STEVE OBSERVED APPLE’S dire straits from a safe distance, fretting and muttering under his breath and off the record, like an embittered and estranged parent, that the famous company he cofounded might collapse of its own ineptitude. After ten years in exile, he still harbored a strong sense of attachment to his firstborn company and many of its employees. “He loved Apple,” says John Lasseter. “I mean, he loved Apple the whole time. It was painful for him to watch what was happening to it.” Indeed, the reason Steve had held on to one share of Apple stock for the previous decade was to be able to keep getting shareholder information materials and, if the spirit moved him, to be able to attend the annual shareholders meeting. He hadn’t cut the cord completely.

In 1995, his billionaire friend Larry Ellison had suggested the idea of making a hostile bid to buy the company outright so they could take it private and run it as they saw fit. Ellison had even offered to raise the bulk of the money, so Steve wouldn’t have to risk his own resources (Pixar hadn’t yet gone public). “Steve’s the only one who can save Apple,” he told me. “We’ve talked about it very seriously many, many times, and I’m ready to help him the minute he says the word. I could raise the money in a week.” But Steve had nixed the effort. Despite the allure of Apple, he had made a pragmatic decision. He was in the middle of Pixar’s most critical year, when it released Toy Story and went public. He was trying to salvage NeXT. And Laurene was pregnant with their second child. It had all seemed like too much.

In retrospect, deflecting Ellison’s offer was the first of a series of practical, well-considered, and mature decisions that Steve would make on the road back to Apple. Opportunism, intuition, and manipulation would all come to play a role in his return to the company he loved most. But by also employing a newfound patience and maturity, Steve would return a better businessman.

FRED ANDERSON’S FIRST official duty was to announce that Apple had lost $750 million in the quarter that had ended the day before he arrived. He had indeed walked right into a house on fire.

The grisly loss triggered bank agreement covenants that called on Apple to immediately pay back some debt. But if Apple did so, the company would quickly find itself in what is euphemistically called a “liquidity crisis”; in plain English, Apple would not have enough cash on hand or in the bank to make those required payments and to pay its other bills and employee salaries. So Anderson knew he would have to move quickly to persuade Apple’s banks in the United States, Japan, and Europe to forgo calling their loans for a time. Then he would have to get cracking to accomplish two things that might keep the banks at bay: work out a recapitalization plan to raise more money in the public bond markets, and set in place a restructuring plan that would drastically reduce the company’s operating expenses. The word restructuring is a euphemism, of course. The very best way to reduce expenses in a hurry is to lay off employees. Lots and lots of employees.

Before April was out, Anderson had personally visited all of Apple’s major bank lenders to ask for leniency, and to present his intentions for restructuring and recapitalization. He also went to Apple’s lead investment bankers—Goldman Sachs, Morgan Stanley, and Deutsche Bank—to put together plans for a “commercial paper” offering designed to raise $661 million, which the company would use in part to pay its bank lenders and to help fund ongoing operations. It was basically yet another loan, this time from investors and at a somewhat higher rate of interest, but it bought Apple time to put its house in order and to trim its head count. The goal of the restructuring was to eventually eliminate fully half of its eleven thousand full-time employees, so that the company would be able to break even with sales of around $5.5 billion, or half of its annual sales in 1985. In other words, Anderson believed that half of the company would have to disappear before things would bottom out. The layoffs would come in three waves over the next two years.

The restructuring and recapitalization plan bought CEO Gil Amelio more time and flexibility to find a way to address Apple’s other big problem—its technological stasis. He needed to go shopping for an existing advanced operating system that Apple could adapt to the Macintosh to help it keep pace with Microsoft’s new, improved Windows 95. Doing so would be an open admission of Apple’s inability to create competitive technology on its own, but at least it would offer a glimmer of hope that the company had other options than a merger or bankruptcy.

To find a shortcut to developing a more advanced version of the Macintosh OS, Amelio looked for companies that had built a working version of Unix that ran on familiar microprocessors. Sun and several other companies, including IBM, Apollo (by now part of Digital Equipment Corporation), NeXT, and an obscure Silicon Valley startup called Be Inc., all had developed their own implementations of BSD Unix—a version developed by Sun cofounder Bill Joy—and had managed to “port” them to machines employing chips from the very same family of microprocessors that Apple used in its Lisa and Macintosh. The pure software companies were most interesting because they were cheap enough to buy outright, and small enough to absorb. NeXT was one possibility, but because it was run by Steve Jobs, a man many on the Apple board still considered to be persona non grata, that didn’t seem a likely match. But Be Inc. seemed like an intriguing possibility. That’s because Be was headed by Jean-Louis Gassée, the former head of advanced product development for Apple, who had left in late 1990 after clashing with Sculley.

JEAN-LOUIS GASSÉE WAS the Apple sales and marketing guy who had warned John Sculley that Steve was planning to challenge his authority in the spring of 1985, prompting the CEO to cancel his trip to China and impose a corporate reorganization that all but marginalized the young cofounder. That sealed Gassée’s fate in Steve’s eye: from then on, he always thought of the Frenchman as a backstabber. Their enmity was hardly surprising. Gassée shared some of Steve’s most cagey characteristics: he was glib and charismatic and a master of hyperbole who passed himself off as a technical expert when in fact he had no more background as a software or hardware engineer than Steve did. Like Steve, he prompted strong feelings. “If there’s anyone who’s a prickly bastard in this world, if there’s one guy who actually competes in the prickly bastard game quite effectively,” says one industry veteran who worked with both men, “it’s the guy who learned at the hand of the master.”

They had other similarities. Shortly after quitting Apple, Gassée started his own computer company in a huff, bringing along several key Apple employees. His business strategy was reminiscent of Steve’s approach at NeXT. Be Inc. set out to design an entirely new software and hardware architecture for a computer Gassée called the BeBox, which would incorporate an operating system—BeOS—that shared some key attributes of Unix. What made the BeOS and the BeBox computer unique, however, was that they were designed to also be able to use the existing Macintosh OS, and thus operate like a Mac “clone.” The intent, essentially, was to build a computer that could be two machines in one.

Much like NeXT, however, Be hadn’t been able to build much of a market for its hardware, selling only two thousand machines before shutting down that part of its business in 1996, to focus on selling its software as an alternative operating system for Apple’s Macs and clones built by other manufacturers. Gassée felt that becoming a software-only company would position Be to other hardware manufacturers as a potentially attractive acquisition. There seemed to be several potential suitors out there among the seven companies that made Macintosh clones, including Motorola and PowerHouse Systems, which employed Steve’s former head of hardware engineering at NeXT, Jon Rubinstein.