PERFORMANCE-BASED RESTRICTED STOCK UNIT AWARD AGREEMENT TERMS AND CONDITIONS (FY15 Awards)

This Performance-Based Restricted Stock Unit Award Agreement (this “Agreement”) is made and entered into as of the Grant Date as indicated on the equity award summary provided with this Agreement by and between Mentor Graphics Corporation, an Oregon corporation (the “Company”), and you pursuant to the Mentor Graphics Corporation 2010 Omnibus Incentive Plan (the “Plan”). Compensation paid pursuant to this Agreement is intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986 (the “Code”). Unless otherwise defined herein, capitalized terms used in this Agreement have the same defined meanings as in the Plan. The terms of this Agreement are as follows:

Pursuant to the Plan, the Company hereby grants you performance-based restricted stock units (the “PBRSUs”) with respect to shares of the Company’s common stock. Subject to the terms and conditions of this Agreement, the Company shall issue to you the number of shares of the Company’s common stock determined under this Agreement based on (a) the performance of the Company during the two-year period from February 1, 2015 to January 31, 2017 (the “Performance Period”) as described in 2, and your continued employment from the Grant Date to September 10, 2017 (the “Vesting Date”) as described in 3. The number of the PBRSUs granted to you is indicated on the equity award summary provided with this Agreement. By accepting this grant of the PBRSUs, you agree to all of the terms and conditions of this Agreement and the Plan.

3.3    You shall be entitled to receive a payout within ninety (90) days of the number of shares determined under 2 if:

provided, however, that you may also become entitled to a payout in connection with a Change in Control that also meets the definition of a Company Sale as provided in 8.2.

4.    Nature of Grant.

4.1    Nature of Grant. In accepting the grant you understand, acknowledge and agree that:

The PBRSUs may not be assigned or transferred except on death, by will or operation of law.

As soon as practicable following the completion of the audit of the Company’s consolidated financial statements for the final fiscal year of the Performance Period, the Company shall calculate the Payout Factor and the corresponding number of shares of the Company’s common stock that will be issuable to you upon satisfaction of the employment condition. This calculation shall be submitted to the Compensation Committee of the Company's Board of Directors (the “Committee”). No later than the Vesting Date the Committee shall certify in writing (which may consist of approved minutes of a Committee meeting) the levels of FY16 Margin and FY17 Margin attained by the Company and the number of shares of the Company’s common stock issuable to you based on such performance. Not more than ninety (90) days after the Vesting Date, if you have satisfied the employment condition, the Company will issue to you the number of shares of common stock so certified, and will deliver such shares to a brokerage account established by you in accordance with instructions from the Company or in such other manner as may be determined by the Company, but no shares shall be issued prior to certification. No fractional shares shall be issued and the number of shares deliverable shall be rounded to the nearest whole share. In the event of your death, Disability or Involuntary Termination as described in 3.2, a Change in Control as described in 3.3 or a Company Sale as described in 8.2, each of which may require an award payout earlier than the Vesting Date, a similar calculation and certification process shall be followed within the time frames required by those sections.

7.3.1    withholding from your wages or other cash compensation paid by the Company and/or the Employer; or

7.3.3    withholding in shares of common stock to be issued upon vesting/settlement of the PBRSUs.

Subject to the limits in 4 above, this Agreement will be binding upon and benefit the parties, their successors and assigns.

10.    Governing Law/Venue.

If you have received this Agreement or any other document related to the Plan translated into a language other than English, and if the meaning of the translated version is different from the English version, the English version will control.

Any notices under this Agreement must be in writing and will be effective when actually delivered (including via electronic mail) or, if mailed, when deposited postpaid. Mail shall be directed to you at your address shown in the Company’s records or to such other address as you may certify by notice to the Company’s legal department.

13.    Electronic Delivery.

The Company, may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. You hereby consent to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

14.1    Non-GAAP Operating Income Margin. Non-GAAP Operating Income Margin for any fiscal year shall mean the Non-GAAP Operating Income (as defined in 14.2) for that fiscal year divided by the Revenue (as defined in 14.3) for that fiscal year, with the result expressed as a percentage and rounded to the nearest tenth of a percentage point.

