Sample Business Contracts


Employment Agreement - Net2Phone Inc. and Howard Balter

Employment Forms

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                              EMPLOYMENT AGREEMENT


            EMPLOYMENT AGREEMENT, effective as provided below (this
"Agreement"), between Net2Phone, Inc., a Delaware corporation (the "Company")
and Howard Balter (the "Executive").

                              W I T N E S S E T H:

            WHEREAS, the Executive is the Chief Executive Officer and
Vice Chairman of the Board of the Company;

            WHEREAS, the Company wishes to assure itself of the continued
services of the Executive and the Executive is willing to enter into an
agreement to that end, upon the terms and conditions hereinafter set forth.

            NOW, THEREFORE, in consideration of good and valuable consideration
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
covenant and agree as follows:

            1.    EMPLOYMENT

            The Company hereby agrees to employ the Executive, and the Executive
hereby agrees to remain in the employ of the Company, on and subject to the
terms and conditions of this Agreement.

            2.    TERM

            Unless earlier terminated pursuant to Section 5 hereof, the period
of this Agreement and the Executive's employment hereunder (the "Agreement
Term") shall commence as of January 1, 2000 (the "Effective Date"), and shall
expire on the third anniversary of the Effective Date; provided, however, that
the Agreement Term shall be automatically extended for an additional year on the
third anniversary of the Effective Date and on each anniversary of the Effective
Date thereafter (each an "Extension Date"), unless written notice of
non-extension is provided by either party to the other party at least 90 days
prior to such anniversary.

            3.    POSITION, AUTHORITY AND RESPONSIBILITIES

            (a) The Executive shall serve as, and with the titles, offices and
authorities of, Chief Executive Officer and Vice Chairman of the Board of the
Company, and shall report directly to the Board of Directors of the Company (the
"Board").

            (b) The Executive shall have all of the other powers, authority,
duties and responsibilities usually incident to the positions and offices of
Chief Executive
<PAGE>   2
Officer and Vice Chairman of the Board and such duties consistent with such
positions as may be assigned from time to time by the Board.

            (c) The Executive agrees to devote substantially all of his business
time, efforts and skills to the performance of his duties and responsibilities
under this Agreement; provided, however, that nothing in this Agreement shall
preclude the Executive from devoting reasonable periods required for (i) serving
on corporate, civic or charitable boards or committees, (ii) delivering
lectures, fulfilling speaking engagements or teaching at educational
institutions and or (iii) managing his personal investments, provided that in
any such case that such activities do not materially interfere with the
Executive's performance of his duties and responsibilities hereunder and do not
violate the provisions of Section 12 hereof.

            (d) The Executive shall perform his duties at the principal offices
of the Company located in Hackensack, New Jersey, but from time to time the
Executive may be required to travel to other locations in the proper conduct of
his responsibilities under this Agreement.

            4.    COMPENSATION AND BENEFITS

            In consideration of the services rendered by the Executive during
the Agreement Term, the Company shall pay or provide the Executive the amounts
and benefits set forth below.

            (a) Salary. The Company shall pay the Executive an initial annual
base salary (the "Base Salary") of at least $300,000. The Executive's Base
Salary shall be paid in arrears in substantially equal installments at monthly
or more frequent intervals, in accordance with the normal payroll practices of
the Company. The Executive's Base Salary shall be reviewed at least annually by
the Board for consideration of appropriate merit increases and, once
established, the Base Salary shall not be decreased during the Agreement Term.

            (b) Annual Bonus. The Company shall provide the Executive with an
opportunity to earn an annual bonus (the "Annual Bonus") equal to at least 25%
of the Base Salary for each calendar year during the Agreement Term beginning
with the 2000 calendar year pursuant to a bonus plan to be established by the
Company.

            (c) Equity Incentives. Except as provided in this Agreement, the
treatment of options to purchase shares of the Common Stock of the Company
("Common Stock") granted to the Executive prior to the Effective Date under the
Company's stock incentive plans shall be governed by the applicable stock option
agreements. The Executive shall be eligible, from time to time, to receive
awards of stock options or other equity incentives, as determined by the Board.

            (d) Employee Benefits. The Executive shall be entitled to
participate in all employee benefit plans, programs, practices or other
arrangements of the Company in which other senior executives of the Company are
generally eligible to participate from time to time, including, without
limitation, any qualified or non-qualified pension,


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<PAGE>   3
profit sharing and savings plans, any death benefit and disability benefit
plans, and any medical, dental, health and welfare plans, except to the extent
that a separate arrangement is implemented for the Executive on terms no less
favorable than as provided to the other senior executives agreed to by the
Executive that is intended to replace any such general arrangement. Without
limiting the generality of the foregoing, (i) the Company shall continue to
provide the Executive with life insurance coverage with a death benefit that is
not less than the amount as is in effect as of the Effective Date and (ii) the
Company shall provide the executive with disability insurance coverage
consistent with the disability insurance coverage provided to senior executives
of other companies in the same industry as the Company.

