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), accounted for in accordance with Section 1(b)(1) below, received or to be received 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”), NBA Media Ventures LLC (“Media Ventures”), any other entity which is controlled by, or in which the NBA, Properties, Media Ventures, 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 to which ownership interests not owned by the NBA, Properties, Media Ventures and/or a group of NBA Teams are entitled), all NBA Teams other than Expansion Teams during their first two (2) Salary Cap Years (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 Section 1(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: (x) “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 (y) “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, surcharges, imposts, and other charges (including, without limitation, charges related to arena financings) imposed by governmental or quasi-governmental agencies other than income taxes (collectively, “Taxes”), including, without limitation, gate receipts received or to be received by a Related Party in accordance with Section 1(a)(7)(i) below, including: (A) the value (determined on the basis of the price of the ticket) of all tickets traded by a Team for goods or services; and (B) the value (determined on the basis of the League-wide average ticket price for non-Season tickets) of all tickets for 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 the “Excluded Complimentary Tickets” with respect to all Regular Season games in a 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 Season. For purposes of the foregoing, “Excluded Complimentary Tickets” shall mean: 1.35 million tickets for the 2005-06 Season; 1.40 million tickets for the 2006-07 Season; 1.45 million tickets for the 2007-08 Season; 1.50 million tickets for the 2008-09 Season; 1.55 million tickets for the 2009-10 Season; 1.6 million tickets for the 2010-2011 Season; and, in the event the NBA exercises its option to extend the Agreement pursuant to Article XXXIX of this Agreement, 1.6 million tickets for the 2011-2012 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 and summer league and other NBA-related off-season games involving Players, 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 by a Related Party (in accordance with Section 1(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: (A) to promote or advertise the NBA, its Teams, Players, the NBA Development League (the “NBADL”) (except to the extent the value of such time exceeds $5 million), or the sport of basketball (but not the value of time used to promote or advertise the Women’s National Basketball Association (the “WNBA”) which shall be included in BRI); (B) 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 (as defined in Article XXXVII, Section 1; (C) to promote or advertise charitable, not-for-profit or governmental organizations or agencies; or (D) for public service announcements;
  3. all Exhibition game proceeds of any kind, net of Taxes and all reasonable and customary game, pre-season and training camp expenses, including, without limitation, such proceeds received or to be received by a Related Party (in accordance with Section 1(a)(7)(i) below);
  4. all playoff gate receipts of any kind, net of 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 by a Related Party (in accordance with Section 1(a)(7)(i) below);
  5. all proceeds of any kind, net of reasonable and customary expenses (including Taxes) related thereto, subject to the provisions of Section 1(a)(6) below, from in-arena sales of novelties and concessions, sales of novelties in team-identified stores located within such radius of the Team’s home arena as is permitted by the NBA, 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, the sale of the right to pour beverages or (except as provided in Section 1(a)(2)(xx) below) to provide concessions, 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 by a Related Party (in accordance with Section 1(a)(7)(i) below);
  6. forty (40) percent of the gross proceeds, net of Taxes, from the sale of fixed arena signage within or outside of 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 by a Related Party (in accordance with Section 1(a)(7)(i) below);
  7. forty (40) percent of the gross proceeds of any kind, net of Taxes, from the sale, lease or licensing of luxury suites calculated on the basis of the actual proceeds received by the entity, including, without limitation, proceeds received or to be received by a Related Party (in accordance with Section 1(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 pursuant to arrangements in which admission to games is not part of the agreement to buy, lease or license the luxury suite, thereby requiring the luxury suiteholder to make a separate payment for such admission, 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 (1) 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;
  8. forty-five (45) percent for the 2005-06 through 2007-08 Seasons, and fifty (50) percent for the 2008-09 through 2010-11 Seasons (and, in the event that the NBA exercises its option to extend the Agreement pursuant to Article XXXIX, fifty (50) percent for the 2011-12 Season) of the gross proceeds, net of Taxes, from arena naming rights agreements with respect to arenas 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 by a Related Party (in accordance with Section 1(a)(7)(i) below);
  9. except as provided in Section 1(a)(2) below, proceeds received by Properties, net of Taxes and 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 as reflected in the audited financial reports for Properties for the year ended July 31, 1994 (or, in the case of new sources of proceeds or new types of expenses, as long as the expenses are reasonable and customary in the opinion of the Accountants (as defined in Section 10(a) below), subject to the provisions of Section 1(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; (E) other NBA special events; and (F) all other sources of revenue received by Properties other than those specifically excluded under Section 1(a)(2) below;
  10. proceeds from premium seat licenses (other than licenses of luxury suites, which are governed by Section 1(a)(1)(vii) above), net of Taxes, attributable to NBA-related events amortized over the period of the license (including, without limitation, such proceeds received or to be received by a Related Party (in accordance with Section 1(a)(7)(i) below), unless such period exceeds twenty (20) years, in which event an amortization period of twenty years shall be used; and
  11. if the right to receive revenues included in BRI is sold or transferred to an entity other than an entity referred to in Section 1(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 Section 1(a)(1)(xi).
2. Notwithstanding anything to the contrary in Section (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, Media Ventures, other League-related entities, NBA Teams and Related Parties (the foregoing persons or entities, beginning with “NBA,” collectively referred to in this Section 1(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. needs 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 Section 1(a)(1)(xi) 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 and compensation withheld in connection with suspensions;
  7. revenue sharing (by means of revenue transfers or otherwise) among Teams;
  8. interest income;
  9. insurance recoveries, except where, and only to the extent that, such recoveries are in respect of lost revenues that would have otherwise been included in BRI, in which event such recoveries shall be included in BRI in the Salary Cap Year in which they are received;
  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 (A) in accordance with the provisions of Section 1(a)(4) below or (B) 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 indirect exchange for a thing of value (as described above in this Section 1(a)(2)(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 (C) 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 Section 1(a)(2)(xi)); and provided further that, when a determination is made pursuant to clause (B) or clause (C) of this Section 1(a)(2), 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 Cap Years) 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 (A) in accordance with the provisions of Section 1(a)(4) below or (B) 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 Section 1(a)(2)(xii), and provided, further that, when a determination is made pursuant to clause (B) of this Section 1(a)(2)(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/Tax Arrangement) below;
  14. distributions, dividends or royalties paid by any NBA-related entity to owners, shareholders, members or partners;
  15. any category or source of revenue or proceeds that was expressly identified in any BRI Report (as defined in Section 10(b) below) 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 Audit Reports for any of the 1995-96 through 2004-05 Salary Cap Years that was not included in BRI for such Salary Cap Years, unless such category or source was included on the “open issues” list prepared by the Accountants in connection with any of the Audit Reports for the 1999-2000 through 2004-05 Salary Cap Years, in which case such category or source shall be included in or excluded from BRI, as the case may be, in accordance with the other terms of this Article;
  16. proceeds received by (A) Properties pursuant to the Group License Agreement (including, but not limited to, proceeds received pursuant to the license of “fantasy games,” which proceeds are to be included in the computation of Player Merchandise Revenues in accordance with the Group License Agreement), or (B) by a League-related entity 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) a League-related entity’s 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 the League-related entity 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;
  17. monies collected from team-related fundraising for charitable purposes or other charitable activities, other than monies paid pursuant to Team sponsorship agreements that are included in BRI pursuant to Section 1(a)(1)(v) above; and
  18. proceeds solely related to the NBADL;
  19. proceeds from the leasing or use of any Team physical assets (e.g., a Team plane); and
  20. any thing of value received from a concessionaire, food service vendor or other third party equipment or service provider that, if received in kind, is installed in an NBA arena or, if received in cash, is directed to defraying the costs of the construction or substantial renovation of an NBA arena.
3. The parties agree that (i) in determining whether a category or source of revenue or proceeds constitutes BRI: (A) 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 Section 1(a)(1)(i) through (xi) above, on the one hand, or to the excluded categories and sources listed in Section 1(a)(2)(i) through (xx) above, on the other; and, (B) no inference may be drawn from the fact that such category or source was not included in the categories and sources listed in Section 1(a)(1)(i) through (x) above, or the fact that such category or source was not included in the categories and sources listed in Sections 1(a)(2)(i) through (xx) above; and (ii) in any proceeding involving a dispute over (A) the includability or categorization of any revenue or expense item for BRI purposes; (B) the amount to be included in or deducted from BRI with respect to any revenue or expense item; or (C) the accounting methodology used by the Accountants in connection with any audit of BRI, the parties may refer to the past practice of the parties or the Accountants in connection with the Audit Reports for any of the 1999-2000 through 2004-05 Salary Cap Years; provided, however, that no reference may be made to the past practice of the parties or the Accountants with respect to any source or category of revenue or expense that was included on the “open issues” list prepared by the Accountants in connection with any of such Audit Reports.
4. The parties agree that, with respect to any lease entered into 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 (i) the amount of such revenues that the Team or the Related Party in fact receives under the lease or, (ii) 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 NBA), 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. 1. In no event shall the same revenues be included in BRI, directly or indirectly, more than once (including as a result of changes in accounting methods or practices), the purpose of this provision being to preclude the double-counting of revenues, whether in the same or in multiple Salary Cap Years.
  2. In no event shall the same expenses be deducted from BRI, directly or indirectly, more than once (including as a result of changes in accounting methods or practices), the purpose of this provision being to preclude the double-counting of expenses, whether in the same or in multiple Salary Cap Years.
6. Subject to Section 11 below (Players Association Audit Rights):
  1. With respect to expenses incurred in connection with all proceeds coming within Section 1(a)(1)(v) and (ix) 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 Section 10 below. 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, Media Ventures, 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, Media Ventures, 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 Section 1(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 Section 1(a)(1) above, the relevant proceeds received 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- [sic] subscriber fees earned by a Related Party television network that relate, directly or indirectly, to the telecast of NBA games licensed to the television network by a Team).
  2. In the event that, following the execution of this Agreement, a Team (other than the New York Knicks (“Knicks”)) enters into a local or regional telecast agreement with a Related Party, a copy of such agreement shall be provided to the Players Association within ten (10) days of approval of such agreement by the NBA. The Players Association and the NBA shall each have the right, not later than ten (10) days following the date on which the Players Association receives a copy of such agreement, to submit such agreement to a jointly-selected television valuation expert or (in the absence of such agreement) determined in accordance with the procedure set forth in this subsection (“TV Expert”) for the limited purpose set forth in this Section 1(a)(7)(ii). In the event that the parties have not jointly selected a TV Expert within twenty (20) days following the date on which the Players Association receives a copy of such agreement, each party shall appoint its own television valuation designee and the two designees so appointed shall within ten (10) days of their appointment, jointly select a third party to serve as the TV Expert. Such TV Expert shall review such agreement to determine if the aggregate amount to be paid to the Team by the Related Party for the rights to telecast the Team’s games pursuant to such agreement is more than 15% above or more than 15% below the fair market value of such rights over the term of such agreement. In the event that the TV Expert determines that such aggregate amount is more than 15% above or below fair market value, the TV Expert shall be instructed to submit to the parties the amount for each Season of such agreement that he determines reflects the fair market value of such rights and such amounts, and no other amounts, shall be included in BRI with respect to such agreement for each Salary Cap Year covered by such agreement. Any determination made by the TV Expert pursuant to either of the preceding two sentences shall be submitted to the parties no later than twenty (20) days from the date on which such agreement was submitted to the TV Expert for his review. Any fees or costs associated with the retention or determination of the TV Expert shall be borne equally by the Players Association and NBA. The Players Association and the TV Expert shall maintain the confidentiality of any such agreement (and any determination made by the TV expert in accordance with this Section 1(a)(7)(ii)) pursuant to the terms of Section 11(c) below relating to confidentiality of BRI Audits.
  3. With respect to the transactions listed below in this Section 1(a)(7)(iii), 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 MSG Network is a Related Party of the Knicks (in the case of Section 1(a)(7)(iii)(A) below) and the Madison Square Garden arena is a Related Party of the Knicks (in the case of Section 1(a)(7)(iii)(B) below):
    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 Section 1(a)(1)(v) and (a)(1)(vi) above.
    At such time as the MSG Network and/or the Madison Square Garden Arena are no longer Related Parties, BRI for the New York Knicks in the categories described in Section 1(a)(7)(iii)(A) and/or (B) above, as the case may be, shall not be determined in accordance with the foregoing and will instead be determined by the applicable provisions of Section 1(a)(1) and (a)(7)(ii) above.
8. In the event that, pursuant to the NBA’s national broadcast, national telecast and network cable television agreements, NBA Teams receive revenue sharing proceeds that are attributable to NBA game telecasts in more than one Salary Cap Year, such proceeds shall be allocated over the same number of Salary Cap Years (beginning with first Salary Cap Year after the Salary Cap Year in which such proceeds are actually received) as the number of Salary Cap Years in which such games were televised. 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 and the NBADL) 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, and that such failure to provide information resulted in an understatement of BRI of more than $2.5 million with respect to the 2005-06 Salary Cap Year (increasing by 4.5% for each subsequent Salary Cap Year of this Agreement, beginning in the 2006-07 Salary Cap Year), then the amount by which BRI was understated shall be included in BRI in the Salary Cap Year in which such finding is made, with interest accruing from the date of the Audit Report for the Salary Cap Year in which such amount would have been included but for such understatement, 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 such Audit Report). In addition, if any Team, or if the NBA, violates the foregoing, it shall be fined $1 million for its first violation during the term of this Agreement and an additional $1 million for each additional violation. (For example, if a Team violates the foregoing for the first time, it shall be fined $1 million; if such Team violates the foregoing a second time, it shall be fined $2 million; and if such Team violates the foregoing a third time, it shall be fined $3million.) Fifty percent (50%) of any such fine amounts shall be remitted by the NBA to an NBPA-Selected Charitable Organization (as defined in Article VI, Section 6 above) and 50% shall be remitted by the NBA to a Section 501(c)(3) organization selected by the NBA.
11. 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)(xi) above.
12. Premium payments made by a Team for any insurance that, if paid, would be includable in BRI pursuant to Section 1(a)(2)(ix) above, shall be deducted from such Team’s BRI for the Salary Cap Year in which any such insurance recovery is received.
Accounting Methods/Lump Sum Payments.
1. Subject to Section 1(b)(2) and (b)(3) below, BRI for each Salary Cap Year shall be calculated exclusively pursuant to the accrual method of financial accounting (and not, for any purpose, the cash method of financial accounting) and in accordance with United States Generally Accepted Accounting Principles. By way of example, and not limitation, in the event a team receives a signing bonus in consideration for its agreement to enter into a five (5) year contract for the local telecast of its games, such signing bonus shall be amortized in equal annual amounts over the five (5) Salary Cap Years covered by such television contract.
2. Except as otherwise provided in the case of luxury suites and premium seat licenses, in no event shall the amortization period for any lump sum payment exceed seven (7) years.
3. Any payments that constitute BRI and that are subject to being repaid to the payor under certain circumstances (the “Contingencies”) shall constitute BRI in the Salary Cap Year in which such payments would have been earned but for the Contingencies unless, at the time of such payments, the Contingencies under which the payments would be repaid are likely to occur, in which case the payments will not be included in BRI unless and until such time as the Contingencies under which such repayments would be made do not occur or are not likely to occur. In the event that a payment that has been included in BRI is subsequently repaid, BRI shall be reduced by the amount of such repayment in the Salary Cap Year in which such repayment is made. In any proceeding commenced before the System Arbitrator relating to the terms of this Section 1(b)(3), the NBA will bear the burden of demonstrating that the applicable Contingencies are likely to occur.
“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 4.5%. For purposes of this Section 1(c)(1), a contract between or among any League-related entities and/or Teams shall not be considered national broadcast, national telecast or network cable television contract.
2. With respect to national broadcast, national telecast or network cable television contracts including the NBA/ABC agreement dated January 17, 2002 (“NBA/ABC Agreement”) (a copy of which has been provided to the Players Association) and the NBA/TBS agreement, dated January 18, 2002 (“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/ABC 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 (i) 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); (ii) the amounts of revenue sharing proceeds, if any, that are includable in BRI for such Salary Cap Year pursuant to Section 1(a)(8) above; (iii) 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 (iv) 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/ABC and NBA/TBS Agreements (or any Successor Agreements) that is used to promote the WNBA or for any purpose other than those listed in Section 1(a)(1)(ii)(A)-(D).
3. Projected BRI for the 2005-06 Salary Cap Year shall be deemed to be $3,120,159,000 (“2005-06 Projected BRI”).
“Local Expansion Team BRI” means the BRI of the Expansion Teams during their first two (2) 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 4.5%.
“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 Benefits” means the estimate of Total Benefits for a Salary Cap Year as set forth in the Interim Audit Report (as defined in Section 10(a) below) for such Salary Cap Year.
“Estimated Total Salaries” means the estimate of Total Salaries for a Salary Cap Year as set forth in the Interim Audit Report for such Salary Cap Year.
“Estimated Total Salaries and Benefits” means the sum of Estimated Total Benefits and Estimated Total Salaries 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 Section 2(d) below, the Salary Cap for each Salary Cap Year will equal the percentage of Projected BRI for such Salary Cap Year set forth below, less Projected Benefits (as defined in Article IV, Section 8) 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 Salary Cap Years in the NBA:
  
