Michael survives the hit-and-run, but suffers from amnesia. Jane is released when she offers evidence that incriminates Sydney. Kimberly promises to serve as Syd's alibi, then refuses to cover for her and plants a blonde wig at her apartment. Sydney is arrested. Billy deduces from Mrs. Parker's strange comments that Mr. Parker molested his daughters, and goes to San Francisco in search of Alison. Mr. Parker comes inside the house and threatens Alison, but Meredith holds him at gunpoint. He escapes when Billy bursts through the door. Billy becomes angry when Alison agrees with Amanda's advice and decides to prosecute her father instead of going to Las Vegas to elope. Jake breaks up with Amanda and decides to spend time on his boat. He takes in a beautiful woman named Brittany, who had jumped overboard following an argument with her abusive husband.

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Laura Leighton is made a series regular as Sydney Andrews. Anthony Tyler Quinn, who appears in a guest role as Lt. Tim Truman, later had a recurring role as Rory Blake.

Kimberly brings Michael home from the hospital. Sydney convinces Matt to visit her in prison, and tells him that Kimberly is setting her up. Sydney's father flies in from Chicago, but enrages his daughter by suggesting she seek a plea bargain. Matt becomes suspicious of Kimberly when he realizes that she is shielding Michael from the truth about their history. Sydney's outburst convinces Mr. Andrews that she is crazy, and he and Jane have her committed to a mental hospital. Alison and Meredith fly to Wisconsin and attempt to file charges against their father, but Meredith bails out when she realizes that the town respects Mr. Parker too much to give their story credence. Alison confronts her father in front of all the prominent townspeople at a barbecue, and pushes him into admitting his guilt. Billy is fired when Nancy learns that he helped D&D get the inside track on the Escapade account, but lands a job writing ad copy for D&D. Jake sleeps with Brittany, unaware that Palmer Woodward is using her as part of a plot to destroy Jake.

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Daphne Zuniga does not appear in this episode.

Chris warns that his company will have to cancel his deal with Jane's firm if Michael does not sign off on it. Sydney calls Matt from the mental hospital and pleads with him to investigate Kimberly. Jane and Matt visit the beach house, where she bonds with Michael while Matt snoops. He discovers that Kimberly owns several wigs, then rips off her wig during a confrontation at the hospital. Sydney accepts a plea bargain after a scummy staff member propositions her, and is released into Jane's custody. Kimberly vows revenge against Matt. Palmer and Brittany continue their plot against Jake. Palmer turns up on Amanda's doorstep. Billy and Alison break up after she learns that he took a job at D&D without consulting her. Jo receives a surprise visit from Reed's parents. She reluctantly admits that Reed is the father of her child, and is shocked when the Carters sue her for custody.

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Doug Savant does not appear in this episode.

Sydney (claiming to be someone named Miranda) hangs around the beach house and attempts to seduce Michael. Michael regains his memory when he is nearly struck by a car in a restaurant parking lot, but doesn't immediately reveal this. Michael leaves Sydney in an embarrassing situation in Jane's bedroom, prompting a suggestive remark from Chris. Michael confronts Kimberly and dares her to kill him, but she decides that she loves him too much to finish him off. Billy and Alison bicker constantly at the office. Jo extends an olive branch to the Carters, only to have them laugh in her face. Palmer tells Amanda that he cannot go to prison before paying off some debts, as he fears his creditors will harm her. He tells her of a secret safe deposit box and convinces her to withdraw $500,000. Palmer kidnaps Jake on the boat at gunpoint, and explains that he and Brittany are going to take the money and flee to Mexico. Brittany double-crosses Palmer, shooting him in the back. Jake discovers that the boat is laced with explosives; Brittany activates her detonator, destroying the boat.

Jake's friends (especially Jo and Amanda) are shocked to learn that the Pretty Lady has exploded. The Coast Guard finds Jake clinging for life to a buoy, and he returns to the building safely. Jo is hurt when Jake completely ignores her to visit Amanda, unaware that he is breaking the news of Palmer's death. When Jo shares her feelings with Jake, they get into a heated argument. He turns his apartment keys over to Matt and takes off on his motorcycle. Alison is disgusted when Billy begins dating their new secretary. Jane and Chris ask Sydney to seek Michael's share of the design firm in the divorce settlement, but Michael tricks her into settling for $5000.

