Exhibit 10.5
 
LOCKBOX ESCROW AGREEMENT
 
This Agreement is dated as of the 18th day of December, 2007 among VoIP, Inc., a
Texas corporation (the "Borrower"), the parties identified on Schedule A hereto
(each a “Lender”, and collectively “Lenders”), and Grushko & Mittman, P.C. (the
"Escrow Agent"):
 
WITNESSETH:
 
WHEREAS, Lenders have and are loaning to the Borrower (“Loans”), which are
referred to as the Lockbox Notes, as that terms is defined in the Intercreditor
Agreement dated as of this date (“Intercreditor Agreement”) and are entering
into a a “Loan Agreement” dated as of this date (“Loan Agreement”); and
 
WHEREAS, the parties hereto require the Borrower to repay the Loans with the
proceeds of the Receivables to be received in the Lockbox Account to be
delivered to the Escrow Agent to be held in escrow in the Lockbox Account and
released by the Escrow Agent in accordance with the terms and conditions of this
Agreement and the Loan Agreement; and
 
WHEREAS, the Escrow Agent is willing to serve as escrow agent pursuant to the
terms and conditions of this Agreement and Escrow Agreement;
 
NOW THEREFORE, the parties agree as follows:

ARTICLE I
INTERPRETATION
 
1.1. Definitions. Whenever used in this Agreement, the following terms shall
have the following respective meanings:
 
§ "Agreement" means this Agreement and Loan Agreement and all amendments made
hereto and thereto by written agreement between the parties;
 
§ "Escrowed Payment" shall mean the Receivables as defined below;
 
§ "Receivables" means all rights to the payment of money now owned or hereafter
acquired by Borrower, whether due or to become due and whether or not earned by
performance including, but not limited to, Accounts, chattel paper, instruments,
general intangibles, and all guaranties and security therefor and all contracts
relating thereto and all returned and repossessed goods; provided that the same
arise in connection with the extension of credit provided to Borrower by Lender
pursuant to the Loan Agreement.
 
1.2. Entire Agreement. This Agreement along with the Loan Agreement constitute
the entire agreement between the parties hereto relating to the Receivables and
the Lockbox Accont and supersedes all prior agreements, understandings,
negotiations and discussions, whether oral or written, of the parties. There are
no warranties, representations and other agreements made by the parties in
connection with the subject matter hereof except as specifically set forth in
this Agreement.

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1.3. Extended Meanings. In this Agreement words importing the singular number
include the plural and vice versa; words importing the masculine gender include
the feminine and neuter genders. The word "person" includes an individual, body
corporate, partnership, trustee or trust or unincorporated association,
executor, administrator or legal representative.
 
1.4. Waivers and Amendments. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by all parties, or, in the
case of a waiver, by the party waiving compliance. Except as expressly stated
herein, no delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any right, power or privilege hereunder preclude any
other or future exercise of any other right, power or privilege hereunder.
 
1.5. Headings. The division of this Agreement into articles, sections,
subsections and paragraphs and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation of this
Agreement.
 
1.6. Law Governing this Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles of conflicts of laws. Any action brought by either party against the
other concerning the transactions contemplated by this Agreement shall be
brought only in the state and federal courts located in the state and county of
New York. Both parties and the individuals executing this Agreement and other
agreements on behalf of the Borrower agree to submit to the jurisdiction of such
courts and waive trial by jury. The prevailing party (which shall be the party
which receives an award most closely resembling the remedy or action sought)
shall be entitled to recover from the other party its reasonable attorney's fees
and costs. In the event that any provision of this Agreement or any other
agreement delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
 
1.7. Specific Enforcement, Consent to Jurisdiction. The Borrower and Lender
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injuction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity. Subject to Section
1.6 hereof, each of the Borrower and Lender hereby waives, and agrees not to
assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Nothing in this Section shall affect or limit
any right to serve process in any other manner permitted by law.

