Clairvest Group Inc.
TSX : CVG

Clairvest Group Inc.

August 14, 2007 07:00 ET

Clairvest Reports Fiscal 2008 First Quarter Results

Highlights - June 30, 2007 book value $15.82 per share, versus $14.69 at March 31, 2007, a 7.7% increase. - Clairvest entered into an agreement to sell Gateway Casinos Inc. and Gateway Casinos Income Fund for gross proceeds on sale of approximately $130 million. - Clairvest sold its interest in VOXCOM Income Fund for $21.8 million. - Clairvest sold its investment in Datamark Systems Group for a combination of $6.4 million in cash and a 4.54% interest in a new combined public entity. - Clairvest declared a dividend of $0.10 per share totaling $1.6 million.

TORONTO, ONTARIO--(Marketwire - Aug. 14, 2007) - Clairvest Group Inc. (TSX:CVG) today reported results for the first quarter ended June 30, 2007. (All figures are in Canadian dollars unless otherwise stated).

Clairvest's book value increased $18.7 million during the quarter, or 8.0%, to $252.3 million, or $15.82 per share, compared with $14.69 per share at March 31, 2007. The increase in book value was attributable to net income for the quarter of $19.8 million.

During the quarter, Clairvest entered into agreements to sell its interest in Gateway Casinos Income Fund ("Gateway Income Fund") and Gateway Casinos Inc. ("Gateway Casinos"). Under the terms of the agreement, New World Gaming has offered to acquire all of the outstanding units of Gateway Income Fund by way of a take-over bid at a price of $25.26 per unit in cash, and substantially all of the assets of Gateway Casinos. If the transaction closes on anticipated terms, total gross proceeds to Clairvest are expected to be approximately $130.0 million.

Over the life of Clairvest's investment in Gateway, Clairvest will have generated a pre-tax return of 8.75 times the $24 million of invested capital, should the transaction close on announced terms.

During the quarter, Clairvest sold its 20.1% interest in VOXCOM to UE Waterheater Income Fund as part of a greater transaction for the acquisition of all outstanding units in VOXCOM. Clairvest received cash proceeds of $21.8 million on the sale. Over the life of Clairvest's investment in VOXCOM, Clairvest generated a pre-tax return of 2.94 times the $9.1 million of invested capital.

During the quarter, Clairvest sold its 37% interest in Datamark to Komunik Corporation of Montreal. Clairvest realized a combination of $6.4 million in cash and 1.5 million common shares equal to a 4.54% diluted interest in a new combined public entity, Komunik Corporation (TSX: KOM). Over the life of Clairvest's investment in Datamark, Clairvest has generated an after-tax return of 1.9 times the $14.8 million of invested capital.

"Our activities and results during the quarter further demonstrated our ability to generate healthy returns for our shareholders," said Jeff Parr, Co-CEO of Clairvest. "With a total capital pool available in excess of $300 million, we are well positioned to move forward and seek future investment opportunities."

Clairvest declared an annual combined eligible and ineligible dividend of $0.10 per share. The dividend was payable to common shareholders of record as of July 12, 2007. The dividend was paid July 27, 2007.

About Clairvest

Clairvest Group Inc. is a Canadian merchant bank that invests its own capital, and that of third parties through Clairvest Equity Partners Limited Partnership and Clairvest Equity Partners III Limited Partnership, in businesses that have the potential to generate superior returns. In addition to providing financing, Clairvest contributes strategic expertise and execution ability to support the growth and development of its investee partners. Clairvest realizes value through investment returns and the eventual disposition of its investments.

Forward-looking Statements

This news release contains forward-looking statements with respect to Clairvest Group Inc., its subsidiaries and their investments. These statements are based on current expectations and are subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Clairvest, its subsidiaries and their investments to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include general and economic business conditions. Clairvest is under no obligation to update any forward-looking statements contained herein should material facts change due to new information, future events or otherwise.

www.clairvest.com



CLAIRVEST GROUP INC. August 13, 2007
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE QUARTER ENDED JUNE 30, 2007


The Management's Discussion and Analysis ("MD&A") analyzes significant changes in the unaudited consolidated financial statements of Clairvest Group Inc. ("Clairvest"). It should be read in conjunction with the accompanying unaudited consolidated financial statements and notes of Clairvest for the quarter ended June 30, 2007 and the attached news release.

All amounts are in Canadian dollars unless otherwise indicated.

CRITICAL ACCOUNTING ESTIMATES

Clairvest prepares its financial statements in accordance with Canadian generally accepted accounting principles ("GAAP"). The preparation of Clairvest's consolidated financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of income and expenses during the reporting period. On an ongoing basis, management reviews its estimates and assumptions. Changes in facts and circumstances may result in revised estimates, and actual results could differ from those estimates. The critical accounting estimates that have a material impact on Clairvest's consolidated financial statements are with respect to corporate investments and future tax asset and liability.

The process of determining the fair value of Clairvest's privately held investments requires management to exercise judgment in making assumptions about the financial condition of the investment based on operational results, forecasts, financing and any other factors that may be relevant to the ongoing and realizable value of the investment, as well as an assessment of the market conditions based on comparable trading multiples of public companies and transaction multiples within the industry. Estimated costs of disposition are not included in the fair value determination.

Publicly traded investments that are escrowed or otherwise restricted as to sale or transfer are recorded at amounts discounted from market value. The process for determining the discount for such investments requires management to exercise judgment while considering the nature and length of the restriction, business risk of the investee company, its stage of development, market potential, relative trading volume and price volatility, liquidity of the security and the size of Clairvest's ownership block and any other factors that may be relevant to the ongoing and realizable value of the investments. Estimated costs of disposition are not included in the fair value determination.

A change to an accounting estimate with respect to Clairvest's privately held investments or publicly traded investments would impact corporate investments and unrealized gains/losses on investments.

The process of determining future income tax assets and liabilities requires management to exercise judgment while considering the anticipated timing of disposal of corporate investments and proceeds thereon, tax planning strategies, changes in tax laws and rates, and loss carry-forwards. A change to an accounting estimate with respect to future income taxes would impact future tax asset/liability and provision for income taxes.

OPERATING RESULTS

Net income for the first quarter of fiscal 2008 was $19.8 million compared with net loss of $16.4 million for the first quarter of fiscal 2007. Net income for the first quarter of fiscal 2008 is comprised primarily of $26.0 million of net investment gains offset by $2.6 million of net operating losses and $3.6 million of income tax expense. This compares with net investment losses on investments of $14.7 million, $4.7 million of net operating losses, and $3.0 million of income tax recovery for the first quarter of fiscal 2007.

The net investment gains of $26.0 million for the first quarter of fiscal 2008 comprised $5.9 million of net realized gains on investments and $20.1 million of net unrealized gains on investments.