            (e) Fringe Benefits and Perquisites. The Executive shall be entitled
to all fringe benefits and perquisites that are generally made available to
senior executives of the Company from time to time on the same basis as is made
available to such other executives. Without limiting the generality of the
foregoing, the Company shall provide the Executive with the following:

                  (i)   executive offices and support staff appropriate
      to the Executive's position;

                  (ii) prompt reimbursement of all reasonable travel and other
      business expenses and disbursements incurred by the Executive in the
      performance of his duties under this Agreement in accordance with the
      Company's normal practices and procedures, including professional
      association dues upon proper accounting therefor;

                  (iii) six weeks paid vacation during each calendar year, to be
      taken in accordance with the Company's vacation policy for senior
      executives;

                  (iv)  an automobile allowance no less favorable than
      the automobile allowance in effect as of the Effective Date; and

                  (v) such other fringe benefits as the Executive and the Board
      may mutually agree from time to time.

            5.    TERMINATION OF EMPLOYMENT

            The Agreement Term and the Executive's employment hereunder shall be
terminated upon the happening of any of the following events:

            (a) Termination for Cause. The Company may terminate the Agreement
Term and the Executive's employment hereunder for Cause. For purposes of this
Agreement, "Cause" shall mean:


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<PAGE>   4
                  (i) conviction of the Executive, by a court of competent
      jurisdiction, of, or Executive's plea of guilty or nolo contendere to, a
      felony under the laws of the United States or any state thereof;

                  (ii)  misappropriation by the Executive of the
      Company's funds; or

                  (iii) the commission by the Executive of an act of proven
      fraud with respect to the Company.

            Notwithstanding the foregoing, in no event shall the Company be
considered to have terminated the Executive's employment for "Cause" unless and
until (i) the Executive receives written notice from the Board identifying in
reasonable detail the acts or omissions constituting such "Cause" and the
provision of this Agreement relied upon by the Company for such termination and
(ii) such acts or omissions are not cured by the Executive within 30 days of the
Executive's receipt of such notice.

            (b) Termination other than for Cause. The Board shall have the right
to terminate the Agreement Term and the Executive's employment hereunder for any
reason at any time, including for any reason that does not constitute Cause,
subject to the consequences of such termination as set forth in this Agreement.

            (c) Resignation for Good Reason. The Executive may voluntarily
terminate the Agreement Term and his employment hereunder for Good Reason. For
purposes of this Agreement, "Good Reason" shall mean:

                  (i) any action by the Company that results in a diminution of
      the Executive's authority or responsibilities;

                  (ii) any adverse modification of the Executive's positions,
      titles or reporting relationships;

                  (iii) any failure by the Company to comply with the
      compensation and benefits provisions of Section 4 hereof or any other
      material breach of this Agreement by the Company;

                  (iv) any notice of non-extension of the Agreement Term given
      by the Company to the Executive as set forth in Section 2 hereof;

                  (v) the relocation, without the Executive's written consent,
      of the Company's principal executive offices from Newark, New Jersey;

                  (vi) any failure by the Company to obtain an assumption of
      this Agreement by a successor corporation as required under Section 13(a)
      hereof; or

                  (vii) the occurrence of a Change in Control; provided,
      however, that in the case of this Section 5(c)(vii), the Executive must
      give notice of his voluntary resignation for Good Reason within one year
      of the Change in Control.


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<PAGE>   5
            For the purposes of this Agreement, "Change in Control" means a
change in ownership or control of the Company effected through any of the
following:

                  (i) any "person," as such term is used in Sections 13(d) and
      14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (other
      than (A) the Company, (B) any trustee or other fiduciary holding
      securities under an employee benefit plan of the Company, (C) any
      corporation or other entity owned, directly or indirectly, by the
      stockholders of the Company in substantially the same proportions as their
      ownership of Common Stock, or (D) any person who, immediately prior to the
      initial public offering of the Company, owned more than 25% of the
      combined voting power of the Company's then outstanding voting
      securities), is or becomes the "beneficial owner" (as defined in Rule
      13d-3 under the Exchange Act), directly or indirectly, of securities of
      the Company representing 25% or more of the combined voting power of the
      Company's then outstanding voting securities;

                  (ii) during any period of not more than two consecutive years,
      not including any period prior to the Effective Date, individuals who at
      the beginning of such period constitute the Board, and any new director
      (other than a director whose initial assumption of office is in connection
      with an actual or threatened election contest, including, but not limited
      to a consent solicitation, relating to the election of directors of the
      Company) whose election by the Board or nomination for election by the
      Company's stockholders was approved by a vote of at least two-thirds (2/3)
      of the directors then still in office who either were directors at the
      beginning of the period or whose election or nomination for election was
      previously so approved, cease for any reason to constitute at least a
      majority thereof;

                  (iii) a merger or consolidation of the Company with any other
      corporation or other entity, other than (A) 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
      or parent entity) 80% or more of the combined voting power of the voting
      securities of the Company or such surviving or parent entity outstanding
      immediately after such merger or consolidation or (B) a merger or
      consolidation effected to implement a recapitalization of the Company (or
      similar transaction) in which no "person" (as defined in the Exchange Act)
      acquired 25% or more of the combined voting power of the Company's then
      outstanding securities; or

                  (iv) a plan of complete liquidation of the Company or an
      agreement for the sale or disposition by the Company of all or
      substantially all of its assets (or any transaction having a similar
      effect).

            In no event shall the Executive be considered to have terminated his
employment for "Good Reason" unless and until (i) the Company receives written
notice from the Executive identifying in reasonable detail the acts or omissions
constituting such


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<PAGE>   6
"Good Reason" and the provision of this Agreement relied upon by the Executive
for such termination, and (ii) such acts or omissions are not cured by the
Company within 30 days of the Company's receipt of such notice.

