Davis, considered one of the most talented linebackers in this year's free-agent market, spent last season on the physically-unable-to-perform list because of a knee reconstruction. Because he missed the season under that designation, his $3.268 million salary from 2010 passed to this season and put him under contract for the 2011 season, the source said.
According to the source, the Panthers have told Davis they will attempt to sign him to a long-term contract, but would be willing to release him if talks fail.
The Panthers drafted Davis in the first round in 2005. He has developed into a key defensive piece for the Panthers over the past several seasons.
John Clayton is a senior NFL writer for ESPN.com.