Net realized gains on investments for the first quarter of fiscal 2008 of $5.9 million resulted from:

- A $6.2 million realized gain on Voxcom Income Fund ("Voxcom") comprised of a $10.6 million realized gain this quarter net of previously recognized unrealized gains of $4.4 million in prior quarters; partially offset by

- A $0.3 million realized loss on Datamark Systems Group Inc. ("Datamark") comprised of a $3.3 million realized loss this quarter net of previously recognized unrealized losses of $3.0 million in prior quarters.

Clairvest had net unrealized gains on investments of $20.1 million for the first quarter of 2008, compared with net unrealized losses on investments of $14.7 million for the first quarter of 2007. The net unrealized gains for the first quarter of 2008 resulted from:

- A $12.8 million upward adjustment to the fair value of Clairvest's investment in Gateway Casinos Income Fund ("Gateway Income Fund") as a result of the upward movement in the trading price;

- A $8.4 million upward adjustment to the fair value of Clairvest's investment in Gateway Casinos Inc. ("Gateway Casinos") primarily as a result of the upward movement in the trading price of Gateway Casinos Income Fund, to which Clairvest's valuation of the casinos in Gateway Casinos is linked;

- A $1.6 million downward adjustment to the fair value of Clairvest's investment in Komunik Corporation ("Komunik") as a result of the downward movement in the trading price;

- Other movements in quoted market prices, movements in foreign exchange, dividends accruing on cumulative shares and distributions on partnership units.

Distributions and interest income for the quarter was $4.1 million, compared with $2.5 million for the same quarter last year. Distributions and interest income for the first quarter of fiscal 2008 includes priority distributions of $1.1 million from Clairvest Equity Partners III Limited Partnership ("CEP III"), distributions of $1.0 million from Gateway Income Fund, $0.5 million from Voxcom and $0.3 million from Wellington Funds. Distributions and interest income for the first quarter of fiscal 2007 included distributions of $0.5 million from Gateway Income Fund, $0.5 million from Voxcom and $0.3 million from Wellington Funds.

Dividend income for the quarter was $21,000, compared with $4.8 million for the same quarter last year. Dividend income for the first quarter of fiscal 2007 included a $4.7 million tax-free dividend from Datamark.

Clairvest earned $0.3 million in management fees during the quarter for its services in the administration of CEP's portfolio and $0.4 million in advisory and other fees from its corporate investments. The CEP management fee is reduced to the extent of 75% of fees earned by Clairvest from joint Clairvest/CEP corporate investments.

Administration and other expenses for the quarter were $6.4 million, compared with $2.3 million for the same quarter last year. The increase in administrative and other expenses for the first quarter of fiscal 2008 was primarily due to an increase in stock-based compensation expense of $2.8 million, salaries and payroll-related expenses of $0.3 million, and directors' compensation of $0.4 million.

Finance and foreign exchange expenses of $1.0 million for the quarter represents $0.5 million in interest on the loan payable to a subsidiary of Gateway Casinos, $0.3 million in interest on the loan payable to a financial institution, foreign exchange costs of $0.1 million, and interest and bank charges of $0.1 million. Finance and foreign exchange expenses of $0.7 million for the first quarter of fiscal 2007 represented $0.3 million in interest on the loan payable to a subsidiary of Gateway Casinos and $0.4 million in interest on the loan payable to a financial institution.

SUMMARY OF QUARTERLY RESULTS



Net income
Quarterly results Gross income Net income (loss) per
($000's except per (loss) $ Net income (loss) per common share
share information) (Note) (loss) $ common share $ fully diluted $
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June 30, 2007 30,757 19,758 1.24 1.21
March 31, 2007 25,655 20,342 1.28 1.25
December 31, 2006 1,819 (879) (0.05) (0.05)
September 30, 2006 22,508 15,202 0.91 0.89
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June 30, 2006 (6,368) (16,400) (0.99) (0.99)
March 31, 2006 14,611 11,264 0.58 0.57
December 31, 2005 1,771 135 0.01 0.01
September 30, 2005 (5,628) (7,155) (0.37) (0.37)
Note - comprised of net investment gains (losses) and other income.


Significant variations arise in the quarterly results due to unrealized gains/losses on investments which result from Clairvest re-valuing its investments on a quarterly basis. The values at which publicly traded investments are carried are subject to fluctuations in the public markets from quarter to quarter. The privately held investments are re-valued when management adjusts its estimate of the fair value of the investment.

FINANCIAL POSITION AND LIQUIDITY

Clairvest has sufficient capital to support its current and anticipated new investments. In addition to cash, cash equivalents and temporary investments of $115.1 million at June 30, 2007, Clairvest has a $20.0 million credit facility with a Canadian chartered bank, of which $16.8 million was available at June 30, 2007. Temporary investments consist of corporate notes, debentures and preferred shares with maturities greater than 90 days and through to September 2010.

At June 30, 2007, Clairvest had loans payable totalling $68.4 million comprised of:

(a) $12.6 million 30-year loan from Gateway Casinos. The loan is non-interest bearing, and repayable on demand. The loan is collateralized by the units held by Clairvest in the limited partnership that owns Gateway Casinos.

(b) $15.0 million 30-year loan from a subsidiary of Gateway Casinos. The loan bears interest at 8.05% per annum, and is collateralized by 1.5 million units held by Clairvest in Gateway Income Fund. The loan must be repaid as these units in Gateway Income Fund are disposed of.

(c) $8.1 million 30-year loan from a subsidiary of Gateway Casinos. The loan is non-interest bearing, and repayable on demand. The loan is collateralized by 513,278 units held by Clairvest in Gateway Income Fund. The loan must be repaid as these Gateway Income Fund units are disposed of.

(d) $9.8 million 30-year loan from a subsidiary of Gateway Casinos. The loan bears interest at 8.00% per annum, and is collateralized by 627,294 units held by Clairvest in Gateway Income Fund. The loan must be repaid as these Gateway Income Fund units are disposed of.

(e) Loans totalling $0.6 million from the limited partnership that owns Gateway Casinos. The loans outstanding are non-interest bearing and payable on demand at any time after December 31, 2007.

(f) $22.3 million 10-year promissory note from a financial institution, bearing interest at a floating rate. Upon the disposition of certain investments, Clairvest will be required to make principal payments on the note. During the quarter, Clairvest repaid $0.7 million in accordance with the terms of the note, bringing the principal balance to $22.3 million. Interest of $0.3 million was paid during the quarter.