            (d) Resignation other than for Good Reason. The Executive may
voluntarily terminate the Agreement Term and his employment hereunder at any
time for any reason, including for any reason that does not constitute Good
Reason by giving the Company 30-days advance written notice of such termination.

            (e) Disability. The Company may terminate the Agreement Term and the
Executive's employment hereunder upon the Executive's Disability. For purposes
of this Agreement, "Disability" shall mean the inability of the Executive to
perform his duties to the Company on account of physical or mental illness for a
period of six consecutive full months, or for a period of nine full months
during any 18-month period. The Executive's employment shall terminate in such
case on the last day of the applicable period following written notice by the
Company of the election to terminate the Executive's employment due to the
Executive's Disability. Notwithstanding the foregoing, in no event shall the
Executive be terminated by reason of Disability unless the Executive is eligible
to begin receiving long-term disability benefits from a Company-sponsored
long-term disability plan.

            (f) Death. The Agreement Term and the Executive's employment
hereunder shall terminate upon his death.

            6.    COMPENSATION UPON TERMINATION OF EMPLOYMENT

            Notwithstanding any provision of this Agreement to the contrary, in
the event the Agreement Term and the Executive's employment by the Company is
terminated, the Executive shall be entitled to the compensation and severance
benefits set forth below:

             (a) Resignation for Good Reason; Termination without Cause. In the
 event the Agreement Term and the Executive's employment hereunder is terminated
 by the Executive for Good Reason or by the Company for any reason other than
 for Cause, Disability or death, the Company shall pay to the Executive and
 provide him with the following:

                  (i) Severance Payment. The Company shall pay the Executive,
      within 10 business days of the date of termination, a lump-sum cash amount
      equal to two times the sum of (A) the Executive's then-current Base Salary
      under Section 4(a) hereof and (B) the Executive's then-current Annual
      Bonus percentage under Section 4(b) hereof, multiplied by his then-current
      Base Salary.

                  (ii) Accrued Rights. The Company shall pay the Executive a
      lump-sum cash amount, within 10 days of the date of termination, equal to
      the sum of (A) his earned but unpaid Base Salary through the date of
      termination, (B) any earned but unpaid Annual Bonus for any completed
      calendar year, and (C)


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<PAGE>   7
      any unreimbursed business expenses or other amounts due to the Executive
      from the Company as of the date of termination. In addition, the Company
      shall provide to the Executive all payments, rights and benefits due as of
      the date of termination under the terms of the Company's compensation or
      benefit plans, programs or awards (together with the lump-sum payment, the
      "Accrued Rights").

                  (iii) Bonus Rights. The Company shall pay the Executive,
      within 10 days of the date of termination, a lump-sum cash amount equal to
      a pro rata portion of the Annual Bonus for any partial calendar year of
      service through the date of termination (the "Bonus Rights").

                  (iv) Continued Benefits. Subject to Section 9 hereof, for a
      two-year period following the date of termination, the Company shall
      continue to provide the Executive and his eligible dependents, at its sole
      cost, with the medical, dental, disability and life insurance coverages
      ("Welfare Benefits") that were provided to the Executive immediately prior
      to termination of employment.

                  (v) Stock Options. Notwithstanding the provisions of any stock
      incentive plan or award agreement between the Company and the Executive to
      the contrary, (i) 66-2/3% of the options to purchase Common Stock which
      are not fully vested and exercisable as of the date of termination shall
      become fully vested and exercisable and (ii) the period during which
      options shall remain exercisable shall be extended until the second
      anniversary of the date of termination. All such award agreements shall be
      amended by the Company and the Executive to reflect the foregoing
      provision.

                  (vi) Life and Disability Insurance. The Company shall [fully
      fund] the life insurance and disability policies described in Section 4(d)
      hereof.

                  (vii) Company Loan. Notwithstanding the provisions of Section
      6 of the Loan Agreement, dated as of May 17,1999, between the Executive
      and the Company (the "Loan Agreement"), the Executive shall not be
      required to prepay the entire Principal Amount (as defined in the Loan
      Agreement), together with all unpaid accrued interest and other charges
      properly incurred by the Company thereon (determined in accordance with
      the Loan Agreement) as of the date of termination, and instead shall be
      required to prepay such Principal Amount and all unpaid accrued interest
      other charges properly incurred by the Company thereon (determined in
      accordance with the Loan Agreement) on the first anniversary of the date
      of termination. The Loan Agreement shall be amended by the Company and the
      Executive to reflect the foregoing provision.

                  (viii) Car Allowance. Until the second anniversary of the date
      of termination, the Company shall continue to provide the Executive with
      the automobile allowance described in Section 4(e)(iv) hereof.

            (b) Resignation without Good Reason; Termination for Cause. In the
event the Executive voluntarily terminates the Agreement Term and his employment


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<PAGE>   8
hereunder other than for Good Reason, or in the event the Agreement Term and the
Executive's employment hereunder is terminated by the Company for Cause, the
Company shall pay and provide to the Executive all Accrued Rights and Bonus
Rights and the Executive shall retain any rights that he has pursuant to any
stock option agreement with the Company in accordance with the terms thereof.

            (c) Disability; Death. In the event the Agreement Term and the
Executive's employment hereunder is terminated by reason of the Executive's
Disability or death, the Company shall pay the Executive (or his legal
representative) and provide him with the following:

                  (i) Severance Payment. The Company shall pay the Executive,
      within 10 business days of the date of termination, a lump-sum cash amount
      equal to one times the sum of (A) the Executive's then-current Base Salary
      under Section 4(a) hereof and (B) the Executive's then-current Annual
      Bonus percentage under Section 4(b) hereof, multiplied by his then-current
      Base Salary.

