FORT SCHUYLER MANAGEMENT CORPORATION Consolidated Financial Statements June 30, 2015 and 2014 (With Independent Auditors’ Report Thereon) FORT SCHUYLER MANAGEMENT CORPORATION Consolidated Financial Statements June 30, 2015 and 2014 Table of Contents Page Independent Auditors’ Report 1 Consolidated Financial Statements: Consolidated Balance Sheets 2 Consolidated Statements of Activities 3 Consolidated Statements of Cash Flows 4 Notes to Consolidated Financial Statements 5 Independent Auditors’ Report The Board of Directors Fort Schuyler Management Corporation: We have audited the accompanying consolidated financial statements of Fort Schuyler Management Corporation, which comprise the balance sheets as of June 30, 2015 and 2014, and the related statements of activities, and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fort Schuyler Management Corporation as of June 30, 2015 and 2014, and the results of its activities, and cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. Albany, New York Date FORT SCHUYLER MANAGEMENT CORPORATION Balance Sheets June 30, 2015 and 2014 Assets 2015 Cash Due from member Grants and other receivables $ — 194,903 7,969,180 — 418,670 28,436,946 8,164,083 28,855,616 59,048,516 7,552,022 6,463,803 — 66,600,538 6,463,803 388,911,016 74,530,898 $ 463,675,637 109,850,317 $ 79,497,184 1,475,000 17,878,170 49,706,598 32,849,691 1,625,000 — 7,860,198 148,556,952 42,334,889 254,448,690 60,669,995 56,889,051 10,626,377 315,118,685 67,515,428 463,675,637 109,850,317 Assets limited as to use: Under grant agreements By debt agreements Land, buildings and equipment, net Total assets 2014 Liabilities and Net Assets Liabilities: Construction and other expenses payable Deferred rental revenue Line of credit Note payable Total liabilities Net assets: Unrestricted Temporarily restricted Total liabilities and net assets $ See accompanying notes to consolidated financial statements. 2 FORT SCHUYLER MANAGEMENT CORPORATION Statements of Activities Years ended June 30, 2015 and 2014 Support and revenue: Rental income and other support Grant revenue Net assets released from restrictions $ Total support and revenue Unrestricted 2015 Temporarily restricted Total 212,610 — 197,982,723 — 248,026,341 (197,982,723) 198,195,333 Expenses: Contracted services Utilities, repairs and maintenance Insurance and other Professional fees Interest Transfers to the Research Foundation for the State University of New York Total expenses Change in net assets $ Total 212,610 248,026,341 — 150,018 — 60,520,113 — 71,146,490 (60,520,113) 150,018 71,146,490 — 50,043,618 248,238,951 60,670,131 10,626,377 71,296,508 161,452 131,329 70,411 247,620 24,882 — — — — — 161,452 131,329 70,411 247,620 24,882 183,018 — 58,230 6,500 — — — — — — 183,018 — 58,230 6,500 — — — — 10,000,000 — 10,000,000 635,694 — 635,694 10,247,748 — 10,247,748 197,559,639 50,043,618 247,603,257 50,422,383 10,626,377 61,048,760 56,889,051 10,626,377 67,515,428 6,466,668 — 6,466,668 254,448,690 60,669,995 315,118,685 56,889,051 10,626,377 67,515,428 Net assets at beginning of year Net assets at end of year Unrestricted 2014 Temporarily restricted See accompanying notes to consolidated financial statements. 3 FORT SCHUYLER MANAGEMENT CORPORATION Statements of Cash Flows Years ended June 30, 2015 and 2014 Operating activities: Change in net assets Adjustments to reconcile change in net assets to net cash used in operating activities: Grants restricted to long-term capital investment Transfers to the Research Foundation for the State University of New York Change in operating assets and liabilities: Due from member Prepaid expenses Accounts payable Accrued interest payable Deferred rental revenue $ 2015 2014 247,603,257 61,048,760 (248,026,341) (71,146,490) — 10,000,000 223,767 — 2,058 63,550 (150,000) 242,044 9,649 (4,200) — (150,000) (283,709) (237) — (60,136,735) (267,798,233) (10,000,000) (6,433,803) (35,194,897) (327,934,968) (51,628,700) Financing activities: Borrowings on note payable Cash provided by line of credit Cash paid on line of credit Cash received from grants restricted to long-term capital investment 41,846,400 31,429,246 (13,551,076) 268,494,107 7,860,198 — — 43,768,696 Net cash provided by financing activities 328,218,677 51,628,894 — (43) — 43 Net cash used in operating activities Investing activities: Transfers to the Research Foundation for the State University of New York Net increase in assets limited as to use Cash paid for construction and project development Net cash used in investing activities Change in cash Cash, beginning of year Cash, end of year $ — — Supplemental disclosure of noncash transactions: Unpaid construction and project development cost $ 79,425,076 32,843,191 See accompanying notes to financial statements. 