During the fourth quarter of fiscal 2007, Clairvest filed a new normal course issuer bid enabling it to purchase up to 795,178 common shares during the 12-month period ending March 5, 2008. During the first quarter of fiscal 2008, Clairvest made no purchases or cancellations. In total 2,544,424 common shares at a cost of $21.9 million have been purchased under this, and previous, normal course issuer bids as of June 30, 2007. An additional 3,165,154 common and non-voting shares have been purchased for cancellation from a financial institution outside of the normal course issuer bid. During the first quarter of fiscal 2008, 40,000 common shares were issued on the exercise of stock options for shares, increasing share capital by $0.5 million. 15,943,566 common shares were outstanding at June 30, 2007.

During the quarter, Clairvest declared a dividend of $0.10 per share, which was paid subsequent to quarter end.

Clairvest's main asset is its corporate investments. All changes in the carrying value of Clairvest's investments during the first quarter of fiscal 2008 are as a result of net realized gains on investments, unrealized gains/losses on investments, follow-on investments made and capital returned to Clairvest. Significant events relating to Clairvest's corporate investments, other than with respect to unrealized gains/losses which are described above, are described below.

Datamark Systems Group Inc. / Komunik Corporation

During the first quarter of fiscal 2008, Clairvest sold its interest in Datamark Systems Group Inc. for a combination of $6.4 million in cash and 1,546,473 shares in a new combined public entity involving Datamark and Komunik Corporation, now operating as Komunik Corporation ("Komunik"). Clairvest's diluted interest in Komunik is 4.54%.

Gateway Casinos Income Fund

During the quarter, Gateway Casinos Income Fund (the "Fund") entered into an agreement with an unrelated third party for the purchase of all outstanding units of the Fund for $25.26 per unit in cash. The transaction is subject to certain conditions, which are not yet settled, including unitholder and regulatory approvals. At the same time Clairvest has entered into agreements in support of the transaction.

Gateway Casinos Inc.

During the quarter, Gateway Casinos Inc. entered into agreements with an unrelated third party for the purchase of substantially all of its assets, as well as shares of a joint venture entity in which it holds a 50% interest. The transaction is subject to certain conditions which are not yet settled, including regulatory approvals. At the same time Clairvest has entered into agreements in support of the transaction.

Voxcom Income Fund

During the first quarter of fiscal 2008, Clairvest sold its interest in Voxcom Income Fund for cash proceeds of $21.8 million.

Wellington Financial Fund III

During the fourth quarter of fiscal 2007, Clairvest funded an additional $1.9 million to Wellington Fund III.

TRANSACTIONS WITH RELATED PARTIES

Clairvest, as manager of CEP and parent company of the General Partner of CEP, has entered into various transactions with CEP. As manager of CEP, Clairvest is entitled to a management fee as compensation for its services in the administration of the portfolio of CEP. The management fee is reduced to the extent of 75% of any fees earned by Clairvest from corporate investments of CEP. During fiscal 2007, Clairvest assigned the Management Agreement to a wholly-owned subsidiary of Clairvest. During the first quarter of fiscal 2008, CEP paid net management fees of $0.3 million. As per the Management Agreement, corporate advisory fees of $0.2 million from corporate investments of CEP were netted against the management fees.

The General Partner of CEP, a limited partnership, the general partner of which is a wholly-owned subsidiary of Clairvest, is entitled to participate in distributions made by CEP equal to 20% of net gains of CEP. The distribution to the General Partner will be determined based on the overall performance of CEP and no such distributions are permitted until CEP's limited partners have received all amounts contributed to CEP and a 6% compound annual return on that amount. The distributions received by the General Partner of CEP will be allocated 50% to each of its limited partners one of which is a wholly-owned subsidiary of Clairvest, and the other of which is another limited partnership (the "Participation Partnership"). The limited partners of the Participation Partnership are principals and employees of Clairvest (the "Participation Investors"). The Participation Investors have purchased, at fair market value, units of the Participation Partnership. From time to time, additional units in the Participation Partnership may be purchased by the Participation Investors. To date, CEP has not made any distributions to the General Partner.

Clairvest is also the parent company of the two General Partners of CEP III ("GP I" and "GP II"). GP I is entitled to a 2% priority distribution from CEP III. The 2% priority distribution began in August 2007, the month in which CEP III made its first investment. The priority distribution is reduced to the extent of 75% of any fees earned by GP I from corporate investments of CEP III. During the fourth quarter of fiscal 2007, CEP III paid GP I net priority distributions of $1.1 million. As per the Limited Partnership Agreement, fees of $0.1 million from corporate investments of CEP III were netted against the priority distributions. GP I is also entitled to distributions made by CEP III equal to 2% of net gains of CEP III determined as described below.

GP II, a limited partnership, the general partner of which is a wholly-owned subsidiary of Clairvest, is entitled to participate in distributions made by CEP III equal to 18% of net gains of CEP III. The distribution to GP II will be determined based on the overall performance of CEP III and no such distribution is permitted until CEP III's limited partners have received all amounts contributed to CEP III and an 8% compound annual return on that amount. The distributions received by GP II will be allocated to each of the two limited partners, one of which is a wholly-owned subsidiary of Clairvest which will receive 44.4% of such distributions, and the other of which is another limited partnership (the "Participation III Partnership") which will receive 55.6% of such distributions. The limited partners of the Participation III Partnership are principals and employees of Clairvest and a wholly owned subsidiary of Clairvest (the "Participation III Investors"). The Participation III Investors purchased, at fair market value, units of the Participation III Partnership during the second quarter of fiscal 2007. From time to time, additional units in the Participation III Partnership may be purchased by Participation III Investors. To date, CEP III has not made any distributions to GP II.

At June 30, 2007 Clairvest had loans receivables from certain officers of Clairvest or officers of corporate investments (the "Officers") totalling $0.4 million. The loans are interest bearing, have full recourse to the individual and are collateralized by the common shares of Clairvest purchased by the Officers with a market value of $0.7 million. At March 31, 2007 Clairvest also had loans receivable from certain officers of Wellington Financial totalling $0.7 million. The loans are interest bearing and have full recourse to the individual.

Included in accounts receivable and other assets are receivables from Clairvest's corporate investments totalling $2.1 million, and from CEP III of $0.8 million. Included in accounts payable are amounts owing to Clairvest's corporate investments totalling $0.5 million.

Loans totalling $1.8 million, bearing interest at the prime rate, made by Clairvest to CEP during the fourth quarter of fiscal 2007 were repaid in full during the quarter. Interest of $23,000 was earned from loans to CEP during the first quarter of fiscal 2008.

Loans totalling $1.0 million, bearing interest at the prime rate, were made by the Company to a related party during the first quarter of fiscal 2008. Interest of $4,000 was earned from loans to this related party during the first quarter of fiscal 2008.