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The video for Sam Phillips' "Baby I Can't Please You" plays over the closing credits as a promotion for the Melrose Place soundtrack.

Jo and Amanda argue over who is to blame for Jake's departure. Jake meets his biological father, Vince Connors. After they resolve some of their differences, Vince convinces Jake to return to Melrose. Jake apologizes for abandoning Jo, then learns from the FBI that he is to receive a large reward for assisting with the capture of Brittany. Chris continually makes unwanted advances toward Sydney, but Jane believes her sister is just trying to cause trouble. Alison gets her new secretary fired, and picks up a guy at Shooters. She seeks revenge after he leads her to believe he wants a relationship, when he was actually just looking for a one-night stand. Peter Burns, the hospital's new chief of staff, lays down the law to Michael and Kimberly.

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First appearance of Jack Wagner as Peter Burns. Initially recurring, he would be made a series regular from season 4. The video for "Ordinary Angels" by Frente! plays over the closing credits.

Jake uses his reward money to purchase Shooters. When Jake drops off some papers at the design firm, Chris mistakes him for a deliveryman and makes a lewd comment about Sydney. Chris denies the allegations. Jane lashes out at Jake, and fires and evicts Sydney. Jake gives Syd a job at Shooters so that she won't have to return to the mental hospital. Chris violently attacks Sydney. Michael and Kimberly are asked to appear in a coffee ad. Peter agrees to allow this in order to impress Amanda. She goes out to dinner with him. Billy takes a liking to Alison's college roommate, Susan. Susan moves in with Alison when a chef job in Santa Barbara falls through.

Jake provides Sydney with refuge after learning of the attack. Amanda reveals that Jane and Chris have gone to Las Vegas, and Sydney realizes that Chris is planning to make good on his promise to marry Jane. Michael fears that Chris is after Jane's money. He follows them to Las Vegas, with Kimberly in pursuit. Chris wins big in the casino and proposes to Jane. Michael and Kimberly break up the wedding, then tie the knot themselves. Michael is fired for skipping work. Jo is hospitalized with an ulcer, and Kimberly provides comfort. Jake beats up Chris and sleeps with Sydney. Peter continues to pursue Amanda. Alison learns about Billy's involvement with Susan.

Sydney plans to leave town to avoid her problems with Chris, but Jake convinces her to stay and give their relationship a chance. Alison claims to have accepted Billy's relationship with Susan, but begins hitting the bottle. She gets into a catfight with Susan at a client party, prompting Susan to move in with Billy. Michael asks Amanda to manipulate Peter into rehiring him. Amanda agrees, provided that Michael surrender his share in the design firm. Jane promises to give Amanda 25 percent of the business if she can arrange this. Once Michael has returned to work, he backs out of the deal and tries to blackmail Amanda. Peter encourages Amanda to seek control of D&D. Matt learns that Jeffrey, an ex-lover, is back in town. He is stunned when Jeffrey reveals that he has left the Navy and is HIV positive.

The trial to determine custody of Jo's baby begins. The Carters' attorney raises many doubts about the character of Jo's friends and neighbors, but Jo shines on the stand. Kimberly learns that she cannot have children because of injuries suffered in the car accident. Alison gets drunk at a client party and leaves with a hard-living music business scout named Zack Phillips. Bruce suffers a heart attack while dancing at the event, and Peter suggests that Amanda use the opportunity to seize control of the agency. Alison is unable to testify on Jo's behalf because she is stoned following a night of partying with Zack. The judge awards custody of the baby to the Carters. Matt questions his relationship with Jeffrey due to the illness, but the two decide to commit to each other.

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The video for Aimee Mann's "That's Just What You Are" plays over the closing credits.

