Hoops Rumors Glossary

The amnesty provision provides a team an opportunity to clear a bad contract from its books for salary cap and luxury tax purposes. Although a team still has to pay the remainder of the amnestied player's salary, as it would for any released player, the player's salary no longer counts against the team's cap (except for minimum payroll purposes) when the amnesty clause is used.

The amnesty provision can be used on any player, as long as the following rules are observed:

• A team can only amnesty one player — not one player per season. For instance, since the Knicks used their amnesty clause on Chauncey Billups last December, they can't use it on Amare Stoudemire or any other player going forward.
• The amnesty provision can only be used on a player who signed his contract prior to July 1st, 2011. If a contract was signed, extended, or renegotiated after that date, the player cannot be amnestied. For instance, the Nuggets couldn't amnesty Arron Afflalo, Wilson Chandler, or Danilo Gallinari at any point, since all three players signed new contracts this season.
• A team can only use its amnesty provision on a player who was on the roster on July 1st, 2011. If a player was traded after that date, he cannot be amnestied. For instance, the Spurs can't amnesty Stephen Jackson, since they acquired him in March from the Warriors.
• The amnesty clause can only be used during the seven days following the July moratorium. If a team doesn't amnesty a player during that week, it won't get another chance to do so until the following July.
• A team that has yet to use its amnesty clause can do so in any of the next four years. The 2015/16 season is the last year that a player can be amnestied, under the current CBA.

Amnestied players are placed on waivers, but the waiver rules are slightly different than usual. A team can still place a full waiver claim on an amnestied player, if it doesn't mind being on the hook for the rest of the player's contract. However, a team also has the option to submit a partial waiver claim, in what essentially amounts to an auction for the player's services. If no team places a full claim, the team with the highest partial claim is awarded the player. If two teams bid the same amount, the club with the worse record wins out.

When a team lands a player with a partial claim, it must pay the player the amount of the bid, spread out evenly among the remaining years on the contract, along with 100% of any non-guaranteed salary in the contract. For instance, when Travis Outlaw was amnestied by the Nets with four years and $28MM remaining on his contract, the Kings submitted a $12MM bid. Sacramento will now pay Outlaw $3MM ($12MM spread over four years) for each of the next four seasons, while the Nets pay the remaining annual $4MM, which doesn't count against their cap.

The minimum amount a team can submit for a partial waiver claim is whichever of the following amounts is greater:

• The sum of the player's minimum salary for all remaining years of his contract, except for non-guaranteed years.
• The sum of the player's non-guaranteed salary in partially guaranteed years.

In the case of Outlaw, because he had no partially guaranteed years on his deal, the minimum bid for him would have been about $5.3MM — the sum of his minimum salary for the next four years. Any team submitting a partial claim for an amnestied player must have the necessary cap space to fit the annual amount of its bid. For example, the Kings needed $3MM in cap space when they made their $12MM claim for Outlaw.

If an amnestied player is not claimed on waivers, he becomes a free agent, able to sign with any team except the one that released him. A club is ineligible to re-sign or re-acquire its amnestied player for the remainder of his contract (including ETO years, but not team- or player-option years).

In 2011, seven teams (the Cavaliers, Knicks, Magic, Nets, Pacers, Trail Blazers, and Warriors) used their amnesty provisions. You can find more information on the players those clubs amnestied here.

Note: This is a Hoops Rumors Glossary entry. Our glossary posts will explain specific rules relating to trades, free agency, or other aspects of the NBA's Collective Bargaining Agreement. Larry Coon's Salary Cap FAQ was used in the creation of this post.

The NBA introduced the Gilbert Arenas provision in the 2005 Collective Bargaining Agreement as a way to help teams to keep their young restricted free agents who aren't coming off rookie scale contracts. It was named after Gilbert Arenas, an Early Bird free agent for the Warriors in 2003, who signed an offer sheet with the Wizards starting at about $8.5MM. Because Golden State could only offer Arenas a first-year salary of about $4.9MM using the Early Bird exception, the Warriors were unable to match the offer sheet and lost Arenas to Washington.

