jr. and Robert Duvall.

It will be followed by the October release of David Fincher's $70-million thriller The Game, starring Michael Douglas and Sean Penn.

Peter Hewitt's The Borrowers, starring John Goodman, will be released in the first quarter of 1998 (mid-February). Other 1998 releases will include Vincent Ward's What Dreams May Come True, teaming Robin Williams and Cuba Gooding Jr., and Steve Gomer's Barney's Great Adventure.

"The Millionaires Next Door," by Tia O'Brien, Stanford Magazine, May/June 1997

What do you get when you combine raw brainpower, 80-hour workweeks and 50-pound sacks of rice and beans?

The five guys waiting in line for burritos look like college kids-shlumpy in a slacker-dude kind of way with their flannel work shirts, blue jeans and 10-year-old running shoes. Success is so new to the founders of Excite Inc. that they're not sure how to wear it, except maybe on their license plates-like the one on Ryan McIntyre's Volkswagen Golf, which reads "XCITE."

"Like these guys pulled up next to my car the other day," McIntyre, '93, tells his buddies who quickly gather around, forgetting their burrito orders. "They rolled down the window and said, 'Wow, are you one of the guys who started Excite?' And I said, 'Well, like yeah.' And they said, 'Wow!' "

Just four years out of Stanford, the founders of Excite still marvel at the wild rocket ride that blasted them from their Stanford dorms to millionaire status at the tender age of 25 (one was 27). But in a world of unbridled hype about the high-tech revolution, these guys are authentic: They built one of the top Internet "search engine" companies out of nothing but an idea, $15,000 from their parents, maxxed-out credit cards, 50-pound bags of beans and rice-and a slogan: "Unencumbered by reality."

Now a sobering reality stares the young entrepreneurs in the face. Excite made it big because the founders devised a powerful way to help a new world of Internet users find what they wanted among millions of websites. But in the race to cater to the digital hordes, the company is up against life-threatening competition. Excite ranks a notch behind the undisputed leader of the search engine world, Yahoo! (another start-up founded by Stanford alumni). Of the dozens of Internet search engines, only a couple are expected to survive as key players. And Excite is determined to come out on top, disproving some Wall Street seers who predict that it will be swallowed altogether by America Online (which already owns 20 percent of Excite) or a cash-rich competitor.

While Yahoo! has become something of a household name, Excite is spending millions to capture its share of the exploding consumer market. A recent TV advertising blitz, aimed at web users, featured Jimi Hendrix singing, "Are You Experienced?"

To understand why Excite's founders are so confident they'll emerge winners, you have to understand something about these innocent- looking recent grads: They are killer competitors who talked their way into venture capitalists' offices and won financial backing without having a clear idea about how they could turn their technology into a commercially viable product.

In all, there are six Excite founders. Five of them are, well, nerds from Stanford's computer science department. One is a political science graduate. The fact that the six are still business partners and friends is remarkable in itself. The entrepreneurial highway is littered with exploded partnerships, detonated by feuds over money and power. But the Excite men still are standing shoulder-to-shoulder, even though only two are officers of the company and are worth millions more in stock than the other four.

The birth of Excite can be traced back to whoever allotted freshman housing in 1989. "We all were assigned to the same freshman dorm-then called Madera-in the Wilbur Hall complex," clean-cut Joe Kraus, '93, tells me in an interview in his office. He's the poli-sci major and born entrepreneur who earned the nickname "Phone Boy" for his relentless pitches to potential investors. The Excite men agree that without Kraus's moxie and penchant for wearing ties, they never would have gotten beyond the drafty Palo Alto garage that served as their postgrad corporate headquarters, back when they were known as Architext Software.

In the company's early days-way back in 1994-Kraus held the title of company president. Now, with seasoned businessmen at the top, he's senior vice president in charge of business development.

The six friends from Madera stayed tight; three of them formed a jazz and funk band named Where's Julio? (and even cut a CD, which they'll hand out to anyone who asks). In the winter of '93, with graduation looming, reality began closing in on Kraus. He turned to his brilliant freshman dormmate, Graham Spencer, who was also set to graduate in the spring. "I didn't want to work for anyone else, so I said, 'How can I get this guy [Spencer] who's really, really smart to do something?' " Kraus recalls. His former dormies, just as eager to avoid life under a boss, all agreed it was time to convene a let's plan our lives together meeting over burritos at Rosita's Taco Stop in Redwood City.

Kraus: "When we got there, we said, 'Let's start a company.' But we didn't know what we wanted to do. So we looked at Graham and said, 'What should we do?' And he said, 'Well, I think we should build technology for searching through big databases. That's a problem that no one's really solved well.' "

Note that Spencer, '93, MS '94, wasn't specifically talking about a navigation service for the Internet. On this day in 1993, the infant Internet was merely a network used mostly by government and academic types; it would be another two years before millions of regular folks got hooked.

But Spencer, a low-key brain who lists his hobbies as "attending punk rock concerts, reading philosophy and searching for UFOs," shrewdly foresaw the need for a powerful search tool. He figured they'd sell the tool to companies that wanted to do in depth data searches. So, in the final months before graduation, the boys started researching search-and-retrieval tools at Stanford's libraries. They requisitioned conference rooms in the history department for corporate huddles; they logged on in the computer lab. By the time they got their act together, the Internet was making the cover of Newsweek. Their search engine tool couldn't have been better timed.

But it wasn't that easy. Standing between these would-be millionaires and success was a couple of years of 80-hour workweeks and a ton of anxiety.

After graduation, they borrowed $15,000 from their parents, purchased an old Sun Microsystems workstation from Stanford's electronics graveyard and set up their "office" in a South Palo Alto Eichler home. "Very nasty" is how Kraus describes the funky tract house that served as headquarters as well as home to Mark Van Haren, '91 (the former resident assistant for Madera and the band's lead singer) and Spencer. Two of the founders-Ben Lutch, '94, and Martin Reinfried, '94-still lived on campus while finishing a fifth year of classes. McIntyre had moved in with other college buddies.

"We all were terribly naive about how much work would be involved. But we thought it would be kind of fun to work together," explains Reinfried as the five techie founders and I convene our reenactment burrito dinner at the Redwood City taqueria. (Kraus is off at a meeting with Dean Witter finance folks.) Seated around the ersatz-wood table, they smile and chuckle as they tell their tale, one finishing the other's sentence, much like Lotto winners relating their incredible luck.

They set to work in the drafty, frigid garage because there was no room inside the cramped Eichler. For heat, they ran the clothes dryer. When it blew a fuse, the screens went dark. "You'd always see Mark programming with his little wool hat and his fingerless wool gloves," McIntyre recalls.

A Los Angeles Times writer who visited the garage described it as looking like "the group house you shared with your friends after high school-the vacant refrigerator, the tumbleweed-sized dust balls, the cloth sofa that gave off a cloud of dust every time someone sat on it."

I ask if they picked a garage so that one day, when famous, they could boast about their gritty start à la Hewlett-Packard and Apple? Shrieks of laughter all around the table. "Yeah, sure-'When we were famous!' " Van Haren says. McIntyre continues, "All we wanted was a warm place to write programs that didn't require running the dryer to keep us warm."

The entrepreneurs subsisted on rice and beans bought in 50-pound bags from the Price Club at $11 a sack, supplemented by Campbell's soup. Spencer remembers the next 14 months as a blur, with Kraus scheduling demos before they had completed the software. But a year later, Spencer had devised a revolutionary way to retrieve information. It could take a broad search request, locate items of potential interest, rank them in a list and let the user quickly fine-tune the list for only the most interesting material.

This approach set it apart from rivals such as Yahoo! whose searches used only key words. Ask for articles on United Airlines, and you'll get a mammoth list-much of it useless-of any document that includes United's name. Excite's software started attracting attention because it could perform a more exact search, retrieving a compact list of documents even if the searched-for word wasn't in the document at all.

In July 1994, Excite got a break. International Data Group, publisher of the computer magazine InfoWorld, paid the fledgling company $100,000 to develop a secret online service. They plowed all the money back into the company, but the contract allowed them to move out of Palo Alto and into a larger Cupertino tract house, setting up their computers in the dining room-turned-office. These particular days as a startup even were documented by some footage that ended up in the three-part PBS documentary Triumph of the Nerds, about the computer revolution.

Kraus and Spencer were virtually clueless about what it took to win seed money. But that didn't stop them from making the rounds of venture capitalists. Their naiveté won them the Silicon Valley boot at most VC offices. "We'd say, 'Here's this technology, help us make a business out of it,' " Spencer recalls. "But what they wanted to hear was, 'Here's our company. Give us this money, and we'll give you 10 times that in four years.' " That's how a typical conversation went until a meeting in December 1994 with Vinod Khosla, MBA '80, a partner at the high-tech venture capital firm Kleiner Perkins Caufield & Byers.

"I didn't expect much because they'd been passed from VC to VC," Khosla says. "But in the first 15 minutes, I really liked them." The bright, young, energetic guys seated at Khosla's desk reminded him of his own start-up team for Sun Micro-systems. In 1981, he and his three co-founders won backing from Kleiner Perkins to launch workstation giant Sun. Khosla later joined Kleiner Perkins as a venture capitalist. He was struck by Spencer's maturity and ability to analyze technology. Kleiner Perkins has built its success by taking risks on such formerly raw start-ups as Genentech and Tandem. Khosla was also impressed by the technology. But a crucial question hung in the air: Could it "scale"-search large databases?

Kraus looked at Spencer, the technical wizard, who shrugged. "I'm like, 'How would I know? We don't have that much space on a disk drive,' " Spencer said. "Keep in mind the sum we're talking about for a larger disk drive is a couple of grand. That's enormous to us."

Khosla picked up his cell phone and told his assistant to order the boys a $5,000 disk drive. "We're like, 'Yeah, this is how to get results,' " Spencer says. The hard drive, still owned by the boys and nicknamed KP (for Kleiner Perkins), proved their technology could scale. Within a month, KP (the venture firm) decided to back Excite. The firm arranged for $1.5 million in financial backing- $250,000 up front, matched by Geoff Yang, MBA '85, from Institutional Venture Partners, with a promise of another $1.5 million in 18 months.

But instead of celebrating, the young entrepreneurs were stressed: They'd also had an acquisition offer from a company called Verity, then the market leader in information retrieval. For a few million, they could sell their idea outright. Should they take the buy-out money and run or gamble on a high-risk future? It was their first major business decision.

So, how did you decide, I ask the group. In unison: "We split down the middle." A split that put their partnership on the line.

This was what the Excite founders call a "couch moment." Whenever they were faced with a dilemma, the guys would pull their ragged couches face-to-face and hash it out. On that tense night, Kraus, Spencer and Van Haren sat on one couch; McIntyre, Reinfried and Lutch on the other.

McIntyre: "We just stared at each other for about five minutes."

Lutch: "It had to do with our end goals. I knew Joe, Graham and Mark had their hearts set on building a company. But we didn't think we could get luckier. Like, 'Let's not push our luck.' "

McIntyre: "As soon as we smelled money, it was like, 'All right!' "

Reinfried: "The other option [building a startup] seemed riskier. And we'd been working hard for a year and a half."

Van Haren: "And no one had any money."

McIntyre: "Zero."

Spencer's "couch" argued that two seasoned VCs-Khosla and Yang-were willing to work with them while no one was sure about the soundness of Verity's future. (In fact, the company's stock soon plunged.) McIntyre, Lutch and Reinfried took a walk, came back and announced, "We're in!"

It was 2 AM. They wanted to celebrate by flying to Las Vegas. "We called my father, he's got the official airline guide, and woke him up," laughs Reinfried. "But there were no flights left. So we settled on Denny's for ice cream. It was the only place open."

Khosla began serving as both mentor and coach for the boys, the youngest group of entrepreneurs he'd ever taken on. His Lamborghini started pulling up in front of the house, sparking jokes that the neighbors probably thought they were drug dealers-up at all hours with odd visits from guys in $80,000 sports cars.

"I had to develop a complete business plan," Khosla says.

"Being a navigation service for the Internet wasn't originally on the list of what they wanted to do." He prodded them to research the concept. And they pursued his leads, zeroing in on a web search engine as a marketable product.

Khosla was struck by the group's practical, down-to-earth camaraderie. But he urged them to reconsider their division of corporate equity: All six had equal shares. "I said, 'You all must come out of it with something proportionate to what you put in. Otherwise, you'll have hard feelings down the road.' " Khosla suggested that Spencer get the biggest chunk, next Kraus, and the rest get an equal split.

That brought on another couch moment. The six guys-who'd always operated on the basis of equality-pulled up the couches for another tense discussion. They agreed that Spencer deserved more. But how much more? And how could they calculate Kraus's value?

Reinfried: "He had a different job from the rest of us."

Lutch: "We could all look at the code and see that Graham wrote nine times as much code. But it was harder to determine what Joe was doing."

McIntyre: "We all said, 'Joe's been our only external representative.' "

Reinfried: "We were the technical entrepreneurs, and he was the marketing entrepreneur."

Van Haren: "And we realized that without someone doing that stuff, we couldn't have gotten our foot in the door. That showed us he was worth a lot."

The end result: Spencer, 600,000 shares; Kraus, 400,000 shares; Lutch, Reinfried, Van Haren and McIntyre, 200,000 shares each.

In December of '94, the shares were just Monopoly money. Fifteen months later, with Internet fever sweeping Wall Street, the Excite gang was ready to take the company public.

But not before rejecting another offer put on the table by Khosla. The Yahoo! founders, David Filo, MS '90, and Jerry Yang, '90, MS '90, had come to Kleiner Perkins asking for backing. But since KP already was committed to Excite, Khosla suggested merging the two promising search engine startups. Talks between the competing Stanford entrepreneurs stalemated. "We each thought we were worth more than the other, so we didn't come to terms," Spencer explains.

While Excite still was building its product, the Yahoo! guys had their website up and running, making headlines as the first Internet search engine. They had a one-year jump on Excite-a huge amount of time in Internet years.

By the time Excite was ready to go public in April 1996, what should have been the company's big Wall Street moment was overshadowed by the impending initial public offering (IPO) of Yahoo! Suddenly, Yahoo! seemed to be on every magazine cover and on the front page of every major newspaper. Wall Street investors, who saw gold in Internet companies, predicted that the Yahoo! IPO would be hugely successful. It was. Filo and Yang were hot, with the international press fighting over them for interviews.

It bugged the Excite guys that everyone was hyping Yahoo! In their eyes, Yahoo! was making its name by using existing technology to catalog websites and create a directory instead of developing breakthrough technology. "Yahoo! really leveraged its brand name to be successful," Spencer says. "To us, that felt very different. We really struggled through this whole process." Van Haren puts it more bluntly: "It's like Ronald Reagan being an actor and then becoming a politician." The group cuts up with laughter. McIntyre: "And we wonder why Yahoo! doesn't like us?" Van Haren continues, "Like Stanford magazine put those guys on the cover. [Actually, former University president Richard Lyman was on the cover of the September 1995 issue, which featured Yahoo!] We all came around at the same time."

Yahoo! might have stolen the limelight, but it couldn't steal the magic moment when the Excite men watched themselves become millionaires.

April 4, 1996: The six Excite founders huddle around a computer on the 25th floor of the Bank of America building, the trading floor for Excite's IPO investment banker, Robertson Stevens.

Lutch is wearing his "You are shit" T-shirt for the occasion. They all watch the first trade on the screen. Excite opens at $17 a share. As the price climbs, the trader tells them, "That's a lot for this much stock." It reaches $21, then settles at $20. McIntyre: "I used Ben's cell phone to call my parents and in a very cool tone said, 'Hi, we're millionaires.' That was weird." The guys toasted with champagne, enjoyed a private lunch . . . and went back to work.

A year later, Excite stock stands at about $ makes Spencer worth about $6.1 million; Kraus, $4.1 million; Lutch, Reinfried, McIntyre and Van Haren, $2 million each.

On paper. They can't get at the bulk of their wealth until they're vested in August of 1998. Have they splurged at all? Kraus bought himself a BMW, true to the dreams of every born marketer. But what about his lower-profile partners?

Lutch: "Ryan and I took a little trip to Europe on the Concorde."

McIntyre: "It was very cool. It has its own customs. We were dressed like scumbags."

Reinfried: "I found a couch for my room but I looked at the price tag and said, 'You can't pay this much for a couch.' Then I went and sat on it again. And it was like, 'Actually, I can.' "

Van Haren: "I bought four cars [including one each for his brother and sister]. I bought myself a $2000 bike. And braces."

Spencer: "I bought a new car, a Toyota 4 Runner-out of necessity. There just isn't a lot of stuff I need."

Kraus once compared his instant-millionaire status to a Hollywood star's fleeting fame. All the founders know their wealth can perish overnight, victim of some Internet technology upset. Excite stock has tumbled a few times, climbing back again, especially after a joint venture was launched with America Online last fall.

Excite now does much more than help find needles in electronic haystacks. With a full editorial staff, the company offers thousands of website reviews, mini-guides to cities worldwide, live stock quotes, and a constant stream of the day's news. In December '95, the payroll stood at 40 employees. By the end of the year, the company expects to employ 300.

The founders are clear about their business goal: to beat or at least match Yahoo! Excite revenue is surging: $6.5 million in the fourth quarter of '96 compared with $574,000 in the same period a year ago. The money comes primarily from advertisers who buy space on Excite's website. But like most search engines, it still hasn't turned an annual profit. And at the end of 1996, Excite had spent much of its cash on the aggressive acquisitions of two competing search engine companies.

Thanks to the acquisitions, the founders boast that 45 percent of people on the Internet are using an Excite product. But most analysts still say Excite has a long way to go to knock Yahoo! out of the box. In March, Excite announced a stock offering to raise more cash, sparking a new round of speculation that the company was primping for potential buyers. "It's very expensive to build a brand name for a company like Excite," observes Forrester Research analyst John Robb, who considers America Online the logical suitor.

Excite CEO George Bell, 40-who came on board in January of '96 when snowboards, guitars and juice cans cluttered the musty office hallway-shoots down acquisition rumors. "We went public so we could stay independent. We still think that's a good path."

As they down the last of their beer at Rosita's, the Excite gang isn't talking about buyouts but about their battle to beat Yahoo!

Spencer: "We ran an ad campaign that really made them mad. They haven't forgiven us. It said, 'It's '96. Are you still with the same old Yahoo!?' It's not like we said, 'Yahoo! sucks.' "

Yahoo! sent Excite a cease-and-desist order.

Lutch: "Which we summarily ignored."

For their part, Filo and Yang are taking the high road, at least publicly. "I have a lot of respect and admiration for the Excite guys," Yang says. "It's unfortunate they feel that there is anything personal-I certainly don't think there is anything personal on our part."

The Excite founders, marking birthdays of 25 to 28, have no plans to quit-certainly not before their stock is vested. Kraus, Spencer and Van Haren still live together in the same rented Cupertino tract house. They're considering a move to shorten the commute to Redwood City, the new corporate headquarters. None of the founders is married; only McIntyre is engaged.

It's hard to imagine that even marriage could bust up the Excite men. Spencer describes a typical week: "Ben, Martin, Ryan and I took a trip to L.A. [to see The Empire Strikes Back]. Mark and I went to the movies a few nights ago. Joe and Ben have been over to my house a few times in the past week."

After four years, one company, an IPO and millions in paper riches, the Excite founders are a long way from their freshman dorm. But they still prefer hanging together.

"Fox Kids Faces Holy Challenge With IFE Deal," by Sallie Hofmeister, Los Angeles Times, June 14, 1997

Cartoons and religion have been staples of Sunday morning television for years. But analysts and industry executives are skeptical about their pairing on the Family Channel envisioned by Fox Kids Worldwide, which this week announced its $1.9-billion purchase of the cable network's parent, International Family Entertainment.

Fox Kids, a 50-50 partnership between News Corp. and Saban Entertainment, bought the channel as an outlet for its children's programming, as cable channels have eroded the ratings of its daily afternoon children's block on the Fox broadcast network.

But as part of the transaction, the new owner has agreed to air during the morning and late at night for the next five years the 700 Club, a religious show hosted by TV evangelist Pat Robertson. In exchange, Robertson, who is staying on as co-chairman, has agreed to give up control of his company to Fox.

Programmers wonder how the two formats can coexist. Many question how Fox will be able to build a powerhouse brand to rival the mighty Nickelodeon and up-and-coming Cartoon Network when the Family Channel is known mainly for its religious fare.

"Power Rangers and the 700 Club are strange bedfellows," said an executive at a rival children's programmer. The Mighty Morphin' Power Rangers is the roughneck action adventure show that has fueled the success of the Fox Kids' block on network TV.

Mel Woods, president and chief operating officer of Fox Kids, said few decisions have been made about how the network will be programmed once the transaction closes. "Beyond kids, we really don't know what changes will be made," he said, adding that the 700 Club would continue airing for 1 1/2 hours a day, with segments at 10 AM and 10 PM, with the late-night slot moving out of primetime as earlier announced, to 11 PM by fall.

There are reasons beyond contractual requirements why Fox might want to continue airing the 700 Club. The Family Channel is carried on cable systems reaching 69 million homes in part to satisfy a Christian constituency that would protest vigorously if it were dropped. Thus the show helps assure Fox continues to be carried by operators.

"It's a practical relationship that will last a long time," said Peter Barton, former president of Liberty Media, which owns a small slice of IFE.

Many industry executives expect Fox to discontinue the network run of children's programming once the Family Channel completes its transition in the fall of 1998. Some Fox affiliates complain that it is difficult to promote other shows in their schedule during the kid's block and would rather use that time for news.

Fox sources say about half of its 22 owned stations already run news programs in the time period because they generate more money.

But Woods says there is no plan to discontinue the network children's block despite its ratings slide.

Fox sources say the broadcast and cable segments, in fact, will be used for cross-promotions and that they will be distinct in flavor. While the broadcast segment will continue to emphasize action shows popular with boys such as X-Men and Power Rangers, the Family Channel might opt for more wholesome programming.

To make the transition to the 700 Club, sources say the network will look for programming with themes about values. While the network programming is edgy, the Family Channel will strive for upbeat shows, drawing on the library of International Family Entertainment's MTM production arm.

Sources say many of the television hits in MTM's library are now licensed to Viacom Inc.'s networks, including Nick at Nite and TV Land in deals that will expire over the next two to three years. They say Fox is likely to keep those shows, including The Bob Newhart Show, Mary Tyler Moore Show and Rhoda for the Family Channel's prime-time block rather than licensing them out.

For Fox, the Family Channel is a weapon for remaining viable in the hotly competitive children's market. While Fox is the dominant broadcaster in the children's business, it has lost viewers to the WB Network, to Viacom's Nickelodeon and to Time Warner's Cartoon Network.

Fox feared it would no longer be able to keep kids loyal to its channel with cable alternatives.

Advertising revenues from children's programming on the broadcast networks dropped 16% last year over 1995, to $84 million. NBC has already bowed out of the children's business, with CBS and UPN expected to follow next year.

While children's programming is one of the fastest-growing categories in cable, the intense competition is beginning to erode profits. Sources say Nickelodeon locked advertisers into a two-year package this year anticipating that the new inventory sold next year by Family Channel could drive down advertising rates.

And as competition stiffens and profits decline, some producers wonder where the Family Channel will get the hits it needs to draw viewers. Fox's own slate is struggling with aging hits. Even Nickelodeon has been unsuccessful finding blockbusters like its early Ren and Stimpy and Rugrats.

"Icahn-Led Bondholders Take Control of Marvel From Perelman," by Floyd Norris, The New York Times, June 21, 1997

Bondholders led by Carl C. Icahn took control of Marvel Entertainment Inc. yesterday, seven months after they erupted in anger over a proposal that would have frozen them out while leaving control with Ronald O. Perelman, the financier who had overseen the comic book and trading card company while it first prospered and then fell into bankruptcy.

The bondholders took control of Mr. Perelman's stock, which had secured the bonds, and promptly replaced the board Mr. Perelman had chosen. Mr. Icahn became the new chairman. A former Marvel executive, Joseph Calamari, will head a transition team in running the company, with the current chief executive, Scott Sassa, expected to resign. Mr. Sassa had joined Marvel only last fall.

''The bondholders have now been vindicated,'' Mr. Icahn said. ''This is a great day for Marvel Entertainment and those of us who want to help this once great company emerge from Chapter 11 and make the most of its superb characters.''

The move came after a bankruptcy judge in Delaware refused to block the action. Efforts by Marvel's board to get another judge to intervene were unsuccessful.

The victory for Mr. Icahn, who bought a large stake in the bonds after they plunged in value in November following disclosure of a reorganization plan backed by Mr. Perelman, effectively severs Mr. Perelman's ties to the company. But while it embarrasses the financier who controls Revlon, among other companies, it does not mark a financial debacle for him. He made more than $50 million on his Marvel investment, in large part by selling the bonds.

Whether or not Mr. Icahn can keep control of the company will be decided in bankruptcy court, where his group is pushing a reorganization plan that is opposed by bank lenders led by Chase Manhattan. The banks argued in court that Marvel was insolvent, but the bankruptcy judge refused to see that as a reason to keep the bondholders from stepping in.

There was no immediate comment from the current management of Marvel. A spokesman for Mr. Perelman expressed disappointment over the court decision.

Marvel's assets include a large stake in Toy Biz, a company that owns the right to make toys based on Marvel characters. Marvel has had eight of the 11 seats on the Toy Biz board, and Mr. Icahn said that he and seven colleagues would replace the Perelman-chosen directors. The plan is to name Mr. Icahn chairman of that company as soon that board meets again.

Toy Biz officials declined to comment, but in the past they have argued that a change in control at Marvel would invalidate that company's right to pick eight directors.

Mr. Icahn, a former chairman of Trans World Airlines, is an active investor known for a willingness to act promptly. He did that in the Marvel bonds at a time when most people thought Mr. Perelman would be able to prevail. He persuaded the bankruptcy court in Delaware that it was the bondholders who held the real stake in the Perelman-controlled shares and therefore should be able to control them and the board.

The bondholders have proposed a plan that would give the banks some cash, or new notes if they chose, and ownership of the trading card and sticker companies that Marvel bought at the peak of the card market. Those purchases, of Fleer and Skybox cards, followed by Panini stickers, were a major reason that Marvel ran into financial trouble.

Under the plan, Marvel would then be recapitalized through a cash infusion from Marvel shareholders, led by the bondholders, who would guarantee the success of a rights offering. At one point, that plan also called for a merger with Toy Biz, but Toy Biz backed out. If Mr. Icahn succeeds in controlling that company, it presumably will rejoin the plan.

Toy Biz had earlier been the key to Mr. Perelman's plan to reorganize Marvel. He proposed to buy the Toy Biz shares not owned by Marvel and then contribute them to Marvel in return for an 80 percent stake in the reorganized company. That would have left existing shareholders, and the bondholders, with only a small stake in the company.

In New York Stock Exchange trading yesterday, Marvel fell 12.5 cents, to $2.125, and Toy Biz fell 12.5 cents, to $8.125.