OFF-BALANCE SHEET ARRANGEMENTS

Clairvest has committed to co-invest alongside CEP in all investments undertaken by CEP. Clairvest's total co-investment commitment is $54.7 million, $8.1 million of which remains unfunded at June 30, 2007. Clairvest may only sell all or a portion of a corporate investment that is a joint investment with CEP if it, as manager of CEP, concurrently sells a proportionate number of securities of that corporate investment held by CEP. Included in the commitment to co-invest with CEP is a $5.0 million commitment to N-Brook, which is subject to N-Brook management achieving certain targets, and a $4.3 million commitment to Tsuu T'ina. Of these commitments, $4.3 million has been funded to N-Brook and $2.8 million has been funded to Tsuu T'ina at June 30, 2007.

Clairvest has also committed to co-invest alongside CEP III in all investments undertaken by CEP III. Clairvest's total co-investment commitment is $75.0 million, $70.3 million of which remains unfunded at June 30, 2007. Clairvest may only sell all or a portion of a corporate investment that is a joint investment with CEP III if it, as manager of CEP III, concurrently sells a proportionate number of securities of that corporate investment held by CEP III.

Clairvest has committed $25.0 million to Wellington Fund III, $8.6 million of which has been funded to June 30, 2007. As a result of the closing of Wellington Fund III, the unfunded capital commitments to Wellington Fund II may no longer be called. Clairvest has funded $5.2 million to Wellington Fund II at June 30, 2007.

Clairvest has guaranteed up to $7.0 million of CEP's obligations to the Toronto-Dominion Bank under CEP's foreign exchange forward contracts with the bank.

Under Clairvest's Incentive Bonus Program, a bonus of 10% of after-tax income, based on cash realizations on Clairvest's corporate investments, is paid to management as a bonus. Amounts are accrued under this plan with respect to cash realizations made during the year. If Clairvest were to sell its corporate investments at their current fair values, a bonus of $7.3 million would be owing to management under the Incentive Bonus Program. This amount has not been reflected in Clairvest's consolidated financial statements.

Clairvest enters into foreign exchange forward contracts to manage the risks arising from fluctuations in exchange rates on its foreign investments. At June 30, 2007, Clairvest had entered into forward contracts to sell US$7.9 million at rates of Canadian $1.0592 to $1.0637 per U.S. dollar through December 2007. The fair value of these contracts at June 30, 2007 is a loss of $29,000 and have been recognized on the consolidated balance sheet as derivative instruments market valuation.

Wholly owned subsidiaries of Clairvest together with certain other unit holders (the "unitholders") currently hold approximately 33% of the outstanding units of Gateway Income Fund. The unitholders have agreed that they will take all necessary steps to ensure that their collective ownership of Gateway Income Fund is maintained at 20% of the issued and outstanding units.

During fiscal 2006, Clairvest, together with CEP and Shepell fgi (formerly WarrenShepell) management, purchased Shepell fgi. As part of the purchase, Clairvest also guaranteed a $4.6 million note payable by Shepell fgi to the vendors, as well as interest payable on the note. The note is subject to claims Clairvest and CEP may have with respect to representations and warranties. Any amounts paid under the guarantee will result in additional equity ownership being granted to Clairvest and CEP, allocated 25% to Clairvest and 75% to CEP. CEP will reimburse Clairvest for 75% of any amounts paid under the guarantee. The guarantee expires on December 31, 2009. At June 30, 2007, the guarantee has been reduced to $3.2 million.

During fiscal 2006, Clairvest and Clairvest Group International (Netherlands) B.V. ("B.V.") sold their interests in Signature Security Group Holdings Pty Limited ("Signature") and Equity SPV Pty Limited ("SPV") as part of a sale of 100% of Signature and SPV. Subject to a number of conditions, Clairvest and B.V. may be entitled to receive over time up to an additional AUD$2.1 million (CDN$2.0 million) being held in escrow. As at June 30, 2007, AUD$1.3 million (CDN$1.1 million) has been released and taken into income. As part of the transaction, B.V. has indemnified the purchaser for various claims which will reduce over time.

During fiscal 2007, Clairvest recorded a $10.0 million impairment charge on loans Clairvest made to an unrelated party as the loans may not be recoverable. The loans were advanced in two tranches of $5 million in each of December 2005 and May 2006 and were collateralized by treasury bills deposited with a Canadian bank-owned brokerage firm. The loans are currently in default. Any amounts recovered will be taken into income in the period of recovery.

During fiscal 2007, Clairvest, together with CEP committed to invest in the development of the Tsuu T'ina charitable casino. As part of third party financing of the casino with a Canadian chartered bank, Clairvest has guaranteed cost overruns on the project, and any debt servicing shortfalls by Tsuu T'ina which reduce over a period of time. As at June 30, 2007, no financing has taken place under the arrangement.

OUTLOOK

Clairvest continues to assist its investee companies in developing and executing their strategies and enhancing their value propositions. Clairvest also continues to actively pursue investment opportunities, using domain-based proprietary research to explore a number of industries and identify new potential investments.

SUBSEQUENT EVENTS

Subsequent to quarter end, Clairvest provided a short-term loan of $1.3 million to an unrelated third party.

DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTING

Management has evaluated the effectiveness of Clairvest's disclosure controls and procedures as of June 30, 2007. Management has concluded that the disclosure controls and procedures are effective as of June 30, 2007 based on this evaluation.

Management has evaluated the Company's internal controls over financial reporting to ensure that they had been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Canadian generally accepted accounting principles. Management has concluded that the design of internal controls over financial reporting are effective as of June 30, 2007 based on this evaluation. There were no changes in its internal controls during its most recent interim period that has materially affected, or is reasonably likely to materially affect, its internal controls over financial reporting.

A number of the matters discussed in this MD&A deal with potential future circumstances and developments and may constitute "forward-looking" statements. These forward-looking statements can generally be identified as such because of the context of the statements and often include words such as the Company "believes", "anticipates", "expects", "plans", "estimates" or words of a similar nature.

The forward-looking statements are based on current expectations and are subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The impact of any one risk factor on a particular forward-looking statement is not determinable with certainty as such factors are interdependent upon other factors, and management's course of action would depend upon its assessment of the future considering all information then available.

All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. The Company assumes no obligation to update forward-looking statements should circumstances or management's estimates or opinions change.