The Arenas provision limits the first-year salary that teams can offer restricted free agents who have only been in the league for one or two years. The starting salary for an offer sheet can't exceed the amount of the non-taxpayer mid-level exception, which allows the player's original team to use its MLE to match it. Otherwise, a team without the necessary cap space or exceptions would be powerless to keep its player, like the Warriors were with Arenas.

A rival offer sheet can still have an average annual salary that exceeds the non-taxpayer MLE, however. The annual raises are limited to 4.5% between years one and two, and 4.1% between years three and four, but a significant raise can be included between the second and third years of the offer. A team's cap space dictates the average annual salary limit for the entire contract, since the average salary still has to fit under the cap. Let's take a look at a practical example to see the Arenas provision in action.

Jeremy Lin will be a restricted free agent this summer, coming off his second season in the league. The Knicks will own Lin's Non-Bird rights, but the Non-Bird exception certainly won't be enough to match rival offers. Let's say a team with $7MM in cap space wanted to make Lin a four-year offer using all of its cap room. Due to the Arenas provision, an offer sheet could only start at $5MM rather than $7MM, but the overall amount of the offer could total $28MM over four years — the deal would just have to be backloaded, as follows:

Because the first-year salary of the offer sheet doesn't exceed the non-taxpayer mid-level exception, the Knicks can use their MLE to match it, even though that big a third-year raise wouldn't typically be permitted when using the mid-level. If the Knicks chose to match the offer, their cap hit for the next four years would equal the actual salaries above; if they chose not to match, the cap hit for Lin's new team would be $7MM annually.

Of course, just because a club is given the opportunity to use the Arenas provision to keep its restricted free agent doesn't mean it will necessarily have the means. Here are a few situations in which the Arenas provision wouldn't help a team keep its restricted free agent:

• If the team only had the taxpayer mid-level exception ($3MM) available, it would be unable to match an offer sheet for a Non-Bird free agent if the starting salary exceeded the taxpayer MLE amount.
• If the team used its mid-level exception on another player, it would be unable to match an offer sheet for a Non-Bird free agent.
• If the player has three years of NBA experience, the Arenas provision would not apply — only players with one or two years in the league are eligible.

In addition to Lin, Landry Fields will also be eligible for restricted free agency this summer, following his second season. If both Knicks guards sign backloaded offer sheets with rival teams, the Arenas provision would allow New York to match and keep both; the team would have to use its mid-level exception on Lin and the Early Bird exception for Fields. But doing so could be dangerous. Lin's and Fields' third-year raises would go into effect in 2014/15, a year in which the Knicks will already owe a combined $62MM+ to Carmelo Anthony, Amare Stoudemire, and Tyson Chandler.

Note: This is a Hoops Rumors Glossary entry. Our glossary posts will explain specific rules relating to trades, free agency, or other aspects of the NBA's Collective Bargaining Agreement. Larry Coon's Salary Cap FAQ was used in the creation of this post.

When superstars like Deron Williams or Dwight Howard approach free agency, they are often referred to as "maximum-salary players" — players that will likely earn the maximum contract offers permitted under the CBA. Because NBA teams are limited by a salary cap, clubs can only offer a single player a certain percentage of the cap. However, the maximum salary varies from player to player.

If a player has been in the NBA for six years or less, he can earn up to 25% of the salary cap. Players with seven to nine years of experience can earn up to 30%, while veterans with 10+ years in the NBA are eligible for up to 35% of the cap.

When determining the actual amounts of maximum salaries for a given season, a different cap calculation is used — so while 25% of 2011/12's $58.044MM salary cap would be $14,511,000, the actual maximum salary for players with zero to six years of experience in 2011/12 was just $12,922,194. For 30% players, the maximum was $15,506,632, and for veterans of 10 or more years, the max was $18,091,071. These figures will fluctuate from year to year, depending on the projected Basketball Related Income for a given season.

