Article 7 BASKETBALL RELATED INCOME, SALARY CAP, MINIMUM TEAM SALARY, AND ESCROW ARRANGEMENT

7.1 Definitions.

For purposes of this Agreement, the following terms shall have the meanings set forth below:

Basketball Related Income.
1. “Basketball Related Income” (“BRI”) for a Salary Cap Year means the aggregate operating revenues (including the value of any property or services received in any barter transactions) received or to be received on an accrual basis, for or with respect to such Salary Cap Year by the NBA, NBA Properties, Inc., including any of its subsidiaries whether now in existence or created in the future (hereinafter, “Properties”), the NBA Market Extension Partnership (“Market Extension”), any other entity which is controlled by, or in which the NBA, Properties, Market Extension, and/or a group of NBA Teams owns at least 50% of the issued and outstanding ownership interests (hereinafter, “League-related entity”) (but excluding the amount of such League-related entity’s revenues equal to the portion of its total revenues that is proportionate to the share of the entity’s profits (assuming a distribution of profits) granted to ownership interests not owned by the NBA, Properties, Market Extension and/or a group of NBA Teams), all NBA Teams other than Expansion Teams during their first two Seasons (but including the Expansion Teams’ shares of national television, radio, cable and other broadcast revenues, and any other League-wide revenues shared by the Expansion Teams, provided such revenues are otherwise included in BRI) and Related Parties in accordance with subsection (a)(7)(i) below, from all sources, whether known or unknown, whether now in existence or created in the future, to the extent derived from, relating to or arising directly or indirectly out of the performance of Players in NBA basketball games or in NBA-related activities. For purposes of this definition of BRI, (i) “operating revenues” shall include, but not be limited to, any type of revenue included in BRI for the 1995-96 and 1996-97 Salary Cap Years (without regard to whether such type of revenue is received on a lump-sum, non-recurring or extraordinary basis, but subject to any specific rules set forth in this Article VII relating to the recognition or amortization of such amounts); and (ii) “Player” means a person: who is under a Player Contract to an NBA Team; who completed the playing services called for under a Player Contract with an NBA Team at the conclusion of the prior Season; or who was under a Player Contract with an NBA Team during (but not at the conclusion of) the prior Season, but only with respect to the period for which he was under such Contract. Subject to the foregoing, BRI shall include, but not be limited to, the following revenues:
  1. Regular Season gate receipts, net of applicable taxes, including, without limitation, gate receipts received or to be received on an accrual basis by a Related Party in accordance with subsection (a)(7)(i) below, including: (1) the value (determined on the basis of the price of the ticket) of all tickets traded by a Team for goods or services; and (2) the value (determined on the basis of the League-wide average ticket price for non-Season tickets) of all tickets for NBA Regular Season games provided by a Team on a complimentary basis, without monetary or other compensation to a Team, provided, however, that (x) the value of 1.3 million of such complimentary tickets for all NBA Regular Season games in an NBA Season shall be excluded from BRI, and (y) in addition, tickets provided as part of sponsorships and other transactions, where the proceeds from such transactions have been included in BRI, shall not be included in determining the number of complimentary tickets in any NBA Season;
  2. all proceeds of any kind, net of reasonable and customary expenses related thereto, from the broadcast or exhibition of, or the sale, license or other conveyance or exploitation of the right to broadcast or exhibit, NBA preseason, Regular Season and playoff games, highlights or portions of such games, and non-game NBA programming, on any and all forms of radio, television, telephone, internet, and any other communications media, forms of reproduction and other technologies, whether presently existing or not, anywhere in the world, whether live or on any form of delay, including, without limitation, network, local, cable, direct broadcast satellite and any form of pay television, and all other means of distribution and exploitation, whether presently existing or not and whether now known or hereafter developed, including, without limitation, such proceeds received or to be received on an accrual basis by a Related Party in accordance with subsection (a)(7)(i) below, but not including the value of any broadcast, cablecast or telecast time provided as part of any such transaction that is used solely: (1) to promote or advertise the NBA, its Teams, Players, or the sport of basketball (but not the value of time used to promote or advertise the WNBA, which shall be included in BRI); (2) to promote or advertise products, programming, merchandise, services or events that produce revenues that are includable in BRI or are receivable by Properties pursuant to the Group License Agreement or Events Agreement; (3) to promote or advertise charitable, not-for-profit or governmental organizations or agencies; or (4) for public service announcements;
  3. all Exhibition game proceeds of any kind, net of applicable taxes and all reasonable and customary game, preseason and training camp expenses, including, without limitation, such proceeds received or to be received on an accrual basis by a Related Party in accordance with subsection (a)(7)(i) below;
  4. all playoff gate receipts of any kind, net of admission taxes, arena rentals to the extent reasonable and customary, and all other reasonable and customary expenses, except the player playoff pool, including, without limitation, such proceeds received or to be received on an accrual basis by a Related Party in accordance with subsection (a)(7)(i) below;
  5. all proceeds of any kind, net of reasonable and customary expenses related thereto, subject to the provisions of subsection (a)(6) below, from in-arena sales of novelties and concessions, sales of novelties in team-identified stores within a 75-mile radius of the arena, NBA game parking and programs, Team sponsorships (whether or not the proceeds are directly or indirectly donated to charity), Team promotions, temporary arena signage, arena club revenues, summer camps, non-NBA basketball tournaments, mascot and dance team appearances, signage affixed to the exterior of an arena (subject to subsection (a)(2)(xv) below), and the sale of the right to pour beverages, in each case, to the extent that such proceeds are related to the performance of Players in NBA basketball games or NBA-related activities, including, without limitation, such proceeds received or to be received on an accrual basis by a Related Party in accordance with subsection (a)(7)(i) below;
  6. forty (40) percent of the gross proceeds from fixed arena signage in the arena in which an NBA Team plays more than one-half of its Regular Season home games, including, without limitation, such proceeds received or to be received on an accrual basis by a Related Party in accordance with subsection (a)(7)(i) below;(vii) forty (40) percent of the gross proceeds of any kind, net of all applicable taxes, from the sale, lease or licensing of luxury suites calculated on the basis of the actual proceeds received or to be received on an accrual basis by the entity, including, without limitation, proceeds received or to be received on an accrual basis by a Related Party in accordance with subsection (a)(7)(i) below, that sold, leased, or licensed such luxury suites; provided, however, that, other than the additional amounts paid by luxury suite holders to the Team for tickets, if any, this amount shall be the only amount included in BRI for the sale, lease or licensing of luxury suites and that, to the extent that the sale, lease or licensing of the luxury suite grants rights to the luxury suite for a period of more than one year, for purposes of calculating the amount includable in BRI for any Salary Cap Year, the proceeds shall be determined on the basis of the annual fee or charge provided for in any such transaction and, if payments are made in addition to or in the absence of such an annual fee or charge, the value of such payments shall be amortized over the period of the sale, lease or license, unless such period exceeds twenty (20) years, in which event an amortization period of twenty (20) years shall be used;
  7. except as provided in subsection (a)(2) below, proceeds received by Properties, net of actual expenses that are directly attributable to the generation of such proceeds, as long as those expenses are consistent with the types and categories of expenses incurred by Properties reflected in the audited financial reports for Properties for the year ended July 31, 1994 (or, in the case of new sources of proceeds, as long as the expenses are reasonable and customary, in the opinion of the Accountants, subject to the provisions of subsection (a)(6) below), including proceeds derived from the following categories (defined in the same manner as was used in those audited financial reports): (A) international television; (B) sponsorships; (C) NBA-related revenues from NBA Entertainment; (D) the All-Star Game and McDonald’s Championship; (E) other NBA special events (other than events covered by the Events Agreement); and (F) all other sources of revenue received by Properties other than those specifically excluded under subsection (a)(2) below;
  8. proceeds from premium seat licenses (other than licenses of luxury suites, which are governed by subsection (a)(1)(vii) above) attributable to NBA-related events amortized over the period of the license (including, without limitation, such proceeds received or to be received on an accrual basis by a Related Party in accordance with subsection (a)(7)(i) below), unless such period exceeds twenty years, in which event an amortization period of twenty years shall be used; and
  9. if the right to receive revenues included in BRI is sold or transferred to an entity other than an entity referred to in subsection (a)(1) above (such that those revenues would not be included in BRI pursuant to that subsection), then BRI shall be deemed to include the amount of revenues that would have been received by the seller or transferor and would have been included in BRI in such Salary Cap Year (subject to any applicable allocations provided for above) absent such sale or transfer, provided that a pledge, hypothecation, collateral assignment or other similar transaction involving such revenues shall not be considered a sale or transfer within the meaning of this subsection (x).
2. Notwithstanding anything to the contrary in subsection (a)(1) above, it is understood that the following is a non-exclusive list of examples of revenues that are or may be received by the NBA, Properties, Market Extension, other League-related entities, NBA Teams and Related Parties (the foregoing persons or entities, beginning with “NBA,” collectively referred to in this subsection (a)(2) only as “NBA-related entities”) that are not derived from, and do not relate to or arise out of, the performance of Players in NBA basketball games or in NBA-related activities or are otherwise expressly excluded from the definition of BRI:
  1. proceeds from the assignment of Player Contracts;
  2. proceeds (A) from the sale, transfer or other disposition of any of the assets or property (excluding ordinary course sales of inventory and the revenues (if any) deemed to be included in BRI pursuant to subsection (a)(1)(x) above) of, or ownership interests in, any NBA-related entity, or (B) from loans or other financing transactions;
  3. proceeds from the grant of Expansion Teams;
  4. dues;
  5. capital contributions received by an NBA-related entity from one of its owners, shareholders, members or partners;
  6. fines;
  7. revenue sharing (by means of revenue transfers or otherwise) among Teams;
  8. interest income;
  9. insurance recoveries;
  10. proceeds from the sale or rental of real estate;
  11. any thing of value received in connection with the design or construction of a new or renovated arena or other team facility including, but not limited to, receipt of title to or a leasehold interest in real property or improvements, reimbursement of project-related expenses, benefits from project-related infrastructure improvements, or tax abatements, unless (and only to the extent that) such value is being provided to the Team or a Related Party in lieu of payments that the Team or Related Party would have otherwise received pursuant to an arena lease or other instrument concerning a Team’s use of an arena (“lease”) and would have constituted BRI if paid to the Team or a Related Party, provided, however, that the determination of the amount, if any, to be included in BRI with respect to the value of any of the foregoing shall be made either (x) in accordance with the provisions of subsection (a)(4) below or (y) based upon direct evidence that the Team or Related Party, after proposing that it would receive certain revenues constituting arena-generated BRI, subsequently agreed specifically to forego such revenues in direct exchange for a thing of value (as described above in this subsection (xi)) with the consequence that the arena-generated BRI revenues received or to be received by the Team or Related Party were or would be (in the opinion of the Accountants) less than the fair market value of arena-generated BRI revenues received or to be received by other NBA Teams in similar transactions, or (z) based upon direct evidence that the parties to the transaction had agreed that certain revenues constituting arena-generated BRI would be paid to the Team or Related Party and that such revenues were subsequently foregone by the Team or the Related Party in direct exchange for a thing of value (as described above in this subsection (xi)); and provided further that, when a determination is made pursuant to clause (y) or clause (z) of this subsection (xi), the amount(s), if any, to be included in BRI shall be allocated (with an appropriate interest adjustment to reflect the time value of money where the thing of value received by the Team or Related Party is in the form of cash or a cash equivalent, such as a check or wire transfer) over the Salary Cap Years in which the arena-generated BRI revenues foregone would have been received by the Team or Related Party (up to a maximum of twenty (20) Salary CapYears) and not on a lump-sum basis;
  12. any thing of value that induces or is intended to induce a Team either to relocate to or remain in a particular geographic location, unless (and only to the extent that) such value is being provided to the Team or a Related Party in lieu of payments that the Team or Related Party would have otherwise received pursuant to an arena lease and that would have constituted BRI had they been paid to the Team or a Related Party, provided, however, that the determination of the amount, if any, to be included in BRI shall be made either (x) in accordance with the provisions of subsection (a)(4) below or (y) based upon direct evidence that the parties to the transaction had agreed that certain revenues constituting arena-generated BRI would be foregone by the Team or Related Party in direct exchange for a thing of value as described above in this subsection (xii), and provided further that, when a determination is made pursuant to clause (y) of this subsection (xii), the amount(s), if any, to be included in BRI shall be allocated (with an appropriate interest adjustment to reflect the time value of money where the thing of value received by the Team or Related Party is in the form of cash or a cash equivalent, such as a check or wire transfer) over the Salary Cap Years in which the arena-generated BRI revenues foregone would have been received by the Team or Related Party (up to a maximum of fifteen (15) Salary Cap Years) and not on a lump-sum basis;
  13. payments made to Teams or to the NBA pursuant to the provisions of Article VII, Section 12 (Escrow Arrangement);
  14. distributions, dividends or royalties paid by any NBA-related entity to owners, shareholders, members or partners;
  15. proceeds from the sale of arena naming rights;
  16. any category or source of revenue or proceeds that was expressly identified in any BRI Report or in any document or written communication (including debriefing memos) authored by the Accountants and provided to the Players Association and the NBA (but excluding any underlying work papers) in connection with the BRI audits for the 1995-96 or 1996-97 Salary Cap Years that was not included in BRI for such Salary Cap Years;
  17. proceeds received by Properties (1) pursuant to the Group License Agreement, (2) pursuant to the Events Agreement and (3) relating to the following categories (defined in the same manner as was used in the audited financial reports for Properties for the year ended July 31, 1997): (x) licensing; and/or (y) Properties’ representation of, and services performed for, third parties. For purposes of the foregoing sentence, “third parties” refers to persons or entities that are not owned or controlled by persons or entities that own a majority interest in or otherwise control an NBA Team or, if such third party is a Related Party, proceeds received by NBA Properties shall not be included in BRI if representation of such Related Party does not relate either to such entity’s NBA ownership or NBA Players.
3. The parties agree that in determining whether a category or source of revenue or proceeds constitutes BRI: (i) consideration shall be given to whether such category or source is more similar in kind or nature to the included categories and sources listed in subsections (a)(1)(i) through (x) above, on the one hand, or to the excluded categories and sources listed in subsections (a)(2)(i) through (xvii) above, on the other; and, (ii) no inference may be drawn from the fact that such category or source was not included in the categories and sources listed in subsections (a)(1)(i) through (ix) above or the fact that such category or source was not included in the categories and sources listed in subsections (a)(2)(i) through (xvii) above.
4. The parties agree that, with respect to any lease entered into (i) prior to the date of this Agreement (but only with respect to an arena that is opened and used by an NBA team as its home arena after the end of the 1998-99 NBA Season) or (ii) after the date of this Agreement between a Team (or a Related Party) and an arena that is not a Related Party, the Accountants may attribute to the Team (or a Related Party) for purposes of computing BRI for a Salary Cap Year portions of arena revenues received by the arena or its related entities that would be included in BRI if received by the Team (or a Related Party) to the following extent: in the event of a renewal, extension or renegotiation of a lease between the same parties, or a new lease entered into by a Team (or a Related Party) with an arena that is not a Related Party, the Team will be deemed to receive in the first Salary Cap Year covered by the new lease or by the renewal, extension or renegotiation of the existing lease (as the case may be) the greater of the amount of such revenues that the Team or the Related Party in fact receives under the lease or, if in the opinion of the Accountants, the Team (and/or the Related Party) is receiving substantially less than fair market value as determined by the Accountants (taking into account factors such as the rent paid by the Team or the Related Party, the number and identity of other major tenants in the arena, market conditions, the extent to which arena revenues are used to fund construction or renovations of the arena, and comparable lease arrangements in the League), an amount determined by the Accountants to constitute the fair market value of the revenues that a tenant, in the same circumstances as the Team or Related Party, would receive for such Salary Cap Year. In either of the preceding cases, the Accountants will also determine the amount to be included in BRI for Salary Cap Years beyond the first Salary Cap Year.
5. In no event shall the same revenues be included in BRI, directly or indirectly, more than once, the purpose of this provision being to preclude the double-counting of revenues.
6. Subject to Article VII, Section 11 (Players Association Audit Rights):
  1. With respect to expenses incurred in connection with all proceeds coming within subsections (a)(1)(v) and (viii) above, all reported expenses shall be conclusively presumed to be reasonable and customary (other than expenses related to sources of revenues that were not reflected in the audited financial report for Properties for the year ended July 31, 1994), and such expenses shall not be the subject of the accounting procedures set forth in Article VII, Section 10 of this Agreement. Such expenses shall be disallowed, however, to the extent that they exceed the ratio of League-wide reported expenses to League-wide reported revenues (the “Expense Ratio”) for that category of revenues set forth in Exhibit D hereto.
  2. With respect to the NBA Store (the “Store”) and any other new venture undertaken by the NBA, Properties, Market Extension, or any other League-related entity requiring significant capital investment or start-up costs (“New Venture”), reasonable and customary expenses shall include, but not be limited to: cost of goods sold, sales tax, all reasonable operating expenses of the Store or New Venture (including, but not limited to, salaries and benefits directly related to the operations of the Store or New Venture, promotional and advertising costs, rent, direct overhead, general and administrative expenses of the Store or New Venture), reasonable financing costs and amortization of capital improvements and start-up costs; provided, however, that in no event shall the expenses attributable to the Store or New Venture cause the amount included in BRI for the Store or New Venture to be less than zero (0) for any Salary Cap Year.
  3. With respect to new categories of revenue that may be included in BRI during the term of this Agreement (other than revenues attributable to the Store or a New Venture), the NBA, Properties, Market Extension, other League related entities, NBA Teams and Related Parties shall be able to deduct all expenses that the parties agree (or, in the absence of such agreement, that the Accountants determine) are reasonable and customary, provided, however, that if a new category of revenue is substantially similar to the type of revenues described in subsections (a)(1)(i) and (iv) above, the expenses attributable to such new category of revenue shall be deductible only to the extent contemplated by such subsections.
7. It is acknowledged by the parties hereto that for purposes of determining BRI:
  1. Some NBA Teams have engaged or may engage in transactions with third parties that control, or own at least 50% of, the NBA team or that are controlled or owned at least 50% by the persons or entities controlling or owning at least 50% of the NBA Team (such third parties are referred to in this Agreement as “a Related Party”), and Related Parties themselves engage in transactions with third parties that may result in a Related Party’s receipt of revenues that constitute BRI. (Any entity that was an “entity related to an NBA team” as defined by Article VII, Section 1(a)(4)(i) of the September 18, 1995 Collective Bargaining Agreement between the NBA and the Players Association (the “1995 CBA”) shall be deemed a Related Party under this Agreement for so long as such entity continues to be an entity related to an NBA Team within the meaning of the 1995 CBA.) As provided in subsection (a)(1) above, the relevant proceeds received or to be received on an accrual basis by any Related Party that come within such subsection and that relate to such Related Party’s Team shall be included in BRI. However, with respect to any such revenues or proceeds retained or received by a Related Party (other than arena revenues that relate to such Related Party’s Team including, but not limited to, in-arena sales of novelties and concessions, NBA game parking, arena club revenues, suite and seat revenues and fixed and temporary in-arena signage, which shall be included in BRI as if received by the Team), such revenues or proceeds shall be included in BRI only to the extent that the NBA and the Players Association agree or, if they fail to agree, the Accountants shall reasonably determine the amount, if any, of such revenues or proceeds to attribute to the Team (taking into account factors such as the nature of the transaction, arrangement and/or relationship between the Team and the Related Party or between the Related Party and a third party, any amounts included in BRI with respect to other Teams (or Related Parties) that have entered into comparable transactions, arrangements and/or relationships with third parties, market conditions, the nature of any services or activities performed by the Related Party for, or in connection with, the generation of revenues or proceeds and the amount of revenues or proceeds that the Related Party would be expected to retain or receive with respect to comparable transactions, arrangements and/or relationships with third parties), and the amount so allocated shall be the only amount included in BRI. To the extent that the amount of such proceeds to be included in BRI cannot reasonably be determined with respect to any particular transaction, the Accountants shall determine a reasonable amount with respect to such transaction, which shall be included in BRI.
  2. With respect to the transactions listed below in this subsection (a)(7)(ii), the parties agree that, because the proceeds attributable to these transactions cannot be accurately ascertained, the following procedures shall be used for each NBA Season in which these transactions remain in effect:
    1. New York Knicks transaction with MSG Network regarding the sale of local media rights: BRI for the Knicks for each NBA Season covered by this Agreement shall include an amount equal to the net proceeds included in BRI attributable to the Los Angeles Lakers’ sale, license or other conveyance of all local media rights (including, but not limited to, broadcast and cable television and radio) for such NBA season.
    2. New York Knicks transactions with Related Parties involving signage: BRI for the Knicks for the 1999-2000 NBA Season shall include $3,750,000 for signage. In each subsequent Season covered by this Agreement, this amount shall be increased (or decreased, as the case may be) by the League-wide percentage increase (or decrease) in signage as determined in accordance with subsections (a)(1)(v) and (a)(1)(vi).
8. Pursuant to the NBA’s national broadcast, national telecast and network cable television agreements, NBA Teams might receive revenue sharing proceeds that are attributable to NBA game telecasts (referred to hereinafter as “Revenue Sharing Proceeds”). One-third of such Revenue Sharing Proceeds, if any, shall be included in BRI in each of the three Salary Cap Years following the Salary Cap Year in which such Revenue Sharing Proceeds are actually received. Any other contingent payments received by the NBA pursuant to such agreements shall be included in BRI to the extent and in a manner agreed upon by the parties, or, if the parties cannot agree, in a reasonable manner determined by the Accountants.
9. The NBA and each NBA Team shall in good faith act and use their best efforts to maximize BRI for each Salary Cap Year during the term of this Agreement. In the exercise of such best efforts, the NBA and each NBA Team shall be entitled to act in a manner consistent with their sound business judgment and shall not take any action intended to benefit, at the expense of BRI, other commercial activities (such as the WNBA) unrelated to the performance of Players in NBA basketball games or in NBA-related activities. Without limiting the generality of the foregoing, the parties agree that it is within the sound business judgment of the NBA and each NBA Team to enter into, terminate or modify commercial arrangements or transactions, in good faith, in response to market exigencies, the acts or needs of unrelated third party business partners, and/or the best interests of NBA fans.
10. The parties agree that upon a finding by the System Arbitrator (which, if appealed, is affirmed by the Appeals Panel) that the NBA or an NBA Team (or a Related Party) has willfully failed to provide to the Accountants information concerning revenues or expenses material to the Accountants’ preparation of an Audit Report, the System Arbitrator may award such relief (including penalties, if appropriate) as is reasonable under the circumstances.
11. After the date of this Agreement, neither the NBA or a League-related entity nor a Team or a Related Party will enter into any lease or other agreement providing for the receipt of revenues includable in BRI that contains provisions that purport to limit access of the Accountants to the books and records of the NBA, such League-related entity, such Team, or such Related Party in a manner inconsistent with the terms of this Agreement or that would preclude the calculation of revenues (if any) to be included in BRI pursuant to the provisions of Section 1(a)(1)(x) of this Article VII.
Core Basketball Revenues.
1. The parties agree to bargain in good faith with respect to a potential new definition of the revenues that form the basis for the Salary Cap system, which would replace BRI. An outline of that new definition, called Core Basketball Revenues (“CBR”), is set forth in subsection (b)(3) below. The parties further agree that either party may decide, in its sole discretion, to refuse to agree to adopt a CBR-based system and that any such failure to agree shall not create any right to lock out or to strike.
2. The procedures for converting from a BRI-based Salary Cap system to a CBR-based Salary Cap system, if possible, shall be as follows:
  1. The Accountants shall be directed to complete an audit report for the 1997-98 Salary Cap Year no later than May 1, 1999 based upon the definition of BRI set forth in Section 1(a) and using such procedures as may be agreed upon by the parties for the purpose of such report.
  2. The Accountants shall also be directed to create a separate CBR audit report for the 1995-96, 1996-97 and 1997-98 Salary Cap Years no later than October 1, 1999, based upon the definition of CBR set forth in subsection (b)(3) below (as such definition may be modified by agreement of the parties) and using such procedures as may be agreed upon by the parties for the purpose of such report.
  3. Upon completion of the audit reports described in subsections (i) and (ii) above, the parties will attempt to agree upon a proposed ratio for converting all BRI-based percentages stated in this Agreement to CBR-based percentages, based upon BRI and CBR amounts for each of the 1995-96, 1996-97 and 1997-98 Salary Cap Years and other factors such as projected NBA revenue growth.
  4. In the event the parties reach agreement on converting from BRI to CBR, then, in addition to changing each BRI percentage to an equivalent CBR percentage, this Agreement shall otherwise be amended as necessary to reflect such conversion. In addition, the parties will agree as part of any such conversion to devise procedures for preventing Teams from diverting revenues out of CBR categories for the purpose of reducing CBR.
3. CBR shall mean the revenues stated in subsections (a)(1)(i), (ii), (iii), (iv), (vii) and (viii) above (and, if applicable, subsection (a)(1)(x) above); provided, however, that such revenues shall be included in CBR on a gross basis, without any deduction for expenses of any kind other than applicable taxes. Notwithstanding the preceding sentence, the parties acknowledge that it is in their mutual benefit for the NBA, Properties, Market Extension and the Teams to (A) enter into new businesses during the term of this Agreement and (B) modify existing commercial arrangements, and that any agreement to utilize CBR in lieu of BRI should not deter the NBA, Properties, Market Extension or the Teams from entering into such new businesses or modifying existing arrangements. Accordingly, any agreement to convert to a CBR-based Salary Cap System must include provisions satisfactory to both parties that (i) neutralize the effect on CBR of any change in a business arrangement that materially increases or decreases the expenses associated with such arrangement, and (ii) promote the entering into of new businesses by taking account of the expenses associated with such businesses in calculating their inclusion in CBR.
“Projected BRI” for a Salary Cap Year means the sum of amounts determined in accordance with the following:
1. With respect to BRI sources other than national broadcast, national telecast or network cable television contracts, Projected BRI shall include BRI for the preceding Salary Cap Year, increased by 8%.
2. With respect to national broadcast, national telecast or network cable television contracts, including the NBA/NBC agreement, dated November 11, 1997 (“NBA/NBC Agreement”) (a copy of which has been provided to the Players Association) and the NBA/TBS agreement, dated November 19, 1997 (“NBA/TBS Agreement”) (a copy of which has been provided to the Players Association), and national broadcast, national telecast or network cable television contracts covering Seasons that succeed the Seasons covered by the NBA/NBC and NBA/TBS Agreements (“Successor Agreements”) (copies of which shall be provided to the Players Association within ten (10) days of execution), Projected BRI for a Salary Cap Year shall include (A) the rights fees or other non-contingent payments stated in such contracts with respect to the Season covered by such Salary Cap Year (as such rights fees or non-contingent payments may be adjusted by agreement of the parties to such contracts); (B) the amounts of Revenue Sharing Proceeds, if any, that are includable in BRI for such Salary Cap Year pursuant to subsection (a)(8) above; (C) the amounts with respect to contingent payments (other than Revenue Sharing Proceeds), if any, attributable to Salary Cap Years covered by this Agreement in Successor Agreements as such amounts are agreed upon by the parties, or if the parties do not reach agreement, by the Accountants; and (D) the amount included in BRI for the preceding Salary Cap Year with respect to the value of advertising or promotional time provided to the NBA as part of the NBA/NBC and NBA/TBS Agreements (or any Successor Agreements) that is used to promote the WNBA or for any purpose other than those listed in subsections (a)(1)(ii)(1)-(4).
3. Notwithstanding the foregoing, in the event that:
  1. the rights fees stated in the NBA/NBC Agreement are reduced pursuant to such agreement (or by separate agreement between the NBA and NBC), and such reduction in the rights fees for the 1999-2000, 2000-01 and 2001-02 Seasons exceeds 70% of the total reduction in rights fees agreed upon between the NBA and NBC, the amount of such excess shall, for purposes of calculating Projected BRI and BRI, be attributed to such Seasons pro rata based on the original rights fees called for with respect to such Seasons; and/or
  2. the rights fees stated in the NBA/TBS Agreement are reduced pursuant to such agreement (or by separate agreement between the NBA and TBS), and such reduction in the rights fees for the 1999-2000, 2000-01 and 2001-02 Seasons exceeds 70% of the total reduction in rights fees agreed upon between the NBA and TBS, the amount of such excess shall, for purposes of calculating Projected BRI and BRI, be attributed to such Seasons pro rata based on the original rights fees called for with respect to such Seasons.
“Local Expansion Team BRI” means the BRI of the Expansion Teams during their first two Seasons, but not including the Expansion Teams’ share of League-wide revenues that are otherwise included in BRI (including, but not limited to, their share of national television, cable, radio and other broadcast revenues).
“Projected Local Expansion Team BRI” means Local Expansion Team BRI for the immediately preceding Season, increased by 8%.
“Interim Projected BRI” means a projection of BRI for a Salary Cap Year using Estimated BRI in place of BRI for the previous Salary Cap Year.
“Barter” means to trade by exchanging one commodity, service or other non-cash item for another.
“Estimated Total Salaries and Benefits” means the estimate of Total Salaries and Benefits for a Salary Cap Year as set forth in the Interim Audit Report for such Salary Cap Year.
“Estimated BRI” means the estimate of BRI for a Salary Cap Year as set forth in the Interim Audit Report for such Salary Cap Year.

