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EXHIBIT 10.16




CONFIDENTIAL SEPARATION AGREEMENT

AND GENERAL RELEASE OF CLAIMS




     THIS CONFIDENTIAL SEPARATION AGREEMENT AND GENERAL RELEASE OF CLAIMS (“Agreement”) is entered
into by and between Jeannine Smith (“Employee”) and Shutterfly, Inc. (the “Company”). This
Agreement will become effective on the eighth day after it is signed by Employee (the “Effective
Date”), provided that Employee has not revoked this Agreement (by written notice to Patricia
Schoof, Vice President, Human Resources at the Company) prior to that date.



RECITALS




     A. Employee is employed by the Company as its Senior Vice President, Operations. The Company
and Employee have agreed to terminate the employment relationship.



     B. It is the Company’s desire to provide Employee with certain benefits that she would not
otherwise be entitled to receive upon her termination of employment and to resolve any claims that
she has or may have against the Company.



     Accordingly, in consideration of the terms, conditions and covenants contained herein, the
parties agree as follows:


1. Termination of Employment; Transition Period. Company hereby terminates Employee’s employment
relationship with the Company effective as of the earlier of (a) June 8, 2007, or (b) the date she
is employed by another employer or is engaged to provide consulting services (the “Termination
Date”) subject to the provisions of this paragraph. During the period following the date of this
Agreement and up to the Termination Date (the “Transition Period”), Employee will provide
transition services to the Company as requested by the Company. Such services will generally be
provided on-site at the Company and on a regular, full-time basis pursuant to a transition plan
established by the Company. However, Employee may provide such services from home with the prior
approval of the Company. In the event Employee becomes employed (in any capacity and on any basis)
during the Transition Period, she must notify the Company and the Termination Date will be as of
the date of such notice.



2. Vacation. As of the Termination Date, Employee will be paid all wages and accrued, unused paid
time off that Employee earned during her employment with the Company through the Termination Date.
Employee shall provide necessary PTO forms for any planned vacation during the Transition Period.



3. Release.




     In consideration of remaining an employee of the Company during the Transition Period,
Employee and her successors and assigns fully release the Company and its related entities, past
and present affiliates, stockholders, investors, directors, officers, employees, agents, attorneys,
insurers, legal successors and assigns (the “Released Parties”) of and from any and all claims,



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liabilities, obligations, demands, actions and causes of action, whether now known or unknown,
that Employee now has, or at any other time had, or shall or may have against those Released
Parties based upon or arising out of any matter, cause, fact, thing, act or omission whatsoever
occurring or existing at any time up to and including the Termination Date.




     This release includes specifically but not exclusively and without limiting the generality of
the foregoing, any claims of breach of contract, wrongful termination, retaliation, fraud,
defamation, infliction of emotional distress or national origin, race, age, sex, sexual
orientation, disability or other discrimination or harassment under the Civil Rights Act of 1964,
the Age Discrimination In Employment Act of 1967, as amended, the Older Workers Benefit Protection
Act, the Americans with Disabilities Act, the Fair Employment and Housing Act or any other
applicable law. However, this Release is not intended to bar any claims that, by statute, may not
be waived, such as claims for workers’ compensation benefits, unemployment insurance benefits, and
any challenges to the validity of Employee’s release of claims under the Age Discrimination in
Employment Act of 1967, as amended, as set forth in this Agreement.



     Employee acknowledges that she has read section 1542 of the Civil Code of the State of
California, which states in full:


A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW

OR SUSPECT TO EXIST IN her FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH

IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED her SETTLEMENT WITH THE

DEBTOR.



Notwithstanding Section 1542, Employee agrees that this Agreement shall act as a release of all
past and future claims that may arise from or related to her employment or termination from
employment with the Company, whether such claims are currently known or unknown, foreseen or
unforeseen, contingent or absolute. Employee intentionally and specifically waives any rights she
may have under the provisions of Section 1542, as well as under any other statutes or common law
principles of similar effect, and assumes full responsibility for any injuries, damages, losses or
liabilities that she may hereafter incur with respect to such claims.



     As additional consideration for the compensation and benefits described in this Agreement,
Employee agrees that she will affirm and extend this Release of Claims for the Transition Period by
re-signing this Agreement in the space at the end of the Agreement on or shortly before the
Termination Date.



4. No Assignment or Transfer. Employee represents and warrants that there has been no assignment
or other transfer of any interest in any claim that she may have against the Company and agrees to
indemnify and hold the Company harmless from any liabilities, claims, demands, damages, costs,
expenses and attorneys’ fees incurred by the Company as a result of any assertion of assignment or
transfer.



5. Review / Rescind Period.




     (a) This Agreement shall not become effective or enforceable until the eighth day after
Employee signs this Agreement. In other words, Employee may revoke Employee’s



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acceptance of this Agreement within seven (7) days after the date Employee signs it.
Employee’s revocation must be in writing and received by Patricia School, Vice President, Human
Resources at the Company by 5:00 p.m. Pacific Time on the seventh day in order to be effective. If
Employee does not revoke acceptance within the seven (7) day period, Employee’s acceptance of this
Agreement shall become binding and enforceable on the Effective Date.




