No one expected Jim Henson to die. When the end came suddenly on May 16, adoring fans were consoled with the idea that the Muppets and their cousins were nestled safely under the wing of the Walt Disney Co.

But Disney's $100 million-plus acquisition of Henson Associates Inc., announced with a splash last August, bogged down in haggling and was never signed. While the principals expect the sale go through, the deal raises more questions than it answers about the future of the Henson empire.

As the deal was conceived, Henson was to get an estimated $100 million to $150 million from Disney for rights to most of the Muppet characters, such as Kermit and Miss Piggy, as well as a film and television library that includes "The Muppet Show" and "Muppet Babies" episodes.

Some Muppets were not included in the deal. Henson held on to the rights to Big Bird, Cookie Monster and other Muppets who reside on "Sesame Street." The Children's Television Workshop shared control of those characters with him and he intended the "Sesame Street" Muppets to stay separate from Disney.

Disney also did not buy Henson's production company, which houses Henson's core creative group. Henson agreed to a 15-year consulting and exclusive production contract with Disney. But the fate of that agreement is now uncertain. While the Henson inner circle could continue to function independently, its members are the hearts and souls and voices of the Muppets. Presumably, Disney would want them to continue in those roles. But the inner circle has always operated in an informal manner that contrasts sharply with Disney's closely structured style, and clashes have already occurred. If the Muppeteers are to continue to perform the characters being sold to Disney, the differences must be ironed out.

While members of Henson's core group won't talk to the press, Joan Ganz Cooney, head of Children's Television Workshop -- home of the "Sesame Street" characters -- says she was "shocked" by the level of concern inside the Henson organization about Disney's reputation for maintaining tight corporate control.

"It's safe to say that the Henson people were never really happy with the Disney situation and are probably less so after working with them over the last several months," Cooney says. "Everyone said, 'It's been awful.' It was clear that they've been having a severe culture clash."

Officials at the Henson organization and Disney declined to be interviewed for this story.

Henson had two objectives when he decided to sell to Disney. He put the Muppets in a sort of Valhalla, where the Disney experts could package and promote them for all time. The deal also allowed Henson to get away from the bureaucracy so he could focus on and fund new productions.

While the Henson library and the rights to the Muppets retain obvious value, Disney wants to renegotiate in the wake of Henson's death, according to a source close to the Henson organization. The fate of the production agreement is particularly uncertain in a world without Henson. No one knows who will run Disney's Muppet division or who will own and operate the Henson production facilities -- the Muppet Workshop in New York and Jim Henson's Creature Shop in London, which created the Teenage Mutant Ninja Turtles for the hit film. Henson left no heir apparent when he died of pneumonia at age 53. He had bought out his wife's interest in the company and sources close to the company say the Henson empire now rests in the hands of his five children.

They reportedly are under pressure to finalize an agreement because of staggering estate taxes. "The estate tax is huge," says a source involved in the transaction. "It's unbelievable."

The family has been meeting to discuss the fate of the company. A source close to the negotiations says a favored option is having Henson's oldest daughter, Lisa, a film executive at Warner Bros., head the Disney-Muppet operation, possibly with the second-oldest child, Brian, who now resides in London. Lisa, who did not respond to phone calls regarding her plans, is under contract to the studio but presumably could be released. Warner's declined to comment.

If the Henson family runs the Disney-Muppet kingdom, that may help to soothe fears in the Henson production facilities. Cooney says she believes both Disney and the Henson group are eager to reach an accommodation. "Sanity and constructiveness are prevailing" in the discussions, she says. But the styles of the two organizations will be difficult to mesh.

In Hollywood, the Disney name is synonymous with rigid, aggressive corporate control. The Henson atelier is informal and respect for the artist is the first rule. "I was surprised about Disney because Disney is a corporate entity and Jim and the Muppets have a very fuzzy, Grateful Dead kind of sensibility. It seemed an odd-couple kind of marriage," says Mark Saltzman, a writer who worked on "Sesame Street" and the critically acclaimed but short-lived NBC show "The Jim Henson Hour."

With the sale still on the boards, Henson cut his staff of about 120 in half to trim away business operations that were not part of the production entity. Most of those laid off were not members of the creative staff and were absorbed by Disney to minister to the properties after they are acquired.

As negotiations continued, Henson went to work on two Disney theme-park projects: a 3-D movie and "Here Come the Muppets," an attraction that opens at Disney World at the end of this week. But the business terms governing those projects were still unresolved.

"Jim didn't say, 'We're not going to do anything for Disney until the deal is signed,' " says Duncan Kenworthy, vice president of production at Jim Henson Productions and head of the London-based Creature Shop. "He said, 'Hey, guys, this is about relationships.' ... Besides, he couldn't sit on his hands for eight months. He just pitched in."

Meanwhile, high-ranking Disney business executives played the bad cops in the negotiations. When the talks reached impasse, Disney Chairman Michael Eisner would play the good cop, sitting down with Henson to make the problems disappear.

"You'd have to call Michael Eisner and say, 'This is where it's gone with your overzealous robots,' " complains one of Henson's representatives. " 'If it continues this way, the deal won't close.' ... Every single issue was pushed as a deal point by Disney. As opposed to focusing on the big points, they focused on everything."

"This was so much on a handshake between Michael and Jim that whatever {the deal} said didn't much matter," says Bernie Brillstein, who managed Henson for 30 years. "Jim loved Michael and trusted him a lot. And Michael understood Jim. He just really got it." Brillstein says Henson was essentially happy with the deal. But he acknowledges that Henson also became frustrated as Disney fought ferociously over every point.