There are a number of exceptions to the maximum salary, as follows:

• The maximum salary only applies to the first year of a multiyear contract. For example, if Deron Williams were to sign a maximum-salary deal this summer, he would be subject to the maximum salary for the first season, with either 7.5% or 4.5% raises, depending on where he signs. So by the third or fourth year of his contract, he could be earning significantly more than the max salary.
• A free agent's maximum salary is always at least 105% of his previous salary. For instance, Kevin Garnett's 2011/12 salary was $21,247,044. For 2012/13, he is eligible to earn a maximum of $22,309, 396 — 105% of his prior salary.
• A first-round pick coming off his four-year rookie scale contract is eligible for a maximum-salary contract extension worth 30% of the cap (rather than 25%) if he meets one of the following criteria: (1) Wins a Most Valuable Player award; (2) Voted an All-Star Game starter at least twice; (3) Named to an All-NBA team at least twice.

Let's take a deeper look at Williams' case as he approaches free agency. The All-Star point guard is coming off a $16,359,805 salary in 2011/12, which exceeds the maximum for a player with his NBA experience. He has a player option for next season worth $17,779,458 that he doesn't intend to exercise, which will make him a free agent. Since he's already making more than the maximum, Williams will be eligible for a new max of up to 105% of his prior salary — $17,177,795.

If Williams were to re-sign with the Nets, who hold his Bird rights, he could earn 7.5% annual raises over a five-year deal that started at $17,177,795 in its first year. Signing with another team, such as the Mavericks, would mean 4.5% annual raises and a four-year maximum. So the largest contract Williams could earn from the Nets would be worth about $98.77MM over five years, whereas a maximum-salary deal from another team would be worth about $73.35MM over four years.

Note: This is a Hoops Rumors Glossary entry. Our glossary posts will explain specific rules relating to trades, free agency, or other aspects of the NBA's Collective Bargaining Agreement. Larry Coon's Salary Cap FAQ and Storyteller's Contracts were used in the creation of this post.

When a team releases a player, he doesn’t immediately become a free agent. Instead, the player is placed on waivers, which serves as a sort of temporary holding ground as the other 29 NBA teams decide if they want to try to add him to their roster.

A player remains on waivers for 48 hours after he is formally cut by his team. During that time, any team can place a waiver claim in an attempt to acquire the player. If two or more clubs place a claim, the team with the worst record takes priority (before December 1, records from the previous season determine waiver order). If a team claims a player off waivers, it assumes his current contract and is on the hook for the remainder of his salary. The claiming team also pays a $1,000 fee to the NBA office.

While the waiver format is simple enough, not every team has the salary cap flexibility to make a claim for any waived player it wants. There are only a few instances in which a club is able to claim a player off waivers:

• The team is far enough under the salary cap to fit the player’s entire salary.
• The team has a disabled player exception for at least the player’s salary.
• The team has a traded player exception for at least the player’s salary.
• The player’s contract is for one or two seasons and he is paid the minimum salary.

The Trail Blazers’ claim of J.J. Hickson earlier this season provides a perfect example of the waiver rules at work. After the Kings waived Hickson, who had a cap figure of about $2.35MM, it was widely assumed that the young forward would clear waivers and sign for the minimum salary with the Warriors, since no teams with cap space seemed interested. However, Portland unexpectedly placed a claim and was able to take on Hickson’s contract using a $2.68MM traded player exception the team had gained when it traded Marcus Camby to Houston.

While the Blazers were willing to take over Hickson’s contract, more often than not, waived players go unclaimed. In that case, the player’s original team remains on the hook for the rest of his salary. The club has the option of using the stretch provision to “stretch” the waived player’s salary and cap hit over up to twice the remaining years on his deal, plus one. For instance, if a team waived a player with one year and $6MM on his deal, it could stretch the contract over three years, reducing the annual cap hit to just $2MM.

