Jake and Jo's relationship is fractured due to the fire and Michael accuses Jane of infidelity. Kimberly breaks down during a court hearing and admits her affair with Michael. Matt comes out to a new friend.

Billy and Alison try to get Jake and Jo back together, while Michael and Jane's divorce is finalized. Katya presents Matt with a proposition.

Jane throws Sydney out, but Amanda leases her an apartment in the building. Alison travels to a ranch to make a presentation to millionaire computer exec and Matt decides to marry Katya. Michael and Sydney get closer.

Amanda's father offers Jake a high-paying job and Sydney prevents Michael from breaking up with her by threatening to expose their affair.

Kimberly catches Michael with Sydney and confides in Jane. Kimberly moves out, while Katya and Nikki have to move in with Matt.

Michael and Kimberly have a disastrous dinner with deadly consequences. Jo gives Alison the cold shoulder, and warns her that she is on the verge of destroying her relationship with Billy.

Michael learns that Kimberly has died and Sydney gets a new job.

Billy manages to sneak out of Amanda's apartment without detection. Alison asks him for a reconciliation, but he turns her down. Matt promises Nikki a Christmas party. Billy and Jake look for a tree for the courtyard, and end up running into Jo and Alison. Billy tries to fly home for Christmas, but can't get a flight. He plays Santa at Nikki's party. Alison finds him sneaking a present into her stocking during the night. They apologize and renew their relationship. A temporary nurse prompts Michael to reflect on his behavior. He apologizes to Jane and Robert. Sydney goes to confession and gives up hooking. Nikki returns to Russia.

Billy tells Amanda that he and Alison are back together. Amanda responds by removing Alison from the Microcomp account because she was romantically involved with the client. Amanda moves forward with her plans to evict Jake, but Jo refuses to testify against him. Amanda relents when she needs Jake's help with a plumbing problem. Palmer confesses his guilt to Amanda and skips town. She goes back to Jake. Jo goes to her ten-year high school reunion and runs into Reed, an old boyfriend who has just been released from prison. He later turns up at her apartment. Michael has a breakthrough at a physical therapy session, and regains the use of his legs. Sydney is busted for prostitution. Michael bails her out and agrees to keep quiet if she helps him break up Jane and Robert.

Alison complains to the brass about Amanda's mistreatment of her. After the FBI shows up with questions about her father's disappearance, Amanda is ordered to take a vacation. She heads to Hawaii with Jake, but returns because she fears that Alison is after her job. She goes to Billy and threatens to expose their one-night stand unless he gets Alison to back off. He refuses to cave in, although Alison ends up apologizing to Amanda anyway. Sydney sets up a hooker with an unknowing Robert during a business trip. Jane receives a videotape of the two together and breaks up with Robert. Reed and Jo sleep together. He later decides to start a charter boat service.