EXHIBIT 10.40

October 21, 1999

Ted Capes
c/o JetForm Corporation
560 Rochester Street
Ottawa, Ontario
K1S 5K2
                            Re: Employment Agreement

     We are pleased to confirm the terms and conditions of the employment of Ted
Capes ("you" or the "Executive") with JetForm  Corporation (the  "Corporation").
The Corporation  believes that it is reasonable and fair to the Corporation that
you receive fair  treatment  in the event of the  termination  without  cause or
adverse modification without cause of your employment. In consideration thereof,
and by your  execution  of this  Agreement  below,  you wish to abide by various
non-competition   and  confidentiality   restrictions   contained  herein,  your
violation of which would be highly detrimental to the Corporation,  and both you
and the  Corporation  wish  formally  to agree as to the  terms  and  conditions
contained  herein  that will  govern the  termination  or  modification  of your
employment.

Article I - Preamble and Interpretation

1.0 The parties agree that the Executive's  original date of employment with the
corporation for the purposes of this agreement is January 1, 1999.

1.1 The parties agree,  and represent and warrant to each other,  that the above
preamble  is true  and  accurate  and is  incorporated  into  the  terms of this
Agreement.

1.2 The headings of the Articles,  sections,  subsections and clauses herein are
inserted for  convenience  of reference only and shall not affect the meaning or
construction hereof.

1.3 For the  purposes  of this  Agreement,  the  following  terms shall have the
following meanings, respectively:

(a)  "Annual Salary" means the sum of:

     (i)     the annual salary of the Executive, payable to the Executive by the
             Corporation  at the  Date  of  Termination  or as at the end of the
             month immediately  preceding the month in which termination  occurs
             (the "Prior Month"),  whichever is greater, and if an annual salary
             has not been established, it shall be calculated by multiplying the
             monthly  salary of the  Executive  in effect for the Prior Month by
             12; and

     (ii)    the aggregate  amount of all  remuneration,  salaries,  bonuses and
             benefits  (including,   without  limitation,   health,  dental  and
             disability  coverage)  not  included  in clause  (i) above that the
             board of directors of the Corporation  acting reasonably  estimates
             would be  payable  to the  Executive  during  the 12  month  period
             following  the  termination  of the  Executive's  employment by the
             Corporation  assuming:  (1) the employment of the Executive was not
             terminated during such period; and (2) the Executive benefited from
             and  participated  in  such  remuneration,  salaries,  bonuses  and
             benefits on a basis  consistent with practices in effect for senior
             executives  of the  Corporation  immediately  prior  to the Date of
             Termination;

(b)  "Change of Control"  shall  mean:  the  acquisition  by a person or persons
     acting  jointly  of  the  Corporation's   voting  shares,   such  that  the
     acquiror(s) would  beneficially own shares equal to greater than 50% of the
     votes attaching to the Corporation's voting shares.

(c)  "Date of Termination" shall mean the date of termination of the Executive's
     employment,  whether by the Executive or by the  Corporation or by death of
     the Executive;

(d)  "Disability"  shall mean the Executive's  failure to substantially  perform
     his  duties on a  full-time  basis for a period  of six  months  out of any
     18-month  period,  where  such  failure is a result of  physical  or mental
     illness;

(e)  "Good Reason" shall include,  without limitation,  the occurrence of any of
     the following without the Executive's written consent (except in connection
     with the  termination  of the employment of the Executive for Just Cause or
     Disability):

     (i)     a material reduction by the Corporation of the Executive's  salary,
             benefits  or any other  form of  remuneration  or any change in the
             basis upon which the Executive's salary, benefits or any other form
             of remuneration payable by the Corporation is determined other than
             a reduction or change in a manner which is consistent with industry
             practices generally in effect prior to such reduction or change; or

