ECHELON CORPORATION NONQUALIFIED STOCK OPTION GRANT AGREEMENT

Exhibit 10.1

[EMPLOYEE NAME]

Employee ID Number:

Grant Number:

ECHELON CORPORATION

NONQUALIFIED STOCK OPTION GRANT AGREEMENT

Echelon Corporation (the “Company”) hereby grants you, [NAME OF EMPLOYEE] (the “Employee”), an option under the Company’s 1997 Stock Plan (the “Plan”) to purchase shares of common stock of the Company. The date of this Agreement is [DATE] (the “Grant Date”). In general, the latest date this option will expire is the expiration date indicated on this Notice of Grant (the “Expiration Date”). However, as provided in this Agreement, this option may expire earlier than the Expiration Date. Subject to the provisions of Appendix A (attached to this Agreement) and of the Plan, the principal features of this option are as follows:

Expiration Date: Five Years from the Grant Date; provided, however, this option may terminate earlier than the Expiration Date, as set in Appendix A.

IMPORTANT:

By your signature and the signature of the Company’s representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Agreement. Optionee has reviewed the Plan and this Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of the Plan and Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below.

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APPENDIX A – TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTION GRANT

1. Vesting Schedule . The right to exercise this option will vest as to 25% of the total shares at each one year anniversary of the date of grant, until the right to exercise this option shall have vested with respect to one hundred percent (100%) of such Shares. Shares scheduled to vest on any such date actually will vest only if the Employee has not incurred a Termination of Service prior to such date.

2. Termination of Option . In the event of the Employee’s Termination of Service for any reason other than Disability or death, the Employee may, within thirty (30) days after the date of such Termination of Service, or prior to the Expiration Date, whichever shall first occur, exercise any then vested but unexercised portion of this option. In the event of the Employee’s Termination of Service due to Disability, the Employee may, within one (1) year after the date of Termination of Service due to Disability, or prior to the Expiration Date, whichever shall first occur, exercise any then vested but unexercised portion of this option.

For purposes of this Agreement, the Employee shall be deemed to have incurred a Termination of Service prior to any period of notice for termination of employment mandated under applicable law. The Employee’s date of Termination of Service shall mean the date upon which the Employee ceases active performance of services following the provision of a notification of termination or resignation from employment or service, and shall be determined solely by this Agreement and without reference to any other agreement, written or oral, express or implied, including the Employee’s contract of employment, if any.

3. Death of Employee . In the event that the Employee dies while an Employee or during the thirty (30) days or one (1) year periods referred to in Paragraph 2 above, the Employee’s designated beneficiary, or if no beneficiary survives the Employee, the administrator or executor of the Employee’s estate (the “Transferee”), may, within one (1) year after the date of death, exercise any unexercised portion of the option that was vested prior to the Employee’s Termination of Service. Any such Transferee must furnish the Company (a) written notice of his or her status as a Transferee, (b) evidence satisfactory to the Company to establish the validity of the transfer of this option and compliance with any laws or regulations pertaining to such transfer, and (c) written acceptance of the terms and conditions of this option as set forth in this Agreement.

4. Persons Eligible to Exercise Option . Except as provided in Paragraph 3 above or as otherwise determined by the Committee in its discretion, this option shall be exercisable during the Employee’s lifetime only by the Employee.

5. Option is Not Transferable . Except as provided in Paragraph 3 above, this option and the rights and privileges conferred hereby shall not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this option, or of any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this option and the rights and privileges conferred hereby immediately shall become null and void.

6. Exercise of Option . This option may be exercised by the person then entitled to do so as to any shares which may then be purchased by (a) giving notice in such form or manner as the Company may designate, (b) providing full payment of the Exercise Price (and the amount of any income tax the Company determines is required to be withheld by reason of the exercise of this option or as is otherwise required under Paragraph 8 below), and (c) giving satisfactory assurances in the form or manner requested by the Company that the shares to be purchased upon the exercise of this option are being purchased for investment and not with a view to the distribution thereof. Notwithstanding any contrary provision of this Agreement, if the expiration date of this option falls on a Saturday, Sunday or California holiday, the Employee may exercise any then vested but unexercised portion of this option at any time prior to the close of business on the first business day following that Saturday, Sunday or California holiday.

7. Conditions to Exercise . Except as provided in Paragraph 6 above or as otherwise required as a matter of law, the (i) Exercise Price for this option and (ii) minimum federal, state and local income, employment and any other applicable taxes required to be withheld by the Company as a result of the exercise of this option shall be made by “net exercise” unless the

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person entitled to exercise otherwise elects to pay such amounts by (a) cash, personal check, cashier’s check or money order, (b) pursuant to a broker assisted cashless exercise program implemented by the Company on such terms and conditions as the Administrator may specify and as may be amended from time to time, or (c) through surrender of other shares of common stock of the Company, provided that if such other shares of common stock of the Company were acquired directly or indirectly from the Company, such shares shall have a Fair Market Value equal to the Exercise Price of the exercised options shares and shall have been owned for more than six (6) months as of the date of surrender. For this purpose, “net exercise” means a procedure by which such person will be issued a number of Shares determined in accordance with a formula X = Y(A—(B+C)) / A (rounded up to the nearest whole Share), where:

X = the number of Shares to be issued upon exercise of the option;

Y = the total number of Shares with respect to which the person has elected to exercise the option;

A = the Fair Market Value of one (1) Share;

B = the exercise price per share;

C = the minimum federal, state and local income, employment and any other applicable taxes attributable to one (1) Share which are required to be withheld by the Company as a result of the exercise of the option.

8. Tax Withholding and Payment Obligations . The Company will assess its requirements regarding tax, social insurance and any other payroll tax withholding and reporting in connection with this option, including the grant, vesting or exercise of this option or sale of shares acquired pursuant to the exercise of this option (“tax-related items”). These requirements may change from time to time as laws or interpretations change. Regardless of the Company’s actions in this regard, the Employee hereby acknowledges and agrees that the ultimate liability for an