Zack encourages Alison to buy an expensive new car and skip work. Billy and Susan confront Alison during Thanksgiving dinner, but she reacts angrily and storms out. A drunken Alison tries to drive to Zack's house, but he is having a party with his friends. While distracted by her phone, she crashes into a boy on a bicycle. Kimberly explores several motherhood options, some of them illegal. She invites Jo over for Thanksgiving and convinces her to fake a miscarriage and hide her baby from the Carters. A mobster's associates begin harassing Jake. Sydney is told that Jake will suffer a serious accident unless she sleeps with the mobster's friend--Chris. Amanda leaks information about Bruce's health, while Peter prepares a takeover attempt. Matt and Jeffrey refuse to come to Thanksgiving dinner after Matt's parents ask them to hide the true nature of their relationship.

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The video for Letters to Cleo's "Here and Now" plays over the closing credits.

Alison is arrested for driving under the influence. She turns to Billy for comfort when Zack neglects her, but Billy reaffirms his relationship with Susan. Alison is cleared of all charges because witnesses felt that the bicyclist had been at fault. Bruce fires Amanda when he realizes that she leaked information and scuttled a possible merger. Kimberly takes Jo to the beach house and induces labor. She checks Jo into the hospital, claiming that she delivered a stillborn child. When Jo shows up at the beach house to take the baby, Kimberly insists that the boy is her child. After Jane allows Chris to deposit a $500,000 check, Chris clears out Jane's account and kidnaps Sydney.

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Thomas Calabro and Doug Savant do not appear in this episode. The video for James' "How Was It for You?" plays over the closing credits.

Bruce learns that D&D has been purchased by a consortium of doctors. Peter fires Bruce and appoints Amanda president. Amanda gives Billy a promotion and orders him to fire Alison, who has begun to experience blackouts. Bruce hangs himself in Amanda's office. Matt tells Billy that he can save Alison's job by checking her into rehab. They conduct an intervention, and Alison agrees to seek treatment. She escapes when the trio stops for gas, but later checks herself into the clinic. Sydney decides that she doesn't mind being a hostage when Chris buys her expensive gifts and gives her unlimited use of his credit cards. She finally calls Jake and asks for help after Chris loses all of Jane's money and becomes abusive. Michael, Jane and Jake fly to Las Vegas, where Jake expresses his doubts about Sydney's behavior. Jane and Michael learn that all the money is gone, and sleep together. Michael demands to know why Kimberly suddenly has a child. Jo struggles to prove that her son is alive.

Alison clashes with a man in her group meeting, NFL quarterback Terry Parsons. When Billy fails to show for a meeting featuring loved ones, Alison sneaks out to a bar and gets hammered. Terry helps her get sober and explains his earlier behavior. Billy is outraged when he learns that Susan deliberately failed to tell him about Alison's meeting. He lights into her, prompting Susan to move out. Peter displays increasingly controlling behavior toward Amanda. Jane sends a note and flowers from Michael back to the beach house, and Kimberly threatens to divorce him. The baby becomes very ill and is raced to the hospital. Michael declares Jo an unfit mother and refuses to return the child to her, even after a blood test proves she is the mother. Jeffrey is livid when Matt reveals his HIV positive status to the neighbors (to explain Jeffrey's panic over a bleeding cut). Jake breaks up with Sydney after learning that she slept with Chris.

Amanda is forced to confront her Scrooge-like behavior when Bruce appears to her in a dream and leads her in a version of The Christmas Carol. He encourages her to break free of the hold that Peter has over her. She visits Alison at the rehab center to apologize, and ensures that Bruce's children are financially secure. Terry becomes jealous after seeing Billy and Alison together, and admits his own feelings for her. Matt and Jo tell Peter that Kimberly has stolen her baby. Peter orders Michael to return the child to Jo. Kimberly goes ballistic and tries to throw herself in the ocean. After Michael saves her, she calls Mrs. Carter to tell her that her grandson is alive. Jeffrey breaks up with Matt because he needs time alone to cope with his illness. Jane convinces Syd to come home for the holidays.

Peter hires an efficiency expert named Caitlin Mills, who proves to be a headache for Amanda. Alison neglects Billy as her romance with Terry blossoms. Michael, prompted to investigate by Amanda, learns that Peter has been padding his income through a phony research project. Billy discovers that Peter and Caitlin are romantically involved. Jo hires an Englishwoman named Emily Baldwin as her son's nanny. Jo names her son Austin, and plans to move back to New York. Emily offers Jo a ride to the airport, then drives off with the baby.