4 FORT SCHUYLER MANAGEMENT CORPORATION Notes to Consolidated Financial Statements June 30, 2015 and 2014 (1) Organization Fort Schuyler Management Corporation (the Corporation) is a New York not-for-profit corporation incorporated on October 20, 2009 under Section 402 of the New York State Not-for-Profit Corporation Law. The founding members of the Corporation are The Research Foundation for The State University of New York (the Research Foundation) and the Institute of Technology Foundation at Utica/Rome, Inc. (SUNYIT Foundation). Effective June 2, 2014, the Corporation formed Quad C Phase I, LLC for which the Corporation is the sole member. Quad C Phase I, LLC is a New York limited liability company formed to support the financing infrastructure necessary to advance the timely construction and completion of the Quad C project. The Corporation was formed and shall be operated exclusively for scientific, educational, and charitable purposes. Its objectives are to facilitate research and economic development activities in support of the research and educational mission of The State University of New York (SUNY). The Corporation accomplishes this objective by purchasing, constructing, developing and managing research focused facilities on behalf of the SUNY Polytechnic Institute (SUNY Poly). In order to advance its corporate purpose, the Corporation has undertaken the following activities:  Quad C Building (Quad C) – During 2013, the Corporation began construction on Quad C, a 252,000 square foot facility with class 1,000 and class 100 cleanrooms being built on land leased by the Corporation (note 4). The Corporation will lease the premises to third party corporate partners. In December 2013, the Corporation entered into a guaranteed maximum price contract with a contractor to oversee the construction of the Quad C facility. The total budgeted cost of construction is $125.0 million. As more fully described in note 6, permanent financing has been obtained for the construction of the facility with state and local grant revenue pledged to repay the financing.  Buffalo High-Tech Manufacturing Complex (Buffalo High Tech) – During 2014, design began on this high-tech complex located in Buffalo, New York on land subsequently purchased by the Corporation. The campus will house top tier clean energy companies and enable advanced manufacturing at what is planned to become a state-of-the art, multibillion-dollar high-tech campus. This project is funded by grants from New York State.  Buffalo Medical Innovation and Commercialization Hub (Buffalo Medical) – During 2014, design began on a state-of-the-art shared user facility for biomedical research, development and testing. This project is located in an existing facility in spaces both leased and purchased by the Corporation in Buffalo, New York with project funding provided by a grant from New York State.  Central New York Hub for Emerging Nano Industries (CNY Hub): o Syracuse Film –In 2014, design began on an advanced visual production, research and education facility located in Syracuse, New York on land to be purchased by the Corporation. This project is being funded by a grant from New York State. 5 (Continued) FORT SCHUYLER MANAGEMENT CORPORATION Notes to Consolidated Financial Statements June 30, 2015 and 2014 o  (2) LED Tech – In May of 2015 the Corporation began work on a facility for state of the art LED manufacturing. This project will be funded by a grant(s) from New York State. Buffalo Information Technologies and Commercialization Hub (Buffalo Info) – During 2015 design and renovation began on purchased space in an existing facility to establish a research facility to be used to create cutting edge software for energy, health and defense industries. This project is being funded by a grant from New York State. Summary of Significant Accounting Polices (a) Basis for Presentation The accompanying consolidated financial statements of the Corporation are presented consistent with Financial Accounting Standards Board, Accounting Standards Codification (ASC) Topic 958: Notfor-Profit-Entities, which addresses the presentation of financial statements for not-for-profit entities. Net assets and revenue, expenses, gains, and losses are classified based on the existence or absence of donor and grantor imposed restrictions. Accordingly, unrestricted net assets are amounts not subject to donor and grantor imposed restrictions and are available for operations. Temporarily restricted net assets are those whose use has been limited by donors or grantors to a specific time period or purpose. When a donor or grantor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified as unrestricted net assets and reported in the statement of activities as net assets released from restrictions. In addition, intercompany balances and transactions are eliminated in consolidation. The Corporation considers events or transactions that occur after the balance sheet date, but before the consolidated financial statements are issued, to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. These consolidated financial statements were issued on ________ __, ____ and subsequent events have been evaluated through that date. (b) Assets