"Nirvana Reaches For Guns, Megabands To Tour Together," by David Fricke, Rolling Stone, June 28, 1997

Axl Rose and Kurt Cobain have officially buried the hatchet, and to celebrate, their respective bands have announced that they will be launching a major co-headlining tour starting at the end of July, starting at the Georgia Dome in Atlanta. The tour will also be documented by a live album release sometime next year, which will fulfill both bands' contracts with Geffen Records (Guns N' Roses for the main label, Nirvana for the DGC Records imprint), but there will understandably be pressure for them to re-sign with the label, or possibly move over the the hottest new label of recent memory, Jimmy Iovine's Interscope Records, a sibling of Geffen under the MCA umbrella.

This coincides with Guns N' Roses releasing their new album, Chinese Democracy, on June 27, their first album since The Spaghetti Incident? in 1993 and their first album of original material since the dual release of Use Your Illusion I and Use Your Illusion II in 1991. The album has been doing a very brisk business in sales already and receiving heavy radio and video rotation and impressive critical reviews, referring to it as "not as ultra-polished as the Illusions, but not as wild and raw as Appetite for Destruction, achieving a perfectly happy middle to please all fans."

To announce the tour, Cobain and Rose did a joint statement. "Last year, Axl reached out to me to put all our bullshit behind us, and I could see that he was earnest and sincere," Cobain said. "We began to find ground on which we could build a foundation of trust, and began to pour our hearts out to discuss things freely. I also gave Axl advice on how to deal with things in his band, and they helped, as apparently things were getting to be hairy over there." "Slash was on the verge of quitting," Rose explained. "Basically, we'd been drifting apart and I couldn't see it. Kurt pointed it out to me, and I talked to Slash directly, and we were able to work things out."

More than that. Besides keeping the lead guitarist in the band, Guns N' Roses also fired rhythm guitarist Paul Huge, who replaced Gilby Clarke, who replaced Izzy Stradlin, and chose to fill the void again by having Stradlin return to the band on a drop-in, drop-out basis, depending on his mood and feelings about his solo work, with Clarke in the spot whenever Stradlin does not wish to be with Guns. The main core of Rose, Slash, bassist Duff McKagan, drummer Matt Sorum and keyboardist Dizzy Reed will remain unchanged, though potential touring member expansions could be in the future.

"I think this is going to be an interesting and lovely situation," Cobain says of the tour. "We've gotten to know each other a lot better, and I think it'll go quite well." Apparently, Guns had to outbid to obtain Nirvana's commitment, as the grunge stalwarts had received an offer to join The Rolling Stones on their upcoming tour to promote their new album, Bridges to Babylon.

"Apple's CEO Is Ousted As Steve Jobs' Role Expands," by Karen Kaplan, Los Angeles Times, July 10, 1997

Apple Computer, the onetime industry leader that has been struggling with declining market share and continued losses for the last several years, announced Wednesday that Chairman and Chief Executive Gilbert Amelio has resigned after a turbulent 17 months at the helm.

The Cupertino-based maker of Macintosh computers also said that Steve Jobs-who was himself ousted as chairman in 1985-will step up an advisory role he assumed in December 1996, when Apple acquired his NeXT Software Inc. But Jobs, who now heads Pixar Animation Studios, the computer animation company that produced Toy Story and which was purchased by Disney last year and gave Jobs a seat on the Disney board, has repeatedly said he is not interested in returning to the company he co-founded in 1977 on a full-time basis.

The ouster raised anew questions of Apple's ability to survive against an onslaught from rival PC makers offering cheaper machines that use Intel processors and Microsoft's Windows operating systems.

Apple, which once topped the U.S. personal computer market, is now barely holding on at No. 5. The company that revolutionized personal computing with its point and click technology has seen its market share fall from 14.1% in 1993 to 6.7% in 1996, according to Dataquest, a market research firm in San Jose.

Amelio is the second chief executive to be forced out of office in the last year and a half. He came to Apple in February 1996 after the company's board of directors ousted Michael Spindler, who had presided over continued heavy losses and speculation of a takeover, and himself came in after the ouster of CEO John Sculley, who'd been at the helm since 1983 and who ousted Jobs as Apple chairman.

Also departing Wednesday was Apple's Chief Technology Officer Ellen Hancock, an Amelio protege, who was effectively demoted after the NeXT acquisition.

Observers had hoped that Amelio would repeat the remarkable turnaround he engineered as head of computer chip maker National Semiconductor.

In an effort to return Apple to profitability, Amelio was forced to initiate two major waves of layoffs, the last of which involved cutting one-third of the work force. He also streamlined the business and discontinued less-profitable products. But Apple's board ultimately decided that the restructuring efforts were ineffective and that Amelio was unlikely to succeed in turning things around.

"The board of Apple is not happy with Apple's financial performance," said Fred Anderson, Apple's executive vice president and chief financial officer, who will assume responsibility for the company's day-to-day operations until a new CEO is hired. "We've strengthened our cash position, we've lowered our break-even point, and we've improved product quality. But the fact is we're not yet on a growth path, and we haven't returned the company to sustainable profitability."

Apple's stock has languished in the $13 range-a 52-week low-despite the cost-cutting efforts that included more than 4000 layoffs. In its heyday, the stock sold as high as $73.25. Apple shares closed at $13.69 in NASDAQ trading Wednesday before Amelio's resignation was announced.

Amelio's departure comes exactly one week before Apple will announce its quarterly financial results, leading analysts to suspect that the company's losses will be even worse than previously projected. Earlier this year, Amelio was forced to push back his target date for bringing the company out of the red.

"Clearly, if this were going to be a good quarter or if Apple were moving in the right direction, Amelio would still be there," said Scott Miller, an analyst with Dataquest. "You can expect things to be pretty ugly next week."

Amelio, whose resignation was effective as of Wednesday, was not available for comment.

The search for a new chief executive will begin immediately, and the company is looking for a more charismatic leader who can reinvigorate employees, product developers and customers. Anderson said he expects the search to last at least three months.

"When a company goes through a transition like this, you've got to keep your faithful on board and find someone fairly charismatic to take everyone through the valley of death and emerge on the other side," said Miller. Jobs demonstrated that ability earlier this year at Apple's annual conference for software developers, Miller said. "In five minutes, he had the developer community on their feet and got everyone interested and motivated."

Speculation has centered on whether Jobs would take on that role, although Anderson downplayed that possibility. Jobs could not be reached for comment.

"My belief is that he is very comfortable being the CEO of Pixar and a Disney board member and devoting a substantial amount of time to Apple," Anderson said. Jobs will focus on Apple's product strategy, business partnerships and sales and marketing duties, Anderson said.

Apple employees were alerted to the news by a company-wide voicemail message delivered at 1:30 PM Wednesday. That was followed up by an electronic mail message that gave little hint as to what led the board of directors to act now.

"We were all in shock," said an engineer who works on Rhapsody, the next-generation operating system for the Macintosh line of computers.

"This is coming at just the worst time because we have a really good product line right now, the school buying season and the Christmas season are coming up, and if everyone thinks Apple is an unstable company that won't be around tomorrow, they won't buy the product," said the engineer, who asked not to be identified.

Indeed, such sentiments have put Apple in a vicious cycle of declining market share, losing key employees and seeing software developers abandon the platform. In the last year, half a dozen high-ranking executives have left or were pushed out of the company. In a major blow last week, top Macintosh clone maker Power Computing announced it would add Intel-Windows machines to its product lineup.

Those problems have combined to reinforce Apple's image as a company with innovative technology and impressive products but without the managerial leadership to translate that into growing sales.

While some analysts credited Amelio for making nuts-and-bolts improvements to Apple's balance sheet, he was widely criticized failing to focus on customers and act with a sense of urgency, instead letting Apple continue to slide further into oblivion.

"The company has been going through a bunch of convulsions, and Gil has not been able to really stem them to any great effect," said Daniel Kunstler, a senior equity analyst with J.P. Morgan in San Francisco.

But other analysts said outside forces had doomed Amelio to failure from the start.

"Gil signed up for a job that was un-doable," said Kurt King, an analyst with Montgomery Securities in San Francisco. "Apple is too far gone to be a realistic candidate for a turnaround. Gil may not have known it then, but it's got to be pretty clear to him now."

Whoever is eventually persuaded to replace Amelio will have to do some major soul-searching for Apple, analysts said. Many suggested that the company increase licensing deals with Macintosh clone makers. They also suggested that Apple identify and drop its less profitable product lines.

While the declining stock prices have renewed speculation of a takeover, analysts insisted Apple is unlikely to sell out now.

Larry Ellison, the billionaire chief executive of database software company Oracle, this year went public with his interest in personally buying Apple. Though he ultimately decided against it, he enlisted the support of billionaire Saudi Prince Al-Waleed Bin Talal, who owns a 5% stake in Apple.

In addition, Apple earlier endured weeks of speculation that it would be taken over by Sun Microsystems, another Silicon Valley rival.

Fixing Apple "becomes more difficult by the day, and it's hard to say whether there's still a window of opportunity," said Seymour Merrin, president of Merrin Information Systems, a Palo Alto company that tracks computer sales. "Clearly, Apple is a great franchise, and it is worth a good shot at saving."

"Microsoft And Apple Affirm Commitment To Build Next-Generation Software for Macintosh," PRNewswire, August 6, 1997

Companies announce patent cross-license agreement.

Microsoft announces Office 98 for Macintosh; Apple announces Internet Explorer to be bundled with Mac OS.

Product commitment backed up with $150M Microsoft investment in Apple Computer.

Boston-In a keynote address delivered today at Macworld Boston, Apple Computer Inc. director and co-founder Steve Jobs and Microsoft Corp. chairman and CEO Bill Gates announced a broad product and technology development agreement between Apple and Microsoft including the following:

-The companies agreed to a broad patent cross-licensing agreement. It paves the way for the two companies to work more closely on leading-edge technologies for the Mac platform.

-Microsoft will develop and ship future versions of its popular Microsoft Office productivity suite, Internet Explorer and other Microsoft tools for the Mac platform.

-Apple will bundle the Microsoft Internet Explorer browser with the Mac OS, making it the default browser in future operating system software releases.

-Apple and Microsoft plan to collaborate on technology to ensure compatibility between their respective Virtual Machines for Java and other programming languages.

-To further support its relationship with Apple, Microsoft will invest $150 million in non-voting Apple stock.

"In 1985, Steve Jobs and I stood together when Microsoft announced Microsoft Excel, an application that is widely credited with helping to define the potential of the Mac as a great applications platform," said Gates. "Today's announcements underscore our continued belief in the Mac as a platform for applications and leading-edge Internet technologies. Microsoft has millions of customers who rely on Macintosh technology and they can be assured that Microsoft products for the Mac will continue to be available."

"We are thrilled at the prospect of working more closely with Microsoft on applications and Internet software" said Jobs. "We are confident that this is the beginning of a much closer relationship between the two companies, which will greatly benefit our common customers."

"Microsoft Comes to the Aid of a Struggling Apple," by John Markoff, The New York Times, August 7, 1997

In a stunning alliance that could alter the map of the computer industry and help insure the survival of Apple Computer Inc., the company announced a financial and business partnership today with its archrival, the Microsoft Corporation.

Microsoft, whose personal computer operating system software has long been the dominant alternative to Apple's Macintosh software, agreed today to invest $150 million for a nonvoting minority stake in Apple. The companies - whose advocates in the PC industry and user communities are divided into almost cultlike camps - also agreed to cooperate on several sales and technology fronts.

Some of the Macintosh faithful felt so betrayed that they booed and catcalled when Apple's co-founder and acting leader, Steven P. Jobs, announced the Microsoft deal here at the Macworld trade show.

And yet, as both companies explained the deal and as Apple announced a new board with members from other key companies, the day's developments made clear how interdependent many parts of the computer industry have become and how committed Mr. Jobs and the industry are to reviving Apple.

In the long run, Microsoft might have conceivably benefited from the demise of Apple if it meant that the one of every 10 PC users who employ Macintosh computers finally capitulated and adopted Microsoft's Windows operating system.

But in the nearer term, which is what today's deal emphasized, Microsoft cannot afford to let Apple die. Even while Microsoft's Windows over the years has relegated Apple's Macintosh software to a niche market, Microsoft is also the largest seller of word-processing, spreadsheet and other programs for Macintosh computers. The Macintosh market, in other words, is too big for Microsoft to lose.

And many other companies have an interest in Apple's remaining in business because it represents an alternative to the Microsoft monolith - even if part of the help comes from Microsoft itself.

''Apple is important, and this is good for the computer industry,'' said Eric Schmidt, chairman and chief executive of the Novell Corporation, which sells the leading brand of software for business computer networks but is facing increasing pressure from Microsoft.

And in perhaps the day's most striking strange-bedfellows example, Apple announced a new board that included Lawrence J. Ellison, chairman of the data-base software company Oracle, who is a personal rival and public critic of Microsoft's chief executive, William H. Gates.

But Mr. Ellison is also a friend of Mr. Jobs. And Mr. Jobs, who did not clinch the deal with Microsoft until 2 AM, just hours before going on stage here to announce it, structured the agreement in a way that gives Apple continued autonomy as it tries to recover from a plunging market share and $1.7 billion in losses over the last seven quarters.

As a giant video screen beamed in the live image of Mr. Gates from Microsoft's headquarters in Redmond, Washington, Mr. Jobs chided those in the audience who responded with catcalls while explaining the Microsoft deal. ''We want to let go of this notion that for Apple to win, Microsoft has to lose,'' Mr. Jobs said. ''We better treat Microsoft with a little gratitude.''

For Apple, there would seem to be little to lose by cooperating with Microsoft as long as Apple remains autonomous. And antitrust experts predicted the Government would have no problems with the deal because it gives Microsoft only a small stake in Apple and no voice in the board room.

Still, the size of Microsoft's $150 million investment - worth only 4.5 percent of Apple's stock market value, which at the end of the day was $3.3 billion - is not nearly as significant as the vote of confidence it represents, coming as it does from the PC industry's dominant software company. Apple did not disclose its plans for the investment.

Investors responded by sending Apple's shares up $6.5625 today, to $26.3125, their highest since May 1996, and making the stock the day's most heavily traded, with more than 37 million shares exchanged. Microsoft rose 12.5 cents, to $143.4375.

Apple is ''still in the tunnel, but at least we can see the light,'' said Charles Wolf, an Apple financial analyst at Credit Suisse First Boston.

One of the company's big investors, Prince Al-Waleed bin Talal of Saudi Arabia, who bought more than 5 percent of Apple last April, said by telephone that he was studying Apple's announcement today and declined to comment.

Among other measures, the two companies agreed to end a year-old patent dispute by cross-licensing patents for which Microsoft will pay Apple an undisclosed amount over two to three years.

Microsoft also agreed to offer new versions of its Office software programs for the Macintosh on the same schedule as programs for use with Microsoft Windows products over five years. That would end a marketing advantage that Microsoft has long wielded.

If there were any losers today, it might be two companies that will compete with an Apple-Microsoft alliance.

Part of the deal calls for Microsoft's software for browsing on the World Wide Web, called Internet Explorer, to become the standard browser for use on Macintosh PCs. Users could still choose to install and use the rival browser, Navigator, from the Netscape Communications Corporation, but Internet Explorer will now have the same built-in advantage in the Macintosh world that the Microsoft program already enjoys among many new Windows PCs.

Another facet of the Apple-Microsoft deal is the companies' plan to jointly develop a version of Java, the Internet software language. That software would compete with the variant from Java's inventor, Sun Microsystems.

Mr. Jobs described these details today in speech to 2000 Macintosh users. And the bold new directions were a striking contrast to the rudderless atmosphere that the computer maker, based in Cupertino, California, had evinced over the last 18 months under the former chairman and chief executive, Gilbert F. Amelio.

Mr. Amelio was forced out by Apple's board last month, and Mr. Jobs, as a designated ''special adviser'' to the board, appears to be the acting head of the company as it searches for a new chief executive, although he has indicated that he does not intend to return full time.

Mr. Jobs, dressed in a white shirt and a dark sweater vest, pressed his hands together under his chin in an almost prayer-like gesture and began by telling his audience that he was confident that Apple would achieve a financial turnaround.

''Apple is the only company people feel passionate about,'' he said.

In one sense the Jobs-Gates alliance brings together the two men who more than any others took the personal computer from a hobbyists' pastime nearly two decades ago and turned it into an industry - one based on the bold proposition that PCs were potent tools with world-altering potential.

Mr. Jobs said the company would narrow its focus, concentrating on the educational, graphics and publishing markets.

While the two men have different backgrounds and personalities, they have been partners in the past. Microsoft was an early producer of software for the Macintosh. But Microsoft sold its software more aggressively and more successfully than Apple sold its PCs. After introducing its Windows program in 1985, which imitates the graphical Macintosh approach to computing, Mr. Gates's Microsoft grew to become the dominant force in the industry.

Mr. Gates said in a telephone interview today that discussions between Apple and Microsoft had been taking place off and on since a previous chief executive, Michael Spindler, left Apple to make way for Mr. Amelio in early 1996.

But the talks recently became serious soon after the Fourth of July holiday, Mr. Gates said, when Mr. Jobs informed him that Mr. Amelio was about to be forced out.

Mr. Gates said the call had surprised him because he had just received a letter from Mr. Amelio urging Microsoft's cooperation on several industry issues.

''Steve told me the letter was a moot point,'' Mr. Gates said.

He said he was initially concerned that Mr. Jobs would try to interest Microsoft in supporting a new software operating system, called Rhapsody, that Apple has been developing based on technology from NeXT Software Inc., which Apple acquired from Mr. Jobs earlier this year.

''I thought to myself, 'Oh no, here comes Mr. Rhapsody,' '' he said.

But Mr. Gates said it soon became clear that Mr. Jobs was seeking a Microsoft investment in Apple.

Two days later, Mr. Gates sent Greg Maffei, Microsoft's chief financial officer, to Cupertino to enter into direct negotiations with Apple.

That eventually led to a series of phone calls between Mr. Gates and Mr. Jobs that continued through early this morning, when the two companies reached a final agreement.

Significantly, as Mr. Jobs publicly described the alliance today, he made no mention of the coming Rhapsody software, instead taking pains to extol Apple's current Mac OS8 operating system.

Analysts speculated that Mr. Jobs was tacitly acknowledging that Rhapsody remained a future product while the Mac OS8 software package was generating revenue now.

"Australian Native Sons Mel Gibson and Bruce Davey of Icon Bring It All Back Home," by Kim Williamson, Box Office Magazine, August 15, 1997

Fourteen years ago, actor Mel Gibson was worried about the future of the Australian film industry. "Canada seems to have blown it. Australia could well do the same," he said. Gibson, who'd come to prominence with such Oz productions as Mad Max, Tim, and Gallipoli, had just finished another Down Under effort, The Year of Living Dangerously. On the big screen, the continent had also recently produced such hits as My Brilliant Career, "Breaker" Morant and The Man From Snowy River. But Gibson feared that, fueled by success, the country's production would expand too quickly, causing a ramp-up in costs that would lead to the industry's downfall.

Cut to a gray day in summer 1997. Whatever worries Gibson had about movie making Down Under seem to have dissipated like this morning's marine layer over the Warner Bros. lot, where Gibson's Icon Productions is housed in a two-level bungalow of offices. In a casually appointed suite, Gibson, as chairman and creative force of Icon, and Bruce Davey, who, drawing on his chartered accountant background, oversees the nine-year-old company's financial affairs as president and CEO, are talking about the company's future in an exclusive interview with BOX-OFFICE. And the future at Icon seems busy and bright. In February 1996, Icon announced it had signed two major-studio production deals: a continuation of its original Warner pact, in place since January 1991, plus a new agreement with Paramount, domestic home of Icon's Oscar-winning Braveheart. This past August, Icon entered into a three-year joint venture with Fox Filmed Entertainment to develop, produce and distribute films in Australia, using Fox's still-under-construction Fox Studios Australia in Sydney as home base.

"I think it's the same as it's always been," Gibson says of Australian filmmaking today. "Pretty much just really talented people operating on a shoestring, turning out quality stuff from time to time. Per capita, there's a lot of activity down there, even compared to the film community here. It's like a drop in the ocean, and yet they manage to more than fulfill a kind of populist quota."

In their yet-to-be-named Aussie venture, at the moment, just call it Mel & Murdoch, Inc., headed by leading Down Under producer Timothy White (Angel Baby, Oscar and Lucinda), the companies will work together on a yet-to-be-determined number of pictures. The films will be owned by Fox/Icon, with Fox distributing outside Australia. (Other Icon productions are copyright World Icon, an investment group originally formed to finance Hamlet when no studio would.)

"Our association with Fox came through Braveheart," Davey explains. "Fox took the foreign side of Braveheart." "When Fox started to build their studio down there," Gibson adds, "it seemed like an opportune time to get into bed with these guys that we'd had such a good experience with."

But a sense of national pride was also involved. "I don't know whether Mel and I ever had the specific conversation," Davey says, "and if we didn't have it, it was most probably thought: that one day we'd like to give something back to Australia.

"I think it will be fabulous," Davey adds, speaking of the entire $120 million Fox effort. "There will be state-of-the-art soundstages and TV studios and theatrical studios. The first production there is underway, they're doing the sequel to Babe. It's going to be great."

Gibson poses a question for his partner. "It's going to take a while for it to really wind up, isn't it?" "Yeah," Davey replies.

"It always takes time," Gibson adds, nodding. "When we started Icon, we were at it for about three years before we got a shot off. It just takes a long time to generate things. But this is going to be very valuable, and I think a lot of good work's going to come out of there."

When it comes to discussing the specifics of Icon's involvement with Fox, the partners prove more reserved. "We have an office facility at the moment, not on the lot, but they will move," Davey says. "We have only three employees down there. They're identifying projects for us to jointly develop with Fox." As to what percentage of Icon projects will be shot in Australia, Davey says, "We can't say. After Braveheart, we did nothing for a couple of years. We aren't going to make a movie for the sake of making a movie, and you've no idea whether something's going to come along." Presented with a hypothetical scenario, in which Icon would make a dozen movies between now and the year 2000, might a significant number be made in Australia? "We can only hope that that would be the case," Davey says carefully. But Gibson's response is equally interesting; almost to himself, he adds, "A dozen projects in three more years? It's possible!" He laughs, as if implying it's not probable. "The company would have to grow."

Fulfilling its Warner and Paramount pacts might demand exactly that: that Icon grow. Industry reports state Icon, which has made 12 films since its 1988 launch, will make four pictures for each studio over the next three years, with Gibson starring in one, directing another, and producing two more. "You know more than I do," Davey says, prompting more laughter from Gibson. Both partners take a certain pride in not having a formal business plan. The uncertain availability of worthwhile projects is the cited reason. "The business dictates that in a lot of cases," Gibson says. "It's so fickle. You get things coming from left field and right field."

"I can give you an example," Davey adds. "We did Braveheart and then we did nothing for almost two years. And then we found ourselves shooting three films on three separate continents at once." (Those are Leo Tolstoy's Anna Karenina, released stateside by Warner this past April; 187, an urban drama opening via Warner in late July; and the charming FairyTale: A True Story, a family film Paramount has slated for October.) "Since those three films, it's been 12 months since we were physically shooting. With that sort of scenario, how can you possibly build a business plan?" Without such a plan, will Icon meet its Warner and Paramount commitments and develop fare for its Fox/Icon venture, and allow time for Gibson's extramural adventures, such as his new non-Icon thriller Conspiracy Theory? "You can only do your damn best, I think is the answer," Gibson says. "You might not get to four. But it won't be through lack of trying. You might get three, you might get five! You just have to keep looking all the time and developing ideas you think will work and see how they take hold."

Of the two studio deals, Gibson says, "Basically, it's our call, so it's up to us to get stuff to a stage where we're happy with it." Still, as Davey says, "They all want Mel Gibson projects," exemplified by Paramount's demand for at least one action picture to star him.

"You don't know what's going to work with what studio," Davey says. "It's no secret we took 187 to Paramount first, and they passed. And Warners picked it up. And what might not work for Warners might work for Paramount."

"You're a bit like the Fuller Brush man," Gibson adds. "You come to the house and you say, 'Hey, we got some of these, some of these, some of these, and these, what do you like, you like anything?' And he says, 'Yeah, the onion peeler. That's a good one.' They have to like it too. [After all,] we're not alone in this."

"It's a two-way street," Davey says. "It's not going to work if they're not sending us stuff, and it's not going to work if we're not sending them stuff. And we want it to work." Or, as Gibson puts it, "You just have to keep in mind your obligations, and try not to stiff anybody."

Along with its Australian and American ventures, Icon has entered a third continent: Europe. In September 1995, Icon Entertainment International was formed to handle overseas sales for Icon productions and third-party films in which the company takes an interest. The following month, it bought international rights to 20 films from the Kings Road library, including All of Me, The Big Easy and Jacknife. Located in London's Soho Square and run by former Lumiere managing director Ralph Kamp, Icon International this past fall also acquired Majestic Films, another London-based sales company, in a $10 million deal.

Previously, Majestic had handled foreign rights for certain Icon titles, counting among its 220-film library Icon's The Man Without a Face and Immortal Beloved. Despite apparent duplication between Icon International and Majestic, Davey says the two will remain separate. "We're running them side by side. I think that it's appropriate to keep Icon for Icon films. Icon, I think, has earned a certain reputation." Majestic will handle "films that we're going to finance and other people are going to go and produce." The first such production is Saint Ives, a Robert Louis Stevenson adaptation being made by Ireland's Little Bird.

The overseas effort was launched out of bottom-line pragmatism. "We [opened Icon International] because I figured out that what we were paying Majestic to handle our films would cover our overhead to do it ourselves," Davey says. "It then seemed prudent to try to cover the overhead of [the international] operation by library acquisitions, so that we weren't put in the position, like a lot of these sales companies are, of having to go out and find product. Once again, we don't want to make movies that we don't want to make, so you don't want to be selling movies for the sake of having to cover your overhead. Having a library is a foundation, it generates cash flow, which leaves you free to concentrate on fewer movies, and hopefully distribute them better, on the basis that less is more."

Two prominent film companies that, like Icon, made studio films for which they retained the copyright are/were Castle Rock and Cinergi. Both companies, while trying to grow their libraries from the inside, eventually had to sell out to conglomerates (respectively, Time Warner and The Walt Disney Company). On the other hand, on the morning of BOX-OFFICE's visit to Icon, Wall Street sources were insisting that MGM, which like Icon has been making library deals, in its case to make itself more investor-attractive-is readying to go public via a late-1997 stock offering.

Neither selling stock to shareholders nor selling out to an entertainment giant interests Gibson and Davey. "I've talked to other guys who went public," Gibson says, "and it's been like a nightmare for them."

Davey agrees. "Those things are often put together by lawyers and accountants for their own reasons, and not for the benefit of the company." But wouldn't Icon love the access to virtually unlimited capital that a large corporate parent might provide? "Yes, but the interesting thing about the way we do our movies is that there is a discipline in the way that we work," Davey says. Which is this: Their sales experts define how much the market will invest in any particular production. "They come back and say, for example, 'We can raise $15 million.' So I say to my physical production guys, 'What's this going to cost me to make?' And they say, 'It's going to cost $20 million.' Well, you know it's not going to work. So you either come up with a way to make it for $15 million, or we can't do it. If someone said, 'Here's a pot of $100 million [to draw on],' people are going to lose sight of the discipline to make it work at $15 million. It's too easy to say, 'We'll just take $2 million from that hundred million.'"