7.2 Calculation of Salary Cap and Minimum Team Salary.

Salary Cap.
1. For each Salary Cap Year during the term of this Agreement, there shall be a Salary Cap. Subject to the adjustments set forth in subsection (d) below, the Salary Cap for each Salary Cap Year, beginning with the 2000-01 Salary Cap Year, will equal 48.04% of Projected BRI for such Salary Cap Year, less Projected Benefits (as defined in Article IV, Section 6) for such Salary Cap Year, divided by the number of Teams scheduled to play in the NBA during such Salary Cap Year, other than Expansion Teams during their first two Seasons in the NBA.
2. Notwithstanding subsection (a)(1) above, in the event that, subject to the adjustments set forth in subsection (d) below, Projected BRI for any Salary Cap Year, beginning with the 2000-01 Salary Cap Year, in which one or more Expansion Teams is scheduled to play its second NBA Season, plus Projected Local Expansion Team BRI for such Salary Cap Year, multiplied by .4804, less Projected Benefits for such Salary Cap Year (including for the Expansion Team(s)), divided by the number of Teams scheduled to play in the NBA during such Salary Cap Year (including the Expansion Team(s)), exceeds the Salary Cap calculated in accordance with subsection (a)(1) above, the Salary Cap shall equal the amount calculated pursuant to this subsection (a)(2).
3. The Salary Cap for the 1998-99 Salary Cap Year shall be $30 million.
4. The Salary Cap for the 1999-2000 Salary Cap Year shall be $34 million.
5. The Salary Cap for a Salary Cap Year will be in effect commencing on August 1 of such Salary Cap Year and shall continue through and including the subsequent July 31.
6. In the event that the Audit Report for a Salary Cap Year, beginning with the 1999-2000 Salary Cap Year, has not been completed as of the July 31 immediately following the end of such Salary Cap Year, then the Salary Cap for the Salary Cap Year that commenced on the immediately preceding July 1 will be calculated pursuant to subsections (a)(1)-(2) above, except that Interim Projected BRI shall be utilized instead of Projected BRI, Estimated BRI shall be utilized instead of BRI and Estimated Total Salaries and Benefits shall be utilized instead of Total Salaries and Benefits, for all purposes under this Section 2 including, without limitation, the adjustments set forth in subsection (d) below. In the event that the Interim Audit Report for a Salary Cap Year, beginning with the 1999-2000 Salary Cap Year, has not been completed as of the July 31 immediately following the end of such Salary Cap Year, then the Salary Cap for the Salary Cap Year that commenced on the immediately preceding July 1 shall, until such Interim Audit Report is completed, be an amount that would have been the Salary Cap for the preceding Salary Cap Year had Projected BRI or Interim Projected BRI, as the case may be, for such preceding Salary Cap Year included, with respect to the NBA’s national broadcast, national telecast or network cable television contracts, the rights fees or other non-contingent payments stated in such contracts for the Season following the Season covered by such preceding Salary Cap Year instead of for the Season covered by such preceding Salary Cap Year.
Minimum Team Salary.
1. For each Salary Cap Year during the term of this Agreement, there shall be a Minimum Team Salary equal to 75% of the Salary Cap for such Salary Cap Year.
2. In the event that, by the conclusion of a Salary Cap Year, a Team has failed to make aggregate Salary payments and/or incur aggregate Salary obligations equal to or greater than the applicable Minimum Team Salary for that Salary Cap Year, the NBA shall cause such Team to make payments equal to the shortfall (to be disbursed to the players on such Team pro rata or in accordance with such other formula as may be reasonably determined by the Players Association).
3. Nothing contained herein shall preclude a Team from having a Team Salary in excess of the Minimum Team Salary, provided that the Team’s Team Salary does not exceed the Salary Cap plus any additional amounts authorized pursuant to the Exceptions set forth in this Article VII.
Expansion Team Salary Caps and Minimum Team Salaries. Expansion Teams shall have the same Salary Caps and Minimum Team Salaries as all other Teams, except as follows:
1. During the first Salary Cap Year in which it begins play, an Expansion Team shall have a Salary Cap equal to 66 and 2/3% of the Salary Cap applicable to all other Teams (“The First Year Expansion Team Salary Cap”); and shall have a Minimum Team Salary equal to 75% of The First Year Expansion Team Salary Cap.
2. During the second Salary Cap Year in which it begins play, an Expansion Team shall have a Salary Cap equal to 75% of the Salary Cap applicable to all other Teams (“The Second Year Expansion Team Salary Cap”); and shall have a Minimum Team Salary equal to 75% of The Second Year Expansion Team Salary Cap.
Adjustments to Salary Cap and Minimum Team Salary.
1. In the event that Total Salaries and Benefits for the 1999-2000 Salary Cap Year is greater than 55% of BRI for such Salary Cap Year, then for purposes of calculating the Salary Cap for the 2000-01 Salary Cap Year, the amount of such overage shall be deducted from 48.04% of Projected BRI for the 2000-01 Salary Cap Year. Notwithstanding the foregoing, in no event shall the adjustment described in this subsection (d)(1) reduce the Salary Cap for the 2000-01 Salary Cap Year to an amount that is less than $35.5 million. In the event that, but for the limitation described in the preceding sentence, the adjustment described in this subsection (d)(1) would have reduced the Salary Cap for the 2000-01 Salary Cap Year to an amount less than $35.5 million, there shall be no carryforward of any unused adjustment amount to any future Salary Cap Year.
2. In the event that 48.04% of BRI for a Salary Cap Year, beginning with the 2000-01 Salary Cap Year, is less than 48.04% of Projected BRI for that Salary Cap Year, then for purposes of calculating the Salary Cap for the subsequent Salary Cap Year, the difference shall be deducted from 48.04% of Projected BRI for such subsequent Salary Cap Year.
3. In the event that Total Salaries and Benefits paid with respect to any Salary Cap Year, beginning with the 1999-2000 Salary Cap Year, plus, if applicable, any shortfall amount calculated pursuant to subsection (7) below, is less than 48.04% of BRI for such Salary Cap Year (plus, if applicable, any shortfall against 48.04% of BRI for the prior Salary Cap Year), then for purposes of calculating the Salary Cap for the subsequent Salary Cap Year, the amount of such shortfall shall be added to 48.04% of Projected BRI for the subsequent Salary Cap Year; provided, however, that in the event there is a shortfall with respect to the 2003-04 Salary Cap Year (or, in the alternative, if the NBA exercises its option pursuant to Article XXXIX, the 2004-05 Salary Cap Year) the amount of such shortfall shall be paid by the NBA to the Players Association for distribution to all NBA players who were on an NBA roster during the 2003-04 (or 2004-05) Season on such proportional basis as may be reasonably determined by the Players Association.
4. In the event that Benefits for any Salary Cap Year, beginning with the 2000-01 Salary Cap Year, exceeds Projected Benefits for such Salary Cap Year, the difference shall be added to Projected Benefits for the subsequent Salary Cap Year.
5. In the event that Benefits for any Salary Cap Year, beginning with the 2000-01 Salary Cap Year, is less than Projected Benefits for such Salary Cap Year, the difference shall be deducted from Projected Benefits for the subsequent Salary Cap Year; provided, however, that in the event there is a shortfall with respect to the 2003-04 Salary Cap Year (or, in the alternative, if the NBA exercises its option pursuant to Article XXXIX, the 2004-05 Salary Cap Year), the amount of such shortfall shall be paid by the NBA to the Players Association for distribution to all NBA players who were on an NBA roster during the 2003-04 (or 2004-05) Salary Cap Year on such proportional basis as may be reasonably determined by the Players Association.
6. In the event that the Salary Cap for a Salary Cap Year, beginning with the 2000-01 Salary Cap Year, is calculated in accordance with subsection (a)(6) above (i.e., is based upon an Interim Audit Report for the prior Salary Cap Year) and BRI and Total Salaries and Benefits as set forth in the Audit Report for the prior Salary Cap Year are different from those in the Interim Audit Report such that the Salary Cap would have been different from that based upon the Interim Audit Report, any such difference in the Salary Cap shall be debited or credited, as the case may be, to the Salary Cap for the subsequent Salary Cap Year, except that, with respect to the 2003-04 Salary Cap Year (or, in the alternative, if the NBA exercises its option pursuant to Article XXXIX, the 2004-05 Salary Cap Year) any such differences shall be debited or credited, as the case may be, to the Salary Cap for the then-current Salary Cap Year, in all such cases with interest (at a rate equal to the one year Treasury Bill rate as published in The Wall Street Journal on the date of the issuance of the Interim Audit Report).
7. In the event that for any of the 1998-99 through 2001-02 Salary Cap Years, Total Salaries and Benefits do not increase over the prior Salary Cap Year’s Total Salaries and Benefits by at least $50 million, then the shortfall shall be paid by the NBA to the Players Association no later than thirty (30) days following the completion of the Audit Report for such Season for distribution to all NBA players who were on an NBA roster during such Season on such proportional basis as may be reasonably determined by the Players Association.

