AMC Entertainment (NYSE:AMC) modified the legal structure of its deal to turn AMC Entertainment Preferred Equity Unit (NYSE:APE) stock into common stock after the Delaware Chancery Court rejected its earlier proposal. The company will refile its offering.

AMC’s common stock jumped nearly 40% on the news, while the preferred shares, or “APEs,” dropped 5%. AMC stock opened at about $5.80 per share, and APE stock at $1.72.

Conversion in Court

Chancery Court Vice Chancellor Morgan Zurn based the decision on the analysis of a special master, who wrote that the settlement releases claims that aren’t based on facts. The common stockholders can’t release claims from the preferred stockholders, and the settlement is thus unfair to the holders of the preferred stock. “The settlement therefore cannot be approved as presented,” Zurn concluded.

CEO Adam Aron responded quickly through a letter posted to Twitter. He proposed a modification of the legal release rather than a change in the settlement terms. The letter added that “the risk of financial collapse is not whimsical.”

If the court accepts Aron’s new terms, the weekend gains in AMC common will be reversed. That’s because the conversion of preferred to common and the watering down of common interest will still happen. Meanwhile, volatility will continue as traders speculate on what the court will do.

The company itself had a great weekend as the blockbuster movies Barbie and Oppenheimer both opened across the country. Their success underscored how dependent studios are on the theaters and how people will go out to movies if they like what’s being shown.

AMC also ended its plan to charge different rates for different seats, a program called Sightline. The company said it will try to redesign seating to make front rows more attractive.

AMC Stock: What Happens Next?

Aron’s various machinations, including the creation of APE shares and their proposed conversion, have helped keep AMC alive. But they set a very bad precedent, so it seems reasonable that the court is making it difficult.

As of this writing, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.