Terry had been a longtime rival of the Rockets with the Dallas Mavericks, and a move to Houston promises to escalate what has become an increasingly fierce rivalry between the teams this summer.
Terry, 36, spent eight years with the Mavericks before signing a 2012 free-agent deal with the Boston Celtics and moving onto Brooklyn and Sacramento in trades in 2013 and '14, respectively. Terry was the NBA's Sixth Man of the Year in 2009 and 2011.
The Rockets will send a package centered on non-guaranteed contracts, including Alonzo Gee, that the Kings can ultimately waive and gain salary savings and roster space, league sources said. Sacramento will send Houston two second-round picks in the deal, including one via the Knicks, league sources told Yahoo. The trade could take some time to officially complete, based on restrictions of contracts in the deal, league sources said.
Sacramento had been trying to unload Terry and his $5.4 million expiring deal, and Houston had been searching for a playoff-sturdy guard to join its bench.
The Rockets lost restricted free agent Chandler Parsons to the Mavericks in July, a year after beating Dallas to free-agent center Dwight Howard.
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