Jo realizes that Austin's kidnapping was planned, and Kimberly admits that she told the Carters that the child was alive. Jo punches her. Jake and Jo hit the road in search of the Carters. They spend the night together in a motel, but Jo decides that she isn't ready for a relationship. Jake and Jo stake out the Carters' vacation home. Peter and Caitlin set up a plan to nullify Amanda's contract. Michael blackmails Peter, and Amanda calls on Matt to investigate both men. Billy discovers that Alison is romantically involved with Terry. Sydney gets a roommate--a waitress named Rikki--after Amanda raises the rent. Jake and Jo see the Carters arrive at the cabin with Emily and the baby. While Jake is calling the police, Jo disobeys his wishes and confronts the Carters. Mr. Carter shoots her in the back. Mrs. Carter sneaks into Jo's hospital room in the middle of the night, and threatens to kill Austin if she does not receive custody. The judge nullifies the previous custody arrangement, and agrees with Jo's suggestion that the baby be given up for adoption, much to the Carter's horror. While they will never be allowed to see Austin again, the judge rules Jo may do so when he turns eighteen and wants to seek her out. Amanda is fired after testing positive for illegal drug use. Amanda and Matt discover that Peter prescribed pills for Amanda that contained the active ingredient in marijuana. Although Amanda has no proof, Peter believes her bluff. He knocks her out and plans to kill her on the operating table. Michael pulls the scalpel away and breaks Peter's nose. Michael and Amanda interrupt a D&D meeting where Caitlin is to be appointed president, and discredit her. Alison stops Terry from drinking after he loses a playoff game. He expresses his gratitude by proposing marriage. She is considering the proposal when she catches him in bed with a groupie. Rikki introduces Syd to her "guru," Martin Abbot.

Rikki commits acts of vandalism against Jo, Jane and Jake, who believe that Syd is responsible for the crimes. The isolated Sydney is forced to turn to Martin's cult for comfort. The visiting Meredith admits that she has never slept with a man because of the trauma of the childhood abuse. She tries to seduce Billy. The new chief-of-staff institutes mandatory psychological testing for the staff. Kimberly's test proves that she is extremely disturbed and highly dangerous. She has some men on the street assault test coordinator Matt, then changes her results while he is out of commission. John Rawlings, the police detective investigating the case, befriends Matt. Billy is concerned by Amanda's deteriorating health, and asks Michael to check her out. Amanda is horrified when tests reveal that she has Hodgkin's Disease.

Amanda and Michael clash over the treatment of her cancer, but she eventually realizes she must turn to him for support. Amanda shares her condition with Billy, but asks him to keep it a secret. Alison pries the truth from him after he seems a little too tolerant of Amanda's behavior. Sydney attends a retreat with Rikki and other cult members. She finds it unsettling when Martin demands that his followers try to scam money from their families, and decides to leave after seeing Martin in bed with two women (including Rikki). Martin agrees to let her go, but he and Rikki pursue her and throw her into a pit. John pulls Kimberly out of her car and threatens her at gunpoint after learning that she orchestrated the attack on Matt.

Martin lets Sydney out of the pit and talks her into staying. Jane and Jake drive to Tucson to rescue Syd, but she refuses to leave with them. They return the following day, and Sydney is alarmed when Martin asks her to shoot her sister. She instead shoots up the camp and flees with Jake and Jane. Kimberly is furious to learn the role Michael is taking in Amanda's treatment. Matt nixes a relationship with John. Jo goes on a ride-along with John to get photos for an underground magazine, and secretly snaps pictures of John beating a drug dealer. She claims she didn't see anything, but John trashes her apartment. Billy and Alison spend a platonic Valentine's Day together.

Michael and Amanda fly to New York to try to get her into an experimental treatment program. Kimberly sabotages their chances by phoning the doctor and telling him that Michael has a personal agenda. She also convinces Amanda that her condition is terminal. Michael tells Amanda that Kimberly is a liar, and persuades the doctor to accept Amanda as a patient. Amanda is taken aback when Michael kisses her, but she later sleeps with him. John holds Matt and Jo at gunpoint after they turn incriminating evidence over to the police. With Amanda out of town, Billy and Alison fumble away a big account. Jane convinces Jake to rehire Sydney. Syd is grateful, until she learns that her sister is dating Jake.