14.2    Non-GAAP Operating Income. Non-GAAP Operating Income for any fiscal year shall mean the sum of the following items for that fiscal year: Operating Income plus Special Charges plus 123R Expense plus Amortization plus Impairment Charges and further adjusted to eliminate the effect of Accounting Changes (each as defined below).

14.2.1    Operating Income. Operating Income shall mean the Company’s operating income as set forth on the audited consolidated statement of operations of the Company and its subsidiaries for the applicable fiscal year.

14.2.2    Special Charges. Special Charges shall mean the expense for special charges reported by the Company as set forth on the audited consolidated statement of operations of the Company and its subsidiaries for the applicable fiscal year.

14.2.3    123R Expense. 123R Expense shall mean the stock-based compensation expense reported by the Company as set forth in the audited consolidated financial statements of the Company and its subsidiaries for the applicable fiscal year.

14.2.4    Amortization. Amortization shall mean the expense for amortization of purchased technology and other intangible assets reported by the Company as set forth on the audited consolidated statement of operations of the Company and its subsidiaries for the applicable fiscal year.

14.2.5    Impairment Charges. Impairment Charges shall mean the expense for impairment of long-lived assets, if any, reported by the Company as set forth on the audited consolidated statement of operations of the Company and its subsidiaries for the applicable fiscal year.

14.2.6    Accounting Changes. Accounting Changes shall mean any change in accounting principle or presentation that the Company implements in or for any portion of the Performance Period, either as a result of the issuance of new accounting standards or otherwise, the effect of which was not reflected in the Company’s business plan on the Grant Date.

14.3    Revenue. Revenue for any fiscal year shall mean the Company’s total revenues as set forth on the audited consolidated statement of operations of the Company and its subsidiaries for the fiscal year.

14.4    Change in Control. A Change in Control shall be deemed to occur upon the earliest to occur after the Grant Date of any of the following events:

14.4.1    Acquisition of Stock by Third Party. The acquisition by any Person of Beneficial Ownership of 40% or more of either the then-outstanding shares of common stock of the Company or the Outstanding Voting Securities; provided, however, that any acquisition directly from the Company shall not constitute a Change in Control;

14.4.2    Change in Board of Directors. Individuals who, as of the Grant Date, constitute the Board, and any new director whose election by the Board or nomination for election by the Company’s shareholders was approved by a vote of at least two thirds of the directors then still in office who were directors on the Grant Date or whose election or nomination for election was previously so approved (collectively, the “Continuing Directors”), cease for any reason to constitute at least a majority of the members of the Board;

14.4.3    Corporate Transactions. The effective date of a reorganization, merger or consolidation of the Company (a “Business Combination”), in each case, unless immediately following such Business Combination: (a) all or substantially all of the Persons who were Beneficial Owners of Outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 51% of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction either owns the Company or all or substantially all of the Company’s assets either directly or through one or more Subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Voting Securities; (b) no Person (excluding any corporation resulting from such Business Combination) is the Beneficial Owner, directly or indirectly, of 40% or more of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of such corporation except to the extent that such ownership existed prior to such Business Combination; and (c) at least a majority of the board of directors of the corporation resulting from such Business Combination were Continuing Directors at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination;

14.4.4    Liquidation. The approval by the shareholders of the Company of a complete liquidation of the Company or an agreement or series of agreements for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than factoring the Company’s current receivables or escrows due (or, if such approval is not required, the decision by the Board to proceed with such a liquidation, sale or disposition in one transaction or a series of related transactions); or

14.4.5    Other Events. There occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar or successor item on any similar or successor schedule or form) promulgated under the Exchange Act, whether or not the Company is then subject to such reporting requirement.

14.4.6    Certain Definitions. For purposes of 14.4, the following terms shall have the following meanings:

“Beneficial Owner” and “Beneficial Ownership” shall have the meanings set forth in Rule 13d-3 promulgated under the Exchange Act.

“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

“Outstanding Voting Securities” means the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors.

“Person” shall have the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person shall exclude (i) the Company, (ii) any Subsidiary of the Company, (iii) any employee benefit plan of the Company or Subsidiary of the Company or of any corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, and (iv) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or Subsidiary of the Company or of a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company.

