Blue Heron financial Corp., the former University Ave. Financial Corp., will be restructured yet again if shareholders approve the plan at a special meeting set for Thursday, March 28.

Assuming shareholder approval of the plan, control and management of the company will go to dealmaker 180 Capital, a Toronto-based private merchant bank specializing in restructurings. It will be renamed Avenue Financial Corp. and 180 Capital will use the Blue Heron platform to launch restructuring funds that would invest in situations in which 180 is involved. A hedge fund product line is also a possibility.

Toronto-based Blue Heron has been struggling since it went public as University Avenue Funds in 1997. The intervening period has seen five changes in presidents, the loss of two passive investors and a rising mountain of debt.

A crisis point was reached last fall when passive investor Trancorp Inc. sold its interest in Blue Heron — a combination of debt owed by subsidiary @rgentum Management and Research Corp. and Blue Heron shares — to Merchant Capital Group Inc., a public merchant bank. Combined with other stock purchases, Merchant secured control. It then fired Blue Heron president Greg Levi, who’d only been in place since the previous May, replacing him with one of its own people, Jay Richardson. Levi is currently suing for wrongful dismissal.

Blue Heron’s board turned to 180 for assistance and signed a letter of intent under which 180 would, with the assistance of Hill & Gertner Capital Corp. (HG), help the company restructure and raise $3 million. To preserve cash, the board fired Richardson.

Merchant responded with litigation, but negotiations by 180 have resulted in a settlement under which Merchant gets @rgentum and its mutual funds ($25.8 million in assets under management as of Jan. 31), along with Blue Heron’s three-person dealer network, its office space and 3.55 million “post-consolidated” shares in what will become Avenue.

Under the restructuring plan, current shares will be consolidated on a two-for-one basis and be heavily diluted by the issuance of new shares.

Stephen Burns, a partner in chartered accounting firm Shimmerman Penn Burns Becker LLP, 180’s secretary and the proposed new chairman of the restructured company, says that the $3 million in private placement capital has already been raised and now only needs shareholder approval. The private placement takes the form of units consisting of $1,000 9% three-year debentures convertible to 10,000 shares and 5,000 warrants to purchase one additional share for 10¢ over a two-year period.

180 will be compensated for its efforts with four million Blue Heron/Avenue shares and 10 million common share purchase warrants. HG and Criskjak Investment Inc., owned by HG principal Michael Carr, will each get one million shares and 2.5 million warrants.

Assuming all warrants are executed, 180 will own 17% of the company, Merchant 8% and HG and Criskjak 4% each. Co-founder Andrew Roblin will have 1% (vs his current 7%). Roblin remains on the board.

A restructured company would have to prove itself quickly. It has only three years before the debentures are due and the warrants have to be executed within two. Thus, although management is interested in building a broad financial services firm rather than just a fund company, the firm would have to concentrate on the funds first.

The initial goal is to launch unique specialty funds. It already has seven core funds ($11.7 million in assets that are managed externally) under the University Avenue name: Canadian balanced, equity and small cap; U.S. equity and small cap; world and money market. Burns says it is making inroads in finding the right person to manage hedge funds and believes it can make a lot of money restructuring funds. Most restructuring funds are managed passively. Managers pick what they think are good situations but aren’t involved with the management. Avenue’s funds will be actively managed with investments in situations in which 180’s restructuring team has input. There are lots of opportunities because there aren’t a lot of places firms can go for money, says Burns.

Later the company will look at expanding beyond funds. It has a licence to sell insurance through its inactive Blue Heron Insurance Agency Ltd. subsidiary. It also has a small private client business with $1.6 million in assets.

If approved, the new chief executive will be Philip Beaudoin, president of investor relations firm Philip Beaudoin and Associates. Robin Ross, 180’s president since December 2001, will be managing director. Beaudoin was at Midland Doherty Ltd. from 1976-73, latterly as national sales manager. Ross also has a long history in the investment industry, including Yorkton Securities Inc. (director of sales and marketing and branch manager, December 1998-February 2001), Merit Investment Corp. (managing director, 1997) and Midland Walwyn Capital Inc.

@page_break@In December 1998, Ross was fined by the Investment Dealers Association of Canada after admitting “he failed to exercise due diligence to learn the essential facts relative to a client and failed to ensure that the acceptance of orders for the account of a client was within the bounds of good business practice contrary to Regulation 1300 of the IDA.”