7.3 Determination of Salary.

For the purposes of determining a player’s Salary with respect to an NBA Season, the following rules shall apply:

Deferred Compensation.
1. General Rules:
  1. All Player Contracts entered into, extended or renegotiated after the date of this Agreement shall specify the Season(s) in which any Deferred Compensation is earned. Deferred Compensation shall be included in a player’s Salary in the Season in which such Deferred Compensation is earned.
  2. Notwithstanding subsection (a)(1)(i) above, for purposes of an annuity compensation arrangement included in a Player Contract in accordance with Article XXV, Section 3 of this Agreement only, Deferred Compensation shall include only the portion of the cost of the annuity instrument to be paid by the Team after the playing term covered by the Contract, if any, and shall not include any Compensation that the player is scheduled to receive after the term of the Contract pursuant to such annuity compensation arrangement. The portion of the cost of the annuity paid by the Team while the player is required to render playing services under the Player Contract shall be included in Salary for the Salary Cap Year in which such cost is paid.
2. Over 36 Rule: The following provisions shall apply to any Player Contract entered into, extended, or renegotiated that, beginning with the date such Contract, Extension or Renegotiation is signed, covers four (4) or more Seasons, including one (1) or more Seasons commencing after such player will reach or has reached age thirty-six (36) (an “Over 36 Contract”):
  1. Except as provided in subsections (a)(2)(ii) - (v) below, the aggregate Salaries in an Over 36 Contract for Seasons commencing with the fourth Season of such Over 36 Contract or the first Season following the player’s 36th birthday, whichever is later, shall be attributed to the prior Seasons pro rata on the basis of the Salaries for such prior Seasons.
  2. Except in the case of a Contract between a Qualifying Veteran Free Agent and his Prior Team, which is governed by subsection (a)(2)(iii) below, if a player who is age 33, 34 or 35 enters into an Over 36 Contract covering more than four (4) Seasons, the aggregate Salaries in such Over 36 Contract for Seasons commencing with the fifth Season shall be attributed to the prior Seasons pro rata on the basis of the Salaries for such prior Seasons.
  3. If a Qualifying Veteran Free Agent who is age 32, 33 or 34 enters into an Over 36 Contract with his Prior Team covering more than five (5) Seasons, the aggregate Salaries in such Over 36 Contract for Seasons commencing with the sixth Season shall be attributed to the prior Seasons pro rata on the basis of the Salaries for such prior Seasons. If a Qualifying Veteran Free Agent who is age 35 enters into an Over 36 Contract covering more than four (4) Seasons, the aggregate Salaries in such Over 36 Contract commencing with the fifth Season shall be attributed to the prior Seasons pro rata on the basis of the Salaries for such prior Seasons.
  4. If a player who has played for his current Team for at least ten (10) consecutive Seasons enters into an Over 36 Contract that is an Extension and that, beginning with the date the Extension is signed, covers more than five (5) Seasons, the aggregate Salaries in such Over 36 Contract for Seasons commencing with the sixth Season shall be attributed to the prior Seasons pro rata on the basis of the Salaries for such prior Seasons.
  5. For each Season of an Over 36 Contract beginning with the second Season prior to the First Zero Year (as defined in subsection (a)(2)(viii) below), if the player has not been placed on waivers as of the July 1 prior to such Season, then the Salaries of the player for such Season and the subsequent two (2) or fewer Seasons covered by the Contract (including any Zero Year) shall, on such July 1, be aggregated and attributed in equal shares to each of such three (3) or fewer Seasons.
  6. Notwithstanding subsection (a)(2)(i) above, there shall be no re-allocation of Salaries pursuant to this Section 3(a)(2) for: (A) any Contract or Extension (beginning with the date the Extension is signed) covering four (4) or fewer Seasons entered into by a player at age 33, 34, or 35; (B) any Contract between a Qualifying Veteran Free Agent and his Prior Team covering five (5) or fewer Seasons entered into by a player at age 32, 33 or 34; and (C) any Extension that, beginning with the date the Extension is signed, covers five (5) or fewer Seasons and is entered into by a player who has played for his current Team for at least ten (10) consecutive Seasons.
  7. For purposes of determining whether a Contract is an Over 36 Contract pursuant to this Section 3(a)(2) only, Seasons shall be deemed to commence on October 1 and conclude on the last day of the Salary Cap Year.
  8. “Zero Year” means, with respect to an Over 36 Contract, any Season in which the Salary called for under the Contract has been attributed, in accordance with subsection (a)(2)(i), (ii), (iii) or (iv) above, to prior Seasons of the Contract. “First Zero Year” means, with respect to an Over 36 Contract, the earliest Season in which the Salary called for under the Contract has been attributed, in accordance with subsections (a)(2)(i), (ii), (iii) or (iv) above, to prior Seasons of the Contract.
  9. For purposes of this subsection (a)(2), a player (x) whose birthday is on a date during the month of July and (y) who signs a Contract, Extension or Renegotiation on or before August 5 shall be treated as if his age, at the time of such signing, was his age on the immediately preceding June 30.
Signing Bonuses.
1. Amounts Treated as Signing Bonuses: For purposes of determining a player’s Salary, the term “signing bonus” shall include:
  1. any amount provided for in a Player Contract that is earned upon the signing of such Contract;
  2. any Option Buy-out Amount;
  3. at the time of an assignment of a Player Contract, any amount that, under the terms of the Contract, is earned in the form of a bonus upon assignment of the Contract; and
  4. payments in excess of $350,000 with respect to foreign players, in accordance with Section 3(e) below.
2. Proration: Any signing bonus contained in a Player Contract shall be allocated in equal parts over the number of Seasons (or remaining Seasons in the case of a signing bonus described in subsection (b)(1)(iii) above) covered by such Contract that are fully protected for lack of skill, provided, however, that if the Player Contract provides for an Early Termination Option (“ETO”), the signing bonus shall be allocated in equal parts only over the Seasons that are fully protected for lack of skill that precede the Effective Season of such ETO. In the event that no Season covered by a Player Contract is fully protected for lack of skill, then the entire amount of the signing bonus shall be allocated to the first Season of the Contract or, in the case of a signing bonus described in subsection (b)(1)(iii) above, the Season during which the player’s Contract is assigned (or the upcoming Season in the case of an assignment that occurs from July 1 through the day prior to the first day of the Season).
3. Signing Bonus Credits: Upon the occurrence of an event that determines that a player shall not be entitled to receive an Option Buy-Out Amount (the “non-payment determination”):
  1. all amounts that were included in the player’s Salary pursuant to subsection (b)(1)(ii) above for Salary Cap Years up to and including the Salary Cap Year in which the non-payment determination is made (the “unpaid amounts”) shall be deducted from the calculation of Total Salaries and Benefits for the Salary Cap Year in which the non-payment determination is made;
  2. all amounts that were included in the player’s Salary pursuant to subsection (b)(1)(ii) above for Salary Cap Years following the Salary Cap Year in which the non-payment determination is made shall be deducted from the player’s Salary for such Salary Cap Years; and
  3. the unpaid amounts shall be deducted from the Team’s Team Salary, in accordance with the following: (A) The total amount available to be deducted from the Team’s Team Salary (the “credit amount”) will equal the aggregate of the unpaid amounts less, for each Season in which a portion of the unpaid amounts was included in the player’s Salary and in which his Team’s Team Salary did not fall below the Salary Cap, the smallest amount by which his Team’s Team Salary exceeded the Salary Cap during such Salary Cap Year. (B) The credit amount shall be allocated, in equal parts, over the same number of Salary Cap Years over which the unpaid amounts were allocated, beginning with the first Salary Cap Year following the non-payment determination, plus, for each Salary Cap Year following the first Salary Cap Year of such allocation, 10% of the amount allocated to the first Salary Cap Year. (C) If, during the course of any Salary Cap Year in which a credit allocation has been made, the Team’s Team Salary does not fall below the Salary Cap, the full credit allocation for such Salary Cap Year will be carried forward to a subsequent Salary Cap Year. If, during the course of a Salary Cap Year in which a credit allocation has been made, the Team’s Team Salary does fall below the Salary Cap, the amount carried forward, if any, will equal the amount of the credit allocation for such Salary Cap Year less the largest amount by which the Team’s Team Salary fell below the Salary Cap during such Salary Cap Year. In the event a credit allocation is carried forward pursuant to this subsection, such amount shall be deducted from Team Salary in the Salary Cap Year immediately following the last Salary Cap Year in which a portion of the credit amount is then currently being allocated, subject to the terms of this subsection (b)(3)(iii)(C).
4. Extensions:
  1. In the event that a Team with a Team Salary at or over the Salary Cap enters into an Extension that calls for or contains a signing bonus, such signing bonus shall be paid no sooner than the first day of the first Salary Cap Year covered by the extended term and shall be allocated, in equal parts, over the number of Seasons covered by the extended term that are fully protected for lack of skill. In the event that no Season in the extended term is fully protected for lack of skill, then the entire amount of the signing bonus shall be allocated to the first Season of the extended term.
  2. A Team with a Team Salary below the Salary Cap may enter into an Extension that calls for or contains a signing bonus to be paid at any time during the Contract’s original or extended term. In the event that a Team with a Team Salary below the Salary Cap enters into an Extension that calls for or contains a signing bonus to be paid no sooner than the first day of the Salary Cap Year covered by such extended term, the bonus shall be allocated in accordance with the proration rules set forth in subsection (b)(4)(i) above. In the event a Team with a Team Salary below the Salary Cap enters into an Extension that calls for or contains a signing bonus to be paid prior to the first day of the first Salary Cap Year covered by the extended term, the following rules shall apply:
    1. The signing bonus shall be allocated in equal parts over the Seasons remaining under the original term of the Contract and the extended term that are fully protected for lack of skill; and
    2. The Extension shall be deemed a Renegotiation and shall be subject to the rules governing Renegotiations set forth in Section 7 below.
Loans to Players. The following rules shall apply to any loan made by any Team to a player:
1. If any such loan bears no interest (or interest at an effective rate lower than 9% per annum), then an amount equal to 9% per annum of the outstanding balance (or an amount equal to the difference between 9% per annum of the outstanding balance and the actual rate of interest to be paid by the player) shall be included in the player’s Salary.
2. No loan made to a player after July 1, 1996 may (along with other outstanding loans to the player) exceed the amount of the player’s Salary for the Season covered by the then-current Salary Cap Year that is fully protected for lack of skill. All loans must be repaid through deductions from the player’s remaining Current Cash Compensation over the term of the Contract that is fully protected for lack of skill (prior to the Effective Season of any Early Termination Option) in equal annual amounts (the “annual allocable repayment amounts”). If a loan is made at a time when the remaining Current Cash Compensation due for the relevant Season that is fully protected for lack of skill is less than the annual allocable repayment amount that would be owed on a loan for the full amount of the player’s Current Cash Compensation that is fully protected for lack of skill for the relevant Season (the “maximum annual allocable repayment amount”), the maximum loan amount for that Season shall be reduced by the amount by which the maximum annual allocable repayment amount exceeds the amount of remaining Current Cash Compensation that is fully protected for lack of skill. (For example, if a Player has $1 million in Current Cash Compensation (fully protected for lack of skill) in the first Season of a five-year Contract, and a loan is made during that Season at a time when the Player has already received his Current Cash Compensation for that Season, the loan may not exceed $800,000.)
3. In addition to the restrictions set forth in subsection (c)(2) above, no loan may be made after June 30, 2001 that would result in a violation of Article II, Section 11(f).
4. Any forgiveness by a Team of a loan to a player shall be deemed a Renegotiation in the Salary Cap Year of such forgiveness and shall be subject to the rules governing Renegotiations set forth in Section 7 below.
Incentive Compensation.
1. For purposes of determining a player’s Salary each Season, except as provided in subsections (d)(2)-(4) below, any Performance Bonus (provided such Performance Bonus may be included in a Player Contract in accordance with Section 5(d) below), shall be included in Salary only if such Performance Bonus would be earned if the Team’s or player’s performance were identical to the performance in the immediately preceding Season.
2. Notwithstanding subsection (d)(1) above, in the event that, at the time of the signing of a Contract, Renegotiation or Extension, the NBA or the Players Association believes that the performance of a player and/or his team during the immediately preceding Season does not fairly predict the likelihood of the player earning a Performance Bonus during any Season covered by the Contract, Renegotiation or extended term of the Extension (as the case may be), the NBA or the Players Association may request that a jointly selected basketball expert (“Expert”) determine whether (i) in the case of an NBA challenge, it is very likely that the bonus will be earned, or (ii) in the case of a Players Association challenge, it is very likely that the bonus will not be earned. The party initiating a proceeding before the Expert shall carry the burden of proof. The Expert shall conduct a hearing within five (5) business days after the initiation of the proceeding, and shall render a determination within five (5) business days after the hearing. Notwithstanding anything to the contrary in this subsection (d)(2), no party may, in connection with any proceeding before the Expert, refer to the facts that, absent a challenge pursuant to this subsection (d)(2), a Performance Bonus would or would not be included in a player’s Salary pursuant to subsection (d)(1) above, or would be termed “Likely” or “Unlikely” pursuant to Article I, Section 1(aa) or (nnn). If, following an NBA challenge, the Expert determines that a Performance Bonus is very likely to be earned, the bonus shall be included in the player’s Salary. If, following a Players Association challenge, the Expert determines that a Performance Bonus is very likely not to be earned, the bonus shall be excluded from the player’s Salary. The Expert’s determination that a Performance Bonus is very likely to be earned or very likely not to be earned shall be final, binding and unappealable. The fees and costs of the Expert in connection with any proceeding brought pursuant to this subsection (d)(2) shall be borne equally by the parties.
3. In the case of a Rookie or a Veteran who did not play during the immediately preceding Season, a Performance Bonus will be included in Salary if it is likely to be earned. In the event that the NBA and the Players Association cannot agree as to whether a Performance Bonus is likely to be earned, such dispute will be referred to the Expert, who will determine whether the bonus is likely to be earned or not likely to be earned. The Expert shall conduct a hearing within five (5) business days after the initiation of the proceeding, and shall render a determination within five (5) business days after the hearing. The Expert’s determination that a Performance Bonus is likely to be earned or not likely to be earned shall be final, binding and unappealable. The fees and costs of the Expert in connection with any proceeding brought pursuant to this subsection (d)(3) shall be borne equally by the parties.
4. In the event that either party initiates a proceeding pursuant to subsection (d)(2) or (3) above, the player’s Salary plus the full amount of any disputed bonuses shall be included in Team Salary during the pendency of the proceeding.
5. In the event the NBA and the Players Association cannot agree on an Expert, any challenge pursuant to subsections (d)(2) and (3) above may be filed with the Grievance Arbitrator in accordance with Article XXXI, Sections 2-6 and 14.
6. Notwithstanding anything to the contrary in Section 3(g) below, all Incentive Compensation described in Article II, Sections 3(c)(iv) and 3(d) shall be included in Salary.
Foreign Player Payments.
1. Any amount in excess of $350,000 paid or to be paid by or at the direction of any NBA Team to (i) any basketball team other than an NBA Team, or (ii) any other entity, organization, representative or person, for the purpose of inducing a foreign player (as defined in Article X, Section 6) to enter into a Player Contract or in connection with securing the right to enter into a Player Contract with a foreign player shall be deemed Salary (in the form of a signing bonus) to the player.
2. Subject to Article XIII, any payment of $350,000 or less paid by or at the direction of any NBA Team pursuant to subsection (1) above (the “$350,000 exclusion”), shall not be deemed Salary to the player.
3. The $350,000 exclusion may be paid in a single installment or in multiple installments. The $350,000 exclusion, whether used in whole or in part, may be used by an NBA Team whenever it signs a foreign player to a new Player Contract, except that the $350,000 exclusion may not be used, in whole or in part, more than once in any three-Season period with respect to the same foreign player.
4. The $350,000 exclusion, or any part of it, shall be deemed to have been used as of the date of the Player Contract to which it applies, regardless of when it is actually paid. A schedule of payments relating to the $350,000 exclusion, or any part of it, agreed upon at the time of the signing of the Player Contract to which it applies, shall not be deemed a multiple use of the $350,000 exclusion.
5. Notwithstanding subsection (e)(1) above, no amount paid or to be paid pursuant to this subsection (e) shall be counted toward the Minimum Team Salary obligation of a Team in accordance with Section 2(b) or (c) above.
One-Year Minimum Contracts.
Except where otherwise stated in this Agreement, the Salary of every player who, after the date of this Agreement, signs a one-year, 10-Day or Rest-of-Season Contract for the Minimum Player Salary applicable to such player shall be the lesser of (i) such Minimum Player Salary, or (ii) the portion of such Minimum Player Salary that is not reimbursed out of the league-wide benefits fund described in Article IV, Section 1(l).
Existing Contracts.
A player’s Salary with respect to any Salary Cap Year covered by a Contract entered into prior to the date of this Agreement shall continue to be calculated in accordance with the Salary Cap rules that were in existence at the time the Contract was entered into. In no event shall the preceding sentence apply to the calculation of Salary with respect to any Contract, Extension or Renegotiation entered into on or after the date of this Agreement.