CLAIRVEST GROUP INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)

June 30 March 31
$000's 2007 2007
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ASSETS
Cash and cash equivalents $ 41,041 $ 13,981
Temporary investments (Note 4) 74,031 76,305
Accounts receivable and other assets (Note 9e) 4,312 3,768
Income taxes recoverable 9,542 10,803
Loans receivable (Note 9f and 9g) 1,000 1,824
Corporate investments (Note 5) 208,802 207,929
--------------------
$ 338,728 $ 314,610
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--------------------

LIABILITIES
Accounts payable (Note 9e and 10) $ 4,662 $ 3,473
Dividend payable (Note 8) 1,594 -
Loans payable (Note 7) 68,360 68,766
Derivative instruments market valuation (Note 12) 29 300
Future tax liability 6,384 4,062
Stock-based compensation (Note 10) 5,405 4,426
--------------------
86,434 81,027
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SHAREHOLDERS' EQUITY
Share capital (Note 8) 82,713 82,166
Retained earnings 169,581 151,417
--------------------
252,294 233,583
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$ 338,728 $ 314,610
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(see accompanying notes to interim consolidated financial statements)



CLAIRVEST GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Quarter Ended June 30
(unaudited)

Quarter ended June 30
$000's (except per share information) 2007 2006
Net investment gains (losses)
Net realized gains on investments (Note 5) $ 5,905 $ -
Net unrealized gains (losses) on investments 20,096 (14,710)
-----------------------
26,001 (14,710)
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Other income
Distributions and interest income (Note 9) 4,088 2,524
Dividend income 21 4,787
Management fees (Note 9a) 279 302
Advisory and other fees (Note 9h) 368 729
-----------------------
4,756 8,342
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Administration and other expenses (Note 10) (6,423) (2,255)
Loss on temporary investments (Note 13j) - (10,000)
Finance and foreign exchange expense (Note 9h and
12) (973) (735)
-----------------------
(7,396) (12,990)
-----------------------
Income before income taxes 23,361 (19,358)
Income tax recovered (expense) (3,603) 2,958
-----------------------
Net income (loss) $ 19,758 $ (16,400)
-----------------------
Basic net income (loss) per share $ 1.24 $ (0.99)
-----------------------
Fully diluted net income (loss) per share $ 1.21 $ (0.99)
-----------------------
-----------------------

(see accompanying notes to interim consolidated financial statements)



CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
For the Quarter Ended June 30
(unaudited)
Quarter ended June 30
$000's 2007 2006
--------------------------------------------------------------------------
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Retained earnings, beginning of period $ 151,417 $ 146,441
Net income (loss) 19,758 (16,400)
-----------------------
171,175 130,041
Dividends declared (Note 8) (1,594) (1,590)
Purchase and cancellation of shares (Note 8) - (11,408)
-----------------------
Retained earnings, end of period $ 169,581 $ 117,043
-----------------------

(see accompanying notes to interim consolidated financial statements)



CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Quarter Ended June 30
(unaudited)

Quarter ended June 30
$000's 2007 2006
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Cash flows from operating activities
Net income (loss) $ 19,758 $ (16,400)
Add (deduct) items not involving a current cash
outlay
Amortization of fixed assets 10 9
Stock-based compensation 979 416
Future income tax expense (recovered) 2,322 (1,803)
Net realized gains on investments (5,905) -
Net unrealized (gains) losses on investments (20,096) 14,710
Loss on temporary investments - 10,000
Non-cash items relating to corporate investments (23) (2,409)
--------------------
(2,955) 4,523

Net change in non-cash working capital
balances related to operations 1,896 (2,599)
--------------------
(1,059) 1,924

Cash flows from financing activities
Shares purchased for cancellation - (569)
Cancellation of share capital - -
Issuance of share capital 547 540
Issuance of loans 256 18,045
Repayment of loans (662) -
--------------------
141 18,016
--------------------

Cash flows from investing activities
Net proceeds on temporary investments 2,274 9,476
Acquisition of corporate investments (3,778) (22,639)
Proceeds on corporate investments 28,181 -
Loans advanced (1,000) -
Receipt of loans advanced 1,824 800
Proceeds on realization of foreign exchange
forward contracts 326 99
Return of capital from corporate investments 151 -
--------------------
27,978 (12,264)
--------------------

Net increase in cash and cash equivalents 27,060 7,676
Cash and cash equivalents, beginning of period 13,981 12,395
--------------------
Cash and cash equivalents, end of period $ 41,041 $ 20,071
--------------------
--------------------

Supplemental cash flow information
Income taxes paid $ 91 $ 4,967
Interest paid $ 832 $ 304
--------------------
--------------------

(see accompanying notes to interim consolidated financial statements)



CLAIRVEST GROUP INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007 (Tabular Dollar Amounts in Thousands)
(unaudited)


1. NATURE OF ACTIVITIES AND BASIS OF PRESENTATION

The disclosures contained in these unaudited interim consolidated financial statements of Clairvest Group Inc. ("Clairvest" or the "Company") do not include all requirements of generally accepted accounting principles for annual financial statements. The unaudited interim consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements for the year ended March 31, 2007.

In accordance with National Instrument 51-102 released by the Canadian Securities Administrators, the Company discloses that its auditors have not reviewed the unaudited interim consolidated financial statements for the quarter ended June 30, 2007.

Clairvest's consolidated financial statements are prepared using the fair value method of accounting. Under fair value accounting, each of Clairvest's investments are re-valued quarterly. Realized and unrealized changes in Clairvest's investments, as well as the tax effects of these changes, are reflected in the income statement.

The unaudited interim consolidated financial statements are based upon accounting principles consistent with those used and described in the annual audited consolidated financial statements.

2. CHANGES IN ACCOUNTING POLICY

Effective fiscal 2008, the Company adopted Canadian Institute of Chartered Accountants Handbook ("CICA Handbook") Section 1506, "Accounting Changes", which requires that voluntary changes in accounting policy be made only if the changes result in financial statements that provide more reliable and more relevant information. The adoption of this standard has provided no impact to Clairvest's unaudited interim consolidated financial statements for the quarter ended June 30, 2007.

Effective fiscal 2008, the Company also adopted CICA Handbook Section 3855, "Financial Instruments - Recognition and Measurement"; Section 3865, "Hedges"; Section 1530, "Comprehensive Income"; and Section 3861, "Financial Instruments - Disclosure and Presentation".

Section 3855 requires financial assets and financial liabilities to be initially recognized at fair value and subsequently accounted for based on their classification as either held-for-trading, available for sale, or held to maturity. In accordance with CICA Accounting Guideline 18, "Investment Companies", which the Company has previously adopted, the Company is required to classify all of its financial assets and liabilities as held-for-trading. These instruments are accounted for at fair value with the change in fair value recognized in income. The impact of the adoption of Section 3855 to Clairvest's unaudited interim consolidated financial statements for the quarter ended June 30, 2007 was not material.

For the quarter ended June 30, 2007, the Company has no items requiring disclosure under other comprehensive income.

The comparative unaudited interim consolidated financial statements have not been restated for the adoption of these standards.