     (ii)    any  failure  by  the   Corporation   to  continue  in  effect  any
             substantive benefit, bonus, profit sharing, incentive, remuneration
             or compensation  plan, pension plan or retirement plan in which the
             Executive was participating or entitled to participate  immediately
             prior  to such  failure  other  than a  failure  to  continue  such
             benefits,  bonuses  or plans on a basis  consistent  with  industry
             practices  generally  in  effect  prior  to  such  failure,  or the
             Corporation  taking any action or failing to take any  action,  the
             failure  of  which   would   adversely   affect   the   Executive's
             participation in or reduce his rights or benefits under or pursuant
             to any such plan  other than an action or failure to take an action
             on a basis consistent with industry  practices  generally in effect
             prior to such  action or  failure,  or the  Corporation  failing to
             increase or improve  such rights or benefits on a basis  consistent
             with industry practices  generally in effect prior to such failure;
             or

     (iii)   any material  breach by the  Corporation  of any  provision of this
             Agreement; or

     (iv)    the failure by the Corporation to obtain, in a form satisfactory to
             the Executive  acting  reasonably,  an effective  assumption of its
             obligations   hereunder  by  any  successor  to  the   Corporation,
             including a successor to a material portion of its business; or

     (v)     the  Corporation  requiring the Executive to relocate to a place of
             work located greater than 100 kilometres from  Executive's  current
             place of work; and

(f)  "Just Cause" shall mean:

     (i)     gross insubordination;

     (ii)    the continued  failure or refusal by the Executive to substantially
             perform his duties according to the terms of his employment,  after
             the Corporation  has given the Executive  notice of such failure or
             refusal and a reasonable  opportunity  to correct it,  except where
             such acts or omissions by the Executive:

             (A)  follow an event defined herein as "Good Reason"; or

             (B)  result from the Executive's Disability.

     (iii)   dishonesty by the Executive affecting the Corporation;

     (iv)    use by the  Executive  of drugs  or of  alcohol  in a manner  which
             materially affects his ability to perform his employment duties;

     (v)     any  improper  act by the  Executive  that the  Executive  knows or
             should  reasonably  know is  substantially  inconsistent  with  his
             duties as an Executive; or

     (vi)    any  criminal  act of  dishonesty  by the  Executive  resulting  or
             intended to result  directly or  indirectly in personal gain of the
             Executive at the Corporation's expense.

Article II - Duties and Compensation

2.1 The  Executive  shall  serve the  Corporation  and any  subsidiaries  of the
Corporation  in such  capacity or  capacities  and shall perform such duties and
exercise  such  powers  pertaining  to  the  management  and  operation  of  the
Corporation  and any  subsidiaries  of the Corporation as may be determined from
time to time by the board of directors of the  Corporation  consistent  with the
office of the Executive. The Executive shall:

(a)  devote his full time and attention and his  reasonable  best efforts during
     normal business hours to the business and affairs of the Corporation;

(b)  perform  those  duties that may  reasonably  be  assigned to the  Executive
     diligently and faithfully to the best of the  Executive's  abilities and in
     the best interests of the Corporation;

(c)  faithfully observe and abide by all the rules,  regulations and policies of
     the Corporation applicable to the Executive,  (including without limitation
     the Corporation's policies respecting insider trading) from time to time in
     force  which are  brought to the  attention  of the  Executive  or which he
     should reasonably be aware; and

(d)  use his  reasonable  best efforts to promote the  interests and goodwill of
     the Corporation.

2.2  Subject to Article 3 hereof,  the Annual  Salary  payable to the  Executive
shall be  determined  during  the  annual  review  process  by the  direct  line
reporting  executive  and  approved  where  applicable  by the  Chief  Operating
Officer, the President, or the Compensation Committee of the Board of Directors.

2.3 The  Executive  shall also be entitled to receive the  vacation and benefits
set forth on a basis  consistent with the company  practice  generally in effect
for other executives of the corporation  which benefits may be amended from time
to time by the  Corporation  but subject  always to the  provisions of Article 3
hereof.

