(1) General Rules:

(i) 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.

(ii) 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):

(i) 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.

(ii) 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.

(iii) 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.

(iv) 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 by the Contract (including any Zero Year (as defined in Section 3(a)(2)(vii) below)) shall, on such July 1, be aggregated and attributed in equal shares to each of such three (3) or fewer Salary Cap Years.

(v) Notwithstanding Section 3(a)(2)(i) above, there shall be no re-allocation of Salaries pursuant to this Section 3(a)(2) for:

(A) 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

(B) 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.

(vi) 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.

(vii) “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.

(viii) 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.

(1) Amounts Treated as Signing Bonuses: For purposes of determining a player’s Salary, the term “signing bonus” shall include:

(i) any amount provided for in a Player Contract that is earned upon the signing of such Contract;

(ii) any Option Buy-out Amount;

(iii) 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

(iv) 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”):

(i) 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;

(ii) 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

(iii) the unpaid amounts shall be deducted from the Team’s Team Salary, in accordance with the following:

(A) The total amount available to be deducted from the Team’s Team Salary (the “credit amount”) will equal the aggregate of the unpaid amounts less, for each Season in which a portion of the unpaid amounts was included in the player’s Salary and in which his Team’s Team Salary did not fall below the Salary Cap, the smallest amount by which his Team’s Team Salary exceeded the Salary Cap during such Salary Cap Year.

(B) The credit amount shall be allocated, in equal parts, over the same number of Salary Cap Years over which the unpaid amounts were allocated, beginning with the first Salary Cap Year following the non-payment determination, plus, for each Salary Cap Year following the first Salary Cap Year of such allocation, 10% of the amount allocated to the first Salary Cap Year.

(C) If, during the course of any Salary Cap Year in which a credit allocation has been made, the Team’s Team Salary does not fall below the Salary Cap, the full credit allocation for such Salary Cap Year will be carried forward to a subsequent Salary Cap Year. If, during the course of a Salary Cap Year in which a credit allocation has been made, the Team’s Team Salary does fall below the Salary Cap, the amount carried forward, if any, will equal the amount of the credit allocation for such Salary Cap Year less the largest amount by which the Team’s Team Salary fell below the Salary Cap during such Salary Cap Year. In the event a credit allocation is carried forward pursuant to this subsection, such amount shall be deducted from Team Salary in the Salary Cap Year immediately following the last Salary Cap Year in which a portion of the credit amount is then currently being allocated, subject to the terms of this Section 3(b)(3)(iii)(C).

(4) Extensions:

(i) 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.

(ii) 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 be paid prior to the first day of the first Salary Cap Year covered by the extended term, the following rules shall apply:

(A) 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

(B) The Extension shall be deemed a Renegotiation and shall be subject to the rules governing Renegotiations set forth in Section 7 below.

(c) 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.

(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.

(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.