director on behalf of the Company. In connection with the restricted stock purchase agreement, the Company agreed to indemnify Dr. Kaspar for any taxes, interest, fines, penalties or other costs and expenses that Dr. Kaspar may incur in the future should the Internal Revenue Service succeed in a tax determination that the stock price paid by Dr. Kaspar (which was par value) was lower than the fair market value of the stock on the date of grant. The indemnification term is in effect for six years after the due date of the tax return for the year in which the stock was issued. In January 2016, the Company entered into an employment agreement with Dr. Kaspar.
In connection with the preparation of the Company’s audited consolidated financial statements for the year ended December 31, 2014, the Company determined that the per share fair value of the Company’s common stock on January 28, 2014, the grant date, was $1.51.
As a result, the Company issued Dr. Kaspar an amended Form 1099 for the 2014 tax year reflecting an aggregate fair value of the restricted stock grant of $3.5 million. Due to the indemnity obligation contained in Dr. Kaspar’s restricted stock purchase agreement, the Company will ultimately be required to reimburse Dr. Kaspar for the taxes he will pay following the amendment of Dr. Kaspar’s 2014 personal income tax return. As a result, the Company has concluded that payment of such indemnity is probable as of December 31, 2017.
Additionally, the Company intends to gross-up such indemnification payment for the tax that will be payable by Dr. Kaspar on the indemnity payment.
As a result, the Company has accrued balances of $2.8 million and $4.5 million at December 31, 2017 and 2016, respectively, representing the Company’s best estimate of the ultimate tax indemnification and gross-up payment to be made to Dr. Kaspar. On May 3, 2017, the Company paid Dr. Kaspar $1.7 million, which represents the tax liabilities owed to the U.S. federal government, State of Ohio and municipality of New Albany, Ohio pursuant to Dr. Kaspar’s 2014 amended tax returns. The Company expects to pay this entire amount in 2018.
On February 1, 2016, the Company amended its certificate of incorporation to effect a stock split whereby each issued and outstanding share of common stock and Class B-1, B-2, C and D preferred stock was converted into 1.38 shares of common stock, Class B-1, B-2, C and D preferred stock, respectively. The par value per share was not adjusted as a result of this stock split. All share information presented in these consolidated financial statements and accompanying footnotes has been retroactively adjusted to reflect the increased number of shares resulting from this action. All classes of preferred stock were automatically converted into shares of the Company’s common stock upon the closing of the IPO.
Class B‑1 and B‑2 Preferred Stock
On January 30, 2014, the Company entered into a Convertible Note and Class B Stock Purchase Agreement (the “Class B Purchase Agreement”) with PBM Capital Investments, LLC (“PBM”). Under the Class B Purchase Agreement, the Company sold to PBM a $0.5 million convertible promissory note (the “Class B Note”) (see Note 9) and granted PBM an option (the “Class B Option”) to purchase 809,385 shares of Class B‑1 preferred stock at a purchase price of $2.47 per share and a warrant (the “Class B‑2 Warrant”) to purchase 130,623 shares of Class B‑2 preferred stock at $2.57 per share (the “Class B Stock Closing”). To exercise the Class B Option, PBM was required to provide written notice of its intent on or before February 28, 2014, after which date the Class B Option would terminate.
After the Class B Stock Closing, the Company also agreed to sell and PBM agreed to purchase, on the same terms and conditions, 1,011,721 additional shares of Class B‑1 preferred stock (the “Class B‑1 Milestone Shares”) and a warrant to purchase 163,278 additional shares of Class B‑2 preferred stock (the “Milestone Warrant”) on the same terms and conditions. The Class B‑1 Milestone Shares and Milestone Warrant were issued to PBM on May 4, 2015 in exchange for $2.5 million of cash upon the achievement of the defined milestone.