Article III - Obligations of the Corporation upon Termination

3.1 The Corporation  shall have the following  obligations in the event that the
Executive's employment is terminated:

(a)  Death,   Disability  or  Retirement.   If  the  Executive's  employment  is
     terminated by reason of the  Executive's  death,  Disability or retirement,
     the  Executive  or the  Executive's  family,  as the case may be,  shall be
     entitled to receive benefits in a manner consistent with and at least equal
     in amount to those made available by the  Corporation to senior  executives
     or surviving  families of the senior  executives of the  Corporation  under
     such plans, programs and policies relating to (i) family death benefits, if
     any,  as are in  effect  at the  date  of the  Executive's  death;  or (ii)
     Disability  or  retirement,  if  any,  as are in  effect  at  the  Date  of
     Termination, as the case may be.

(b)  Termination  by the  Corporation  for Just  Cause  and  Termination  by the
     Executive  Other Than for Good Reason.  If the  Executive's  employment  is
     terminated  by the  Corporation  for Just Cause,  or is  terminated  by the
     Executive  other than for Good  Reason,  the  Corporation  shall pay to the
     Executive,  if not theretofore  paid, the fraction of the Annual Salary and
     vacation  pay,  if  any,  earned  by or  payable  to the  Executive  by the
     Corporation  during the then current fiscal year of the Corporation for the
     period to and including the Date of Termination,  and the Corporation shall
     not have any further  obligations to the Executive  under this Agreement or
     otherwise.

(c)  Termination  by the  Corporation  Other Than for Just Cause,  Disability or
     Death and  Termination by the Executive for Good Reason.  Either party must
     give  60  days  written  notice  of such  termination.  If the  Executive's
     employment  is  terminated  by the  Corporation  other than for Just Cause,
     Disability,  retirement or death or is terminated by the Executive for Good
     Reason:

     (i)     the  Corporation  shall pay to or to the order of the Executive the
             aggregate of the following amounts (less any deductions required by
             law):

             (A)  if not theretofore paid, the Executive's Annual Salary for the
                  then current fiscal year of the  Corporation for the period to
                  and including the Date of Termination; and

             (B)  an amount equal to the Annual Salary;

     (ii)    subject to the  provisions  of  Section 9 of the 1995 Stock  Option
             Plan and Section 16 of the 1993 Stock Option Plan, the  Corporation
             shall  ensure  that all  options  to acquire  common  shares of the
             Corporation held by the Executive on the Date of Termination  shall
             continue  to vest and be  exercisable  for the full  period  during
             which  Executive is compensated by the  Corporation as set forth in
             Section 3.2. As of the last day of such period, the executive shall
             have 30 days to exercise all vested  options.  On the 31st day, all
             unexercised options vested or unvested are cancelled.

     (iii)   the Corporation shall not seek in any way to amend the terms of any
             loans from the Corporation or its subsidiaries to the Executive;

     (iv)    the Corporation shall provide the Executive with the job relocation
             counselling  services of the firm acceptable to the Corporation for
             an amount not to exceed $15,000;

     (v)     if, at the Date of  Termination,  there were any memberships in any
             clubs, social or athletic organizations paid for by the Corporation
             that  were  for the  regular  use of the  executive  at the Date of
             Termination,  the Corporation will not take any action to terminate
             such  memberships  but need not  renew  any  such  membership  that
             expires; and

     (vi)    the  Corporation  shall pay to the  Executive all  outstanding  and
             accrued vacation pay to the Date of Termination.

Upon  compliance with clauses (c)(i) through (vi) above,  the Corporation  shall
have no further  obligations to the Executive  under this Agreement or otherwise
and the Executive  agrees that  notwithstanding  any other  provision  contained
herein,  the  Executive  shall not have any right to  commence  any  action  for
wrongful dismissal or termination.

