Here's what the CBA says about the exception:
Quote:
(d) $1 Million Exception.
Subject to the rules set forth in subsection (k) below:
(1) A Team may sign one or more Player Contracts, not to exceed two Seasons in length, that, in the aggregate, provide for first-year Salaries and Unlikely Bonuses totaling up to the amounts set forth below:
(i) For the 1998-99 Season:$1 million
(ii) For the 1999-2000 Season:$1.1 million
(iii) For the 2000-01 Season:$1.2 million
(iv) For the 2001-02 Season:$1.3 million
(v) For the 2002-03 Season:$1.4 million
(vi) For the 2003-04 Season:$1.5 million
(vii) For the 2004-05 Season$1.6 million
(the NBA exercises its option to extend this Agreement pursuant to Article XXXIX)
(2) A Team may use all or any portion of the $1 Million Exception to sign one or more new Player Contracts during no more than three (3) separate Salary Cap Years during the term of this Agreement (or no more than four (4) separate Salary Cap Years if the NBA exercises its option to extend this Agreement pursuant to Article XXXIX); provided, however, that the $1 Million Exception or any portion thereof may not be used in any two (2) consecutive Salary Cap Years. The prohibition in the preceding sentence against using the $1 Million Exception or any portion thereof in any two (2) consecutive Salary Cap Years shall apply to the 1997-98 Salary Cap Year (i.e., if a Team used all or any portion of the $1 Million Exception during the 1997-98 Salary Cap Year, that Team shall not be permitted to use all or any portion of the $1 Million Exception during the 1998-99 Salary Cap Year).
(3) Player Contracts signed pursuant to the $1 Million Exception covering two (2) Seasons may provide for an increase or decrease in Salary and Unlikely Bonuses for the second Season in accordance with Section 5(c)(1) above.
(4) The $1 Million Exception, if applicable, arises on August 1 of each Salary Cap Year and expires on the last day of the Team’s Regular Season during that Salary Cap Year.
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I don't see any restrictions on what players can and cannot be signed with the $1 Million Exception.