Court File and Parties

Court File No.: CV-24-00730836-00CL
Date: 2025-01-30
Ontario Superior Court of Justice – Commercial List

In the Matter of the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended
And in the Matter of a Plan of Compromise or Arrangement of Sandvine Corporation, Sandvine Holdings UK Limited, Procera Networks, Inc., Procera Holding, Inc., New Procera GP Company and Sandvine OP (UK) Ltd (collectively, the “Applicants”)

Re: Sandvine Corporation et al., Applicants

Before: Osborne

Counsel:

• Marc Wasserman, Jeremy Dacks, Martino Calvaruso, Karin Sachar, Maya Churilov, Ben Muller, Counsel for the Applicants
• Nargis Fazli, U.S. Counsel for the Applicants
• Andrew Harmes, Counsel to the Agents and the Consenting Stakeholders
• Noah Goldstein and Murtaza Tallat, Proposed Court-appointed Monitor, KSV Restructuring Inc.
• Joseph J. Bellissimo and Ryan Jacobs, Counsel to the Proposed Court-appointed Monitor
• Ragy Soliman, Mohamed Salem and Ahmed Abdelgawad, Egyptian Counsel for Telecom Egypt
• Alex MacFarlane, Counsel to Royal Bank of Canada
• Jon Levine and Lucas Barrett, U.S. Counsel to the Agents
• Karyn Kesselring, Co-administrative Agent and Collateral Agent
• Michael Sellinger, Tim Hagamen, Ryan Clyde and Helena Zhong, Financial Advisor to the Applicants, GLC Investment Advisors & Co., LLC

Heard: 2025-01-30

Endorsement

1. The Applicants bring this motion for various heads of relief in two proposed orders:

   a. An approval and vesting order:

   • Approving the Stalking Horse Transaction Agreement dated December 18, 2024 between Sandvine Canada and Procera Networks Inc. as Sellers, and Sandvine Holdings UK Limited and Dune Parent LLC for entities to be formed in accordance with the Implementation Steps, as Purchasers;
   • Authorizing and approving the execution of the Stalking Horse Transaction Agreement and the Transition Services Agreement;
   • Authorizing the Sellers and Sandvine UK to perform their obligations under the Transaction Agreement and the Transaction Services Agreement;
   • Authorizing each of the NewCos to comply with and perform their obligations under the Transition Services Agreement;
   • Vesting the Purchased Assets in the applicable Purchaser, free and clear of Encumbrances other than Assumed Liabilities and the Permitted Encumbrances;
   • Subject to the payment of any applicable Cure Costs, assigning the Assigned Contracts to the applicable Purchaser;
   • Prohibiting any counterparty to an Assigned Contract or a contract with a Sandvine Counterparty from exercising any right or remedy with respect to such Assigned Contracts arising from the insolvency of the Sandvine Entities, or any restrictions on assignments of any Assigned Contract;
   • Authorizing and directing the Sellers and any other applicable Sandvine Entities to accept the credit bids made by the Existing Loan Agreements, and the DDTL/DIP Lender Credit Bid and Release;
   • Providing that Sandvine OP (UK) Ltd. shall cease being an Applicant in these CCAA Proceedings and discharging the Monitor with respect to that entity;
   • Granting certain limited releases;
   • Deeming all persons to have waived any defaults committed by any direct or indirect subsidiary of the Acquired Subsidiaries; and
   • Sealing, until further order of this Court, the confidential report of the Financial Advisor regarding the SISP which includes information received from certain potential bidders received during the SISP.

   b. A Post-Closing Administration Order:

   • Expanding the powers of the Monitor with respect to the Remaining Sandvine Entities;
   • Directing certain entities to cooperate with the Monitor to allow the Monitor to fulfil its obligations under the order sought and granting the Monitor certain protections in light of its expanded role;
   • Establishing certain reserves in the process for administering those reserves to be held by the Monitor;
   • Approving the fees and disbursements of the Monitor and its counsel together with the reports of the Monitor and its activities described therein; and
   • Extending the stay of proceedings to and including June 30, 2025 to facilitate the closing of the Transactions in the delivery of the Transition Services.