Limited as to Use Assets limited as to use represent funds associated with grants and loan agreements that are restricted as to use, and consist of cash. (c) Land, Buildings and Equipment Buildings and equipment are stated at cost or, if acquired by gift, at fair market value at the date of donation. Upon acquisition or construction of an asset and subsequent placement into service, the Corporation recognizes depreciation on buildings and equipment, on a straight-line basis, over the estimated useful lives of the assets, which range from 7 to 40 years. No depreciation expense has been recognized since inception of the Corporation, as no assets have been placed into service. Net interest cost incurred on borrowed funds during the period of construction of capital assets is capitalized as a component of the cost of acquiring or constructing these assets. 6 (Continued) FORT SCHUYLER MANAGEMENT CORPORATION Notes to Consolidated Financial Statements June 30, 2015 and 2014 Buildings and equipment, and any other long-lived tangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require such a long-lived asset or asset group be tested for possible impairment, the Corporation first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined using various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No impairment losses were recognized in the years ended June 30, 2015 and 2014. (d) Deferred Rental Revenue In 2011, SUNY, the Research Foundation, and Mohawk Valley Economic Development Growth Enterprise (MVEDGE) executed a Project Development Agreement (PDA) which identified MVEDGE as the lead developer of specified parcels of land (Parcels A through E) on approximately 396 acres of land located on the SUNYIT campus in Utica, New York (the Project Site) (see note 4). Under this agreement, MVEDGE is responsible for managing the initial site work, facility design, construction and marketing to potential tenants of the Project Site. Once tenants are identified, the Corporation will enter into additional ground subleases for parcels A through E of the Project Site with the tenants. The Corporation will collect rent from the tenants of the project site and will remit a portion to MVEDGE pursuant to rent sharing provisions of the PDA. Upon execution of the PDA, the Corporation received $2.25 million of prepaid rent from MVEDGE which is being amortized monthly as rental revenue over the 15 year term of the PDA. (e) Deferred Financing Costs Deferred financing costs, which relate to the issuance of debt, are being amortized ratably over the period the debt is outstanding using the effective interest method. In April 2015, the FASB issued Accounting Standards Update (ASU) 2015-03, Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03), which was intended to simplify the presentation of debt issuance costs. ASU 2015-03 requires that debt issuance costs and deferred financing costs related to a recognized debt shall be presented on the balance sheet as a direct deduction from the associated debt, similar to the presentation of debt discounts. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015 (or the Corporation’s fiscal year ending June 30, 2017). The Corporation will be reflecting this new standards in its 2016 financial statements. (f) Income Taxes The Corporation is a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the Code), and is exempt from Federal income taxes pursuant to Section 501(a) of the Code. The Corporation applies the provisions of ASC Subtopic 740-10, Accounting for Uncertainty of Income Taxes, which addresses accounting for uncertainties in income taxes recognized in an entity’s financial statements and prescribes a threshold of more-likely-than-not for recognition 7 (Continued) FORT SCHUYLER MANAGEMENT CORPORATION Notes to Consolidated Financial Statements June 30, 2015 and 2014 of tax positions taken or expected to be taken in a tax return. ASC Subtopic 740-10 also provides guidance on measurement, classification, interest and penalties, and disclosure of tax uncertainties. As of June 30, 2015 and 2014, there are no uncertain income tax positions that require recognition in the accompanying consolidated financial statements. (g) Use of Estimates Management of the Corporation has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingencies to prepare these consolidated financial statements in conformity with U.S. generally accepted accounting principles. Actual results could differ from those estimates. (h) Due from Member Pursuant to a Staffing and Fiscal Services Agreement between the Corporation and the Research Foundation, certain administrative services are provided by the Research Foundation on the Corporation’s behalf. The amounts related to such support are reflected in the statements of activities as contracted services for the years ended June 30, 2015 and 2014. In addition, the Research Foundation maintains an operating cash account on the Corporation’s behalf. Cash held by the Research