Document:

Exhibit 10.42

                               CONSENT TO SUBLEASE
                               -------------------

     THIS CONSENT TO SUBLEASE (this "Agreement") is entered as of November 13th,
2002, by and among Redwood Business Park IV, LLC, successor-in-interest to G &
W/Copley Redwood Business Park, L.P., successor-in-interest to G & W/Redwood
Associates Joint Venture, ("Landlord"), Alcatel USA Sourcing, L.P., a Texas
limited partnership, successor-in-interest to DSC Communications Corporation and
DSC Technologies Corporation ("Tenant"), Spectrum Organic Products, Inc., a
California corporation ("Subtenant"), and Alcatel USA, Inc., a Delaware
corporation ("Guarantor") on the basis of the following facts, understandings
and intentions:

     A. Landlord and Tenant previously entered into that certain lease
("Original Lease") dated September 12, 1994, and as amended by the First
Amendment dated September 12, 1994, the Second Amendment dated January 22, 1995,
the Third Amendment dated October 30, 1995, the Fourth Amendment dated May 15,
1997, that certain Tenant Improvement Allowance Agreement executed by Landlord
as of July 6, 1998 and by Tenant as of July 2, 1998, the Fifth Amendment dated
November 5, 1999 and the "5341 Lease" dated June 28, 2001 , collectively
referred to as the ("Lease"). A copy of the Lease is attached hereto as Exhibit
A.

     B. Pursuant to the Lease, Landlord leases to Tenant the premises
("Premises") commonly known as 5341 Old Redwood Highway, Petaluma, California
and more particularly described in the Lease.

     C. Tenant and Subtenant entered into a sublease ("Sublease") dated October
23rd, 2002, a copy of which is attached hereto as Exhibit B, whereby Tenant
proposes to sublease to Subtenant and Subtenant proposes to sublease from Tenant
a portion of the Premises more particularly described in the Sublease (the
"Sublet Premises").

     D. Guarantor guaranteed the performance and payment of all of Tenant's
obligations under the Lease pursuant to that certain Guaranty dated as of
November 5th, 1999 ("Guaranty").

     E. The terms of the Lease require the written consent of Landlord as a
condition precedent to the Sublease.

     NOW THEREFORE, IN CONSIDERATION of the mutual covenants and promises of the
parties, the parties hereto agree as follows:

     1. Consent. Landlord hereby consents to the Sublease subject to all of the
terms and conditions of this Agreement.

     2. Representations. Tenant hereby represents and warrants to Landlord that:

<PAGE>

          a. Lease. The Lease attached hereto as Exhibit A is a true and correct
     copy of the Lease, and there exist no amendments, modifications or
     extensions of or to the Lease (except as included in the Lease attached
     hereto), and the Lease is now in full force and effect; and

          b. No Offsets. There exist no defenses or offsets to enforcement of
     the Lease by Landlord, and Landlord is not, as of the date of Tenant's
     execution hereof, in default in the performance of the Lease, nor has
     Landlord committed any breach thereof, nor has any event occurred which,
     with the passage of time, or the giving of notice, or both, would
     constitute a default or breach by Landlord.

     3. Subordinate. The Sublease shall be subject and subordinate to the Lease
and all of the Lease's provisions, covenants and conditions. In case of any
conflict between the provisions of the Lease and the provisions of the Sublease,
the provisions of the Lease shall prevail unaffected by the Sublease, however,
to the extent the express terms of the Sublease are inconsistent with the terms
of the Lease, the express terms of the Sublease shall control between Subtenenat
and Tenant only. Subtenant shall comply with the terms and conditions of the
Lease to the extent applicable to the Sublet Premises. Any breach of the Lease
by either Tenant or Subtenant shall entitle Landlord to all the rights and
remedies provided in the Lease in the event of a breach, and any other available
remedy, against both Tenant and Subtenant.

     4. No Ratification. This Agreement shall not operate as an approval of, or
ratification by Landlord of any of the provisions of the Sublease and Landlord
shall not be bound or estopped in any way by the provisions of the Sublease,
regardless of whether any such provisions purport to obligate or otherwise bind
Landlord.

     5. No Waiver. This Agreement shall not be construed to modify, waive or
affect (i) any present or future breach or default on the part of Tenant under
the Lease; (ii) any of the provisions, covenants, or conditions in the Lease;
(iii) any of Tenant's obligations under the Lease; or (iv) any rights or
remedies of Landlord under the Lease or to enlarge or increase Landlord's
obligations or Tenant's rights under the Lease.