Icon is no stranger to making rigorous budgetary decisions, even on works that are especially dear to Gibson and Davey's hearts. A story Gibson tells about shooting Braveheart illustrates the point. The production was running low on time and money. "Literally, there was a place and a day near the end of the shoot where we did rip 12 pages out of the script. And it forced us on the creative side to be creative. Because we had to find a short cut there somehow. And we came up with something better than what was there in the first place."

Gibson and Davey hail from different continents, Gibson was born in Peekskill, New York, while Davey is a Down Under native, but their partnership of 17 years feels like a good one. Part of that is due to their shared Aussie sensibility; Gibson's family emigrated to Australia when he was 12, and he still maintains a ranch in the Australian Outback. As the 41-year-old has put it, "I formed my opinions in Australia."

The two men's different career abilities complement each other. "I'm a fiscal imbecile," Gibson says. "But Bruce is really good at that stuff. He's got a better overview for, like, business plans and situations than I do."

"The business plan that we don't have," Davey reminds him, laughing. "I think as time has gone on, Mel has exhibited this 'fiscal imbecility' of his, but he's not such an imbecile these days as he used to be." At that, it's Gibson's turn to laugh. "Vice versa: In terms of learning about creating things, I've learned a lot from Mel."

"But we both get snagged," Gibson says. "Every now and then, you just stand there and you think, 'Oh, man, we've just been done over,' or 'We came out the worst end of this deal,' or 'Gee, we won't do that again.' And it usually costs in some way, either financially or emotionally. We call it 'school fees,' which is a kind of good way to look at it." He chuckles. "I guess."

"We're still paying them," Davey laughs. "Yeah," Gibson admits. "But we got a gold star along the way, here and there."

"SCOTUS Quashes Jones Lawsuit," New York Daily News, August 18, 1997

In a unanimous 9-0 ruling, the Supreme Court ruled today that Paula Jones' lawsuit against President Clinton would not go ahead while he is in office. In the official decision, Chief Justice William Rehnquist said that there was no overriding need for Ms. Jones' civil suit to be heard against a sitting President while he is still in office. "As Ms. Jones is seeking a civil suit rather than a criminal case, there is no timetable of urgency that determines that it must absolutely be heard right now, rather than waiting for President Clinton to be out of office. Furthermore, the time for the President to have to respond and be deposed while having to deal with affairs of state is simply not ideal and could potential overwhelm with far too much to handle. The decision to have the lawsuit heard would also have established a precedent in which sitting Presidents have to deal with trivial matters and could be made to answer anything, even if it is frivolous or false. While the President is not above the law, he is also not below it."

Ms. Jones had filed a civil lawsuit against President Clinton back in 1994, alleging that she had been sexually harassed by him while still Governor of Arkansas in 1991. This affair, along with others, had been bundled as part of the so-called Whitewater affair being investigated by Independent Counsel Kenneth W. Starr, about potential improprieties by the President and First Lady Hillary Rodham Clinton. This decision, compounded by an apparent trap that failed to spring when President Clinton admitted to an "improper" affair with White House intern Monica Lewinsky earlier this year, effectively throttles the Independent Counsel's investigation to be solely focused on the original Whitewater scandal, and means that said investigation should wrap up quickly. With an expected result of finding no evidence of wrongdoing on the part of either President or Mrs. Clinton, this will effectively free the President to focus the remainder of his second term on matters of policy.

But does that mean that it will be all wine and roses for the Clintons? Absolutely not, because those with the bit in their teeth will simply move to a likely unparalleled degree of attacking his policy proposals, even should he manage to convince Republicans to pass them. This opposition comes not only from Republicans, but the more progressive wing of his own party, who charge that President Clinton has sold out the New Deal, and betrayed liberalism with actions such as NAFTA, his crime bill and welfare reform.

"Steve's Job: Restart Apple," by Cathy Booth, Time, August 18, 1997


Steve Jobs is sitting in the Apple boardroom. Actually, he is slouched like a teenager in one of the cushy leather chairs, his worn jogging shoes resting on the directors' table. The table is very long, very impressive-and very empty. Just Jobs here, wearing shorts and an impish grin. The old board of directors at Apple is history, he says. He's about to leave for Boston, where he'll make that news public, along with a far more dramatic announcement. One more thing, he says, feet still propped up on the executive woodwork-the company's headquarters in Cupertino, California, is history too. Eight stories of corporate excess are about to be abandoned. "I hate this building," says Jobs. "This building has come to symbolize everything that went wrong with Apple. It's about corporate hubris. Greed." This is not a building that can make "insanely great" computer products.

The rebel flag is flying over Apple Computer, Inc., again, thanks to Jobs. The Silicon Valley visionary who co-founded Apple in his father's garage in 1976, who launched the wildly successful Macintosh only to be booted by the corporate pinheads in 1985, is back running his first love. No, he's not the CEO, nor even chairman of the board. But until there's a new boss, Jobs is firmly at Apple's helm, and take it from us, the beleaguered company will never be the same. Take it too from the 1600 Macintosh believers who gave him a standing ovation at the Macworld Expo in Boston last week, then booed, hissed and finally sat in shocked silence as Jobs announced that Apple's salvation would be a strategic alliance with none other than... Bill Gates of Microsoft.

Understand, the idea of Jobs returning to Apple is something akin to that of Luke Skywalker returning to fight what, until last week, cultists regarded as the evil empire. Gates, by comparison, was perceived as a dweeb Darth Vader, the billionaire bad guy who usurped the idea of the Macintosh's friendly point-and-click operating system for his now dominant Microsoft Windows.

Boo, hiss, a strategic alliance indeed. Is Jobs crazy? "Madman at the wheel, eh?" he said, laughing, as he walked off the stage in Boston.

American business has had its share of imaginative entrepreneurs, malevolent bosses, boardroom plotters who hatch late-night coups, strategic decision makers who make disastrous turns and heroic turnaround artists who restore corporate glory with breakthrough thinking and messianic zeal. Generally, that would describe more than one person. But Jobs is a one-man miniseries of capitalism whose ratings are rising again. Within hours of the announcement, Apple stock soared 33% to $26.31. Sipping a celebratory water on the plane ride home, Jobs pointed out that people had been so shocked they missed the big news: Microsoft would be paying an undisclosed amount to settle claims that it had used seminal Apple computer patents. "Three or four weeks ago," said Jobs, "I called Bill and said Microsoft and Apple should work more closely together, but we have this issue to resolve, this intellectual property dispute. Let's resolve it." With Jobs' no-nonsense negotiating, it was done quickly, with Gates not only promising to pay off Apple but even investing $150 million in nonvoting Apple stock. The rebels can now withdraw to their original "campus" in Cupertino-the one without the fancy boardroom-and live on to fight another day.

The tale of Steve Jobs has long been a Silicon Valley legend. It was Jobs who, as a long-haired and barefoot twentysomething, set in motion the revolution called the personal computer by making it "user friendly" to the masses. Jobs didn't invent the machine; his partner Steve Wozniak was the real engineer. But Jobs understood before anyone else the key to transforming the computer from a geek's expensive toy into a household appliance. Instead of writing commands in computerese, Macintosh owners used a mouse to point and click on easily identifiable icons on the screen-a trash can and a file folder. Jobs also paired the laser printer with the computer, thus sparking the desktop-publishing revolution. "We started out to get a computer in the hands of everyday people, and we succeeded beyond our wildest dreams," laughs Jobs.

Jobs is intimidating at first. He has, after all, been portrayed as an abusive monster, and countless colleagues attest to his arrogance and intolerance. But now, even during the week of the highest stress he has faced in years, he exudes his other side: the Zen-like calm and the impish aura that make him so different from his arch friend and arch rival Gates, a man of competitive intensity and analytical rigor. This Jobs literally lopes into the room, and he keeps using the word golly. So OK, golly, it's true that the famed "Reality Distortion Field"-that renowned Jobsian ability to bamboozle and bedazzle-still works, but it's a slower seduction these days, not a manic pitch. At 42, he may have mellowed, but as a motivator and marketer he still has no equal.

The adopted son of working-class parents, Jobs became a millionaire by age 25, an American icon by age 30 and corporate history the same year, all thanks to Apple. It would be easy to read his return-12 years after he was booted by the board-as a moment of sweet revenge. But for Jobs, who grew up idolizing the Hewlett-Packard ideal of an egalitarian workplace where ideas came before hierarchy, returning to Apple is something akin to rescuing a son before he loses himself to booze and bad company. There has been a literal deathwatch on Apple in recent weeks. It had sales of $9.8 billion last year, but revenues have dropped significantly in 1997. Losses have mounted-more than $1.5 billion over 18 months. Jobs prefers to see hope in the 20 million to 25 million users who remain. He even has a hard time uttering the D word. "Apple has some tremendous assets, but I believe without some attention, the company could, could, could-I'm searching for the right word-could, could..." He pauses and gives in: "die."

All last week, Jobs allowed TIME to follow him as he negotiated his detente with Gates and prepared for the Boston meeting, then headed back to California to work at what he calls his "preferred squeeze"-Pixar Animation Studios, the Jobs company that created the 1995 hit movie Toy Story, the first animated feature film made entirely by computer. Pixar, which was purchased by The Walt Disney Company last year, soon after the release of the movie and a successful IPO stock offering for Pixar, represents pure creation, a whole new era of entertainment that blends good storytelling with computers. "It's so fun at Pixar," he says, reveling in his new role as Hollywood mogul on the make. Likewise for his part-time role as a Disney board member. Apple, on the other hand, requires heavy lifting. "It's like turning a big tanker. There were a lot of lousy deals that we're undoing."

So why go back to a company that has ejected CEOs like so many bad diskettes? "I wouldn't be honest if some days I didn't question whether I made the right decision in getting involved," he says. "But I believe life is an intelligent thing-that things aren't random." In other words, there's a reason why his path has crossed Apple's again. A chance to pay penance? Or perhaps to prove he has grown up.

On Monday, two days before the fateful announcement, Jobs has the run of Apple headquarters. Most of the executive suites are already empty, their inhabitants gone to Macworld or just plain gone. Apple's management ranks have been thinning at an alarming rate. Only Fred Anderson, the chief financial officer, is roaming the halls as Jobs negotiates with Microsoft by phone and works on a quickie video of the new Apple board he virtually handpicked-naturally to include his buddy, Oracle chief Lawrence Ellison, who considered his own takeover bid of Apple this spring. "We caught Larry Ellison in the San Jose airport last Friday before he left for vacation," says Jobs, chuckling, as he watches raw video footage in the boardroom. "Apple is the only lifestyle brand in the computer industry," Ellison is saying onscreen. "It's the only company people feel passionate about. My company, Oracle, is huge; IBM is huge; Microsoft is huge; but no one has incredible emotions with our companies." Jobs is pleased.

All day long, the de facto helmsman races in and out, trying out bits of his Wednesday speech. He is aware of the naysaying, that Apple, with its single-digit market share, is doomed to fall before the Goliath of Microsoft. At Macworld, he will stress instead Apple's domination of education and desktop publishing. He fiddles with a paper clip as he thinks out loud.

"What if Apple didn't exist? Think about it. TIME wouldn't get published next week. Some 70% of the newspapers in the U.S. wouldn't publish tomorrow morning. Some 60% of the kids wouldn't have computers; 64% of the teachers wouldn't have computers. More than half the Websites created on Macs wouldn't exist," he says. "So there's something worth saving here. See?"

Painful as it is for a founding father, he keeps up daily with the rumbles about Apple on the Internet, the world's most extensive gossip mill. The chatter is of proxy fights and takeovers, the frustrations vented by clonemakers and Mac users alike. He understands; he really does. He gave up on Apple himself just two months ago and unloaded the 1.5 million shares he got as part of the $424 million Apple paid him for NeXT Software Inc. last December. "Yes, I sold the shares," he says. "I pretty much had given up hope that the Apple board was going to do anything. I didn't think the stock was going up." He ruefully notes that he sold them in June when the price was around $15 a share, about $16 million less than they'd be worth now. Today he holds a symbolic one share of Apple-and is unapologetic about not holding more. "If that upsets employees," he says, "I'm perfectly happy to go home to Pixar."

Within weeks of his sale, of course, the board ousted CEO Gilbert Amelio after 17 months on the job. Jobs says the board came to him and offered him both the CEO's and chairman's job. "I thought about it," he admits, "but decided it wasn't what I wanted to do with my life." Taking the chairman's job, in particular, he said would "scare away" any real candidate for the CEO's job, given Jobs' penchant for down-your-throat management. Yet it may not be much better for the new CEO to have him sitting on the board, especially the reconstituted activist board of Jobs allies that he hopes will keep Apple on the right path. "I've agreed to be a board member, and that's all I can give. I have another life now."

The Steve Jobs who is currently running two sophisticated companies lives in a turn-of-the-century English-style country house in Palo Alto with his wife Laurene, 33, their two young children and his 19-year-old daughter Lisa, home from college for the summer. The house is run with a distinct 1960s flavor. Laurene has planted a garden of wildflowers, herbs and vegetables all around. The rooms are sparsely decorated, the only extravagances being Ansel Adams photographs. We dine as the Jobses always do: both are strict vegans, eating no meat products. Dinner is pasta with raw tomatoes, fresh raw corn from the garden, steamed cauliflower and a salad of raw shredded carrots. While the adults eat, their six-year-old son picks lemon verbena and other herbs in the garden for the after-dinner tea. His reward is a tickle and being tucked into bed by Dad.

Over dinner, Jobs tells how Laurene overloaded his circuits eight years ago while he was speaking at nearby Stanford University. "I couldn't take my eyes off her," he says of the brainy blond MBA. He "bagged" a business dinner to be with her, he says, and they've been together ever since. Conversation is a mix of politics, Laurene's work setting up a mentor group for a nearby high school and tales of a presidential visit last summer when Bill Clinton rang up and invited himself to dinner so he could meet with Silicon Valley executives. "We had to rent a Dumpster to clean out the house before they came!" says Jobs, whose prenuptial housing style was "spare," if that's the term for lacking furniture. The couple giggle over their search for cheap wine glasses to serve the President. The menu was, naturally, vegan.

Tuesday Jobs heads for Boston, traveling commercial, albeit first class. Once there, he surveys the Castle, a puny downtown venue chosen months ago for what was expected to be a snoozer of a speech to Mac enthusiasts by Amelio. Jobs has assembled an army of showmen to orchestrate his-and Apple's-return to competition. There is theatrical lighting and a concert-quality sound system. He stares at the mega columns with the Apple logo cut into them, grimaces at their "Hitlerish" appearance, but decides it's too late to do anything about them. Then he sets to work on his slideshow presentation-run from an IBM ThinkPad. The software, thank heaven, is from his old company, NeXT.

Less than 12 hours before his big announcement, nobody here knows yet about the bombshell to come. In fact, Jobs is still negotiating it here at the Castle-on a cell phone. "Hi, Bill," you hear him say in the echo chamber of the old hall. Then his voice drops, and for nearly an hour he paces the stage, running through last-minute details with Gates. All the while, he leans over his computer, paces, lies down on the stage, paces, lurks in dark corners, paces and talks, paces and talks.

This is the fateful call for the boy titans of the personal-computer revolution, meant to settle the war. At one point, talking about Apple, Jobs says, "There are a lot of good things, happily-and a lot of screwed-up things." Then, to his crew, he yells, "Have we got satellite contact with the other side?" Assured this has been taken care of, he answers a question from Gates about what to wear on the morrow ("I'm just going to wear a white shirt," he assures him), and he finally ends the conversation with a heartfelt "Thank you for your support of this company. I think the world's a better place for it." And so that's how Apple and Microsoft, Steve Jobs and Bill Gates, finally seal it-on a cell-phone call.

The deal is vintage Jobs. Amelio began the process of repairing relations between the two longtime rivals. But once he was out the door at Apple, Jobs contacted Gates to try to get talks started again. Gates dispatched his CFO, Gregory Maffei, who met Jobs at his home. Jobs suggested they go for a walk. Grabbing a couple of bottles of mineral water from the fridge, the two took off for a stroll around Palo Alto. Jobs was barefoot. "It was an interesting scene," Maffei recalls. "It was a pretty radical change for the relations between the two companies." The two walked for nearly an hour, through Palo Alto's green university area, as they pounded out the details of a potential deal. Jobs, Maffei says, was "expansive and charming. He said, 'These are things that we care about and that matter.' And that let us cut down the list. We had spent a lot of time with Amelio, and they had a lot of ideas that were nonstarters. Jobs had a lot more ability. He didn't ask for 23,000 terms. He looked at the whole picture, figured about what he needed. And we figured he had the credibility to bring the Apple people around and sell the deal."

That credibility would be tested as Jobs delivered the speech to the faithful. And then he was there, on the giant screen. Gates appeared, amid boos and hisses, to announce that Microsoft would invest in and cooperate with Apple. Jobs is disappointed by the "childish behavior" of those who booed. "I'm sure some people want to cling to old identities. I was a little disappointed at the unprofessional reaction. On the one hand, people are dying to get the latest release of Microsoft Office on their Macs, and on the other hand, they're booing the CEO of the company that puts it out. It seems really stupid to me." He adds, "Apple has to move beyond the point of view that for Apple to win, Microsoft has to lose."

Until a new CEO is on board, Jobs is up to his trim 35-inch-waist jeans in determining Apple's future. "I'm here almost every day," he said, sitting in the boardroom last week, "but just for the next few months. I'm really clear on it." His position is fairly critical to the company's success, according to Edgar Woolard Jr., chairman of E.I. DuPont and one of only two board members who survived the latest assault. "It's conceivable Apple could turn around without Steve, but the probability goes up significantly with Steve. Steve is noted for his intellect and vision, but he can also bring a spirit of enthusiasm to users and employees alike."

He can also buy that spirit. To restore morale, Jobs says, he went to the mat with the old board to lower the price of incentive stock options, which had become virtually worthless as the share price sagged. In Silicon Valley, where job opportunities are as common as Porsches, stock options are crucial to retain employees. When the board members resisted, he pushed for their resignations. Jobs repriced the option at $13.25. Apple employees have already made 100%.

There's not one area of Apple that doesn't bear Jobs' fingerprints. Take product development. "We've reviewed the road map of new products and axed more than 70% of the projects, keeping the 30% that were gems. Plus we're adding new ones that are a whole new paradigm of looking at computers," he says. "The product teams at Apple are very excited. There's so much low-hanging fruit, it's easy to turn around."

Next on the list is Apple's fuzzy marketing message. (Quick: Can you think of it?) Jobs dismissed Apple's ad agency and held a "bake-off" for the account among three firms. The winner was TBWA Chiat/Day, the company that created Apple's legendary 1984 Super Bowl ad (only to be fired). Jobs is wildly enthusiastic about the new ad, which features the theme "Think Differently," but when he plays it for his inner team at the Castle Tuesday night, the group nixes it as not ready for primetime. Look for it soon, however. "There's a germ of a brilliant idea there," Jobs rhapsodizes.

The key, Jobs believes, is to take advantage of the Apple brand itself. "What are the great brands? Levis, Coke, Disney, Nike. Most people would put Apple in that category," he says. "You could spend billions of dollars building a brand not as good as Apple. Yet Apple hasn't been doing anything with this incredible asset. What is Apple, after all? Apple is about people who think 'outside the box,' people who want to use computers to help them change the world, to help them create things that make a difference, and not just to get a job done."

Although many computer wonks still think Apple is too tempting for Jobs to resist, the truth is that he's been much better at building new companies than running existing ones. Pixar, his latest love, is taking off. Eleven years ago, he clicked his mouse on the Hollywood icon and bought Pixar from Star Wars director George Lucas. He has dumped upwards of $55 million of his own money into the venture and fairly burbles with that famed charisma over his new mission: marrying Silicon Valley technology to Hollywood's creative genius. His studio became the first-besides Disney-to hit it big with an animated movie, Toy Story, which cleared a respectable $37 million for the fledgling studio. Jobs owned 60-80% of Pixar, which was valued at anywhere from $700 million to $800 million, prior to Disney's purchase at a considerable premium of $2.4 billion, giving Jobs a massive return on the investment, to say the least. (Jobs of course insists that even though the IPO and Disney purchase made him a billionaire, the money has never been his primary concern. The fact that he sold the Apple shares gained from the NeXT deal certainly attests to that.)

Just entering the door at Pixar's headquarters in the San Francisco suburb of Richmond tells you all you need to know about the difference in cultures between Pixar and Apple. Pixar is what Apple used to be: cool. Everybody's office here is the same size, even Jobs'. He's in shorts; so is everybody else.

During our visit, Toy Story's Academy Award-winning director, John Lasseter, is excited about a "bug cam" the size of a matchbook. It was designed on a lark by Pixar engineers to photograph real bugs for A Bug's Life, the first Pixar film after being purchased by Disney. The hallways are crawling with pictures of exotic bugs and plants that will eventually populate the movie. "It's way cool working here," says Lasseter. "The atmosphere is fun. We respect creative people and make them feel satisfied."

Musing on the differences between the computer biz and the animation biz, Jobs notes, "Look, you work on a technical product, and if you're really lucky, it ships. If you're really, really lucky, it's a hit and lasts a year. If you're in the pantheon of products it lasts a decade, then it rapidly becomes a sediment layer on which the next layer of technology is built. I don't think you'll be able to boot up any computer today in 20 years."

On the other hand, animated films have an infinite life cycle. "Snow White has sold 28 million copies, and it's a 60-year-old production," Jobs points out. "People don't read Herodotus or Homer to their kids anymore, but everybody watches movies. These are our myths today. Disney puts those myths into our culture, and hopefully Pixar will too. At Pixar we're just getting started, and it's very magical. It's like the computer industry was in the early days."

Jobs is working hard to make Pixar a brand name as powerful as Disney's, even with having seemed to have been subsumed by the Mouse. Michael Eisner, head of Disney, says he doesn't even think of the two companies as separate anymore. "We are joined at the hip, at the computer and at the soul," he told TIME. "And that's not just because we bought them. Pixar's success is not a fluke. One thing I always think is essential is enthusiasm, and Steve Jobs is massively enthusiastic. Jobs' bravado is his charm. He's a serious businessman, but he's out there with his charisma. It's fun to be with him."

Unlike Apple, Pixar is expanding, having gone from 175 people to 375 this year alone. The original Richmond studio now has an outpost working busily on a sequel to Toy Story, and there's a mysterious third major project in the works too. Jobs has plans for a new studio, to sprawl on 16 acres in industrial Emeryville, near Berkeley. Interior plans have been carefully drawn-before the exterior-to ensure a cross-pollination of ideas. And of course, he says, all the offices will be the same size. This will especially help things under the ownership of Disney, to ensure that they provide even more winners for the House of Mouse. In fact, one of the notable methods of how things operate at Pixar, called the "Brain Trust meeting", in which all heads of the company discuss a project in frank terms and offer advice, is being implemented at Disney, thanks to Jobs and Lasseter being Disney board members (in Jobs' case, mainly by phone or email), and Lasseter helping run Disney's animation division too.

For the next few months, however, Steve Jobs' main job will be Apple. The Microsoft Death Star may be rotating in friendly orbit, but Jobs must still find a new leader for the Mac troops. Then he can resume being a Hollywood mogul and a model dad, right? Even after this amazing week, Jobs insists he will pass the diskette to a new generation and then stand aside to let it run the program. But Apple is his first child, and you know how hard it is to let the first child go. Watch for the sequel here.

"Jobs Named Apple Interim CEO," CNET, September 16, 1997

Amid much speculation and concerns over an eventual power struggle, Apple Computer today announced that cofounder and quasi-leader Steve Jobs would take the top post-at least temporarily.

At its first regularly scheduled meeting last week, Apple's new board of directors formalized the role of Jobs by naming him chief executive of the company until a new CEO is named. Jobs returned to Apple late last year in an advisory capacity to build a new operating system for the Mac, after it bought another company he had founded, NeXT Software.

The board also met with its executive recruiter, John Thompson of Heidrick & Struggles, to review the status of its search for a CEO. The board expects that a new CEO will be named before the end of the year.

But if and when the company fills the position, many analysts expect there to be some tension between the new CEO and Jobs, a man never known for his managerial subtleties.

"There is speculation that whoever gets in there will be second-guessed on a daily basis by Steve Jobs," J.P. Morgan analyst Daniel Kunstler told CNET's in an interview last week. "I hope that doesn't happen. Apple doesn't need a figurehead, it needs a CEO. And Steve Jobs knows that."

Still, others say it may be difficult for Jobs to share the spotlight with anyone.

"He will remain the center of attention," said Stephen Dube, an analyst with Wasserstein Perella Securities. Dube noted that good candidates considered a few months ago for the CEO slot probably are no longer interested because many big decisions already have been resolved.

"The moves that Steve Jobs has made [for the company would make this] a difficult job for anybody. We have already seen the Apple position on licensing and the decision to not spin off the Newton division. A new CEO won't be making those decisions, and those are the issues that would fall in the lap of a new CEO," said Dube. "The new CEO is now boxed in" to the new direction for the company, he added.

Officially, Apple played down the significance of the appointment, saying that it simply formalizes what Jobs has already been doing.

Jobs had declined to take the post of chairman and chief executive in July in favor of retaining his position at the head of Pixar Animation Studios, which was purchased by The Walt Disney Company last year, where he's also on the board. He was then named to the board, along with a handful of other technology executives.

New board members include Larry Ellison, Oracle chairman and CEO; Jerry York, former CFO of IBM and Chrysler; Bill Campbell, CEO of Intuit; and Jobs himself. They join two executives remaining from the previous regime: Edgar Woolard, chairman and former CEO of Dupont, and Gareth Chang, president of Hughes International. The company has authorized a total of nine board seats; directors receive stock options, but no cash compensation for their service.

The new board members replace departing members Mike Markkula, Katherine Hudson, Bernard Goldstein, Delano Lewis, and former CEO Gilbert Amelio.

Jobs, Apple's cofounder and newly appointed member of the board, has been serving as an adviser to Apple's Board and executive management team for several months.

"Roman Polanski and Broadway," by Rick Lyman, The New York Times, October 17, 1997

Lawyers for the film director Roman Polanski, who has been working in Europe since fleeing the United States in 1977 to escape after being charged with statutory rape, have been talking with California prosecutors about a deal under which he could return to work in the United States. Now it appears that if such a deal is reached, Mr. Polanski might well land on Broadway.

In Vienna, Andrew Braunsberg is producing Dance of the Vampires, a musical version of Mr. Polanski's 1967 horror spoof, The Fearless Vampire Killers, or Pardon Me, but Your Teeth Are in My Neck, with Mr. Polanski directing. The musical, with songs by the rock composer Jim Steinman, is being performed, in German, at the 1200-seat Raimund Theater there.

"Our idea has always been to take it to New York," Mr. Braunsberg said in a telephone interview from Vienna. "We want to do it with Roman directing."

Mr. Steinman will translate and reshape the German book and lyrics. Producers had initially been uncertain whether to take the show first to New York or wait until after a West End run in London.

