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Exhibit 10.14

October 5, 2006

Tom Reilly

                                        

                                        

Dear Tom:

     This letter will serve as an offer of employment to you with ArcSight, Inc. as ArcSight’s Chief Operating Officer. You will work in this capacity on a full-time basis, giving your best efforts to the performance of your duties.

     In this position, your salary will be $25,000 per month, earned and paid semi-monthly. Additionally you will be eligible to receive up to 35% of annual base salary, at plan, in the form of an annual bonus and up to a maximum of 100% in the event the Company exceeds certain milestones. This will be paid if both you and the Company achieve certain milestones. These milestones will be communicated to you shortly after you join ArcSight. You may begin to participate in ArcSight’s bonus plan beginning Fiscal Year 2007 (5/1/06 – 4/30/07) prorated from start date.

     In addition, subject to approval of the Company’s Board of Directors or its Compensation Committee, you will be granted an incentive stock option, to the extent allowed under the Internal Revenue Code, to acquire 3% (as of 10/5/06) of all issued and outstanding shares of the Company’s Common Stock and Preferred Stock, on a fully exercised and as converted basis, and all issued and outstanding securities convertible into, exercisable for or providing the right to acquire the Company’s Common Stock or Preferred Stock, at an exercise price equal to the fair market value of the shares on the date the option is granted or your first date of employment, whichever is later. The option will be immediately exercisable, but the unvested portion of the purchased shares will be subject to repurchase by the Company at the exercise price in the event that your service terminates for any reason (subject to the paragraph below regarding additional vesting after an Involuntary Termination following a Change in Control) before you vest in the shares. You will vest in 25% of the option shares after 12 months of continuous service, and the balance will vest in equal monthly installments over the next 36 months of continuous service, as described in your Stock Option Agreement.

     In addition you will be granted an incentive stock option, to the extent allowed under the Internal Revenue Code, to acquire 1% (as of 10/5/06) of all issued and outstanding shares of the Company’s Common Stock and Preferred Stock, on a fully exercised and as converted basis, and all issued and outstanding securities convertible into, exercisable for or providing the right to acquire the Company’s Common Stock or Preferred Stock, at an exercise price equal to the fair market value of the shares on the date the option is granted or your first date of employment, whichever is later. The option will be immediately exercisable, but the unvested portion of the purchased shares will be subject to repurchase by the Company at the exercise price in the event that your service terminates for any reason (subject to the paragraph below regarding additional vesting after an Involuntary Termination following a Change in Control) before you vest in the shares. Subject to achieving certain performance milestones within the

Tom Reilly
October 5, 2006
Page 2

first twelve months of your employment with the Company you will vest in 25% of the option shares after 12 months of continuous service, and the balance will vest in equal monthly installments over the next 36 months of continuous service, as described in your Stock Option Agreement. These performance milestones will be communicated to you shortly after you join ArcSight.

     If the Company is subject to a Change in Control (as defined in the ArcSight, Inc. 2002 Stock Plan) prior to the first anniversary of your employment start date before your service with the Company terminates and you are subject to an Involuntary Termination (as defined in your Notice of Stock Option Grant) within twelve months after that Change in Control, then you shall become vested in an additional 50% of the unvested option shares as of your termination date. Should the Change of Control occur on or after the first anniversary of your employment start date and you are subject to an Involuntary Termination (as defined in your Notice of Stock Option Grant) within twelve months after that Change in Control then you shall become vested in 100% of your options as of your termination date. In addition, following the Involuntary Termination, the Company will pay you severance pay for a period of twelve (12) months following the termination of your employment. Your severance pay will be at the rate of your base salary in effect at the time of the termination of your employment and in accordance with the Company’s standard payroll procedures, provided that such severance pay will be paid in a manner to be exempted under, or compliant with, Section 409A of the Internal Revenue Code. However, this paragraph will not apply unless you (i) sign a general release of claims (in a form reasonably prescribed by the Company,) and (ii) have returned all Company property.

     As an employee, you will be eligible to participate in health and welfare benefits in accordance with ArcSight, Inc.’s standard plan. In addition, you will accrue three (3) weeks (15 business days) of vacation per year pursuant to ArcSight, Inc.’s vacation policy.

     You are required to follow ArcSight, Inc.’s policies and practices. You will also have access to certain of ArcSight, Inc.’s trade secrets, staff, customers, and confidential and proprietary information. Accordingly, we ask that you sign the attached Proprietary Information and Inventions Agreement.

     While you render services to the Company, you agree that you will not engage in any other employment, consulting or other business activity without the prior written consent of the Company. While you render services to the Company, you also will not assist any person or entity in competing with the Company, in preparing to compete with the Company or in hiring any employees or consultants of the Company.