     6. Not Assignable. This Agreement is personal to Tenant, Guarantor and
Subtenant and may not be assigned by Tenant, Guarantor or Subtenant. Any
attempted assignment in violation of this section shall be void.

     7. No Release. Neither the Sublease nor this Agreement shall release or
discharge Tenant from any liability under the Lease and Tenant shall remain
liable and responsible for the full performance and observance of all of the
provisions, covenants and conditions set forth in the Lease on the part of
Tenant to be performed and observed. The breach or violation of any provision of
the Lease by Subtenant shall constitute a default by Tenant in fulfilling such
provision. Tenant and Subtenant shall indemnify and hold Landlord harmless from
and against any loss, cost, damage or expense, including attorneys' fees or
costs, which arise by virtue of the Sublease or Subtenant's occupancy of the
Sublet Premises.

     8. No Consent to Future Subletting. This Agreement by Landlord shall not be
construed as a consent by Landlord to any future assignment or subletting either
by Tenant or Subtenant. The Sublease may not be modified, amended, assigned,
renewed or extended, nor shall the Premises, or any part thereof, be further
sublet, without the prior written consent of Landlord in each instance.

                                       2

<PAGE>

     9. Termination. Upon the expiration of the term or earlier termination of
the Lease, or upon the surrender of the Premises by Tenant to Landlord, except
as provided in Section 10 below, the Sublease shall terminate as of the
effective date ("Termination Date") of such expiration, termination or
surrender, and Subtenant shall vacate the Sublet Premises on or before the
Termination Date. Tenant shall surrender the Premises to Landlord at the
expiration or earlier termination of the Lease in the condition required by the
Lease. Subtenant shall cooperate with Tenant in connection with Tenant's
performance of its obligations pursuant to this section.

     10. Landlord's Election. If the Lease expires or terminates during the term
of the Sublease for any reason, or if Tenant shall surrender the Lease to
Landlord, Landlord may elect, in Landlord's sole discretion, by delivering
written notice to Subtenant not later than thirty (30) days after the
Termination Date, to continue the Sublease as a direct lease between Landlord,
as landlord, and Subtenant, as tenant, on the terms and conditions of the
Sublease for either (i) the remaining term of the Sublease, or (ii) such
periodic tenancy as Landlord shall select, provided that in no event shall the
initial period of the periodic tenancy be in excess of the remaining term of the
Sublease. Upon an election by Landlord pursuant to this section, Subtenant shall
attorn to Landlord. If Landlord elects to continue the Sublease, in no event
shall Landlord be (i) liable to Subtenant for any act or omission by Tenant;
(ii) subject to any offsets or defenses which Subtenant had or might have
against Tenant; (iii) bound by any rent or additional rent or any other payment
which Subtenant may have paid to Tenant more than thirty (30) days in advance;
or (iv) bound by any amendment to the Sublease not consented to in writing by
Landlord.

     11. Notices. All notices required to be given hereunder shall be given in
accordance with the Lease. Notices to Landlord shall be given at the following
address:

                           c/o Basin Street Properties
                           1318 Redwood Way
                           Suite 140
                           Petaluma, CA  94954
                           Attn: Property Management

     12. Condition of Sublet Premises. Landlord makes no representations or
warranties, express or implied, concerning the condition of the Sublet Premises
and Subtenant accepts the Sublet Premises in their "as-is" condition as of the
date hereof. Any improvements to the Sublet Premises by Tenant shall be in
accordance with the requirements of the Lease.

     13. Guarantor. Guarantor consents to the Sublease and the terms of this
Agreement and agrees that its obligations under the Guaranty also include the
guaranty of the obligations of Tenant under this Agreement.

                                       3

<PAGE>

     14. Brokerage. In no event shall Landlord be liable for any leasing or
brokerage commission with respect to the negotiation and execution of the
Sublease or this Agreement. Tenant and Subtenant shall indemnify, defend,
protect and hold Landlord harmless from and against all costs, expenses,
attorneys' fees and other liability for commissions or other compensation
claimed by any broker or agent claiming the same by, through or under the
indemnifying party with respect to the Sublease or this Agreement.

     15. Limitation of Liability. In addition to any other limitations of
Landlord's liability contained in the Lease, as amended to date, the liability
of Landlord to either Tenant or Subtenant for any default by Landlord under the
terms of the Lease shall be limited to such party's actual direct, but not
consequential, damages therefor and shall be recoverable only for the interest
of Landlord in the building in which the Sublet Premises are located and neither
Landlord nor any partner, member, principal or affiliate of Landlord shall be
personally liable for any deficiency.