"Now we all feel it's really more of a New York show," Mr. Braunsberg said. "Our feeling is New York will be the first port of call."

The timing will depend on when the right theater is available, he said, but producers and Mr. Polanski are hoping for a Broadway opening sometime late in 1998.

"WorldCom and MCI Announce $37 Billion Merger," PRNewswire, November 10, 1997

New Era Communications Company Targets Biggest Growth Opportunities: WorldCom - A New Era Communications Company

Jackson, MS, and Washington, D.C., - WorldCom, Inc. (NASDAQ: WCOM) and MCI Communications Corporation (NASDAQ: MCIC) announced today a merger agreement creating a fully integrated communications company that will provide a complete range of local, long distance, Internet and international communications services. The merger creates a new era communications company best positioned to take advantage of growth opportunities in the $670 billion global telecommunications market. The combined company, MCI WorldCom, will have over $30 billion in 1998 revenues and joins together two of the industry's most entrepreneurial and competitive forces. The merger is expected to be accretive to WorldCom's earnings by approximately 20% in the first year after closing.

The boards of directors of both companies have unanimously approved the transaction. British Telecommunications plc has also agreed to the merger. The merger agreement calls for MCI stockholders except BT to receive $51 of WorldCom common stock for each MCI share and for BT to receive $51 per share in cash for each of the Class A MCI shares it owns. Upon completion of the merger, MCI stockholders will own approximately 45% of the combined company. The merger will be accounted for as a purchase and will be tax-free to MCI's stockholders.

On the basis of extensive analysis, the MCI board determined that a merger with WorldCom creates maximum shareholder value and offers the greatest number of benefits to its communications customers and employees in the U.S. and around the world.

Merger Synergies

Significant new areas of potential cost savings have been identified and quantified and the anticipated synergies are more than previously estimated by WorldCom. Estimates initially developed by WorldCom have been revised based on new data and analysis. WorldCom estimates that annual cash operating cost synergies of $2.5 billion are achievable in 1999, increasing to $5.6 billion by 2002. In addition, capital expenditure savings of $2 billion a year are expected in 1999 and beyond.

WorldCom and MCI have agreed to expand commercial business arrangements that already exist between the two companies, accelerating the timetable to achieve cost savings. Additionally, the companies will immediately pursue commercial arrangements for MCI to sell WorldCom local services and for WorldCom to sell MCI's services.

MCI WorldCom will be:

A formidable local competitor and the largest competitive local exchange carrier (CLEC);

-One of the world's largest providers of Internet services;

-The number two U.S. long distance company;

-One of the world's largest carriers of international traffic with an expanding network and facilities in Europe, Latin America, and Asia-Pacific;

-A leading information technology solutions provider combining world-class data networking, computing and systems integration expertise; and

-Led by management and employees credited with having played a key role in transforming the telecommunications industry.

Together, WorldCom and MCI will have the capital, proven marketing strength and state-of-the-art network to compete more effectively against the incumbent carriers, domestically and abroad.

Mr. Bernard J. Ebbers, president and chief executive officer of WorldCom, said, "The benefits of this merger are compelling for the stockholders of both MCI and WorldCom - powerful synergies and ownership in the best performing communications stock over the past decade. This merger is about growth - value for stockholders, enhanced products and services for customers, and new opportunities for employees."

Mr. Bert C. Roberts Jr., chairman of MCI, said, "Shareholders, customers and employees today are rewarded for the value they have created at MCI over the last 30 years. We are more strongly positioned now than ever before to fulfill the promise of competition and the Telecommunications Act of '96, and to capture the biggest growth opportunities emerging around the world."


MCI WorldCom will be led by the industry's most experienced, skilled and respected management team. The management team will consist of top executives from WorldCom and MCI. Upon completion of the merger, Mr. Roberts, currently chairman of MCI, will become chairman of MCI WorldCom; Gerald H. Taylor, currently chief executive officer of MCI, will become vice chairman of MCI WorldCom and will be responsible for international operations and ventures; and Timothy F. Price, currently president and chief operating officer of MCI, will become president and chief executive officer of MCI WorldCom's U.S. telecommunications operating subsidiary. Mr. Ebbers will serve as president and chief executive officer of MCI WorldCom; John W. Sidgmore will be vice chairman and chief operating officer of MCI WorldCom and will continue his current responsibilities including European operations; and Scott D. Sullivan will serve as chief financial officer of MCI WorldCom. The board of directors of MCI WorldCom will have 15 members, eight from WorldCom, five from MCI and two additional members.

"In forming this partnership with MCI, we have aligned ourselves with a management team and employees who share our entrepreneurial spirit and continue to pioneer competition in our industry," Mr. Ebbers said. "The expertise of Mr. Roberts and his colleagues will be invaluable as we confront the changing domestic and international telecommunications landscape."

"WorldCom and MCI have both succeeded in removing barriers and bringing the benefits of competition to customers. In combining our unique strengths - our agility, innovative approach and competitive skills - we will be a new era communications company," said Mr. Roberts.

Relationship with BT

MCI and BT have mutually agreed not to proceed with their existing merger agreement. MCI will continue its commitment to providing customers with quality global products from Concert Communications Services. After the transaction closes, MCI WorldCom will become a non-exclusive distributor of Concert products and services.

Approval Process

The merger agreement is subject to the approvals of MCI and WorldCom stockholders as well as approvals from the Federal Communications Commission, the Justice Department and various state government bodies. In addition, the merger is subject to review by the European Commission. The companies anticipate that the merger will close within six to nine months.


The actual number of shares of WorldCom common stock to be exchanged for each MCI share owned by investors in MCI other than BT will be determined by dividing $51 by the 20-day average of the high and low sales prices for WorldCom common stock prior to the closing, but will not be less than 1.2439 shares (if WorldCom's average stock price exceeds $41) or more than 1.7586 shares (if WorldCom's average stock price is less than $29).

Salomon Brothers Inc. acted as financial advisor and provided a fairness opinion to WorldCom. Lazard Freres & Co. LLC and Lehman Brothers acted as financial advisors and provided fairness opinions to MCI.

MCI, headquartered in Washington, D.C., offers the industry's most comprehensive portfolio of global services. With 1996 revenues of $18.5 billion, MCI ranks as one of the world's largest telecommunications companies. MCI is also the third largest carrier of international voice traffic and operates one of the world's most advanced Internet networks. Since its founding in 1968, MCI has been a leader in bringing the benefits of long distance competition to businesses and consumers and is now leading the charge to open U.S. local calling markets to competition.

WorldCom is a global telecommunications company. Operating in more than 50 countries, the company is a premier provider of facilities-based and fully integrated local, long distance, international and Internet services. WorldCom's subsidiary, UUNET Technologies, Inc., is an international provider of Internet services with over 1000 Points of Presence (POPs) throughout the United States and in Canada, Europe and the Asia-Pacific region. The common and depositary shares of WorldCom trade on the NASDAQ National Market (U.S.) under the symbol WCOM and WCOMP, respectively.

"Disney and Katzenberg Reach Pact On Lawsuit," by Bernard Weinraub, The New York Times, November 11, 1997

The Walt Disney Company and its former studio chief, Jeffrey Katzenberg, announced an unexpected settlement today that avoids a legal battle in court but leaves open the amount Mr. Katzenberg will receive to further negotiations.

In a brief statement, the two sides said that discussions would now take place on the amount to be paid to Mr. Katzenberg, who had run the Disney studio for more than a decade. Mr. Katzenberg, now a partner at DreamWorks SKG, had sued, seeking at least $250 million from Disney, contending that the company had failed to give him his rightful share of the profits of hit films, including Beauty and the Beast, Pretty Woman, Aladdin, and The Lion King.

Specifically, Mr. Katzenberg accused Disney of reneging on an agreement to pay him a bonus of 2 percent of the profits earned by Disney films and television programs placed into production while he ran the studio.

Disney contended that Mr. Katzenberg, by leaving the company in 1994, instead of in 1996, when his contract expired, had forfeited his share of movie and television profits. Mr. Katzenberg left Disney after he was denied the company's No. 2 position following the death of Frank G. Wells, the president, in a helicopter crash.

A joint statement said that although Disney and Mr. Katzenberg had not agreed on the amount of their settlement, ''they will now engage in a further proceeding to determine the amount to be paid to Mr. Katzenberg.'' The two sides said they had also agreed to keep the terms of the settlement confidential. One Disney executive said that the company expected the matter to be resolved over the next few months.

The suit stirred enormous attention in the entertainment industry. It is highly unusual for a power broker like Mr. Katzenberg to engage another power broker like Michael D. Eisner, the CEO and chairman of Disney, in a potentially embarrassing jury trial. Such disputes are generally resolved with a handshake and the writing of a big check, out of the eyesight of the news media and company shareholders.

Moreover, a trial had the potential to open Disney's financial records, providing far greater details than in documents required by the Securities and Exchange Commission of the bookkeeping, salaries, contracts, deals and perquisites. Disney's annual revenue has soared sevenfold in a a decade, to more than $10 billion, with $1.1 billion in profit.

People involved in the case said that Mr. Katzenberg and his former boss, Mr. Eisner, who have raged at each over the last two years, privately spoke to each other several times in the last few weeks as their lawyers sought to resolve the dispute.

Mr. Eisner and Mr. Katzenberg met face-to-face in a hotel room in Los Angeles 10 days ago, these people said. At the same time, lawyers for both sides began working out a settlement, which involved a floor sum that would be paid to Mr. Katzenberg by Disney.

Also involved in reaching the settlement were two Los Angeles County Superior Court judges, Enrique Romero and Owen Lee Kwong. The final settlement will be determined by a mediating judge. One person close to Mr. Katzenberg said that the floor price reached $100 million, but a veteran Hollywood lawyer said that figure was probably too high.

Under the agreement, according to one of the people involved in the case, the final determination of how much Mr. Katzenberg receives from Disney comes with a stipulation. If the mediating judge determines that Mr. Katzenberg is owed far more than the floor figure, Disney may have to pay a lesser figure than the judge decrees.

Mr. Eisner had, until recently, refused any offers of compromise. After Mr. Katzenberg left Disney, Michael S. Ovitz, the Disney president at the time, privately worked out a deal with David Geffen, one of Mr. Katzenberg's partners at DreamWorks, to resolve the issue. But Mr. Eisner rejected the settlement.

When Mr. Ovitz left at the end of his interim period and Robert A. Iger, the head of Capital Cities/ABC prior to Disney's purchase, took on the duties of president and COO, he got Mr. Eisner to agree to begin negotiations with his former partner.

Today, both sides welcomed the agreement, but provided few details about it. A Disney statement said: ''We always prefer to resolve business differences outside of the courtroom and are pleased to have done so with this dispute. We wish Jeffrey well in all of his future endeavors.''

Mr. Katzenberg said: ''I'm pleased at the outcome and glad Michael and I were able to resolve our business dispute without going to trial. It's time to move on.''

"Gary Glitter Facing Child Porn Inquiry," by Alex Bellos, The Guardian, November 20, 1997

The rock star Gary Glitter last night faced a humiliating end to his 25-year career as one of the most colorful characters in pop, after child pornography was allegedly discovered at his London home. Police searched Glitter's house following his arrest at a Bristol computer store on suspicion of having indecent images stored on a machine he had brought in to fix.

Glitter, aged 53, whose real name is Paul Gadd, put out a statement last night denying he had committed any offense. A spokesman said that his 25th anniversary tour, which starts in three weeks, would not be cancelled. But if the controversy escalates, it will put any public appearances in doubt.

"The tour will go ahead as planned," the spokesman said. 'It isn't a sellout yet but tickets are selling very well."

Officers were called to PC World in Bristol by technicians repairing Glitter's computer. Glitter, who was waiting for the fault to be fixed, was taken to Staple Hill police station and questioned. He was released without charge and bailed to be interviewed in the new year.

Police later searched the star's country retreat in Wedmore, Somerset, and his London flat, and seized videos and indecent pictures of children. His planned appearance on BBC TV's Children In Need program tomorrow has been cancelled.

Glitter, a father of two, achieved fame in the 1970s for his extrovert wardrobe and glam rock hits. His career looked over by the end of the 1970s, but he managed to resuscitate it a decade later, appealing to students. He has made no secret of his affairs with young women, and has beaten drink and drug problems which drove him to two suicide attempts.

To coincide with his 25th anniversary as Gary Glitter he has a greatest hits album out next week and a new album out in March. A planned reprint of his 1991 autobiography is scheduled for that time as well. He is also starring in a film about himself, Iloveyoulovemelove, which he hopes to premiere at Cannes.

"Love Conquers All," by Vincent Lovegrove, The Sun-Herald Time Out, November 23, 1997

Michael Hutchence is looking to an Australian tour to put INXS back on top and the critics in their place

It is early evening in downtown L.A. and Michael Hutchence, bad boy of Australian rock, has just been talking movies with Michael Douglas.

INXS performed the title track in the John Travolta and Nicolas Cage film Face/Off. But Hutchence, in his own inimitable way, is not about to hype his chances of making it big in Hollywood. "He seems to think I could sell some popcorn," he told Time Out of his meeting with Douglas. "But it's just talk at the moment."

Far more important is his attempt to rekindle the magic that once surrounded his career in music. A career that took him to the heights of filling London's 80,000 seat Wembley Stadium, and which will now see him start an Australian tour with a gig at Waves, in Wollongong, on November 25, and a couple of gigs at the State Theatre.

The venues might not sound that promising, but they could well be watershed performances for the band, nonetheless. Mostly because Hutchence believes his home country has failed to give INXS the place they deserve in the nation's music history. He maintains that, more than anyone else; including the likes of Midnight Oil and AC/DC; it was INXS who took the name of Australia and its pub-rock heritage onto the stages of the world.

They've sold 30 million albums, won Grammy nominations, won MTV awards, sold out Wembley. And still they can't get respect at home. "I'm not looking for adulation or medals, and respect will come in the end because it should. But what we're looking for is just the tiniest touch of understanding, real understanding," says Hutchence. "We've been diplomats for Australia, we're always mentioning Australia, we're always plugging Australian bands."

So what about the current crop: silverchair, Regurgitator, Magic Dirt and the rest? "Ah," he says dismissively. "The wasted angst of youth. In a couple of years, say, 10 albums of consistent music; they can come and hang out with us. It's funny, because I'm always singing their praises overseas."

There is no hiding the bitterness. Undoubtedly, the failure of the media to accord Michael Hutchence the place he believes he deserves, rankles. "This naïve presumption that someone like me hasn't got a clue what is going on, that I haven't been to a gig, a rave, a jungle club, read a book, hung out with the devil, met God, you know. It's a big life. Make a difference, lads."

Since they were high school buddies, INXS have lived together, worked together, played together, been in trouble together, grown into young men together. They have seen each other's flaws, strengths and weaknesses, helping each other overcome demons. But the past few years have seen the band go through more than their share of criticism and personal tragedy. The Farriss brothers lost their mother to a long and cruel death by cancer; their manager resigned; their record contract expired; one member experienced a divorce, another a tempestuous separation, and they were forced to change agencies.

The Australian and British music media tried their damnedest to crucify them, aided and abetted by Hutchence himself. A whole generation now know him more for his one-fingered salute to the paparazzi and his affair with Bob Geldof's ex than for anything he has sung. And Hutchence acknowledges that his "unabashed sexuality" may have held back critical praise for the band's work. But he will hear nothing bad about his affair with Paula Yates.

"If you believed half the tabloids, Paula and I are evil. But actually, if you walk down the street in England, people are fabulous to us and they understand. Generally speaking, that can also be the case in Australia. They love Paula down there. She's a single working mother who raised her own family almost single-handedly, without any financial contribution from anyone. She's a hero. She deserves a medal."

But he concedes there have been problems both abroad and at home. "For all the gung ho attitude of Australians, we're actually culturally all babes in the woods. In Australia, what I'm supposed to do is go down to the pub .. and I do go down to the pub .. but when a singer like me is NOT being Jimmy Barnes, or Peter Garrett, or whoever the fuck, I'm a bit pale, and I'm a bit glam. Funny thing, really, it's the macho debit and credit bank. Jimmy understood that standing there with a bottle of vodka was a good thing. I used to drink mine before I went on stage. We're both full of Dutch courage. But remember, I was just more overtly a funky white boy, a little fey it seems. But Jimmy and I could do one of those 'buddy' movies. He's a great friend. We could have Peter Garrett as the Samoan lawyer like in Fear and Loathing in Las Vegas. Perhaps silverchair could be the unwashed help."

Kirk Pengilly, whose divorce from Deni Hines came in the middle of the group's worst period, explains it was the attacks on Hutchence that sparked the idea that the group ought to get back to work. " The catalyst for bringing the whole thing back together and making the album Elegantly Wasted was all the absolute tabloid rubbish I was reading about Michael and Paula, all of it rubbish, all of it misinformation. People were putting the boot in left, right and center. We had become a big target. At one point I said to myself, 'I've had enough.' Michael was working in upstate New York with Talking Heads, or Heads Not Talking as the project was called. I realized that Michael might be feeling lonely and very separate from the rest of us, so when he came on the phone, I asked, 'How are you, mate, do you feel like talking to someone?' I didn't want to impose, just put out my hand an offer help. He wanted to talk, we started talking, and that was the catalyst to start writing songs."

Despite the sophisticated veneer, there is little doubt popularity back home is important. And that another drubbing from the critics in Australia will rub salt in the wounds. Hutchence still toys with the idea of returning for good. "Can't really say for sure at the moment," he says. "Paula and I and the kids love it in Australia. Sydney's the greatest city for the 21st century. London has become very difficult. People in Australia are so real and friendly. We love it. Paula is doing TV work there. It's all very good."

Even the attacks he has suffered at the hands of the Australian media seem to be forgotten in a wave of nostalgia. "It's not just us. There's a lot of other bands copping flak down there. I've had a hard time of it during the past year, but you know what they say: love conquers all."

But will it conquer the crowd at Waves? That is the real question.

"XSive Fury: Michael Calls It Quits With Paula!," People magazine, December 1, 1997

Michael Hutchence, frontman of Australian rock group INXS, has officially broken up with his recent girlfriend Paula Yates, the ex-wife of Boomtown Rats frontman and Live Aid organizer Bob Geldof. He did so via an angry long distance phone call to London, where Yates has still been living with their one-year-old daughter, Heavenly Hiraani Tiger Lily Hutchence.

Back in Australia for a 20th anniversary homecoming tour and to promote the band's latest album, Elegantly Wasted, Hutchence made a phone call from his room at the Ritz-Carlton Double Tree in Sydney, to discuss where things stood between him and Yates, especially in light of persistent rumors that they were to wed in January on either Capri or Bora Bora, rumors that INXS manager Martha Troup had been consistently denying. Yates has also been continually fighting Geldof for custody of her three older daughters, Fifi Trixibelle, 14; Peaches Honeyblossom, 8; and Little Pixie, 7; Yates was allegedly also set to bring them and Tiger to Australia to spend time with Hutchence on the tour.

"Michael was in a mood that Paula had never seen before," says an insider in the Yates camp. "He'd gone from being so absolutely besotted and in love with her, to bitter and angry, absolutely venomous. He was quite hectoring and abusive, and said that it was over between them, that he was going to take Tiger and get a restraining order against Paula. She was absolutely sobbing when she hung up, and also in denial about it. I don't know what could've happened, but it just didn't seem like the Michael that either of us had known for the past two years."

Hutchence, for his part, issued a public statement that Yates was absolutely deserving of scorn. "I have lately come to realize that while I was in love with Paula, she wasn't in love with me, not truly. Apparently, she had it in her mind that she wanted to claim me, use me as a trophy, and that I've come to realize that she's a toxic, negative influence on me, making me unable to see things clearly. If I've been a negative, angry person, it's because she helped make me so, and I'm getting away from her to try and become more of who I used to be. I never should've been involved in whatever spats she and Bob Geldof have with each other, and I never wanted to break apart a loving family. I had aspirations to be a new father figure to their girls, and I realize now that it simply is not possible or proper. I apologize to Bob and I understand why he has every right to be angry with me."

Hutchence also revealed something he'd been keeping. "For the last five years, I've been suffering the effects of a bad head injury I had in Copenhagen. Helena (Christensen, supermodel and former girlfriend of Hutchence) and I were biking one night, and I had a really bad accident, hit my head. Since then, I haven't been able to smell or taste, and I've been somewhat depressed and angry since, not truly myself. I've had Prozac since then, but no real therapy, and I've done some monstrous things to my bandmates, my friends and family to lash out. I haven't been fully right for a while, and Paula took advantage of that. After this tour is over, I'm going to take the time to straighten myself out, live amongst my family here in Australia, begin the process of healing. I am also hopeful that as science improves, a chance for me to regain my full senses may emerge." The statement ends with a half-joke. "Besides, I'm much better looking than Christopher Reeve, and science is moving along just for him to walk again."

Hutchence and his latest travails have occurred in the process as INXS have scrambled in an attempt to regain their former mainstream glory of the previous decade. Their albums Listen Like Thieves, Kick and X resulted in massive sales, radio and video rotation, and sold out concerts, including headlining Wembley Stadium in 1991. However, their followup albums, Welcome To Wherever You Are and Full Moon, Dirty Hearts were quite disappointing, the former for bold experimentation with world music and other textures, the latter a self-conscious attempt to copy Nirvana and other grunge and alternative acts that were all the rage with Generation X. Elegantly Wasted is an attempt to straddle the line between reinvention with electronica influences and hearkening back to their classic, funk-based sounds of the '80s. The tour for the recent album has been fairly well-received, a mix of small and mid-sized venues, though not every date has been a sellout. One of the new tracks, "Don't Lose Your Head", also ended up as the end credits song to the John Travolta/Nicolas Cage action thriller Face/Off. The Australian dates for the tour sees the band going through a string of intimate venues and adding several songs to the setlist that their homeland audiences would be more familiar with. Hutchence is also working on a solo album that he intends to release the following year, produced alongside Andy Gill of Gang of Four and Black Grape producer Danny Saber. He also has a number of other residences, including a home in London (which ironically Geldof has moved into while Hutchence moved into Yates and Geldof's home) and a villa in the South of France, in near proximity with U2 frontman Bono, a close friend of his who also has a home there.

"Sunbeam Dances With Mr. D: Is Albert Dunlap Saving the Company or Setting A Sale?" by Dana Canedy, The New York Times, December 23, 1997

As he strolled through the lobby of the Palace Hotel in Manhattan recently, Albert J. Dunlap stopped to pass out copies of his autobiography, Mean Business, to the waitresses, bellhops and doormen.

Minutes later, he paused to sign a copy for his chauffeur before being driven to interviews and promotional functions for the paperback release of the book, which lays out his hard-edged business philosophy and strategies.

''I enjoy people like that,'' Mr. Dunlap said later. ''I know all the guys; they call me Mr. D.''

On Wall Street, and in the corporate circles of this seaside city where he runs the Sunbeam Corporation, Mr. D is known by a less endearing moniker. He is Chainsaw Al, so named for the deep cost cuts - most visible in layoffs and plant closings - that he orders at ailing companies, like Scott Paper, Lily-Tulip and lately Sunbeam, that he has been brought in to turn around.

Whatever he is called - and he has been called much worse by those who have felt the chainsaw's teeth - just how effective has Mr. Dunlap been in his 17 months at Sunbeam?

The question has particular pertinence these days because Mr. Dunlap seems to be on the move again. He recently put Sunbeam in play, saying the appliance maker was looking either to be acquired or to make a major acquisition of its own. In a recent interview in his office here, some 50 miles north of Miami, Mr. Dunlap said he already had possible deals on both fronts. Two names touted as being on the short list are Rubbermaid and Black & Decker, though Mr. Dunlap isn't tipping his hand.

Mr. Dunlap still has his critics, who wonder whether Sunbeam, after years of drift and confusion, has only been cleaned up for a courtship. They accuse him of a heavy-handed approach that has taken its toll on people and could hurt the company in the long term.

But with just a few caveats, Wall Street likes what it sees: a range of fundamentals that are now in much better shape, and a solid earnings picture all year long.

''This management hit on all of the critical points that investors were looking for,'' said Scott Graham, an analyst at CIBC Oppenheimer. ''When people were looking at Sunbeam, everyone was concerned about sales growth, margins and a company whose earnings were spiraling downward, and now all of the opposite are happening.''

Mr. Graham cited Sunbeam's increased marketing budget, recent product innovation and new just-in-time retailer delivery system as long-overdue improvements in a industry that is growing only about 2 percent a year. ''They are turning this into a good business for both themselves and retailers,'' he said.

To be sure, there are indications that Sunbeam remains a work in progress. Inventory levels are a bit high, for example, accounts receivable have been going up and the company's new line of electric blankets has been slow to sell.

And it has had its share of gaffes. For instance, a plan announced earlier this year to put the American Medical Association's powerful name and logo on Sunbeam's home-health products drew a torrent of criticism and fell through.

Still, investors have sent the value of Sunbeam shares up 59 percent so far this year and 231 percent since Mr. Dunlap took over. The stock is rated a buy in the consensus view of eight analysts polled by the First Call Corporation.

[Investors are so enamored of Mr. Dunlap that Sunbeam's stock sank in recent weeks on rumors he had been trying to jump to the top job at Waste Management Inc., talk that prompted a denial from Mr. Dunlap on Friday. Sunbeam shares closed at $40.5625 Monday, down 56.25 cents.]

While admitting that the company is in much better shape, critics of the Dunlap regime say they still have serious complaints. For one thing, Mr. Dunlap has taken credit for many improvements that began before he arrived, former Sunbeam executives and others say. As for the contribution that is indisputably his - cost-cutting - the critics say that has gone too close to the bone.

In lopping off half of the company's 12,000 jobs, nearly 90 percent of its product lineup and 18 of its 26 plants, they say, he has left Sunbeam somewhat vulnerable as it moves into the future, when he may well be running some other company. Before joining Sunbeam, they note, Mr. Dunlap led the Scott Paper Company into a merger with the Kimberly-Clark Corporation, which is still coping with difficulties at Scott.

''It is certainly possible even in well-run companies to manage them to maximize short-term returns at the expense of long-term performance so that anyone could sell the crown jewels and add that money to the bottom line,'' said Sarah A.B. Teslik, executive director of the Council of Institutional Investors, an organization of large public pension funds and other institutional investors. ''That doesn't mean that is the best way to manage shareholder value, year after year.''

In all the downsizing, Ms. Teslik said, Sunbeam may have lost some of its best managers and perhaps left itself short of factory capacity to quickly capitalize on new product opportunities.

Mr. Dunlap, a 60-year-old West Point-trained former paratrooper who is as emotional and colorful as a mood ring, quickly becomes angry when asked about outsiders who question his achievements. Since taking over as chairman and chief executive in July 1996, he has been ridding the company only of waste and inefficiency, he said, and he is fed up with predecessors who whine about what he has done to clean up the messes they left behind.

''I've just seen it so many times and it gets to be a source of frustration and irritation,'' Mr. Dunlap said. He underscored his point by reading aloud from his book, copies of which seem to be on dozens of desks, shelves and tables in the building.