  Salary Cap Year Projected BRI %
  
  2005-06 49.5%
  
  2006-07 51%
  
  2007-08 51%
  
  2008-09 51%
  
  2009-10 51%
  
  2010-11 51%
  
  2011-12 51%
  
  (if the NBA exercises its option to extend this Agreement pursuant to Article XXXIX)
2. Notwithstanding Section 2(a)(1) above, in the event that, subject to the adjustments set forth in Section (d) below, Projected BRI for any Salary Cap Year, in which one or more Expansion Teams is scheduled to play its second Season, plus Projected Local Expansion Team BRI for such Salary Cap Year, multiplied by the applicable percentage of Projected BRI set forth in Section 2(a)(1) above, 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 Section 2(a)(1) above, the Salary Cap shall equal the amount calculated pursuant to this Section 2(a)(2).
3. The Salary Cap for the 2005-06 Salary Cap Year for all Teams other than the Charlotte Bobcats shall be deemed to be $49.5 million. The Salary Cap for the 2005-06 Salary Cap Year for the Charlotte Bobcats shall be deemed to be $37.125 million.
4. The Salary Cap for a Salary Cap Year will be in effect commencing on the day following the last day of the Moratorium Period in such Salary Cap Year and shall continue through and including the last day of the Moratorium Period in the next Salary Cap Year.
5. In the event that the Audit Report for a Salary Cap Year, beginning with the 2005-06 Salary Cap Year, has not been completed as of the last day of the Moratorium Period 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 Section 2(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 Section 2(d) below. In the event that the Interim Audit Report for a Salary Cap Year, beginning with the 2005-06 Salary Cap Year, has not been completed as of the last day of the Moratorium Period 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 (except that if the preceding Salary Cap Year was the 2005-06 Salary Cap Year, then an amount that would have been the Salary Cap for the 2005-06 Salary Cap Year had it been computed based on 51% of Projected BRI rather than 49.5% of Projected BRI) 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. The Minimum Team Salary for the 2005-06 Salary Cap Year for all Teams other than the Charlotte Bobcats shall be deemed to be $37.125 million. The Minimum Team Salary for the 2005-06 Salary Cap Year for the Charlotte Bobcats shall be deemed to be $27.844 million.
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 (i) 49.5% of BRI for the 2005-06 Salary Cap Year is less than 49.5% of 2005-06 Projected BRI; or (ii) 51% of BRI for any other Salary Cap Year is less than 51% of Projected BRI for such Salary Cap Year, then, in either case, for purposes of calculating the Salary Cap for the subsequent Salary Cap Year, the difference shall be deducted from 51% of Projected BRI for such subsequent Salary Cap Year.
2. 1. In the event that Total Salaries and Benefits paid with respect to the 2005-06 Salary Cap Year is less than 49.5% of BRI for such Salary Cap Year, then for purposes of calculating the Salary Cap for the 2006-07 Salary Cap Year, the amount of such shortfall shall be added to 51% of Projected BRI for the 2006-07 Salary Cap Year.
  2. In the event that Total Salaries and Benefits paid with respect to any Salary Cap Year beginning with the 2006-07 Salary Cap Year is less than 51% of BRI for such Salary Cap Year (plus, if applicable, any shortfall against the applicable percentage of BRI for the prior Salary Cap Year (i.e., 49.5 % of BRI for the 2005-06 Salary Cap Year and 51% of BRI for each subsequent 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 51% of Projected BRI for the subsequent Salary Cap Year.
3. In the event that Benefits for any Salary Cap Year exceeds Projected Benefits for such Salary Cap Year, then for purposes of calculating the Salary Cap for the subsequent Salary Cap Year, the difference shall be added to Projected Benefits for such subsequent Salary Cap Year.
4. In the event that Benefits for any Salary Cap Year is less than Projected Benefits for such Salary Cap Year, then for purposes of calculating the Salary Cap for the subsequent Salary Cap Year, the difference shall be deducted from Projected Benefits for the subsequent Salary Cap Year.
5. In the event that the Salary Cap for a Salary Cap Year, beginning with the 2006-07 Salary Cap Year, is calculated in accordance with Section 2(a)(5) 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 2010-11 Salary Cap Year (or, in the alternative, if the NBA exercises its option pursuant to Article XXXIX, the 2011-12 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).
Guarantee.
1. In the event that for any Salary Cap Year Total Salaries and Benefits is less than 57% of BRI, the difference 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 Salary Cap Year for distribution to all NBA players who were on an NBA roster during the Season covered by such Salary Cap Year on such proportional basis as may be reasonably determined by the Players Association.