2. The Applicants rely on the Affidavits of Jeffrey A. Kupp sworn January 16, 2025 and January 28, 2025, together with Exhibits to each Affidavit, the Affidavit of Michael J. Sellinger sworn January 16, 2025, together with Exhibits thereto, and the Second Report of the Monitor dated January 24, 2025 and the Supplement thereto dated January 28, 2025.

3. Defined terms in this Endorsement have the meaning given to them in the motion materials and/or the Reports of the Court-appointed Monitor, unless otherwise stated.

4. Service of the motion materials and notification of this motion, and the hearing date were extensive and effected well in advance. Notice of this motion was provided to the Service List as well as to contract counterparties, including but not limited to customers of Sandvine, NewCo customers, exit customers and vendors.

Adjournment Request by Telecom Egypt

5. At the outset of the hearing of this motion, Egyptian counsel for Telecom Egypt requested an adjournment of the motion for three weeks. Notwithstanding that Egyptian counsel are not members of the bar of Ontario, I permitted them to address the Court on behalf of Telecom Egypt in the circumstances.

6. Telecom Egypt submitted that it had only recently become aware of this motion, that the relief being sought included an order that would permit and authorize the Applicants to cease providing services to Telecom Egypt, and that it required the adjournment in order that it could retain Canadian counsel to consider its position and specifically whether it wished to oppose the motion.

7. The adjournment request was opposed by the Applicants, supported by the Monitor.

8. After having heard from counsel, I denied the adjournment request. I am satisfied that Telecom Egypt has had notice of this motion, the relief being sought and the date for this hearing, for a significant amount of time. Telecom Egypt has been on notice through correspondence from or on behalf of the Applicants since at least September 13, 2024 that the Applicants would be seeking to exit operations and cease providing services in Egypt.

9. Telecom Egypt received specific notice of the date of this hearing in December, 2024, including by electronic mail correspondence delivered to the address provided for and utilized in the contractual agreements between the Applicants and Telecom Egypt. Telecom Egypt also received notice of this hearing from the Monitor on January 17, 2025.

10. Indeed, counsel for Telecom Egypt acknowledged in their correspondence delivered to the Monitor dated January 29, 2025 (by which they requested an adjournment), the receipt of notice: “a number of letters from Sandvine where Sandvine unilaterally decided not to continue provision of services to TE regardless of the existing contractual obligations between the two entities that extend beyond 2025. TE has sent Sandvine several communications rejecting such unilateral termination”.

11. Moreover, Telecom Egypt has retained US Counsel, who have engaged on its behalf with US Counsel to the Applicants in connection with numerous contractual issues and the Chapter 15 proceedings pending in the US Court. Telecom Egypt has been, for some considerable purgative time, well aware of the issues and in particular, the proposed cessation of services in Egypt.

12. I accept the submission of the Applicants and the Monitor to the effect that it is critical that if the relief sought today is to be granted, that it be granted as soon as possible in order that the proposed schedule can be adhered to, and the numerous contemplated steps, including but not limited to the transition of services, can be implemented. All of this is necessary to maximize the chances of the successful implementation and performance of the Transaction as contemplated in the Transaction Agreement, the stability of the enterprise as a going concern, and importantly, the minimization of disruption of services to millions of internet users around the globe.

13. I also observe that the termination of services to both governmental and non-governmental entities in Egypt is not being implemented tomorrow, but rather on the schedule set out in the materials that provides for termination of services to Government of Egypt customers by March 31, 2025 and to non-governmental Egyptian communications companies by the end of the year. At its highest, Telecom Egypt is, effectively, an unsecured contingent creditor of the Applicants.

14. In his affidavit sworn November 6, 2024 in support of the relief initially sought in this Application, Jeffrey Kupp swore at paragraphs 82–88 that:

In addition to coordinating and communicating with BIS and other US government officials to obtain interim relief from the immediate effects of the Entity List designation, Sandvine undertook steps to address the concerns of BIS which led to its placement on the Entity List, including committing to ceasing it sales and operations in Egypt. Specifically, Sandvine committed to terminating the provision of its services by March 31, 2025 for Government of Egypt customers and December 31, 2025 for non-governmental Egyptian communications companies.