                  (ii) Accrued Rights. The Company shall pay the Executive a
      lump-sum cash amount, within 10 days of the date of termination, equal to
      the Accrued Rights.

                  (iii) Bonus Rights. The Company shall pay the Executive,
      within 10 days of the date of termination, a lump-sum cash amount equal to
      the Bonus Rights.

                  (iv) Continued Benefits. Subject to Section 9 hereof, for a
      one-year period following the date of termination, the Company shall
      continue to provide the Executive and his eligible dependents, at its sole
      cost, with the Welfare Benefits that were provided to the Executive
      immediately prior to termination of employment.

                  (v) Stock Options. Notwithstanding the provisions of any stock
      incentive plan or award agreement between the Company and the Executive to
      the contrary, (i) all options to purchase Common Stock which are not fully
      vested and exercisable as of the date of termination shall become fully
      vested and exercisable and (ii) the period during which such options shall
      be exercisable shall be extended until the first anniversary of the date
      of termination. All such award agreements shall be amended by the Company
      and the Executive to reflect the foregoing provision.

            7.    PARACHUTE TAX INDEMNITY

            (a) If it shall be determined that any amount, right or benefit
paid, distributed or treated as paid or distributed by the Company to or for the
Executive's benefit (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Section 7) (a "Payment")
would be subject to the excise tax imposed


                                       8
<PAGE>   9
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"),
or any interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and penalties,
collectively, the "Excise Tax"), then the Executive shall be entitled to receive
an additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Executive of all federal, state and local taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.

            (b) All determinations required to be made under this Section 7,
including whether and when a Gross-Up Payment is required, the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a nationally recognized accounting firm as shall
be designated jointly by the Executive and the Company (the "Accounting Firm")
which shall be permitted to designate an independent counsel to advise it for
this purpose. The Accounting Firm shall provide detailed supporting calculations
both to the Company and the Executive within 15 business days of the receipt of
notice from the Executive or the Company that there has been a Payment, or such
earlier time as is requested by the Company. All fees and expenses of the
Accounting Firm and its legal counsel shall be paid by the Company. Any Gross-Up
Payment, as determined pursuant to this Section 7, shall be paid by the Company
to the Executive (or to the Internal Revenue Service on Executive's behalf)
within five days of the receipt of the Accounting Firm's determination. All
determinations made by the Accounting Firm shall be binding upon the Company and
the Executive; provided that following any payment of a Gross-Up Payment to
Executive (or to the Internal Revenue Service on Executive's behalf), the
Company may require Executive to sue for a refund of all or any portion of the
Excise Taxes paid on Executive's behalf, in which event the provisions of
paragraph (c) below shall apply. As a result of the uncertainty regarding the
application of Section 4999 of the Code hereunder, it is possible that the
Internal Revenue Service may assert that Excise Taxes are due that were not
included in the Accounting Firm's calculation of the Gross-Up Payments (an
"Underpayment"). In the event that the Company exhausts its remedies pursuant to
this Section 7 and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any additional Gross-Up Payments that are due as a result
thereof shall be promptly paid by the Company to the Executive (or to the
Internal Revenue Service on Executive's behalf).

            (c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later then ten business days after the Executive receives
written notification of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment


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<PAGE>   10
of taxes with respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that it desires to
contest such claim, the Executive shall: (i) give the Company all information
reasonably requested by the Company relating to such claim; (ii) take such
action in connection with contesting such claim as the Company shall reasonably
request in writing from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney reasonably
selected by the Company and ceasing all efforts to contest such claim; (iii)
cooperate with the Company in good faith in order to effectively contest such
claim; and (iv) permit the Company to participate in any proceeding relating to
such claim; provided, however, that the Company shall bear and pay directly all
reasonable costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expense. Without limiting the
foregoing provisions of this Section 7, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine and direct; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis,
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the Executive's
taxable year with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.

            (d) If, after the Executive's receipt of an amount advanced by the
Company pursuant to this Section 7, the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the Executive's receipt of an
amount advanced by the Company pursuant to this Section 7, a determination is
made that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after the
Company's receipt of notice of such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.


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<PAGE>   11
            (e) The provisions of this Section 7 shall survive the expiration of
the Agreement Term with respect to any payments, benefits or other compensatory
rights of the Executive arising during the Agreement Term.

            8.    INDEMNIFICATION

            The Company agrees to provide to the Executive all rights of
indemnification and all director's and officer's insurance coverage to the
fullest extent permitted by law and by its Certificate of Incorporation and
By-laws.

            9.    NO MITIGATION OR OFFSET

            The Executive shall not be required to seek other employment or to
reduce any severance benefit payable to him under Section 6 hereof, and no such
severance benefit shall be reduced on account of any compensation received by
the Executive from other employment; provided, however, to the extent that the
Executive becomes eligible to receive welfare benefits pursuant to employee
benefit plans of a new employer that are comparable to the Welfare Benefits that
the Company is obligated to provide to the Executive pursuant to Section
6(a)(iv), the Company's obligation to provide such Welfare Benefits shall cease.
The Company's obligations to the Executive under this Agreement, including,
without limitation, any obligation to provide severance benefits, shall not be
subject to set-off or counterclaim in respect of any debts or liabilities of the
Executive to the Company.

            10.   TAX WITHHOLDING; METHOD OF PAYMENT

            All compensation payable pursuant to this Agreement shall be subject
to reduction by all applicable withholding, social security and other federal,
state and local taxes and deductions for income, employment, excise and other
taxes. Any lump-sum payments provided for in Section 6 hereof shall be made in a
cash payment, net of any required tax withholding, no later than 10 business
days following the Executive's date of termination. Any payment required to be
made to the Executive under this Agreement that is not made in a timely manner
shall bear interest at an interest rate equal to 120% of the monthly compounded
applicable federal rate as in effect under Section 1274(d) of the Code.

            11.   REGISTRATION RIGHTS

            As of the Effective Date, the Executive shall be granted the
registration rights set forth in Exhibit A to this Agreement.

            12.   RESTRICTIVE COVENANTS

            (a) Confidential Information. During the Agreement Term and at all
times thereafter, the Executive agrees that he will not divulge to anyone (other
than the Company or any persons employed or designated by the Company) any
knowledge or information of a confidential or proprietary nature relating to the
business of the Company or any of its subsidiaries or affiliates, including,
without limitation, all trade


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<PAGE>   12
secrets (unless readily ascertainable from public or published information or
trade sources) and confidential commercial information, and the Executive
further agrees not to disclose, publish or make use of any such knowledge or
information without the consent of the Company.

            (b) Noncompetition. The Executive acknowledges that (i) the Company
is currently engaged in the business of providing high quality, low-cost
telephone calls over the Internet ("Internet Telephony"), (ii) his work for the
company will give him access to trade secrets of and confidential information
concerning the Company, and (iii) the agreements and covenants contained in this
Agreement are essential to protect the business and goodwill of the Company.
Accordingly, the Executive covenants and agrees that during the Restricted
Period (defined below), the Executive shall not, without the prior written
consent of the Company, (1) engage or participate in the business of developing,
managing or operating any Internet Telephony business (a "Competitive Business")
on his own behalf or on behalf of any person or entity, and the Executive shall
not acquire a financial interest in any Competitive Business (except for
publicly traded equity interests that do not exceed five percent (5%) of such
class of equity) or (2) directly or indirectly solicit or encourage any employee
of the Company or any of its affiliates to leave the employment of the Company
or any of its affiliates. For purposes hereof, the "Restricted Period" shall be
the Agreement Term (as may be terminated pursuant to Section 6 hereof) and,
except in the event of a termination described in Section 6(a) hereof, the
12-month period following any termination of the Executive's employment
hereunder.

            (c) Enforcement. The Executive acknowledges and agrees that the
Company will have no adequate remedy at law, and could be irreparably harmed, if
the Executive breaches or threatens to breach any of the provisions of Section
12 of this Agreement. The Executive agrees that the Company shall be entitled to
equitable and/or injunctive relief to prevent any breach or threatened breach of
this Section 12, and to specific performance of each of the terms of this
Section in addition to any other legal or equitable remedies that the Company
may have. The Executive further agrees that he shall not, in any equity
proceeding relating to the enforcement of the terms of this Section 12, raise
the defense that the Company has an adequate remedy at law.

            13.   SUCCESSORS AND ASSIGNS

            (a) This Agreement shall be binding upon and shall inure to the
benefit of the Company, its successors and any person or other entity that
succeeds to all or substantially all of the business, assets or property of the
Company. To the extent not otherwise provided by application of law, the Company
will require any successor (whether direct or indirect, by purchase, merger,
consolidation, transfer or otherwise) to all or substantially all of the
business, assets or property of the Company, to expressly assume and agree to
perform the obligations of the Company under this Agreement in the same manner
and to the same extent that the Company is required to perform hereunder. As
used in this Agreement, the "Company" shall mean the Company as hereinbefore
defined and any successor to its business, assets or property as aforesaid which
executes and delivers an agreement provided for in this Section 13(a) or which


                                       12
<PAGE>   13
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law. Except as provided by the foregoing provisions of this Section
13(a), this Agreement shall not be assignable by the Company without the prior
written consent of the Executive. In the event that this Agreement is assigned
to any person or entity as may be permitted hereunder, the Company shall be
secondarily liable in the event that any such person or entity shall fail to
satisfy its obligations under Section 6, 7 or 8 hereof.

            (b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts are due and
payable to the Executive hereunder, all such amounts, unless otherwise provided
herein, shall be paid to the Executive's designated beneficiary or, if there is
no such designated beneficiary, to the legal representatives of the Executive's
estate. This Agreement is personal in nature and the obligations of the
Executive hereunder are not be assignable to any person.

            14.   ENTIRE AGREEMENT/AMENDMENT

            This Agreement contains the entire understanding of the parties with
respect to the subject matter hereof and, except as specifically provided
herein, cancels and supersedes any and all other agreements between the parties
with respect to the subject matter hereof. Any amendment or modification of this
Agreement shall not be binding unless in writing and signed by the parties
hereto.

            15.   SEVERABILITY/NO WAIVER

            (a) In the event that any provision of this Agreement is determined
to be invalid or unenforceable, the remaining terms and conditions of this
Agreement shall be unaffected and shall remain in full force and effect, and any
such determination of invalidity or unenforceability shall not affect the
validity or enforceability of any other provision of this Agreement.

            (b) The failure of a party to insist upon strict adherence to any
term of this Agreement or any occasion shall not be considered a waiver of such
party's rights or deprive such party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.