7.4 Determination of Team Salary.

Computation. For purposes of computing Team Salary under this Agreement, all of the following amounts shall be included:
1. Subject to the rules set forth in this Article VII, the aggregate Salaries of all active players (and former players to the extent provided by the terms of this Agreement) attributable to a particular Salary Cap Year, including, without limitation:
  1. Salaries payable to players whose Player Contracts have been terminated pursuant to the NBA’s waiver procedure (without regard to any revised payment schedule that might be provided for in the terminated Player Contracts).
  2. Any amount called for in a retired player’s Player Contract paid or to be paid to the player.
  3. Amounts paid pursuant to awards or judgments for, or settlements of, disputes between a Player and a Team concerning Compensation obligations under a Player Contract except to the extent that such amounts were previously included in a player’s Salary. In the event that any amounts paid to a player as described in the preceding sentence relate to a Team’s Compensation obligation for only one (1) Season, such amounts shall be included in Team Salary for the Salary Cap Year during which the Team’s obligation to pay such amounts is determined, unless the Team’s obligation is determined during the period from November 1 through June 30 of any Salary Cap Year, in which case such amounts shall be included in Team Salary for the following Salary Cap Year. In the event that any such amounts relate to a Team’s Compensation obligation for more than one (1) Season, such amounts shall be included in Team Salary in equal amounts over the same number of Salary Cap Years, with the first such Salary Cap Year being the Salary Cap Year during which the Team’s obligation to pay such amounts is determined, unless the Team’s obligation is determined during the period from November 1 through June 30 of any Salary Cap Year, in which case the following Salary Cap Year shall be the first Salary Cap Year in which such amounts are included in Team Salary.
  4. Salaries anticipated to be included in Team Salary based upon any agreement disclosed to the NBA pursuant to Article II, Section 11(a)(i), except to the extent that any such Salary is less than a player’s Free Agent Amount (as defined in subsection (d) below).
2. 1. With respect to each Veteran Free Agent who last played for a Team who is an Unrestricted Free Agent, the Free Agent Amount (as defined in subsection (d) below) attributable to such Veteran Free Agent.
  2. With respect to each Veteran Free Agent who last played for a Team who is a Restricted Free Agent, the greater of (A) the Free Agent Amount (as defined in subsection (d) below) attributable to such Veteran Free Agent, (B) the Salary called for in any outstanding Qualifying Offer tendered to such Veteran Free Agent, or (C) the Salary called for in any First Refusal Exercise Notice issued with respect to such Veteran Free Agent.
3. The aggregate Salaries called for under all outstanding Offer Sheets.
4. An amount with respect to a Team’s unsigned First Round Pick, if any, as determined in accordance with subsection (e) below.
5. Beginning with the 1999-2000 Salary Cap Year, an amount with respect to the number of players fewer than eleven (11) included in a Team’s Team Salary, as determined in accordance with subsection (f) below.
6. Value or consideration received by retired players that is determined to be includable in Team Salary in accordance with Article XIII, Section 5.
7. The amount of any Salary Cap Exception that is deemed included in Team Salary in accordance with Section 6(k)(2) below.
Expansion.
The Salary of any player selected by an Expansion Team in an expansion draft and terminated in accordance with the NBA waiver procedure before the first day of the Expansion Team’s first Season shall not be included in the Expansion Team’s Team Salary, except, to the extent such Salary is paid, for purposes of determining whether the Expansion Team has satisfied its Minimum Team Salary obligation for such Season.
Assigned Contracts. For purposes of calculating Team Salary, with respect to any Player Contract that is assigned, the assignee Team shall, upon assignment, have included in its Team Salary the entire Salary for the then-current Salary Cap Year and for all future Salary Cap Years.
Free Agents.
Subject to subsection (a)(2)(ii) above, until a Team’s Veteran Free Agent re-signs with his Team, signs with another NBA Team, or is renounced, he will be included in his prior Team’s Team Salary at one of the following amounts (“Free Agent Amounts”):
1. 1. A Qualifying Veteran Free Agent, other than a Qualifying Veteran Free Agent following the last Season of his Rookie Scale Contract, will be included at 150% of his prior Salary if it was equal to or greater than the Estimated Average Player Salary, and 200% of his prior Salary if it was less than the Estimated Average Player Salary.
  2. A Qualifying Veteran Free Agent following the last Season of his Rookie Scale Contract will be included at the following amounts:
    1. For the 1998-99 Salary Cap Year: 200% of the player’s prior Salary if it was equal to or greater than the Estimated Average Player Salary, and 300% of his prior Salary if it was less than the Estimated Average Player Salary.
    2. For the 1999-2000 Salary Cap Year: 225% of the player’s prior Salary if it was equal to or greater than the Estimated Average Player Salary, and 300% of his prior Salary if it was less than the Estimated Average Player Salary.
    3. For the 2000-01 through 2003-04 Salary Cap Years (and for the 2004-05 Salary Cap Year if the NBA exercises its option to extend this Agreement pursuant to Article XXXIX): 250% of the player’s prior Salary if it was equal to or greater than the Estimated Average Player Salary, and 300% of his prior Salary if it was less than the Estimated Average Player Salary.
2. An Early Qualifying Veteran Free Agent will be included at 130% of his prior Salary; provided, however, that the player’s prior Team may, by written notice to the NBA, renounce its rights to sign the player pursuant to the Early Qualifying Veteran Free Agent Exception, in which case the player will be deemed a Non-Qualifying Veteran Free Agent for purposes of this Section 4(d) and Section 6(b) below.
3. A Non-Qualifying Veteran Free Agent will be included at 120% of his prior Salary.
4. Notwithstanding subsections (d)(1) - (3) above, if the player’s prior Salary was equal to or less than the Minimum Player Salary applicable to such player, he will be included at the portion of the then-current Minimum Annual Salary applicable to such player that would not be reimbursed out of the league-wide benefits fund described in Article IV, Section 1(l).
5. Notwithstanding subsections (d)(1) - (3) above, at no time shall a player’s Free Agent Amount exceed the Maximum Player Salary applicable to such player or be less than the portion of the Minimum Annual Salary applicable to such player that would not be reimbursed out of the league-wide benefits fund described in Article IV, Section 1(l).
6. For purposes of this subsection (d) only, a player’s “prior Salary” means his Regular Salary for the prior Season plus any signing bonus allocation and the amount of any Incentive Compensation actually earned for such Season.
7. For purposes of this subsection (d) only, in the event that a Veteran Free Agent’s prior Contract provides for an increase or decrease in Salary between the second-to-last and last Seasons covered by the Contract of greater than $4 million, such player’s prior Salary shall be deemed to be equal to the average of the Salaries for the last two Seasons of the Contract.
First Round Picks.
1. Beginning with the 1998 Draft, a First Round Pick, immediately upon selection in the Draft, shall be included in the Team Salary of the Team that holds his draft rights at 100% of his applicable Rookie Scale Amount, and, subject to subsection (e)(2) below, shall continue to be included in the Team Salary of any Team that holds his draft rights (including any Team to which the player’s draft rights are assigned) until such time as the player signs with such Team or until the Team loses or assigns its exclusive draft rights to the player.
2. In the event that a First Round Pick signs with a non-NBA team, the player’s applicable Rookie Scale Amount shall be excluded from the Team Salary of the Team that holds his draft rights, beginning on the date he signs such non-NBA contract or the first day of the Regular Season, whichever is later, and shall be included again in his Team’s Team Salary at the applicable Rookie Scale Amount on the following July 1 or the date the player’s contract ends (or the player is released from his non-NBA contractual obligations), whichever is earlier, unless the Team renounces its exclusive rights to the player in accordance with Article X, Section 3(f). If, after such following July 1, or any subsequent July 1, the player signs another, or remains under, contract with a non-NBA team, the player’s applicable Rookie Scale Amount will again be excluded from Team Salary beginning on the date of the contract signing or the first day of the Regular Season commencing after such July 1, whichever is later, and will again be included in Team Salary at the applicable Rookie Scale Amount on the following July 1 or the date the player’s contract ends (or the player is released from his non-NBA contractual obligations), whichever is earlier, unless the Team renounces its exclusive rights to the player in accordance with Article X, Section 3(f).
3. For purposes of this Section 4(e), in the event that a First Round Pick does not sign a Contract with the Team that holds his draft rights during the Salary Cap Year immediately following the Draft in which he was selected (or during the same Salary Cap Year in which he was drafted if the Draft occurs on or after July 1), the “applicable Rookie Scale Amount” for such First Round Pick means, with respect to any subsequent Salary Cap Year, the Rookie Scale Amount that would apply if the player were drafted in the Draft immediately preceding such Salary Cap Year at the same draft position at which he was actually selected.
Incomplete Rosters.
1. Beginning with the 1999-2000 Salary Cap Year, if at any time from July 1 through the day prior to the first day of the Regular Season a Team has fewer than eleven (11) players, determined in accordance with subsection (f)(2) below, included in its Team Salary, then the Team’s Team Salary shall be increased by an amount calculated as follows:
  
  STEP 1: Subtract from eleven (11) the number of players included in Team Salary.
  
  STEP 2: If the result in Step 1 is a positive number, multiply the result in Step 1 by the Minimum Annual Salary applicable to players with zero (0) Years of Service for that Salary Cap Year.
2. In determining whether a Team has fewer than eleven (11) players included in its Team Salary for purposes of subsection (1) above only, the only players who shall be counted are (i) players on the Team’s Active List (including any injured players) who are included in Team Salary, (ii) Free Agents who are included in Team Salary pursuant to Section 4 (a)(2) above, and (iii) unsigned First Round Picks who are included in Team Salary pursuant to Section 4(e) above.
Renouncing.
1. To renounce a Veteran Free Agent, a Team must provide the NBA with an express, written statement renouncing its right to re-sign the player, effective no earlier than the July 1 following the last Season covered by the player’s Contract. (The NBA shall notify the Players Association of any such renunciation by fax within two (2) business days following receipt of notice of such renunciation.) From the date of such renunciation until the following July 1, the player’s Prior Team will only be permitted to re-sign such player with Room (i.e., the Team cannot sign such player pursuant to Section 6(b) below) or pursuant to the Minimum Player Salary Exception. Notwithstanding the foregoing, in the event a Team renounces one or more players in order to create Room for an Offer Sheet, and the offeree-player’s Prior Team subsequently matches the Offer Sheet and enters into a Contract with that player, the Team may rescind the renunciation(s) within two (2) business days of the date the Offer Sheet is matched, whereupon any such “unrenounced” player may again sign a Player Contract with his Prior Team as a Qualifying Veteran Free Agent, Early Qualifying Veteran Free Agent, or Non-Qualifying Veteran Free Agent, as the case may be, and will again be included in his Prior Team’s Team Salary at his applicable Free Agent Amount. Notwithstanding the foregoing, a Team may not rescind the renunciation of a player if (i) at the time the player was renounced the Team’s Team Salary was at or below the Salary Cap and “unrenouncing” the player would cause the Team’s Team Salary to exceed the Salary Cap, or (ii) at the time the player was renounced the Team’s Team Salary was above the Salary Cap and “unrenouncing” the player would cause the Team’s Team Salary to exceed the Salary Cap by more than the amount by which Team Salary exceeded the Salary Cap prior to the renunciation.
2. A Team cannot renounce any player to whom the Team has made a Qualifying Offer until such time as the Qualifying Offer no longer is in effect.
Long-Term Injuries. Any player who suffers a career-ending injury or illness, and whose contract is terminated by the Team in accordance with the NBA waiver procedure, will be excluded from his team’s Team Salary as follows:
1. If the injury or illness occurs on or after July 1, but prior to January 1 of any Season, then, beginning on the second July 1 following the injury or illness, the Team may apply to the NBA to have the player’s Salary for each remaining Season of the Contract excluded from Team Salary. (For example, if the career-ending injury or illness occurs on August 1, 1999, the Team may apply to have the player’s Salary excluded from Team Salary beginning on July 1, 2001.)
2. If the injury or illness occurs on or after January 1 but prior to the subsequent July 1, then, beginning on the second anniversary of the injury or illness, the Team may apply to the NBA to have the player’s Salary for each remaining Season of the Contract excluded from Team Salary.
3. The determination of whether a player has suffered a career-ending injury or illness shall be made by a physician selected jointly by the NBA and the Players Association.
4. Notwithstanding subsections (1) through (3) above, a player’s Salary shall not be excluded from Team Salary if, after the date on which a career-ending injury or illness is alleged to have occurred but before his Salary is excluded from Team Salary, the player played in more than ten (10) NBA games in any one (1) Season or in a total of fifteen (15) games over two (2) Seasons.
5. Notwithstanding subsections (1) through (3) above, if, after a player’s Salary is excluded from Team Salary in accordance with this Section 4(h), the player plays in ten (10) NBA games in any one (1) Season, the excluded Salary for that Season and each subsequent Season shall thereupon be included in Team Salary. If, after a player’s Salary is excluded from Team Salary in accordance with this Section 4(h), the player plays in fifteen (15) or more NBA games over two (2) Seasons but did not play in ten (10) games in the first of such two (2) Seasons, the excluded Salary for the second Season and each subsequent Season shall thereupon be included in Team Salary. After a player’s Salary for one (1) or more Seasons has been included in Team Salary in accordance with this subsection (h)(5), the player’s Team shall be permitted at the appropriate time to re-apply to have the player’s Salary (for each Season remaining at the time of the re-application) excluded from Team Salary in accordance with the rules set forth in this Section 4(h).
Summer Contracts.
1. Except as provided in subsection (i)(2) below, from August 1 until the day prior to the first day of the next Regular Season, a Team may enter into Player Contracts that will not be included in Team Salary until the first day of such Regular Season (i.e., the player will be deemed not to have any Salary until the first day of such Regular Season), provided that such Contracts satisfy the requirements of this Section 4(i) (a “Summer Contract”). Except as set forth in the following sentence, no Summer Contract may provide for (i) Compensation of any kind that is or may be paid or earned prior to the first day of the next Regular Season, or (ii) Compensation protection or insurance of any kind pursuant to Article II, Section 3(f) or 4. The only consideration that may be provided to a player signed to a Summer Contract, prior to the start of the Regular Season, is per diem, lodging, transportation, compensation in accordance with paragraph 3(b) of the Uniform Player Contract, and a disability insurance policy covering disabilities incurred while such player participates in summer leagues or rookie camps for the Team. A Team that has entered into one or more Summer Contracts must terminate such Contracts no later than the day prior to the first day of a Regular Season, except to the extent the Team has Room for such Contracts.
2. A Team may not enter into a Summer Contract with a Veteran Free Agent who last played for the Team unless the Contract is for one Season only and provides for no more than the Minimum Player Salary applicable to such player.
Team Salary Summaries.
1. The NBA shall provide the Players Association with Team Salary summaries and a list of current Exceptions and Base Year Compensations twice a month during the Regular Season and once every week during the off-season.
2. In the event that the NBA fails to provide the Players Association with any Team Salary summary or list of Exceptions or Base Year Compensations as provided for in subsection (j)(1) above, the Players Association shall notify the NBA of such failure, and the NBA, upon receipt of such notice, shall as soon as reasonably possible, but in no event later than two business days following receipt of such notice, provide the Players Association with any such summary or list that should have been provided pursuant to subsection (j)(1) above.

