Subsequent Events	9 Months Ended
Sep. 30, 2014
Subsequent Events
Subsequent Events	5. Subsequent Events Warrant Exercise We received $8.0 million in cash in October 2014 from the exercise of 838,071 warrants to purchase common stock at $9.55 per share just prior to their expiration. We issued 838,071 common shares upon exercise of the warrants. Private Placement of Common Shares On October 2, 2014, we entered into an Investment Agreement with Baxter under which we issued 1,316,944 common shares in conjunction with a private placement in exchange for $15.0 million at a per share price of $11.39, which was $2.21 above the share price at market close that day. Under the terms of the Investment Agreement, Baxter agreed not to transfer any of the common shares until at least one year following the purchase of the shares, and is prohibited from engaging in any short sales with respect to the shares for three years following the purchase of the shares. In addition, until the earlier of (i) the end of the term of the Distribution Agreement or (ii) one year after the Company receives notice that Baxter and its affiliates no longer beneficially own the shares, Baxter will be bound by certain “standstill” provisions that prohibit Baxter from, among other things, beneficially owning more than 4.9% of the Company’s common stock, participating in a solicitation of proxies, granting a proxy other than to Company management, acting or seeking to control the Company’s management or board, or publicly proposing a business combination or extraordinary corporate transaction. The Investment Agreement also contains customary representations and warranties and standard indemnification provisions. Distribution Agreement On October 2, 2014, we entered into the Distribution Agreement with Baxter, pursuant to which Baxter has become the Company’s exclusive agent for commercializing the Company’s hemodialysis concentrate and ancillary products in the United States and various foreign countries for an initial term of 10 years. The Company retains sales, marketing and distribution rights for its hemodialysis concentrate products for its current international customers and in those countries in which the Company has an established commercial presence. During the term of the Distribution Agreement, Baxter has agreed not to manufacture or sell any competitive concentrate products in the United States hemodialysis market, other than specified products. Following the signing of the Distribution Agreement, Baxter paid the Company $20 million in cash (the “Upfront Fee). The Upfront Fee will be recognized as revenue in future periods over the term of the license based on sales projections over the term of the Distribution Agreement. During the initial transition period until Baxter assumes customer invoicing, which is expected to last until December 31, 2014, Rockwell will continue to recognize sales and invoice customers. We will provide Baxter with an equivalent economic value for the operating income related to those sales and will treat these payments as a reduction in revenue. Once Baxter assumes invoicing, Rockwell revenue will be based on our contractual distributor pricing to Baxter. The Distribution Agreement requires Baxter to meet minimum annual purchase requirements (subject to a cure period and certain other relief) in order to maintain its exclusive distribution rights. The minimum purchase levels increase each year over the term of the Distribution Agreement. Purchases that exceed the minimum requirement in a given year may be carried forward and applied to future years’ requirements. The Distribution Agreement also contains provisions governing the operating relationship between the parties, the Company’s obligations to maintain specified manufacturing capacity and quality levels, remedies, as well as representations, warranties and indemnification obligations of the parties. Either party may terminate the Distribution Agreement upon the insolvency or material breach of the other party or in the event of a force majeure. In addition, Baxter may also terminate the Distribution Agreement at any time upon 270 days’ prior written notice to the Company or if (1) prices increase beyond certain thresholds and notice is provided within 45 days after the true up payment is due for the year in which the price threshold is exceeded, (2) a change of control of the Company occurs and 270 days’ notice is provided, or (3) upon written notice that Baxter has been enjoined by a court of competent jurisdiction from selling in the United States any product covered by the Distribution Agreement due to a claim of intellectual property infringement or misappropriation relating to such product. If Baxter terminates the Distribution Agreement under the discretionary termination or the price increase provisions, it would be subject to a limited non-compete obligation in the United States with respect to certain products for a period of two years. If a “Refund Trigger Event” occurs, the Company would be obligated to repay a portion of the Upfront Fee and Facility Fee (described below) as follows: 50% if the event occurs prior to December 31, 2016, 33% if the event occurs in 2017 or 2018, and 25% if the event occurs in 2019, 2020 or 2021. A “Refund Trigger Event” means any of the following: (1) a change of control of the Company involving any of certain specified companies; (2) a termination by Baxter due to the Company’s bankruptcy or breach, or due to price increases that exceed the stated thresholds; (3) a termination by either party due to a force majeure; (4) settlement or adjudication of any claim, action or litigation relating to a covered product that materially and adversely affects Baxter’s commercialization of the product; and (5) any regulatory action or ruling relating to a covered product that materially and adversely affects Baxter’s commercialization of the product. In addition, if Baxter terminates the Distribution Agreement because Baxter has been enjoined by a court of competent jurisdiction from selling any product in the United States covered by the Distribution Agreement due to a claim of intellectual property infringement or misappropriation relating to such product prior to the end of 2018, Baxter would be entitled to a refund of up to $10 million, or $6.6 million if the termination occurs in 2019. In no event would Baxter be entitled to more than one refund payment. The Distribution Agreement also requires the Company to prepay its outstanding secured long-term indebtedness within 180 days and prohibits the Company from entering into a subsequent contract encumbering the assets used in the Company’s concentrate business without the prior written consent of Baxter. Baxter has also agreed to pay the Company during the term of the Distribution Agreement $10 million (the “Facility Fee”) to build and operate a new manufacturing facility located in the Pacific time zone to service customers in the Western United States. The Facility Fee will be reduced to the extent that the facility is not operational within 12 months after the start of construction. Except for any leased components, the Company will own the facility when completed. The Distribution Agreement may be extended an additional five years by Baxter if Baxter achieves a specified sales target and pays an extension fee of $7.5 million. If the first extension occurs, the Distribution Agreement term may be extended an additional five years at Baxter’s option at no additional cost.

