This section contains the nature of the case and procedural background.

In 1996, Smith's Food (D) entered into an agreement with Yucaipa for the merger of its operations into D for the exchange of 3 million newly issued shares of D. As part of this deal, D was required to assume a sizable new debt, retire old debt, and offer to repurchase up to 50% of the outstanding shares of D, other than those issued by Yucaipa for $36 per share and D was also to purchase 3 million shares from the 62.1% stockholder of D. An expert was called and verified that the transaction would not endanger D's solvency nor its capital in violation of section 160. The board and shareholders approved the transaction. Klang (P) then filed a class action the day before the transactions closed against the majority shareholder Jeffrey Smith and various other parties contending that the deal violated section 160 by impairing D's capital. The court dismissed, P's claims in full and P appealed.

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