The scheduled termination dates for Egyptian sales and operations reflect Sandvine’s commitment to exiting the jurisdiction in a responsible manner.

To effect an orderly termination of its services in these exit jurisdictions [which include Egypt], Sandvine sent letters to its customers in Egypt and the Additional Terminated Jurisdictions informing them that Sandvine will stop selling products and services, and providing support or maintenance services by the scheduled exit date.

These commitments were announced in a press release issued by the Company on September 19, 2024 … [which] is attached hereto as Exhibit “L”.

15. For all of these reasons, I denied the request for an adjournment and proceeded to hear the motion on the merits.

Approval and Vesting Order

16. I am satisfied that the proposed approval and vesting order should be granted. I granted the Sales and Investment Solicitation Process (“SISP”) Order in this Proceeding, authorizing the Sandvine Entities to enter into the Stalking Horse Transaction Agreement which was executed by the Purchasers and Sellers on December 18, 2024, together with the Transition Services Agreement. The latter provides for transition services in accordance with the commitment of Sandvine to terminate the provision of its services in certain jurisdictions, and services intended to assist customers located in those jurisdictions with their transition to other service providers to ensure that the discontinuance of services by Sandvine proceeds in an orderly and responsible manner.

17. Ultimately, no letters of intent were submitted by the deadline set out in the SISP, with the result that the SISP was terminated, and the Stalking Horse Transaction Agreement was determined to be the Successful Bid.

18. Accordingly, the approval and vesting order is sought today.

19. The terms of the Stalking Horse Transaction Agreement substantially accord with the economic terms set out in the Restructuring Term Sheet. The proposed Transactions will result in:

• Any claims arising in connection with the US $337 million in loans under the First Lien Credit Agreement being converted into 50% of the common equity of the NewCo Parent (the “New Parent Equity”), subject to dilution by the management incentive plan;
• The outstanding DDTL Tranche A Loans, DDTL Tranche B Loans, and DIP Loans being converted into and exchanged for approximately US $125 million in exit facility first lien term loans on a dollar-for-dollar and pari passu basis;
• DDTL Tranche A Commitment Parties receiving 50% of the New Parent Equity, subject to dilution by the management incentive plan;
• Certain intercompany debts and intercompany receivables owing by a Seller being assumed by the applicable Purchaser;
• All General Unsecured Claims not assumed or retained and all existing equity interests in New Procera GP Company and Procera II LP being extinguished or cancelled for no consideration; and
• Ultimately, the liquidation of Procera US.

20. Under the terms of the Stalking Horse Transaction Agreement:

• The Purchasers will pay to the Sellers an aggregate purchase price comprised of: (i) the assumption of the Assumed Liabilities by the Purchasers; and (ii) the transfer of, in aggregate, 50% of the New Parent Equity (or, if applicable, the Excess Value Debt) and the Exit Term Loans, in each case, by the applicable Purchaser to the applicable Seller. The Assumed Liabilities include, among other things: (i) all liabilities and obligations arising under or in respect of the Personal Property Leases, Employee Plans, Permits and Licenses, and the Assigned Contracts, including any Cure Costs; (ii) all employee liabilities and obligations; and (iii) all liabilities relating to the ownership or use of the Purchased Assets and the operation of the Business;
• In exchange, the Purchasers will acquire the Purchased Assets, which include: (i) all cash, accounts receivable, prepaid expenses and deposits, and Purchased Intercompany Receivables; (ii) all Inventory and fixed assets and equipment; (iii) all Personal Property Leases; and (iv) the Assigned Contracts. Certain assets and liabilities of the Applicants will be excluded from the Purchased Assets. The Purchased Assets will be acquired free and clear of all encumbrances, other than the Assumed Liabilities and Permitted Encumbrances; and
• Each Seller will assign to the applicable Purchaser all of its rights, benefits, and interests in, to, and under the Assigned Contracts.

21. The Target Closing Date of the Transactions is 30 Business Days after a Vesting Recognition Order is entered by the U.S. Court, with an Outside Date of March 21, 2025. Currently, the intention is to close the Transactions on or before February 28, 2025.