(d)  Change  of  Control.  The  parties  agree  that  this  Agreement  will  not
automatically terminate upon any Change of Control of the Corporation.  However,
the  Corporation  and  the  Executive   acknowledge  and  agree  that  both  the
Corporation  (or its  successor)  and the  Executive  shall  have  the  right to
terminate this  Agreement  within 90 days of the closing of a Change of Control,
on 30 days prior  notice to the other  party  (prior to the expiry of the 90 day
period). If the Executive's employment is so terminated:

     (i)     the  Corporation  shall pay to or to the order of the Executive the
             aggregate of the following amounts (less any deductions required by
             law):

             (A)  if not theretofore paid, the Executive's Annual Salary for the
                  then current fiscal year of the  Corporation for the period to
                  and including the Date of Termination; and

             (B)  an  amount  equal to the  Annual  Salary  (to the  extent  the
                  termination  is by the  Corporation  the portion of the Annual
                  Salary  referred to in Section 1.3 (a)(ii)  shall be deemed to
                  be the targeted incentive compensation);

     (ii)    all  options  held by the  Executive,  whether  then vested or not,
             shall immediately  become exercisable (and shall remain exercisable
             as  set  forth  in  clause   3.1(c)(ii))  in  the  event  that  the
             Executive's employment is terminated by the Corporation (other than
             for Just Cause,  Disability or Death) within one year following the
             completion  of the  transaction  effecting the change of control of
             the Corporation as contemplated by this Section 3.1(d);

     (iii)   the Corporation shall not seek in any way to amend the terms of any
             loans from the Corporation or its subsidiaries to the Executive;

     (iv)    the Corporation shall provide the Executive with the job relocation
             counselling  services of the firm acceptable to the Corporation for
             an amount not to exceed $15,000;

     (v)     if, at the Date of  Termination,  there were any memberships in any
             clubs, social or athletic organizations paid for by the Corporation
             that  were  for the  regular  use of the  Executive  at the Date of
             Termination,  the Corporation will not take any action to terminate
             such  memberships  but need not  renew  any  such  membership  that
             expires; and

      (vi)   the  Corporation  shall pay to the  Executive all  outstanding  and
             accrued vacation pay to the Date of Termination.

Upon  compliance with clauses (d)(i) through (vi) above,  the Corporation  shall
have no further  obligations to the Executive  under this Agreement or otherwise
and the Executive  agrees that  notwithstanding  any other  provision  contained
herein,  the  Executive  shall not have any right to  commence  any  action  for
wrongful dismissal or termination.

3.2 The benefits  payable  under this Article III shall be paid as follows:  (a)
with respect to that portion of the Annual Salary relating to salary and related
benefits of the Executive, at the Corporation's regular pay periods and (b) with
respect to all other  amounts,  on a basis  consistent  with practices in effect
immediately  prior  to  the  Date  of  Termination.  If  the  Executive  secures
employment  after the Date of  Termination  and prior to  receiving  all amounts
owing hereunder,  the Executive shall immediately inform the Corporation and the
Corporation  shall have the right to terminate all health,  life and  disability
benefits being carried by the Corporation for the Executive.

Article IV - Non-Competition, Confidentiality and Inventions and Patents

4.1 The  Executive  shall not while an  Executive of the  Corporation  and for a
period  of  12  months  following  the  Date  of  Termination,  for  any  reason
whatsoever,   anywhere  in  North  America,   directly  or  indirectly,   either
individually  or in  partnership,  or in  conjunction  with any other persons or
corporations  as  principal,  agent,  shareholder,  employee,  advisor,  lender,
guarantor or in any other capacity whatsoever:

(a)  carry on or be engaged in or be connected  with or interested in or receive
     royalties or other  compensation  from a segment of any  business  which is
     directly or indirectly  competitive with the business of the Corporation or
     any of its subsidiaries; or

(b)  contact or solicit any  designated  customers of the  Corporation or any of
     its  subsidiaries  for the purposes of selling to the designated  customers
     any products or services which are the same as or are competitive with, the
     products or services  sold by the  Corporation  or any of its  subsidiaries
     during  the term of this  Agreement.  For the  purpose of this  section,  a
     designated  customer  means any person or entity who was a customer  of the
     Corporation or any of its subsidiaries while the Executive was an Executive
     of the Corporation.