Salary Cap Year	Projected BRI %
2005-06	49.5%
2006-07	51%
2007-08	51%
2008-09	51%
2009-10	51%
2010-11	51%
2011-12	51%

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 Section 3(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”) (except that any Player Contract signed prior to November 1, 2005 shall not be governed by the following provisions and shall instead be governed by the provisions of Article VII, Section 3(a)(2) of the 1999 NBA/NBPA Collective Bargaining Agreement):
  1. Except as provided in Section 3(a)(2)(ii)-(iv) below, the aggregate Salaries in an Over 36 Contract for Salary Cap Years commencing with the fourth Salary Cap Year of such Over 36 Contract or the first Salary Cap Year that covers a Season that follows the player’s 36th birthday, whichever is later, shall be attributed to the prior Salary Cap Years pro rata on the basis of the Salaries for such prior Salary Cap Years.
  2. If a Qualifying Veteran Free Agent who is age 33 or 34 enters into an Over 36 Contract with his Prior Team covering more than four (4) Seasons, the aggregate Salaries in such Over 36 Contract for Salary Cap Years commencing with the fifth Salary Cap Year shall be attributed to the prior Salary Cap Years pro rata on the basis of the Salaries for such prior Salary Cap Years.
  3. 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 four (4) Seasons, the aggregate Salaries in such Over 36 Contract for Salary Cap Years commencing with the fifth Salary Cap Year shall be attributed to the prior Salary Cap Years pro rata on the basis of the Salaries for such prior Salary Cap Years.
  4. For each Salary Cap Year of an Over 36 Contract beginning with the second Salary Cap Year prior to the First Zero Year (as defined in Section 3(a)(2)(viii) below), if the player has not been placed on waivers as of the July 1 of such Salary Cap Year, then the Salaries of the player for such Salary Cap Year and the subsequent two (2) or fewer Salary Cap Years covered [sic]
  5. Notwithstanding Section 3(a)(2)(i) above, there shall be no re-allocation of Salaries pursuant to this Section 3(a)(2) for:
    1. Any contact between a Qualifying Veteran Free Agent and his Prior Team covering four (4) or fewer Seasons entered into by a player at age 33 or 34; and
    2. any Extension that, beginning with the date the Extension is signed, covers four (4) or fewer Seasons and is entered into by a player who has played for his current Team for at least ten 910) consecutive Seasons.
  6. 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.
  7. “Zero Year” means, with respect to an Over 36 Contract, any Salary Cap Year in which the Salary called for under the Contract has been attributed, in accordance with Section 3(a)(2)(i), (ii), (iii) or (iv) above, to prior Salary Cap Years of the Contract. “First Zero Year” means, with respect to an Over 36 Contract, the earliest Salary Cap Year in which the Salary called for under the Contract has been attributed, in accordance with Section 3(a)(2)(i), (ii), (iii) or (iv) above, to prior Salary Cap Years of the Contract.
  8. For purposes of this subsection (a)(2), a player (A) whose birthday is on a date during the Moratorium Period and (B) who signs a Contract, Extension or Renegotiation on or before the fifth day following the conclusion of the Moratorium Period 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 a trade of a Player Contract, any amount that, under the terms of the Contract, is earned in the form of a bonus upon the trade of the Contract; and
  4. payments in excess of $500,000 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 over the number of Salary Cap Years (or over the then-current and any remaining Salary Cap Years in the case of a signing bonus described in Section 3(b)(1)(iii) above) covered by such Contract in proportion to the percentage of Base Compensation in each such Salary Cap Year that, at the time of allocation, is protected for lack of skill; provided, however, that if the Player Contract provides for an Early Termination Option (“ETO”), the foregoing allocation shall be performed only over Salary Cap Years that precede the Effective Season of such ETO. In the event that, at the time of allocation, none of the Base Compensation provided for by a Player Contract (or none of the then-current or remaining Base Compensation in the case of a signing bonus described in Section 3(b)(1)(iii) above) is protected for lack of skill, then the entire amount of the signing bonus shall be allocated to the first Salary Cap Year of the Contract (or, in the case of a signing bonus described in Section 3(b)(1)(iii) above, the Salary Cap Year during which the player’s Contract is traded).
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 Section 3(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 Section 3(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:
    1. 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.
    2. 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.
    3. 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 Section 3(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 Salary Cap Years covered by the extended term in proportion to the percentage of Base Compensation in each such Salary Cap Year that, at the time of allocation, is protected for lack of skill. In the event that, at the time of the allocation, none of the Base Compensation provided for during the extended term is protected for lack of skill, then the entire amount of the signing bonus shall be allocated to the first Salary Cap Year 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 Section 3(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 bepaid 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 over the remaining Salary Cap Years (including the then-current Salary Cap Year) under the original term of the Contract and the extended term in proportion to the percentage of Base Compensation in each such Salary Cap Year that, at the time of allocation, is protected for lack of skill. In the event that, at the time of allocation, none of the Base Compensation provided for during the then-current and any remaining Salary Cap Years under the original term of the Contract or during the extended term is protected for lack of skill, then the entire amount of the signing bonus shall be allocated to the Salary Cap Year during which the Extension is signed; 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 annual interest at an effective rate lower than the “Target Rate” (as defined below)), then the difference between the Target Rate and the actual rate of interest to be paid by the player shall be imputed to the outstanding balance and included in the player’s Salary. The “Target Rate” means the “Prime Rate” (as defined below) plus 1% as of the date the loan is agreed upon, except that the “Target Rate” shall be no lower than 7% or greater than 9%. For purposes of this Section 3(c)(1), “Prime Rate” means the prime rate reported in the “Money Rates” column or any successor column of the Wall Street Journal.
2. No loan made to a player may (along with other outstanding loans to the player) exceed the amount of the player’s Salary for the then-current Salary Cap Year that is protected for lack of skill. All loans must be repaid through deductions from the player’s remaining Current Base Compensation over the years of the Contract that, at the time the loan is agreed upon, provide for Base Compensation that is fully protected for lack of skill (prior to the Effective Season of any ETO) in equal annual amounts (the “annual allocable repayment amounts”). If a loan is made at a time when the remaining Current Base 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 Base 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 Base Compensation that is fully protected for lack of skill. (For example, if a Player has $1 million in Current Base 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 Base Compensation for that Season, the loan may not exceed $800,000.)
3. In addition to the restrictions set forth in Section 3(c)(2) above: (i) no loan may be made that would result in a violation of Article II, Section 12(e); and (ii) no loan may be made to a player whose Contract provides for Base Compensation equal to the Minimum Player Salary.
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 Salary Cap Year, except as provided in Section 3(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 Salary Cap Year.
2. Notwithstanding Section 3(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 Salary Cap Year does not fairly predict the likelihood of the player earning a Performance Bonus during any Salary Cap Year 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 Section 3(d)(2), no party may, in connection with any proceeding before the Expert, refer to the facts that, absent a challenge pursuant to this Section 3(d)(2), a Performance Bonus would or would not be included in a player’s Salary pursuant to Section 3(d)(1) above, or would be termed “Likely” or “Unlikely” pursuant to Article I, Section 1(cc) or (vvv). 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 Section 3(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 Salary Cap Year who signs a Contract containing a Performance Bonus, or in the case of a player signed or acquired by an Expansion Team whose Contract contains a Performance Bonus to be paid as a result of, in whole or in part, the player’s achievement of agreed-upon benchmarks relating to the Team’s performance during its first Salary Cap Year, such 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 Section 3(d)(3) shall be borne equally by the parties.
4. In the event that either party initiates a proceeding pursuant to Section 3(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 Section 3(d)(2) and (3) above may be filed with the Grievance Arbitrator in accordance with Article XXXI, Sections 2-6 and 14.
6. All Incentive Compensation described in Article II, Sections 3(b)(iv) and 3(c) shall be included in Salary.
International Player Payments.
1. Any amount in excess of $500,000 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 an international player (as defined in Article X, Section 1(c)) to enter into a Player Contract or in connection with securing the right to enter into a Player Contract with an international player shall be deemed Salary (in the form of a signing bonus) to the player.
2. Subject to Article XIII, any payment of $500,000 or less paid by or at the direction of any NBA Team pursuant to Section 3(e)(1) above (the “$500,000 exclusion”), shall not be deemed Salary to the player.
3. The $500,000 exclusion may be paid in a single installment or in multiple installments. The $500,000 exclusion, whether used in whole or in part, may be used by an NBA Team whenever it signs an international player to a new Player Contract, except that the $500,000 exclusion may not be used, in whole or in part, more than once in any three-Season period with respect to the same international player.
4. The $500,000 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 $500,000 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 $500,000 exclusion.
5. Notwithstanding Section 3(e)(1) above, no amount paid or to be paid pursuant to this Section 3(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 (1) such Minimum Player Salary, or (2) the portion of such Minimum Player Salary that is not reimbursed out of the League-wide benefits fund described in Article IV, Section 5(k)(2).
Insurance Premium Reimbursement. If a Team reimburses a player for life insurance premiums pursuant to Article II, Section 4(m)(ii), such premium reimbursement shall not be included in the computation of the player’s Salary.
Averaging. In accordance with Article XI, Section 5(c)(iii), a player’s Salary for each Salary Cap Year covered by his Contract shall be deemed in certain circumstances to be the average of the aggregate Salaries for each such Salary Cap Year.
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, Renegotiation, transaction, or event entered into or occurring 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 paid or to be paid 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. When a player retires and the Team continues to pay such amounts, then, for purposes of computing the player’s Salary for the then-current and any remaining Salary Cap Year covered by the Contract, the aggregate of such amounts, notwithstanding the payment schedule, shall be allocated pro rata over the then-current and each remaining Salary Cap Year on the basis of the remaining unearned protected Compensation in each such Salary Cap Year at the time of retirement.
  3. Amounts paid or to be paid pursuant to awards for, or settlements of, grievances between a player and a Team concerning Compensation obligations under a Player Contract in accordance with the following rules (which, except for purposes of Section 4(a)(1)(iii)(D) below, shall be applied with respect to each Season for which there is any Compensation in dispute, as if the grievance relates only to such Season):
    1. 1. When a player initiates a Grievance (as defined in Article XXXI) against a Team seeking the payment of Compensation for a Season covered by the current or any future Salary Cap Year that the Team asserts is not owed, 50% of the disputed amount shall be included in Team Salary for the Salary Cap Year to which the grievance relates. If the Grievance is resolved during or prior to the Salary Cap Year to which it relates, following resolution of the Grievance, whether by award or settlement, the disputed amount payable by the Team in excess of the 50% allocation shall be included in Team Salary for the Salary Cap Year to which the Grievance relates, or, alternatively, the amount by which the 50% allocation exceeds the disputed amount payable by the Team shall be subtracted from Team Salary for the Salary Cap Year to which the Grievance relates.
      2. If a Grievance described in the first sentence of Section 4(a)(1)(iii)(A)(1) above is resolved after the conclusion of the Salary Cap Year to which it relates, the disputed amount payable by the Team related to such Salary Cap Year in excess of the 50% allocation shall be included in Team Salary for the Salary Cap Year in which the Grievance is resolved, or, alternatively, the amount by which the 50% allocation exceeds the disputed amount payable by the Team related to such Salary Cap Year shall be subtracted from Team Salary for the Salary Cap Year in which the grievance is resolved. Notwithstanding the preceding sentence, a Team shall be required to pay additional tax to the NBA if and to the extent that, due to the operation of this Section 4(a)(1)(iii)(A)(2), the aggregate tax it pays to the NBA pursuant to Section 12(f) below for the two Salary Cap Years in question (the Salary Cap Year for which the 50% allocation was made and the subsequent Salary Cap Year in which the Grievance was resolved) is less than it would have been had the Grievance been resolved during the Salary Cap Year to which it related; a Team shall be entitled to a tax refund from the NBA if and to the extent that, due to the operation of this Section 4(a)(1)(iii)(A)(2), the aggregate tax it pays to the NBA pursuant to Section 12(f) below for the two Salary Cap Years in question is greater than it would have been had the grievance been resolved during the Salary Cap Year to which it related.
    2. When a player initiates a Grievance against a Team seeking the payment of Compensation for a Season covered by a prior Salary Cap Year that the Team asserts is not owed, following resolution of the Grievance, whether by award or settlement, the disputed amount payable by the Team, if any, shall be included in Team Salary for the Salary Cap Year in which the Grievance is resolved (but only to the extent that it had been previously excluded from Team Salary). Notwithstanding the preceding sentence, a Team shall be required to pay additional tax to the NBA if and to the extent that, due to the operation of this Section 4(a)(1)(iii)(B), the aggregate tax it pays to the NBA pursuant to Section 12(f) below for the two (2) Salary Cap Years in question (the Salary Cap Year to which the Grievance related and the subsequent Salary Cap Year in which the Grievance was resolved) is less than it would have been had the disputed amount payable by the Team been included in Team Salary during the Salary Cap Year to which it related; a Team shall be entitled to a tax refund from the NBA if and to the extent that, due to the operation of this Section 4(a)(1)(iii)(B), the aggregate tax it pays to the NBA pursuant to Section 12(f) below for the two (2) Salary Cap Years in question is greater than it would have been had the disputed amount payable by the Team been included in Team Salary during the Salary Cap Year to which it related.
    3. If a Grievance relates to a player’s Compensation for more than one (1) Season, for purposes of determining the disputed amount payable by the Team with respect to each such Season following the resolution of the Grievance, the aggregate amounts payable to the player for all Seasons pursuant to the resolution of the grievance, whether by award or settlement, shall be allocated to each such Season in proportion to the amount of Compensation that was in dispute for such Season, unless, in the case of an award, the Grievance Arbitrator allocates the amounts payable to the player to specific Seasons.
    4. Immediately upon reaching any agreement (oral or written) to resolve a Grievance relating to a player’s Compensation, a Team shall notify the NBA by facsimile or e-mail and provide the NBA with the terms of such agreement. A Team’s failure to comply with the preceding sentence may be considered evidence of a violation of Article XIII. If a Team delays or attempts to delay in any manner the processing or resolution of a Grievance relating to a player’s Compensation for the purpose of creating or increasing its Room in any Salary Cap Year or for the purpose of reducing or deferring a tax payment to the NBA, such conduct shall constitute a violation of Article XIII.
  4. Salaries anticipated to be included in Team Salary based upon any agreement disclosed to the NBA pursuant to Article II, Section 12(a)(i) (including, without limitation, any executed Player Contract whose validity is conditional on the passage of a physical examination by the player or on the assignment of the Contract), except to the extent that any such Salary is less than a player’s Free Agent Amount (as defined in Section 4(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 Section 4(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 Section 4(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 (as defined in Article XI, Section 5(c)) issued with respect to such Veteran Free Agent.
3. The aggregate Salaries called for under all outstanding Offer Sheets (as defined in Article XI, Section 5(b)).
4. An amount with respect to a Team’s unsigned First Round Pick, if any, as determined in accordance with Section 4(e) below.
5. An amount with respect to the number of players fewer than twelve (12) included in a Team’s Team Salary, as determined in accordance with Section 4(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 Section 4(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 described in Section 4(a)(1)(ii) or (iii) below, will be included at 150% of his prior Salary if it was equal to or greater than the Estimated [sic]
  2. A Qualifying Veteran Free Agent following the second Option Year of his Rookie Scale Contract will be included at 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.
  3. A Qualifying Veteran Free Agent following the first Option Year of his Rookie Scale Contract will be included at an amount equal to the maximum Salary that the Team may pay the player using the Qualifying Veteran Free Agent Exception applicable to such player pursuant to Section 6(b)(1) below.
2. An Early Qualifying Veteran Free Agent will be included at 130% of his prior Salary, except that an Early Qualifying Veteran Free Agent following the second Season of his Rookie Scale Contract will be included at an amount equal to the maximum Salary that the Team may pay the player using the Early Qualifying Veteran Free Agent Exception applicable to such player pursuant to Section 6(b)(3) below; 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 Sections 6(b) and 6(h)(4) below.
3. A Non-Qualifying Veteran Free Agent will be included at 120% of his prior Salary.
4. Notwithstanding Section 4(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 5(k).
5. Notwithstanding Section 4(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 5(k).
6. For purposes of this Section 4(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 Section 4(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 (2) Seasons of the Contract.
First Round Picks.
1. 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 Section 4(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 4(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 4(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. If at any time from July 1 through the day prior to the first day of the Regular Season a Team has fewer than twelve (12) players, determined in accordance with Section 4(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 twelve (12) 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 twelve (12) players included in its Team Salary for purposes of Section 4(f)(1) above only, the only players who shall be counted are (i) players under Contract with the Team who are included in Team Salary, (ii) Free Agents who are included in Team Salary pursuant to Section 4 (a)(2) above, (iii) players to whom Offer Sheets have been given, and (iv) 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 or e-mail within two (2) business days following receipt of notice of such renunciation.) If a Team renounces a Veteran Free Agent, the player will no longer qualify as a Qualifying Veteran Free Agent, Early Qualifying Veteran Free Agent, or Non-Qualifying Veteran Free Agent, as the case may be, and the 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 the 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 is no longer 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. Beginning on the first anniversary of the injury or illness, the Team may apply to the NBA to have the player’s Salary for each remaining Salary Cap Year covered by the Contract excluded from Team Salary.
2. 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.
3. Notwithstanding Section 4(h)(1) and (2) above, the career-ending injury or illness of a player who plays in more than ten (10) games in any Season shall not be deemed to have occurred prior to the last game in which the player played in such Season.
4. Notwithstanding Section 4(h)(1) and (2) 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 Season, the excluded Salary for the Salary Cap Year covering such Season and each subsequent Salary Cap Year shall thereupon be included in Team Salary (and if the tenth game played is a playoff game, then the excluded Salary shall be included in Salary retroactively as of the start of the Team’s last Regular Season game). After a player’s Salary forone (1) or more Salary Cap Years has been included in Team Salary in accordance with this Section 4(h)(4), the player’s Team shall be permitted at the appropriate time to re-apply to have the player’s Salary (for each Salary Cap Year remaining at the time of the re-application) excluded from Team Salary in accordance with the rules set forth in this Section 4(h).
5. If a Team applies to have a player’s Salary excluded from its Team Salary pursuant to this Section 4(h), the player shall cooperate in the processing of the application, including by appearing at the reasonably scheduled place and time for examination by the jointly-selected physician.
6. Only the Team with which the player was under Contract at the time his career-ending injury or illness became known or reasonably should have become known shall be permitted to apply to have the player’s Salary excluded from Team Salary pursuant to this Section 4(h).
Summer Contracts.
1. Except as provided in Section 4(i)(2) below and subject to Article II, Section 14, from July 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(e) 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 (1) 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 Section 4(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 Section 4(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 Salary Cap Year covered by 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 Salary Cap Year covered by a Player Contract after the first Salary Cap Year, the player’s Salary, excluding Incentive Compensation, may increase or decrease in relation to the previous Salary Cap Year’s Salary, excluding Incentive Compensation, by no more than 8% of the Regular Salary for the first Salary Cap Year covered by the Contract.
  2. In the event that the first Salary Cap Year covered by a Contract provides for Incentive Compensation, the total amount of Likely Bonuses in each subsequent Salary Cap Year covered by the Contract may increase or decrease by up to 8% of the amount of Likely Bonuses in the first Salary Cap Year, and the total amount of Unlikely Bonuses in each subsequent Salary Cap Year may increase or decrease by up to 8% of the amount of Unlikely Bonuses in the first Salary Cap Year.
2. The following rules apply to all Players Contracts between Qualifying Veteran Free Agents or Early Qualifying Veteran Free Agents and their Prior Team (except any such Contracts signed pursuant to Section 6(d)(3) or Section 6(e)(2) below, which shall be governed by Section 5(c)(1) above):
  1. For each Salary Cap Year covered by a Player Contract after the first Salary Cap Year, the player’s Salary, excluding Incentive Compensation, may increase or decrease in relation to the previous Salary Cap Year’s Salary, excluding Incentive Compensation, by no more than 10.5% of the Regular Salary for the first Salary Cap Year covered by the Contract.
  2. In the event that the first Salary Cap Year covered by a Contract provides for Incentive Compensation, the total amount of Likely Bonuses in each subsequent Salary Cap Year covered by the Contract may increase or decrease by up to 10.5% of the amount of Likely Bonuses in the first Salary Cap Year, and the total amount of Unlikely Bonuses in each subsequent Salary Cap Year may increase or decrease by up to 10.5% of the amount of Unlikely Bonuses in the first Salary Cap Year.
3. The following rules apply to Extensions other than Extensions of Rookie Scale Contracts:
  1. For each Salary Cap Year covered by an Extension after the first Salary Cap Year covered by the extended term, the player’s Salary, excluding Incentive Compensation, may increase or decrease in relation to the previous Salary Cap Year’s Salary, excluding Incentive Compensation, by no more than 10.5% of the Regular Salary for the last Salary Cap Year covered by the original term of the Contract.
  2. In the event that the last Salary Cap Year covered by the original term of the Contract provides for Incentive Compensation, the amount of Likely Bonuses and Unlikely Bonuses in each Salary Cap Year covered by the Extension after the first Salary Cap Year covered by the extended term may increase or decrease by up to 10.5% of the amount of Likely Bonuses and Unlikely Bonuses, respectively, in the last Salary Cap Year covered by the original term.
4. The following rules apply to Extensions of Rookie Scale Contracts:
  1. For each Salary Cap Year covered by an Extension of a Rookie Scale Contract after the first Salary Cap Year covered by the extended term, the Player’s Salary, excluding Incentive Compensation, may increase or decrease in relation to the previous Salary Cap Year’s Salary, excluding Incentive Compensation, by no more than 10.5% of the Regular Salary for the first Salary Cap Year covered by the extended term of the Contract.
  2. In the event that the first Salary Cap Year covered by the extended term of the Contract provides for Incentive Compensation, the amount of Likely Bonuses and Unlikely Bonuses in each Salary Cap Year covered by the Extension after the first Salary Cap Year covered by the extended term may increase or decrease by up to 10.5% of the amount of Likely Bonuses and Unlikely Bonuses, respectively, in the first Salary Cap Year covered by the extended term.
5. 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(b)(iv) and 3(c) 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 Salary Cap Year that exceed 25% of the player’s Regular Salary for such Salary Cap Year.
2. No Player Contract may provide for any Unlikely Bonus for the first Salary Cap Year covered by the Contract that, if included in the player’s Salary for such Salary Cap Year, 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.
No Futures Contracts. Subject to Section 5(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 (1) Season must be for a consecutive period of Seasons.
4. 1. A player who receives a Required Tender or a Qualifying Offer during the month of June may accept such Required Tender or Qualifying Offer beginning on the date he receives it.
  2. 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 day following the last day of the Moratorium Period 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:

