Late that night at a marina, Michael walks to the meeting place while Sam (holding a sniper rifle) whines in his earpiece about staying in his line of sight. "Every time we do this you act like I can shoot around corners." Michael walks up to a fuel drum on the beach, just before Pete shows up. Pete's pretty suspicious, given Ted's absence, and draws on Michael, who matter-of-factly says he cut out the middleman -- namely, Ted's throat. Michael makes a pitch, but Pete says the deal's off. Michael says Pete doesn't know about him because he's careful, meaning he kills people to keep them quiet. "Just like when a dirty cop comes to me with a deal, that dirty cop doesn't get to walk away!" Michael lights and tosses a Zippo, and a moment later, both of them are in a circle of flame. It's kind of impressive, but it's not the kind of thing I look for in a business partner. "I call this the ring of trust!" Michael yells, and asks, "Are we going to do some business together?" Pete agrees. "Fantastic, let's do that!" Michael says happily. I guess now they just have to work out details while the napalm burns down.
Next day at the loft, Michael is yelling at Pete on his cell phone when Sam shows up for an update. Michael says Pete's getting nervous enough that he might just flush the drugs, so Michael has a new plan, which Sam's going to hate. "Pete had Kevin killed," Michael points out, "but he never actually saw the body." Sure enough, Sam hates the idea, especially since it's going to involve Claire, but he goes along.
Sam and Jesse now has to go over to Claire's house and ask her to take part in this. Basically the plan is for them to borrow some of Kevin's stuff, and for Claire to act like she's relieved about something but can't talk about it. She agrees, and then they ask her for a secret meeting place Kevin might have used. Luckily, Kevin had a boat. Actually, that's going to be less lucky later.
So later, Pete shows up at Kevin's boat out in the boonies, looking for Sam. Sam makes like they just missed Kevin, warm fries and all, but he must have bolted. Pete's obviously pretty surprised to hear that Sam talked to Kevin, and pretends (poorly) to be happy about it. He's even less successful hiding his mental freak-out when Sam says that Kevin's talking to Internal Affairs. Pete pumps Sam for more information, but Sam plays it cool while cranking up Pete's paranoia.
Sam then calls Fi, who needs to borrow some "cop shoes" and is getting them from Madeline. Which is of course just going to be a conversational quicksand pit for her, because Madeline wants to talk about Michael's impending departure. She says the last time Michael left, she didn't know if he was dead or alive for three months. Fi's been there, and she promises Madeline that if Michael leaves the same way again, Madeline won't have to wonder that this time, "Because I'll kill him." Okay, problem solved, then!