3. BANKING FACILITY

Clairvest has a $20.0 million line of credit available, bearing interest at prime plus 0.5% . The line of credit available at June 30, 2007 is $16.8 million and is based on debt covenants within the banking arrangement.

4. TEMPORARY INVESTMENTS

Temporary investments have maturities greater than 90 days and through to September 2010. Temporary investments consist of corporate notes, debentures and preferred shares. The yield on these investments ranges between 4.2% and 12.0% with a weighted average rate of return of 4.5%.

5. NET INVESTMENT GAINS

Net realized gains (losses) on investments during the period are comprised of the following:



Quarter ended June 30
$000's 2007 2006
---------------------
---------------------
Net realized gains on investments during the period $ 7,297 $ -
Previously recognized net unrealized gains (1,392) -
---------------------
$ 5,905 $ -
---------------------
---------------------



6. CORPORATE INVESTMENTS

June 30, 2007 March 31, 2007
----------------------------------------------------------
----------------------------------------------------------
Fair Fair
Value Cost Difference Value Cost Difference
----------------------------------------------------------
----------------------------------------------------------
Investments in
publicly-traded
companies
Komunik
Corporation
(formerly
Datamark $ 1,546 $ 4,762 $ (3,216) $ 9,762 $14,454 $ (4,692)
Systems Group
Inc.)
Gateway Casinos
Income Fund 60,448 32,913 27,535 47,614 32,913 14,701
Voxcom Income
Fund - - - 15,644 11,187 4,457
----------------------------------------------------------
61,994 37,675 24,319 73,020 58,554 14,466
----------------------------------------------------------
Investments in
privately-held
companies
Gateway Casinos
Inc. 93,157 24,000 69,157 84,724 24,000 60,724
Integral
Orthopedics
Inc. 5,872 5,872 - 5,347 5,347 -
Kubra Data
Transfer
Ltd. 3,250 2,150 1,100 3,250 2,150 1,100
Landauer
Metropolitan
Inc. 3,668 3,636 32 3,894 3,636 258
N-Brook Mortgage
LP 4,529 4,343 186 3,865 3,699 166
Shepell fgi
(formerly
WarrenShepell) 7,910 6,550 1,360 7,910 6,550 1,360
Tsuu T'ina
Gaming Limited
Partnership 3,065 2,829 236 2,226 2,091 135
Van-Rob Inc. 5,000 5,000 - 5,000 5,000 -
Wellington
Financial
Fund II 6,447 5,169 1,278 6,618 5,319 1,299
Wellington
Financial
Fund III 9,045 8,570 475 6,974 6,704 270
Winters Bros.
Waste Systems,
Inc. 4,830 4,292 538 5,065 4,292 773
----------------------------------------------------------
146,773 72,411 74,362 134,874 68,788 66,086
----------------------------------------------------------
Other
investments 35 47 (12) 36 47 (11)
----------------------------------------------------------
$208,802 $110,133 $98,669 $207,929 $127,389 $80,540
----------------------------------------------------------
----------------------------------------------------------


During the first quarter of fiscal 2008, Gateway Casinos Income Fund (the "Fund") entered into an agreement with an unrelated third party for the purchase of all outstanding units of the Fund for $25.26 per unit in cash. The transaction is subject to certain conditions, which are not yet settled, including at least 66 2/3% of the unitholders tendering to the offer and regulatory approvals. At the same time Clairvest has entered into agreements in support of the transaction.

During the first quarter of fiscal 2008, Gateway Casinos Inc. entered into agreements with an unrelated third party for the purchase of substantially all of its assets, as well as shares of a joint venture entity in which it holds a 50% interest. The transaction is subject to certain conditions which are not yet settled, including regulatory approvals. At the same time Clairvest has entered into agreements in support of this transaction.

During the first quarter of fiscal 2008, Clairvest sold its interest in Datamark Systems Group Inc. ("Datamark") for a combination of $6.4 million in cash and 1,546,473 shares in a new combined public entity involving Datamark and Komunik Corporation, now operating as Komunik Corporation ("Komunik"). Clairvest's diluted interest in Komunik is 4.54%.

During the first quarter of fiscal 2008, Clairvest sold its interest in Voxcom Income Fund for cash proceeds of $21.8 million.

During the first quarter of fiscal 2008, Clairvest funded an additional $1.9 million to Wellington Fund III.

7. LOANS PAYABLE

Loans payable consist of the following:

(a) $12.6 million 30-year loan from Gateway Casinos. The loan is non-interest bearing, and repayable on demand. The loan is collateralized by the units held by Clairvest in the limited partnership that owns Gateway Casinos.

(b) $15.0 million 30-year loan from a subsidiary of Gateway Casinos. The loan bears interest at 8.05% per annum, and is collateralized by 1.5 million units held by Clairvest in Gateway Income Fund. The loan must be repaid as these units in Gateway Income Fund are disposed of.

(c) $8.1 million 30-year loan from a subsidiary of Gateway Casinos. The loan is non-interest bearing, and repayable on demand. The loan is collateralized by 513,278 units held by Clairvest in Gateway Income Fund. The loan must be repaid as these Gateway Income Fund units are disposed of.

(d) $9.8 million 30-year loan from a subsidiary of Gateway Casinos. The loan bears interest at 8.00% per annum, and is collateralized by 627,294 units held by Clairvest in Gateway Income Fund. The loan must be repaid as these Gateway Income Fund units are disposed of.

(e) Loans totalling $0.6 million from the limited partnership that owns Gateway Casinos. The loans outstanding are non-interest bearing and payable on demand at any time after December 31, 2007.

(f) $22.3 million 10-year promissory note from a financial institution, bearing interest at a floating rate. Upon the disposition of certain investments, Clairvest will be required to make principal payments on the note.
During the quarter, Clairvest repaid $0.7 million in accordance with the terms of the note, bringing the principal balance to $22.3 million. Interest of $0.3 million was paid during the quarter.

8. SHARE CAPITAL AND RETAINED EARNINGS

During the fourth quarter of fiscal 2007 the Company filed a new normal course issuer bid enabling it to make purchases of up to 795,178 common shares in the 12-month period commencing March 6, 2007. During the first quarter of fiscal 2008, the Company made no purchases or cancellation. In total 2,544,424 common shares at a cost of $21.9 million have been purchased under this, and previous, normal course issuer bids as of June 30, 2007. An additional 3,165,154 common and non-voting shares have been purchased for cancellation from a financial institution outside of the normal course issuer bid.

During the first quarter of fiscal 2008, 40,000 common shares were issued on the exercise of stock options for shares, increasing share capital by $0.5 million.

During the first quarter of fiscal 2008, Clairvest declared a dividend of $0.10 per share, which was paid subsequent to quarter end.

15,943,566 common shares were outstanding at June 30, 2007.

