Every first round pick receives a rookie scale contract with the salary ranked by draft position. These contracts are 4 years long, with the last two years team options (which must be exercised a year prior.) If a team chooses to decline either of these options, the player becomes an unrestricted free agent.
If the player completes his 4 year contract and the team wants to keep its right of first refusal, it must extend a qualifying offer. The size of the offer is fixed, and it's essentially based on the rookie scale salary. For second round picks and undrafted players the rules are a bit more complicated because they're not bound to the rookie scale but the process is essentially the same. The QO is normally for a one year contract, but a team may extend a maximum QO which lasts for 5 years and has 8% raises. The QO is what turns the player into a restricted free agent.
Now there are several options:
- The team may rescind the QO at any time, which turns the player into a UFA.
- The player may accept the QO and sign the new contract, and turn into a UFA at its end (usually one year.)
- If the offer is neither accepted nor rescinded by October 1st it expires automatically (it can be extended until March) but the player remains a RFA. This means he can still negotiate with his former team but cannot sign with any other NBA team.
- The player may get an offer from another team and sign an offer sheet. The former team then has a week to decide to match or not.
- The player and his former team negotiate a contract that improves the QO (e.g. JaM Green).
In addition to this a team may offer an extension before the rookie contract ends, which essentially means the rookie never becomes a RFA. The Designated Rookie rule allows a team to offer a 5 year extension (up to the max) to up to two players on rookie contracts. However Dillon and Carter cannot be designated because their current contracts aren't 4 years long. In addition to that, Carter cannot receive and extension because his contract is not 3 years long.
So this means we can at most offer them 4 year contracts at the end of their current ones, and in Dillon's case we could offer an extension during this season. We will have full Bird rights on Dillon so we'll be able to pay him up to the max, but only Early Bird rights on Carter, so depending on our salary situation he might get an offer sheet we could not match.
The whole details are here: http://www.cbafaq.com/salarycap.htm#Q42