My second round pick, who was marginal at best, refused my first offer.... and then upped his asking price, essentially pricing him out of me offering him a contract.

What are the rules on getting a Type D compensation pick for him?  He rejected my first offer and I do NOT plan on offering him his new demands, as they are too high for a player of his caliber.  For me to get Type D compensation, do I have to keep offering him his demands and hope he keeps rejecting them?  Or is the first offer sufficient enough?

If he's got a blue X by his name, you're getting a comp pick.

What about a red X?

Same thing.  You met his initial demand and he decided to pursue his dream as a bull wrestler or male prostitute rather than ask for more.