UPDATE 1:30 PM:

So it appears that the Kings must have used the $3.6 million trade exception from the Isaiah Thomas trade (it was not $7.2 million as was first thought although I'm still confused as to why) to get Alonzo Gee and Scotty Hopson and then traded Terry to Houston for a bigger, $5.85 million exception. That's some more value the Kings received in the deal.

UPDATE 1:47 PM:

Sam has confirmed that my scenario from the above tweet is what he's hearing happened. Also, I got some clarification as to why Isaiah's TPE was only $3.6 million instead of $7.2 million and it's because of the old "Base Year Compensation" rules, which according to Larry Coon's CBA FAQ state:

Because Isaiah was part of a sign-and-trade transaction and the other criteria was met, the Base Year Compensation kicked in and his salary only counted as 50% of his actual trade value in an outgoing trade, thus why the exception was only 50% of his new contract.

Also I've seen some people asking for clarification on how this trade went down since Exceptions can't be combined with other players. Essentially, this was a multi-step trade.

First, the Kings sent the two second round picks to Houston for Alonzo Gee and Scotty Hopson (about $4.4 million in salary). Because the Kings didn't have the salary cap to absorb these players, they absorbed them into trade exceptions. Gee at $3 million went to the Isaiah exception ($3.6 million) while Hopson ($1.4 million) fit under the Thornton exception ($2.4 million).

With Gee and Hopson both off their salary cap, the Rockets now had enough space to fully absorb Terry's $5.85 million contract. The Kings send Terry to Houston and in return, they get a $5.85 million exception that they can use for one year. This increased TPE is the real value the Kings received in the trade and it took some clever maneuvering for the Kings to pull it off. How the Kings use this TPE will determine whether it was worth giving up their two future 2nd round picks.