7.5 Operation of Salary Cap.

Basic Rule.
A Team’s Team Salary may not exceed the Salary Cap at any time unless the Team is using one of the Exceptions set forth in Section 6 below.
Room.
Subject to the other provisions of this Agreement, including without limitation Article II, Section 7, any Team with Room may enter into a Player Contract that calls for a Salary in the first Season of such Contract that would not exceed the Team’s then-current Room.
Annual Salary Increases and Decreases.
1. The following rules apply to all Player Contracts other than Contracts between Qualifying Veteran Free Agents or Early Qualifying Veteran Free Agents and their Prior Team:
  1. For each Season of a Player Contract after the first Season, the player’s Salary, excluding Incentive Compensation, may increase or decrease in relation to the previous Season’s Salary, excluding Incentive Compensation, by no more than 10% of the Regular Salary for the first Season of the Contract.
  2. In the event that the first Season of a Contract provides for Incentive Compensation, the total amount of Likely Bonuses in each subsequent Season of the Contract may increase or decrease by up to 10% of the amount of Likely Bonuses in the first Season, and the total amount of Unlikely Bonuses in each subsequent Season may increase or decrease by up to 10% of the amount of Unlikely Bonuses in the first Season.
2. The following rules apply to all Players Contracts between Qualifying Veteran Free Agents or Early Qualifying Veteran Free Agents and their Prior Team:
  1. For each Season of a Player Contract after the first Season, the player’s Salary, excluding Incentive Compensation, may increase or decrease in relation to the previous Season’s Salary, excluding Incentive Compensation, by no more than 12.5% of the Regular Salary for the first Season of the Contract.
  2. In the event that the first Season of a Contract provides for Incentive Compensation, the total amount of Likely Bonuses in each subsequent Season of the Contract may increase or decrease by up to 12.5% of the amount of Likely Bonuses in the first Season, and the total amount of Unlikely Bonuses in each subsequent Season may increase or decrease by up to 12.5% of the amount of Unlikely Bonuses in the first Season.
3. The following rules apply to Extensions other than Extensions of Rookie Scale Contracts:
  1. For each Season of an Extension after the first Season of the extended term, the player’s Salary, excluding Incentive Compensation, may increase or decrease in relation to the previous Season’s Salary, excluding Incentive Compensation, by no more than 12.5% of the Regular Salary for the last Season of the original term of the Contract.
  2. In the event that the last Season of the original term of the Contract provides for Incentive Compensation, the amount of Likely Bonuses and Unlikely Bonuses in each Season of the Extension after the first Season of the extended term may increase or decrease by up to 12.5% of the amount of Likely Bonuses and Unlikely Bonuses, respectively, in the last Season of the original term.
4. The following rules apply to Extensions of Rookie Scale Contracts:
  1. For each Season of an Extension of a Rookie Scale Contract after the first Season of the extended term, the Player’s Salary, excluding Incentive Compensation, may increase or decrease in relation to the previous Season’s Salary, excluding Incentive Compensation, by no more than 12.5% of the Regular Salary for the first Season of the extended term of the Contract.
  2. In the event that the first Season of the extended term of the Contract provides for Incentive Compensation, the amount of Likely Bonuses and Unlikely Bonuses in each Season of the Extension after the first Season of the extended term may increase or decrease by up to 12.5% of the amount of Likely Bonuses and Unlikely Bonuses, respectively, in the first Season of the extended term.
5. Notwithstanding anything to the contrary in subsections (1) through (4) above, the following rule applies to any Contract or Extension covering the 2000-01 Season plus one (1) or more subsequent Seasons: with respect to any Season after 2000-01, the player’s Salary may not be less than the player’s Salary for the 2000-01 Season.
6. For purposes of this Article VII, Section 5(c) only, the amount of any bonuses that a player may receive pursuant to Article II, Sections 3(c)(iv) and 3(d) shall be added to the player’s Regular Salary and excluded from his Incentive Compensation.
Performance Bonuses.
1. Notwithstanding any other provision of this Agreement, no Player Contract may provide for Unlikely Bonuses in any Season that exceed 25% of the player’s Regular Salary for such Season.
2. No Player Contract may provide for any Unlikely Bonus for the first Season of the Contract that, if included in the player’s Salary for such Season, would result in the Team’s Team Salary exceeding the Room under which it is signing the Contract. For the sole purpose of determining whether a Team has Room for a new Unlikely Bonus, the Team’s Room shall be deemed reduced by all Unlikely Bonuses in Contracts approved by the Commissioner that may be paid to all of the Team’s players that entered into Player Contracts (including Renegotiations) during that Salary Cap Year.
3. The following provisions shall apply to any Averaged Contract containing a Performance Bonus:
  1. In the event that at the end of any Season, a Performance Bonus that is included in a player’s Salary for a subsequent Season is determined to be no longer includable in Salary for that subsequent Season, the player’s Salary for such subsequent Season shall be reduced by the amount of such bonus.
  2. In the event that, at the end of any Season, a Performance Bonus that is not included in a player’s Salary for a subsequent Season is determined to be includable in Salary for that subsequent Season, the player’s Salary for such subsequent Season shall be increased by the amount of such Performance Bonus.
No Futures Contracts. Subject to subsection (e)(4) below, but notwithstanding any other provision in this Agreement:
1. Every Player Contract must cover at least the then-current Season (or the upcoming Season in the case of a Contract entered into from July 1 through the day prior to the first day of the Season).
2. No Team and player may enter into a Player Contract from the commencement of the Team’s last game of the Regular Season through the following June 30. The preceding sentence shall not prohibit a Team and player from entering into an amendment to an existing Player Contract during such period if such amendment would otherwise be permitted under this Agreement.
3. A Player Contract that covers more than one Season must be for a consecutive period of Seasons.
4. From February 1 through May 31 of any Salary Cap Year, a First Round Pick may enter into a Rookie Scale Contract commencing with the following Season, provided that as of or at any point following the first day of the then-current Regular Season (or the preceding Regular Season in the case of a Contract signed from the day following the last day of the Regular Season through May 31) the player was a party to a player contract with a professional basketball team not in the NBA covering such Regular Season.

7.6 Exceptions to the Salary Cap.

There shall be the following exceptions to the rule that a Team’s Team Salary may not exceed the Salary Cap:

