Keystone North America Inc.
TSX : KNA.UN

Keystone North America Inc.

February 20, 2007 15:15 ET

Keystone North America Inc. Announces $35 Million Bought Deal Financing to Fund Acquisitions and Class B Common Share Redemption

TORONTO, ONTARIO--(CCNMatthews - Feb. 20, 2007) -

NOT FOR DISTRIBUTION IN THE UNITED STATES OR OVER UNITED STATES WIRE SERVICES

Keystone North America Inc. (TSX:KNA.UN), the fourth largest operator of funeral homes in the United States, with 168 funeral homes and ten cemeteries across the United States and the Province of Ontario, has today entered into an agreement to sell 4,300,000 Income Participating Securities ("IPSs") at a price of $8.15 per IPS to raise gross proceeds of approximately $35 million on a bought deal basis. The underwriting syndicate is led by BMO Capital Markets and Scotia Capital Inc. The offering is expected to close on or about March 13, 2007 and is subject to regulatory and exchange approvals.

The net proceeds of the offering together with drawings under Keystone's credit facility will be used (i) to fund the acquisition of three funeral homes through the acquisition of 100% of the shares of Fred H. Kaul Funeral Homes, Inc. ("Kaul"), (ii) to fund the acquisition of 11 funeral homes and four cemetery businesses from Service Corporation International ("SCI"), (iii) to fund the redemption of approximately 527,000 Class B Common Shares of Keystone Group Holdings, Inc. and (iv) for general corporate purposes.

Keystone also today executed a share purchase agreement pursuant to which it will acquire, subject to the terms and conditions contained in the agreement, 100% of the shares of Kaul. Kaul owns and operates three funeral homes in St. Clair Shores, Clinton Township, and Roseville, Michigan. Founded in 1927, Kaul is well-established with strong heritage and tradition in its markets. Kaul generated revenue of approximately US$5.3 million for the 12 months ended December 31, 2006. Management believes that the acquisition will be immediately accretive and will bring additional benefits to Keystone including:

- efficient integration and post-closing transition as local management will continue to operate the business;

- synergies from the expanded footprint in the local area when combined with Keystone's three existing homes and implementation of Keystone's proprietary service programs; and

- immediate cost savings from the application of Keystone purchasing power.

In addition to the eight homes and four cemeteries that Keystone previously announced it had agreed to acquire from SCI, it has now agreed to acquire an additional three funeral homes. These combined properties generated revenue on an annual basis, in the aggregate, of approximately US$11.6 million. The properties are located in the states of Georgia, New York, North Carolina, South Carolina, Virginia, and Washington. All acquired homes are consistent with Keystone's strategy of focusing on suburban and rural markets. The final closing date of this transaction remains conditional on final U.S. Federal Trade Commission approval.

Bob Horn, Chairman and CEO of Keystone stated, "We are excited to have these opportunities to add these quality locations to our portfolio. When finalized, these acquisitions are expected to be immediately accretive to our distributable cash. Staying true to our middle market strategy with such respected and valued tradenames in the business is extremely positive."

Keystone also intends to redeem and cancel, at C$7.63 per share approximately 527,000 Class B Common Shares of Keystone Group Holdings, Inc. held by non-management investors using the proceeds of the offering. In addition, the remaining 301,000 Class B Common Shares of Keystone Group Holdings, Inc. not currently held by management are to be redeemed, such additional redemption to be financed through the issuance and sale of an equal number of Class B Common Shares to management. As a result, 100% of the outstanding Class B Common Shares will be held by management. In conjunction with the purchase for cancellation of these shares, Keystone intends to take such steps as necessary to amend the terms of the Class B Common Shares to remove the right of holders of Class B Common Shares to receive certain enhanced dividends and modify certain other provisions.

FORWARD-LOOKING STATEMENT

This press release contains certain statements that constitute forward-looking statements within the meaning of applicable securities legislation. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the results, performance or achievements of Keystone or developments in the industry to differ materially from anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. Actual results may differ materially from management expectations as projected in such forward-looking statements for a variety of reasons, including market and general economic conditions and the risks and uncertainties detailed from time to time in Keystone's annual information form and quarterly financial reports filed with the Canadian securities regulatory authorities. With respect to the proposed acquisitions and anticipated accretion, additional risks include, among other things, that there is no guarantee that the Company will be able to successfully integrate the new acquisitions, that the Company will be able to retain key employees and that the Company will be able to realize all anticipated synergies. Due to the potential impact of these factors, Keystone North America Inc. and Keystone Newport ULC disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law.

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