If the player is a Qualifying Veteran Free Agent, the new Player Contract may provide for Salary and Unlikely Bonuses in the first Salary Cap Year 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 second Option Year 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 Salary Cap Year of up to the Regular Salary, Likely Bonuses and Unlikely Bonuses, respectively, that the player would have received for such Salary Cap Year had his Prior Team exercised its second Option Year. Annual increases and decreases in Salary and Unlikely Bonuses shall be governed by Section 5(c)(2) above.
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 Salary Cap Year up to the greater of: (i) 120% of the Regular Salary for the final Salary Cap Year of the player’s prior Contract, plus 120% of any Likely Bonuses and Unlikely Bonuses, respectively, called for in the final Salary Cap Year covered by the player’s prior Contract; (ii) Salary plus Unlikely Bonuses totaling 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 Salary and Unlikely Bonuses 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.
1. If the player is an Early Qualifying Veteran Free Agent, the new Player Contract must cover at least two (2) Seasons (not including a Season covered by an Option Year) and, subject to Article II, Section 7, may provide in the first Salary Cap Year up to the greater of: (A) 175% of the Regular Salary for the final Salary Cap Year covered by his prior Contract, plus 175% of any Likely Bonuses and Unlikely Bonuses, respectively, called for in the final Salary Cap Year covered by the player’s prior Contract, or (B) Salary plus Unlikely Bonuses totaling 108% of the Average Player Salary for the prior Salary Cap Year (or if the Audit Report for the prior Salary Cap Year has not been completed, 108% of the Average Player Salary for the prior Salary Cap Year as computed by substituting Estimated Total Salaries (as defined in Article VII, Section 1(i)) for Total Salaries). Notwithstanding the preceding sentence, if the player is an Early Qualifying Veteran Free Agent whose last Contract was his Rookie Scale Contract and whose Prior Team did not exercise its Option to extend such Contract for a third Season,the new Player Contract may provide for Regular Salary, Likely Bonuses and Unlikely Bonuses in the first Salary Cap Year of up to the Regular Salary, Likely Bonuses and Unlikely Bonuses, respectively, that the player would have received for such Salary Cap Year had his Prior Team exercised such Option. Annual increases and decreases in Salary and Unlikely Bonuses shall be governed by Section 5(c)(2) above.
2. Notwithstanding anything to the contrary in Section 5(b)(2) above, if an Early Qualifying Veteran Free Agent with two (2) Years of Service receives an Offer Sheet in accordance with the provisions of Article XI, Section 5(c)(ii), the player’s Prior Team may use the Early Qualifying Veteran Free Agent Exception to match the Offer Sheet.