''We were subjected to the same choir of criticism,'' he read from a new chapter on Sunbeam added to the paperback edition, ''the same incoherent and wrongheaded analysis by certain segments of the business press, politicians, academicians, consultants and a new flock of ex-employees who said our plans wouldn't work - then took posthumous credit when they did.''

There is clearly credit to be taken. The company - which has the No. 1 market share in electric blankets and No. 2 in ''bath sales,'' which includes irons, vaporizers and scales - has brought out 35 new domestic products and 50 international products this year, Mr. Dunlap said.

Since he arrived, it has cut about $150 million in annual costs and reduced net debt about 12 percent, to a little less than $178 million. And for the first nine months of the year, sales are up 16 percent, to $830 million, while profits have soared more than tenfold, to $67.7 million.

The numbers are even more telling considering the turmoil that preceded Mr. Dunlap's arrival. One chief executive, Paul B. Kazarian, revived the company only to be ousted in 1993 in a boardroom battle over his operating style. It took seven months to find a successor: Roger Schipke, a longtime executive at the General Electric Company.

But Sunbeam's earnings took a nose dive and Mr. Schipke left in April 1996. By the time Mr. Dunlap arrived three months later, the company had fallen short of analyst earnings estimates for seven consecutive quarters and saw its stock value decline 52 percent since 1994.

''This company has gone through years and years of trauma, constantly changing executives, one debacle after another,'' Mr. Dunlap said. ''We stopped all the major problems and now we're really looking at the opportunities side of the equation.''

Still, Mr. Dunlap's tenure has had its own low points. In August, Sunbeam announced a product endorsement agreement with the American Medical Association. The five-year arrangement would have given Sunbeam exclusive use of the powerful AMA name and logo on home-health products in exchange for undisclosed royalty payments. But doctors and consumer advocates howled, and the AMA backed off; on Mr. Dunlap's orders, Sunbeam has sued the association to honor the deal or pay $20 million in damages.

One analyst with reservations about Mr. Dunlap's progress is William Steele of the Buckingham Research Group. Mr. Steele is troubled by the fact that Sunbeam's accounts receivable increased 23 percent in the last quarter and 59 percent over the last year, to $309 million, while its inventories rose 40 percent, to $291 million, in the last quarter.

The company's strong income statement notwithstanding, ''a weakening in the balance sheet often is a precursor to lower-than-expected earnings,'' Mr. Steele said.

Sunbeam says it purposely increased inventory to enable more timely product delivery to retailers in the critical fourth quarter.

Whatever the twists and turns of the company's bottom line, Mr. Dunlap is up to his old tricks, his critics say, taking credit for more than he deserves and blaming his predecessors for every conceivable ill.

''Everything he has done was being done but on a different timetable and he sped it up,'' Mr. Schipke said, adding the caveat that he did not endorse the large number of layoffs and plant closings.

''My aim was to build a company that would be there 20 years from now,'' Mr. Schipke said. ''We were investing in new plants, new products and research and development. The board wanted to maximize the value of the company quickly and I said that's not what I wanted to do and I gave them my notice and left.

''I guess that is his forte,'' he added, referring to Mr. Dunlap.

As for all of those new products Mr. Dunlap has been crowing about, some are strikingly similar to items that were in the pipeline as early as 1995 or simply amount to cosmetic changes to existing products, according to former executives.

While Mr. Dunlap disputes claims that he simply props up companies and walks away, Ms. Teslik of the Council of Institutional Investors takes issue with his assertion that 80 percent of the companies in the country need to be ''Dunlapped.'' He coined the term to mean high-speed turnarounds that ''eliminate what is not the best.''

[Even in his statement Friday, denying that he was trying to go to Waste Management, he could not resist saying, ''I clearly am the CEO that WMX needs.'']

''I'm not as confident of my omnipotence as Al Dunlap is,'' Ms. Teslik said, seemingly aghast at what she called his ''myopic fascination with one's self.''

Yet executives on the turnaround team at Sunbeam say Mr. Dunlap was unquestionably needed there.

''There wasn't a strategic plan on any shelf in the whole office,'' recalled Rich Goudis, vice president of investor relations and corporate planning, who survived the bloodletting after Mr. Dunlap arrived.

He said Mr. Dunlap quickly identified noncore businesses that were draining assets, like a decorative bedding division and an outdoor furniture operation.

Even so, like a bleeding ulcer, Sunbeam was still hemorrhaging from inside, added Donald Uzzi, executive vice president of the consumer products division, who has worked with Mr. Dunlap on several makeovers.

Sunbeam had five regional headquarters, an outdated computer system and was shipping 110-volt electric products to Asia, which uses 220 volts. The current management team has fixed those problems and has begun to grow the business besides, Mr. Uzzi said.

The company, for instance, recently signed several distributor agreements designed to strengthen its international business. It has also modified popular products like the Oster blender, which the company says had not been updated in 20 years. And, Mr. Uzzi said, it is expanding into new product lines like rice cookers for ethnic markets.

Mr. Uzzi discussed company plans in his office, sitting across from a large painting of a leopard on his wall - yet another aspect of Dunlapping. The chief, it seems, requires that offices of all key managers contain at least one portrait of a wild animal.

His thinking? The animals can never order room service and instead must always work for their meals. His executives, Mr. Dunlap reasons, should never forget that.

"Opinion: What Asia's Financial Crisis Portends," by Robert A. Johnson, The New York Times, December 29, 1997

As a former hedge fund manager enjoying a sleepy sabbatical from the art of speculation, I was shaken by the Asian crisis of 1997. It shattered the whole structure of expectations that had long governed the behavior of global investors. This is a profound moment for the psychological state of the world economy.

We can no longer wake up in the morning and say, ''No matter what happens, I know Asia is still growing strong and keeping the system rolling.'' Now the myth of Asian invincibility has collapsed. We have lost a foundation stone.

Will this lead to global disaster? That is not at all clear, or even likely. Will American stocks decline? I do not know. It depends upon what people come to believe.

I have heard some say that they see the Asian collapse as an affirmation of the strength of the American model of capitalism. If such a view prevails, then perhaps our equity markets will prove resilient or soar even higher. This is a matter of subjective psychology interacting with government actions and reactions. There is no truth or absolute here.

The Asian crisis is a more potent psychological disturbance than the Mexican crisis of 1994-95 or the European currency crisis of 1992. The former was perceived as an isolated event, and the latter was a price adjustment to rebalance Europe in response to German unification. Neither episode markedly changed investors' views of the health of the world economy. Both were anticipated well in advance by sophisticated thinkers in both investment and government circles.

The Asian crisis is different.

From the early 1980s on, it was an article of faith that Asia was a miracle. Savings, investment, education - all of the right ingredients for economic success were present. For years, strong economic performance and rising asset prices inspired investors, commentators and economists to uncover ever more evidence of good news about Asia wherever they looked. This process of mutual reinforcement continued even into 1997.

Today, where once everyone saw efficiency and vitality, now the image is one of widespread corruption and waste. How could anything so good turn so bad so quickly? If Asia's vibrant economies can collapse, what other assumptions about economic conditions anywhere can we count on?

Economists analyzing the flow of trade and investment are able to forecast the effects of Asia's abrupt fall with some precision. Most major policy institutions are still projecting a modest downturn. Perhaps that is all we will experience. Economic forecasts are good as far as they go. But they implicitly rely on the framework of expectations to remain stable.

Most often that assumption in economics is a reasonable one. But the economy is not an inanimate object. Its motive energy is the psychological outlook of people, and when expectations break from their mooring they can powerfully affect not only the real value of assets, but also perceptions: how rich you feel, how secure you think your job is, how much you think you can afford.

At such times, economic forecasts are prone to error. Psychological factors become pervasive. In this instance, this may be dangerous because anxiety breeds caution and caution amplifies the depressing effects that the economists have forecast to be heading our way from Asia.

The art of investment involves trying to anticipate what others will come to perceive. I am a bit out of practice but I sense that the key will be whether, and to what degree, government policy makers take actions to stimulate demand at home and abroad in the next year.

The Asian downturn and the sharp deflation of optimism have made the global pie smaller. To turn things around, the pie - that is, world demand - has to grow again.

To stimulate its economy, a country can do one of two things. It can create domestic demand through tax cuts and more government spending. This has its costs - budget deficits obligate future generations to pay the bill - but it does enlarge the pie. Or it can simply try to grab a bigger slice of the existing pie by devaluing its currency. The country with the most competitively priced products on world markets has an advantage, and lowering the value of the currency reduces the cost of its goods.

In 1998, I will watch for trends in these five areas to determine whether the demand pie will grow and, if so, by how much:

1. How will Asian countries try to control the chain reaction of currency devaluations? Asia, unlike Europe in the aftermath of 1992, has no historical focal point to refer to for appropriate exchange rate values. Will Asia's finance ministers be able to stop the chain reaction of currency devaluations through peer pressure? Current IMF policies appear to discourage this competitive devaluation, but they also unfortunately encourage tight domestic policies, which depress demand rather than stimulating it.

2. Will Japan get over its traditional reluctance to stimulate domestic demand with tax cuts and government spending? The policies the Japanese government announced on December 16 were disappointing. The Ministry of Finance will be tempted simply to let the yen weaken to stimulate growth the old-fashioned way, through more competitively priced exports.

3. If Japan and other Asian countries continue to devaluate their currencies, will the Europeans follow suit to prevent loss of their own share of the export market? Much of Europe is still riding on a burst of growth owing to the rise of the dollar over the last year, but this will not continue forever.

4. As for China, how will officials sustain exports and economic growth in the event of a worldwide slowdown? Stimulating demand with government deficit spending is difficult in a country where tax collection is so uncertain. So will the Chinese join the rush to devaluate?

5. Finally, if all other countries prove reluctant to stimulate their own domestic markets and choose to export their deflation to the United States, will the stock market here be able to sustain its current optimism? If the market declines, will that depress consumption? Will American policy makers begin to suggest more tax cuts to stimulate demand in the United States?

At present, finance officials assure us that the impact of the Asian crisis will be modest. But are their statements credible?

In trying to soothe the markets, officials often elevate the sense of unease. Investors in uncertain times ask themselves: ''Why do they feel the need to reassure us? Are they not just drawing attention to how anxious things really are? Or are they afraid themselves because they are unable to act and cannot persuade leaders abroad to act? Is this talk a substitute for concrete action?''

I believe that when all is said and done, the world's leaders will have to take steps to stimulate demand. Where on the planet that stimulus will come from, I cannot be sure. One thing is for sure, though: the markets will pay attention to what government officials do, not what they say.

"Spacey Dreams of Playing Darin," by Army Archerd, Variety, January 7, 1998

Kevin Spacey says he wants to play Bobby Darin in the upcoming WB feature. However, he sadly tells me, "They say I'm too old." If you have a question about Kevin's ability to sing Darin-esque, he reminds us he sings "That Old Black Magic" on the Midnight in the Garden of Good and Evil album "as a tribute to Bobby Darin." Clint Eastwood asked Spacey to sing it after catching him warbling on his Saturday Night Live host stint. He admits he was a bit intimidated singing on a disc along with Tony Bennett and Rosemary Clooney — and Spacey's now costarring in Hurlyburly with Sean Penn, Robin Wright Penn, Chazz Palminteri, Meg Ryan, Anna Paquin and Garry Shandling, with David Rabe scripting from his play, They're doing it, says Spacey, on a budget of $6 million, which he says means everyone's working for scale. "But we get great sandwiches," adds Spacey from the Oakland (for Laurel Canyon) location. The pic has an emotional tug for him, as well as for Sean: Kevin understudied his role for the Broadway version and Sean played it in L.A. They've known each other since 1982. Spacey next heads to London for The Iceman Cometh from March to May, then films Ordinary Decent Criminal for his Trigger Street Productions banner and Icon Productions (Mel Gibson's). Afterwards, Spacey produces "a guerrilla film": a 10-day, 16 mm, feature, Hospitality Suite by Roger Rueff, directed by John Swandeck. Then Spacey will return to star in a big studio-budgeted pic like L.A. Confidential, he says, adding, "Thank goodness for Arnon Milchan."

"Donald Trump Killed In Auto Accident," by Sharon Waxman, The Washington Post, January 28, 1998

Real estate mogul Donald Trump died yesterday when his limousine collided with a 1997 Ford Pewterstrike that had been driving at insanely fast speed. Mr. Trump was promptly taken to Columbia Presbyterian Hospital, where he was found to have suffered a collapsed lung, a major concussion, several cracked vertebrae in his neck, a severed spinal cord, and massive lacerations all over his body. He was 51.

Mr. Trump was once one of the major shining stars in the 1980s. During that period, he took official control of The Trump Organization, the New York-based real estate business created by his father, Fred C. Trump, and injected a certain display of media dazzle into the once-humdrum real estate business. During Mr. Trump's public ascendancy, he was became known for projects such as the Grand Hyatt hotel, the restoration of Grand Central Station, the renovation of Wollman Rink, and the transformation of the former Bonwit Teller building into the condominium and retail hub Trump Tower, where he owned a triplex that was his primary residence. He bought the opulent Mar-a-Lago estate in Palm Beach, Florida, as a vacation home, and also bought a twin-towered condominium plaza in downtown West Palm Beach to signify a major expansion. He brought himself to massive degree of media spotlight with the publication of his 1987 autobiography-cum-manifesto The Art of the Deal, where he positioned himself as a negotiator par excellence and the latest successor to the legacies of legendary captains of industry/robber barons like John D. Rockefeller, J.P. Morgan and Andrew Carnegie.

But Mr. Trump's shining facade suffered numerous cracks in short order. He soon got in a massive rift with tenants in some of his various condo buildings over rent control and their fees, which brought plenty of bad blood. His investment in the fledgling United States Football League, a spring-season fill-in for football fans waiting for the NFL season to start again in the fall, by purchasing the New Jersey Generals, ended badly when he launched an ill-advised war with the NFL by planning a move to a fall schedule, then when he could not land a television contract for such a move, filed an antitrust lawsuit against the NFL for operating as a monopoly; a suit that ended in a token victory with a one dollar fine and killed the USFL. His expansion into Atlantic City by purchasing and operating three casinos; Trump Plaza, Trump Castle, and the Trump Taj Mahal, proved a major loser as his three casinos cannibalized each other's profits, and it turned out that he had overpaid for the Taj and saddled it with too much debt that no amount of attendance could possibly overcome; a fact shown when it initially opened to record crowds, then the figures tapered off quite noticeably. He bought the Plaza Hotel, the historic and most opulent hotel in New York, at a ridiculous premium that could not possibly see a profit. His purchase of the Eastern Air Lines shuttle service, which he renamed the Trump Shuttle, was also a case of him overpaying, and despite good revenue, operated at a net loss. His West Palm Beach condo complex suffered from insufficient water and air-conditioning flow to the top as well as constant gang-related violence in its parking garage.

But the biggest dent to his reputation came during a contentious divorce from his first wife, Ivana, during which time the New York papers ran continual updates and stories almost every day. The battle started because of Mr. Trump's dalliance with struggling actress Marla Maples, whom he later married, only to divorce. During this time, Mr. Trump filed for Chapter 11 bankruptcy protection for the Taj, only a year after it opened, due to constant cash drain. Trump Plaza and Trump Castle also underwent the same process. Mr. Trump constantly crowed that he was entering a comeback, especially in the publication of his third book, The Art of the Comeback, only a few months earlier. But in truth, many had written off Mr. Trump as a has-been, a lost tycoon who had basically frittered away his image due to his imprudent spending and sexual peccadilloes. It appears that Mr. Trump's status is to be consigned to the dustbin of history.

"Battle of the Exes," by Liz Smith, The New York Post, February 2, 1998

At the will-reading of Donald Trump, both of his exes, Ivana Trump and Marla Maples, are said to have engaged in quite a nasty verbal altercation over The Donald's assets, as well as to continue the old war between them regarding each other and their place in his heart.

Apparently, Ivana and Marla got into a massive shouting match and screamed expletives at each other, and even started pulling each other's hair before eldest child, Don Jr., who has succeeded his father as head of the Trump Organization, physically pulled them apart. The ailing family patriarch, Fred Trump, was said to have been hospitalized because of the stress of the event.

"There is no love lost between them, and the family is truly at each other's throats." Representatives for the family and the Trump Organization refused to comment.

"Nirvana Signs With Atlantic," Billboard, February 22, 1998

Nirvana and their management team, Gold Mountain Management, announced today that the band has signed a five-album deal with Atlantic Records, for which studio albums, live albums, compilations and box sets can all be counted as fulfilling the deal. Nirvana will receive the rights to their past albums and masters with Sub Pop and DGC Records (a sub-imprint of Geffen Records, part of the MCA/Universal empire, currently in the process of buying PolyGram in the hopes of merging with Interscope Records and Geffen with it) to remaster, reissue and use however they see fit in the future, be it under Atlantic, or any future label.

"With Atlantic, we have found a great new partner for the next step in Nirvana's journey," Gold Mountain's statement reads. "We remain proud of the work and time with DGC, and will think fondly of the time and experience. But you can't stay in the past."

"I am very disappointed to hear that Nirvana felt the desire to leave us," David Geffen personally commented in response. "During our seven and a half years of association with them, we helped make Nirvana one of the most successful bands today, and we have been equitable and fair with them. Jimmy Iovine and I personally hoped they would stick around and sign with Interscope, the way Guns N' Roses have recently decided to do. But you can't force people to do things they don't want to do."

"I wish Nirvana nothing but success with their new label," Iovine said. "I would have loved to have signed them, but I have no ill will towards them."

"Pulp Fiction At Kimberly-Clark," by Stephanie Anderson Forest, BusinessWeek, February 23, 1998

The papermaker hoped its Scott merger would rev up earnings. That scenario was too rosy

Last February, when Kimberly-Clark Corp. CEO Wayne R. Sanders addressed Wall Street analysts and investors at New York's posh St. Regis Hotel, he brimmed with confidence. Sanders, 50, vowed that the paper and tissue giant would double operating profits per share by 2000. "Prospects have never been as strong as they are today," declared the 23-year Kimberly veteran.

Sanders seemed to have had good reason for optimism: 14 months earlier, in December 1995, he had engineered the $9.4 billion acquisition of Scott Paper Co. In one step, Kimberly was transformed into the world's largest tissue maker. Sanders was counting on a combination of global growth and synergies from the deal to get him to his goal.

His confidence didn't last long. Over the last year, serious problems have sent profits at the Irving (Texas)-based maker of Kleenex facial tissues and Huggies diapers down, not up. Operating income fell 4.8% in 1997, to $2 billion, on a sales drop of 4.6%, to $12.5 billion. Now Sanders is taking a second restructuring charge of $810 million to close plants and slash 5000 more workers, bringing total job cuts since the union to 11,000. "We didn't anticipate this when we did the merger," concedes the much humbled CEO. Last year "was not everything we hoped it would be."


Certainly, the news hasn't been all bad. Distribution for both Scott and Kimberly-Clark brands is now better, and operating margins are up. Average return on assets has climbed from 14% to more than 18%, in part because Kimberly has cut $680 million in costs. It expects to cut an additional $500 million this year.

Yet the merger was hatched with far greater ambitions in mind. Together with Kimberly's plans to sell off its low-margin pulp plants, it was supposed to earn the company the coveted status-and higher multiples-of a consumer goods giant rather than those of a mundane papermaker. Instead, Kimberly stock, now at 54, has sharply trailed both the Standard & Poor's 500-stock index and archrival Procter & Gamble Co.'s since the merger. "You don't get valued like a P&G or Gillette by disappointing investors," explains William J. O'Connor, portfolio manager for the Marshall Large Cap Growth & Income Fund, a longtime shareholder.

Few predicted that merging the two biggest names in tissue would produce such a rocky honeymoon. Scott had been downsized by "Chainsaw" Albert J. Dunlap in the 20 months prior to the deal. In swallowing its rival, Kimberly bolstered its own money-losing European operations and significantly boosted its share in key markets. In toilet paper alone, Kimberly's cut of the market more than quadrupled.

But before long, problems began to surface. People outside and inside the company agree that Dunlap's notoriously tough turnaround tactics had some impact. But the larger stumbling blocks appeared to be Kimberly-Clark's own lack of experience in putting together a merger of this size. Sharp price drops in Europe and the U.S. hurt too. "Al didn't stick us with anything," says Sanders. "We got exactly what we paid for."

What they got was a company that had been very aggressively managed. In the first combined quarter, Kimberly's results were held down by excess inventory of Scott paper and tissue products, a holdover from Dunlap's relentless push for sales and earnings growth. Executives say Kimberly knew of the excess inventory in advance of the deal but underestimated the problems it would cause. "We probably had more startup challenges to get through than we realized when we put the merger plan together," admits Thomas J. Falk, group president of Kimberly's North American tissue, pulp, and paper group.

Sanders also had to reverse damage done to the Scott paper towel brand under Dunlap. In an unsuccessful product overhaul, Scott had changed the name and reduced roll sizes. With market share sliding fast, Kimberly reversed the strategy eight months after taking over. The company declines to say how much the effort cost, but market share has not recovered.

Still, by early 1997 the company was well into its $1.4 billion initial restructuring and those problems seemed under control. But as Sanders spoke to the crowd at the St. Regis, others knew there was still plenty to be done. "If there's a venue for criticism [of Kimberly], it would be in the amount of time it took them to take the second restructuring," says Richard R. Nicolosi, Scott's former head of consumer goods. Nicolosi says that it was clear early on that many of Scott's plants were inefficient and would need to be closed.

Sanders concedes that some of the facilities "should have been cut in the first go-around." But he was also slow to recognize several broader problems. One key reason Kimberly wanted the merger, for example, was Scott's leading position in the $12 billion market selling paper products to institutions such as restaurants and hotels. Prior to the deal, Kimberly had only a small stake in that high-margin, high-growth arena.

Most of Scott's senior management team left the unit, however, and distributors say Kimberly fell behind integrating the two. "What you had was the smaller of the two entities trying to run the larger of the two," says Michael Pisa Jr., president of Detroit-based Continental Paper & Supply, a major distributor. "That was a problem."

Kimberly cut back on the deep volume discounts that had been a mainstay at Scott and slashed product offerings. The changes ultimately "led to a lot of confusion" among customers, says David E. Wax, executive vice-president of Waxie Sanitary Supply, another large Kimberly distributor based in San Diego. Although the problems initially affected sales, Kimberly execs say the difficulties have been straightened out and orders are up.

Kimberly also had high hopes for the merger in Europe, where its own $2.5 billion unit was a big money-loser. And certainly the combination with Scott, which boasted far stronger European distribution, has helped. The division returned to the black in 1996.


But the gains have been less than Kimberly counted on. Largely because of weak tissue prices, Kimberly's European earnings tumbled 49%, to $84 million, last year. And with the deal, Kimberly also inadvertently strengthened a major private-label rival, Stockholm's Svenska Cellulosa Aktiebolaget (SCA). When the European Commission insisted Kimberly divest some tissue assets to avoid creating a monopoly, management sold SCA a Kleenex plant in Britain. The acquisition gave SCA advance technology that makes tissue fluffier. SCA is now using that technology to better compete against Kimberly and P&G. Although the European tissue market grew 3% in volume last year, analyst Denis Christie of Dresdner Kleinwort Benson figures Kimberly's share fell about 3%. Meanwhile, SCA gained about 6%.

For growth, Kimberly is looking beyond Scott. Sanders is scouting for more acquisitions, smaller deals that Kimberly has a history of integrating smoothly. He's also focused on developing new products, upgrading plants, and expanding distribution of Kimberly's brands. "I'm convinced they're headed in the right direction," says Tony Kreisler, chief investment officer of Basic Value Equity, a Putnam Investments mutual fund that holds Kimberly shares.

With low U.S. tissue prices starting to recover, Sanders says the latest reorganization should bring the earnings target for fiscal year 2000 back within reach. To get there, Sanders knows, "we have our work cut out for us." That's one prediction certain to come true.

"3 Acquisitions By Sunbeam In Separate Deals," by Dana Canedy, The New York Times, March 3, 1998

The Sunbeam Corporation said yesterday that it would acquire the Coleman Company Inc. and the makers of Mr. Coffee machines and First Alert smoke alarms in deals that will more than double the size of the $1 billion consumer appliance manufacturer.

Sunbeam, which is based in Delray Beach, Florida, said the three separate deals would total about $1.8 billion and would involve assuming about $700 million in debt. The announcement came 18 months after Sunbeam's chairman, Albert J. Dunlap, took over the company, which makes Sunbeam and Oster brand home appliances, and began a reorganization that included discharging half its 12,000 workers and closing dozens of plants. Such actions have earned him the nickname Chainsaw Al.

As part of the deals announced yesterday, Sunbeam will pay $1.6 billion, or about $30 a share in stock and cash, for Coleman and will assume about $440 million in debt. Coleman, of Wichita, Kansas, is a $1 billion company that makes camping and leisure products. It is controlled by Ronald Perelman's MacAndrews & Forbes Holdings, which will become one of Sunbeam's largest shareholders.

Sunbeam will also purchase Signature Brands USA, Inc., a $279 million company in Glenwillow, Ohio, that manufactures coffee makers under the Mr. Coffee brand name. Sunbeam is to pay Signature shareholders $8.25 a share, or about $84 million, and will assume about $165 million in debt.

In addition, Sunbeam is acquiring First Alert Inc., a $187 million company in Aurora, Illinois, that makes smoke detectors and other safety products. Sunbeam will pay First Alert $5.25 a share, or about $133 million, and will assume $43 million in debt.

''These transactions will enhance shareholder value by nearly tripling the company's annual revenues, expanding its geographical presence, complementing its existing product lines and leveraging operational synergies,'' Sunbeam said.

The company said it would take an undetermined one-time charge related to the transactions, which are subject to regulatory approvals. Sunbeam also expected a pretax cost saving of about $150 million related to the deals, which were first disclosed yesterday in The Wall Street Journal. How much of that will come from Mr. Dunlap's customary style of slashing jobs and closing plants remains to be seen because the company has not yet determined how many of the 9000 workers employed at the three companies will be dismissed.

Investors reacted favorably to the deals. Sunbeam's shares rose $3.875 yesterday to close at $45.625. Coleman's shares increased $10.062 to close at $30.093. Signature's stock rose $2.078 to close at $8.031. And First Alert's shares advanced $2.031 to close at $5.156.

''Sunbeam is now acquiring several strong brand names in categories that complement their existing brands,'' said William H. Steele, an analyst who follows the consumer products industry for the Buckingham Research Group. ''This makes them a much more powerful company at retail.''

Yesterday's announcement also answered the question of whether Mr. Dunlap's commitment to Sunbeam was for the long term. During past turnarounds he has led, including a reorganization of the Scott Paper Company that led to its sale in 1995, critics accused him of a scorched-earth approach that created only short-term value and enabled him to walk away with a fat paycheck. Mr. Dunlap, who declined requests for an interview yesterday, has signed a three-year contract to remain as chairman and chief executive of Sunbeam.

''It certainly puts to rest the argument that Mr. Dunlap was in Sunbeam for the short run,'' said David S. Leibowitz, managing director of Burnham Securities. ''The three companies to be acquired all meet Mr. Dunlap's criteria of having strong brand names and opportunities to drive down costs.''