22. The closing of the Transactions is subject to a number of conditions precedent, including the granting by the Court of an AVO in a form satisfactory to the Purchasers, including in respect of the releases and other terms of the Stalking Horse Transaction Agreement.

Transition Services Agreement

23. With respect to the Transition Services Agreement, Sandvine has committed (as observed above) to terminating the provision of its services by March 31, 2025 for Government of Egypt customers, and by December 31, 2025 for non-governmental Egyptian communications companies and all other customers in the Additional Terminated Jurisdictions (collectively, the “Transition Customers”, and all contracts with such customers being the “Transition Contracts”).

24. In light of the critical internet access services Sandvine provides to its customers, and to minimize the likelihood of disrupting internet connectivity for millions of people, Sandvine Canada and Procera US (in such capacity, the “OldCos”) and New OpCo I, New OpCo II, and Canadian NewCo (the “NewCos”) entered into the Transition Services Agreement, which provides for continued services to the Transition Customers until the scheduled exit date for each Transition Customer (the “Transition Period”).

25. Under the terms of the Transition Services Agreement, the NewCos will provide the OldCos with certain services required to facilitate the OldCos’ continued performance under the Transition Contracts or to otherwise support the discontinuance of the use of the Purchased Assets by the Transition Customers (the “Transition Services”).

Approval of Transaction and Assignments

26. I am satisfied that the Stalking Horse Transaction Agreement should be approved. The factors set out in section 36 of the CCAA are met. So too are the Soundair Principles with which the statutory factors overlap, all as set out in the Second Report and the Kupp Affidavit.

27. The sales process was reasonable in the circumstances, it had the support of the Monitor throughout, as confirmed by its report which has been filed, creditors have been consulted and the effect of the sale on creditors and stakeholders has been considered. The purchase price is fair and reasonable. Sufficient efforts were made to obtain the best price, the Applicants have not acted improvidently, the integrity and efficacy of the process was maintained, and there was no unfairness in working out the process.

28. In addition, the other statutory requirements have also been met. All parties with registered security interests in the Purchased Assets and who might be affected by the proposed relief have been notified in accordance with section 36(2).

29. The section 36(4) factors applicable in the case of a sale or disposition to a related party are also satisfied here. Good faith efforts were made to effect a transaction with non-related parties, and the consideration to be received is superior to that under any other offer made in accordance with the sales process (there were none).

30. Finally in this regard, I am satisfied (on the basis of the Monitor being satisfied) that the requirements of section 36(7), to the effect that the company can and will make the payments that would have been required under sections 6(5)(a) and 6(6)(a) of the CCAA if the Court had sanctioned the compromise or arrangement, are met since payments of this type are not at issue in this case.

31. I am also satisfied that the Assigned Contracts can and should be assigned as permitted by section 11.3 of the CCAA. Some but not all of the Assigned Contracts require counterparty consent. Given the sheer number of such Consent Contracts, it would be extremely resource and time intensive to individually secure those consents, and such would disrupt the process and distract management at a critical time in this restructuring.

32. The Monitor supports the proposed assignments. The factors set out in section 11.3 have been met here. The restructured business that will emerge from the Transactions is to be well capitalized and have a balance sheet that is significantly improved, such that it should be well-positioned financially to perform its obligations under the Assigned Contracts. Those are a vital part of the restructuring of Sandvine and ensuring the continuity of Sandvine’s relationship with its contractual counterparties including customers that contract with its resellers and distributors, is vital for the success of Sandvine as a going concern. The proposed assignments will ensure that essential services continue to be provided to continuing customers of Sandvine.

33. I am satisfied, as required by section 11.3(4), that all monetary defaults in relation to the agreement (other than those arising by reason only of the company’s insolvency, the commencement of proceedings under the CCAA or the Company’s failure to perform a nonmonetary obligation) will be remedied. While the Sandvine Entities and the Monitor are not currently aware of any Cure Costs that would need to be paid with respect to the Assigned Contracts, the Stalking Horse Transaction Agreement provides that any Cure Costs related to the Assigned Contracts will be assumed by the applicable Purchaser and paid within 15 days of the delivery of the Monitor’s Certificate.