            16.   NOTICES

            All notices which may be necessary or proper for either the Company
or the Executive to give to the other shall be in writing and shall be delivered
by hand or sent by registered or certified mail, return receipt requested, or by
air courier, to the Executive at:


                                       13
<PAGE>   14
                          Howard Balter
                          1024 Reads Lane
                          Far Rockaway, New York 11691
with a copy to:

                          Joel I. Krasnow, Esq.
                          Dewey Ballantine LLP
                          1301 Avenue of the Americas
                          New York, New York 10019

; and shall be sent in the manner described above to the Secretary of the
Company at the Company's principal executives offices at:

                          171 Main Street
                          Hackensack, New Jersey  07601

with a copy to:           Glenn J. Williams, Esq.
                          General Counsel


and shall be deemed given when dispatched, provided that any notice required
under Section 5 hereof or notice given pursuant to Section 2 hereof shall be
deemed given only when received. Any party may by like notice to the other party
change the address at which he or they are to receive notices hereunder.

            17.   GOVERNING LAW

            This Agreement shall be governed by and enforceable in accordance
with the laws of the State of New York, without giving effect to the principles
of conflict of laws thereof.

            18.   ARBITRATION

            Except for any action brought under Section 12 which may be brought
by the Company directly in any court of competent jurisdiction, any controversy
or claim arising out of, or related to, this Agreement, or the breach thereof,
shall be settled by binding arbitration in the City of New York, New York in
accordance with the rules then obtaining of the American Arbitration
Association, and the arbitrator's decision shall be binding and final, and
judgment upon the award rendered may be entered in any court having jurisdiction
thereof.

            19.   LEGAL FEES AND EXPENSES

            The Company shall pay the legal fees and expenses incurred by the
Executive in connection with the negotiation of this Agreement. To provide the
Executive with reasonable assurance that the purposes of this Agreement will not
be frustrated by the cost of its enforcement, the Company shall pay and be
solely responsible for any attorneys' fees and expenses and any court or
arbitration costs incurred by the


                                       14
<PAGE>   15
Executive as a result of a claim that the Company has breached or otherwise
failed to perform this Agreement or any provision hereof regardless of which
party, if any, prevails in the contest.

            20.   COUNTERPARTS

            This Agreement may be signed in counterparts, each of which shall be
an original, with the same effect as if the signatures thereto and hereto were
upon the same instrument.

            IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement on January ___, 2000.


                                 EXECUTIVE



                                 /s/ Howard Balter
                                 -------------------------------------------
                                 Howard Balter




                                 NET2PHONE, INC.



                                 By: /s/ Clifford M. Sobel
                                    ----------------------------------
                                    Name:  Clifford M. Sobel
                                           ---------------------------
                                    Title: Chairman of the Board
                                           ---------------------------


                                       15
<PAGE>   16
                                    EXHIBIT A

                               REGISTRATION RIGHTS



            SECTION 1.1 Piggyback Registrations.

            (a) Right to Piggyback Registration. Whenever the Company proposes
to register any of its Common Stock (or securities convertible into or
exchangeable or exercisable for Common Stock) under the Securities Act of 1933,
as amended (the "Securities Act") for its own account or the account of any
stockholder of the Company (other than offerings pursuant to employee benefit
plans, or noncash offerings in connection with a proposed acquisition, exchange
offer, recapitalization or similar transaction) (a "Piggyback Registration"),
the Company will give written notice as promptly as practicable to the Executive
and to all other holders of Common Stock having similar registration rights, of
its intention to effect such a registration and shall include in such
registration all Registrable Shares with respect to which the Company has
received written request for inclusion therein within 15 days after receipt of
the Company's notice. Capitalized terms used but not defined in this Exhibit A
shall have the meanings ascribed to such terms in Section 1.11.

            SECTION 1.2 Registration Procedures. If and whenever the Company is
required to effect or cause the registration of any Registrable Shares under the
Securities Act as provided in this Agreement, the Company shall:

            (a) notify the Executive of any stop order issued or threatened by
the Securities and Exchange Commission ("SEC") and take all reasonable actions
required to prevent the entry of such stop order or to remove it if entered;

            (b) furnish, without charge, to the Executive and each underwriter,
if any, such number of copies of the applicable Registration Statement, each
amendment and supplement thereto (including one signed copy to the Executive and
one signed copy to each managing underwriter and in each case including all
exhibits thereto), and the Prospectus included in such Registration Statement
(including each preliminary prospectus), in conformity with the requirements of
the Securities Act, and such other documents as the Executive may reasonably
request in order to facilitate the disposition of the Registrable Shares
registered thereunder;

            (c) use commercially reasonable efforts to register or qualify such
Registrable Shares covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions within the United States of
America as the selling holders, and the managing underwriter, if any, reasonably
request and do any and all other acts and things which may be reasonably
necessary or advisable to enable the selling holders and each underwriter, if
any, to consummate the disposition in such jurisdictions of the Registrable
Shares registered thereunder; provided, however, that the Company shall not be
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this paragraph (c), (ii)
subject


                                       16
<PAGE>   17
itself to taxation in any such jurisdiction or (iii) consent to general service
of process in any such jurisdiction;

