Any individual who has not previously signed an MLB or minor league contract, and who is either a resident of a U. S. state or territory or Canada, or who is not a resident but was enrolled in a high school or college in a U. S. state or territory or Canada within the previous year, and:

1. Has graduated from high school; or

2. High school athletic eligibility has expired; or

3. Dropped out of high school at least 365 days prior to the draft; or

4. Attended a junior college the previous school year; or

5. Is attending a four-year college and has completed at least junior year of athletic eligibility, or

6. Is attending a four-year college, has completed at least sophomore year of athletic eligibility, and is age 21 or older (or will turn 21 within 45 days of the draft); or

7. Was dismissed from a four-year college for academic reasons; or

8. Withdrew from a four-year college at least 120 days prior to the draft.

Players selected in the MLB First-Year Player Draft (MLB Rule 4 Draft) are placed on a club's Negotiation List.

In most cases, a player selected by a club in the Rule 4 Draft will remain on the club's Negotiation List until either the player signs, or until 5:00 PM (EDT) on the Friday that falls during the week July 12-18 (whichever comes first), and if a club does not sign a Rule 4 Draft pick by the deadline, the player is removed from the club's Negotiation List and becomes eligible for selection again in the next Rule 4 Draft. The exception to the rule is any college senior with no baseball eligibility left. This class of player remains on the club's Negotiation List until the player signs or until one week prior to the next Rule 4 Draft (whichever comes first).

Also, any player eligible for selection in the Rule 4 Draft who is not drafted ("Non-Drafted Free-Agent" or "NDFA") can sign with any club at any time up until one week prior to the next Rule 4 Draft, unless the NDFA has high school or college baseball eligibility remaining and enrolls in a high school, junior college, or four-year college subsequent to the Rule 4 Draft, in which case the player cannot be signed any earlier than the day after the conclusion of his school's baseball season (presuming the school's baseball season concludes at least one week prior to the next Rule 4 Draft).

Beginning in 2012, a player selected in the MLB Rule 4 Draft or a NDFA cannot be signed to a Major League contract.

A club is not permitted to select a player in the Rule 4 Draft two years in a row, unless the player gives his approval in advance.

CUBS NEGOTIATION LIST:
Austin Pentecost, RHP (29th round pick in 2012 MLB First-Year Player Draft)
NOTE: Pentecost will remain on Cubs NEGOTIATION LIST until one week prior to 2013 MLB First-Year Player Draft (MLB Rule 4 Draft) or until he signs with Cubs, whichever comes first

There is a maximum limit on the aggregate amount of money that each club can pay as signing bonuses to players selected in a First-Year Player Draft (MLB Rule 4 Draft) before penalties begin to accrue.

Prior to the Rule 4 Draft, each MLB club is assigned a “Signing Bonus Pool” (SBP) equal to the aggregate pre-assigned bonus value of all of the club’s draft slots in the first ten rounds (including supplemental draft picks); the higher the slot, the higher the bonus value. (The collective MLB SBP is determined in advance by calculating industry revenues). If a club fails to sign a player selected in the first ten rounds (including supplemental draft picks), the value of that slot is deducted from the club’s SBP. There is no bonus value assigned to draft slots after the 10th round, but if a club pays a signing bonus in excess of $100,000 to a player selected in the 11th round or later or to a player eligible for selection who was not drafted, the amount of that bonus in excess of $100,000 is deducted from the club’s SBP.

If a club exceeds its SBP in a given Rule 4 Draft, a tax will be assessed and future Rule 4 Draft picks could be forfeited, depending on how much the club exceeded its SBP. (The club’s 1st Round draft pick in the next Rule 4 Draft is forfeited if the club exceeds its SBP by 5-10%, its 1st & 2nd round draft picks in the next Rule 4 Draft are forfeited if the club exceeds its SBP by 10-15%, and the club’s 1st Round picks in the next two Rule 4 Drafts are forfeited if the club exceeds its SBP by more than 15%).

Money collected from the tax on clubs that exceed their SBP will be distributed to qualifying clubs as Revenue Sharing funds, and forfeited draft picks will be reassigned by lottery. (Any club that exceeds its SBP is excluded from the lottery).

If a player selected in the 1st or 2nd round of the Rule 4 Draft does not sign, the club receives an extra compensation selection in the next Rule 4 Draft, one slot lower in the 1st or 2nd round than where the club selected the previous season. If a player selected in the 3rd round of the draft does not sign, the club receives an extra compensation selection between the 3rd & 4th rounds in the next Rule 4 Draft. A club would receive another compensation pick in the next Rule 4 Draft after that if a player selected with an extra compensation pick does not sign, but there is no additional compensation pick awarded the following season (three years removed from the original draft pick) if a club is unable to sign that player.

Compensation draft picks awarded to clubs for losing an Article XX-B MLB Free-Agent will be slotted between the 1st and 2nd rounds of the next MLB Rule 4 Draft, with clubs selecting in inverse order of league standings from the previous season. (In the case of two clubs finishing with the same winning percentage the previous season, league standings from two seasons back will be used to break the tie. If the clubs are still tied, league standings from three seasons back, four seasons back, etc, will be used to break the tie). A draft pick awarded to a club for losing an Article XX-B Free-Agent can be used only in the next Rule 4 Draft. There is no further compensation if a player selected with the compensation pick received as the result of losing an Article XX-B Free-Agent does not sign.

Beginning in 2012, six "Competitive Balance" Rule 4 Draft picks will be awarded by lottery between the 1st and 2nd round, and six more will be awarded by lottery between the 2nd and 3rd round. The lottery will take place on the Monday following the Rule 4 Draft signing deadline. Only MLB clubs that receive revenue sharing and clubs from the ten smallest markets will be eligible to participate in the lottery for Competitive Balance picks.

Once awarded, these draft picks can be traded, but only during the MLB regular season, and the pick cannot be traded for cash unless it is a financial adjustment made to offset the salary of one or more of the players involved in the trade. Also, a Competitive Balance draft pick can be traded only once (only by the club that was awarded the pick), and a Competitive Balance Rule 4 Draft pick can be used only in the next Rule 4 Draft. There is no compensation if a player selected with a Competitive Balance draft pick does not sign.

A club could forfeit its 1st round draft pick or its 1st and 2nd rounds draft picks if the club exceeds its pre-assigned Rule 4 Draft SBP limit in a given year or over multiple years. A Rule 4 Draft pick forfeited because a club exceeded its Rule 4 Draft bonus limit will be reassigned to another club by lottery held on the same day as the Competitive Balance draft pick lottery. All MLB clubs that did not exceed its SBP limit are eligible to participate in this lottery.

As with the Competitive Balance draft pick lottery, Rule 4 forfeited draft picks can be traded, but only during the MLB regular season, and the pick cannot be traded for cash unless it is a financial adjustment made to offset the salary of one or more of the players involved in the trade. Also, a forfeited Rule 4 draft pick can be traded only once (only by the club that was awarded the pick), and a forfeited Rule 4 draft pick can be used only in the next Rule 4 Draft. There is no compensation if a player selected with a forfeited Rule 4 draft pick does not sign.