After Kyle overhears Taylor and Peter arguing about her ""pregnancy,"" Taylor tells Kyle that the baby is his. Michael agrees to arrange a sperm donation. Megan forces Michael and Peter to agree to a truce. Jennifer sleeps with Craig. He later rejects her and says that he only slept with her out of loneliness. Billy asks Amanda to help overthrow Craig and start her own agency. Craig lays in wait outside the building and plans to run over Samantha, but is unable to go through with it.

Megan catches Michael and Taylor together. Kyle demands a paternity test. Amanda confronts Eric about his intentions toward her. Eric comes to Megan's defense when Michael accosts her at the restaurant. Sydney's father comes to visit Craig, only to find a half-naked Jennifer in his apartment. Jennifer arranges a reconciliation between the two. Mr. Andrews gives all of Syd's life insurance money to Craig, who decides to live a life of leisure. Billy shows up in Sam's Maryland hometown and tries to convince her to come home with him. Her mother threatens him with a shotgun when he refuses to leave Sam alone.

Kyle and Taylor learn that the same company that took their Boston restaurant has bought the building that houses Kyle's and the jazz club. They investigate, but are unable to prove that Eric is responsible. Eric agrees to serve as Megan's mentor, but states that he holds no romantic interest in her. Amanda goads Eric into admitting his feelings for her, then tells him that she doesn't feel the same way. He vows to destroy her. Michael's partnership with Craig falls through. Jen sabotages the cauterizer so that all of Michael's other investors will lose interest. Brett believes that Michael is to blame when Lexi's lawyers get a hold of his financial records. Mrs. Shaw pays Brett a surprise visit. Peter is distraught to learn that Lexi plans to return to Ohio. He professes his love in the courtyard, much to Brett's surprise.

Peter learns that Lexi's car struck a homeless man named Bob Matthews. Peter arranges for Bob to receive free treatment, and ships him off to a rehab hospital. Lexi discovers Peter's cover-up. She wishes to turn herself in, but Peter dissuades her. Jennifer overhears their conversation. Megan invites Brett to dinner to thank him for nursing her back to health. Brett provides Craig with proof that Michael stole his invention. Michael convinces Jennifer that Brett's sketches are forgeries, and persuades her to steal them. Taylor becomes concerned by Kyle's drinking problem. Connie is hired as Sam's new assistant. Billy is irritated by her behavior, although Samantha claims she is harmless.

Michael pulls out all the stops in an attempt to win back Megan. Brett fears that his plan is succeeding when Megan decides not to serve Michael with divorce papers until after Christmas. He arranges for the papers to be delivered on Christmas Eve. Jennifer blackmails Lexi into freeing Brett of his alimony obligations, then gets him to hand over his ""forged"" sketches of the cauterizer. A panicked Lexi overdoses. Jennifer severs her ties with Michael after learning that he did steal the idea for the invention. Taylor convinces longtime friend Jon Secada to perform a Christmas Eve concert to help make a balloon payment. After Kyle passes out drunk with the evening's proceeds beside him, Taylor hides the cash. She pretends that it was stolen, then talks Kyle into coming to Las Vegas with her to win back the money. Billy is forced to decorate with Connie when Sam has to work late. Connie constantly tries to undermine him, and makes a pass at him. Sam takes Connie's side when Billy orders h