You're confusing yourself by interceding irrelevant bits, so let's start from the beginning.
Morrow's a free agent this summer. He has played only two years in the league. You can make players with three years or less experience into restricted free agents, whether they like it or not, by extending a qualifying offer. Because Morrow's previous (i.e. current) salary is only for the minimum salary, the QO Golden State must offer to make him restricted will be for $1,029,389, which is the value of next year's third year player minimum ($884,293) plus $175,000. If they offer it to him, he becomes a restricted free agent. If they don't, he can walk free to pastures anew. Since letting him walk free is not a good idea, they will offer it to him.
Once restricted, Morrow now has six options. He can either:
a) re-sign with Golden State for the value of that qualifying offer,
b) re-sign with Golden State for between 1 to 5 years, and to an amount that begins at somewhere between the minimum salary and the value of the Mid-Level Exception,
c) sign an offer sheet with another team within the same parameters (let's forget the Arenas rule for a minute, because he's not good enough for it to matter)
d) get his arse signed and traded somewhere,
e) sign a contract with a non-NBA team, or
f) retire from the game and run a country pub.
Because Morrow has spent two years with the same team without changing teams as a free agent, he is an Early Bird free agent. This means that Golden State can give him a contract of up to five years in length that can start as high at up to the value of the first year of the mid-level exception (see point b), and they
don't have to use the MLE to do it. The Early Bird exception
IS a salary cap exception in itself; they don't need to use another one.
Points (A), (E) and (F) are not going to happen, so let's ignore them for now. Once he is made restricted, Morrow can do one of two things;
1) sign an offer sheet with another team and see if Golden State matches it,
2) work out a sign and trade with another team and take out the risk factor of restricted free agency, or
3) re-sign with Golden State for however much he can squeeze out of their fluctuating ownership.
Whichever of the three he does, he cannot sign for a contract that starts at higher than the value of the MLE. If he signs a deal with another team, that team must use their MLE to do it. But if he signs a deal with Golden State, then they don't need to use theirs to do it. They can use the Early Bird Exception, which, as noted above, can go up to the value of the MLE.
The bits of the FAQ that point this out are:
Question 19 wrote:EARLY BIRD EXCEPTION -- A player qualifies for this exception essentially after playing two seasons without being waived or changing teams as a free agent (see question number 25 for details). Using this exception, a team may re-sign its own free agent for 175% of his salary the previous season or the average player salary, whichever is greater
Question 19 wrote:MID-LEVEL SALARY EXCEPTION -- This exception allows a team to sign any free agent to a contract equal to the average salary
Question 36 wrote:In order to make their free agent a restricted free agent, a team must submit a qualifying offer to the player by June 30. The qualifying offer [.....] must be for 125% of the player's previous salary, or the player's minimum salary (see question number 11) plus $175,000, whichever is greater.