Notwithstanding the foregoing, the Executive may hold up to five per cent of the
issued and  outstanding  securities  of any  publicly  traded  company.  For the
purposes hereof, if a Change of Control occurs and the Executive's employment is
terminated  (whether by the  Corporation or the Executive)  within six months of
the Change of Control,  the  business of the  Corporation  and its  subsidiaries
shall be deemed to be the business immediately prior to the Change of Control.

4.2 The  Executive  shall not while an  Executive of the  Corporation  and for a
period of 12 months thereafter,  directly or indirectly,  employ or retain as an
independent   contractor  any  employee  of  the   Corporation  or  any  of  its
subsidiaries or induce or solicit, or intend to induce, any such person to leave
his/her employment.

4.3 The Executive acknowledges and agrees that:

(a)  in the course of performing his duties and  responsibilities  as an officer
     of the  Corporation,  he has had and will  continue  in the  future to have
     access to and has been and will be  entrusted  with  detailed  confidential
     information  and trade  secrets  (printed or  otherwise)  concerning  past,
     present,  future  and  contemplated  products,  services,   operations  and
     marketing   techniques   and   procedures  of  the   Corporation   and  its
     subsidiaries,  including, without limitation, information relating to past,
     present and prospective clients, customers,  suppliers and employees of the
     Corporation  and  its  subsidiaries  (collectively  "Trade  Secrets"),  the
     disclosure  of any of which to  competitors  of the  Corporation  or to the
     general  public,  or the use of same by the Executive or any  competitor of
     the Corporation or any of its subsidiaries,  would be highly detrimental to
     the interests of the Corporation;

(b)  the Executive,  while an officer and/or employee of the  Corporation,  owes
     fiduciary duties to the Corporation,  including the duty to act in the best
     interests of the Corporation; and

(c)  the right to maintain the  confidentiality of the Trade Secrets,  the right
     to preserve the goodwill of the Corporation and the right to the benefit of
     any  relationships  that  have  developed  between  the  Executive  and the
     customers,  clients  and  suppliers  of the  Corporation  by  virtue of the
     Executive's  employment with the Corporation  constitute proprietary rights
     of the Corporation, which the Corporation is entitled to protect.

In  acknowledgement  of the matters described above, the Executive hereby agrees
that he will  not,  during  the term of this  Agreement  or any time  thereafter
following the  termination of employment for any reason,  directly or indirectly
disclose  to any person or in any way make use of (other than for the benefit of
the Corporation),  in any manner,  any of the Trade Secrets,  provided that such
Trade  Secrets  shall be deemed  not to include  information  that is or becomes
generally  available to the public other than as a result of  disclosure  by the
Executive.

4.4 Any  invention  (whether  patentable  or  otherwise),  improvement,  device,
industrial  design,  copyright,  know-how or other  intellectual  or  industrial
property  developed,  invented,  created or improved by the Executive during the
term of this  Agreement  or prior to the date  hereof  while the  Executive  was
employed  by  the   Corporation  in  respect  of  the   Corporation's   business
(collectively,  the "Intellectual  Property") shall be the exclusive property of
the Corporation.  The Corporation  shall have the exclusive right to file patent
applications and to obtain patents, to register industrial designs and copyright
in the name of the Corporation in connection with the Intellectual Property. The
Executive  shall execute,  from time to time,  upon request by the  Corporation,
assignments  of the  Executive's  rights  in the  Intellectual  Property  to the
Corporation,  shall co-operate with the Corporation in documenting the ownership
of the Intellectual Property by the Corporation, and shall provide all necessary
assistance in the filing and  prosecution  of any  applications  to register the
Intellectual  Property.  The  Executive  hereby  waives his moral  rights to the
Intellectual  Property at common law and under section 14.1 of the Copyright Act
or successor provisions from time to time, which are acknowledged to include the
right  to the  integrity  of the  Intellectual  Property  and the  right,  where
reasonable in the circumstances, to be associated with the Intellectual Property
or an author by name or under a pseudonym and the right to remain anonymous when
any  translation  of  the  Intellectual  Property  is  produced,   performed  or
published.