     Please understand that your employment at ArcSight, Inc. is for no specified period of time. It is an at-will employment relationship, and either you or ArcSight, Inc. may terminate the relationship at any time, for any reason, with or without cause. This paragraph is intended to be the complete and exclusive statement regarding the circumstances under which your employment

Tom Reilly
October 5, 2006
Page 3

may be terminated. It supersedes any prior agreement or representation. If any term of this paragraph conflicts with any practice or policy of ArcSight, Inc., now or in the future, the terms of this paragraph will control. The terms of this paragraph may not be changed except by written agreement signed by you and the President of ArcSight, Inc.

     This offer is contingent upon your completion and execution of all employment documents, as well as your ability to provide proof of identification and authorization to work in the United States, (within three business days of your start date) and upon the completion and acceptance of all information related to your background check, even if this information is not known until after your employment commences

     This offer will expire at the end of business day on October 9, 2006, unless accepted by you on the terms contained herein.

     Finally, this offer letter sets forth all the material terms of your employment. By signing it, and thereby accepting employment at ArcSight, Inc., you acknowledge that you have not relied upon any other written or oral statements concerning the terms of your employment.

     Please indicate your agreement with the terms of this letter by signing and dating one (1) copy each of both the enclosed offer letter and the enclosed Proprietary Information and Inventions Agreement and returning them to me.

     We look forward to having you on board!

Sincerely,

/s/ Robert Shaw
Robert Shaw
Chairman & CEO
ArcSight, Inc.

     I, Tom Reilly, accept this offer:

		/s/ Tom Reilly
		Dated:

ArcSight, Inc.
Amendment to Employment Offer Letter

October 23, 2007

Tom Reilly

Re:   Amendment to Employment Offer Letter

Dear Mr. Reilly:

Reference is made to the Employment Offer Letter between ArcSight, Inc. (“ArcSight” or the “Company”) and you, dated October 5, 2006, including all agreements and acknowledgements attached thereto (your “Offer Letter”). ArcSight and you desire to amend your Offer Letter to minimize potential tax liabilities under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). Effective as of the date set forth above, ArcSight and you hereby amend your Offer Letter as set forth in this letter of amendment (the “Amendment”). Terms not otherwise defined in this Amendment shall have the meaning given to them in your Offer Letter.

The following provisions shall be added to your Offer Letter:

“In order to have a valid Involuntary Termination, you must (i) notify the Company in writing not later than 90 days from the date of the initial event giving rise to the Involuntary Termination and specify the specific basis for your belief that your employment has been Involuntarily Terminated, (ii) provide the Company with at least 30 days to remedy such event constituting the Involuntary Termination and (iii) terminate employment with the Company within 7 days following the Company’s failure to cure.”

“To the extent (i) any payments to which you become entitled under this offer letter, or any agreement or plan referenced herein, in connection with your termination of employment with the Company constitute deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and (ii) you are deemed at the time of such termination of employment to be a “specified” employee under Section 409A of the Code, then such payment or payment shall not be made or commence until the earliest of (i) the expiration of the six (6)-month period measured from the date of your “separation from service” (as such term is at the time defined in Treasury Regulations under Section 409A of the Code) with the Company; (ii) the date you become “disabled” (as defined in Section 409A of the Code); or (iii) the date of your death following such separation from service; provided, however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to you, including (without limitation) the additional twenty percent (20%) tax for which you would otherwise be liable under Section 409A(a)(1)(B) of the Code in the absence of such deferral. Upon the expiration of the applicable deferral period, any payments which would have otherwise been made during that period (whether in a single sum or in installments) in the absence of this paragraph (together with accrued interest thereon) shall be paid to you or your beneficiary in one lump sum. Notwithstanding the foregoing, in the event any amounts payable to you upon your separation from service with the

Company exceed the amounts set forth in Section 1.409A-1(b)(9)(iii)(A) and are not payable within the time set forth in Section 1.409A-1(b)(9)(iii)(B), then such amount shall be payable in a lump-sum payment not later than the time period provided for in Section 1.409A-1(b)(4)(i).

Except as set forth above, your Offer Letter shall remain in full force and effect in all other respects, and this Amendment does not supersede any of the other the terms of your Offer Letter. This Amendment and your Offer Letter will be the entire agreement relating to your employment with ArcSight.

I accept the terms and conditions as set forth in this Amendment. I acknowledge and agree that this Amendment amends my Offer Letter only to the extent as set forth herein and that my Offer Letter in all other respects remains in full force and effect.

Date:		November 9, 2007		/s/ Tom Reilly
				Tom Reilly