When a player goes unclaimed, he is said to have “cleared waivers” and becomes an unrestricted free agent. If the player signs with a new team before his old contract has expired, the old team can reduce the money it owes the player, as Larry Coon explains in his CBA FAQ here. However, the original team will still be on the hook for most of the original contract.

A player waived after a certain date is ineligible for the playoffs if he signs with a new team. Typically, the cutoff date is March 1, though it was March 23 in this lockout-shortened season. For instance, Bill Walker was waived by the Knicks on April 20 this year, so even if he had signed with another club after clearing waivers, he wouldn’t have been eligible to play in the postseason.

If a player is traded and then is waived by his new team, he cannot re-sign with his old club until one year after the trade or until the July 1st after his original contract expires, whichever is earlier. For instance, if the Mavericks were to waive Lamar Odom in the coming months, Odom wouldn’t be allowed to rejoin the Lakers until December 9 — a year after the trade.

A couple more quick notes on waiver rules:

• If a team successfully makes a waiver claim, they don’t lost their spot in the order — the 30th-ranked team at the end of a season remains atop the waiver priority list until December 1 of that year, even if they make multiple claims.
• A team with a full roster can submit a waiver claim and wouldn’t have to clear space on their roster for a claimed player until it is determined that the claim is successful.

Note: This is a Hoops Rumors Glossary entry. Our glossary posts will explain specific rules relating to trades, free agency, or other aspects of the NBA’s Collective Bargaining Agreement. Larry Coon’s Salary Cap FAQ was used in the creation of this post.

Players eligible for restricted free agency don't become restricted free agents by default. In order to make a player a restricted free agent, a team must extend a qualifying offer to him. The qualifying offer, which is essentially just a one-year contract offer, varies in amount depending on a player's service time and previous contract status.

If a player has played three seasons or less in the NBA, his qualifying offer will be worth 125% of his prior salary, or his minimum salary plus $200K, whichever is greater. For instance, after making $762,195 this season, Jeremy Lin will receive a qualifying offer worth $1,054,389 for next year — calculated by adding $200,000 to his minimum salary for next season ($854,389). Omer Asik's 2011/12 salary, meanwhile, was $1,857,500, so his qualifying offer will be worth 125% of that figure, or $2,321,875.

The qualifying offer for a player coming off his rookie scale contract is determined by his draft position. The qualifying offer for a first overall pick is 130% of his fourth-year salary, while the QO for a 30th overall pick is 150% of his previous salary. The full first-round scale for 2011/12 can be found here, courtesy of RealGM.

A pair of examples for this season, based on RealGM's chart: 2008 second overall pick Michael Beasley, coming off a fourth-year salary of $6,262,347, must be extended a qualifying offer of $8,172,363 (a 30.5% increase) to become a restricted free agent. 21st overall pick Ryan Anderson would receive a qualifying offer of $3,234,470, a 44.1% increase on this season's $2,244,601 salary.

A wrinkle in the new Collective Bargaining Agreement complicates matters — beginning next season, a player's previous performance will affect the amount of his qualifying offer. The new CBA identifies the "starter criteria" as starting 41 games or playing 2000 minutes per season, and rewards players for meeting those criteria. Depending on whether or not a player averages 41 starts or 2000 minutes over the two seasons prior to his free agency, his qualifying offer will be affected as follows:

• A first-round pick who meets the starter criteria will receive the same qualifying offer as the ninth overall pick.
• A second-round pick or undrafted player who meets the criteria will receive the same qualifying offer as the 21st overall pick.
• A top-14 pick who does not meet the starter critera will receive the same qualifying offer as the 15th overall pick.

Let's take a closer rook at these rule changes using a few potential restricted free agents for the summer of 2013.