Disabled Player Exception.
1. Subject to the rules set forth in Section 6(k) below, a Team may, in accordance with the rules set forth in this Section 6(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”).
  1. If a team wishes to sign a Replacement Player pursuant to this Section 6(c), such Replacement Player’s Contract may provide Salary and Unlikely Bonuses for the first Salary Cap Year totaling up to the lesser of (A) 50% of the Disabled Player’s Salary at the time the Disabling Injury or Illness occurred, or (B) 108% of the Average Player Salary for the prior Salary Cap Year (or, if the Audit Report for the prior Salary Cap Year has not been completed, 108% of the Average Player Salary for the prior Salary Cap Year as computed by substituting Estimated Total Salaries (as defined in Article VII, Section 1(i) for Total Salaries). Annual increases and decreases in Salary and Unlikely Bonuses shall be governed by Section 5(c)(1) above.
  2. If a Team wishes to acquire a Replacement Player pursuant to this Section 6(c), the Replacement Player’s post-assignment Salary for the Season in which the Replacement Player is acquired may be up to the lesser of the amount described in Section 6(c)(1)(i)(A) above or the amount described in Section 6c)(1)(i)(B) above, plus, in either case, $100,000.
2. For purposes of this Section 6(c), Disabling Injury or Illness means:
  1. for the period July 1 through the immediately following November 30, any injury or illness that, in the opinion of the physician described in subsection (c)(5) below, 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, in the opinion of the physician described in subsection (c)(5) below, 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 the day following the last day of the Moratorium Period. 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, who shall review the relevant medical information and, if the physician deems it appropriate, examine the player. The NBA shall advise the Players Association of the determination of its physician within one (1) 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 the neutral physician deems it appropriate, examine the player. Within three (3) 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 Section 6(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 Team’s receipt of an Exception in respect of a Disabled Player pursuant to this Section 6(c), such player, upon recovering from his injury or illness, may resume playing for the Team. If the player resumes playing for the Team, or is traded, prior to the Team’s use of its Exception, the Exception shall be extinguished.
8. In no event may a Team enter into a Contract with a Replacement Player pursuant to Section 6(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 Section 6(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.
Bi-annual Exception Subject to the rules set forth in Section 6(k) below:
1. During each Salary Cap Year in which a Team is permitted to use the Bi-annual Exception, a Team may sign one (1) or more Player Contracts, not to exceed two (2) Seasons in length, that, in the aggregate, provide for Salaries and Unlikely Bonuses in the first Salary Cap Year totaling up to the amounts set forth below:
  1. For the 2005-06 Salary Cap Year: $1.67 million
  2. For the 2006-07 Salary Cap Year: $1.75 million
  3. For the 2007-08 Salary Cap Year: $1.83 million
  4. For the 2008-09 Salary Cap Year: $1.91 million
  5. For the 2009-10 Salary Cap Year: $1.99 million
  6. For the 2010-11 Salary Cap Year: $2.08 million
  7. For the 2011-12 Salary Cap Year: $2.18 million
  (if the NBA exercises its option to extend this Agreement pursuant to Article XXXIX)
2. A Team may use all or any portion of the Bi-annual Exception to sign one (1) 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 Bi-annual 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 Bi-annual Exception or any portion thereof in any two (2) consecutive Salary Cap Years shall apply to the 2004-05 Salary Cap Year (i.e., if a Team used all or any portion of the Bi-annual Exception during the 2004-05 Salary Cap Year, that Team shall not be permitted to use all or any portion of the Bi-annual Exception during the 2005-06 Salary Cap Year).
3. Player Contracts signed pursuant to the Bi-annual 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 Bi-annual Exception, if applicable, arises on the day following the last day of the Moratorium Period 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 Section 6(k) below:
1. A Team may sign one (1) or more Player Contracts during each Salary Cap Year, not to exceed five (5) Seasons in length, that, in the aggregate, provide for Salaries and Unlikely Bonuses in the first Salary Cap Year totaling up to 108% of the Average Player Salary for the prior Salary Cap Year (or, if the Audit Report for the prior Salary Cap Year has not been completed, 108% of the Average Player Salary for the prior Salary Cap Year as computed by substituting Estimated Total Salaries (as defined in Article VII, Section 1(i)) for Total Salaries).
2. 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.
3. Notwithstanding anything to the contrary in Section 6(e)(2) above, if a Veteran Free Agent with one (1) or two (2) Years of Service receives an Offer Sheet in accordance with the provisions of Article XI, Section 5(c)(ii), the player’s Prior Team may use the Mid-Level Exception to match the Offer Sheet.
4. The Mid-Level Salary Exception shall arise on the day following the last day of the Moratorium Period 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, Section 1.
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 or acquired pursuant to the Minimum Player Salary Exception covering two (2) Seasons must 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).
Traded Player Exception.
1. Subject to the rules set forth in Section 6(k) below, a Team may, for a period of one year following the date of the trade of a Player Contract to another Team, replace the Traded Player with one (1) or more players acquired by assignment as follows:
  1. A Team may replace a Traded Player with one (1) 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 125% of the pre-trade Salary (or Base Year Compensation, if applicable) of the Traded Player, plus $100,000.
  2. If a Team’s trade of a player and acquisition of one (1) 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-trade Salary (or Base Year Compensation, if applicable) of the Traded Player at the time the Traded Player’s Contract was traded, plus $100,000.
  3. A Team may aggregate the pre-trade Salaries in two (2) or more Player Contracts for the purpose of acquiring in a simultaneous trade one (1) or more Replacement Players whose post-trade Salaries, in the aggregate, are no more than an amount equal to 125% of the pre-trade 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 (2) months from the date the Player Contract is acquired.
2. Except as provided in Section 6 (h)(3) below, and notwithstanding Section 6(k) below, a Team with a Team Salary below the Salary Cap may acquire one (1) 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 the trade in accordance with Section 6(h)(2) above, and notwithstanding Section 6(k) below, a Team with a Team Salary below the Salary Cap may (i) replace a Traded Player with one (1) or more Replacement Players whose Player Contracts are acquired simultaneously and whose post-trade Salaries for the then-current Season, in the aggregate, are no more than an amount equal to 125% of the pre-trade Salary of the Traded Player, plus $100,000, or (ii) aggregate the pre-trade Salaries in two (2) or more Player Contracts for the purpose of acquiring in a simultaneous trade one (1) or more Replacement Players whose post-trade Salaries, in the aggregate, are no more than an amount equal to 125% of the pre-trade aggregated Salaries of the Traded Players, plus $100,000. Notwithstanding the preceding sentence, no Player Contract acquired pursuant to an Exception may be traded by a Team in accordance with this Section 6(h)(3) for a period of two (2) months from the date the Player Contract is acquired.
4. 1. For purposes of the Traded 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)(1) or (3) 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 (except that such a player shall not be subject to a Base Year Compensation if the new Contract provides for Salary equal to the Minimum Player Salary with no Unlikely Bonuses);
    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; or
    3. 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. For purposes of Section 6(h)(4)(i)(A) above, if the player’s immediately prior Contract was a one-year Contract that provided for Salary equal to the Minimum Player Salary (with no Unlikely Bonuses), the player’s prior Salary shall include the portion of the Minimum Player Salary, if any, that was reimbursed out of the League-wide benefits fund described in Article IV, Section 5(k).
  2. A player’s Base Year Compensation shall equal the greater of (A) 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 (B) 50% of the Salary for the first Season of his new Contract (or extended term, if applicable). A player’s Base Year Compensation shall go into effect on the date the new contract is entered into or, in the case of an Extension, the day following the last day of the Moratorium Period that precedes the first Season of the extended term and shall expire and be of no further effect on the later of (x) the following June 30, or (y) six (6) months following the date the Base Year Compensation goes into effect.
  3. If a player has a Base Year Compensation that, pursuant to Section 6(h)(4)(ii) above, expires six (6) months after it goes into effect and during such six (6) month period the player signs a new Contract with his prior Team, the player shall continue to be subject to a Base Year Compensation in his new Contract until the conclusion of such six (6) month period. For purposes of computing such Base Year Compensation during the new Contract, the player’s Base Year Salary shall equal the Base Year Compensation applicable under his prior 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 Section 6(h)(4)(i)(A) above, then the player shall be subject to a new Base Year Compensation for, the amount and duration of which shall be determined in accordance with Section 6(h)(4)(ii) above.
  4. 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 Section 6(h)(4)(i)(B) or (C) 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 Section 6(h)(4)(i)(B) or (C) 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 12(e) or (f), 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 Section 6(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 Salariesgreater than that permitted by any one of the Exceptions. If a Team has more than one (1) 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, Bi-annual, Mid-Level Salary, and Assigned Player Exceptions set forth in Section 6(c), (d), (e) and (h) above, respectively, except as set forth in Section 6(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 Section 6(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, Bi-annual 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 Bi-annual 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.
3. Beginning on January 10 of each Season, each unused Exception, other than the Traded Player Exception, the Minimum Player Salary Exception (which is governed by Section 6(g) above and Article I, Section (gg)) and the Disabled Player Exception, shall be reduced daily throughout the end of the Regular Season by the product of the amount of the unused Exception as of January 10 multiplied by a fraction, the numerator of which is one (1) and the denominator of which is the total number of days in such Regular Season.

