Keystone North America Inc. and Keystone Newport ULC - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- filer has outstanding income participating securities consisting of one common share and a specified amount of subordinated notes pursuant to which a majority of the filer's earnings are distributed to its securityholders, resulting in an anomalous result of the income test -- filer also provided additional evidence that the acquisition in question is insignificant based on a number of other financial and non-financial measures -- filer granted relief to use an adjusted income from continuing operations test (calculated by excluding the interest expense on the subordinated note component of the income participating securities) rather than income from continuing operations for the purposes of determining whether the filer was required to file a business acquisition report in respect of the acquisition.

Applicable Legislative Provisions

National Instrument 51-102 Continuous Disclosure Obligations.

June 29, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA, ONTARIO, QUEBEC, NEW BRUNSWICK,

NOVA SCOTIA, NEWFOUNDLAND AND LABRADOR,

NUNAVUT AND YUKON

(the Jurisdictions)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

KEYSTONE NORTH AMERICA INC. AND

KEYSTONE NEWPORT ULC

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority (the Decision Maker) in each of the Jurisdictions has received an application from Keystone North America Inc. and Keystone Newport ULC (together, the Applicants) for a decision pursuant to the securities legislation in the Jurisdictions (the Legislation) granting relief to use an Adjusted Income From Continuing Operations test (as defined below) rather than the income test for the purposes of its continuous disclosure obligations under the Legislation in respect of the acquisition of eleven funeral homes and four cemetery businesses from Service Corporation International, Inc. (the Requested Relief).

Under the Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Ontario Securities Commission is the principal regulator for this application, and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

This decision is based on the following facts represented by the Applicants:

1. Keystone North America Inc. (Keystone) is a corporation formed under the laws of the Province of Ontario with its head office located at Suite 2400, 250 Yonge Street, Toronto, Ontario, M5B 2M6.

2. Keystone Newport ULC is an unlimited liability company organized under the laws of Nova Scotia with its head office located at Suite 2400, 250 Yonge Street, Toronto, Ontario, M5B 2M6.

3. The Applicants are reporting issuers or the equivalent in each of the Jurisdictions.

4. The units of Keystone are listed and posted for trading on the Toronto Stock Exchange under the symbol "KNA.UN".

5. On April 9, 2007, a subsidiary of Keystone completed the acquisition of eleven funeral homes and four cemetery businesses from Service Corporation International, Inc. (the Acquisition).

6. Prior to the Acquisition, Keystone owned, indirectly, 171 funeral homes and 10 cemeteries.

7. The application of the income test using the income from continuing operations of the Applicants leads to anomalous results in that the significance of the acquired businesses is exaggerated out of proportion to their significance on an objective basis and in comparison to the results of the asset and investment tests.

8. The use of a test (the Adjusted Income From Continuing Operations test) based on income from continuing operations (calculated by excluding the interest expense on the subordinated note component of Keystone's income participating securities), rather than using income from continuing operations, provides a more realistic indication of the significance of the Acquisition and its results are generally consistent with the asset and investment tests. The Adjusted Income From Continuing Operations test also closely reflects the intent of the income test.

9. The Applicants have provided the Decision Makers with additional financial and non-financial measures further demonstrating the insignificance of the Acquisition to the Applicants.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted.