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                                                                  EXHIBIT 10.40



                            METACREATIONS CORPORATION

                              EMPLOYMENT AGREEMENT


         This Employment Agreement (the "Agreement") is made and entered into
effective as of August 24, 1998 (the "Effective Date"), by and between John P.
Leddy (the "Executive") and MetaCreations Corporation, a Delaware corporation
(the "Company").

                                     Recital

         The Company desires to retain the services of Executive, and Executive
desires to be employed by the Company, on the terms and subject to the
conditions set forth in this Agreement;

         NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and in other good and valuable consideration, the parties agree as
follows:

         1. Duties and Scope of Employment. As of the Effective Date, the
Company agrees to employ Executive in the position of Vice President and General
Manger, Professional Products Group. Executive shall report directly to the
Company's Chief Executive Officer (the "CEO"). Executive shall comply with and
be bound by the Company's operating policies, procedures and practices from time
to time in effect during his employment. During the term of Executive's
employment with the Company, Executive shall continue to devote his full time,
skill and attention to his duties and responsibilities, and shall perform them
faithfully, diligently and competently, and Executive shall use his best efforts
to further the business of the Company and its affiliated entities.

         2. Base Compensation. The Company shall pay Executive as compensation
for his services a base salary of $13,334 per month. Such salary shall be paid
periodically on the 15th and last day of each month in accordance with normal
Company payroll practices. The annual compensation specified in this Section,
together with any increases in such compensation as the Board may direct from
time to time, is referred to in this Agreement as "Base Compensation."

         3. At-Will Employment. The Company and Executive acknowledge and agree
that Executive's employment is "at-will", as defined under applicable law and
may be terminated for any reason, with or without cause, or notice. No provision
of this Agreement shall be construed as conferring upon Executive a right to
continue as an employee of the Company. If Executive's employment terminates for
any reason, Executive shall not be entitled to any payments, benefits, damages,
awards or compensation other than as provided by this Agreement, or as may
otherwise be available in accordance with the Company's established employee
plans and policies at the time of termination.



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4.       Bonus.

                  (a) Performance Incentive. Executive shall be eligible for a
performance incentive of up to $15,000 each fiscal quarter if performance goals
for such quarter are achieved. The performance goals shall be determined by the
CEO. Notwithstanding the foregoing, for the first two fiscal quarters of
Executive's employment with the Company, the Executive shall be guaranteed a
$15,000 performance incentive.

                  (b) Signing Bonus. Executive shall receive a signing bonus of
$10,000 payable within fifteen (15) days of the start of Executive's employment
with the Company.

         5. Stock Option. The Company will recommend that the Board of Directors
(the "Board") grant Executive an option to purchase 130,000 shares of the
Company's common stock (the "Option"). The per share exercise price of the
Option shall be the fair market value of the Company's common stock on the date
of such grant, and the Option shall vest and become exercisable as to 25% of the
shares one year after the [date of grant/the date you start your employment with
the Company] and as to 1/36th of the remaining shares at the end of each month
thereafter. The term of the Option shall be ten years subject to earlier
termination upon Executive's termination of employment as provided for in the
stock option agreement. In all other respects, except as otherwise provided in
this Agreement, the Option shall conform to the Company's standard policies with
respect to options and shall be granted pursuant to and governed by, the
Company's stock option plan and standard stock option agreement. The Option
shall be an incentive stock option to the extent possible under the tax laws.

         6. Executive Benefits. Executive shall be eligible to participate in
employee benefit plans maintained by the Company applicable to other key
executives of the Company, including (without limitation) retirement plans,
savings or profit-sharing plans, life, disability, health, accident and other
insurance programs, paid vacations, and similar plans or programs, subject in
each case to the generally applicable terms and conditions of the applicable
plan or program in question and to the sole determination of the Board or any
committee administering such plan or program.

         7. Severance Benefits.

                  (a) Involuntary Termination. If Executive's employment
terminates as a result of an Involuntary Termination and Executive signs a
release of claims in a form satisfactory to the Company, Executive shall be
entitled to receive the following severance benefits:

                      (i) Severance Payments. Severance payments equal to
six (6) months of Executive's Base Compensation for the Company's fiscal year
then in effect. The severance payments to which Executive is entitled pursuant
to this Section 7(a)(i) shall be paid to Executive over a six (6) month period
(or to Executive's estate or beneficiary in the event of Executive's death) in
accordance with the Company's standard payroll practices.






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                      (ii) Medical Benefits. The Company shall pay Executive's
COBRA premiums (the "Company-Paid Coverage"). If Executive's health insurance
coverage included Executive's dependents immediately prior to Executive's
termination, such dependent shall also be covered at Company expense.
Company-Paid Coverage shall continue until the earlier of (a) six (6) months
after the date of termination of Executive's employment or (b) the date
Executive becomes covered under another employer's health insurance plan.

                      (iii) Options. Subject to Sections 9 and 10 below, if
Executive's termination occurs within one (1) year of a Change of Control, then
(i) during the first year of Executive's employment with the Company, fifty
percent (50%) of the unvested portion of any stock option(s) granted to
Executive by the Company shall vest and (ii) after the first year of Executive's
employment with the Company, one hundred percent (100%) of the unvested portion
of any stock option(s) granted to Executive by the Company shall vest. Executive
shall have the right to exercise such additional vested portion of such stock
option(s), in addition to any portion of the option vested and exercisable prior
to the application of this Section.

                  (b) Voluntary Resignation; Termination For Cause. If Executive
voluntarily resigns from the Company (other than as a result of an Involuntary
Termination), or if the Company terminates Executive's employment for Cause,
then Executive shall not be entitled to receive severance or other benefits
pursuant to this Agreement.

                  (c) Disability; Death. If the Company terminates Executive's
employment as a result of Executive's Disability or if Executive's employment
terminates due to the death of Executive, then Executive shall not be entitled
to receive severance or other benefits pursuant to this Agreement. However,
Executive shall remain eligible for those severance and other benefits (if any)
as may then be available under the Company's then existing severance and
benefits plans and policies at the time of death.

         8. Covenants Not to Compete and Not to Solicit.

                  (a) Until Executive has received all Severance Payments as
provided in Section 7, upon the termination of Executive's employment with the
Company for any reason, Executive agrees that he shall not, on his own behalf,
or as owner, manager, advisor, principal, agent, partner, consultant, director,
officer, stockholder or employee of any business entity, or otherwise in any
territory in which the Company is actively engaged in business (1) open or
operate business which is in competition with any business of the Company, (2)
act as an employee, agent, advisor or consultant of any competitor of the
Company, (3) solicit or accept business from any of the Company's competitors,
(4) take any action to or do anything reasonably intended to divert business
from the Company or influence or attempt to influence any existing customers of
the Company to cease doing business with the Company or to alter its business
relationship with the Company, or (5) take any action or do anything reasonably
intended to influence any suppliers of the Company to cease doing business with
the Company or to alter its business relationship with the Company. Executive
further covenants and agrees that he will not for himself or on behalf of any
other person, partnership, firm, association or corporation in any territory




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served by the Company, directly or indirectly solicit or accept business from
any of the Company's existing customers for the purchase or sale of products or
services of a like kind to those sold or provided the Company. The foregoing
covenant shall not be deemed to prohibit Executive from acquiring an investment
not more than one percent (1%) of the capital stock of a competing business,
whose stock is traded on a national securities exchange or through the automated
quotation system of a registered securities association.

                  (b) Until twelve (12) months after termination of Executive's
employment, upon the termination of Executive's employment with the Company for
any reason, Executive agrees that he shall not either directly or indirectly
solicit, induce, attempt to hire, recruit, encourage, take away, hire any
employee of the Company or cause an employee to leave their employment either
for Executive or for any other entity or person.

                  (c) Executive represents that he (i) is familiar with the
foregoing covenants not to compete and not to solicit, and (ii) is fully aware
of his obligations hereunder, including, without limitation, the reasonableness
of the length of time, scope and geographic coverage of these covenants.

         9. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:

                  (a) Cause. "Cause" shall mean (i) any act of personal
dishonesty taken by Executive in connection with his responsibilities as an
Executive and intended to result in substantial personal enrichment of
Executive, (ii) conviction of a felony that is injurious to the Company, (iii) a
willful act by Executive which constitutes gross misconduct and which is
injurious to the Company, and (iv) continued violations by Executive of
Executive's obligations under Section 1 of this Agreement that are demonstrably
willful and deliberate on Executive's part after there has been delivered to
Executive a written demand for performance from the Company which describes the
basis for the Company's belief that Executive has not substantially performed
his duties.

                  (b) Change of Control. "Change of Control" shall mean the
occurrence of any of the following events:

                      (i) The acquisition by any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) (other than the Company or
a person that directly or indirectly controls, is controlled by, or is under
common control with, the Company) of the "beneficial ownership" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the total voting power
represented by the Company's then outstanding voting securities; or

                      (ii) A change in the composition of the Board of Directors
of the Company occurring within a two-year period, as a result of which fewer
than a majority of the directors are Incumbent Directors. "Incumbent Directors"
shall mean directors who either (A) are directors of the Company as of the date
hereof, or (B) are elected, or nominated for election, to the Board of Directors





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of the Company with the affirmative votes of at least a majority of the
Incumbent Directors at the time of such election or nomination (but shall not
include an individual not otherwise an Incumbent Director whose election or
nomination is in connection with an actual or threatened proxy contest relating
to the election of directors to the Company);

                      (iii) A merger or consolidation of the Company with any
other corporation, other than a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the approval by the stockholders of the Company of a plan of
complete liquidation of the Company or of an agreement for the sale or
disposition by the Company of all or substantially all the Company's assets.

                  (c) Disability. "Disability" shall mean that Executive has
been unable to perform his duties under this Agreement, with or without
reasonable accommodation, as the result of his incapacity due to physical or
mental illness, and such inability, at least ninety (90) days after its
commencement, is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to Executive or Executive's legal
representative (such Agreement as to acceptability not to be unreasonably
withheld). Termination resulting from Disability may only be effected after at
least 30 days' written notice by the Company of its intention to terminate
Executive's employment. In the event that Executive resumes the performance of
substantially all of his duties hereunder before the termination of his
employment becomes effective, the notice of intent to terminate shall
automatically be deemed to have been revoked.

                  (d) Exchange Act. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.

                  (e) Involuntary Termination. "Involuntary Termination" shall
mean:

                      (i) the Company's termination of Executive's employment
with the Company not for Cause;

                      (ii) without Executive's express written consent, the
significant reduction of Executive's duties, authority or responsibilities
relative to Executive's duties, authority and responsibilities as in effect
immediately prior to such reduction or the assignment to Executive of such
reduced duties, authority or responsibilities;

                      (iii) without Executive's express written consent, a
reduction by the Company in the Base Compensation of Executive as in effect
immediately prior to such reduction other than a reduction which is part of, and
generally consistent with, a general reduction of officer salaries;

                      (iv) a material reduction by the Company in the kind or
level of Executive benefits to which Executive is entitled immediately prior to
such reduction with the result that Executive's overall



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benefits package is significantly reduced, other than a reduction applicable to
officers of the company generally; or

                      (v) the failure of the Company to obtain the assumption
of this agreement by any successors contemplated in Section 11 below.

         10. Limitation on Payments.

                  (a) In the event that the severance and other benefits
provided for in this Agreement or otherwise payable to Executive (i) constitute
"parachute payments" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code") and (ii) but for this Section would be
subject to the excise tax imposed by Section 4999 of the Code, then Executive's
severance benefits under Section 7 shall be payable either (i) in full, or (ii)
as to such lesser amount which would result in no portion of such severance
benefits being subject to excise tax under Section 4999 of the Code, whichever
of the foregoing amounts, taking into account the applicable federal, state and
local income taxes and the excise tax imposed by Section 4999, results in the
receipt by Executive on an after-tax basis, of the greatest amount of severance
benefits under this Agreement, notwithstanding that all or some portion of such
severance benefits may be taxable under Section 4999 of the Code.

                  (b) If a reduction in the payments and benefits that would
otherwise be paid or provided to Executive under the terms of this Agreement is
necessary to comply with the provisions of Section 10(a), Executive shall be
entitled to select which payments or benefits will be reduced and the manner and
method of any such reduction of such payments or benefits (including but not
limited to the number of options that would vest under Sections 7(a)(iii)
subject to reasonable limitations (including, for example, express provisions
under the Company's benefit plans) (so long as the requirements of Section 10(a)
are met). Within thirty (30) days after the amount of any required reduction in
payments and benefits is finally determined in accordance with the provisions of
Section 10(c), Executive shall notify the Company in writing regarding which
payments or benefits are to be reduced. If no notification is given by
Executive, the Company will determine which amounts to reduce. If, as a result
of any reduction required by Section 10(a), amounts previously paid to Executive
exceed the amount to which Executive is entitled, Executive will promptly return
the excess amount to the Company.

                  (c) Unless the Company and Executive otherwise agree in
writing, any determination required under this Section shall be made in writing
by the Company's independent public accountants (the "Accountants"), whose
determination shall be conclusive and binding upon Executive and the Company for
all purposes. For purposes of making the calculations required by this Section,
the Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999 of the Code. The Company
and Executive shall furnish to the Accountants such information and documents as
the Accountants may reasonably request in order to make a determination under
this Section. The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section.

11. Successors.





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                  (a) Company's Successors. Any successor to the Company
(whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and assets shall assume the obligations under this Agreement
and agree expressly to perform the obligations under this Agreement in the same
manner and to the same extent as the Company would be required to perform such
obligations in the absence of a succession. For all purposes under this
Agreement, the term "Company" shall include any successor to the Company's
business and assets which executes and delivers the assumption agreement
described in this Section or which becomes bound by the terms of this Agreement
by operation of law.

