Two league sources told ESPN.com that the Charlotte Bobcats' unrestricted free agent reached an agreement in principle Friday on the broad parameters of a contract.
The length of the deal has not yet been agreed upon, but Felton will earn a starting salary in the $7 million range.
Felton was widely considered the top free-agent point guard available in this summer's superstar-laden market. One of the other top free-agent playmakers, Steve Blake, came off the market earlier this week when he agreed to a four-year, $16 million deal with the Los Angeles Lakers.
The Bobcats selected Felton fifth overall in the 2005 NBA draft, and he has career averages of 13.3 points, 6.4 assists and 1.4 steals per game. He's proved to be durable, appearing in at least 78 games in each of his five seasons as Charlotte's starting point guard, and should bring stability to the Knicks' backcourt.
Felton joins Amare Stoudemire as the Knicks' two big free-agent signings of the summer, even though they failed to achieve their primary goal of getting James.
The sources said the deal is expected to be finalized over the weekend.
Meanwhile, the Knicks' sign-and-trade deal sending All-Star forward David Lee to Golden State became official on Friday, giving the Warriors the marquee player they sought this offseason.
Forwards Anthony Randolph, Kelenna Azubuike and Ronny Turiaf go to the Knicks, who are moving closer to rounding out their roster for next season. New York also receives a 2012 second-round draft pick.
The key player in the deal for the Knicks is Randolph, the No. 14 pick in the 2008 draft. The athletic 6-foot-10 forward fell out favor with coach Don Nelson in Golden State and missed the final 47 games last season because of a left ankle injury.
"I see him as a talent, a big-time talent and a guy that could be an extra special player," Walsh said.
Azubuike missed the final 73 games last season with a knee injury, but Walsh said all three players are expected to be healthy in time for training camp.
Lee averaged career highs of 20.9 points and 11.7 rebounds last season, but Walsh said they never had any serious discussions about keeping him. Lee's time in New York essentially ended when the Knicks signed Stoudemire, who plays the same position.
Walsh has the Knicks in position to be buyers again in 2011, when they may have enough to offer another maximum contract.
"I think we're done as far as jumping into the free-agent market," Walsh said during a conference call. "We will have flexibility next year and we will have flexibility the year after."
Warriors general manager Larry Riley said he was committed to being aggressive via trade to upgrade a team that has reached the playoffs only once since 1994.
"David Lee is a terrific basketball player and an All-Star," Riley said in a statement. "His skill set addresses two areas where we need to improve: rebounding and passing, plus, we know he will score. He is a proven talent in this league and we like the way that his talents fit with the other core players on our roster."
Information from The Associated Press contributed to this report.