9. RELATED PARTY TRANSACTIONS

(a) Clairvest has entered into a Management Agreement with the General Partner of CEP, appointing Clairvest as the Manager of CEP. The General Partner is a wholly-owned subsidiary of Clairvest. The Management Agreement provides that a management fee be paid to Clairvest as compensation for its services in the administration of the portfolio of CEP. During fiscal 2007, Clairvest assigned the Management Agreement to a wholly-owned subsidiary of Clairvest. The fee was calculated annually as 2% of committed capital until the fifth anniversary of the last closing of CEP (August 21, 2006), and thereafter at 2% of contributed capital less distributions on account of capital and any write-downs of capital invested. The management fee is reduced to the extent of 75% of fees earned by Clairvest from corporate investments of CEP. During the first quarter of fiscal 2008, net management fees were $0.3 million (2007 - $0.3 million).

(b) The General Partner of CEP, a limited partnership, the general partner of which is a wholly-owned subsidiary of Clairvest, is entitled to participate in distributions made by CEP equal to 20% of net gains of CEP. These distributions to the General Partner will be determined based on the overall performance of CEP and no such distributions are permitted until CEP's limited partners have received all amounts contributed to CEP and a 6% compound annual return on that amount. The distributions received by the General Partner of CEP will be allocated 50% to each of its limited partners one of which is a wholly-owned subsidiary of Clairvest, and the other of which is another limited partnership (the "Participation Partnership"). The limited partners of the Participation Partnership are principals and employees of Clairvest (the "Participation Investors"). The Participation Investors have purchased, at fair market value, units of the Participation Partnership. From time to time, additional units in the Participation Partnership may be purchased by the Participation Investors. To date, CEP has not made any distributions to the General Partner.

(c) During fiscal 2007, the Company completed closings totalling $225.0 million of Clairvest Equity Partners III Limited Partnership ("CEP III"), a successor fund to CEP. Clairvest is the parent company of the two General Partners of CEP III ("GP I" and "GP II"). GP I is entitled to a 2% priority distribution from CEP III. The 2% priority distribution began in August 2007, the month in which CEP III made its first investment. As a result of these subsequent closings, the priority distribution is reduced to the extent of 75.0% of fees earned by GP I from corporate investments of CEP III. During the first quarter of fiscal 2008, CEP III paid GP I net priority distributions of $1.1 million. As per the Limited Partnership Agreement, fees of $0.1 million from corporate investments of CEP III were netted against the priority distributions. GP I is also entitled to distributions made by CEP III equal to 2% of gains of CEP III determined as described in note 9(d) below.

(d) GP II, a limited partnership, the general partner of which is a wholly-owned subsidiary of Clairvest, is entitled to participate in distributions made by CEP III equal to 18% of net gains of CEP III. These distributions to GP II, and GP I as noted in note 9(c) above, will be determined based on the overall performance of CEP III and no such distributions are permitted until CEP III's limited partners have received all amounts contributed to CEP III and an 8% compound annual return on that amount. The distributions received by the GP II will be allocated to each of the two limited partners, one of which is a wholly-owned subsidiary of Clairvest which will receive 44.4% of such distributions, and the other of which is another limited partnership (the "Participation III Partnership") which will receive 55.6% of such distributions. The limited partners of the Participation III Partnership are principals and employees of Clairvest and a wholly owned subsidiary of Clairvest (the "Participation III Investors"). The Participation III Investors purchased, at fair market value, units of the Participation III Partnership during the second quarter of fiscal 2007. From time to time, additional units in the Participation III Partnership may be purchased by Participation III Investors. To date, CEP III has not made any distributions to GP II.

(e) Included in accounts receivable and other assets are share purchase loans made to certain officers of the Company or officers of corporate investments totalling $0.4 million (2007 - $0.5 million). The share purchase loans bear interest fixed at either 4% or the prime rate on the date of drawdown less 1%, interest is paid annually, and the loans have full recourse and are collateralized by the common shares of the Company purchased by the officers with a market value of $0.7 million (2007 - $0.7 million). Also included in accounts receivable and other assets are other loans made to certain officers of a company affiliated with Clairvest totalling $0.7 million (2007  $0.6 million). The loans to officers of a company affiliated with Clairvest bear interest at rates commensurate with prime, and interest is paid quarterly. Loans are repayable upon departure of the officer. Interest of $12,000 (2007 - $8,000) was earned during the first quarter of fiscal 2008. Also included in accounts receivable and other assets are receivables from Clairvest's corporate investments totalling $2.1 million (2007 - $2.2 million) and from CEP III totalling $0.8 million (2007 - $0.1 million). Included in accounts payable is nil (2007 - $0.1 million) owing to CEP and $0.5 million (2007 - $0.5 million) owing to corporate investments.

(f) Loans totalling $1.8 million, bearing interest at the prime rate, made by the Company to CEP during the fourth quarter of fiscal 2007 were repaid in full during the quarter. Interest of $32,000 (2007 - $35,000) was earned from loans to CEP during the first quarter of fiscal 2008.

(g) Loans totalling $1.0 million, bearing interest at the prime rate, were made by the Company to a related party during the first quarter of fiscal 2008. Interest of $4,000 was earned from loans to this related party during the first quarter of fiscal 2008.

(h) During the first quarter of fiscal 2008, Clairvest received $1.9 million (2007 - $1.8 million) in interest and distributions, nil (2007 - $4.7 million) in dividends, and $0.4 million in fee income (2007 - $0.7 million) from its corporate investments. Also during the first quarter of fiscal 2008, Clairvest paid $0.5 million (2007 - $0.3 million) in interest to a Gateway Casinos Inc. entity.

10. STOCK-BASED COMPENSATION AND OTHER COMPENSATION PLANS

During the first quarter of fiscal 2008, 410,600 options were exercised, 370,600 of which were exercised under Clairvest's cash settlement plan at a total cost of $2.5 million, of which $1.1 million was expensed in the current quarter. An additional 8,700 options were forfeited during the quarter. Also during the first quarter of fiscal 2008, 200,000 options with a strike price of $13.60 and an expiry date of June 2017 were granted by the company.

At June 30, 2007, a total of 1,262,000 options were outstanding under Clairvest's stock option plan.

As a result of an amendment to add a cash settlement feature to Clairvest's stock option plan, Clairvest is required to recognize compensation expense based upon the intrinsic value of the outstanding stock options at the balance sheet date, and the proportion of their vesting periods that have elapsed. For the quarter ended June 30, 2007, Clairvest recognized a stock-based compensation expense of $2.4 million.

As at June 30, 2007, a total of 94,924 (2007 - 74,736) Deferred Share Units were held by directors of the Company, the accrual in respect of which was $1.3 million (2007 - $0.8 million) and has been included in Accounts Payable.