            (d) as promptly as practicable notify the managing underwriter, if
any, the Executive and the other selling holders, if any, at any time when a
Prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event if, as a result of such event, the Prospectus
included in such Registration Statement contains an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and the Company
shall as promptly as practicable prepare and furnish to the selling holders a
supplement or amendment to such Prospectus so that, as thereafter delivered,
such Prospectus shall not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading;

            (e) use commercially reasonable efforts to cause all such securities
being registered to be listed on each securities exchange, market system or
interdealer quotation system on which similar securities issued by the Company
are then listed, and enter into such customary agreements including a listing
application and indemnification agreement in customary form, and to provide a
transfer agent and registrar for such Registrable Shares covered by such
Registration Statement no later than the effective date of such Registration
Statement;

            (f) make available for inspection by the Executive or any holder of
securities covered by such Registration Statement, any underwriter participating
in any distribution pursuant to such Registration Statement, and any attorney,
accountant or other agent retained by such persons (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of the Company and its subsidiaries (collectively, "Records"), as
shall be reasonably necessary to enable them to exercise their due diligence
responsibilities, and cause the Company's and its subsidiaries' officers,
directors and employees to supply all information and respond to all inquiries
reasonably requested by any such Inspector in connection with such Registration
Statement;

            (g) if requested, use commercially reasonable efforts to obtain a
"cold comfort" letter from the Company's auditors in customary form and covering
such matters of the type customarily covered by "cold comfort" letters;

            (h) make available senior management personnel to participate in,
and cause them to cooperate with the underwriters in connection with, "road
show" and other customary marketing activities, including "one-on-one" meetings
with prospective purchasers of the Registrable Shares; and

            (i) otherwise use commercially reasonable efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering a
period of at least 12 months, beginning with the first month after the effective
date of the Registration State-


                                       17
<PAGE>   18
ment (as the term "effective date" is defined in Rule 158(c) under the
Securities Act), which earnings statement shall satisfy the provisions of
Section 1(a) of the Securities Act and Rule 158 thereunder.

            SECTION 1.3 Registration Expenses. The Company shall pay for all
costs and expenses with respect to its compliance with its obligations in
connection with a registration hereunder, including, but not limited to: (i) all
registration and filing fees; (ii) fees and expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable Shares);
(iii) printing expenses; (iv) internal expenses (including without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties); (v) the fees and expenses incurred in connection with the
listing of the Registrable Shares on any national securities exchange, market
system or interdealer quotation system; (vi) the fees and disbursements of
counsel for the Company, and the Company's auditors (including the expenses of
any comfort letters or costs associated with the delivery by the Company's
auditors of a comfort letter or comfort letters); (vii) the fees and
disbursements of legal counsel for the Executive; (viii) the fees and expenses
of any registrar and transfer agent or any depository; (ix) the underwriting
fees, discounts and commissions applicable to any Common Stock sold for the
account of the Company; and (x) the cost of preparing all documentation in
connection therewith.

            SECTION 1.4 Conversion of Other Securities. If the Executive holds
any options, rights, warrants or other securities that are offered with,
convertible into or exercisable or exchangeable for any Registrable Shares, the
Registrable Shares underlying such options, rights, warrants or other securities
shall be eligible for registration pursuant to Section 1.1.

            SECTION 1.5 Rule 144. If and for so long as the Company is subject
to the reporting requirements of the Securities Exchange Act of 1934, as
amended, (the "Exchange Act"), the Company shall take such measures and file
such information, documents and reports as shall be required by the SEC as a
condition to the availability of Rule 144 (or any successor provision) under the
Securities Act.

            SECTION 1.6 Registration Statement Indemnification. (a) The Company
agrees to indemnify and hold harmless the Executive, each Transferee and each
person, if any, who controls any of the foregoing within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act (collectively, the
"Registration Indemnitee") from and against any and all Losses arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or Prospectus, or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such Losses arise out of or are based upon any
untrue statement or omission or alleged untrue statement or omission which has
been made therein or omitted therefrom in reliance upon and in conformity with
information relating to a Registration Indemnitee furnished in writing to the
Company by or on behalf of such Registration Indemnitee expressly for use in the
Registration Statement or Prospectus.


                                       18
<PAGE>   19
            (b) Each Registration Indemnitee agrees, severally and not jointly,
to indemnify and hold harmless the Company, its directors, its officers who sign
any Registration Statement, and any person who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
to the same extent as the indemnity from the Company to each Registration
Indemnitee provided in Section 1.6(a), but only with respect to information
relating to such Registration Indemnitee furnishing in writing to the Company by
or on behalf of such Registration Indemnitee expressly for use in the
Registration Statement or Prospectus. If any Action shall be brought against the
Company, any of its directors, any such officer, or any such controlling person
based on any Registration Statement or Prospectus and in respect of which
indemnity may be sought against a Registration Indemnitee pursuant to this
Section 1.6(b), such Registration Indemnitee shall have the rights and duties
given to the Company by Sections 1.6 through 1.9 (except that if the Company
shall have assumed the defense thereof such Registration Indemnitee shall not be
required to do so, but may employ separate counsel therein and participate in
the defense thereof, but the fees and expenses of such counsel shall be at such
Registration Indemnitee's expense), and the Company, its directors, any such
officer, and any such controlling person shall have the rights and duties given
to the Registration Indemnitee by Sections 1.6 through 1.9.