ARTICLE II
DELIVERIES TO THE ESCROW AGENT

2.1. Borrower Deliveries.  The Escrowed Payment will be delivered pursuant to
the following wire transfer instructions:

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Citibank, N.A.
1155 6th Avenue
New York, NY 10036, USA
ABA Number: 0210-00089
For Credit to: Grushko & Mittman, P.C., Special Lockbox for VoIP, Inc.
Account Number: ***
 
2.2. Intention to Create Escrow Over Escrowed Payment. The Lender and Borrower
intend that the Escrowed Payment shall be held in escrow by the Escrow Agent
pursuant to this Agreement for their benefit as set forth herein.
 
2.3. Escrow Agent to Deliver Escrowed Payment. The Escrow Agent shall hold and
release the Escrowed Payment only in accordance with the terms and conditions of
this Agreement.
 
ARTICLE III
 
RELEASE OF ESCROWED PAYMENT
 
3.1. Release of Escrow. Subject to the provisions of Section 4.2, the Escrow
Agent shall release the Escrowed Payment as follows:

 
(a)
Upon receipt of the Receiveable they shall be released:

(i) For ninety (90) days from the date of this Agreement the funds in the
Lockbox Account shall be released for the expenses of the Borrower, other than
the Lockbox Notes, solely as directed by the Lenders in their absolute
discretion.

(ii) Commencing ninety one (91) days from the date of this Agreement the funds
in the Lockbox Account shall be released for any expenses of the Borrower,
including repayment of the Lockbox Notes, solely as directed by the Lenders in
their absolute discretion.
 
(b) Notwithstanding the above, upon receipt by the Escrow Agent of joint written
instructions ("Joint Instructions") signed by the Borrower and the Lender, it
shall deliver the Escrowed Payment in accordance with the terms of the Joint
Instructions.
 
(c) Notwithstanding the above, upon receipt by the Escrow Agent of a final and
non-appealable judgment, order, decree or award of a court of competent
jurisdiction (a "Court Order"), the Escrow Agent shall deliver the Escrowed
Payment in accordance with the Court Order. Any Court Order shall be accompanied
by an opinion of counsel for the party presenting the Court Order to the Escrow
Agent (which opinion shall be satisfactory to the Escrow Agent) to the effect
that the court issuing the Court Order has competent jurisdiction and that the
Court Order is final and non-appealable.
 
3.2. Acknowledgement of Borrower and Lender; Disputes. The Borrower and the
Lender acknowledge that the only terms and conditions upon which the Escrowed
Payment are to be released are set forth in Sections 3 and 4 of this Agreement.
The Borrower and the Lender reaffirm their agreement to abide by the terms and
conditions of this Agreement with respect to the release of the Escrowed
Payment. Any dispute with respect to the release of the Escrowed Payment shall
be resolved pursuant to Section 4.2 or by agreement between the Borrower and
Lender.

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ARTICLE IV
CONCERNING THE ESCROW AGENT
 
4.1. Duties and Responsibilities of the Escrow Agent. The Escrow Agent's duties
and responsibilities shall be subject to the following terms and conditions:
 
(a) The Lender and Borrower acknowledge and agree that the Escrow Agent (i)
shall not be responsible for or bound by, and shall not be required to inquire
into whether either the Lender or Borrower is entitled to receipt of the
Escrowed Payment pursuant to, any other agreement or otherwise; (ii) shall be
obligated only for the performance of such duties as are specifically assumed by
the Escrow Agent pursuant to this Agreement; (iii) may rely on and shall be
protected in acting or refraining from acting upon any written notice,
instruction, instrument, statement, request or document furnished to it
hereunder and believed by the Escrow Agent in good faith to be genuine and to
have been signed or presented by the proper person or party, without being
required to determine the authenticity or correctness of any fact stated therein
or the propriety or validity or the service thereof; (iv) may assume that any
person believed by the Escrow Agent in good faith to be authorized to give
notice or make any statement or execute any document in connection with the
provisions hereof is so authorized; (v) shall not be under any duty to give the
property held by Escrow Agent hereunder any greater degree of care than Escrow
Agent gives its own similar property; and (vi) may consult counsel satisfactory
to Escrow Agent, the opinion of such counsel to be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by Escrow Agent hereunder in good faith and in accordance with the opinion of
such counsel.
 