“Subsidiary” means, with respect to any Person, any business organization or legal entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by that Person.

14.5    Approval Date. Approval Date means the date on which the shareholders of the Company approve a transaction, the consummation of which would result in the occurrence of a Change in Control.

14.6    Cause. If you are a party to an employment or severance agreement with the Company, Cause shall have the meaning set forth therein. If you are not a party to an employment or severance agreement with the Company, termination by the Company or any Subsidiary or Affiliate of your employment for Cause shall mean termination (a) upon your willful and continued failure to perform substantially your duties with the Company or any Subsidiary or Affiliate (other than any such failure resulting from your incapacity due to physical or mental illness), (b) upon your willful and continued failure to follow and comply substantially with the specific and lawful directives of any person to whom you directly or indirectly report within the Company or any Subsidiary or Affiliate (other than any such failure resulting from your incapacity due to physical or mental illness), (c) upon your willful commission of an act of fraud or dishonesty resulting in economic or financial injury to the Company or any Subsidiary or Affiliate, or (d) upon your willful engagement in illegal conduct which is injurious to the Company or any Subsidiary or Affiliate.

14.7    Employer. Employer means the Company or the Subsidiary or Affiliate which employs you.

14.8    Good Reason. If you are a party to a severance or employment agreement with the Company, Good Reason shall have the meaning set forth therein. If you are not a party to a severance or employment agreement with the Company, Good Reason shall mean, without your express written consent, the occurrence of any of the following circumstances, provided you give notice to the Company of your intent to terminate your employment for Good Reason within 90 days after notice to you of such circumstances and such circumstances are not fully corrected by the Company or any Subsidiary or Affiliate within 30 days after your notice:

14.8.1    the assignment to you of any duties inconsistent with your position in the Company or any Subsidiary or Affiliate, a significant adverse alteration in the nature or status of your responsibilities or the conditions of your employment, or any other action by the Company or any Subsidiary or Affiliate that results in a material diminution in your position, authority, title, duties or responsibilities;

14.8.2    the reduction of your annual base salary as in effect on the Grant Date or as the same may be increased from time to time;

14.8.3    the relocation of the offices at which you are principally employed (your “Principal Location”) to a location more than twenty-five (25) miles from such location or the Company or any Subsidiary or Affiliate requiring you, without your written consent, to be based anywhere other than your Principal Location, except for required travel on the Company’s or any Subsidiary’s or Affiliate’s business to an extent substantially consistent with your present business travel obligations;

14.8.4    the failure to pay to you any portion of your current compensation or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Company or any Subsidiary or Affiliate within seven (7) days of the date such compensation is due;

14.8.5    the failure to continue in effect any material compensation or benefit plan or practice in which you are eligible to participate in (other than any equity based plan), unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed prior to any such change; or

14.8.6    the failure to provide you with the number of paid vacation days to which you are entitled on the basis of years of service in accordance with the Employer’s normal vacation policy in effect on the Grant Date.

14.9    Disability. If you are a party to a severance or employment agreement with the Company, Disability shall have the meaning set forth therein. If you are not a party to a severance or employment agreement with the Company, termination of your employment for Disability shall result if, as a result of illness or injury you suffer from a condition of mind or body that permanently prevents full-time employment by the Company or a Subsidiary or Affiliate, as conclusively determined by the Committee.

14.10    Involuntary Termination. Involuntary Termination means termination of your employment by the Company or any Subsidiary or Affiliate without Cause or termination of your employment by you for Good Reason.

The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.

You acknowledge and agree that all shares acquired by you under this Agreement shall be subject to the Mentor Graphics Corporation Policy For Recovery Of Incentive Compensation (the “Policy”) as approved by the Board of Directors and the Committee and in effect on the Grant Date, and that the full amount of any payment received by you under this Agreement that was calculated based on financial statements that are subsequently restated shall be subject to the Policy in the same manner as bonuses under variable incentive plans are subject to the Policy.

The Company reserves the right to impose other requirements on your participation in the Plan, on the PBRSUs and on any shares of common stock acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require you to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

You acknowledge that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by you or any other participant.