Tyler Hansbrough was a top-14 pick for the Pacers (13th overall), but based on his current production is unlikely to meet the starter criteria for the two years prior to his free agency. As such, he'd receive the same qualifying offer that the 15th overall pick (Austin Daye) would — $4,135,391, rather than $4,225,423.

On the other hand, Pacers point guard Darren Collison, drafted 21st in 2009, appears set to meet the starter criteria heading into next summer. To reward him for his production, his qualifying offer would be $4,531,459, the same as ninth overall pick DeMar DeRozan will receive, rather than the typical $3,342,175 for a 21st overall pick.

Isaiah Thomas isn't expected to become a restricted free agent until the summer of 2014, but let's assume he meets the starter criteria over the next two seasons. Under the old system, he'd receive a modest qualifying offer of about $1.12MM, but the new CBA means he'd receive the same QO as the 21st overall pick, which would be $3MM+.

A qualifying offer is designed to give a player's team the right of first refusal. Because the qualifying offer acts as the first formal contract offer a free agent receives, his team then receives the option to match any offer sheet the player signs with another club.

A player can also accept his qualifying offer, if he so chooses. He then plays the following season on a one-year contract worth the amount of the QO, and becomes an unrestricted free agent at season's end. A player can go this route if he wants to hit unrestricted free agency as early as possible, or if he feels like the QO is the best offer he'll receive. Accepting the qualifying offer also gives a player the right to veto trades for the season.

Nick Young is one example of a player who accepted his qualifying offer this past offseason, and will become an unrestricted free agent this summer as a result. When the Wizards traded Young to the Clippers in March, the deal required Young's approval, since he was playing the year on his qualifying offer.

Note: This is a Hoops Rumors Glossary entry. Our glossary posts will explain specific rules relating to trades, free agency, or other aspects of the NBA's Collective Bargaining Agreement. Larry Coon's Salary Cap FAQ and Storyteller's Contracts were used in the creation of this post.

Although a team like the Cavaliers has only committed about $28.5MM in guaranteed money to player salaries for 2012/13, that doesn't mean Cleveland will have $30MM to spend on free agents. Each of the Cavs' own free agents will be assigned a free agent amount or "cap hold" until the player signs a new contract or has his rights renounced by the team.

The following criteria are used for determining the amount of a free agent's cap hold:

• First-round pick coming off rookie contract: 250% of previous salary if prior salary was below league average; 200% of previous salary if prior salary was above league average
• Bird player: 190% of previous salary (if below average) or 150% (if above average)
• Early Bird player: 130% of previous salary
• Non-Bird player: 120% of previous salary
• Minimum-salary player: Portion of minimum salary not reimbursed by the league

In the case of a Cavalier free agent like Anthony Parker, the cap hold this summer will be $4.275MM — because Parker will have Bird rights, his free agent amount is calculated by taking 190% of this year's $2.25MM salary.

Cap holds cannot exceed the player's maximum salary. So while the Cavs' Antawn Jamison has Bird rights like Parker, his free agent amount is not calculated in the same way. 150% of Jamison's $15.08MM 2011/12 salary would exceed his maximum salary, so his cap hold will be worth the max-salary for a player with 10+ years of NBA experience — likely $18MM+.

A cap hold for a restricted free agent can vary based on his contract status. A restricted free agent's cap hold is the greatest of:

• His free agent amount as determined by the above-mentioned criteria
• The amount of his qualifying offer
• The first-year salary from an offer sheet he signs with another team

Cavs swingman Alonzo Gee will qualify for restricted free agency this summer, coming off his third NBA season. Because he was earning the minimum salary, his cap hold would typically only be about $854K. Since he'll be a restricted free agent though, the amount of his qualifying offer, $1.06MM, will count against Cleveland's cap. If Gee eventually signs an offer sheet with another team that includes a first-year salary of, for instance, $4MM, that figure would count against Cleveland's cap until the team decided to match the offer or let Gee go.