Existing Contracts. A Team may exceed the Salary Cap to the extent of its current contractual commitments, provided that such contracts satisfied the provisions of this Agreement when entered into or were entered into prior to the date of this Agreement in accordance with the rules then in effect.
Veteran Free Agent Exception. Beginning on the August 1 following the last Season covered by a Veteran Free Agent’s Player Contract, such player may enter into a new Player Contract with his Prior Team (or, in the case of a player selected in an Expansion Draft that year, with the Team that selected such player in an Expansion Draft) as follows:
1. If the player is a Qualifying Veteran Free Agent, the new Player Contract may provide for Salary and Unlikely Bonuses in the first Season totaling up to the maximum amount provided for in Article II, Section 7. Notwithstanding the preceding sentence, if the player is a Qualifying Veteran Free Agent whose last Contract was his Rookie Scale Contract and whose Prior Team did not exercise the Fourth Year Option to extend such Contract for a fourth Season, the new Player Contract may provide for Regular Salary, Likely Bonuses and Unlikely Bonuses in the first Season of up to the Regular Salary, Likely Bonuses and Unlikely Bonuses, respectively, that the player would have received for such Season had his Prior Team exercised its Fourth Year Option. Annual increases and decreases in Salary and Unlikely Bonuses shall be governed by Section 5(c)(2) above.
2. If the player is a Non-Qualifying Veteran Free Agent, then, subject to Article II, Section 7, the new Player Contract may provide in the first Season up to the greater of: (i) 120% of the Regular Salary for the final Season of the player’s prior Contract, plus 120% of any Likely Bonuses and Unlikely Bonuses, respectively, called for in the final Season covered by the player’s prior Contract; (ii) 120% of the then-current Minimum Annual Salary applicable to the player; or (iii) in the case of a Contract between a Team and its Restricted Free Agent, the amount required to be provided in a Qualifying Offer. Annual increases and decreases in Salary and Unlikely Bonuses shall be governed by Section 5(c)(1) above.
3. If the player is an Early Qualifying Veteran Free Agent, the new Player Contract must cover at least two Seasons (not including a Season covered by an Option Year) and, subject to Article II, Section 7, may provide in the first Season up to the greater of: (i) 175% of the Regular Salary for the final Season covered by his prior Contract, plus 175% of any Likely Bonuses and Unlikely Bonuses, respectively, called for in the final Season covered by the player’s prior Contract, or (ii) 108% of the Average Player Salary for the prior Season (or if the prior Season’s Average Player Salary has not been determined, 108% of the Estimated Average Player Salary for the prior Season). Annual increases and decreases in Salary and Unlikely Bonuses shall be governed by Section 5(c)(2) above.
Disabled Player Exception.
1. Subject to the rules set forth in subsection (k) below, a Team may, in accordance with the rules set forth in this subsection (c), sign or acquire one Replacement Player to replace a player who, as a result of a Disabling Injury or Illness (as defined below), is unable to render playing services (the “Disabled Player”). Such Replacement Player’s Contract may provide a Salary for the first Season of up to the lesser of (i) 50% of the Disabled Player’s Salary at the time the Disabling Injury or Illness occurred, or (ii) 108% of the Average Player Salary for the prior Season (or, if the prior Season’s Average Player Salary has not been determined, 108% of the Estimated Average Player Salary for the prior Season). Annual increases and decreases in Salary and Unlikely Bonuses shall be governed by Section 5(c)(1) above.
2. For purposes of this subsection (c), Disabling Injury or Illness means:
  1. for the period July 1 through the immediately following November 30, any injury or illness that will render a player unable to play all (or the remainder) of the Season immediately following such July 1; and
  2. for the period December 1 through the immediately following June 30, any injury or illness that will render a player unable to play all of the following Season.
3. The Exception for a Disabling Injury or Illness that occurs during the period July 1 through the immediately following November 30 shall arise on the earlier of (i) forty-five (45) days prior to the last day of the Regular Season immediately following such July 1, or (ii) the date the Team knew or reasonably should have known that the injury or illness would cause the player to miss the Season immediately following such July 1, and shall expire 45 days from the date the Exception arises.
4. The Exception for a Disabling Injury or Illness that occurs during the period December 1 through the immediately following June 30 shall arise on the earlier of (i) forty-five (45) days prior to the October 1 immediately following the date on which the Disabling Injury or Illness occurs, or (ii) the date the Team knew or reasonably should have known that the injury or illness would cause the player to miss all of the following Season; provided, however, that if the Team knew or reasonably should have known prior to the July 1 immediately following the injury or illness that the injury or illness would cause the player to miss all of the following Season, and if the Team does not use the Exception prior to such July 1, then the Exception shall be deemed to arise on August 1. The Exception for a Disabling Injury or Illness that occurs during the period December 1 through the immediately following June 30 shall expire on the October 1 immediately following the date on which the Exception arises.
5. The determination of whether a player has suffered a Disabling Injury or Illness shall be made by a physician designated by the NBA. The NBA shall advise the Players Association of the determination of its physician within one business day of such determination. In the event the Players Association disputes the NBA physician’s determination, the parties will immediately refer the matter to a neutral physician (to be selected by the parties at the commencement of each Salary Cap Year) to review the relevant medical information and, if requested, examine the player. Within three business days of his receipt of such information (and examination of the player, if requested), the neutral physician shall make a final determination, which will be final, binding and unappealable. The cost of the NBA physician will be borne by the NBA. The cost of the neutral physician will be borne jointly by the NBA and the Players Association.
6. If a Team requests an Exception pursuant to this subsection (c), the player with respect to whom the request is made shall cooperate in the processing of the request, including by appearing at the scheduled place and time for examination by the NBA-appointed physician and, if necessary, the neutral physician.
7. Notwithstanding a determination by a physician designated by the NBA that a player has suffered a Disabling Injury or Illness, such player, upon recovering from his injury or illness, may be restored to his Team’s Active List, without affecting any right the Team may have to sign a Replacement Player.
8. In no event may a Team enter into a Contract with a Replacement Player pursuant to subsection (c)(4) above, unless the Disabled Player’s Contract covers the Season following the Season in which the Disabling Injury or Illness occurs.
9. The Disabled Player Exception is available only to the Team with which the player was under Contract at the time his Disabling Injury or Illness occurred.(10) If a Team makes a request for an Exception to replace a Disabled Player pursuant to this subsection (c) and such request is denied, the Team shall not be permitted to make any subsequent request for an Exception to replace the same player unless ninety (90) days have passed since the first request was denied and the Team establishes that the subsequent request is based on a new injury or an aggravation of the same injury.
$1 Million Exception. Subject to the rules set forth in subsection (k) below:
1. A Team may sign one or more Player Contracts, not to exceed two Seasons in length, that, in the aggregate, provide for first-year Salaries and Unlikely Bonuses totaling up to the amounts set forth below:
  1. For the 1998-99 Season: $1 million
  2. For the 1999-2000 Season: $1.1 million
  3. For the 2000-01 Season: $1.2 million
  4. For the 2001-02 Season: $1.3 million
  5. For the 2002-03 Season: $1.4 million
  6. For the 2003-04 Season: $1.5 million
  7. For the 2004-05 Season $1.6 million
    (the NBA exercises its option to extend this Agreement pursuant to Article XXXIX)
2. A Team may use all or any portion of the $1 Million Exception to sign one or more new Player Contracts during no more than three (3) separate Salary Cap Years during the term of this Agreement (or no more than four (4) separate Salary Cap Years if the NBA exercises its option to extend this Agreement pursuant to Article XXXIX); provided, however, that the $1 Million Exception or any portion thereof may not be used in any two (2) consecutive Salary Cap Years. The prohibition in the preceding sentence against using the $1 Million Exception or any portion thereof in any two (2) consecutive Salary Cap Years shall apply to the 1997-98 Salary Cap Year (i.e., if a Team used all or any portion of the $1 Million Exception during the 1997-98 Salary Cap Year, that Team shall not be permitted to use all or any portion of the $1 Million Exception during the 1998-99 Salary Cap Year).
3. Player Contracts signed pursuant to the $1 Million Exception covering two (2) Seasons may provide for an increase or decrease in Salary and Unlikely Bonuses for the second Season in accordance with Section 5(c)(1) above.
4. The $1 Million Exception, if applicable, arises on August 1 of each Salary Cap Year and expires on the last day of the Team’s Regular Season during that Salary Cap Year.
Mid-Level Salary Exception. Subject to the rules set forth in subsection (k) below:
1. A Team may sign one (1) or more Player Contracts during each of the 1998-99 through 2000-01 Salary Cap Years, not to exceed six (6) Seasons in length, that, in the aggregate, provide for first-year Salaries and Unlikely Bonuses totaling up to the amounts set forth below:
  1. For the 1998-99 Season: $1.75 million;
  2. For the 1999-2000 Season: $2.0 million;
  3. For the 2000-01 Season: $2.25 million;
2. A Team may sign one (1) or more Player Contracts during each of the 2001-02 through 2003-04 Salary Cap Years (and during the 2004-05 Salary Cap Year if the NBA exercises its option to extend this Agreement pursuant to Article XXXIX), not to exceed six (6) Seasons in length, that, in the aggregate, provide for first-year Salaries and Unlikely Bonuses totaling up to 108% of the Average Player Salary for the prior Season (or, if the prior Season’s Average Player Salary has not been determined, 108% of the Estimated Average Player Salary for the prior Season).
3. Player Contracts signed pursuant to the Mid-Level Salary Exception may provide for annual increases and decreases in Salary and Unlikely Bonuses in accordance with Section 5(c)(1) above.
4. The Mid-Level Salary Exception shall arise on August 1 of each Salary Cap Year and shall expire on the last day of the Team’s Regular Season during that Salary Cap Year.
Rookie Exception. A Team may enter into a Rookie Scale Contract in accordance with Article VIII.
Minimum Player Salary Exception. A Team may sign a player to, or acquire by assignment, a Player Contract, not to exceed two (2) Seasons in length, that provides for a Salary for the first Season equal to the Minimum Player Salary applicable to that player (with no Unlikely Bonuses). A Player Contract signed pursuant to the Minimum Player Salary Exception covering two (2) Seasons shall provide for a Salary for the second Season equal to the Minimum Player Salary applicable to the player for such Season (with no Unlikely Bonuses).
Assigned Player Exception.
1. Subject to the rules set forth in subsection (k) below, a Team may, for a period of one year following the date of the assignment of a Player Contract to another Team, replace the Traded Player with one or more players acquired by assignment as follows:
  1. A Team may replace a Traded Player with one or more Replacement Players whose Player Contracts are acquired simultaneously and whose post-assignment Salaries for the then-current Salary Cap Year, in the aggregate, are no more than an amount equal to 115% of the pre-assignment Salary (or Base Year Compensation, if applicable) of the Traded Player, plus $100,000.
  2. If a Team’s assignment of a Traded Player and acquisition of one or more Replacement Players do not occur simultaneously, then the post-assignment Salary or aggregate Salaries of the Replacement Player(s) for the Salary Cap Year in which the Replacement Player(s) are acquired may not exceed 100% of the pre-assignment Salary (or Base Year Compensation, if applicable) of the Traded Player at the time the Traded Player’s Contract was assigned, plus $100,000.
  3. A Team may aggregate the pre-assignment Salaries in two or more Player Contracts for the purpose of acquiring in a simultaneous trade one or more Replacement Players whose post-assignment Salaries, in the aggregate, are no more than an amount equal to 115% of the pre-assignment aggregated Salaries (or Base Year Compensations, if applicable) of the Traded Players, plus $100,000. Notwithstanding the preceding sentence, no Player Contract acquired pursuant to an Exception may give rise to an aggregated trade exception for a period of two months from the date the Player Contract is acquired.
2. Except as provided in subsection (h)(3) below, and notwithstanding subsection (k) below, a Team with a Team Salary below the Salary Cap may acquire one or more players by assignment whose post-assignment Salaries, in the aggregate, are no more than an amount equal to the Team’s Room plus $100,000.
3. In lieu of conducting a trade in accordance with subsection (h)(2) above, and notwithstanding subsection (k) below, a Team with a Team Salary below the Salary Cap may (i) replace a Traded Player with one or more Replacement Players whose Player Contracts are acquired simultaneously and whose post-assignment Salaries for the then-current Season, in the aggregate, are no more than an amount equal to 115% of the pre-assignment Salary of the Traded Player, plus $100,000, or (ii) aggregate the pre-assignment Salaries in two or more Player Contracts for the purpose of acquiring in a simultaneous trade one or more Replacement Players whose post-assignment Salaries, in the aggregate, are no more than an amount equal to 115% of the pre-assignment aggregated Salaries of the Traded Players, plus $100,000. Notwithstanding the preceding sentence, no Player Contract acquired pursuant to an Exception may be assigned by a Team in accordance with this subsection (h)(3) for a period of two months from the date the Player Contract is acquired.
4. 1. For purposes of the Assigned Player Exception, a player shall be subject to a Base Year Compensation in the event that the Team Salary of the player’s Team is at or above the Salary Cap and the player:
    1. is a Qualifying Veteran Free Agent or Early Qualifying Veteran Free Agent who, in accordance with Section 6(b) above, enters into a new Player Contract with his prior Team that provides for a Salary for the first Season of such new Contract greater than 120% of the Salary for the last Season of the player’s immediately prior Contract;
    2. is a First Round Pick who, in accordance with Section 7(b) below, enters into an Extension of his Rookie Scale Contract that provides for a Salary for the first Season of the extended term greater than 120% of the Salary for the last Season of the original term of the Contract;
    3. is subject to a Base Year Compensation on the date of this Agreement; or
    4. will be subject to a Base Year Compensation on some future date based upon an Extension entered into prior to the date of this Agreement.
  2. A player’s Base Year Compensation shall be computed as follows with respect to Contracts or Extensions entered into prior to July 1, 2001 (including Contracts or Extensions signed prior to the date of this Agreement):
    1. During the first 365 days from the date a player’s Base Year Compensation goes into effect (“Year One”), his Base Year Compensation will equal the greater of (1) the Salary for the last Season of his preceding Contract or, in the case of an Extension, the last Season of the original term of the Contract (the preceding amount hereinafter referred to as the “Base Year Salary”), or (2) 50% of the Salary for Year One of his new Contract (or extended term, if applicable).
    2. During the second 365 days from the date the player’s Base Year Compensation goes into effect (“Year Two”), his Base Year Compensation will equal the greater of (1) 120% of his Base Year Salary, or (2) 75% of the Salary for Year Two of his new Contract (or extended term, if applicable).
    3. A player’s Base Year Compensation will expire and be of no further effect on the 731st day of his new Contract (or extended term, if applicable).
  3. A player’s Base Year Compensation shall be computed as follows with respect to Contracts or Extensions entered into on or after July 1, 2001: (A) During the first 365 days from the date a player’s Base Year Compensation goes into effect (“Year One”), his Base Year Compensation will equal the greater of (1) the Salary for the last Season of his preceding Contract or, in the case of an Extension, the last Season of the original term of the Contract, or (2) 50% of the Salary for Year One of his new Contract (or extended term, if applicable). (B) A player’s Base Year Compensation will expire and be of no further effect on the 366th day of his new Contract (or extended term, if applicable).
  4. In the event a player who is subject to a Base Year Compensation during the last Season of his Contract (“Prior Contract”) signs a new Player Contract or Extension with his Prior Team, the player shall continue to be subject to a Base Year Compensation in his new Contract or Extension through (A) in the case of a Prior Contract entered into prior to July 1, 2001, the 730th day from the date the player’s Base Year Compensation went into effect, and (B) in the case of a Prior Contract entered into on or after July 1, 2001, the 365th day from the date the player’s Base Year Compensation went into effect. For purposes of computing such Base Year Compensation during the new Contract or Extension, the player’s Base Year Salary shall equal the Base Year Compensation applicable in the last Season of his prior Contract or, in the case of an Extension, the last Season of the original term of the Contract. Notwithstanding the foregoing, in the event the player is a Qualifying Veteran Free Agent or an Early Qualifying Veteran Free Agent, and the new Contract would itself subject the player to a Base Year Compensation in accordance with subsection (h)(4)(i)(A) above, then the player shall be subject to a new Base Year Compensation for (C) in the case of a new Contract entered into prior to July 1, 2001, a period of 730 days from the date the new Contract is signed, or (D) in the case of a new Contract entered into after July 1, 2001, a period of 365 days from the date the new Contract is signed, and such new Base Year Compensation shall be computed in accordance with subsection (h)(4)(ii) or (iii) above.
  5. A player’s Base Year Compensation shall be extinguished upon any of the following:
    1. The Team Salary of the player’s Team falls below the Salary Cap, unless this occurs prior to the beginning of an extended term described in subsection (h)(4)(i)(B) or (D) above;
    2. The player signs a Contract with a Team other than his Prior Team; or
    3. The player is traded, unless the trade occurs prior to the beginning of an extended term described in subsection (h)(4)(i)(B) or (D) above.
Reinstatement. If a player has been disqualified from further association with the NBA and subsequently reinstated pursuant to Article XXXIII (Anti-Drug Agreement), the Team for which the player last played may enter into a Player Contract with such player in accordance with the applicable rules set forth in Article XXXIII, Section 6(f) or 13(d), even if the Team has a Team Salary at or above the Salary Cap or such Player Contract causes the Team to have a Team Salary above the Salary Cap. If, in accordance with the preceding sentence, a Team and a player enter into a Player Contract and such Contract covers more than one Season, annual increases and decreases in Salary and Unlikely Bonuses shall be governed by Section 5(c)(1) above.
Non-Aggregation. Other than in accordance with subsection (h) above, a Team may not aggregate or combine any of the Exceptions set forth above in order to sign or acquire one or more players at Salaries greater than that permitted by any one of the Exceptions. If a Team has more than one Exception available at the same time, the Team shall have the right to choose which Exception it wishes to use to sign or acquire a player.
Other Rules.
1. A Team shall be entitled to use the Disabled Player, $1 Million, Mid-Level Salary, and Assigned Player Exceptions set forth in subsections (c), (d), (e) and (h) above, respectively, except as set forth in subsections (h)(2) and (3) above, only if, at the time any such Exception would arise and at all times until it is used, the Team’s Team Salary, excluding the amount(s) of such Exception and any other Exception that would be included in Team Salary pursuant to subsection (k)(2) below, is (i) at or above the Salary Cap, or (ii) below the Salary Cap by less than the amount(s) of the Team’s Exception(s).
2. In the event that when a Disabled Player Exception, $1 Million Exception, Mid-Level Salary Exception and/or Assigned Player Exception arises, the Team’s Team Salary is below the Salary Cap (or in the event that, prior to the expiration of any such Exceptions, the Team’s Team Salary falls below the Salary Cap) by less than the amount of such Exceptions, then (i) the Team’s Team Salary shall include, until the Exceptions are actually used or until the Team no longer is entitled to use the Exceptions, the amount of the Exceptions (or any unused portion of the Exceptions), and (ii) the amount by which the Team’s Team Salary is less than the Salary Cap shall thereby be extinguished. When the Disabled Player Exception is used to sign or acquire a player, the Replacement Player’s Salary for the first Season of his Contract, instead of the amount of the Exception, shall be included in Team Salary. When a $1 Million Exception or Mid-Level Salary Exception is used to sign a player, or when an Assigned Player Exception is used to acquire a player, the Salary for the first Season of the signed or acquired Contract plus any then-unused portion of the Exception, instead of the full amount of the Exception, shall be included in Team Salary. A Team may at any time renounce its rights to use an Exception, in which case the Exception (or any unused portion of the Exception) will no longer be included in Team Salary.

7.7 Extensions, Renegotiations and Other Amendments.

Veteran Extensions. No Player Contract, other than a Rookie Scale Contract, may be extended except in accordance with the following:
1. Subject to the rules set forth in subsection (2) below, a Player Contract covering a term of six (6) or seven (7) Seasons may be extended no sooner than the fourth anniversary of the signing of the Contract, and a Player Contract with a term of four (4) or five (5) Seasons may be extended no sooner than the third anniversary of the signing of the Contract.
2. A Player Contract that has been extended, or that has been renegotiated to provide for an increase in Salary in any Season of the Contract of more than 10%, may not subsequently be extended until the third anniversary of such Extension or Renegotiation.
3. Subject to Article II, Section 7, a Player Contract extended in accordance with this Section 7(a) may, in the first Season of the extended term, provide for a Salary of up to 112.5% of the Regular Salary in the last Season of the original term of the Contract. In the event that the last Season of the original term of the Contract provides for Incentive Compensation, the first Season of the extended term may provide for Likely Bonuses and Unlikely Bonuses of up to 112.5% of the Likely Bonuses and Unlikely Bonuses, respectively, in the last Season of the original term. Annual increases and decreases in Salary and Unlikely Bonuses shall be governed by Section 5(c)(3) above.
4. Notwithstanding subsection (a)(3) above:
  1. Subject to Article II, Section 7, any Averaged Contract may, in the first Season of an extended term, provide for a Salary of up to the greater of (A) 112.5% of the averaged Regular Salary in the last Season of the original term of the Contract, or (B) 112.5% of what the Regular Salary would have been in the last Season of the original term had the Contract not been averaged. In the event that the last Season of the original term of the Contract provides for Incentive Compensation, the first Season of the extended term may provide for Likely Bonuses and Unlikely Bonuses of up to 112.5% of the Likely Bonuses and Unlikely Bonuses, respectively, in the last Season of the original term. Annual increases and decreases in Salary and Unlikely Bonuses shall be governed by Section 5(c)(3) above, except that, for purposes of this Section 7(a)(4)(i) only, the phrase “Regular Salary” in Section 5(c)(3) above shall be deemed to mean the greater of (x) the averaged Regular Salary in the last Season of the original term of the Contract, or (y) what the Regular Salary would have been in the last Season of the original term had the Contract not been averaged.
  2. Subject to Article II, Section 7, any Player Contract of a player who has played for his current Team for at least ten (10) Seasons and whose Salary in the last Season of the original term of the Contract is less than the Salary in the second-to-last Season of such Contract may, in the first Season of an extended term, provide for a Salary equal to 112.5% of the greater of (1) the average of the Regular Salaries for each Season covered by the original Contract beginning with the Season in which such Contract was entered into, or previously extended, as the case may be, or (2) the Regular Salary in the last Season covered by his original Contract. In the event that the last Season of the original term of the Contract provides for Incentive Compensation, the first Season of the extended term may provide for Likely Bonuses and Unlikely Bonuses of up to 112.5% of the Likely Bonuses and Unlikely Bonuses, respectively, in the last Season of the original term. Annual increases and decreases in Salary and Unlikely Bonuses shall be governed by Section 5(c)(3) above, except that, for purposes of this Section 7(a)(4)(ii) only, the phrase “Regular Salary” in Section 5(c)(3) above shall be deemed to mean the greater of (x) the average of the Regular Salaries for each Season covered by the original Contract beginning with the Season in which such Contract was entered into, or previously extended, as the case may be, or (y) the Regular Salary in the last Season covered by the original Contract.
Rookie Scale Extensions.
1. A First Round Pick who, as of the date of this Agreement, has completed only one (1) Season of his Rookie Scale Contract may enter into an Extension of such Rookie Scale Contract during the period August 1, 1999 through October 31, 1999.
2. A First Round Pick who enters into a Rookie Scale Contract on or after the date of this Agreement may enter into an Extension of such Rookie Scale Contract during the period August 1 through October 31 of the Option Year provided for in such Contract (assuming the Team exercises such Option).
3. An Extension of a Rookie Scale Contract may provide for Salary and Unlikely Bonuses in the first Season of the extended term totaling no more than the maximum amount provided for in Article II, Section 7. Annual increases and decreases in Salary and Unlikely Bonuses shall be governed by Section 5(c)(4) above.
Renegotiations. No Player Contract may be renegotiated except in accordance with the following:
1. Subject to subsections (c)(2) and (3) below, a Player Contract covering a term of four or more Seasons may be renegotiated no sooner than the third anniversary of the signing of the Contract.
2. Subject to subsection (c)(3) below, any Player Contract that has been renegotiated in accordance with subsection (c)(1) above to provide for an increase in Salary or Incentive Compensation in any Season of the Contract of more than 10%, or extended in accordance with subsection (a) or (b) above, may not subsequently be renegotiated until the third anniversary of such Extension or Renegotiation.
3. Assuming subsections (1) or (2) above are satisfied, a Team with a Team Salary below the Salary Cap may renegotiate a Player Contract in accordance with the following rules:
  1. Subject to Article II, Section 7, the Renegotiation may provide for additional Regular Salary, Likely Bonuses and/or Unlikely Bonuses for the then-current Season of the Contract (or the upcoming Season in the case of a Renegotiation entered into from August 1 through the day prior to the first day of the Season) (the “Renegotiation Season”) that, in the aggregate, would not exceed the Team’s Room at the time of the Renegotiation.
  2. Every category (Regular Salary, Likely Bonuses and Unlikely Bonuses, respectively) that is increased for the Renegotiation Season must also be increased for each of the remaining Seasons of the Contract. For each Season of the Contract after the Renegotiation Season, the player’s additional Regular Salary may increase or decrease over the previous Season’s additional Regular Salary by no more than 12.5% of the additional Regular Salary provided for in the Renegotiation Season. In the event that the Renegotiation Season provides for additional Incentive Compensation, the amount of additional Likely Bonuses and Unlikely Bonuses provided for in each Season after the Renegotiation Season may increase or decrease by up to 12.5% of the amount of additional Likely Bonuses and Unlikely Bonuses, respectively, provided for in the Renegotiation Season.
  3. No Renegotiation may contain a signing bonus, unless the Renegotiation is accompanied by an Extension and the signing bonus would otherwise be permitted under the rules governing the inclusion of signing bonuses in Extensions.
4. In no event may a Team with a Team Salary at or above the Salary Cap renegotiate a Player Contract.
5. In no event may a Team and a player renegotiate a Player Contract from March 1 through June 30 of any Salary Cap Year.
Other.
1. In no event shall a Team and player negotiate a decrease in Salary for the then-current Season (or upcoming Season in the event of a Renegotiation entered into from August 1 through the day prior to the first day of the Season), or for any remaining Season of a Player Contract.
2. A Player Contract that is extended pursuant to subsection (a) above may be renegotiated simultaneously, but only if and to the extent permitted by the rules set forth in subsection (c) above.
3. For the sole purpose of enabling an assignee Team to acquire a Player Contract by trade, the player and the assignor Team may agree to waive all or any portion of an assignment bonus, but only to the extent necessary to make the trade permissible in accordance with the rules set forth in Section 6(h) above, Article II, Section 7(e), or Article VIII, Section 1(d). In the event that, in connection with a trade, a player’s Contract is amended in accordance with this subsection (d)(3), such Contract may not be subsequently extended or renegotiated until the later of (i) six months from the date of the assignment, or (ii) the first date on which the Contract could otherwise be extended or renegotiated pursuant to this Section 7.
4. In the event that a Team and a player agree to amend a Player Contract in accordance with Article II, Section 3(n), then for purposes of calculating the player’s Salary for the then-current and any remaining Season, notwithstanding any stretch or acceleration of the player’s protected Compensation payment schedule, the aggregate reduction in the player’s protected Compensation shall be allocated pro rata over the then-current and each remaining Season of the Contract on the basis of the Salary in each such Season.
5. In no event shall a Team and player amend a Contract for the purpose of terminating or shortening the term of the Contract, except in accordance with the NBA waiver procedure or Article XII, Section 2.