Foundation on behalf of Corporation is reflected as due from member in the accompanying consolidated balance sheets as of June 30, 2015 and 2014. (3) Grants Receivable Grants receivable, which is included in grants and other receivables in the consolidated balance sheets, as of June 30 are summarized as follows: Project Quad C Buffalo High Tech Buffalo Medical Buffalo Info CNY Hub Total expended through June 30, 2015 Grant amount $ 70,900,000 $ 225,000,000 50,000,000 55,000,000 11,749,818 8 2015 2014 50,400,000 $ 133,377,232 33,151,470 18,164,133 11,749,818 1,750,000 $ — — — 5,061,726 22,750,000 4,103,893 508,204 — 1,074,849 $ 6,811,726 $ 28,436,946 (Continued) FORT SCHUYLER MANAGEMENT CORPORATION Notes to Consolidated Financial Statements June 30, 2015 and 2014 (4) Land, Buildings and Equipment Land, buildings and equipment as of June 30 are summarized as follows: 2015 Land Construction in Progress Net buildings and equipment 2014 $ 5,281,466 383,629,550 104,283 74,426,615 $ 388,911,016 74,530,898 Construction in progress relates primarily to costs associated with the Quad C (notes 5 and 6), Buffalo High Tech, Buffalo Medical, and LED Tech projects. The Corporation has executed approximately $692.6 million of construction agreements in relation to these projects in progress, as of June 30, 2015. Interest expense of $378,743 and $0 was capitalized as a component of the cost of acquiring and constructing these projects during the years ended June 30, 2015 and 2014, respectively. (5) Lease Commitments To further its mission, the Corporation leases certain property under operating leases with various terms expiring in future years. As of June 30, 2015, lease commitments include: a) Ground Lease and sublease at Quad C - in March 2011, the Corporation entered into a non-cancellable 30 year Ground Lease with the State of New York, acting by and through SUNY, for approximately 396 acres of land located on the SUNYIT campus in Utica, New York (the project site). The Corporation will maintain possession and control of certain portions of land pursuant to the ground lease (Parcel F) as well as land acquired from third parties (Grace Meyer Parcel #2) in order to facilitate the design, construction and operation of Quad C facility. Contemporaneous to the execution of the Ground Lease, the Corporation entered into a ground sublease (Ground Sublease) with MVEDGE for a significant portion of the land leased by the Corporation from SUNY (Parcels A through E). b) Lease and sublease at the Conventus Building – On December 4, 2014 the Corporation entered into a 20 year lease for space in Buffalo, New York. The annual lease payment is $1.22 million for the first 5 years, increasing by $2 per square foot in 5 year increments. On January 22, 2015 the lease was amended to add additional space with an annual lease payment of $222,375, increasing by $1 per square foot in five year increments. Subsequent to year end, on July 21, 2015 the Corporation entered into a sublease agreement with a corporate partner for office and lab space. The lease is for 10 years with an annual lease payment of $415,650 for the first 3 years increasing to $1.3 million per year for years 4 – 10. 9 (Continued) FORT SCHUYLER MANAGEMENT CORPORATION Notes to Consolidated Financial Statements June 30, 2015 and 2014 c) Lease and sublease at Key Center - In October 2014, the Corporation leased space in Buffalo, New York. The lease payment is $110,706 per year. The lease terminates after the Corporation purchases condominium units, in the same building as the leased space, and provides notice. On November 30, 2015, the Corporation purchased the condominium units for approximately $9.5 million. Contemporaneous to the execution of this lease, the Corporation entered into a sublease with a corporate partner to provide temporary office space. The annual lease payment is $110,706. The lease terminates the earlier of March 31, 2016, execution of a lease for permanent space, or an extended date to be agreed upon after March 31, 2016. Future minimum lease payments and receipts for the next five years are as follows as of June 30, 2015: Payments owed 2016 2017 2018 2019 2020 Thereafter Rental receipts 2016 2017 2018 2019 2020 Thereafter (6) $ 1,444,445.64 1,444,445.64 1,444,445.64 1,444,445.64 1,549,602.45 23,673,695.82 $ 381,012.50 415,650.00 415,650.00 1,217,412.50 1,290,300.00 21,009,875.00 Lines of Credit In October 2014, the Corporation entered into a $70.0 million Grant Advance Revolving Line of Credit Agreement (LOC Agreement) with KeyBank, N.A., which is restricted to providing bridge financing for various construction projects funded by specific grants from New York State as stated in the LOC Agreement. The terms of the LOC Agreement require the Corporation to deposit grant receipts from NYS in an account designated by the bank to be applied against outstanding principal allocable to that grant. The LOC Agreement bears interest at 30 day LIBOR plus 125 basis points and requires