If a team holds the rights to fewer than 12 players, cap holds worth the minimum rookie salary ($473,604) are assigned to fill out the roster. So if the Cavaliers chose to renounce their rights to all their free agents and release all the players on non-guaranteed contracts, the team would have five players and about $28.5MM left under contract. However, seven holds worth $473,604 would be added to the team's cap, reducing its total cap space by about $3.3MM.

Cap holds aren't removed from a team's books until the player signs a new contract or has his rights renounced by the club. For instance, since Wally Szczerbiak never signed elsewhere after reaching free agency with Cleveland, the Cavaliers still had an $18MM+ hold for Szczerbiak on their cap until they recently renounced him. By keeping Szczerbiak's free agent amount on their books, the Cavs were unable to claim room under the cap, but retained many of their cap exceptions that otherwise would've been lost had they renounced him and fallen too far below the cap.

The general purpose of a cap hold is to prevent teams from using room under the cap to sign free agents and then using Bird exceptions to re-sign their own free agents. If a team wants to take advantage of its cap space, it can renounce its rights to its free agents, eliminating those cap holds. However, doing so means the team will no longer hold any form of Bird rights for those players — if the team wants to re-sign those free agents, it would have to use its cap room or another form of cap exception.

Note: This is a Hoops Rumors Glossary entry. Our glossary posts will explain specific rules relating to trades, free agency, or other aspects of the NBA's Collective Bargaining Agreement. Larry Coon's Salary Cap FAQ was used in the creation of this post.

While salary cap workarounds like the mid-level exception can be used annually, the disabled player exception is only available under certain circumstances. Like other salary cap exceptions though, the DPE allows a team to sign a player without using cap space.

If a player is injured and ruled out for the rest of the season, his team can apply for the disabled player exception. It allows a club to sign a replacement player for 50% of the injured player’s salary, or for the amount of the non-taxpayer mid-level exception, whichever is lesser. So if the non-taxpayer MLE were worth $5MM, a team could replace a disabled $7MM player for up to $3.5MM (50%) or a disabled $13MM player for up to $5MM (MLE amount).

A team must formally apply for a disabled player exception and it requires the approval of the league. The cutoff to apply for a DPE each season is January 15th. If a team has a player go down with a season-ending injury after that date, it cannot obtain a DPE to replace him. For instance, the Clippers were ineligible for the exception this year when Chauncey Billups was injured in early February. A team must also use its DPE by March 10th of the current season, or it will expire.

Unlike the mid-level and bi-annual exceptions, the disabled player exception can only be used on a single player. However, a team can use it to either sign a free agent or acquire a player in a trade. If a team uses its exception to take on salary in a trade, it can acquire a player making up to 100% of the DPE amount, plus $100K. For example, a $4MM DPE could be used to trade for a player making $4.1MM. A free agent signed using the DPE can be offered a maximum of one year, while a player acquired via trade using the DPE must be in the final year of his contract.

The disabled player exception is rarely exercised, but it does give teams a backup plan of sorts, providing the means to replace seriously injured players.

Note: This is a Hoops Rumors Glossary entry. Our glossary posts will explain specific rules relating to trades, free agency, or other aspects of the NBA’s Collective Bargaining Agreement. Larry Coon’s Salary Cap FAQ was used in the creation of this post.

The NBA draft lottery is the league's way of determining the draft order and disincentivizing second-half tanking. The lottery gives each of the 14 non-playoff teams a chance to land one of the top three picks in the draft.

Although the top three picks of each draft are up for grabs via the lottery, the remaining order is determined by record, worst to best. The league's worst team isn't guaranteed a top-three spot in the draft, but has the best chance to land the first overall pick and will receive the fourth overall selection at worst.