"Disney and Fox Iron Out Details of Star Wars Prequel Trilogy Distribution Deal," PRNewswire, April 2, 1998

LOS ANGELES - Peter Chernin, President and COO of News Corporation and Chairman and CEO of the Fox Group, and Walt Disney Studios chair Joe Roth announced today that 20th Century Fox and Disney have entered into a far-reaching agreement with Lucasfilm Ltd. regarding distribution the next three Star Wars films, which are prequels to the original Star Wars trilogy, as well as tying up loose ends from 20th Century Fox's original distribution of the trilogy. As with the Star Wars Trilogy Special Edition, Disney will distribute the films theatrically through their Walt Disney Studios Motion Pictures division. In addition, the American Broadcasting Company has licensed the network broadcasting rights to the first of the new films, tentatively titled "Episode I." However it will then grant further repeat broadcast rights to Turner Network Television (TNT), along with the rights to the original trilogy and the two upcoming sequels to "Episode I." Fox originally had the rights, especially an owning of the original 1977 film in perpetuity, but Fox graciously waived that privilege after Disney's 1996 purchase of Lucasfilm. In addition, Fox is granting Disney and Lucasfilm the rights to use Fox studio lots to film the remaining two installments in the new trilogy.

Peter Chernin stated: "The biggest thrill of any motion picture executive is to touch greatness. At 20th Century Fox, it has been a tremendous joy to have been a part of George Lucas' groundbreaking Star Wars Trilogy. It is one of the privileges of my career to be involved, even indirectly, in bringing out the next installments of Star Wars to the world."

George Lucas stated: "I will always remain grateful to the work with Fox for the original releases of the original trilogy, and they hold a place in my heart. Even as Star Wars continues to expand with its new home at Disney, I hold no bad memories of working with Fox. Peter's gracious terms regarding distribution and allowing Fox lots to film the next two installments pleases me immensely."

The new films are Episodes I, II, and III of the Star Wars saga. Episodes IV, V, and VI - Star Wars: A New Hope, The Empire Strikes Back, and Return of the Jedi - were released by Fox in 1977, 1980, and 1983 respectively. In 1997, on the twentieth anniversary of Star Wars and one year into the acquisition, Disney released the Star Wars Trilogy Special Edition to theaters around the world.

Roth stated: "Disney and Lucasfilm created history last year with the successful release of the Star Wars Trilogy Special Edition. We not only achieved amazing results but moreover sparked a fervor for the Star Wars movies and characters."

Gordon Radley, President of Lucasfilm Ltd., stated: "Choosing the right distribution partner was a critical decision for us. Disney certainly has earned their laurels in that regard. We've enjoyed working very closely with the Walt Disney Studios Motion Pictures and Buena Vista Home Video teams and their talented colleagues on the worldwide theatrical and video releases of the Special Edition."

The original Star Wars trilogy told the story of Luke Skywalker, a young farmboy who became a hero in the struggle to overthrow an evil empire and had to confront one of the Empire's staunchest henchmen, his own father, Darth Vader. The new Star Wars trilogy will go back in time a full generation to reveal the origins of Darth Vader. In Episode I Darth Vader is a hopeful 9 year old boy named Anakin Skywalker and Obi-Wan Kenobi is a brash young Jedi Knight. This first chapter in the Star Wars saga follows Anakin's journey as he pursues his dreams and confronts his deepest fears in the midst of a galaxy in turmoil.

Episode I was shot in Venice, Italy; Tunisia; and Leavesden, England last summer and is currently in postproduction at Skywalker Ranch and Industrial Light & Magic in Marin County, California. The film was directed by George Lucas, written by Lucas and Lawrence Kasdan, produced by Rick McCallum and stars Liam Neeson, Ewan McGregor, Natalie Portman, and Jake Lloyd. Additional cast members include Christopher Lee, Ian McDiarmid, Samuel L. Jackson, Terrence Stamp, and Pernilla August. Episode I is scheduled to be released in the United States in May 1999.

The Walt Disney Company, together with its subsidiaries and affiliates, is a leading diversified international family entertainment and media enterprise with four business segments: media networks, parks and resorts, studio entertainment and consumer products. Disney is a Dow 30 company.

20th Century Fox is a unit of Fox Filmed Entertainment, a News Corporation Company.

Lucasfilm Ltd., a Disney subsidiary, is one of the leading film and entertainment companies in the world. Lucasfilm Ltd.'s businesses include George Lucas' film and television production and distribution activities as well as the business activities of the THX Group. Lucasfilm's feature films have won 17 Oscars and received 56 Academy Award nominations, and its television projects have won 12 Emmy Awards.

"Nirvana Launches Own Label," Billboard, April 23, 1998

Nirvana has announced that they are launching their own vanity label, Exploitation Records, to help look over and administrate the albums under their current five-album deal with Atlantic Records. After fulfillment of that deal, it shall be turned into a full-fledged independent label, with which they will administer all future albums and then hope to expand with signing other artists of different genres.

"It's a real ironic name," frontman Kurt Cobain says. "It's a piss-take on the old Asylum Records label, and it's also making fun of people thinking people are being exploited. When the Atlantic deal is done, we'll use it for not only Nirvana albums, but other artists, established and not. And, just for fun, I'll record street bums, disfigured people, people considered freaks, then release limited copies of them in their hometowns, as further irony of the name, of those who think I'm exploiting these people. There'll be 500 copies of the Singing Flipper Boy from Kansas City, and so on. At the very least they, their families and friends will be happy to have an album."

The success of Exploitation Records past the Atlantic deal is not by any means a sure thing. Artists have started vanity labels before with the art of receiving (or at least getting the appearance of) independence yet within the parent label. Some have had reasonable success, like Nine Inch Nails frontman Trent Reznor's Nothing Records, whose works are distributed by Interscope, and include not just NIN's music but also includes Marilyn Manson, PIG, Pop Will Eat Itself, Prick, 12 Rounds, Einsturzende Neubaten and Meat Beat Manifesto. Others become quite disappointing, as in the case of Prince and his Paisley Park Records label when still with Warner Bros., which often became only for signing acts that he helped start himself with very little outreach or success. Then there are others that basically only exist just for the artists themselves, like The Rolling Stones did with Rolling Stones Records, which is now shuttered.

"Disney Buys Out Starwave," by Randolph Court, Wired, April 30, 1998

A year ago, when Disney purchased a stake in Starwave, Paul Allen's online media company said it was still an independent company. A year later, Starwave is no longer independent. It's now a wholly owned part of The Walt Disney Company.

Disney exercised its option Thursday to purchase Allen's remaining interest in the Seattle-based Internet company for an undisclosed amount.

The move comes a day after Disney chief executive Michael Eisner hinted at a desire to create Disney's version of a Net directory or entry point to the Web. He told the Society of American Business Editors, "We will be aggressive competitors on the Internet as you enter the Internet."

Jake Winebaum, chairman of the Buena Vista Internet Group, which is responsible for all of Disney's Internet initiatives, said the company's intention is not to become another Yahoo. Rather, "what Disney is concerned about, and what the strategy centers on, is broadly distributing our brands," Winebaum said.

"The strategy over the past few years and going forward is to align with all the major [hubs of Internet traffic]," Winebaum said. He pointed to existing partnerships with Infoseek Corp., Excite Inc., Lycos Inc., Netscape Communciations Corp., America Online, and Microsoft Corp. and its Active Desktop.

"We want to stay top of site, top of mind... This acquisition allows us to have a singular focus on making sure our products are number one in their categories," said Winebaum.

Last April, Disney made an initial strategic investment in Starwave and formed two joint ventures to produce the ABCnews. com and ESPN SportsZone websites. Starwave and the joint ventures will now become part of Buena Vista.

Another advantage to the move is that those sites and the various Disney sites, including and Disney's Daily Blast, can now be consolidated on one technical platform to streamline the processes of ad serving, production, publishing, user registration and authentication, billing, and database archiving.

"The whole thing as a single platform is the key. That's one of the principle reasons for this move," Winebaum said. "Putting four of five of the largest websites on one platform creates max efficiency."

Patrick Naughton, Starwave's president and chief technology officer, said Starwave originally built its platform for ESPN and has since been applying it to some of Disney's sites.

Starwave employs about 300 people in the Seattle area and will continue to be headquartered there. The Seattle office will now serve as the core technology developer for all the Buena Vista Internet Group sites.

Several of Starwave's key managers will move to the Buena Vista Internet Group. Mike Slade, currently the chief executive of Starwave, will become president of Buena Vista. Naughton will become Buena Vista's chief technology officer, and Tom Phillips, who now heads ABC. com and ESPN Internet Ventures, will continue to run the ESPN sports group under the new ownership.

Winebaum said there will be no layoffs as a result of this acquisition. In fact, Winebaum said, "We're always looking for new people."

In the short run, not much will change with the various sites, Winebaum said. But, "the whole idea [of getting the various products onto one platform] is to free up resources and talent to do new things." Down the road, the sites will continue to expand and add new features, Winebaum said.

"Amid Big Losses; Sunbeam Plans to Cut 6400 Jobs and 8 Plants," by Dana Canedy, The New York Times, May 12, 1998

The Sunbeam Corporation stunned employees yesterday by announcing a plan to eliminate 6400 jobs, or 40 percent of its work force, and to close 8 of 24 plants to help absorb 3 businesses it recently acquired.

Such drastic cost-cutting reorganizations symbolize the management strategy of Albert J. Dunlap, Sunbeam's chairman and chief executive, and in other circumstances might have bolstered Sunbeam stock. But Mr. Dunlap coupled the cutback with news of a huge first-quarter loss and lowered expectations for the rest of the year, sending Sunbeam's stock down 7.4 percent.

Calling its performance a ''bad stumble,'' Mr. Dunlap said the appliance maker had an operating loss of $7.8 million, or 9 cents a share, for the January-March quarter compared with a profit of $20.6 million, or 8 cents, a year earlier. Revenues declined 4 percent, to $244 million, hurt by a 15 percent drop in domestic sales, which account for nearly 75 percent of Sunbeam's business. International sales grew 14 percent.

The domestic revenue shortfall was caused largely by a badly executed barbecue grill promotion that gave retailers until June of this year to pay for goods purchased last December. The company has since been charged in shareholder lawsuits with using the promotion to pump up sagging results last year at the expense of the most recent quarter's numbers.

During a meeting with financial analysts yesterday, Mr. Dunlap attributed the ''early buy'' debacle to everything from a marketing executive who approved ''stupid deals'' with retailers to El Nino having kept shoppers from thinking ahead to barbecue season.

But, Mr. Dunlap said: ''I categorically deny all the accusations that we tried to stuff the channels to pump sales. This was a well-intended strategy that did not work.''

Whatever the reason, the dismal performance was worse than investors had anticipated. Sunbeam had been expected to earn 21 cents a share for the quarter, based on the consensus estimate of analysts surveyed by First Call Corporation, which tracks earnings performance. And even that target had been revised when management signaled twice in recent weeks that its results would not meet expectations.

''It was a disappointing first quarter that came in below even the downwardly revised expectations,'' said Joe Kinnison, a money manager at American Express Financial Advisers, which holds 3.8 million shares of Sunbeam.

Going forward, Mr. Dunlap said, the company is focused on a restructuring that will include extensive cuts to absorb the makers of Coleman outdoor equipment, Mr. Coffee machines and First Alert smoke alarms.

Sunbeam, which purchased those businesses in March, said it would take $380 million in pretax charges this year because of the restructuring but that the cost-cutting would save $250 million a year.

The company, based in Delray Beach, Florida, will reduce its warehouses to 14 from 47, consolidate 10 regional headquarters into one and reduce its plants to 15 from 23. About 2300 jobs in the United States and 2800 in Mexico will be eliminated. In addition, the company plans to sell three Coleman businesses with 1300 workers, which should generate $250 million to $350 million.

''The Sunbeam turnaround is real, and we now have the right organizational structure in place,'' Mr. Dunlap said, though he cautioned that 1998 would be a year of transition.

Investors have tended to cheer when Mr. Dunlap, known as Chainsaw Al for his cost-slashing reputation, announces widespread job cuts and plant closings. Four months after he arrived at Sunbeam, Mr. Dunlap slashed about half of 12,000 jobs and closed dozens of factories and warehouses.

But shareholders were not impressed yesterday, sending Sunbeam shares down $2.0625 to close at $25.75. The stock has lost half nearly its value since reaching a high of $53 on March 4, two days after the company announced the acquisitions but before it warned that the first quarter would not look good.

Analysts said Sunbeam, and Mr. Dunlap in particular, had lost credibility by announcing surprisingly bad news for two consecutive periods, first with weaker-than-expected fourth-quarter revenues because of a slowdown in sales of electric blankets and then again with the poor first-quarter results.

''I think the outline of the cost cutting was great,'' said Andrew Shore, an analyst who follows the company for PaineWebber. ''I just doubt everything beyond that.''

Particularly troubling, he and other analysts said, is that the company attributed nearly all its problems to the grill promotion. No doubt, the effects of the sales program will linger into the second quarter, as retailers like Wal-Mart and Home Depot try to clear out all of the product they purchased last December. Beyond that, though, sales of some other Sunbeam product lines, such as personal care goods, which include electric blankets and shower massagers, may also not be strong enough for the company to achieve the growth it envisions.

Management said yesterday, though, that it expected corporate integration and new products to generate an additional $265 million in annual revenues. The company also has lofty visions of international growth, particularly in Latin America, for Mr. Coffee and First Alert products.

''Sunbeam is financially sound,'' Mr. Dunlap said. Our growth prospects are real.''

Even so, the company revised its long-term revenue forecast, saying it now expected 10 percent to 12 percent growth instead of the 20-plus percent Mr. Dunlap had been promising since shortly after he was hired to turn around the ailing company in July 1996. Operating margins were revised to 15 to 18 percent from a forecast of at least 20 percent.

For the year, the company said it expected to earn $1 a share compared with $1.25 last year. Sunbeam had been expected to earn $1.64 a share based on the First Call analysts consensus.

Even the revised figures did not win over investors who just months ago were bullish on Sunbeam. ''There is so much uncertainty regarding the company's ability to generate any real earning growth that it's going to be hard to see the stock become a real juggernaut,'' said William Steele, an analyst who follows the company for Buckingham Research. ''It's a show-me stock right now.''

"U.S., States Sue Microsoft For Antitrust," CNN Money website, May 18, 1998

U.S. regulators Monday launched one of the biggest antitrust assaults of the century, accusing Microsoft Corp. of using its dominance in computer software to drive competitors out of business.

Reviving images of trust-busting fervor against industrial titans like Standard Oil, AT&T and International Business Machines, U.S. officials charged the software giant with engaging in anticompetitive behavior.

And just like the breakup of Standard Oil helped define competition in the early 1900s, legal experts said the pair of antitrust lawsuits against Microsoft could have a profound effect on competition in the 21st century.

Gates: A step backward

Microsoft Chairman Bill Gates called the legal attack a "step backwards for America, for consumers and for the PC industry" and vowed the Redmond, Washington-based company would prevail in court.

In an interview with CNNfn's Lou Dobbs, Gates said the company is prepared to defend its position vigorously in court.

Microsoft's critics hailed the government's decision, saying the lawsuits mark the initial step in loosening the chokehold the Microsoft monopoly has on the computer industry.

The lawsuits, filed by the Justice Department, 20 states, and the District of Columbia in U.S. federal district court in Washington, escalate a verbal sparring match to a potentially long and costly legal battle.

Central to the government's case, unveiled after weeks of behind-the-scenes talks, is that Microsoft has illegally tried to "leverage" its market leading Windows operating system to "develop a chokehold" on the Internet browser software market.

"The Internet is already revolutionizing communication, commerce and the flow of information around the world," said U.S. Attorney General Janet Reno. "No firm should be permitted to use its monopoly power to keep out competitors or to spurn innovations."

Microsoft angled for the high ground in the eyes of consumers, insisting the government is simply holding up a company's response to the needs and desires of consumers.

Last-minute talks between the Microsoft and government officials broke down after the two sides couldn't agree to concessions that would change the company's contracts with PC makers.

"We were willing to explore ways in which [computer makers] might create more choices in browsing technology," said William Neukom, Microsoft general counsel. "There were a number of issues we thought were worthy of discussion, but the government would not engage us. We were there to solve a problem, and they were constantly asking for more."

Lawsuits but no delay of Windows 98

The lawsuits did not ask the court to delay or block shipment of Windows 98, Microsoft's new operating system.

"We stopped short of asking for enjoining the product precisely because we believe in creating options, not restricting them," said Joel Klein, the Justice Department's chief antitrust lawyer. "We are not seeking to impose a recall."

Microsoft spokesman Jim Cullinan said the company already began shipping Windows 98 to computer makers early Monday, aiming for a June 25 release date for consumers.

Meanwhile, in their separate suit, the states charged Microsoft used its dominance to push other software products as well, including its office productivity suite of applications, such as word processing and spreadsheet management and its email software Outlook Express.

The states that sued Microsoft were California, Connecticut, Florida, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, New Mexico, New York, North Carolina, Ohio, South Carolina, Utah, West Virginia and Wisconsin, plus the District of Columbia.

Though the lawsuits did not specifically mention Windows NT, the high-powered operating system geared to business users, Gates said he believed the charges apply to all Windows operating systems.

"The principles they have in mind would stop all advances in all forms of Windows," he said.

Neukom, however, added that "the suit as we understand it focuses on Windows 98."

Microsoft is scheduled to release an updated version of NT next year, and some experts had feared the government would include NT in its lawsuit, a move which could hurt Microsoft's bottom line.

Many experts believe Windows NT will eventually become the standard operating system for consumers as well as businesses.

Beyond browsers

The suits seek a hearing and a preliminary injunction that orders Microsoft to provide the Windows 98 operating system either with no browser, or with alternative browsers, so that computer makers and consumers could freely select the browser of their choice.

U.S. District Court Judge Thomas Penfield Jackson will hold a conference in the next few days to schedule a hearing for the preliminary injunction request. It was Jackson who last December issued the preliminary injunction that prohibited Microsoft from forcing PC makers to install its Web browser on Windows 95.

The states' bid for an injunction asks the court to order Microsoft to include Netscape's Navigator and one additional browser in shipments of Windows 98. However, the injunction being sought by the federal government seeks only the inclusion of Navigator.

Gates has slammed the government's proposal that it include rival browsers in Windows 98, saying it does not foster competition but only helps its main browser rival, Netscape Communications Corp.

But the Justice Department case extends beyond competition between Web browsers.

The government wrote in its complaint that because Netscape's Navigator could be used as an alternative platform that can run software applications on a variety of operating systems, Microsoft considered the browser a threat to Windows.

The Justice Department cited internal Microsoft documents as evidence the company sought to leverage its dominant Windows operating system to turn users away from Navigator and toward Internet Explorer, instead of allowing the products to compete on their own merits.

"Microsoft concluded that it would 'be very hard to increase browser share on the merits of [Internet Explorer] alone. It will be more important to leverage the OS [Windows] asset to make people use IE instead of Navigator,' " the Justice Department said in its complaint.

The government referred to another company memo stating that if Windows and Internet Explorer "are decoupled, then Navigator will have a good chance at winning."

"What Microsoft has been doing, through a wide variety of illegal business practices, is leveraging its Windows monopoly operating system to force its other software products on consumers," Klein said.

The Justice Department's case also examines Microsoft's response to other products that pose a potential threat to Windows.

The government said the "most significant potential threat to Microsoft's operating system monopoly" come from alternative platforms that can be used on a variety of operating systems, such as Sun Microsystems, Inc.'s Java.

"Java is designed in part to permit applications written in it to be run on different operating systems," the Justice Department wrote in its complaint. "As such, it threatens to reduce or eliminate one of the key barriers to entry protecting Microsoft's operating system monopoly."

The government added that "non-Microsoft browsers are perhaps the most significant vehicle for distribution of Java technology to end users."

Gates: ironies abound

Gates contended Microsoft was being punished for the very values America promotes.

"How ironic that in the United States, where freedom and innovation are core values, these regulators are trying to punish an American company that has worked hard and successfully to deliver on these values," Gates said.

He also said it was ironic that the government would file a sweeping antitrust suit on the day Microsoft shipped Windows 98 to computer manufacturers.

Nonetheless, two of the major U.S. personal computer manufacturers, Dell Computer Corp. and Gateway, told CNN their plans are full speed ahead to begin testing and installing Windows 98 operating system as soon as they receive it.

Spokesmen from both companies said the lawsuits would not alter their target of making Windows 98 available to the public June 25.

Both Dell and Gateway also have given customers who have bought computers since April certificates for free upgrades for Windows 98.

Three Pepsi cans in every six pack of Coke?

Gates said forcing Microsoft to include Netscape's competing software in Windows 98 is like requiring Coca-Cola to include three cans of Pepsi in every six-pack it sells.

Microsoft lawyer Bill Neukom said the government reaching into uncharted territory in its lawsuit: forcing a company to carrier its competitor's products.

For its part, the government said Microsoft was well aware of the potential threat from the upstart browser maker. Microsoft, "from Bill Gates on down," realized that its browser was threatened by Netscape's Navigator browser, Klein said.

And Klein said Microsoft also tried at one point to secretly divvy up the browser market with Netscape - which Gates said that was an "outrageous lie."

When Netscape refused Microsoft's proposal, Microsoft then worked to "in Microsoft's own words, and I quote, 'cut off Netscape's air supply,'" Klein said.

Microsoft gaining ground on Netscape

Microsoft has been steadily gaining ground on Netscape in the browser market. According to industry research firm Dataquest, Microsoft's share of the browser market nearly doubled to 39 percent in the fourth quarter of 1997 from 20 percent in the fourth quarter of 1996.

Microsoft's critics said the government has been hampered by Microsoft's close relationship with PC makers.

"The biggest hurdle is those that have relevant information may be afraid to come forward," Kevin Arquit, an outside attorney for Sun Microsystems. "PC makers may have a lot of useful information, but if they rely on Microsoft, there may be some reluctance to come forward. Hopefully, this will show the government is serious and those companies will go forward."

The Justice Department's complaint, however, quotes depositions taken from executives from several PC manufacturers supporting its claims that Microsoft unfairly dominates the industry.

"[Gateway executive James] Von Holle has testified that if there were competition to Windows he believed such competition 'would drive prices lower' and promote innovation," the government said.

States say issue is consumer choice

State officials, led by Attorneys General Dennis Vacco of New York, Tom Miller of Iowa, and Richard Blumenthal of Connecticut, said the real issue in the lawsuits are consumer choice.

"We are taking this action to give a fair shake to competitors and free choice to consumers in one of the most crucial industries in this nation," said Miller.

"With over 90 percent of all computers using Microsoft operating systems, the company retains a virtual monopoly over the computing industry," Vacco said.

Gates, however, suggested the government was basing its case on behalf on a single competitor's complaints: Netscape's.

"Demands that Microsoft completely hide its Windows user interface and its Internet technology from PC users, and that we ship Netscape's competing software in every copy of Windows, all appear to benefit a single competitor at the expense of consumers," Gates said.

He later added that government officials "kept saying Netscape this, Netscape that" when the two sides were trying to negotiate a settlement last week.

Microsoft shares closed at 86-1/16, down 3-3/8.

"Pow! The Punches That Left Marvel Reeling," by Adam Bryant, The New York Times, May 24, 1998

For decades, Spider-Man, the Incredible Hulk and other Marvel Comics characters have battled all manner of foes, escaping death and saving millions of lives with the help of their special powers. But all their conquests in the rough-and-tumble Marvel Universe could not prepare them for the real world.

The heroes' corporate parent, the Marvel Entertainment Group, has been drained of nearly all its strength. Revenues have fallen sharply. Profits have been replaced by steep losses. Legal combat - ooof! - has tied up the company in bankruptcy for more than a year. Last month, the New York Stock Exchange delisted Marvel, once one of its hottest stocks.

Who could entangle a pop culture icon in such a web?

Two takeover titans who are familiar characters in their own right: Ronald O. Perelman, the financier whose laser vision for spotting undervalued companies has made him one of the country's richest men, and Carl C. Icahn, the scrappy outsider who wrings value from investments by applying steel-twisting pressure to managers guilty of that most terrible of injustices - paying little heed to the wishes of their shareholders.

To be sure, Marvel has been an unlikely battleground for these crusading capitalists. As investments go, their original stakes in Marvel - about $10 million for Mr. Perelman, about $40 million for Mr. Icahn - represent pocket change to these billionaires.

But something far more valuable has been on the line at Marvel: their reputations. And neither's has been burnished by the clash. Sure, Mr. Perelman was able to extract his original investment in Marvel several times over, and Mr. Icahn certainly proved that he still knows how to make life difficult for corporate executives.

Yet today, for reasons that range from hubris to simply being outfoxed, each man in turn has been swept out of Marvel, leaving behind little of lasting value for investors, employees or comic book fans to show for their time in control.

It certainly isn't a story that either would want to see in bright colors in a comic book store.

Mr. Perelman said recently that if he were to rank his successes, Marvel would be off the list. ''Nothing comes close to this,'' he said, trademark cigar in hand.

Mr. Icahn said: ''I have framed articles of every deal I've ever done. In all honesty, this is one frame I'm considering taking down.''

Return of the Superheroes

In 1988, Marvel looked to Mr. Perelman like the kind of company he had turned around before: like Revlon, for example, which he had acquired in a hostile takeover, fueled by junk bonds, three years before. Marvel would be fun to own. Its long history suggested that the business was not just a fad. And, barely profitable, Marvel clearly had much room for improvement.

Marvel also dominated its rivals - including DC Comics, home of Superman and Batman - on the strength of its characters, whose everyday problems with school, jobs and relationships made them more appealing to young readers.

So in January 1989, Mr. Perelman bought Marvel for $82.5 million, putting in $10.5 million of his own money and borrowing the rest. And from the outset, the purchase looked like a masterstroke. Interest in fantasy figures was building in Hollywood: The Incredible Hulk and Thor appeared together in a primetime television movie; Warner Bros. was heavily promoting Batman for a summer release, and the Teenage Mutant Ninja Turtles, sprung from the pages of an obscure comic book, were as ubiquitous as fleas.

Mr. Perelman's management team, led by William C. Bevins Jr., an acquisitions ace and former chief financial officer for Turner Broadcasting, moved quickly to capitalize on the interest by giving Marvel's comics an upgrade. With better paper and slicker packaging, they raised prices from 75 cents to $1 without driving away buyers. Print runs soared to fill the orders from hundreds of new comic book stores.

After just two years of Perelman management, Marvel's revenue was up 35 percent, to $81.1 million, and profits jumped tenfold, to $5.4 million.

With Marvel in fighting shape, Mr. Perelman decided to lock in his profits by selling shares to the public. The market did not seem to mind that none of the $82 million to be raised would stay at Marvel. Instead, about $50 million was earmarked for Marvel's Perelman-controlled parent companies - five times Mr. Perelman's original investment - leaving him with a 60 percent stake, and the rest would pay down bank debt. Investors lined up to buy shares, and when trading started, Spider-Man visited the floor of the New York Stock Exchange to celebrate.