     16. Entire Agreement. There are no oral or side agreements among the
parties affecting this Agreement, and this Agreement contains the entire
agreement of the parties with respect to Landlord's consent to the Sublease.

                         [SIGNATURES ON FOLLOWING PAGE]

                                       4

<PAGE>

     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.

"Landlord"                                  "Tenant"

Redwood Business Park IV, LLC,              Alcatel USA Sourcing, L.P.,
a Delaware limited liability company        a Texas Limited Partnership

By:  /s/  Matt White                        By:  /s/  Nancy H. Greer
   --------------------------                  ----------------------------
Name:     Matt White                        Name:     Nancy H. Greer

Its: Manager of G&W Ventures                Its: Senior Vice President & CFO

                                            By:
                                                 --------------------------
                                            Name:
                                                 --------------------------
                                            Its:
                                                 --------------------------

                                            "Subtenant"

                                            Spectrum Organic Products, Inc.,
                                            a California Corporation

                                            By:  /s/  Robert B. Fowles
                                               ----------------------------
                                            Name:     Robert B. Fowles

                                            Its: Chief Financial Officer

                                            By:
                                                 --------------------------
                                            Name:
                                                 --------------------------
                                            Its:
                                                 --------------------------
                                            "Guarantor"

                                            -----------------------,
                                            a
                                             -------------------

                                            By:
                                                 --------------------------
                                            Name:
                                                 --------------------------
                                            Its:
                                                 --------------------------

                                            By:
                                                 --------------------------
                                            Name:
                                                 --------------------------
                                            Its:
                                                 --------------------------<PAGE>
                                                                    EXHIBIT 10.1

                              EMPLOYMENT AGREEMENT

         This EMPLOYMENT AGREEMENT is made as of January 1, 2003, (this
"Agreement"), between Net2Phone, Inc., a Delaware corporation (the "Company")
and Norman Klugman (the "Executive").

                              W I T N E S S E T H:

         WHEREAS, the Company wishes to assure itself of the services of the
Executive and the Executive and the Company are 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 accept employment with 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 the date hereof, (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 title, office and
authority of, Chief Operating Officer of the Company, and shall report directly
to the Chief Executive Officer.

         (b) The Executive shall have all of the powers, authority, duties and
responsibilities usually incident to the position and office of Chief Operating
Officer and such duties consistent with such position as may be assigned from
time to time by the Chief Executive Officer.

<PAGE>

         (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 (i) serving on corporate, civic or charitable boards
or committees, (ii) delivering lectures, fulfilling charitable 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 10
hereof. Company is aware of certain familial demands placed upon Executive and
agrees and understands that Executive shall be entitled to reasonable
flexibility in the setting of his hours of work in order to accommodate such
demands.

         (d) The Executive shall perform his duties at the principal offices of
the Company located in Newark, 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

         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. Employee is to be considered for future increases in
the salary, bonus and equity incentives described below with due regard for his
position within senior management of the Company and the relationship of such
position to other executive positions.

         (a) Salary. The Company shall pay the Executive an initial annual base
salary (the "Base Salary") of $225,000. 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 Chief
Executive Officer 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 50%
of the Base Salary for each fiscal year during the Agreement Term beginning with
the 2003 fiscal year pursuant to a bonus plan to be established by the Company.
The Annual Bonus, if any, shall be paid to the Executive in the first regular
pay period of the Company that occurs after the first fiscal quarter of the year
that immediately follows the year in which the Annual Bonus was earned,
notwithstanding any expiration of this Agreement as of the last day of such
year.

         (c) Equity Incentives.

                  (i) 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 additional awards of stock options or other equity
         incentives, as determined by the Board.

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<PAGE>

         (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, 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
other senior executives of 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 therefore;

                (iii) Paid vacation during each calendar year, to be taken in an
amount equal to and in accordance with the Company's vacation policy for senior
executives;

                (iv) An automobile allowance consistent with the automobile
allowance policy for the Company's senior executive officers; 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:

                                       3
<PAGE>

         (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:

                (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 Chief Executive Officer
or 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 Chief Executive Officer 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) the relocation, without the Executive's written consent, of the
Executive's principal office from Newark, New Jersey; or

         (v) any failure by the Company to obtain an assumption of this
Agreement by a successor corporation as required under Section 11(a) hereof.