Cooney says Henson was annoyed, for example, by Disney's persistent requests to buy Henson's rights to Big Bird and other Muppets from "Sesame Street." According to Cooney, Henson regarded "Sesame Street" as "a holy place" to be kept separate and apart from Disney. "He told me not to worry about them trying to exert pressure on us," Cooney says. "He said, 'Joan, that would never happen.' A few days later he called and said, 'Joan, I was wrong.' "

While Cooney says she understands Disney's strong interest in acquiring rights to the entire Muppet empire, including "Sesame Street," she says Henson made clear that the issue was a deal breaker. "Jim said, 'It is not discussable.' It went on and on. I kept trying to figure a compromise so Jim could make the deal," she says. But Henson told her that he had no intention of compromising.

According to Cooney, the family will retain rights to the "Sesame Street" characters and she expects "the issue of control to be resolved the way Jim wanted it to be" -- that is, control will rest entirely with the Children's Television Workshop.

"Sesame Street" will no longer be able to use the "Muppet" name if the Disney deal closes, but Cooney says she can live with that. A bigger concern for her is lining up the busy Muppeteers to do their "Sesame Street" characters. That was difficult even when Henson was around. "I would call Jim and say we've got to have {Elmo puppeteer} Kevin Clash come in. ... Jim would make that happen. There's no Jim now. I don't know what's going to happen once the Disney deal is signed," she says.

When it comes to the art of breathing life into the Muppets, Cooney says, "I don't think that work is understood by Disney at all." When Henson was alive, puppeteers were regarded as actors and each character was developed and played by one person. But Disney is not as oriented to the individual. When the studio made "Who Framed Roger Rabbit," animators raised a chorus of complaint that the company didn't understand their craft and treated them like assembly-line workers. One of the top artists on the project quit when the film was nearly finished.

A source close to the Henson studio says Disney offended Muppeteers by suggesting that they could quickly train personnel to operate the Muppet characters. "I don't think they understood that it took Jim years to get a single puppeteer up to speed," says Cooney. "And a character also evolves. Miss Piggy wasn't born the way she is."

While Disney would not comment officially, a top executive there acknowledges the clashes but maintains that problems are inevitable when two empires merge. Disney has learned over the last several months to respect the Henson ambiance, he says, adding that Disney Chairman Eisner will personally ensure that the Muppet environment is protected. He points to the success of "Roger Rabbit" and subsequent Disney animated features, such as "The Little Mermaid," as proof that Disney can foster a successful creative setting.

That doesn't answer the crucial question of who will lead the Henson production company. Henson's role in the company, day to day, was beyond measure. A source inside the Henson company observes that bringing a dozen or so strong temperaments together was never easy. "They've got egos," he says. "Jim was the one person who had everybody's respect and was the ultimate diplomat. Not having him there makes it hard to imagine who it is that can pull all of these tremendous talents together."

"It's hard to imagine somebody in charge other than Jim," says writer Saltzman. "If there were no Disney, I'd feel just as at sea. ... I don't know how you do something that was so centered around this person."

As for successors, no obvious candidates emerge. Senior Vice President David Lazer, himself suffering from health problems, came out of semi-retirement to serve as the production company's acting president. But he is a businessman, not a creative player.

Henson's death poses other questions. Who will be Kermit -- not to mention Ernie of Bert and Ernie -- characters that were never performed by anyone but Henson? How will Frank Oz, a film director who plays Miss Piggy, Bert and other characters, perform opposite someone other than Henson?

"I can't conceive of who would play Kermit," says Cooney. Writer Saltzman agrees. "Kermit could make dimples. Kermit could blush. On the technical level, does anybody know how to make Kermit blush using fingers inside a sock, basically? Could someone sit at a piano and make you think it was Horowitz?"

Kenworthy argues that "Kermit obviously isn't going to die. Characters don't die with their creators." But Saltzman observes that Henson also invented or approved designs of all Muppets and creatures. He would look at a talking Muppet carrot and move the eyes a little. "Then, this carrot becomes the most hilarious entity you ever saw," Saltzman says. "I don't know who inherits that role. You don't just go into FAO Schwartz and say, 'Buy these puppets.' Every one of them -- that's Jim."

Brillstein says he saw a willingness to continue the Henson production shop when he attended Henson's funeral. "When I left New York, it was my feeling that everyone wanted to continue this enterprise. This was a tradition to carry on," he says. "Of course, there's anxiety ... and what's going to happen -- honest to God, I can't answer that. Someone has to put this package together."

Kenworthy derives some comfort from the experiences of the days immediately following Henson's death. "It was a traumatic period, as you can imagine," he says. "One of the things that kept us all going was the memorial service... . We had from Wednesday until Monday to pull it together. It was the most moving experience I've ever had."

The service was a polished production that lasted 2 1/2 hours and was witnessed by more than 5,000 people. "Someone said, 'It's the only memorial service I've ever been at that you could take on the road,' " Kenworthy says. But it didn't come without some struggle.

"It was a wonderful microcosm of us," Kenworthy remembers. "There we were, disagreeing in many ways, having very strong views, trying not to say, 'What would Jim have done?' There was a lot of disagreement but in the end, we came up with a service that I think was a real achievement. That's the best hope for the future -- that you can have strong creative talents, and unanimity."