4.7  The  Executive  acknowledges  that a breach  or  threatened  breach  by the
     Executive  of the  provisions  of any of this  Article 4 will result in the
     Corporation and its  shareholders  suffering  irrevocable harm which is not
     capable  of being  calculated  and  which  cannot  be  fully or  adequately
     compensated  by the recovery of damages alone.  Accordingly,  the Executive
     agrees that the  Corporation  shall be  entitled  to interim and  permanent
     injunctive relief,  specific  performance and other equitable remedies,  in
     addition to any other relief to which the Corporation may be entitled.

4.8  The  provisions of this Article 4 comprise all of  Executive's  obligations
     following any termination of Executive's employment with the Corporation.

Article V- General

5.1  The  Executive  acknowledges  that  he has  had an  opportunity  to  obtain
independent  legal advice before  signing this  Agreement and agrees that either
such  advice has been  obtained  or that he does not wish to seek or obtain such
independent  legal  advice.  The  Executive  acknowledges  that he has read this
Agreement  and  fully  understands  the  nature  and  effect of it and the terms
contained  herein and that the said terms are fair and  reasonable and correctly
set out the Executive's position in the event of termination.

5.2 The Executive  agrees that after  termination of his employment for whatever
reason,  he will  tender his  resignation  from any  position  he may hold as an
officer of the Corporation or as an officer or director of any of its affiliated
or associated companies,  provided that doing so will not reduce the obligations
of the Corporation described herein.

5.3 If any provision of this Agreement is determined to be void or unenforceable
in whole or in part,  it shall not be deemed to affect or impair the validity of
any other  provision  herein and each such  provision  is deemed to be separate,
distinct and severable.

5.4 Any notice  required or permitted to be given under this Agreement  shall be
in writing and shall be properly given if delivered by hand or mailed by prepaid
registered mail addressed as follows:

(a)  in the case of the Corporation, to:

     JetForm Corporation
     560 Rochester Street
     Ottawa, Ontario
     K1S 5K2

     Attention: Chief Executive Officer

(b)  in the case of the Executive, to:

     John Kelly
     c/o JetForm Corporation

or to such other  address as the parties may from time to time specify by notice
given in accordance  herewith.  Any notice so given shall be conclusively deemed
to have been given or made on the day of delivery, if delivered, or if mailed by
registered  mail,  upon the date shown on the postal return  receipt as the date
upon which the  envelope  containing  such notice was  actually  received by the
addressee provided in the event of mail disruption, delivery may only be made by
hand.

5.5  This  Agreement  shall  enure to the  benefit  of and be  binding  upon the
Executive and his heirs,  executors and  administrators and upon the Corporation
and its successors and assigns.

5.6  Nothing  herein  derogates  from any  rights the  Executive  may have under
applicable   law,  and  in  particular   the  parties  agree  that  the  rights,
entitlements  and benefits set out in this Agreement to be paid to the Executive
shall in no  event be less  than the  Executive's  entitlement  pursuant  to the
Employment  Standards Act (Ontario) or any  successor  legislation  from time to
time.  Any payments  made  hereunder  are agreed to be inclusive of all payments
required of the Corporation under the said legislation.

5.7 This  Agreement may be amended only by an  instrument  in writing  signed by
both parties.

5.10 Neither  party may waive or shall be deemed to have waived any right it has
under this Agreement  (including  under this section)  except to the extent that
such waiver is in writing.

5.11 This agreement  amends,  restates and  supercedes the employment  agreement
between the Executive and the Company dated March 23, 1999.

                                    *********

     If you are in agreement  with the foregoing  terms and  conditions,  kindly
execute  below  where  indicated  and  return  one fully  executed  copy of this
Agreement  to  the  attention  of  Vice  President  Human   Resources,   JetForm
Corporation, 560 Rochester Street, Ottawa, Ontario K1S 5K2


                                    Yours very truly,

                                    JETFORM CORPORATION


                                    Per:
                                        -----------------------------------
                                        Authorized Officer

                                    Accepted   and  agreed   this  ____  day  of
                                    ____________, 1999.



                                    ---------------------------------------
                                    TED CAPES