7.8 Trade Rules.

A Team shall not be permitted to receive in connection with any trade, directly or indirectly, more than $3 million in cash or other compensation, including cash or other compensation received as reimbursement for Compensation obligations to players who the Team is acquiring.
A player with a one-year Contract who would be a Qualifying Veteran Free Agent or an Early Qualifying Veteran Free Agent upon completing the playing services called for under his Contract cannot be traded. Nothing in the preceding sentence shall prevent a Qualifying Veteran Free Agent or an Early Qualifying Veteran Free Agent from being traded in the last year of a multi-year Contract if such trade would otherwise be permitted under this Agreement.
A Team cannot trade any player after the NBA trade deadline occurring in the last Season of the player’s Contract, or after the NBA trade deadline occurring in any Season that could be the last Season of the player’s Contract based upon the exercise or non-exercise of an Option or Early Termination Option.
Except as set forth in subsection (e) below, no player who signs a Contract as a Free Agent or Draft Rookie may be traded before the later of (1) three (3) months following the date on which such Contract was signed or (2) the December 15 of the Salary Cap Year in which such Contract was signed.
A Veteran Free Agent and his Prior Team may enter into a Player Contract pursuant to an agreement between the Prior Team and another Team concerning the signing and subsequent assignment of such Contract, but only if (1) the Contract is for three (3) or more Seasons (excluding any Option Year), (2) the Contract is not signed pursuant to the Mid-Level Salary Exception or the Disabled Player Exception, (3) the first Season of the Contract is fully protected for lack of skill, and (4) the acquiring Team has Room for the player’s Salary plus any Unlikely Bonuses provided for in the first Season of the Contract. Notwithstanding anything to the contrary set forth in the preceding sentence, during the 1998-99 Season only, a Veteran Free Agent and his Prior Team may enter into a Player Contract pursuant to an agreement between the Prior Team and another Team concerning the signing and subsequent assignment of such Contract if (i) the conditions set forth in clauses (1) - (3) of the preceding sentence are satisfied, (ii) the acquiring Team’s Team Salary is below the Salary Cap and (iii) the acquiring Team has Room for the player’s Salary provided for in the first Season of the Contract.
In the event a Rookie Scale Contract is extended pursuant to Section 7(b) above and a Team proposes to assign such Contract to another Team prior to the July 1 immediately following such extension, then, for purposes of determining whether the acquiring Team has Room for the Contract only, the Salary for the last Season of the original term of the Contract shall be deemed to equal the average of the aggregate Salaries for such Season and each Season of the extended term.

7.9 Miscellaneous.

Except where this Agreement states otherwise, for purposes of any rule in this Agreement that limits, involves counting, or otherwise relates to, the number of Seasons covered by a Contract:
1. If a Player Contract is signed after the beginning of a Season, the Season in which the Contract is signed shall be counted as one (1) full Season covered by the Contract.
2. An Option Year shall be counted as one (1) Season covered by the Contract.
Except where this Agreement states otherwise, all of the rules in this Agreement that limit, affect the calculation of, or otherwise relate to, the Compensation or Salary provided for in a Player Contract shall apply to Option Years.

7.10 Accounting Procedures.

1. The NBA and the Players Association shall jointly engage an independent auditor (the “Accountants”) to provide the parties with an “Audit Report” (and a “Draft Audit Report,” an “Interim Audit Report” and, if applicable, an “Interim Escrow Audit Report”) setting forth BRI, Team Salary and Benefits of each NBA Team for the immediately preceding Salary Cap Year and, commencing with the audit reports prepared with respect to the 2001-02 Salary Cap Year, the information called for by Section 12 of this Article VII (the “Escrow Information”). The audit reports provided for by this subsection (a)(1) are to be prepared in accordance with the provisions and definitions contained in this Agreement. The engagement of the Accountants shall be deemed to be renewed annually unless they are discharged by either party during the period from the submission of an Audit Report up to January 1 of the following year. The parties agree to share equally the costs incurred by the Accountants in preparing the audit reports provided for by this subsection (a)(1).
2. The Accountants shall submit a “Draft Audit Report” to the NBA and the Players Association, along with relevant supporting documentation, on or before the July 15 following the conclusion of each Salary Cap Year. The final Audit Report shall be submitted by the Accountants to the parties on or before the following July 31, or, if necessary, at a later date promptly following the final resolution of all disputes (by agreement of the parties confirmed in writing or by means of the dispute-resolution procedures provided for by this Agreement). The NBA, the Players Association and the Teams shall use their best efforts to facilitate the Accountants’ timely completion of the Audit Report. In the event that, for any reason, the Accountants fail to submit to the parties a final Audit Report by July 31, the Accountants shall prepare an interim Audit Report (the “Interim Audit Report”) by such date setting forth the Accountants’ best estimate of BRI and Total Salaries and Benefits for the preceding Salary Cap Year and, commencing with such Interim Audit Report as may be prepared with respect to the 2001-02 Salary Cap Year and based upon such best estimates, the Escrow Information. Such Interim Audit Report shall include:
  1. All amounts of BRI and Total Salaries and Benefits (or the portions thereof) and all Escrow Information (or the portions thereof) for such Salary Cap Year as to which the Accountants have completed their review and, by written agreement of the Players Association and the NBA (waiving their respective rights to dispute such amounts), are not in dispute.
  2. With respect to any amounts of BRI or Total Salaries and Benefits (or portions thereof) as to which the Accountants have not completed their review or which are the subject of a good faith dispute between the parties, the NBA’s good faith proposal as to the proper amount, if any, that should be included in the Audit Report.
  3. With respect to any items of Escrow Information that are the subject of a good faith dispute between the parties, the Accountants’ good faith determination as to such items, taking into account the provisions of subsections (i) and (ii) of this Section 10(a)(2).
As soon as practicable after the Interim Audit Report is submitted to the parties, the Accountants shall submit the final Audit Report, including a description of the differences, if any, from the Interim Audit Report. An Audit Report shall not be deemed final until the parties have confirmed in writing their agreement with such Report or all disputes with respect to such Report have been finally resolved by means of the dispute-resolution procedures provided for by this Agreement.

If, at the conclusion of the Audit Report Challenge Period (as defined by Section 12(b)(4) below), the Accountants have not submitted or are unable to submit a final Audit Report (because, by way of example but not limitation, there are disputes or claims that have been asserted pursuant to Article XXXII, Section 9(c) and which remain pending), the Accountants shall prepare and submit to the parties, within five (5) business days following the completion of the Audit Report Challenge Period, an Interim Escrow Audit Report that shall include the information set forth in the Interim Audit Report as adjusted or amended so as to reflect any final determinations made by the System Arbitrator or the Appeals Panel (as the case may be) in proceedings commenced pursuant to Article XXXII, Section 9(b) and involving disputes or claims with respect to such Interim Audit Report. The sole purpose for which any Interim Escrow Audit Report is to be used under this Agreement is to perform or form the basis for the calculations to be made pursuant to Article VII, Section 12.
For purposes of determining BRI, Total Salaries and Benefits and the Escrow Information, the Accountants shall perform at least such review procedures as shall be agreed upon by the parties. In connection with the preparation of Audit Reports for each Salary Cap Year, each Team and the NBA shall submit a report to the Accountants, the NBA and the Players Association setting forth BRI, Team Salaries and Benefits information for such Salary Cap Year, on forms agreed upon by the NBA, the Players Association and the Accountants (the “BRI Reports”). The NBA and the Players Association shall agree upon such forms no later than April 1 of each Salary Cap Year.
The Accountants shall review the reasonableness of any estimates of revenues or expenses for a Salary Cap Year included in the Teams’ and the NBA’s BRI Reports for such Salary Cap Year and may make such adjustments in such estimates as they deem appropriate. To the extent the actual amounts of revenues received or expenses incurred for a Salary Cap Year differ from such estimates, adjustments shall be made in BRI for the following Salary Cap Year in accordance with the provisions of subsection (f) below.
With respect to expenses deducted by the NBA or the Teams, the NBA and the Teams shall report in BRI Reports only those expenses that are reasonable and customary in accordance with the provisions of Section 1(a)(1) of this Article VII. Subject to the terms of Section 1(a)(6) and Section 11 of this Article VII, all categories of expenses deducted in a BRI Report completed by the NBA or a Team shall be reviewed by the Accountants, but such categories shall be presumed to be reasonable and customary and the amount of the expenses deducted by the NBA or a Team that come within such expense categories shall also be presumed to be reasonable and customary, unless such categories or amounts are found by the Accountants to be either unrelated to the revenues involved or grossly excessive.
The Accountants shall notify designated representatives of the NBA and the Players Association: (i) if the Accountants have any questions concerning the amounts of revenues or expenses reported by the Teams and the NBA or any other information contained in the BRI Reports; or (ii) if the Accountants propose that any adjustments be made to any revenue or expense item or any other information contained in the BRI Reports.
The Accountants shall indicate which amounts included in BRI for a Salary Cap Year, if any, represent estimates of revenues. With respect to any such estimated revenues, the Accountants shall, in preparing the Audit Report for the immediately succeeding Salary Cap Year (“Subsequent Audit Report”), or the Audit Report for the same Salary Cap Year in the event that an Interim Audit Report was previously issued for that Salary Cap Year, determine the actual revenues received for the prior Salary Cap Year and include as a credit or debit to BRI in such Subsequent Audit Report the amount of the aggregate difference, if any, between all such estimated revenues for the prior Salary Cap Year and the actual revenues received for such Salary Cap Year (the “Estimated Revenue Adjustment”).
All disputes with respect to any Interim Audit Report shall be resolved exclusively in accordance with the procedures set forth in Article XXXII.

7.11 Players Association Audit Rights.

Team Audits. The Players Association shall have the right as part of the annual review of BRI Reports to retain its own accountants (the “Players Association’s Accountants”), at its own expense, after the submission of each Audit Report under this Agreement (the “First Audit”), to audit the books and records of five (5) NBA teams (of its choosing) and shall also have the right to review the books and records of the NBA League Office, provided, however, that such review shall be limited to (i) revenue items, and (ii) expense items that appear or should have appeared in the BRI Reports. In the event that, in the opinion of the Players Association’s Accountants, such audit indicates misallocations or miscategorizations of revenues or expenses (other than with respect to matters that constituted Disputed Adjustments in connection with the prior Audit Report) resulting in an understatement of BRI in excess of $3 million, they shall submit to the NBA proposed adjustments to BRI consistent with their findings. In the event that the NBA disputes such proposed adjustments, such proposed adjustments shall be deemed to be “Disputed Adjustments” and shall be resolved in accordance with the procedures set forth in Article XXXII. In addition, in the event that First Audit Disputed Adjustments in excess of $3 million are resolved in favor of the Players Association, the Players Association shall then have the right, that Season, to have the Players Association’s Accountants audit an additional five NBA teams, in accordance with the foregoing procedures (the “Second Audit”). If, as a result of the Second Audit, additional Disputed Adjustments in excess of $3 million are resolved in favor of the Players Association, the Players Association shall then have the right, that Season, to have the Players Association’s Accountants audit all remaining NBA Teams. The amount of any and all Disputed Adjustments that are ultimately resolved in favor of the Players Association in accordance with this Section 11 (a) shall be added to BRI in the Season in which such resolution is reached.
Expense Audit. The Players Association shall have the right to retain the Players Association’s Accountants to conduct one audit, at its own expense, of the expenses incurred in connection with the proceeds that come within Article VII, Section 1(a)(1)(viii) regardless of whether such expenses exceed the applicable Expense Ratios set forth in Exhibit D. In the event that in the opinion of the Players Association’s Accountants, such audit indicates a misallocation or miscategorization of expenses resulting in an understatement of BRI, they shall submit proposed adjustments to the NBA consistent with their findings. In the event the NBA disputes such proposed adjustments, such proposed adjustments shall be deemed to be Disputed Adjustments and resolved in accordance with the procedures set forth in Article XXXII. The amount of any and all such Disputed Adjustments that are resolved in the Players Association’s favor shall be included in BRI in the Season in which such resolution is reached. In addition, in the event that any such Disputed Adjustments are resolved in the Players Association’s favor, the Accountants shall be directed to correct such expense misallocations and/or miscategorizations in the remaining Seasons covered by the Agreement.

7.12 Escrow Arrangement.

Commencement. The provisions set forth in this Section 12 shall take effect beginning with the 2001-02 Salary Cap Year and shall remain in effect thereafter for the duration of this Agreement.
Definitions. As used in this Agreement, the following terms shall have the following meanings:
1. “Adjustment Player” means, with respect to a Salary Cap Year, every current or former player included in a Team’s Team Salary for such Salary Cap Year, except for players signed only to one or two 10-Day Contracts; provided, however, that in the event the Players Association proposes to the NBA an alternative definition of “Adjustment Player” that does not affect the NBA’s ability to recover the Aggregate Compensation Adjustment Amount for any Salary Cap Year, then, subject to the NBA’s approval, which shall not be unreasonably withheld, such alternative definition shall be used in lieu of the preceding definition.
2. “Aggregate Compensation Adjustment Amount” means, with respect to a Salary Cap Year, the lesser of (i) the Overage for such Salary Cap Year, and (ii) 10% of Total Salaries and Benefits for such Salary Cap Year.
3. “Aggregate Compensation Adjustment Amount Shortfall” means the amount by which the amount received by the NBA from the Escrow Agent with respect to a Salary Cap Year pursuant to subsection (e)(1) below is less than the Aggregate Compensation Adjustment Amount for such Salary Cap Year.
4. “Audit Report Challenge Period” means the period beginning with the date on which an Interim Audit Report is issued by the Accountants and ending on the last date by which all challenges thereto brought pursuant to Article XXXII, Section 9(b) are resolved.
5. “Deduction Date” means each of the seven (7) semi-monthly payment dates from February 1 through May 1 provided for under paragraph 3 of the Uniform Player Contract.
6. “Designated Percentage” means, with respect to a Salary Cap Year, the percentage set forth in subsection (c)(3) below.
7. “Escrow Agent” means, for purposes of this Article VII, Section 12, the escrow agent identified in the Salary Escrow Agreement.
8. “Escrow Amount” means for an Adjustment Player, with respect to a Salary Cap Year, the amount calculated by multiplying the Projected Aggregate Compensation Adjustment Amount for such Salary Cap Year by a fraction, the numerator of which is the Adjustment Player’s Salary for such Salary Cap Year, and the denominator of which is the sum of all Adjustment Players’ Salaries for such Salary Cap Year as of November 30 of such Salary Cap Year; provided, however, that in the event the Players Association proposes to the NBA an alternative method for calculating an Adjustment Player’s Escrow Amount that results in the sum of all Adjustment Players’ Escrow Amounts equaling or exceeding the Projected Aggregate Compensation Adjustment Amount, then, subject to the NBA’s approval, which shall not be unreasonably withheld, such alternative formula shall be used in lieu of the preceding formula. For purposes of calculating the fraction described in the preceding sentence, the Salary of a player under a one-year Contract making the Minimum Player Salary shall include the portion of such Minimum Player Salary that is reimbursed out of the league-wide benefits fund described in Article IV, Section 1(l).
9. “Escrow Schedules” means the schedules prepared by the NBA with respect to a Salary Cap Year setting forth: (A) Projected Total Salaries and Benefits for such Salary Cap Year; (B) the Projected Overage for such Salary Cap Year; (C) the Projected Aggregate Compensation Adjustment Amount for such Salary Cap Year; (D) the Escrow Amount to be deducted from the Cash Compensation of each Adjustment Player on each Team; (E) the amount that each Team must deduct with respect to each Adjustment Player on each Deduction Date.
10. “Individual Compensation Adjustment Amount” means for an Adjustment Player, with respect to a Salary Cap Year, the amount calculated following the conclusion of the Salary Cap Year by multiplying the Aggregate Compensation Adjustment Amount for such Salary Cap Year by a fraction, the numerator of which is the Adjustment Player’s Salary for such Salary Cap Year and the denominator of which is the sum of all Adjustment Players’ Salaries for such Salary Cap Year; provided, however, that in the event the Players Association proposes to the NBA an alternative method for calculating an Adjustment Player’s Individual Compensation Adjustment Amount that results in the sum of all Adjustment Players’ Individual Compensation Adjustment Amounts equaling the Aggregate Compensation Adjustment Amount, then, subject to the NBA’s approval, which shall not be unreasonably withheld, such alternative formula shall be used in lieu of the preceding formula. For purposes of calculating the fraction described in the preceding sentence: (i) a player’s Salary shall include all Performance Bonuses excluded from Salary under Article VII, Section 3(d) but actually earned by the player during such Salary Cap Year, and shall exclude all Performance Bonuses included in Salary under Article VII, Section 3(d) but not actually earned by the player during such Salary Cap Year; and (ii) the Salary of a player under a one-year Contract making the Minimum Player Salary shall include the portion of such Minimum Player Salary that is reimbursed out of the league-wide benefits fund described in Article IV, Section 1(l).
11. “Individual Shortfall Adjustment Amount” means, with respect to each Contract that is amended pursuant to subsection (f)(1) below, the amount that the Cash Compensation otherwise payable in accordance with that Contract shall be reduced pursuant to subsection (f)(2) below.
12. “Overage” means the amount, if any, by which Total Salaries and Benefits for a Salary Cap Year exceed an amount equal to the Designated Percentage of BRI for such Salary Cap Year.
13. “Projected Aggregate Compensation Adjustment Amount” means: (i) with respect to each of the 2001-02 and 2002-03 Salary Cap Years (and the 2003-04 Salary Cap Year in the event the NBA exercises its option to extend this Agreement in accordance with Article XXXIX), the lesser of (A) the Projected Overage for such Salary Cap Year, and (B) 10% of Projected Total Salaries and Benefits for such Salary Cap Year; and (ii) with respect to the 2003-04 Salary Cap Year (or the 2004-05 Salary Cap Year in the event the NBA exercises its option to extend this Agreement in accordance with Article XXXIX), 10% of Projected Total Salaries and Benefits for such Salary Cap Year.
14. “Projected Overage” means the amount, if any, by which Projected Total Salaries and Benefits for a Salary Cap Year exceeds an amount equal to the Designated Percentage of Projected BRI for such Salary Cap Year, or Interim Projected BRI in the event that the Audit Report for the prior Salary Cap Year has not been completed as of November 15.
15. “Projected Total Salaries and Benefits” means, with respect to a Salary Cap Year, 110% of the sum of the following amounts: (i) the aggregate Salaries of all active players (and former players to the extent provided by the terms of this Agreement) as of November 30 of such Salary Cap Year, including, without limitation, the amounts set forth in Article VII, Section 4(a)(1)(i)-(iii); (ii) with respect to each Team whose Team Salary as of November 30 of such Salary Cap Year is below the Minimum Team Salary, the aggregate amount by which such Teams’ Team Salaries are below the Minimum Team Salary as of November 30; and (iii) Projected Benefits for such Salary Cap Year (as defined in Article IV, Section 6).
16. “Salary Escrow Agreement” means the escrow agreement in the form agreed upon by the parties (or such other form to which the parties may agree) to be entered into with the Escrow Agent.
17. “Team Escrow Limit” means, with respect to a Salary Cap Year, an amount determined by the following calculation:
  