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. 1. With respect to Contracts entered into prior to the date of this Agreement, subject to the rules set forth in Section 7(a)(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. With respect to Contracts entered into after the date of this Agreement, subject to the rules set forth in Section 7(a)(2) below, a Player Contract covering a term of four (4), five (5) or six (6) Seasons may be extended no sooner than the third anniversary of the signing of the Contract.
2. 1. A Player Contract that has been extended, or that has been renegotiated to provide for an increase in Salary in any Salary Cap Year covered by the Contract of more than 10%, may not subsequently be extended until the third anniversary of such Extension or Renegotiation.
  2. A Team and a player shall not be permitted to extend any Player Contract whose term has been shortened as a result of the player’s exercise of an Early Termination Option.
  3. Subject to the rules set forth in this Section 7(a), a Contract may be extended following the non-exercise of an Option by a player or Team only if:
    1. The extended term covers a minimum of two (2) Seasons (excluding any new Option Year); and
    2. The player’s Regular Salary, Likely Bonuses and Unlikely Bonuses in the first Salary Cap Year covered by the extended term are no less than the Regular Salary, Likely Bonuses and Unlikely Bonuses, respectively, that the player would have received for such Salary Cap Year had the Option been exercised. In order to effectuate an Extension of the type described in this Section 7(a)(2)(iii), a Team and player may amend a Contract to provide simultaneously for the non-exercise of the Option and the Extension.
3. Subject to Article II, Section 7, a Player Contract extended in accordance with this Section 7(a) may, in the first Salary Cap Year covered by the extended term, provide for a Salary, excluding Incentive Compensation, of up to 110.5% of the Regular Salary in the last Salary Cap Year covered by the original term of the Contract. In the event that the last Salary Cap Year covered by the original term of the Contract provides for Incentive Compensation, the first Salary Cap Year covered by the extended term may provide for Likely Bonuses and Unlikely Bonuses of up to 110.5% of the Likely Bonuses and Unlikely Bonuses, respectively, in the last Salary Cap Year covered by the original term. Annual increases and decreases in Salary and Unlikely Bonuses shall be governed by Section 5(c)(3) above.
4. Notwithstanding Section 7(a)(3) above and 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 Salary Cap Year covered by the original term of the Contract is less than the Salary in the second-to-last Salary Cap Year covered by such Contract may, in the first Salary Cap Year covered by an extended term, provide for a Salary equal to 110.5% of the greater of (1i the average of the Regular Salaries for each Salary Cap Year covered by the original Contract beginning with the Salary Cap Year in which such Contract was entered into, or previously extended, as the case may be, or (ii) the Regular Salary in the last Salary Cap Year covered by his original Contract. In the event that the last Salary Cap Year covered by the original term of the Contract provides for Incentive Compensation, the first Salary Cap Year covered by the extended term may provide for Likely Bonuses and Unlikely Bonuses of up to 110.5% of the Likely Bonuses and Unlikely Bonuses, respectively, in the last Salary Cap Year covered by 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 Section 7(a)(4)(ii) only,the phrase “Regular Salary” in Section 5(c)(3) above shall be deemed to mean the greater of (A) the average of the Regular Salaries for each Salary Cap Year covered by the original Contract beginning with the Salary Cap Year in which such Contract was entered into, or previously extended, as the case may be, or (B) the Regular Salary in the last Salary Cap Year covered by the original Contract.
Rookie Scale Extensions. No Rookie Scale Contract may be extended except in accordance with the following:
1. A First Round Pick who entered into a Rookie Scale Contract that commenced with a Season prior to the 2005-06 Season may enter into an Extension of such Rookie Scale Contract during the period from the day following the last day of the Moratorium Period through October 31 of the Option Year provided for in such Contract (assuming the Team exercises such Option).
2. A First Round Pick who enters into a Rookie Scale Contract that commences with the 2005-06 Season or a subsequent Season may enter into an Extension of such Rookie Scale Contract during the period from the day following the last day of the Moratorium Period through October 31 of the second 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 Salary Cap Year covered by 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 Section 7(c)(2) and (3) below, a Player Contract covering a term of four (4) or more Seasons may be renegotiated no sooner than the third anniversary of the signing of the Contract.
2. Subject to Section 7(c)(3) below, any Player Contract that has been renegotiated in accordance with Section 7(c)(1) above to provide for an increase in Salary or Incentive Compensation in any Salary Cap Year covered by the Contract of more than 8%, or extended in accordance with Section 7(a) or (b) above, may not subsequently be renegotiated until the third anniversary of such Extension or Renegotiation.
3. Assuming Section 7(c) (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 Salary Cap Year covered by the Contract (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 10.5% 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 10.5% 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 or in any Incentive Compensation for any Salary Cap Year covered by a Player Contract.
2. A Player Contract that is extended pursuant to Section 7(a) above may be renegotiated simultaneously, but only if and to the extent permitted by the rules set forth in Section 7(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 a trade bonus, but only to the extent necessary to make the trade permissible in accordance with the rules set forth in Section 6(h) above. In the event that, in connection with a trade, a player’s Contract is amended in accordance with this Section 7(d)(3), such Contract may not be subsequently extended or renegotiated until the later of (i) six (6) months from the date of the trade, 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(l), then for purposes of calculating the player’s Salary for the then-current and any remaining Salary Cap Year covered by the Contract, 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 Salary Cap Year on the basis of the remaining unearned protected Base Compensation in each such Salary Cap Year.
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. For purposes of this Section 8(a), if a Contract is signed and then traded pursuant to Section 8(e)(1) below, and the Contract contains a signing bonus, the payment of all or any portion of such bonus by the Team that signed the Contract shall be treated as a reimbursement of a Compensation obligation of the assignee Team and shall be subject to this Section 8(a).
A player with a one-year Contract (excluding any Option Year) 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 without the player’s consent. Should the player consent and be traded, then, for purposes of determining whether the player is a Qualifying Veteran Free Agent, Early Qualifying Veteran Free Agent or Non-Qualifying Veteran Free Agent at the conclusion of the Contract or any subsequent Contract between the player and the assignee Team, the player shall be considered as having changed Teams by means of signing a Contract with the assignee Team as a Free Agent (and not by means of trade).
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 Section 8(e) below: (1) no player who signs a Contract as a Free Agent may be traded before the later of (i) three (3) months following the date on which such Contract was signed or (ii) the December 15 of the Salary Cap Year in which such Contract was signed; and (2) no Draft Rookie who signs a Player Contract may be traded before thirty (30) days following the date on which the Contract is signed.
1. 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 trade of such Contract, but only if (i) the Contract is for three (3) or more Seasons (excluding any Option Year), (ii) the Contract is not signed pursuant to the Mid-Level Salary Exception or the Disabled Player Exception, (iii) the first Season of the Contract is fully protected for lack of skill, and (iv) the acquiring Team has Room for the player’s Salary plus any Unlikely Bonuses provided for in the first Season of the Contract.
2. A player and his Team may amend a Player Contract (including by entering into an Extension) pursuant to an agreement between such Team and another Team concerning the signing of the amendment and subsequent trade of the amended Contract; provided, however, that no such agreement may be made during the period from the last day of the last Regular Season covered by the Contract (or the last day of any Regular Season that could be the last Regular Season covered by the Contract based upon the exercise or non-exercise of an Option or ETO) through the following June 30.
3. A Player Contract or Extension entered into pursuant to Section 8(e)(1) or (2) above may not contain an Exhibit 6 thereto. However, the preceding sentence shall not prohibit the Teams involved in the trade from agreeing that the trade (and thus the validity of the Player Contract or Extension) will be conditional upon the passage of a physical examination to be performed by a physician designated by the assignee-Team in accordance with NBA procedures.
In the event a Rookie Scale Contract is extended pursuant to Section 7(b) above and a Team proposes to trade such Contract to another Team prior to the July 1 immediately [sic]
If a Team trades a player and the assignee Team subsequently terminates the Player’s Contract, the assignor Team shall not be permitted to sign the player to a new Contract until at least thirty (30) days have passed following the date all conditions to the trade were satisfied (or until at least twenty (20) days have passed in the case of a trade that occurs during the period from the last day of a Season through the first day of the following Regular Season).
Prior to the assignment of any Player Contract, the Team from which such Player Contract is to be assigned and the player whose Player Contract is to be assigned shall be required to divest themselves, on terms mutually agreeable to the player and the Team, of any pre-existing financial arrangements between such Team and such player. The foregoing shall not apply to Compensation earned by the player prior to the assignment or to loans.
Within one (1) week following each trade, the NBA shall send to the Players Association, by fax or e-mail, a summary of the principal terms of the trade; provided, however, that the NBA may omit from such summary any terms that the NBA or one (1) or more Teams involved in the trade reasonably deem confidential (other than such terms as may be necessary to verify the Teams’ compliance with Section 8(a) above).

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,” and, if applicable, an “Interim Audit Report” and, if applicable, an “Interim Escrow Audit Report”) setting forth BRI, and Total Salaries and Benefits for the immediately preceding Salary Cap Year and the information called for by Section 12 below (the “Escrow Information”). The audit reports provided for by this Section 10(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 Section 10(a)(1).
2. The Accountants shall submit a “Draft Audit Report” for each Salary Cap Year to the NBA and the Players Association, along with relevant supporting documentation, two (2) weeks prior to the scheduled issuance of the final Audit Report.
3. The final Audit Report shall be submitted by the Accountants to the parties on or before the last day of the Moratorium Period following the conclusion of the Salary Cap Year. The Audit Report shall not be deemed final until the parties have confirmed in writing their agreement (in a form acceptable to the parties) with such Report. The NBA, the Players Association and the Teams shall use their best efforts to facilitate the Accountants’ timely completion of the Audit Report.
4. In the event that, for any reason, the Accountants fail to submit to the parties a final Audit Report by the last day of the Moratorium Period, 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, based upon such best estimates, the Escrow Information. Such Interim Audit Report shall include:
  1. [sic] 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 Section 10(a)(2) (i) and (ii).
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. The Audit Report shall not be deemed final until the parties have confirmed in writing their agreement (in a form acceptable to the parties) 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 below.
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 Section 10(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) above. Subject to the terms of Section 1(a)(6) above and Section 11 below, 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: (1) 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 (2) 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”).
In the event that in the course of preparing an Audit Report for a Salary Cap Year the Accountants discover that they committed an error in computing BRI in the Audit Reports for either of the two previous Salary Cap Years, which error resulted in a material understatement or overstatement of BRI for either of such Salary Cap Years, and the parties agree that such error was committed and agree as to the amount of the resulting understatement or overstatement (or, if they do not agree, an error (and the amount of such error) is established pursuant to the dispute resolution procedures provided for in this Agreement) the amount of such understatement or overstatement of BRI shall be added to or subtracted from BRI, as the case may be, 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 such Audit Report) accruing from the date of the Audit Report for the Salary Cap Year in which such understatement or overstatement occurred in equal annual amounts over the then-current and subsequent Salary Cap Year. Notwithstanding the foregoing, the parties will jointly instruct the Accountants that their audits shall not include procedures specifically designed to detect errors committed in prior audits.
In the event that there is an NHL players’ strike or owners’ lockout (“work stoppage”) resulting in the cancellation of all or part of any NHL season in any Salary Cap Year, and such work stoppage results in a refund being made to luxury suite-holders, premium seat license-holders or to purchasers of fixed arena signage and/or naming rights in arenas in which both an NBA Team and an NHL team plays its home games, then the revenues for luxury suites, premium seat licenses and fixed arena signage and/or naming rights in such arenas shall be determined as if such refunds were not made. If the work stoppage continues for a second year, then the NHL revenues shall be deemed to be the amount included for the prior year.
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 (1) revenue items, and (2) 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 (5) 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 (1) audit, at its own expense, of the expenses incurred in connection with the proceeds that come within Article VII, Section 1(a)(1)(viii) above 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.
Confidentiality. In connection with any audit conducted by the Players Association pursuant to this Section 11, the Players Association agrees to sign, and to cause its representatives to sign, a confidentiality agreement in the form annexed hereto as Exhibit J-1. The Players Association also agrees to sign, and to cause its representatives to sign, a similar confidentiality agreement with respect to information obtained in connection with the Accountants’ audit pursuant to Section 10 above.

