The longtime relationship between Walt Disney Co. (DIS) Chief Executive Michael Eisner (search) and ex-Disney President Michael Ovitz (search) underwent a "slow deterioration" beginning in early 1996 that eventually lead to Ovitz's termination from the entertainment giant, a former director testified Friday.

In his second day on the stand, Stanley P. Gold (search) said Eisner first told him at a lunch in January 1996 that Ovitz, Eisner's close friend, wasn't working out at Disney, in part because Ovitz wasn't meshing with the company's culture and wasn't getting along with other executives.

Gold said he advised Eisner at the time to redouble efforts to make the relationship work because it would cost a "boatload" of money to fire Ovitz, who had only joined Disney a few months before.

The situation became so untenable by the end of the year that the only way to stop the infighting and refocus Disney's top executives was to terminate Ovitz, Gold said. "This was two big volatile egos banging against each other and they just didn't get along," Gold said.

Ovitz, Eisner and several current and former Disney directors are being sued in Delaware Court of Chancery (search) over a $140 million severance package paid to Ovitz, the former top talent agent, when he left Burbank, Calif.-based Disney after 14 months as the company's second in command.

The shareholder lawsuit, which has been in progress for more than seven years, claims Disney's board failed in its fiscal responsibilities by not properly scrutinizing Ovitz's employment contract when he joined the company in 1995 and then granting him a nonfault termination that entitled him to the massive severance package when he left in December 1996.

Referring to several letters written by Eisner in the fall of 1996, Gold said Eisner and Ovitz turned out to be opposites in terms of personality.

Ovitz tended to be more extravagant in his gift-giving and goals of using more established stars to make movies at Disney, while Eisner considered himself more frugal, preferring to spend less personally and make movies with less expensive in-house talent, Gold said. Both executives had the same goals of improving Disney, but took very opposite paths to do it, Gold said.

Gold said that Eisner discussed his concerns about Ovitz privately with Gold as many as 15 times over the course of the year and with other non-executive directors at several executive sessions of Disney's board.

Eisner told the non-executive board members at an executive session of the board in November 1996 that he planned to fire Ovitz, Gold said. At the time, Eisner and Sanford M. Litvack, Disney's chief of corporate operations and chief legal officer, told Gold that there was no grounds to fire Ovitz "for cause." Ovitz's contract only allowed him to be fired for cause if he committed gross negligence or malfeasance.

Gold and Roy E. Disney (search), another former director, led a shareholder revolt against the company earlier this year aimed at ousting Eisner.