Alison goes to the Century Awards headquarters to submit Amanda's entry. An employee named Brooke Armstrong convinces Alison to also enter her own campaign. Alison and Billy get carried away while working late in his apartment. Kimberly catches Amanda and Michael in a hot tub together during a weekend retreat in Santa Barbara. Michael claims that he has decided to ignore Amanda's "obsession" with him, but later escorts her to the awards dinner. Amanda is outraged when Alison wins the award for best print ad. Michael professes his love to Amanda. Sydney's antics break up a romantic dinner between Jake and Jane. Jake dumps Jane after she issues an ultimatum about avoiding Sydney.

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First appearance of Kristin Davis as Brooke Armstrong. Initially recurring, she would be made a series regular from season 4.

Alison replaces Amanda as D&D president. Alison has a liaison with Billy in her new office, but quickly rejects him. Brooke gets an internship at D&D. Michael tries to scam the city out of a million dollars by claiming that poor road conditions caused his and Kimberly's accident. Michael ships Kimberly to Rochester for a job interview so that he can move Amanda into the beach house and watch over her. Amanda collapses and is hospitalized in serious condition. Jake learns that his mother has died. He and Jo drive to Ellensburg, Washington for the funeral. They encounter Jake's half-brother Jess, who is feeling guilty over his mother's death. He also harbors resentment toward Jake. The poverty-stricken brothers once robbed a store, but Jess took the heat. He feels that Jake abandoned him by leaving for California. Jake and Jo sleep together again, but still decide not to get back together. Jake establishes a truce with Jess.

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Josie Bissett does not appear in this episode.

Kimberly comes home to discover that Amanda has been staying at her house. Amanda begins to recover from her illness, and asks Brooke to help her undermine Alison. Kimberly tries to use the $100,000 settlement from the city to keep Michael away from Amanda. He accepts her offer, but later files for divorce. Kimberly overdoses on pills, and Michael doesn't try to revive her. Alison turns into a tyrant at the office and alienates Jo during a photo shoot. Alison gives Brooke a full-time job after she convinces her father to let them use his house for a shoot. Brooke reveals that she is engaged, but later comes on to Billy in a restaurant bathroom. Jess unexpectedly arrives in Los Angeles. Jake gives him a job and a place to stay. Sydney suspects that Jess is using his brother.

Michael is forced to call an ambulance for Kimberly when Sydney shows up at the beach house. Sydney swipes Kimberly's suicide note. Kimberly pays Syd $50,000 to plant pills at the beach house and incriminate Michael. Michael pays Sydney another $50,000 for the suicide note. He threatens to turn it over to the medical board unless Kimberly leaves town. Amanda laughs at Michael's marriage proposal and says that she no longer needs him. Alison rehires Amanda at D&D. Amanda and Brooke conspire to make Alison look foolish. Brooke reveals that she has broken her engagement. Billy turns to Brooke for companionship after Alison gives him the cold shoulder. Jess steals a credit card from one of the customers at Shooters and uses it to pay for a dinner with Jake and Jo. Jake and Jess squabble when Jake suspects the card is stolen.

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Doug Savant and Josie Bissett do not appear in this episode. The video for Seed's "Kids…This Is Fabulon" plays over the closing credits.

Kimberly works on her self-defense skills at a survival camp called No More Victims. While in a sweat lodge, she hallucinates about being taunted by Jo, Amanda, Jane and Sydney. Amanda has a difficult time convincing Michael that their relationship is over. Jane is forced to turn the design firm over to Sydney to avoid bankruptcy. Amanda and Brooke trick Alison into committing an embarrassing gaffe with a client. Billy tires of Alison's cold behavior and sleeps with Brooke. Jess goes on a date with Jo. Jo tries to break things off to avoid hurting Jake, but ends up getting naked with Jess in the alley behind Shooters.