     (b) Employee acknowledges and agrees that (i) Employee has read and understands the terms of
this Agreement; (ii) Employee has been advised in writing to consult with an attorney before
executing this Agreement; (iii) that Employee has obtained and considered such legal counsel as
Employee deems necessary; (iv) that Employee has been given up to twenty-one (21) days to consider
whether or not to enter into this Agreement (although Employee may elect not to use the full 21-day
period at Employee’s option); and (v) that by signing this Agreement, Employee acknowledges that
Employee does so freely, knowingly, and voluntarily.


6. Confidentiality.




     (a) Employee acknowledges and agrees that she shall continue to be bound by and comply with
the terms of any proprietary rights, assignment of inventions and/or confidentiality agreements
between the Company and Employee. On or before the Termination Date, Employee will return to the
Company, in good working condition, all Company property and equipment that is in Employee’s
possession or control, including, but not limited to, any files, records, computers, computer
equipment, cell phones, credit cards, keys, programs, manuals, business plans, financial records,
and all documents (and any copies thereof) that Employee prepared or received in the course of her
employment with the Company.



     (b) Employee agrees that she shall not directly or indirectly disclose any of the terms of
this Agreement to anyone other than her immediate family or counsel, except as such disclosure may
be required for accounting or tax reporting purposes or as otherwise may be required by law.
Employee further agrees that she will not, at any time in the future, make any critical or
disparaging statements about the Company, its products, services or its employees, unless such
statements are made truthfully in response to a subpoena or other legal process. The Company also
agrees that it will not, at any time in the future, make any critical or disparaging statements
about the Employee, unless such statements are made truthfully in response to a subpoena or other
legal process.


7. No Pursuit of or Joinder in Claims. Employee agrees that if she commences, joins in or in any
manner seeks relief through any lawsuit arising out of, based upon, or related to any claim
released hereunder, she shall pay to Company, in addition to any other damages caused to the
Company thereby, all attorneys’ fees incurred by the Company in defending or otherwise responding
to such suit or claim.



8. Nonsolicitation of Employees and Customers. Employee agrees that for a period of one (1) year
following the Termination Date, she will not, either on her own behalf or on behalf of another
person or entity, by using or disclosing the trade secrets or confidential, proprietary, or
business information of Company: (a) directly or indirectly solicit or take away employees,
independent contractors or consultants of Company for the purpose of hiring them; or (b) directly
or indirectly solicit or take away suppliers or customers of Company if the identity of the




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supplier or customer, or information about the supplier or customer relationship, is a trade secret
or is otherwise deemed confidential information within the meaning of applicable law.
Notwithstanding the foregoing, nothing prevents Employee from soliciting business from any supplier
or customer of Company that is unrelated to the business conducted by Company.



9. Attorney’s Fees. In the event of any legal action relating to or arising out of this Agreement,
the prevailing party shall be entitled to recover from the losing party its attorneys’ fees and
costs incurred in that action.



10. No Admission of Liability. Employee and the Company understand and acknowledge that this
Agreement constitutes a compromise and settlement of disputed claims. No action taken by the
parties hereto, or either of them, either previously or in connection with this Agreement, shall be
deemed or construed to be (a) an admission of truth or falsity of any claims heretofore made or (b)
an acknowledgement or admission by either Party of any fault or liability whatsoever to the other
party or to any third party.



11. Consult with Attorney. Each party represents that it has been advised of its right to consult
with an attorney and to seek legal representation of its choosing in the execution of this
Agreement, and has carefully read and understands the scope and effect of the provisions of this
Agreement. Neither party has relied upon any representations or statements made by the other party
hereto which are not specifically set forth in this Agreement.



12. Miscellaneous. This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior negotiations and agreements, whether
written or oral, with the exception of any stock option agreements between the parties and any
agreements described in paragraph 5(a). This Agreement may be modified or amended only with the
written consent of Employee and an authorized officer of the Company, provided, however, that the
Company may amend or modify this Agreement in order to comply with the provisions of Section 409A
of the Internal Revenue Code, to the extent applicable. No oral waiver, amendment or modification
will be effective under any circumstances whatsoever.



EMPLOYEE UNDERSTANDS THAT SHE SHOULD CONSULT WITH AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT AND
THAT SHE IS GIVING UP ANY LEGAL CLAIMS SHE HAS AGAINST THE PARTIES RELEASED ABOVE BY SIGNING THIS
AGREEMENT. EMPLOYEE ACKNOWLEDGES THAT SHE IS SIGNING THIS AGREEMENT KNOWINGLY, WILLINGLY AND
VOLUNTARILY IN EXCHANGE FOR THE BENEFITS DESCRIBED HEREIN.




	 	 	 	 	 
	Dated: January 23, 2007
	 	/s/ Jeannine Smith	 	 
	 	 	 
	 	 	Jeannine Smith
	 
	 	 	 	 
	 	 	SHUTTERFLY, INC.
	 
	 	 	 	 
	 

	 	By:	 	/s/ Jeff Housenbold
	 

	 	 	 	 
	Dated: January                     , 2007

	 	 	 	Jeff Housenbold
	 

	 	 	 	President & CEO






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By re-signing this Agreement on or shortly before the Termination Date, Employee hereby extends the
Release of Claims set forth in paragraph 3 above to include any claims arising through and
including the Termination Date.



	 	 	 
	Dated:                                                             , 2007
	 	 
	 

	 	 
	 

	 	Jeannine Smith







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