7.12 Escrow and Tax Arrangement.

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 and every player who is excluded from Team Salary pursuant to Section 4(h) above.
2. “Aggregate Compensation Adjustment Amount” means, with respect to a Salary Cap Year, the lesser of (i) the Aggregate Salaries and Benefits Adjustment Amount, and (ii) a percentage of Total Salaries for such Salary Cap Year as follows:
  
  Salary Cap Year % of Total Salaries
  
  2005-06 10%
  
  2006-07 9%
  
  2007-08 9%
  
  2008-09 9%
  
  2009-10 9%
  
  2010-11 8%
  
  2011-12 8%
  
  (if the NBA exercises its option to extend this Agreement pursuant to Article XXXIX)
  
  For purposes of clause (ii) above, Total Salaries shall be increased by the amount that is included in Benefits for such Salary Cap Year pursuant to Article IV, Section 5(k)(1) of this Agreement.
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 Section 12(d)(1) below is less than the Aggregate Compensation Adjustment Amount for such Salary Cap Year.
4. “Aggregate Salaries and Benefits Adjustment Amount” means, with respect to a Salary Cap Year, the lesser of (i) the Overage (as defined in Section 12(a)(14) below) for such Salary Cap Year, and (ii) a percentage of Total Salaries and Benefits for such Salary Cap Year as follows:
  
  Salary Cap Year % of Total Salaries and Benefits
  
  2005-06 10%
  
  2006-07 9%
  
  2007-08 9%
  
  2008-09 9%
  
  2009-10 9%
  
  2010-11 8%
  
  2011-12 8%
  
  (if the NBA exercises its option to extend this Agreement pursuant to Article XXXIX)
5. “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.
6. “Deduction Date” means each of the twelve (12) semi-monthly payment dates from November 15 through May 1 provided for under paragraph 3 of the Uniform Player Contract.
7. “Designated Percentage” means, with respect to a Salary Cap Year, the percentage set forth in Section 12(b)(3) below.
8. “Escrow Agent” means, for purposes of this Section 12, the escrow agent identified in the Salary Escrow Agreement.
9. “Escrow Amount” means for an Adjustment Player, with respect to a Salary Cap Year, an amount equal to the sum of the player’s “Base Escrow amount” (as defined below) plus the player’s “Performance Bonus Escrow Amount” (as defined below) plus the player’s “Trade Bonus Escrow Amount” (as defined below). “Base Escrow Amount” means for an Adjustment Player, with respect to a Salary Cap Year, an amount equal to a percentage of the Adjustment Player’s Salary for such Salary Cap Year as follows:
  
  Salary Cap Year Percentage
  
  2005-06 10%
  
  2006-07 9%
  
  2007-08 9%
  
  2008-09 9%
  
  2009-10 9%
  
  2010-11 8%
  
  2011-12 8%
  
  (if the NBA exercises its option to extend this Agreement pursuant to Article XXXIX)
  