The first three picks are determined by a draw of ping-pong balls numbered 1 through 14. Four balls are drawn, resulting in a total of 1,001 possible outcomes. 1,000 of those outcomes are assigned to the 14-non playoff teams — for instance, if balls numbered 4, 7, 8, and 13 were chosen, that combination would belong to one of the 14 lottery teams. The 1,001st combination remains unassigned, and a re-draw would occur if it were ever selected.

The team whose combination is drawn first receives the number one overall pick, and the process is repeated to determine picks two and three. The 14 teams involved in the draft lottery are all assigned a different number of combinations, as follows (worst to best):

1. 250 combinations, 25.0% chance of receiving the first overall pick
2. 199 combinations, 19.9%
3. 156 combinations, 15.6%
4. 119 combinations, 11.9%
5. 88 combinations, 8.8%
6. 63 combinations, 6.3%
7. 43 combinations, 4.3%
8. 28 combinations, 2.8%
9. 17 combinations, 1.7%
10. 11 combinations, 1.1%
11. 8 combinations, 0.8%
12. 7 combinations, 0.7%
13. 6 combinations, 0.6%
14. 5 combinations, 0.5%

If two lottery teams finish the season with identical records, each team receives an equal chance at a top-three pick by averaging the total amount of outcomes for their two positions. For instance, if two teams tie for the league's ninth-worst record, each club would receive 14 combinations and a 1.4% chance at the first overall pick — an average of the 17 and 11 combinations that the ninth- and tenth-worst teams receive.

If the average amount of combinations for two positions isn't a whole number, a coin flip determines which team receives the extra combination. For instance, if two clubs tied for the league's worst record, the team that wins the coin flip would receive 225 of 1,000 chances at the first overall pick, while the loser would receive 224. The coin flip also determines which team will draft higher in the event that neither club earns a top-three pick.

The table below displays the odds for each lottery team, rounded to one decimal place. For our purposes, the first seed is the NBA's worst team. Click to enlarge:

Note: This is a Hoops Rumors Glossary entry. Our glossary posts will explain specific rules relating to trades, free agency, or other aspects of the NBA's Collective Bargaining Agreement.

The mid-level exception is the most common way for over-the-cap NBA teams to sign other teams' free agents. The exception can be used every season and can be split among multiple players, but different teams receive access to different mid-level exceptions based on their cap situation.

A team whose total player salaries, cap exceptions, and cap holds amount to less than the salary cap forfeits its full mid-level exception. A taxpaying team also doesn't have access to the full mid-level. However, both under-the-cap and taxpaying teams receive a lesser form of the MLE. Here's a breakdown of the restrictions placed on each of the three forms of the exception:

For teams with cap room:

• Called the mini mid-level, or the room exception
• Maximum two-year contract
• Maximum $2.5MM first-year salary
• Maximum 4.5% annual raises
• First-year salary grows by 3% annually

For over-the cap teams:

• Called the full or standard mid-level exception
• Maximum four-year contract
• Maximum $5MM first-year salary
• Maximum 4.5% annual raises
• First-year salary grows by 3% annually starting in 2013/14

For taxpaying teams:

• Called the mini mid-level, or the taxpayer mid-level exception
• Maximum three-year contract
• Maximum $3MM first-year salary
• Maximum 4.5% annual raises
• First-year salary grows by 3% annually

For a practical example of how the restrictions on the mid-level exception work, let's say the Heat and Knicks were competing for a free agent this coming summer. The Heat have $76MM+ on their books for 2012/13, making them a taxpayer, while the Knicks have $60MM+, putting them over the cap but not over the tax threshold. If both teams offered the full MLE, the player would receive an offer of four years and $21.35MM from the Knicks, or three years and about $9.69MM from the Heat.

Note: This is a Hoops Rumors Glossary entry. Our glossary posts will explain specific rules relating to trades, free agency, or other aspects of the NBA's Collective Bargaining Agreement. Larry Coon's Salary Cap FAQ was used in the creation of this post.