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One of hip-hop music's most embarrassing and closely watched episodes took a step toward conclusion last week with a secret deal between Bad Boy Records CEO SEAN ("Puffy") COMBS, one of rap's wealthiest moguls, and STEVE STOUTE, an executive with rival label Interscope. In April, Puffy and two bodyguards allegedly beat up Stoute after a disagreement over a music video in which Puffy appeared nailed to a cross.

Attorneys for both sides refused comment, but a source close to the principals says Combs' payout to Stoute amounts to about $500,000. Part of the payout will be cash, and part will allow Bad Boy producers and rappers to work for Stoute on future records and videos. Stoute will drop the threat of a civil suit, but Combs is not out of the woods yet: he'll return to court in August to answer criminal charges. The relatively low settlement price is a sweet deal for Combs but carries enough concessions for Stoute to save face. And not least, it allows both sides to start putting the nasty publicity debacle behind them.

--By David E. Thigpen/New York