  For purposes of calculating an Adjustment Player’s Base Escrow Amount in accordance with the preceding sentence: (i) a player’s Salary shall exclude all Performance Bonuses included in Salary under Section 3(d) above; 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 5(k)(2). “Performance Bonus Escrow Amount” means for an Adjustment Player, with respect to a Salary Cap Year, an amount equal to a percentage of the Performance Bonuses earned by such player during such Salary Cap Year specified in the table above. “Trade Bonus Escrow Amount” means for an Adjustment Player whose Contract contains a trade bonus, with respect to a Salary Cap year in which the player’s Contract is traded during the period following the conclusion of the Team’s Season through June 30, an amount equal to a percentage of the portion of the trade bonus that is included in Salary for such Salary Cap year as specified in the table above.
10. “Escrow Schedules” means the schedules prepared by the NBA with respect to each Salary Cap Year setting forth: the Base Escrow Amount; when calculable following the conclusion of the applicable Regular Season, the Performance Bonus Escrow Amount; when calculable, the Trade Bonus Escrow Amount; and the dates on which each Adjustment Player’s Base Escrow Amount, Performance Bonus Escrow Amount and Trade Bonus Escrow Amount are to be deducted from the player’s Compensation and/or delivered to the Escrow Agent.
11. “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. 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 Section 3(d) above 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) above 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 5(k)(2).
12. “Individual Shortfall Adjustment Amount” means, with respect to each Contract that is amended pursuant to Section 12(e)(1) below, the amount that the Compensation otherwise payable in accordance with that Contract shall be reduced pursuant to Section 12(e)(2) below.
13. “New Benefit Adjustment Amount” means an amount equal to the difference between the Aggregate Salaries and Benefits Adjustment Amount and the Aggregate Compensation Adjustment Amount.
14. “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.
15. “Performance Bonus Deduction Date” means, with respect to an Adjustment Player, the earlier of (i) the date that any Performance Bonus earned by the player during the applicable Salary Cap Year is paid to the player pursuant to his Contract, or (ii) the day following the date of the last game of the NBA Finals occurring during such Salary Cap Year.
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. 1. “Tax Level” means, with respect to a Salary Cap Year, an amount determined by the following calculation:
    Step 1: Compute 61% of Projected BRI (as defined in Section 1(c) above).
    Step 2: Subtract Projected Benefits (as defined in Article IV, Section 8) for such Salary Cap Year from the result in Step 1.
    Step 3: Divide the result in Step 2 by the number of Teams (excluding Expansion Teams during their first two (2) Salary Cap Years) in the NBA during such Salary Cap Year.
  2. In the event that the Audit Report for a Salary Cap Year has not been completed as of the last day of the Moratorium Period immediately following the end of such Salary Cap Year, then the Tax Level for the Salary Cap Year that commenced on the immediately preceding July 1 will be calculated using Interim Projected BRI instead of Projected BRI, Estimated BRI instead of BRI and Estimated Benefits instead of Benefits for all purposes under this Section 12(a)(17) including, without limitation, the adjustments set forth in Section 12(a)(17)(iv) and (v) below. In the event that the Interim Audit Report for a Salary Cap Year has not been completed as of the last day of the Moratorium Period immediately following the end of such Salary Cap Year, then the Tax Level 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 Tax Level 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-contingentpayments 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.
  3. In the event that the Tax Level for a Salary Cap Year is calculated in accordance with Section 12(a)(17)(ii) above (i.e., is based upon an Interim Audit Report for the prior Salary Cap Year) and BRI 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 Tax Level would have been different from that based upon the Interim Audit Report, any such difference in the Tax Level shall be debited or credited, as the case may be, to the Tax Level for the subsequent Salary Cap Year, except that, with respect to the 2010-11 Salary Cap Year (or, in the alternative, if the NBA exercises its option pursuant to Article XXXIX, the 2011-12 Salary Cap Year) any such differences shall be debited or credited, as the case may be, to the Tax Level 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).
  4. In the event that 61% of BRI for a Salary Cap Year, beginning with the 2005-06 Salary Cap Year, is greater or less than 61% of Projected BRI for that Salary Cap Year, then for purposes of calculating the Tax Level for the subsequent Salary Cap Year: (A) if 61% of BRI is greater than 61% of Projected BRI, the difference shall be added to 61% of Projected BRI for such subsequent Salary Cap Year; or (B) if 61% of BRI is less than 61% of Projected BRI, the difference shall be deducted from 61% of Projected BRI for such subsequent Salary Cap Year.
  5. In the event that Benefits for a Salary Cap Year, beginning with the 2005-06 Salary Cap Year, is greater or less than Projected Benefits for that Salary Cap Year, then for purposes of calculating the Tax Level for the subsequent Salary Cap Year: (A) if Benefits is greater than Projected Benefits, the difference shall be added to Projected Benefits for such subsequent Salary Cap Year; or (B) if Benefits is less than Projected Benefits, the difference shall be deducted from Projected Benefits for such subsequent Salary Cap Year.
  6. The tax level with respect to the 2005-06 Salary Cap Year shall be deemed to be $61.7 million.
18. “Trade Bonus Deduction Date” means, with respect to an Adjustment Player, the earlier of (i) the date that any trade bonus earned by the player during the applicable Salary Cap Year is paid to the player pursuant to this Contract, or (ii) the June 30 of such Salary Cap Year.
Compensation Adjustment Rules.
1. In the event that there is an Overage in any Salary Cap Year, (i) the Contracts of all Adjustment Players shall be amended by operation of this Agreement, such that the aggregate Compensation otherwise payable to all such Adjustment Players with respect to such Salary Cap Year shall be reduced by the Aggregate Compensation Adjustment Amount, and (ii) the New Benefit Amount for such Season as provided for by Article IV, Section 7(a)(1) (i.e., the New Benefit amount that is presently specified in Article IV, Section 7(a)(1) or such lesser New Benefit Amount as is designated by the Players Association, in accordance with the provisions of Article IV, Section 7(a)(1), by notice in writing to the NBA delivered on or before the March 15 prior to the commencement of the Salary Cap Year encompassing such Season) shall be reduced by the New Benefit Adjustment Amount.
2. Subject to Section 12(d) and (e) below, to effectuate the aggregate Compensation reduction provided for in Section 12(b)(1)(i) above, the 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 Percentage for each Salary Cap Year shall be 57%, except that:
  1. if BRI for any Salary Cap Year exceeds BRI for the 2004-05 Salary Cap Year by more than 30%, then the Designated Percentage for such Salary Cap Year shall be 57.5%; and
  2. if BRI for any Salary Cap Year exceeds BRI for the 2004-05 Salary Cap Year by more than 60%, then the Designated Percentage for such Salary Cap Year shall be 58%.
Escrow Procedure.
1. The following shall apply with respect to each Salary Cap Year (subject to Section 12(d) below regarding final reconciliation):
  1. The 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 Section 12(c)(4) below: (i) the Base Escrow Amount for each Adjustment Player shall be collected in twelve (12) equal installments from each of the player’s semi-monthly Compensation payments on each Deduction Date; (ii) the Performance Bonus Escrow Amount for each Adjustment Player shall be collected in one (1) installment on the Performance Bonus Deduction Date; and (iii) the Trade Bonus Escrow Amount for each Adjustment Player shall be collected in one (1) installment on the Assignment Bonus 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 November 8 of each Salary Cap Year, and periodically thereafter to reflect any new or adjusted Escrow Amounts calculated in accordance with Section 12 (c)(4) below.
  2. 1. 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 Base Escrow Amounts that the Team is obligated to deduct with respect to such Deduction Date for all of its Adjustment Players. Within three (3) business days following the date of the last game of the NBA Finals occurring during each Salary Cap, each Team shall deliver to the Escrow Agent, in accordance with the Salary Escrow Agreement, the aggregate Performance Bonus Escrow Amounts for all of its Adjustment Players. Within three (3) business days following an Adjustment Player’s Trade Bonus Deduction Date, the player’s Team shall deliver to the Escrow Agent, in accordance with the Salary Escrow Agreement, the player’s Trade Bonus Escrow Amount. All amounts received by the Escrow Agent shall be invested and disbursed in accordance with the provisions of the Salary Escrow Agreement.
    2. It is the intention of the NBA and the Players Association that the provisions of this Section 12(c) result each Salary Cap Year in the delivery to the Escrow Agent, with respect to each Adjustment Player, of the player’s full Escrow Amount. Accordingly, if for any reason the procedures in this Section 12(c) would result in less than the full Escrow Amount with respect to any Adjustment Player being delivered to the Escrow Agent, the NBA and the Players Association shall agree on such supplemental measures as are necessary to effectuate the deduction of the appropriate amount from the player’s Compensation for delivery to the Escrow Agent.
4. After November 8, the NBA shall periodically update the Escrow Schedules to add Escrow Amounts for players who enter into new Player Contracts and to make such adjustments as may be necessary to previously-listed Escrow Amounts (such as adjustments resulting from earned Performance Bonuses, Contract terminations, Renegotiations, etc.). Any portion of a Base 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 Compensation payments to be made to the player from November 15 through May 1 of the applicable Salary Cap Year.
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 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 and each Performance Bonus 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 Section 12(c)(4) above, or a final determination is made in a proceeding in accordance with Section 12(c)(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 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 aspracticable, with interest, such additional amounts as are necessary to fully off-set 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 Section 12(d)(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 [sic]
  1. the amount of any Overage;
  2. the Aggregate Salaries and Benefits Adjustment Amount, if any;
  3. the Aggregate Compensation Adjustment Amount, if any;
  4. the New Benefits Adjustment Amount, if any;
  5. each Adjustment Player’s Individual Compensation Adjustment Amount, if any;
  6. each Adjustment Player’s Escrow Amount, if any, as set forth in the Escrow Schedules;
  7. 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;
  8. 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;
  9. in accordance with the provisions of Section 12(d)(1) and (d)(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;
  10. the Tax Level; and
  11. the amount, if any, by which each Team’s Team Salary as completed in Section 12(f) below exceeds the TSO Level.
4. In addition to the information described in Section 12(d)(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 the NBA and the Players Association, in the form attached to the Salary Escrow Agreement, setting forth:
  1. the amount, if any, by which each Team’s Team Salary as computed in Section 12(f)(3) below exceeds the Tax Level.
  2. in the space designated in paragraph 1 of the Notice, the sum of the amounts described in Section 12(d)(3)(vii)(D) and Section 12(d)(3)(viii)(E) above, which sum is to be disbursed by the Escrow Agent to the NBA;
  3. in the space designated in paragraph 2 of the Notice, the amounts described in Section 12(d)(3)(viii)(C) above, which amounts are to be disbursed by the Escrow Agent to each respective Adjustment Player described in Section 12(d)(3)(viii) above;
  4. in the space designated in paragraph 3 of the Notice, the information described in Section 12(d)(3)(ix)(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
  5. in the space designated in paragraph (4) of the Notice, the information described in Section 12(d)(3)(ix)(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 NBA and/or the Players Association shall deliver to the Escrow Agent the completed Notice to the NBA and the Players Association. 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 Section 12(d)(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 the NBA and the Players Association, 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 Section 12(e)(2) below, such that the aggregate 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 Section 12(b)(1)-(2) above.
2. The Individual Shortfall Adjustment Amount for each Adjustment Player whose Contract is amended in accordance with Section 12(e)(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 5(k).
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 the NBA and the Players Association. All such deductions shall be promptly remitted by the Teams to the NBA.
Team Payments.
1. Each Team whose Team Salary exceeds the Tax Level for any Salary Cap Year shall be required to pay a tax to the NBA equal to the amount by which the Team’s Team Salary exceeds the Tax Level. For purposes of computing the amount of tax a Team owes:
  1. a Team’s Team Salary shall be the sum of: (A) its Team Salary as of the start of its last Regular Season game, plus all Performance Bonuses excluded from Salary under Article VII, Section 3(d) but actually earned by the player during such Salary Cap Year, less all Performance Bonuses included in Salary under Section 3(d) above but not actually earned by the player during such Salary Cap Year; plus (B) with respect to any trade that occurs following the conclusion ofthe Team’s last Regular Season game, the portion of any trade bonus earned by a player that is included in the Team’s Team Salary for such Salary Cap Year, plus (C) any amount that is added to the Team’s Team Salary for such Salary Cap Year following the start of the Team’s last Regular Season game pursuant to Section 4(a)(iii) above; and
  2. the Salary attributable to the Contract of any player with zero (0) Years of Service or one (1) Year of Service who signs for the Minimum Player Salary shall be deemed to equal the Minimum Player Salary that would be applicable to a player with two (2) Years of Service.
2. 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.
3. For purposes of this Section 12(f) and subject to the provisions of Section 12(f)(1) above and Section 12(f)(4) below, 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.
4. The Salary of one (1) player who was signed or acquired by a Team prior to June 21, 2005, and whose Contract is terminated by such Team in accordance with the NBA waiver procedure following a request for waivers made by such Team on or before August 15, 2005 (or was terminated prior to the date of this Agreement), shall be excluded from such Team’s Team Salary solely for the purpose of computing the amount of tax such Team owes, provided that the Team designates the player for such treatment by written notice to the NBA on or before August 15, 2005. If a Team so designates a player, the Team shall be prohibited from re-signing or re-acquiring the player prior to the conclusion of the term of the terminated Contract.
Escrow and Tax Proceeds. 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 (1) or more NBA Teams, if any, shall be subject only to the following limitations:
1. The Escrow Amounts remitted to the NBA by the Escrow Agent pursuant to Section 12(d) above with respect to each Salary Cap Year shall be used and/or distributed as follows:
  1. the NBA may elect to distribute all or a portion of such amounts to NBA teams, provided that any such distribution pursuant to this Section 12(g)(1)(i) must be made to all Teams in equal shares; and
  2. amounts not distributed in accordance with Section 12(g)(1)(i) above shall be used for one (1) or more “League purposes” (as defined in Section 12(g)(3) below) selected by the NBA.
2. The tax amounts remitted to the NBA by NBA Teams pursuant to Section 12(f) above for each Salary Cap Year shall be used and/or distributed as follows:
  1. the NBA shall distribute to each Team that does not owe a tax for such Salary Cap Year an amount equal to the aggregate tax remitted to the NBA multiplied by a fraction, thenumerator of which is one (1) and the denominator of which is the number of Teams in the NBA during such Salary Cap Year; and
  2. amounts not distributed in accordance with Section 12(g)(2)(i) above shall be used and/or distributed in the manner described (with respect to the use and/or distribution of Escrow Amounts) in Section 12(g)(1)(i) and (ii) above.
3. For purposes of this Section 12(g), the use of Escrow amounts or tax amounts for a “League purpose” shall mean the use of such amounts for any purpose, including, but not limited to, the distribution of such amounts to one (1) or more Teams; provided, however, that such amounts may not be distributed to a Team or expended for the benefit or detriment of a Team in a manner that is based, directly or indirectly, on the amount of the Team’s Team Salary or on whether the Team is a taxpayer. By way of example and not limitation, a team-assistance plan adopted by the NBA and funded with Escrow amounts and/or tax amounts shall be considered a “League purpose” if, pursuant to the plan, (i) a Team’s entitlement to an assistance payment and/or the amount of such payment is based, in whole or in part, on a pro forma profit, loss, and/or expenses computation determined by the NBA under which all Teams are assumed to have the same Team Salary, and/or (ii) a Team’s assistance payment is limited to an amount not to exceed the Team’s actual losses as determined by the NBA; provided, however, that (x) with respect to clause (ii) of this Section 12(g)(3), in determining whether a Team has sustained an actual loss, the only expense amount that may be used in respect of the Team’s Compensation expenditures shall be an amount that is no less than its Team Salary, and (y) in order to qualify as a “League purpose,” such a plan may not otherwise base a Team’s entitlement to assistance and/or the amount of such assistance on the amount of a Team’s Team Salary or on whether the Team is a taxpayer. If the NBA adopts ateam assistance plan, it will advise the Players Association of the terms thereof, provided that the Players Association agrees to sign, and to counsel its representatives to sign, a confidentiality agreement similar to the confidentiality agreement annexed hereto as Exhibit J-1.
Miscellaneous.
1. 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.
2. 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 Section 12.
3. Consistent with Section 3(f) above (One-Year Minimum Contracts), except for purposes of calculating the amounts referred to in the definitions of Escrow Amount, Individual Compensation Adjustment Amount, and Individual Shortfall Adjustment Amount (set forth in Sections 12(a)(9), (b)(11), and (b)(12) above), and subject to Section 12(f)(1)(ii) 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 5(k)(1).
4. 1. For purposes of the computations made by the Accountants pursuant to Section 10 above and this Section 12, the Salary of a player who is suspended by the NBA – but not by a Team – shall be reduced (for the Salary Cap Year covering the Season during which the player is suspended) by an amount equal to fifty percent (50%) of the suspension-related Compensation amount that is collected from the player and retained by the NBA at the time the computations of the Accountants are made. Other than as set forth in the preceding sentence, the computation of a player’s Salary under the CBA shall be made without regard to any reduction in Compensation that results from the player’s suspension by the NBA or his Team.
  2. When (A) a player has forfeited a portion of his Compensation for a Season as a result of a suspension imposed by the NBA or his Team and (B) the player’s Compensation is later reduced pursuant to Section 12(b)(1) and (2) above, the player shall be entitled to a refund of a portion of the Compensation forfeited as a result of the suspension. The refund shall be in an amount equal to (x) the player’s Individual Compensation Adjustment Amount for the Salary Cap Year to which the suspension related multiplied by a fraction, the numerator of which is the amount of the player’s Compensation that was forfeited as a result of the suspension and the denominator of which is the player’s Base Compensation forsuch Season as of the date(s) he served the suspension, less (y) all amounts required to be withheld by federal, state, and local authorities. For purposes of the calculation required in clause (x) above, a player’s Individual Compensation Adjustment Amount shall be deemed to include only the portion of the player’s Individual Compensation Adjustment Amount that relates to the player’s Base Compensation earned under the Player Contract for the NBA team that the player was playing for while he was suspended. Such refund shall be made to the player within thirty (30) days following the Accountants’ submission to the NBA and the Players Association of a final Audit Report or an Interim Escrow Audit Report for the Salary Cap Year covering the Season for which the suspension-related Compensation amount is collected.
5. In the event that the Overage for any Salary Cap Year exceeds the Aggregate Salaries and Benefits 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.