Amanda files a restraining order against Michael. Amanda and Brooke finally succeed in ousting Alison from D&D. Jake confronts Jo after Sydney tells him that she overheard a romantic encounter between Jess and Jo. Kimberly gets an "early graduation" from No More Victims camp after breaking the sergeant's arm. Sydney feels guilty about blackmailing Michael, so she puts him on the payroll in exchange for certain favors. Syd disobeys Jane's wishes and signs a deal with a pantyhose manufacturer, only to learn that the business is a front for a drug smuggling operation. Matt becomes involved with Paul, a new doctor who is hiding a big secret.

Jake throws Jess out of his apartment, and assaults him after his brother taunts him about Jo. Jess hires a thug to stage a robbery at Shooters and shoot Jake. Brooke convinces her father, Hayley, to offer Alison a job in Hong Kong. Billy follows Brooke's advice and persuades Alison to take the job. Alison writes a note to Billy in which she professes her love, but Brooke refuses to give it to him. Matt learns that Paul is married, but continues the relationship when Paul says that he needs Matt's help to come out. Paul's wife, Carol, threatens Matt's life. One of the alleged drug dealers reveals to Sydney that he is actually an FBI agent. He talks her into resigning so that she won't be implicated when the feds raid the design firm. Sydney is stunned to discover that the entire fiasco was a set-up engineered by Jane to oust her from the business. Kimberly seeks Amanda's friendship, then tricks her into believing that Michael is stalking her.

Jake suspects that Jess is responsible for his shooting, and is unmoved when Jess keeps Shooters open in his absence. Brooke replaces Alison's love note with a letter in which she states that long distance relationships cannot work. She also complicates Alison's efforts to get in touch with Billy. Billy proposes to Brooke along the boardwalk. Paul says that he is getting a divorce, and asks Matt to help him move out. He then stays inside the house and tells Carol that Matt is stalking him. Kimberly tries to convince everyone that Michael is stalking her, and makes Amanda believe that he vandalized her car. Kimberly trashes the beach house and scratches her own face. She calls the police, then stages a fight with Michael so that he will be arrested. When Kimberly returns to her motel room after a court hearing, a creepy man's image appears in a mirror and talks to her.

Peter bails Michael out of jail. He explains that he only served a few days of jail time, and asks Michael to testify on his behalf before the medical board. The demon tries to goad Kimberly into committing acts of violence against her enemies. Sydney breaks into Kimberly's motel room and discovers a grotesque photo collage of Syd and others. Sydney and Michael's warnings about Kimberly are ignored by the police. Kimberly confronts Peter about his alliance with Michael, and he expresses a romantic interest in her. Amanda tells Alison that Billy and Brooke are getting married. Alison realizes that Hayley hired her to get her out of Brooke's way. Jo rejects Jess's hasty marriage proposal. Jane's firm faces foreclosure. Jane aggressively pursues a famous designer named Richard Hart, and is hired by his ex-wife's firm. Paul tells Matt that Carol has moved out, but she is actually just out of town for the weekend. Alison returns from Hong Kong, but is unable to dissuade Billy from marrying Brooke. Jo is disturbed when Jess continues to push her to marry him. Jess explodes with rage when Jo breaks up with him. Jane seduces Richard, much to the chagrin of his ex-wife, MacKenzie. Peter is allowed to keep his medical license. Kimberly finds it difficult to control her demons after realizing that Peter was only interested in her as a character witness. Paul asks Matt to go to his house to prepare dinner. Matt triggers the alarm, and the police find him over Carol's dead body. His fingerprints are also on the murder weapon (a candlestick he had handled during a previous date). Jake returns from Billy's wedding to find the battered Jo. He tracks down Jess at his construction site to fight him, and they end up toppling hundreds of feet off a platform. Sydney follows Kimberly and observes her bizarre behavior. She trails her to the apartment building's laundry room. Kimberly ties her up and details a plan to blow up the building. She tricks Peter into coming over with a note from Amanda, and forces Sydney to call Michael. When Michael arrives, he knocks out Kimberly. He and Sydney try to clear everyone out of the building (including MacKenzie, who has just arrived to confront Jane and Richard). A drunken Alison refuses to leave her apartment. Before the others can escape, Kimberly appears in the courtyard and prepares to detonate her bombs.