In just a few months, Marvel shares more than doubled in price and then continued to ride a wave of good news about Marvel and the industry. James Cameron, known at the time for his success with The Terminator and Aliens, agreed to write and direct a Spider-Man movie. The ''Death of Superman'' issue from DC Comics became a national news event, lifting the entire business. And Marvel's flawed X-Men heroes captured the imagination of children across the country.

Marvel trumpeted in its 1992 annual report, published in comic book format, that it was ''a new kind of youth entertainment company - ready to take the world by storm!'' And storm it did. In July 1992, Marvel bought the Fleer Corporation, a trading card company, for $286 million. The next year, Marvel teamed up with Toy Biz, a New York marketer best known for its action figures, by trading a royalty-free license to use Marvel characters for a 46 percent stake in Toy Biz. Although it was a minority ownership stake, this transaction would eventually play a much bigger role in Marvel's future.

By the end of 1993, Marvel had bulked up at a speed that would have impressed even the Incredible Hulk, earning $56 million on revenues of $415 million. Long-term debt on the operating company stood at $250.2 million. Shares that had sold initially at just over $2, adjusted for splits, traded above $35 late that year, making Mr. Perelman's stake worth about $2.7 billion; he had spent about $300 million in borrowed money to increase it to 80 percent.

''We felt very good about the business,'' Mr. Perelman said.

The Bubble Bursts

While Marvel was taking much of the credit for expanding the comic book market, there were other powerful forces at work.

One was the mothers of America, who had played a quiet but important role through the years - pitching comic book collections as their sons grew up and left home.

That helped create a collector's market, and as interest in comics increased in the early 1990s, so did the value of rare back issues. That, in turn, fueled a speculative boom. Children and adults started buying multiple copies, particularly of special editions, betting that they might one day be worth a mint.

Ultimately, though, the speculators figured out that if everyone was stockpiling comics, the value of the books was unlikely to rise over time. By early 1994, it was clear that the bubble that had been supporting Marvel's tremendous sales growth was bursting, creating a shaky foundation for the company's expanded infrastructure. With strikes in one professional sport after another sapping fan enthusiasm, the same thing happened to trading cards, a business that, with the acquisition of Fleer, contributed about half of Marvel's revenues.

In hindsight, Mr. Perelman, a famously hands-on manager, said that he and Marvel's top managers did not realize the degree to which speculators had been driving their businesses. There were simply no statistics available, he said, from the thousands of retailers that had sprung up so quickly.

''We couldn't get a handle on how much of the market was driven by speculators, the people buying 20 copies and reading one and keeping 19 for their nest egg,'' Mr. Perelman said.

In fact, Marvel executives were waving off warnings from industry insiders as the kind of small thinking that had held back the industry in the past. And the warnings could not have been clearer.

Neil Gaiman, creator of the popular Sandman character, gave a speech in 1993 at an industry gathering of 3000 retailers, comparing the popularity of comics to the mania over tulips in Holland in the 17th century. He even accused his audience of acting immorally by selling cases of comics to children who thought they were buying collectors' items.

''You can sell lots of comics to the same person, especially if you tell them that you are investing money for high guaranteed returns,'' he said. ''But you're selling bubbles and tulips, and one day the bubble will burst, and the tulips will rot in the warehouse.''

Mr. Gaiman wasn't the only skeptic. Gerard E. Jones, who wrote as many as nine comics a month for Marvel and other publishers during the boom and has since written a history of comic books, said industry insiders enjoyed the boom time, as long as it lasted. ''But the people in the trenches were always just sort of shaking their heads over Perelman's big dream,'' he said. ''I don't think anybody outside of investor circles took any of this very seriously.''

But investors were indeed taking it seriously, and Marvel's management looked to deliver growth through more acquisitions even as the market for comic books was deflating quickly.

Between mid-1994 and early 1995, Marvel bought the Panini sticker company ($150 million); two smaller publishers of comics, Malibu Comics Entertainment and Welsh Publishing Group, and Skybox, another trading card company ($150 million). To improve its margins and to better market its comics at the retail level, Marvel also bought Heroes World, a regional distributor in the Northeast, in December 1994. The firm stumbled in trying to expand overnight into a national distributor, and Marvel later dismantled the venture.

By late 1995, Marvel's size had become a liability. Marvel reported its first annual loss under Mr. Perelman's watch: $48.4 million on sales of $829 million. Marvel Entertainment's debt load was $581.3 million, and it was losing market share in a shrinking industry, in part because many of Marvel's best writers and artists had left to start their own publishing companies.

Amid the pressure to pump out more titles, Marvel comics had also dropped in quality, with splashy art by inexperienced artists replacing the clever plots and dialogue that had hooked so many longtime Marvel fans.

''You had a lot of high school, study-hall scribbles showing up as published art,'' Mr. Jones said. ''For fans, it was alienating, confusing and it left many fans feeling betrayed, that their habit was being taken advantage of.''

Through 1996, the company tried to drown out the swell of bad news with upbeat announcements of new ventures. It established Marvel Studios to get the long-awaited movies, which had been tied up in legal disputes in Hollywood, onto the screen. It was going to build Marvel Mania restaurants and establish a big presence on the Internet.

But it was too late for new strategies. Mounting losses put Marvel in violation of its bank covenants. The company needed rescuing.

And which hero volunteered to save the day? Super-Ron, wielding a plan. Mr. Perelman would merge Marvel with the healthier Toy Biz by spending $350 million for the Toy Biz shares he did not already own. In return, he would get 410 million newly issued Marvel shares, maintaining his 80 percent stake, for 85 cents a share.

Yes, that was a steep discount to the $4.625 at which the shares closed the day before his offer. But Mr. Perelman saw himself as stepping forward to rescue Marvel.

''I wanted to save the company,'' Mr. Perelman said. ''I wanted to protect the company's many constituents, including its employees and investors.''

An Investors' Revolt

But many investors were outraged. Marvel's shares quickly sank 40 percent, and bonds in Marvel's holding company, part of Mr. Perelman's byzantine financial empire, also tumbled, selling for as little as 16 cents in mid-November after trading as high as 72 cents in early October.

Onto the page leaped Mr. Icahn, who smelled an opportunity. Just as Marvel years before had met all of Mr. Perelman's investing criteria, the company now offered the combative Mr. Icahn all the ingredients of a good and profitable fight.

He had railed in the past about executives who claimed a ''divine right of kings'' to stay in control despite their management mistakes. Buying about $40 million worth of Marvel bonds, he warmed up to an analogy that he is still using today. Mr. Perelman's handling of Marvel, he likes to say, ''was like a plumber you loan money to get him started in business; then he comes in, wrecks your house, then tells you he wants the house for nothing.''

But Mr. Icahn was picking a fight with someone who had come out of the corporate raids of the 1980s with even deeper pockets than his own.

Mr. Perelman's $6.5 billion in estimated wealth earned him the eighth spot on the Forbes list of richest Americans last year; Mr. Icahn's $2 billion ranked him at No. 69.

Mr. Icahn figured that if Mr. Perelman was willing to put $350 million into Marvel, it was no doubt worth more.

He quickly offered his own rescue package, one roughly the same size as Mr. Perelman's. But Mr. Perelman put Marvel into Chapter 11 bankruptcy, effectively silencing Mr. Icahn and other bondholders. With the promise of a new, $160 million loan and the support of bankers hoping to work their way out of a bad situation, Marvel expected a quick tour through the courts.

Mr. Icahn had other plans. Escalating his war of words, he said Mr. Perelman was trying to ''realize a windfall profit for himself at the expense of those to whom he owes a fiduciary responsibility.'' His rival's tactics, Mr. Icahn added, were ''unconscionable.''

Mr. Icahn noticed a weak spot in Marvel's elaborate financial structure. Mr. Perelman had put up his 80 percent share of the company as collateral for Marvel bonds. If Mr. Icahn and other bondholders could get control of those shares, they would control Marvel.

In February 1997, Mr. Icahn, with the help of the bondholders' lead lawyer, David Friedman, surprised everyone by winning the bankruptcy court's approval to take control of the stock, although Mr. Icahn fell short of also taking over Marvel's board. By March, the banks recognized that Mr. Icahn was gaining the upper hand, and they scheduled a meeting with him at the law offices of Simpson, Thacher & Bartlett in midtown Manhattan.

By all accounts, the meeting was horrendous. The bankers wanted to know Mr. Icahn's intentions for Marvel. And Mr. Icahn, who is his own bank, felt little compulsion to offer any specifics. When William C. Repko, the lead banker in the room and the managing director for Chase Manhattan's restructuring and refinance group, pointed out that the banks were owed some $700 million, Mr. Icahn quickly put a chill on the gathering.

''What are you, a comedian?'' Mr. Icahn said, according to many people in the room. ''If I wanted a comedian, I would have hired one.''

The battling continued in court. In June, Mr. Icahn won the right to replace Marvel's board, effectively severing Mr. Perelman's ties to the company.

Now Mr. Icahn was chairman of the board and deeply engaged in Marvel's operating strategy. He brought a longtime Marvel executive, Joseph A. Calamari, out of retirement to run the company, and was constantly calling him to brainstorm. ''He had hundreds of ideas every week,'' Mr. Calamari said. One suggestion: that Marvel finance its own movies.

Mr. Icahn also tried to use the special voting powers of Marvel's shares in Toy Biz to take over Toy Biz's board. But to his chagrin the court ruled that, by taking over Marvel, he had triggered a change-of-control clause that evaporated the shares' clout.

Toy Biz, which had its royalty-free license to make toys based on Marvel characters and was partly owned by Marvel, also wanted to run the company. Toy Biz, the banks and Mr. Icahn, in a variety of combinations, all came close to striking a deal over a reorganization plan.

Last October, Mr. Icahn appeared to have an agreement with the banks, but they were enticed at the last minute by a proposal from Toy Biz that offered them better terms. Specifically, its plan would give the secured creditors the Panini sticker business, plus $230 million in cash and about 40 percent of the stock in a combined Toy Biz and Marvel. Mr. Icahn sued Mr. Perelman, Chase and Toy Biz, contending that ''collusive conduct'' had hurt the company.

In December, almost a year after Marvel filed for Chapter 11, the court appointed a trustee to run the company, hurtling Mr. Icahn into a distant universe, somewhere near the one occupied by Mr. Perelman. With his purchase of some bank debt, Mr. Icahn had invested a total of about $70 million in Marvel.

In February, Toy Biz put forward a modified version of its plan supported by many of Marvel's creditors. And while court approval of that deal has been delayed by further legal wrangling, it still appears likely to win. (Marvel's trustee supports it.) Another company could put forward its own offer, but the most likely suspects - including movie studios hungry for characters on which to build Batman-like franchises - have so far been turned off by the uncertainty and the competing legal claims.

''It's a shame,'' Mr. Friedman said, ''how a very small number of people couldn't get along and cause a pretty decent company to fall apart.''

Signs of Battle Fatigue

After the Incredible Hulk finishes one of his shirt-ripping growth spurts, he is so sapped of energy that he has to rest quietly a while before he can rise up again.

Much the same has happened to Marvel in the last decade, and it is only recently, after courtroom battles drained it of momentum, that the company is showing signs of life.

Several Marvel rides based on its characters, including ''Dr. Doom's Fearfall'' are under construction at Universal Studios' new second gate, Universal's Islands of Adventure, in Orlando, Florida, and are expected to open next year. The first of what the company hopes will be a chain of Marvel Mania restaurants opened in January at Universal Studios Hollywood. The Universal Studios unit of the Seagram Company owns a majority stake in the football-field sized eatery, where waiters serve, among other things, ''Mutant Chicken Wings'' and an alcoholic beverage called ''Nuclear Waste'' that comes in a laboratory beaker.

Marvel's site on the Internet called MarvelZone (marvelzone. com) - where computer users can, for example, chat online with Stan Lee, the legendary creator of Spider-Man, the Hulk and the X-Men - is building traffic. And movie projects based on Marvel characters are again starting to work their way through the Hollywood pipeline.

The company's comic book business, under the guidance of Mr. Calamari and others who grew up in the industry, has trimmed the number of titles it publishes each month and is trying to improve the quality of those it does print. Plots that used to play out over 12 to 13 months, frustrating many readers, are being replaced by stories that end in just two.

In all, Marvel's core business is roughly the size it was before Mr. Perelman took over.

Spidey and the rest of Marvel's cast of heroes may have appeared beaten at times in recent years, Mr. Calamari said, but they will prove their resilience over time.

''If you think about how everybody, for the last two years, has done nothing but try to acquire the assets and not worry about operations, it's amazing how solid the company has been,'' he said. ''The Marvel Universe can't be destroyed.''

"Garbage In, Garbage Out," by Peter Elkind, Fortune, May 25, 1998

Waste Management used to be a Wall Street darling, with the kind of growth rate investors love. But then the growth slowed, and the stock dropped, and it became a different kind of company. The kind that cooks the books.

The sprawling lobby at the worldwide headquarters of Waste Management, in the Chicago suburb of Oak Brook, Illinois, betrays precious little evidence of what once made the company great. There are no pictures of employees rising before dawn to pick up America's trash. No models of the company's trademark burgundy garbage trucks. No oversized portraits of the company's co-founders, Wayne Huizenga and Dean Buntrock, who were the first to figure out that local trash hauling, operating on a national scale, could be a hugely profitable business.

But on the lobby receptionist's desk stands a telling symbol of what brought it all crashing down: a small board displaying Waste Management's most recent closing stock price. Since going public in 1971, Waste Management has been obsessed with its stock price-and for much of that time it was a happy obsession. In the 1980s, Waste positioned itself as a classic growth company, and its shares soared. It was Wall Street's favorite garbage hauler. But then came the 1990s, and that obsession became its curse.

Early this year Waste Management stunned the investment community by announcing a mammoth pretax charge of $3.54 billion. In effect, that was the payment for the company's accumulated sins during the decade. The primary sin, the company revealed, was having used improper, overly aggressive accounting tactics in an effort to boost sagging earnings. This had been going on for so long that the company had to restate earnings back to 1992. Not surprisingly, the SEC began an investigation into both Waste Management and its longtime auditor, Arthur Andersen. On March 11 came the denouement: Waste Management agreed to be taken over by a much smaller rival, USA Waste Services, in a $13.5 billion deal. Not many years before, USA Waste had been operating a single garbage dump in Norman, Oklahoma.

It's always tempting to view a story like this one as an aberration-a singular event revolving around a company gone bad. Sadly, that's probably not the case. Waste Management did the things it did because it refused to concede that it was no longer a hot growth company. Its desire to retain its status as a Wall Street highflier drove Waste Management not just to inflate its numbers but also to make a whole host of wrong-headed decisions.

Recently another Wall Street highflier, Cendant, announced that it would have to restate earnings as a result of accounting problems that had been uncovered. Yes, the restatement will be smaller than Waste's, and yes, the problems occurred at a company that Cendant only recently acquired. Still, the trend is a troubling one. At a time when quarterly earnings have never been more important-and the punishment for disappointing the Street never more severe-the temptation to boost earnings by using accounting gimmicks can be powerful. And so is the temptation to allow the business to be driven by the stock price, rather than the other way around. "The stock should be the product of how you do business," says Steve Miller, an outside Waste director brought in as acting CEO, "not the god you pay homage to every day."

There is a tendency to think of Waste Management primarily as the first company Wayne Huizenga built, and that's not entirely wrong. Waste is where Huizenga, a South Florida garbage hauler before co-founding the company in 1968, pioneered his empire-building technique: snapping up mom-and-pop operations in a single industry and stitching them together into a giant national business-a model he would later employ at Blockbuster (video stores) and Republic Industries (car dealers).

But it was never a solo act. In fact, on the organizational chart Huizenga, the company president, played second banana to Buntrock, who served as chairman and CEO. A former insurance salesman utterly lacking his co-founder's dynamism, Buntrock was nonetheless instrumental in establishing the Waste Management culture-proud to the point of arrogance and addicted to growth-as well as its core strategy. In fact, the company really went into overdrive only after Huizenga left in 1984. That year Waste hit $1.3 billion in revenues. Six years later revenues stood at more than $6 billion, and net income had quadrupled.

That, of course, is the kind of growth Wall Street looks for-and rewards. As earnings climbed, so did the stock price, rising from $3.41 in 1984 (split-adjusted, of course) to a peak of $46.63 in 1992. The stock enjoyed a growth-company multiple, its P/E breaking into the mid-30s. Investment bankers drooled over the prospect of Waste Management's business-the company was doing upwards of 100 acquisitions a year-while analysts wrote glowing buy recommendations. "Waste Management was like Intel today," recalls CIBC Oppenheimer analyst Doug Augenthaler: "It was the quality growth name."

Yet even as it was basking in its status, Waste realized it couldn't keep growing the way it had. It was so big that it couldn't buy enough smaller companies to keep up the frenetic pace. By the early 1990s, Waste needed to deal with a new reality: It couldn't be a growth company anymore.

Or could it? "For 20 years, we had double-digit growth," Buntrock told FORTUNE, in his first interview since the accounting problems came to light. "The marketplace and shareholders and even your own employees expect you to continue that. You expect it yourself. My job was to have a strategy that allowed it to continue to grow."

His strategy was to diversify. Starting in the late 1980s, Buntrock moved Waste heavily into hazardous-waste disposal, recycling, water treatment, even lawn care. And he expanded massively overseas. Then, pleased with what he had done, Buntrock recast the company as a portfolio of global environmental-services businesses, complete with a sexy new name: WMX Technologies.

Unfortunately, Buntrock's strategy failed on virtually every count. The company overpaid for acquisitions abroad; the hazardous-waste business declined; recycling produced lousy returns. And while the new WMX certainly got big-with assets of more than $16 billion and some 73,000 employees-it wasn't exactly fast-growing. On the contrary, the bigger it got, the easier it became for smaller, nimbler competitors to compete for customers in the highly profitable core trash business.

Yet Buntrock refused to change course. Nigel Wilson, who joined Waste in 1993 as finance director for international operations, thought there might be another strategy for the company, revolving around tough cost cutting. "There wasn't a ruthlessly aggressive cost cutter anywhere in the business," he says. After writing a memo to that effect, Wilson was summoned to London during a family vacation on the Canary Islands so that Buntrock lieutenants, who had flown in from company headquarters in Oak Brook, could tear apart his recommendations. Wilson left the company after two years.

With the strategy failing, Buntrock began mishandling Wall Street. Instead of lowering expectations, he continued to promise turbocharged earnings-then failed to deliver. In 1993 the company projected $10 billion in revenues but produced just $9.1 billion. Profits fell by almost 50%, while the stock sank to $23. And still Buntrock refused to acknowledge that things had changed. "We are a growth company!" he protested to angry investors at the 1994 annual meeting.

As the situation grew increasingly desperate, so did Waste's response. It began booking ordinary losses as one-time "special charges." To boost stock values it had set up four publicly traded subsidiaries, but the new structure was so unwieldy it had to be unwound a few years later. Buntrock and his protege, Waste President Phil Rooney, also ordered the company's fleet of garbage trucks and steel trash containers kept on the streets longer. As Buntrock concedes today (Rooney declined to comment), this was intended to boost earnings by cutting the capital budget. But it was terribly short-sighted because it meant the company was forced to spend millions to keep broken-down trucks on the road. Maintenance costs soared. One former divisional controller recalls having to swap desperately needed equipment with her counterparts, like Radar O'Reilly in M*A*S*H. "We were trading trucks all over God's creation," she says. "If someone needed 15 containers, I'd find the 15 containers for 'em, and they'd give me a truck. We'd tow a truck across three states to get it, so we could scavenge it for parts."

And finally, as we now all know, the company began cooking the books. Here's how it worked. Standard industry practice is to depreciate-or write down-the cost of trucks (about $150,000 apiece) over eight to ten years, with each year's depreciation expense reducing the bottom line. But in the early 1990s, at Rooney's direction and with Buntrock's assent, Waste began stretching the depreciation schedules by two to four years. This lowered the company's annual depreciation charge, boosting earnings. Waste also reduced by as much as $25,000 the starting depreciation amount on each truck, claiming that sum as "salvage value"-an amount it would recover by selling the vehicles. Standard industry practice is to claim no salvage value. On a North American fleet of nearly 20,000 vehicles, this manipulation added up.

The company engaged in similar shenanigans with its 1.5 million steel dumpsters. Waste listed their useful lives as between 15 and 20 years-12 is standard-and claimed salvage value on them as well, again contrary to industry practice. In some cases management kept two sets of books, imposing the questionable depreciation schedules at headquarters on assets that were valued properly in the field. "They were way out of the industry norm," says USA Waste CFO Earl DeFrates. "To be keeping two sets of books is just incredible. It scares the hell out of me." Between the dumpsters and the trucks, the accounting maneuvers inflated pretax profits by $716 million.

But that wasn't all. Waste Management owns 137 landfills, all of which require millions of dollars in up-front costs to buy the land, win the permits, and develop. Then, after a landfill is filled, millions more must be spent; federal regulations require treating the site and monitoring for contamination for 30 years. The accounting treatment of these costs is determined by the probable life of the landfill. Obviously, expansion makes a landfill considerably more profitable by extending its useful life and spreading the capital cost-charged on the books as capitalized interest and depreciation-over a much longer period.

So what did Waste Management do? Naturally, it claimed that landfill expansions were likely-even when they weren't. For its Live Oak landfill in Atlanta, for example, the company's books counted on a huge increase in capacity-even after the state had passed a law barring any expansion! Thus was the site's value inflated by $30 million. Overall, charges for overvalued landfill projects totaled more than $700 million. And on and on. Recycling facilities, hazardous-waste plants, engineering operations-all were massively overvalued, artificially brightening the balance sheet. Taken together, the gimmicks boosted reported earnings by $110 million or more each year. (Replies Buntrock: "To my knowledge, there was proper accounting used on all our financial transactions.")

But here's the pathetic part: It didn't work. Earnings remained volatile at best, and the company's relations with Wall Street soured. Back in 1991, Paul Knight, an industry analyst with NatWest, had presciently placed a sell rating on the company. "It was like putting a sell on Microsoft," he says now. "Everybody hated me." But as Waste continued to disappoint, and the stock drifted into the mid-20s, other analysts joined in. Soon Waste Management was a Wall Street pariah. Bottom fishers and short sellers moved in. And so did a new-and far more troublesome-kind of investor.

Nell Minow is a CEO killer. A 46-year-old lawyer, she is a principal at LENS, a Washington, D.C., investor group. Along with her partner, Bob Monks, she invests in the worst-run companies in America. Their strategy is to agitate for change-always noisily, through the press. Lens isn't very big; it has $100 million today but had only $35 million when it first targeted Waste Management. Yet the firm's kill rate is remarkable. Of the first ten companies it went after-including American Express, Kodak, and Westinghouse-nine replaced their CEOs.

Minow first took aim at Waste Management in 1995. Even without the disclosure of the accounting problem-still more than two years away-Waste was a classic LENS investment: an arrogant company that had lost its way and whose stock was going nowhere. Minow always likes to start by looking at the board, and Waste's offered an easy target. It included five current or former company executives, plus Buntrock's personal attorney. Three of the outside directors-or the institutions they ran-received fees or contributions from the company. "It was such a sound bite," Minow says now: "'Two-thirds of the board is on the payroll.'"

By 1996, Minow had enlisted a powerful ally, George Soros, whose hedge funds bought $1 billion of the stock. LENS was demanding the appointment of independent directors and pushing for the sale of noncore assets. Waste's top executives had also become targets: LENS wanted Buntrock, 65, to retire as chairman and CFO James Koenig fired. (Koenig could not be reached for comment.) Soros' operatives demanded that Rooney, who had just stepped in as CEO, be replaced, bluntly branding him "inadequate."

And within a year and half, after the usual round of angry meetings and threats of proxy fights, LENS and Soros appeared to have won just about everything they wanted. Waste had started adding independent directors, including Steve Miller, a former Chrysler vice chairman who had fashioned a second career putting out fires at deeply troubled companies. Waste had begun a sizable restructuring, including 3000 layoffs, the sale of $2.5 billion in assets, and the restoration of the old Waste Management name. Koenig had been reassigned. And in mid-February 1997, Rooney quit, after just eight months as CEO. Miller, the new board member, led the search for a new CEO. In July the company had its savior: Ronald T. LeMay, 51, the No. 2 man at Sprint. Or so everyone thought.

He lasted less than four months. Granted an extraordinarily generous pay package-including a guarantee that Waste would cover up to $68 million in appreciation of the Sprint options he had to give up-LeMay nonetheless departed abruptly in late October, returning on a Sprint corporate jet to his old job. ("I'm out of here this afternoon," LeMay told Miller when he gave him the news.) At the time it all seemed very mysterious; to this day LeMay has never spoken publicly about why he abandoned ship with such haste.

But in retrospect, it doesn't seem all that mysterious. LeMay had stumbled onto the accounting problems. On Oct. 10, he announced that Waste wouldn't be able to meet Wall Street expectations for the quarter-again. But he also warned, ominously, that there were accounting issues that might require a special charge. He left a few days after the quarterly results were released. The same day Waste's new CFO also quit. The stock plunged 20%.

From that point on, it was only a matter of time before the rest of the world found out. Unwilling to turn again to Buntrock, who was still on the board (but would leave by year's end), the directors named Miller acting chairman and CEO.

Miller quickly announced yet another "sweeping" restructuring (the company's second that year alone) and launched the search for a new CEO (it had already had four since January). But the most important thing he did was to begin digging into the financial problems. He tapped a new outside director to help him: former SEC chairman Rod Hills.

"It was apparent that we had a real problem the day I became chairman of the audit committee," Hills tells FORTUNE. He and Miller immediately hired a new acting CFO and demanded a fresh audit team from Arthur Andersen, Waste's longtime accountants. But of course Andersen's own conduct was also at issue-why hadn't it stopped the accounting games, or at least called attention to them? Although Andersen denies culpability, Hills has no reluctance pointing to it as part of the problem. "The SEC is going to find that they didn't do their jobs," he says bluntly. (Responds Matthew P. Gonring, an Andersen managing partner: "We take exception to pre-investigative inappropriate finger pointing.") Ultimately, Ernst & Young was also brought in to look over the books.

After four months the company unveiled the results of its audit, and they were grim indeed: a pretax charge of $3.54 billion-which even Buntrock calls "staggering." (After tax, it comes to $2.9 billion.) The adjustments made 1997 the worst year in the company's history, with a loss of $1.18 billion. Reported profits of $192 million in 1996 became a loss of $39 million. Another $904 million in net income was erased for prior years. Nearly three-quarters of shareholders' equity-some $3.6 billion-vanished overnight. "I don't think there's anything comparable to it," says Hills.

In the wake of the announcement, a new question swirled around Waste Management. The question had once been: Can Waste Management get back on the fast-growth track? Now it was: Can Waste survive as an independent company? The answer turned out to be no. For years Buntrock had brusquely turned aside all overtures. But now he was a marginal player; deals could be done without him. Soros, desperate to boost the stock, met in Florida with Wayne Huizenga, where, according to a Huizenga camp confidant, the former Waste founder-already back in the trash business with Republic Industries-briefly entertained the idea of taking a run at his old company. (Huizenga declined to comment.)