            SECTION 1.7 Contribution. (a) If the indemnification provided for in
this Exhibit A is unavailable to an indemnified party hereunder with respect to
any Losses referred to herein, then an indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such Losses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and the applicable Registration Indemnitee, on the
other hand, from the offering of the securities covered by such Registration
Statement and Prospectus, or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company, on the one hand, and the applicable
Registration Indemnitee, on the other hand, in connection with the statements or
omissions that result in such Losses, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one hand,
and the applicable Registration Indemnitee, on the other hand, shall be deemed
to be in the same proportion as the total net proceeds from the applicable
securities offering (before deducting expenses) received by the Company bear to
the total net proceeds from such offering (before deducting expenses) received
by such Registration Indemnitee. The relative fault of the Company, on the one
hand, and the applicable Registration Indemnitee, on the other hand, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, on the one hand,
or by such Registration Indemnitee, on the other hand, and the parties relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.

            (b) The Company and each Registration Indemnitee agree that it would
not be just and equitable if contribution pursuant to this Section 1.7 were
determined by pro rata allocation or by any other method of allocation that does
not take


                                       19
<PAGE>   20
account of the equitable considerations referred to in Section 1.7(a). The
amount paid or payable by an indemnified party as a result of the Losses
referred to in Section 1.7(a) shall be deemed to include, subject to the
limitations set forth herein, any legal or other expenses reasonably incurred by
such party in connection with investigating any claim or defending any such
Action. Notwithstanding the provisions of this Section 1.7(b), a Registration
Indemnitee shall not be required to contribute any amount in excess of the
amount by which the proceeds to such Registration Indemnitee exceed the amount
of any damages that such Registration Indemnitee has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation, within the meaning
of Section 1(f) of the Securities Act, shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.

            SECTION 1.8 Procedure. If any Action shall be brought against a
Registration Indemnitee or any other person entitled to indemnification
(collectively with the Registration Indemnitee, the "Indemnitee") in respect of
which indemnity may be sought against the Company, such Indemnitee shall
promptly notify the Company, and the Company shall assume the defense thereof,
including the employment of counsel and payment of all fees and expenses. Such
Indemnitee shall have the right to employ separate counsel in any such action,
suit or proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such person unless (i) the
Company has agreed in writing to pay such fees and expenses, (ii) the Company
has failed to assume the defense and employ counsel, or (iii) the named parties
to an Action (including the impleaded parties) include both an Indemnitee and
the Company and such Indemnitee shall have been advised by its counsel that
representation of such indemnified party and the Company by the same counsel
would be inappropriate under applicable standards of professional conduct
(whether or not such representation by the same counsel has been proposed) due
to actual or potential differing interests between them (in which case the
Company shall not have the right to assume the defense of such Action on behalf
of such Indemnitee). The Company shall not be liable for any settlement of any
such Action affected without its written consent, which shall not be
unreasonably withheld or delayed, but if settled with such written consent, or
if there be a final judgment for the plaintiff in any such Action, the Company
agrees to indemnify and hold harmless each Indemnitee, to the extent provided
herein from and against any Losses by reason of such settlement or judgment.

            SECTION 1.9 Other Matters. (a) No indemnifying party shall without
the prior written consent of the indemnified party effect any settlement of any
pending or threatened Action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such Action, and does not include an admission of fault or culpability on the
part of any Registration Indemnitee.

            (b) Any Losses for which an indemnified party is entitled to
indemnification or contribution hereunder shall be paid by the indemnifying
party to the indemnified party as such Losses are incurred. The indemnity and
contribution


                                       20
<PAGE>   21
agreements contained in this Exhibit A shall remain operative and in full force
and effect regardless of (i) any investigation made by or on behalf of any
Indemnitee, the Company, its directors or officers, or any person controlling
such Indemnitee and (ii) any termination of this Agreement.

            SECTION 1.10 Transfer of Registration Rights. The Executive may
transfer all or any portion of his rights under this Exhibit A to any transferee
(each, a "Transferee") of Registrable Shares. Any transfer of registration
rights pursuant to this Section 1.10 shall be effective upon receipt by the
Company of written notice from the Executive stating the name and address of the
Transferee and identifying the amount of Registrable Shares with respect to
which the rights under this Section 1 are being transferred and the nature of
the rights so transferred. In connection with any such transfer, the term "the
Executive" as used in this Agreement shall, where appropriate to assign each
right and obligation to such Transferee, be deemed to refer to the transferee
holder of such Registrable Shares.

            SECTION 1.11. Definitions. As used in this Exhibit A:

            "Action" means any claim, action, cause of action, suit, proceeding
or investigation, whether civil, criminal, administrative, investigative or
other.

            "Common Stock" means the common stock, par value $0.01 per share, of
the Company.

            "Losses" means costs and expenses (including without limitation
attorneys' fees, interest, penalties and costs of investigation or preparation
for defense), judgments, fines, losses, claims, damages, liabilities, demands,
assessments and amounts paid in settlement.

            "Prospectus" means the prospectus or prospectuses included in any
Registration Statement, as amended or supplemented by any prospectus supplement
and by all other amendments and supplements to such prospectus, including
post-effective amendments and all material incorporated by reference in such
prospectus or prospectuses.

            "Registrable Shares" means any shares of Common Stock held by the
Executive or by any Transferee thereof.

            "Registration Statement" means any registration statement of the
Company filed with the SEC under the Securities Act, including in each such case
the Prospectus relating thereto, amendments and supplements to such Registration
Statement, including post-effective amendments, all exhibits and all materials
incorporated by reference in such Registration Statement and Prospectus.



                                       21

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