34. At least 10 calendar days prior to this hearing, Sandvine sent a notice letter to all counterparties to the Assigned Vendor Contracts and Assigned Customer Contracts (other than customers whose contract consists only of an End User License Agreement that can be assigned without counterparty consent) notifying those parties that the Applicants would be requesting the assignment sought today.

35. For all of these reasons, the assignments are approved.

Limited Releases and Sealing Order

36. I am further satisfied that the proposed limited releases should be granted in the circumstances. They are consistent with the factors set out in Lydian International Limited (Re), 2020 ONSC 4006 at para. 54. I am satisfied that the parties to be released were necessary and essential to the restructuring, the claims to be released are rationally connected to the purpose of the restructuring and necessary for it, the restructuring could not succeed without them, the parties being released have contributed to this restructuring, and the releases benefit the debtors as well as the creditors generally.

37. The proposed releases are limited in scope and except fraud, wilful misconduct or gross negligence of the Released Parties and claims not permitted to be released pursuant to section 5.1(2) of the CCAA as well as any claims in relation to post-Effective Time obligations under any agreements executed to implement the Transactions. The releases provide crucial and necessary certainty and finality to the parties as they are a condition precedent to the consummation of the Transactions and are supported by the Monitor.

38. I am also satisfied that the Confidential Report of the Financial Advisor should be sealed, pending the closing of the Transaction or further order of the Court, pursuant to section 137(2) of the Courts of Justice Act. The factors set out by the Supreme Court of Canada in Sierra Club and refined in Sherman Estate are satisfied here. If the Transaction does not close and a new sales process is required, there is no question that public availability of the material sought to be sealed would undermine the integrity and success of any such process.

Enhanced Monitor Powers and Stay Extension

39. I am further satisfied that the proposed enhanced powers should be granted to the Monitor as permitted by sections 11 and 23(1)(k) of the CCAA. Following the closing of the Transactions, the OldCos will continue to provide Transition Services to Transition Customers for the duration of the Transition Period, following which they will ultimately proceed with an orderly wind-down of operations.

40. Given that Sandvine’s employees will become employees of the NewCos, it is necessary for the Monitor to have the authority to ensure that the OldCos continue to operate and fulfil their obligations under the Transition Services Agreement and the Stalking Horse Transaction Agreement, and to supervise the OldCos’ orderly wind-down.

41. The proposed enhanced powers would authorize the Monitor to take any and all actions and steps necessary to facilitate the performance of the obligations of the Remaining Sandvine Entities following the delivery of the Monitor’s Certificate, and to facilitate the wind-down, dissolution or liquidation of the Remaining Sandvine Entities.

42. I am also satisfied that the Pre-Filing Report of the Proposed Monitor, the First and Second Reports, and the activities of the Monitor referred to therein, should be approved. The activities are consistent with the mandate given to the Monitor and the original appointment order, are appropriate and reasonable, and have been accretive to the progress made to date in this restructuring.

43. The fees and disbursements of the Monitor and its counsel as set out in the Fee Affidavits reflect fees and disbursements that accord with the activities described and approved above, are reasonable and reflect the work done to achieve the progress to date. They are approved.

44. Finally, I am satisfied that the stay of proceedings should be extended to and including June 30, 2025 pursuant to section 11.02 of the CCAA. The circumstances present here make the order appropriate, and the debtor has acted and is acting in good faith and with due diligence.

45. The proposed stay extension will permit the maintenance of stability during the continuation of these proceedings and the implementation of the Stalking Horse Transaction Agreement and will allow for the provision of Transition Services, and the commencement of certain wind-down activities.

46. The Monitor is satisfied that no creditor will be materially prejudiced by the extension and that Sandvine will have sufficient liquidity to fund its operations and the cost of the CCAA Proceedings through the requested extension period, including through the Administrative Expense Reserve.

47. For all of these reasons, the requested relief is granted.

48. Orders to go in the form signed by me, which are effective immediately and without the necessity of issuing and entering.

Osborne