the Corporation to meet certain covenants on a periodic basis. The loan matures in October 10, 2016. On May 26, 2015, the LOC Agreement was amended and restated to limit borrowings for Buffalo Manufacturing, Buffalo Medical, Buffalo High Tech, Buffalo Info and CNY Hub projects to $20.0 million (prior GDA tranche) and permit additional borrowings of up to $40.0 million for the Quad C project which are funded by specific grants from New York State (Quad C tranche). The prior GDA tranche matures on October 10, 2016 and the Quad C tranche matured on July 23, 2015, at which time the LOC Agreement was 10 (Continued) FORT SCHUYLER MANAGEMENT CORPORATION Notes to Consolidated Financial Statements June 30, 2015 and 2014 amended to eliminate the Quad C tranche, which was permanently financed through the Key Bank Amended Loan Agreement (note 7), leaving $20 million (the prior GDA tranche) as the maximum borrowing under the LOC Agreement. (7) Loan Agreement Payable In June 2014, the Corporation entered into a Building Loan Agreement (the Loan Agreement) with TD Bank for up to $31.0 million to fund Quad C project costs in amounts not exceeding the dollar amount of New York State grants approved for the projects but not yet paid to FSMC. The Loan Agreement was scheduled to terminate the earlier of closing of the permanent loan or December 31, 2014. The terms of the Loan Agreement include a requirement that the Corporation deposit receipt of all equity grants for the Quad C project into a segregated account with TD Bank. The bank has a security interest in this account and the loan is also secured by a first leasehold mortgage on the Quad C parcel of land. The interest rate on amounts outstanding under this facility is equal to 30 day LIBOR plus 65 basis points. In September 2014, the Loan Agreement was amended and restated into a permanent $65 million Loan Agreement (the Amended Loan Agreement) with TD Bank as Administrator and Lead Arranger and a syndicate of other financial institution lenders. Subject to the terms and conditions of the Amended Agreement, during the construction period the lenders will make advances to the Corporation with interest payments due on a monthly basis. Commencing on September 1, 2015 the Corporation will begin making principal payments, which are due annually over an 8 year term, maturing in September 1, 2022. Financing costs for the original loan and its amendment of $1.6 million were incurred and will be recognized as interest expense over the term of the Amended Loan Agreement. The interest rate on amounts outstanding under the Amended Loan Agreement is equal to the 30 day LIBOR rate plus 80 basis points. The interest rate was .984% at June 30, 2015. The Amended Loan Agreement allows the Corporation to apply an alternative LIBOR based rate to borrowings outstanding. In addition, the terms of the Amended Loan Agreement required an interest rate swap agreement to be executed as part of the permanent construction loan. Subsequent to year-end, on July 23, 2015, the Corporation modified the Amended Loan Agreement, by replacing TD Bank with KeyBank as Administrative Agent and Lead Arranger, and modifying the interest rate to 30 day LIBOR plus 125 basis points. All other substantive loan terms remained unchanged. The required swap agreement was executed with KeyBank on July 24, 2015 (note 8). In addition, an incremental $5.0 million Supplemental Loan Note closed on July 23, 2015 to provide bridge financing for the receipt of grant funds for the Quad C project. An initial $4.4 million of the Supplemental Loan Note is due in September 2016 and the remaining payments are due over the term of the Amended Loan Agreement. 11 (Continued) FORT SCHUYLER MANAGEMENT CORPORATION Notes to Consolidated Financial Statements June 30, 2015 and 2014 (8) Interest Rate Swap Agreement Subsequent to year end, on July 24, 2015, as required by the terms of the Amended Loan Agreement, the Corporation entered into an interest rate swap agreement (swap agreement) to hedge variability in cash flows associated with interest payments on its Amended Loan Agreement (note 7). The interest rate swap agreement is designed to essentially convert the long-term debt issuance from a variable interest rate to a fixed interest rate. The swap agreement provides for the Corporation to pay a fixed rate of interest over the term of the Amended Loan Agreement (maturing September 1, 2022) of 1.676%. The variable rate received by the Corporation under the swap is equal to the 3 month LIBOR rate on the first day of the month. Interest rate swaps do not relieve the Corporation from its obligations under long-term debt issuances. (9) Contingencies The Corporation is involved in claims and legal actions arising in the ordinary course of business. In the opinion of management, as of June 30, 2015, the ultimate disposition of these matters will not have a material adverse effect on the Corporation’s financial position, results of operations, or liquidity. 12