During the first quarter of fiscal 2008, the Deferred Share Unit Plan was amended to facilitate the issuance of Appreciation Deferred Share Units ("Appreciation DSUs") to the directors of the Company. During the quarter, 90,000 Appreciation DSUs were granted under the plan, the accrual in respect of which was $9,000 and has been included in Accounts Payable.

As at June 30, 2007, a total of 468,500 (2007 - 443,250) Book Value Appreciation Rights Units were held by employees of Clairvest and a company affiliated with Clairvest, the accrual in respect of which was $0.8 million (2007 - $0.4 million) and has been included in Accounts Payable.

11. CONSOLIDATED STATEMENTS OF CASH FLOWS

Net change in non-cash working capital balances related to operations at June 30 is detailed as follows:



2007 2006
---------------------
Accounts receivable and other assets $ 707 $ (2,264)
Accounts payable 1,189 (335)
---------------------
$ 1,896 $ (2,599)
---------------------
---------------------

Cash and cash equivalents at June 30 are comprised of the following:

2007 2006
---------------------
Cash $ 740 $ 686
Cash equivalents 39,821 19,384
---------------------
$ 40,561 $ 20,071
---------------------
---------------------


12. FINANCIAL INSTRUMENTS

As at June 30, 2007, the Company had entered into foreign exchange forward contracts as hedges against its foreign investments as follows:

Forward contracts to sell US$7.9 million (2007 - US$7.2 million) at rates of Canadian $1.0592 to $1.0637 per U.S. dollar through December 2007 (average rate of $1.0618; 2007 - average rate of $1.1129). The fair value of these contracts at June 30, 2007 is a loss of $29,000 (2007 - loss of $0.3 million) and have been recognized on the balance sheet as derivative instruments market valuation.

13. CONTINGENCIES, COMMITMENTS AND GUARANTEES

(a) Clairvest has committed to co-invest alongside CEP in all investments undertaken by CEP. Clairvest's total co-investment commitment is $54.7 million, $8.1 million of which remains unfunded at June 30, 2007. Clairvest may only sell all or a portion of a corporate investment that is a joint investment with CEP if it, as manager of CEP, concurrently sells a proportionate number of securities of that corporate investment held by CEP. Included in the commitment to co-invest with CEP is a $5.0 million commitment to N-Brook, which is subject to N-Brook management achieving certain targets, and a $4.3 million commitment to Tsuu T'ina. Of these commitments, $4.3 million has been funded to N-Brook and $2.8 million has been funded to Tsuu T'ina at June 30, 2007.

(b) Clairvest has also committed to co-invest alongside CEP III in all investments undertaken by CEP III. Clairvest's total co-investment commitment is currently $75.0 million, $70.3 million of which remains unfunded at June 30, 2007. Clairvest may only sell all or a portion of a corporate investment that is a joint investment with CEP III if it, as manager of CEP III, concurrently sells a proportionate number of securities of that corporate investment held by CEP III.

(c) Clairvest has also committed $25.0 million to Wellington Fund III, $8.6 million of which has been funded at June 30, 2007. As a result of the closing of Wellington Fund III, the unfunded capital commitments to Wellington Fund II may no longer be called. Clairvest has funded $5.2 million to Wellington Fund II at June 30, 2007.

(d) During fiscal 2003, Clairvest entered into an agreement to guarantee up to $7.0 million of CEP's obligations to the Toronto-Dominion Bank under CEP's foreign exchange forward contracts with the bank.

(e) Under Clairvest's Incentive Bonus Program, a bonus of 10% of after-tax cash realizations on Clairvest's corporate investments would be paid to management as a bonus. Amounts are accrued under this plan with respect to cash realizations made during the year. If Clairvest were to sell its corporate investments at their current fair values, a bonus of $7.3 million (2007 - $5.1 million) would be owing to management under the Incentive Bonus Program.

(f) Wholly-owned subsidiaries of Clairvest together with certain other unit holders (the "Unit Holders") currently hold approximately 33% of the outstanding units of Gateway Income Fund (the "Fund"). The Unit Holders have agreed that they will take all necessary steps to collectively maintain a 20% ownership of the issued and outstanding units of the Fund.

(g) During fiscal 2006, Clairvest, together with CEP and Shepell fgi management, purchased Shepell fgi. As part of the transaction, Clairvest guaranteed a $4.6 million note payable by Shepell fgi to the vendors, as well as interest payable on the note. The note is subject to claims Clairvest and CEP may have with respect to representations and warranties. Any amounts paid under the guarantee will result in additional equity ownership being granted to Clairvest and CEP, allocated 25% to Clairvest and 75% to CEP. CEP will reimburse Clairvest for 75% of any amounts paid under the guarantee. The guarantee expires on December 31, 2009. At June 30, 2007, the guarantee was $3.2 million.

(h) During fiscal 2006, Clairvest and Clairvest Group International (Netherlands) B.V. ("B.V.") sold their interests in Signature Security Group Holdings Pty Limited ("Signature") and Equity SPV Pty Limited ("SPV") as part of a sale of 100% of Signature and SPV. Subject to a number of conditions, Clairvest and B.V. may be entitled to receive over time up to an additional AUS$2.1 million (CDN$2.0 million) being held in escrow. As at June 30, 2007, AUD$1.3 million (CDN$1.1 million) has been released from the escrow and taken into income. As part of the transaction, B.V. has indemnified the purchaser for various claims which will reduce over time.

(i) During fiscal 2007, Clairvest recorded a $10.0 million impairment charge on loans Clairvest made to an unrelated party as the loans may not be recoverable. The loans were advanced in two tranches of $5 million in each of December 2005 and May 2006 and were collateralized by treasury bills deposited with a Canadian bank-owned brokerage firm. The loans are currently in default. Any amounts recovered will be taken into income in the period of recovery.

(j) During fiscal 2007, Clairvest, together with CEP committed to invest in the development of the Tsuu T'ina charitable casino. As part of third party financing of the casino with a Canadian chartered bank, Clairvest has guaranteed cost overruns on the project, and any debt servicing shortfalls by Tsuu T'ina which reduce over a period of time. As at June 30, 2007, no financing had taken place under the arrangement.

14. SUBSEQUENT EVENTS

Subsequent to quarter end, Clairvest provided a short-term loan of $1.3 million to an unrelated third party.

15. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS

The comparative consolidated financial statements have been reclassified from statements previously presented to conform to the presentation of the June 30, 2007 consolidated financial statements.

Contact Information

  • Clairvest Group Inc.
    Cameron Williamson
    Chief Financial Officer and Corporate Secretary
    (416) 925-9270
    (416) 925-5753 (FAX)
    Website: www.clairvest.com