                                       4
<PAGE>

         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 "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 continue to pay the Executive,
his then current Base Salary, in accordance with the Company's general payroll
practice, for the greater of (a) one year (two years in the event the
termination by Executive for Good Reason or by the Company for any reason other
than Cause occurs within 6 months following a Change of Control as hereinafter
defined) following such termination or (b) the remainder of the then current
term of this Agreement. In addition, during such period the Executive shall be
entitled to receive annual payments, at the time and in a manner consistent with
the Company's payment of annual bonuses, of an amount equal to the Executive's
then-current Annual Bonus percentage under Section 4(b) hereof, multiplied by
his then-current Base Salary if and only if such bonus would have been earned
under the plan in place immediately prior to the Executive's termination. 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:

                                       5
<PAGE>

         A. 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
         (W) the Company, (X) any trustee or other fiduciary holding securities
         under an employee benefit plan of the Company, (Y) 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 (Z) any person who, immediately prior to the date
         hereof, owned or controlled, directly or indirectly, more than 50% 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 of the Exchange Act), directly or indirectly, of securities of
         the Company representing 50% or more of the combined voting power of
         the Company's then outstanding voting securities.

         B. during any period of not more than two consecutive years, not
         including any period prior to the date hereof, 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;

                                       6
<PAGE>

         C. a merger or consolidation of the Company with any other corporation
         or other entity, other than (X) 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 (Y) a
         merger or consolidation effected to implement a re-capitalization of
         the Company (or similar transaction) in which no "person" (as defined
         in the Exchange Act) acquired 50% or more of the combined voting power
         of the Company's then outstanding securities; or

         D. 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);or

         E. the Company ceases to be publicly owned, i.e, its shares cease to be
         traded in any public market.

                (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)
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 8 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) 100% 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 all options held by Executive
shall remain exercisable shall be extended until the tenth anniversary dates of
their respective dates of grant. All such award agreements shall be amended by
the Company and the Executive to reflect the foregoing provision.

                                       7
<PAGE>

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

                (vii) 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
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 to the date of termination 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 continue to pay the
Executive, his then current Base Salary, in accordance with the Company's
general payroll practices, for the one-year period following the date of such
termination. In addition, during such one-year period the Executive shall be
entitled to receive one payment, at the time and in a manner consistent with the
Company's payment of annual bonuses, of an amount equal to the Executive's
then-current Annual Bonus percentage under Section 4(b) hereof, multiplied by
his then current Base Salary if and only if such bonus would have been earned
under the plan in place immediately prior to the Executive's termination.

                (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 8 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, (A) 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 (B) the period during which such options shall be exercisable
shall be extended until the tenth anniversary of the dates of their respective
grants. All such award agreements shall be amended by the Company and the
Executive to reflect the foregoing provision.

                                       8
<PAGE>

         7. Indemnification

         The Company agrees to provide to the Executive all rights of
indemnification to the fullest extent permitted by law and by its Certificate of
Incorporation and By-laws. The Company agrees to maintain directors' and
officers' insurance for the benefit of Employee providing coverage identical to
that provided to other executive officers of the Company.

         8. 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 Sections
6(a)(iv) and 6(c)(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.

         9. 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.

                                       9
<PAGE>

         10. 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 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) Non-competition. The Executive acknowledges that (i) the Company is
currently engaged in the business of providing high quality, low-cost telephone
calls over the Internet and related products and services ("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) Non-disparagement. Executive covenants and agrees that Executive
shall not make or publish any written or oral statements or remarks concerning
the Company including, without limitation, remarks which may be disparaging,
deleterious or damaging to the integrity, reputation or good will of the
Company, its management, board members or employees. Except as may be required
by law or authorized in advance by Company, Executive covenants and agrees that
Executive shall not make or publish any written or oral statements or opinions
regarding Company, including its present and former employees, officers and
directors.

                                       10
<PAGE>

         (d) 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 10 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 10, 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 10, raise
the defense that the Company has an adequate remedy at law.

         11. 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 11(a) or which
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
11(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 4, 6 or 7 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.

                                       11
<PAGE>

         12. 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.

         13. 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 on 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.

         14. 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:

                                    Norman Klugman

                                    [Address]

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

                                    Net2Phone, Inc.
                                    520 Broad Street
                                    Newark, NJ  07102

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.

                                       12
<PAGE>

         15. Governing Law

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

         16. Arbitration

         Except for any action brought under Section 10 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 Newark, New Jersey 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.

         17. 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 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.

         18. 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.

                                       13
<PAGE>

IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement
as of the date first written above.

                                    EXECUTIVE

                                                /s/  Norman Klugman
                                                -------------------

                                 NET2PHONE, INC.

                                               By: /s/ Stephen M. Greenberg
                                                   ------------------------
                                               Name:  Stephen M. Greenberg, CEO

                                       14

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