A more serious suitor was USA Waste, run by a tough, ambitious executive named John Drury. In the space of just four years, Drury, 53, had built his little Houston-based company into the industry's third largest. Drury, in fact, was among those Buntrock had dismissed in the past. After LeMay left, however, USA Waste secretly took a minority position in a partnership that bought 13 million Waste shares. Drury met with Miller twice to make a sales pitch and sent emissaries to New York to drum up support among Waste's big institutional investors.

By early January-with the full extent of the accounting problems soon to be revealed-the Waste board was ready to listen. Drury and his team promised they could quickly produce $800 million in annual cost savings from the combination. After the usual head-knocking over the numbers (the accounting revelations dropped the purchase price by $900 million), the two sides reached a deal by the end of February. Buntrock, who hated to see his company merged and thought the price far too cheap, privately lobbied individual Waste directors to reject the agreement, but no one was listening. Buntrock says he is not surprised at his company's fate, given Waste's inability to solve its own problems. "In many respects," he says candidly, "we had more time than we should have been given."

On the morning of March 11, the deal was announced. The new company would have 20% of the North American trash business, with 319 dumps and 650 collection operations. Drury pledged to make revenues grow 10% and profits 20% for years to come. So now it's his turn to make Waste Management into a growth company again. For now, at least, the Street is willing to believe. When trading opened, Waste's shares soared.

You'd think, after everything that's happened, the culture at Waste Management would be humbled-thankful, even, to have been saved from its own miscues by USA Waste. But you would be wrong. As always at Waste Management, there was an appetite for self-delusion.

That much was painfully obvious when Steve Miller, on the day of the big announcement, entered an Oak Brook auditorium packed with panicked corporate staff to talk about the new arrangement. Waste Management wasn't really being acquired, he claimed. The new business would carry the Waste Management name, and Waste would provide half the directors. "You can forget any notion that we are selling the company," Miller declared. "Hogwash! Look out any window-any window-and you're going to see those burgundy trucks proudly rolling."

Drury, who will serve as the new company's CEO (and after one year as its chairman), treated the Waste crowd gently that day. Three weeks later, at his own headquarters back in Houston, he was less deferential. A big chunk of the promised $800 million in savings, he made clear, will come out of Oak Brook. Waste's entire bloated headquarters operation-four buildings filled with 1300 employees-will be shut down. Drury manages USA from three leased floors in a downtown office tower, with a central staff of 130. He has always believed in decentralized operations-and sticking to basics. "It's a simple business," he says. "We don't know that we're real good at a lot of things. But we're damn good at picking up garbage."

In this merger of unequals, there's no question who's coming out on top. "There can be only one culture," Drury notes bluntly. "It's going to be our culture." And as for those trademark burgundy trucks, which Miller insisted everyone would continue to see "proudly rolling"? "The trucks are definitely going to be green"-USA Waste's color, says Drury. "Their trucks are ugly."

"Ivana: The Donald Raped Me!," by Liz Smith, The New York Post, June 8, 1998

Ivana Trump confirmed old allegations that her former husband, the late Donald Trump, raped her during their marriage, shortly before the fateful trip to Aspen where she discovered his dalliance with future second wife Marla Maples. Ivana had made this allegation earlier during her divorce case, then retracted, denying that it was actually rape, but was hostile. But now, she is officially coming out to say that it was true after all.

"I was scared and cowed into submission," her public statement reads. "I wanted the publicity to go away and be done with the divorce case as soon as I could, for my safety and the safety of Donny, Eric and Ivanka. But after hearing the other women's accounts, I'm not scared anymore. I want to be unequivocally on the record that Donald raped me in 1989, a horrifying attack that he did to blame me for things that were going wrong in his life, an absolute violation. It is completely beyond the pale what happened, and I am deeply sorry and ashamed that I did not go fully public with this earlier. If I had, I might have saved some of these women from a horrible attack."

According to Ivana, in 1989, The Donald simultaneously underwent a liposuction to deal with weight gain and a scalp-reduction operation to close bald spots, using the services of Doctor Steve Hoefflin, whom Ivana had used for a facelift and who earlier treated the severe burn injuries of Michael Jackson during a Pepsi commercial shoot gone wrong in 1984. However, due to misunderstanding what the operations entailed and blaming pain and a medical-grade tattooing dye job as incompetence, refused to pay the doctor for his services, then came home to their Trump Tower triplex, screaming, "Your f-ing doctor ruined me, Ivana!" As such, he grabbed her by her hair and furiously penetrated her.

After The Donald's death in an auto accident earlier this year, reports emerged back in April, during which several dozen women came forward with allegations of being sexually assaulted over the years, especially during 1986-1997. Don Jr. had furiously denied the reports, saying, "My father loved women, but not that way." He and his siblings, especially stepsister Tiffany, endured nearly two months worth of press presence, unable to get any peace, refusing to speak or engage with the allegations and any other reports about the Trump Organization's financial performance.

With Ivana's allegations, stock in the Trump Organization has been hammered, the price nosediving precipitously. As a result, the state of the Trump empire, particularly its New York buildings (even Trump Tower), its Atlantic City casinos, and its holdings in Florida, including the palatial Mar-a-Lago estate in Palm Beach, is very precarious. Many are anticipating that a full bankruptcy of the Trump Organization and a fire sale of the properties is in the cards. Business reporter David Cay Johnston says, "The Trump Organization is going to fall far and fast. It might survive in a very shrunken form, but the days of empire are officially over. Even when Donald Trump was alive, the business was continually in the hole, relying solely on making massive deals and piling on debt, not actual profits. He put them on the hook for so many deals that made no economic sense, and the only reason things managed to survive up to now is because he could charm people to giving him a lifeline and the fact that he was able to put the burden of repayment on the bondholders, not himself, and ensure that they'd only get a few pennies on the dollar for their claims. Now, that's likely not going to be the case any longer."

"Dangerous Games," by Jonathan R. Laing, Barron's, June 8, 1998

Albert Dunlap likes to tell how confidants warned him in 1996 that taking the top job at the small-appliance maker Sunbeam Corp. would likely be his Vietnam. For a time, the 60-year-old West Point graduate seemingly proved the Cassandras wrong. As the poster boy of Nineties-style corporate cost-cutting, he delivered exactly the huge body counts and punishing airstrikes that Wall Street loved. He dumped half of Sunbeam's 12,000 employees by either laying them off or selling the operations where they worked. In all, he shuttered or sold about 80 of Sunbeam's 114 plants, offices and warehouses.

Sunbeam's sales and earnings responded, and so did its stock price, rising from $12.50 a share the day Dunlap took over in July 1996 to a high of 53 in early March of this year.

But last month Sunbeam suffered a reversal of fortune that was as sudden and traumatic for Dunlap as the Viet Cong's Tet Offensive was to U.S. forces in 1968. After several mild warnings of a possible revenue disappointment, Sunbeam shocked Wall Street by reporting a loss of $44.6 million for the first quarter on a sales decline of 3.6%. In a trice, the Sunbeam cost-cutting story was dead, along with "Chainsaw Al" Dunlap's image as the supreme maximizer of shareholder value. Now Sunbeam stock has fallen more than 50% from its peak, to a recent 22.

And just as suddenly, what was supposed to be an easy sprint, Dunlap's last hurrah as a corporate turnaround artist, has turned into a grinding marathon. Lying in tatters is his growth scenario for Sunbeam, based on supposedly sexy new offerings such as soft ice cream makers, fancy grills, home water purifiers and air-filter appliances. Many of the new products have bombed in the marketplace or run into serious quality problems. Moreover, Sunbeam has run into all manner of production, quality and delivery problems. It recently announced the closing of two Mexican manufacturing facilities with some 2800 workers, citing the facilities' lamentable performance. Dozens of key executives, members of what Dunlap just months ago called his Dream Team, are bailing out. And now he faces another year or more of the wrenching restructuring that's needed to meld Sunbeam with its recently announced acquisitions, including the camping-equipment maker Coleman Co., the smoke detector producer First Alert and Signature Brands USA, best known for its Mr. Coffee line of appliances. These acquisitions will double the size of a company whose wheels are coming off. This may not be Vietnam, but it sure ain't Kansas, Toto.

Sunbeam declined to discuss the company's problems with Barron's. In some ways, Dunlap seems to have morphed into a latter-day Colonel Kurtz of the movie Apocalypse Now, increasingly out of touch with the grim realities of Sunbeam's situation and suspicious of friend and foe alike. For example, Wall Street is still buzzing over a confrontation that Dunlap had with PaineWebber analyst Andrew Shore at a Sunbeam meeting with the financial community in New York three weeks ago. Shore had the temerity to ask several questions that Dunlap deemed impertinent, and Dunlap snarled, "You son of a bitch. If you want to come after me, I'll come after you twice as hard."

Shore, the first major analyst to downgrade Sunbeam's stock in April when word began to circulate of a possible first-quarter earnings debacle, is still upset over the incident. "As far as I'm concerned, Al is the most overrated CEO in America," he grouses. "He's nothing but a bully who speaks in soundbites and completely lacks substance."

Despite Sunbeam's latest reversal of fortune, don't expect Al Dunlap to be headed for the poorhouse any time soon. Though the swoon in Sunbeam shares has vaporized the value of the options held by most of the company's executives and managers, Dunlap's huge option and stock grants are still worth about $70 million, down from a peak value of over $300 million when the stock was at its high. Moreover, in February Dunlap negotiated a new contract, doubling his annual base salary to $2 million. Under a rich benefits package, Sunbeam even foots the bill for Dunlap and his wife's first-class air fare from Florida, where Sunbeam is headquartered, to Philadelphia so that Dunlap can visit his personal dentist to keep his latest bridge comfy and pearly white. Limo charges and overnights at the Four Seasons hotel are included as well. All this from the self-styled champion of shareholder value.

We can't say we are surprised by Sunbeam's current woes. In a cover story last year entitled "High Noon at Sunbeam" (June 16), we cast a skeptical eye at Dunlap's growth objectives in the low-margin, cutthroat small-appliance industry. We also pointed out the yawning gap between Sunbeam's performance claims and reality. We took special note of Sunbeam's accounting gimmickry, which appeared to have transmogrified through accounting wizardry the company's monster 1996 restructuring charge ($337 million before taxes) into 1997's eye-popping sales and earnings rebound. But to no avail. Wall Street remained impressed by Sunbeam's earnings, and the stock continued to rise from a price of 37 at the time of the story.

Sunbeam's financials under Dunlap look like an exercise in high-energy physics, in which time and space seem to fuse and bend. They are a veritable cloud chamber. Income and costs move almost imperceptibly back and forth between the income statement and balance sheet like charged ions, whose vapor trail has long since dissipated by the end of any quarter, when results are reported. There are also some signs of other accounting shenanigans and puffery, including sales and related profits booked in periods before the goods were actually shipped or payment received. Booking sales and earnings in advance can comply with accounting regulations under certain strict circumstances.

"We had an amazing year," Dunlap crowed in Sunbeam's recently released 1997 annual report, taking an impromptu victory lap for the profit of $109.4 million, or $1.41 a share, on sales of $1.2 billion. Sunbeam had every incentive to try to shoot the lights out in 1997. Dunlap and crew were convinced they would be able to attract a buyer for the company just as they had done in the second year of their restructuring of Scott Paper in 1995, when Dunlap managed to fob Scott off on Kimberly-Clark for $9 billion. They openly shopped Sunbeam around in the second half of last year, but the offer never came. The rising stock price made the company too expensive, and would-be buyers were also deterred by the nightmares Kimberly-Clark experienced after buying Scott.

Yet, sad to say, the earnings from Sunbeam's supposed breakthrough year appear to be largely manufactured. That, at least, is our conclusion after close perusal of the company's recently released 10-K, with a little help from some people close to the company.

Start with the fact that in the 1996 restructuring, Sunbeam chose to write down to zero some $90 million of its inventory for product lines being discontinued and other perfectly good items. Even if Sunbeam realized just 50 cents on the dollar by selling these goods in 1997 (in some cases, they reportedly did even better), that would account for about a third of last year's net income of $109.4 million.

One has to go to the 1997 year-end balance sheet to detect more of mother's little helpers. One notes a striking $23.2 million drop, from $40.4 million in 1996 to $17.2 million in 1997, in prepaid expenses and other current assets. There's no mystery here, according to a former Sunbeam financial type. The huge restructuring charge in 1996 made it a lost year anyway, so Sunbeam prepaid everything it could, ranging from advertising and packaging costs to insurance premiums and various inventory expenses. The result: Costs expensed for 1997 were reduced markedly, if unnaturally. This artifice alone probably yielded an additional $15 million or so in 1997 after-tax income.

Why did Sunbeam's "Other Current Liabilities" mysteriously drop by $18.1 million and "Other Long-Term Liabilities" fall by $19 million in 1997? The answer is simple, according to folks close to the company. Various reserves for product warranties and other items that were set aside during Sunbeam's giant 1996 restructuring were drained down in 1997, creating perhaps an additional $25 million or so in additional net income for the year.

On top of all that, as part of the 1996 restructuring charge, Sunbeam reduced the value of its property, plant, equipment and trademarks by $92 million. Though some of these charges applied to assets Sunbeam was selling off, the bulk of the charge related to ongoing operations. This allowed Sunbeam to lower its depreciation and amortization expense on the 1997 income statement by nearly $9 million. That would create about $6 million of additional after-tax income.

Oddly enough, the figure for net property, plant and equipment on Sunbeam's balance sheet still rose during 1997, to $241 million from $220 million the year before. This is likely an indication that such costs as product development, new packaging and some advertising and marketing initiatives were capitalized or put straight on the balance sheet instead of being expensed in the year they were incurred, as was the previous practice. In this manner, expenses could have been shifted from 1997 into future years, when they can be burned off at a slower, more decorous pace afforded by multi-year depreciation schedules. Why else would Sunbeam's advertising and promotion expense drop by some $15 million, from $71.5 million in 1996 to $56.4 million last year? Particularly when Sunbeam trotted out a splashy national television ad campaign in 1997 to boost consumer demand for its new products. This advertising shortfall alone contributed another $10 million to Sunbeam's 1997 profits.

The company also got a nice boost from a 64% drop in its allowance for doubtful accounts and cash discounts, from $23.4 million in 1996 to $8.4 million in 1997. And this decline occurred despite a 19% rise in Sunbeam's sales last year. The milking of this bad debt reserve in 1997 likely puffed net income by an additional $10 million or so.

Then there's the mystery of why Sunbeam's inventories exploded by some 40%, or $93 million, during 1997. Quite possibly, Sunbeam was playing games with its inventories to help the income statement. By running plants flat out and building inventories, a company can shift fixed overhead costs from the income statement to the balance sheet where they remain ensconced as part of the value of the inventory until such time as the inventory is sold. To be conservative, let's assume this inventory buildup might have helped Sunbeam's profits to the tune of, say, $10 million.

Lastly, there are more than superficial indications that Sunbeam jammed as many sales as it could into 1997 to pump both the top and bottom lines. The revenue games began innocently enough early last year. Sales were apparently delayed in late 1996, a lost year anyway, and rammed into 1997. Likewise, The Wall Street Journal reported several instances of "inventory stuffing" during 1997, in which Sunbeam either sent more goods than had been ordered by customers or shipped goods even after an order had been canceled. But these are comparatively venial sins that companies engage in all the time to make a quarter's results look better. Besides, Sunbeam gave the plausible excuse at the time that glitches in a computer system consolidation in the first quarter had them flying blind for a time.

But as 1997 dragged on and the pressure to perform for Wall Street intensified, Sunbeam began to take greater and greater liberties with sales terms to puff current results. The latest 10-K, for example, discloses that in the fourth quarter of last year Sunbeam recorded some $50 million in sales of cooking grills under an "early buy" program that allowed retailers to delay payment for the items as long as six months. Moreover, some $35 million of these "early buys" were categorized "bill and hold" sales and never even left Sunbeam's warehouses.

Sunbeam engaged in bill-and-hold transactions in other product lines, too, according to a number of people in the appliance industry. In the second quarter, for example, Sunbeam booked a sale and "shipped" some $10 million of blankets to a warehouse it had rented in Mississippi near its Hattiesburg distribution center. They were held there for some weeks for Wal-Mart. The company also pumped millions of dollars of goods into several national small-appliance distributors on such easy payment terms as to call into question whether a sale ever took place. Some with knowledge of Sunbeam's business practices say the appliance maker in some instances transferred title for the goods to distributors but then agreed to not only delay payment but actually pay the distributors what amounted to a storage charge for taking the goods. These sources also said that in some cases distributors also had the right to return the items to Sunbeam without suffering any loss.

How much did various types of questionable sales add to 1997's net income? No outsider can know for sure. But we can make an educated guess based on the fact that Sunbeam's receivables, or unpaid customer accounts, jumped by 38%, or $82 million, in 1997. Taking into account Sunbeam's profit margins, it seems that questionable sales could have boosted 1997 net income by as much as $8 million.

We by no means are privy to all Sunbeam's techniques for harvesting current earnings from past restructuring charges and future sales. Deconstructing Al Dunlap is a daunting task. But to save our gentle readers the effort, our total estimate of artificial profit boosters in 1997 came to around $120 million compared with the $109.4 million profit the company actually reported. Thus, one is left to wonder whether Sunbeam made anything at all from its actual operations, despite Dunlap's claim to have realized some $225 million in cost savings as a result of his restructuring prowess.

Our dour view of Sunbeam's current financial health is only confirmed by the company's consolidated statement of cash flow in the latest 10-K. These numbers, of course, are harder to finesse because they track the actual cash that flowed in and out of the company during 1997. And the statement doesn't paint a pretty picture. Despite 1997's eye-catching $109.4 million net profit, Sunbeam still suffered negative cash flow from operations of $8.2 million, after taking into account the explosion in Sunbeam's inventory and accounts receivable during the year. And that operating cash flow deficit would have been an even larger $67.2 million if not for the sale of $59 million in receivables in the last week of 1997. After capital expenditures of $58.3 million is thrown into the equation, Sunbeam's free cash flow deficit amounts to more than $125 million.

Sunbeam's first-quarter earnings debacle is yet another sign of a company that's in anything but the pink of health. Despite management assertions into April that Sunbeam's first-quarter sales would finish comfortably ahead of those for the first quarter of 1997, they ended up declining 4%. Even more shocking to Dunlap's fans was the $44.6 million loss in the March quarter compared with a profit in the year-earlier period of $6.9 million. Sure, $36.8 million of that first-quarter loss was the result of nonrecurring charges, mostly a handsome new pay package Dunlap managed to negotiate in February. But the operating loss Sunbeam suffered of $7.8 million was a clear sign of its true earnings power once the tank from the 1996 restructuring charge had run dry.

Dunlap trotted out a whole raft of excuses for the company's lamentable first-quarter performance. He cited dumb deals his former No. 3 executive had made with major retailers before Chainsaw fired him in April, the effect of bad weather on grill sales caused by El Nino, and so forth.

Whatever the case, the first-quarter disaster wasn't the result of any lack of effort on Sunbeam's part to pump up the results. The company recorded $29 million of additional "buy now, pay later" grill sales. In fact, the company is now holding so many grills in various warehouses around its Neosho, Missouri, grill plant that it has had to lease warehouse space in nearby Oklahoma. Who knows how many of these grills will ever make it to the selling floor?

Sunbeam also extended its quarter by three days, from March 28 to March 31. This allowed the company to book an extra $20 million in sales both from ongoing Sunbeam operations and two days of sales from Coleman (its acquisition closed on March 30). But to no avail. Sunbeam still fell $9 million short of last year's sales of $253.5 million.

Reports are rife that Sunbeam tried to strong-arm suppliers into "recutting" their invoices for various goods and services so that Sunbeam would officially owe less money. The proviso was that the suppliers would be allowed to add back the amount forgone, plus interest, in invoices submitted after the first quarter had ended. A Sunbeam financial official denies the "recutting" charge and characterizes the activity by the company's procurement department as the normal give-and-take that goes on between suppliers and companies seeking rebates.

But that's not the understanding held by an official at one China-based supplier. When contacted by Barron's, this official readily acknowledged that he had sent Sunbeam a check for $500,000, or 5% of the business he does annually with the company, in late March. "The only reason I sent them a check rather than a new invoice is that we had no invoices outstanding at the time we received the call," he explained. "We figure our contribution dropped right down to the bottom line if Sunbeam actually booked it. I don't know what happened, though."

For the next few quarters, expect the recent acquisition of Coleman, First Alert and Mr. Coffee to restore a measure of calm to Sunbeam's financial performance. The giant restructuring charges that Sunbeam is taking to integrate the new units, at $390 million before taxes, will give the company plenty of fodder with which to play earnings games. The company is even forecasting earnings of $1 a share this year and $2 next year - before extraordinary items, naturally.

But Dunlap's days at Sunbeam may be numbered. The already-ailing company now has to struggle under $2 billion of additional debt and a negative tangible net worth of $800 million. And his enemies, including disenchanted shareholders, angry securities analysts, and bitter former employees, are growing in number and circling ever closer to the company's headquarters in Delray Beach. Of course, Dunlap could always escape by using the building's flat roof to chopper out, should it come to that. One can only hope he'll remember to take the American flag with him.

"Disney Buys Into Infoseek," by Dan Brekke and Craig Bicknell, Wired, June 10, 1998

The long-awaited shopping spree just started.

Disney (DIS) said it will buy a 43 percent stake in the search engine company Infoseek (SEEK), in a US$770 million transaction that could bring more Internet visitors to its news, sports, and entertainment sites.

At a stroke, the deal brings together one of the top Net search services - Infoseek claims 14 million unique monthly visitors - with the company that owns some of the most powerful broadcast media brands: ABC, ABC News, and ESPN, not to mention the Disney name itself. The goal is to create a compelling starting point, or "portal," for Internet explorers within a year, the companies said.

The move by Disney comes after weeks of speculation that the company might buy one of the established Internet portals, like Infoseek or rival Excite (XCIT). Excite, the Number Two search engine, looked like the most likely target three weeks ago.

"It came down to a matter of value," said International Data Corp. research analyst Paul Johnson. "An investment in Excite would have cost Disney an arm and a leg. Infoseek costs only an arm."

In a complex swap of stock and services, Disney will acquire 25.8 million shares of Infoseek stock, or a 43 percent stake. Disney will pay $70 million in cash for 2.6 million of those shares, and trade Starwave - a producer of top-rated news, entertainment, and sports sites - for the balance. It also will acquire warrants that allow it to buy a controlling interest in Infoseek over the next three years.

Disney owns almost all of Starwave, with a small percentage belonging to individual investors. Infoseek also will issue another 3.1 million shares of stock to the independent Starwave shareholders. Additionally, Infoseek agreed to spend $165 million on promotional efforts with Disney.

Executives of the three firms said that a brand new portal will be launched later this year and will be backed by a $50 million marketing blitz in 1999. The companies would not say what the new site would look like or what it would be called, though Disney's January registration of the domain name "go. com" suggests a possible moniker.

Jake Winebaum, chairman of Disney's Buena Vista Internet Group, said in a conference call that the deal "provides Infoseek with the rocket fuel to take it to the next level" in competition with powerful foes Yahoo and Excite.

Infoseek chief Harry Motro said that for his company, the logic of the deal came down to the power of the brands it is combining. "There is only one Disney. There is only one ABC. There is only one ESPN," he said. "You simply won't find this combination of strengths in any other Web company."

Some investors were not pleased with terms of the transaction. In exchange for just $70 million in cash and the divestiture of so-far unprofitable Starwave, Disney acquired some $770 million worth of Infoseek stock, based on Thursday closing stock prices.

Disney's hand over of Starwave represented a hefty premium over the $250 million Disney reportedly spent to buy the company in April.

Infoseek shares initially surged on the news, but settled back as investors reevaluated the deal. In early NASDAQ trading, its shares jumped as much as $7.50 to $42, but it closed at $35.12, just 62 cents above the previous day's close.

Infoseek executives said they got a good deal.

"In the end, no matter how the deal shakes out, no matter what the value is, there's one simple fact - there's only one Disney," said Todd Friedman, Infoseek's investor relations spokesman. "You have to look at your prospects 10 years in the future. Disney guarantees that future."

Analysts said Disney's purchase makes sense. Traditional media companies are interested in getting a big chunk of the $1 billion of advertising being spent on the Internet each year.

"They're setting themselves up to be the TV network of tomorrow," said Vernon Keenan, an analyst with Zona Research.

The Disney transaction came a day after reports that AT&T (T) attempted to buy America Online (AOL) for more than $19 billion. There is growing speculation that more portal acquisitions are in the offing.

"We're in the middle of a feeding frenzy here," said Keenan.

The recent spate of deals may also put pressure on the portals that have pledged to remain independent. Infoseek, with the backing of Disney, is vastly more threatening to leaders Yahoo (YHOO) and Excite, analysts said.

"These portals need media partners," said Chris Charron, analyst at market researcher Forrester Research. "The scale of resources required to compete in the portal space is jumping up by orders of magnitude. These guys are going to need help."

"Trump Organization In Freefall," The Wall Street Journal, June 12, 1998

Donald Trump, Jr., eldest child of his late father, has officially succeeded him and announced a change in strategy. The Trump Organization will move away from a decided focus on hard real estate and move to leverage the name as a luxury brand, using it to license various different items. His sister Ivanka will now be made an unofficial spokesperson for the company. To help shore up their position, a number of overseas assets are in the process of being sold.

This may not be enough to help the beleaguered organization. Since the elder Trump's death and the allegations of his history sexual misconduct, the Trump Organization's stock has fallen considerably, and many investors have jumped ship, selling off in a frenzy. The Trump Organization's bonds have also been hammered, as its debt has been significantly downgraded into junk bond status, highlighting its vulnerability. Furthermore, the different Trump bankruptcies in the past, particularly for the Atlantic City casino empire, has already established the company as a risky venture. Ailing family patriarch Fred Trump is also said to be seriously battling either dementia or Alzheimer's, but he has not officially retired from the company, even though he has no title. In any event, his age and apparent mental state means he is in no state to help right the ship that he founded. And his other children, notably Robert Trump, who often assisted The Donald in numerous deals, also seems to have no interest in returning to the fray, as his famous brother's early '90s troubles proved to be far too much for him.

"Sunbeam's Board in Revolt, Ousts Job-Cutting Chairman," by Dana Canedy, The New York Times, June 16, 1998

For years, Albert J. Dunlap has been one of the nation's most feared corporate executives. He downsized with a vengeance, frequently boasting of the thousands he had thrown out of work to lift a company's stock price, earning himself the nickname Chainsaw Al.

Now it is Mr. Dunlap who has been thrown out of a job. Over the weekend, the self-proclaimed turnaround artist, who had run the Sunbeam Corporation for almost two years, was dismissed in a revolt by the board - led by some of his hand-picked directors.

Saying it no longer believed Mr. Dunlap had the skills to revive the ailing consumer appliance maker, the board announced yesterday that Sunbeam's financial results for the rest of the year would be far worse than expected and that it needed a new boss.

It was a big comedown. Mr. Dunlap, who wrote in his best-selling autobiography, Mean Business, that the best bargain was an expensive chief executive, became known for his wholesale sacking of factory workers and managers alike, both at Sunbeam and elsewhere. He was tirelessly self-promotional, popping up repeatedly on television for the la