  Step 1: Divide an amount equal to the Designated Percentage of BRI for such Salary Cap Year by 0.9;
  
  Step 2: Subtract Benefits for such Salary Cap Year from the result in Step 1.
  
  Step 3: Divide the result in Step 2 by the number of Teams in the NBA during such Salary Cap Year.
Compensation Adjustment Rules.
1. In the event that there is an Overage in any Salary Cap Year, the Contracts of all Adjustment Players shall be amended by operation of this Agreement, such that the aggregate Cash Compensation otherwise payable to all such Adjustment Players with respect to such Salary Cap Year shall be reduced by the Aggregate Compensation Adjustment Amount.
2. Subject to subsections (e) and (f) below, to effectuate the aggregate reduction provided for in subsection (c)(1) above, the Cash Compensation otherwise payable in accordance with each Adjustment Player’s Contract shall be reduced by the player’s respective Individual Compensation Adjustment Amount.
3. The Designated Percentages for the 2001-02 Salary Cap Year and each subsequent Salary Cap Year during the term of this Agreement are as follows:
Salary Cap Year Designated Percentage

2001-02: 55%

2002-03: 55%

2003-04: 55%

2004-05 57%

(only if the NBA exercises its option to extend this Agreement in accordance with Article XXXIX):
Escrow Procedure.
1. In the event that there is a Projected Overage for a Salary Cap Year, the following shall apply (subject to subsection (e) below regarding final reconciliation):
  1. The Cash Compensation otherwise payable to each Adjustment Player shall be reduced by the Escrow Amount applicable to such Adjustment Player; and
  2. Each Team shall deposit the Escrow Amount with respect to each of its Adjustment Players with the Escrow Agent.
2. Except as set forth in subsection (d)(4) below, the Escrow Amount for each Adjustment Player shall be collected through seven (7) equal installments from each of the player’s semi-monthly Cash Compensation payments on each Deduction Date.
3. The procedure for deducting and depositing Escrow Amounts shall be as follows:
  1. The NBA will prepare and send to the Players Association the Escrow Schedules on or before December 15 of each Salary Cap Year in which there is a Projected Overage, and periodically thereafter to reflect any new or adjusted Escrow Amounts calculated in accordance with subsection (d)(4) below.
  2. Within three (3) business days after each Deduction Date, each Team shall deliver to the Escrow Agent, in accordance with the Salary Escrow Agreement, the aggregate amount that the Team is obligated to deduct with respect to such Deduction Date for all of its Adjustment Players. All amounts received by the Escrow Agent shall be invested and disbursed in accordance with the provisions of the Salary Escrow Agreement.
4. After December 15, the NBA shall periodically update the Escrow Schedules to add Escrow Amounts for players who enter into Player Contracts on or after December 1 and to make such adjustments as may be necessary to previously-listed Escrow Amounts (such as adjustments resulting from Renegotiations). Any portion of an Escrow Amount that has not been deducted as of the date any such updated Schedules are prepared shall be deducted in equal installments from each of the remaining semi-monthly Cash Compensation payments to be made to the player from February 1 through May 1.
5. Within seven (7) days after receiving any set of Escrow Schedules from the NBA, or within seven (7) days after any event that the Players Association believes warrants a change in any previously-issued Schedules, the Players Association may bring a proceeding before the System Arbitrator, in accordance with Article XXXII, Section 10, contesting the NBA’s calculation of the Projected Aggregate Compensation Adjustment Amount for such Salary Cap Year and/or any player’s Escrow Amount for such Salary Cap Year. Notwithstanding the commencement of any such proceeding, each Team shall commence and continue remitting to the Escrow Agent the total deductions due with respect to each Deduction Date as set forth in the Schedules, and in no event shall any Team be prohibited from remitting to the Escrow Agent any such deduction prior to a final determination in any such proceeding.
6. In the event that the NBA makes a determination in accordance with subsection (d)(4) above, or a final determination is made in a proceeding in accordance with subsection (d)(5) above, that an Escrow Amount was erroneously calculated by the NBA, the sole remedy with respect to any amounts erroneously deducted from the player’s Salary shall be to modify, as soon as practicable, the deduction schedule applicable to such player so as to reduce, in equal amounts, all scheduled future deductions from post-determination payments of Cash Compensation until the amount of any prior over-deduction is fully off-set; provided, however, that to the extent that reducing the player’s future deductions would not fully offset the prior over-deductions, the parties shall instruct the Escrow Agent to pay the player as soon as practicable, with interest, such additional amounts as are necessary to fully offset such over-deductions.
Reconciliation Procedures.
1. In the event of an Overage: (i) the NBA shall be entitled to receive from the Escrow Agent, with respect to each Adjustment Player, such player’s Individual Compensation Adjustment Amount (or, in the event that the player’s Escrow Amount is less than his Individual Compensation Adjustment Amount, a portion of his Individual Compensation Adjustment Amount equal to his Escrow Amount); and (ii) each Adjustment Player shall be entitled to receive from the Escrow Agent the amount, if any, by which the player’s Escrow Amount exceeds his Individual Compensation Adjustment Amount. In the event that there is no Overage, each Adjustment Player shall be entitled to receive from the Escrow Agent his entire Escrow Amount.
2. Any interest earned on Escrow Amounts remitted to the Escrow Agent shall be allocated among the Adjustment Players, collectively, and the NBA in proportion to the percentage of the aggregate Escrow Amounts that the Adjustment Players, collectively, and the NBA are to receive from the Escrow Agent in accordance with subsection (e)(1) above. The Adjustment Players’ collective share of interest shall be allocated among the individual players in proportion to each player’s Escrow Amount.
3. The parties shall cause the Accountants to include in the Interim Audit Report and the Audit Report (or, if no final Audit Report has been submitted at the conclusion of the Audit Report Challenge Period, in the Interim Escrow Audit Report) for each Salary Cap Year schedules setting forth, with respect to such Salary Cap Year:
  1. the amount of any Overage;
  2. the Aggregate Compensation Adjustment Amount, if any;
  3. each Adjustment Player’s Individual Compensation Adjustment Amount, if any;
  4. each Adjustment Player’s Escrow Amount, if any, as set forth in the Escrow Schedules;
  5. a list of all Adjustment Players whose Individual Compensation Adjustment Amounts exceed their Escrow Amounts, which list shall also include (A) each such player’s Individual Compensation Adjustment Amount, (B) each such player’s Escrow Amount, (C) the amount by which each such player’s Individual Compensation Adjustment Amount exceeds his Escrow Amount, (D) the sum of all such players’ Escrow Amounts, (E) the sum of all such players’ Individual Compensation Adjustment Amounts, and (F) the aggregate amount by which all such players’ Individual Compensation Adjustment Amounts exceed their Escrow Amounts;
  6. a list of all Adjustment Players whose Individual Compensation Adjustment Amounts are equal to or less than their Escrow Amounts, which list shall also include (A) each such player’s Individual Compensation Adjustment Amount, (B) each such player’s Escrow Amount, (C) the amount, if any, by which each such player’s Escrow Amount exceeds his Individual Compensation Adjustment Amount, (D) the sum of all such players’ Escrow Amounts, (E) the sum of all such players’ Individual Compensation Adjustment Amounts, and (F) the aggregate amount by which all such players’ Escrow Amounts exceed their Individual Compensation Adjustment Amounts;
  7. in accordance with the provisions of subsections (e)(1) and (e)(2) above, (A) the percentage of the interest earned on the Escrow Amounts to be allocated to the NBA, (B) the percentage of the interest earned on the Escrow Amounts to be allocated to the Adjustment Players collectively, and (C) the percentage of the interest earned on the Escrow Amounts to be allocated to each individual Adjustment Player;
  8. the Team Escrow Limit; and
  9. the amount, if any, by which each Team’s Team Salary as computed in subsection (g)(3) below exceeds the Team Escrow Limit.
4. In addition to the information described in subsection (e)(3) above, the parties shall cause the Accountants to include in the Audit Report (or, if no final Audit Report has been submitted at the conclusion of the Audit Report Challenge Period, in the Interim Escrow Audit Report) a separate Notice to Escrow Agent, in the form attached to the Salary Escrow Agreement, setting forth:
  1. in the space designated in paragraph 1 of the Notice, the sum of the amounts described in subsections (e)(3)(v)(D) and (e)(3)(vi)(E) above, which sum is to be disbursed by the Escrow Agent to the NBA;
  2. in the space designated in paragraph 2 of the Notice, the amounts described in subsection (e)(3)(vi)(C) above, which amounts are to be disbursed by the Escrow Agent to each respective Adjustment Player described in subsection (e)(3)(vi) above;
  3. in the space designated in paragraph 3 of the Notice, the information described in subsection (e)(3)(vii)(A) above, which information shall be the basis for the Escrow Agent’s calculation of interest earned on the Escrow Amounts, which interest is to be disbursed by the Escrow Agent to the NBA; and
  4. in the space designated in paragraph (4) of the Notice, the information described in subsection (e)(3)(vii)(C) above, which information shall be the basis for the Escrow Agent’s calculation of interest earned on the Escrow Amounts, which interest is to be disbursed by the Escrow Agent to each Adjustment Player.
5. No later than seven (7) business days after the earlier of (i) the completion of the Audit Report for the prior Salary Cap Year or (ii) the completion of the Audit Report Challenge Period, the parties shall cause the Accountants to deliver to the Escrow Agent the completed Notice to Escrow Agent. As soon as practicable following receipt of such notice, the Escrow Agent shall disburse the specified sums to the specified payees.
6. Any amounts that the Escrow Agent is obligated to disburse to a player pursuant to this Section 12, including, if the Players Association so elects, the amounts described in subsection (e)(4)(iv) above, shall be reduced by all amounts required to be withheld by federal, state, and local authorities, which withholdings shall be disbursed by the Escrow Agent to the Player’s Team for remittance to the appropriate authorities. To assist the Escrow Agent in disbursing the appropriate amounts to each Adjustment Player and his respective Team, each Team, based on the information set forth in paragraph 2 (and, if applicable, paragraph 4) of the Notice to Escrow Agent, shall promptly provide the Escrow Agent with a schedule for each of its Adjustment Players showing the exact withholding amount to be disbursed to the Team for remittance to the appropriate federal, state and local authorities. In no circumstance shall the employer’s share of FICA, FUTA, or any other employer taxes be paid out of the amounts deposited in escrow or any interest or earnings thereon. Any such obligations shall remain with each player’s individual employer.
Aggregate Compensation Adjustment Amount Shortfalls.
1. If, with respect to any Salary Cap Year, there is an Aggregate Compensation Adjustment Amount Shortfall, then the Contract of each of the following Salary Cap Year’s Adjustment Players shall be amended by operation of this Agreement, in accordance with subsection (f)(2) below, such that the aggregate Cash Compensation paid to all such players with respect to the Season covered by such following Salary Cap Year shall be reduced by the Aggregate Compensation Adjustment Amount Shortfall, which reduction shall be in addition to the full amount of any reduction for such following Salary Cap Year called for in subsections (c)(1)-(2) above.
2. The Individual Shortfall Adjustment Amount for each Adjustment Player whose Contract is amended in accordance with subsection (f)(1) above shall be calculated by multiplying the Aggregate Compensation Adjustment Amount Shortfall for the prior Salary Cap Year by a fraction, the numerator of which is the player’s then-current Salary, and the denominator of which is the sum of all such players’ then-current Salaries. For purposes of calculating the fraction described in the preceding sentence, the Salary of a player making the Minimum Player Salary shall include the portion of such Minimum Player Salary that is reimbursed out of the league-wide benefits fund described in Article IV, Section 1(l).
3. The Individual Shortfall Adjustment Amount for each Adjustment Player shall be deducted by the player’s Team in four (4) equal installments from each of the player’s first four (4) semi-monthly Cash Compensation payments following delivery to the Escrow Agent of the completed Notice to Escrow Agent. All such deductions shall be promptly remitted by the Teams to the NBA.

Salary Cap Year	Designated Percentage
2001-02:	55%
2002-03:	55%
2003-04:	55%
2004-05	57%

Team Payments.

In the event that the Overage in any Salary Cap Year exceeds 10% of Total Salaries and Benefits for such Salary Cap Year, each Team whose Team Salary exceeded the Team Escrow Limit for such Salary Cap Year shall be required to pay a tax to the NBA equal to the amount by which the Team’s Team Salary as of the date of the Team’s last Regular Season game exceeds the Team Escrow Limit.

Example: (Numbers rounded for purposes of illustration).

Assumptions:

BRI = $2.8 billion

Benefits = $70 million

Total Salaries and Benefits as a Percentage of BRI	Corresponding Average Team Salary
48.04%	$44 million (Salary Cap)
55% (Designated Percentage)	$50.7 million
61.1%	$56.6 million (Team Escrow Limit)

If Total Salaries and Benefits exceed 61.1% of BRI, then a Team with a Team Salary of $60 million would pay a $3.4 million tax to the NBA.

Each Team that owes a tax shall make the required tax payment to the NBA no later than ten (10) business days following the earlier of (i) the completion of the Audit Report for the prior Salary Cap Year or (ii) the completion of the Audit Report Challenge Period.
For purposes of this subsection (g), Team Salary shall be calculated by the Accountants in the same manner as Team Salary is calculated by the Accountants for purposes of computing Total Salaries and Benefits in the Audit Report.

Miscellaneous.
1. All amounts remitted to the NBA by the Escrow Agent or NBA Teams pursuant to this Section 12 shall be the exclusive property of the NBA, and the use and/or disposition of all such amounts, including the allocation or distribution of such amounts to one or more NBA Teams, if any, shall be within the NBA’s sole discretion.
2. Notwithstanding any other provision of this Agreement, the computation of an Adjustment Player’s Salary shall for purposes of the rules set forth in this Agreement be made without regard to any reduction in such player’s Compensation made pursuant to this Section 12.
3. The NBA shall be permitted to assign to such designee, as the NBA may determine, any rights the NBA has to receive amounts from the Escrow Agent or NBA Teams pursuant to this Article VII, Section 12.
4. Consistent with Article VII, Section 3(f) (One-Year Minimum Contracts), except for purposes of calculating the fractions referred to in the definitions of Escrow Amount, Individual Compensation Adjustment Amount, and Individual Shortfall Adjustment Amount (set forth in subsections (b)(8), (b)(10), and (f)(2) above), the Salary of every player who signs a one-year Contract after the date of this Agreement for the Minimum Player Salary applicable to such player shall, for all other purposes in this Section 12, be the lesser of (i) such Minimum Player Salary, or (ii) the portion of such Minimum Player Salary that is not reimbursed out of the league-wide benefits fund described in Article IV, Section 1(l).
5. In the event that the Overage for any Salary Cap Year exceeds the Aggregate Compensation Adjustment Amount for such Salary Cap Year, the NBA shall not be entitled to reduce player Compensation in such Salary Cap Year or any subsequent Salary Cap Year so as to recover any amounts in excess of the Aggregate Compensation Adjustment Amount.