                  (b) Executive's Successors. Without the written consent of the
Company, Executive shall not assign or transfer this Agreement or any right or
obligation under this Agreement to any other person or entity. Notwithstanding
the foregoing, the terms of this Agreement and all rights of Executive hereunder
shall inure to the benefit of, and be enforceable by, Executive's personal or
legal representatives, executors, administrators, successors, heirs, devisees
and legatees.

         12. Notice.

                  (a) General. Notices and all other communications contemplated
by this Agreement shall be in writing and shall be deemed to have been duly
given when personally delivered or the third day after it is mailed by U.S.
registered or certified mail, return receipt requested and postage prepaid. In
the case of Executive, mailed notices shall be addressed to him at the home
address which he most recently communicated to the Company in writing. In the
case of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its CEO.

                  (b) Notice of Termination. Any termination by the Company for
Cause or by Executive as a result of an Involuntary Termination shall be
communicated by a notice of termination to the other party hereto given in
accordance with Section 12(a) of this Agreement. Such notice shall indicate the
specific termination provision in this Agreement relied upon, shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination under the provision so indicated, and shall specify the termination
date (which shall be not more than 15 days after the giving of such notice). The
failure by Executive to include in the notice any fact or circumstance which
contributes to a showing of Involuntary Termination shall not waive any right of
Executive hereunder or preclude Executive from asserting such fact or
circumstance in enforcing his rights hereunder.

         13. Arbitration.

                  (a) The Company and Executive agree that any dispute or
controversy arising out of, relating to, or in connection with this Agreement,
the interpretation, validity, construction, performance, breach, or termination
hereof, or any of the matters herein shall be settled by binding arbitration to
be held in Santa Barbara County, California in accordance with the National
Rules for the Resolution of Employment Disputes then in effect of the American
Arbitration Association (the "Rules"). The arbitrator may grant injunctions or
other relief in such dispute or controversy. The decision of the



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arbitrator shall be final, conclusive and binding on the parties to the
arbitration. Judgment may be entered on the arbitrator's decision in any court
having jurisdiction.

                  (b) The arbitrator(s) shall apply California law to the merits
of any dispute or claim, without reference to conflicts of law rules. Executive
hereby consents to the personal jurisdiction of the state and federal courts
located in California for any action or proceeding arising from or relating to
this Agreement or relating to any arbitration in which the Parties are
participants.

                  (c) The Company and Executive shall each pay one-half of the
costs and expenses of such arbitration, and each shall separately pay its
counsel fees and expenses, unless otherwise required by law.

                  (d) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH
DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT,
EXECUTIVE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN
CONNECTION WITH THIS AGREEMENT, THE INTERPRETATION, VALIDITY, CONSTRUCTION,
PERFORMANCE, BREACH OR TERMINATION THEREOF, OR ANY OF THE MATTERS HEREIN TO
BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF
EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES
RELATING TO ALL ASPECTS OF THIS SEVERANCE AGREEMENT AND RELEASE OF ALL CLAIMS.

         14. Miscellaneous Provisions.

                  (a) Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by Executive and by an authorized officer of the Company
(other than Executive). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.

                  (b) Whole Agreement. Except for Executive's stock option
agreements and Employee Invention, Copyright and Secrecy Agreement, no
agreements, representations or understandings (whether oral or written and
whether express or implied) which are not expressly set forth in this Agreement
have been made or entered into by either party with respect to the subject
matter hereof.

                  (c) Choice of Law. The validity, interpretation, construction
and performance of this Agreement shall be governed by and construed in
accordance with the substantive laws, but not the choice of law rules, of the
State of California.

                  (d) Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.




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                  (e) No Assignment of Benefits. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this Section 14(e) shall be
void.

                  (f) Employment Taxes. All payments made pursuant to this
Agreement will be subject to withholding of applicable income and employment
taxes.

                  (g) Assignment by Company. The Company may assign its rights
under this Agreement to an affiliate, and an affiliate may assign its rights
under this Agreement to another affiliate of the Company or to the Company;
provided, however, that no assignment shall be made if the net worth of the
assignee is less than the net worth of the Company at the time of assignment. In
the case of any such assignment, the term "Company" when used in a section of
this Agreement shall mean the corporation that actually employs Executive.

                  (h) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.

         IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and year
first above written.



COMPANY:                                  METACREATIONS CORPORATION


                                          Gary Lauer
                                          -------------------------------------
                                          By


                                          Chief Executive Officer
                                          -------------------------------------
                                          Title



EXECUTIVE:                                JOHN P. LEDDY


                                          /s/John P. Leddy
                                          -------------------------------------
                                          Signature


                                          John P. Leddy   
                                          -------------------------------------
                                          Printed Name








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