5. Subsequent Events

Warrant Exercise

We received $8.0 million in cash in October 2014 from the exercise of 838,071 warrants to purchase common stock at $9.55 per share just prior to their expiration. We issued 838,071 common shares upon exercise of the warrants.

Private Placement of Common Shares

On October 2, 2014, we entered into an Investment Agreement with Baxter under which we issued 1,316,944 common shares in conjunction with a private placement in exchange for $15.0 million at a per share price of $11.39, which was $2.21 above the share price at market close that day.

Under the terms of the Investment Agreement, Baxter agreed not to transfer any of the common shares until at least one year following the purchase of the shares, and is prohibited from engaging in any short sales with respect to the shares for three years following the purchase of the shares. In addition, until the earlier of (i) the end of the term of the Distribution Agreement or (ii) one year after the Company receives notice that Baxter and its affiliates no longer beneficially own the shares, Baxter will be bound by certain “standstill” provisions that prohibit Baxter from, among other things, beneficially owning more than 4.9% of the Company’s common stock, participating in a solicitation of proxies, granting a proxy other than to Company management, acting or seeking to control the Company’s management or board, or publicly proposing a business combination or extraordinary corporate transaction. The Investment Agreement also contains customary representations and warranties and standard indemnification provisions.

Distribution Agreement

On October 2, 2014, we entered into the Distribution Agreement with Baxter, pursuant to which Baxter has become the Company’s exclusive agent for commercializing the Company’s hemodialysis concentrate and ancillary products in the United States and various foreign countries for an initial term of 10 years. The Company retains sales, marketing and distribution rights for its hemodialysis concentrate products for its current international customers and in those countries in which the Company has an established commercial presence. During the term of the Distribution Agreement, Baxter has agreed not to manufacture or sell any competitive concentrate products in the United States hemodialysis market, other than specified products.

Following the signing of the Distribution Agreement, Baxter paid the Company $20 million in cash (the “Upfront Fee). The Upfront Fee will be recognized as revenue in future periods over the term of the license based on sales projections over the term of the Distribution Agreement.

During the initial transition period until Baxter assumes customer invoicing, which is expected to last until December 31, 2014, Rockwell will continue to recognize sales and invoice customers. We will provide Baxter with an equivalent economic value for the operating income related to those sales and will treat these payments as a reduction in revenue. Once Baxter assumes invoicing, Rockwell revenue will be based on our contractual distributor pricing to Baxter.

The Distribution Agreement requires Baxter to meet minimum annual purchase requirements (subject to a cure period and certain other relief) in order to maintain its exclusive distribution rights. The minimum purchase levels increase each year over the term of the Distribution Agreement. Purchases that exceed the minimum requirement in a given year may be carried forward and applied to future years’ requirements. The Distribution Agreement also contains provisions governing the operating relationship between the parties, the Company’s obligations to maintain specified manufacturing capacity and quality levels, remedies, as well as representations, warranties and indemnification obligations of the parties.

Either party may terminate the Distribution Agreement upon the insolvency or material breach of the other party or in the event of a force majeure. In addition, Baxter may also terminate the Distribution Agreement at any time upon 270 days’ prior written notice to the Company or if (1) prices increase beyond certain thresholds and notice is provided within 45 days after the true up payment is due for the year in which the price threshold is exceeded, (2) a change of control of the Company occurs and 270 days’ notice is provided, or (3) upon written notice that Baxter has been enjoined by a court of competent jurisdiction from selling in the United States any product covered by the Distribution Agreement due to a claim of intellectual property infringement or misappropriation relating to such product. If Baxter terminates the Distribution Agreement under the discretionary termination or the price increase provisions, it would be subject to a limited non-compete obligation in the United States with respect to certain products for a period of two years.

If a “Refund Trigger Event” occurs, the Company would be obligated to repay a portion of the Upfront Fee and Facility Fee (described below) as follows: 50% if the event occurs prior to December 31, 2016, 33% if the event occurs in 2017 or 2018, and 25% if the event occurs in 2019, 2020 or 2021. A “Refund Trigger Event” means any of the following: (1) a change of control of the Company involving any of certain specified companies; (2) a termination by Baxter due to the Company’s bankruptcy or breach, or due to price increases that exceed the stated thresholds; (3) a termination by either party due to a force majeure; (4) settlement or adjudication of any claim, action or litigation relating to a covered product that materially and adversely affects Baxter’s commercialization of the product; and (5) any regulatory action or ruling relating to a covered product that materially and adversely affects Baxter’s commercialization of the product. In addition, if Baxter terminates the Distribution Agreement because Baxter has been enjoined by a court of competent jurisdiction from selling any product in the United States covered by the Distribution Agreement due to a claim of intellectual property infringement or misappropriation relating to such product prior to the end of 2018, Baxter would be entitled to a refund of up to $10 million, or $6.6 million if the termination occurs in 2019. In no event would Baxter be entitled to more than one refund payment.

The Distribution Agreement also requires the Company to prepay its outstanding secured long-term indebtedness within 180 days and prohibits the Company from entering into a subsequent contract encumbering the assets used in the Company’s concentrate business without the prior written consent of Baxter.

Baxter has also agreed to pay the Company during the term of the Distribution Agreement $10 million (the “Facility Fee”) to build and operate a new manufacturing facility located in the Pacific time zone to service customers in the Western United States. The Facility Fee will be reduced to the extent that the facility is not operational within 12 months after the start of construction. Except for any leased components, the Company will own the facility when completed.

The Distribution Agreement may be extended an additional five years by Baxter if Baxter achieves a specified sales target and pays an extension fee of $7.5 million. If the first extension occurs, the Distribution Agreement term may be extended an additional five years at Baxter’s option at no additional cost.