(b) The Lender and Borrower acknowledge that the Escrow Agent is acting solely
as a stakeholder at their request and that the Escrow Agent shall not be liable
for any action taken by Escrow Agent in good faith and believed by Escrow Agent
to be authorized or within the rights or powers conferred upon Escrow Agent by
this Agreement. The Lender and Borrower, jointly and severally, agree to
indemnify and hold harmless the Escrow Agent and any of Escrow Agent's partners,
employees, agents and representatives for any action taken or omitted to be
taken by Escrow Agent or any of them hereunder, including the fees of outside
counsel and other costs and expenses of defending itself against any claim or
liability under this Agreement, except in the case of gross negligence or
willful misconduct on Escrow Agent's part committed in its capacity as Escrow
Agent under this Agreement. The Escrow Agent shall owe a duty only to the Lender
and Borrower under this Agreement and to no other person.
 
(c) The Lender and Borrower jointly and severally agree to reimburse the Escrow
Agent for outside counsel fees, to the extent authorized hereunder and incurred
in connection with the performance of its duties and responsibilities hereunder.
 
(d) The Escrow Agent may at any time resign as Escrow Agent hereunder by giving
five (5) days prior written notice of resignation to the Lender and the Borrower
during which five day period, Escrow Agent is not obligated nor required to take
any action, whatsoever and may refrain from taking any action. Prior to the
effective date of the resignation as specified in such notice, the Lender and
Borrower will issue to the Escrow Agent a Joint Instruction authorizing delivery
of the Escrowed Payment to a substitute Escrow Agent selected by the Lender and
Borrower. If no successor Escrow Agent is named by the Lender and Borrower, the
Escrow Agent may apply to a court of competent jurisdiction in the State of New
York for appointment of a successor Escrow Agent, and to deposit the Escrowed
Payment with the clerk of any such court.
 
(e) The Escrow Agent does not have and will not have any interest in the
Escrowed Payment, but is serving only as escrow agent, having only possession
thereof. The Escrow Agent shall not be liable for any loss resulting from the
making or retention of any investment in accordance with this Escrow Agreement.

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(f) The Lender and Borrower jointly and severally agree to indemnify the Escrow
Agent for outside counsel fees, to the extent authorized hereunder and incurred
in connection with the performance of its duties and responsibilities hereunder.
 
(g) This Agreement sets forth exclusively the duties of the Escrow Agent with
respect to any and all matters pertinent thereto and no implied duties or
obligations shall be read into this Agreement.
 
(h) The Escrow Agent shall be permitted to act as counsel for the Lender in any
dispute as to the disposition of the Escrowed Payment, in any other dispute
between the Lender and Borrower, whether or not the Escrow Agent is then holding
the Escrowed Payment and continues to act as the Escrow Agent hereunder.
 
(i) The provisions of this Section 4.1 shall survive the resignation of the
Escrow Agent or the termination of this Agreement.
 
4.2. Dispute Resolution: Judgments. Resolution of disputes arising under this
Agreement shall be subject to the following terms and conditions:
 
(a) If any dispute shall arise with respect to the delivery, ownership, right of
possession or disposition of the Escrowed Payment, or if the Escrow Agent shall
in good faith be uncertain as to its duties or rights hereunder, the Escrow
Agent shall be authorized, without liability to anyone, to (i) refrain from
taking any action other than to continue to hold the Escrowed Payment pending
receipt of a Joint Instruction from the Lender and Borrower, or (ii) deposit the
Escrowed Payment with any court of competent jurisdiction in the State of New
York, in which event the Escrow Agent shall give written notice thereof to the
Lender and the Borrower and shall thereupon be relieved and discharged from all
further obligations pursuant to this Agreement. The Escrow Agent may, but shall
be under no duty to, institute or defend any legal proceedings which relate to
the Escrowed Payment. The Escrow Agent shall have the right to retain counsel if
it becomes involved in any disagreement, dispute or litigation on account of
this Agreement or otherwise determines that it is necessary to consult counsel.
 
(b) The Escrow Agent is hereby expressly authorized to comply with and obey any
Court Order. In case the Escrow Agent obeys or complies with a Court Order, the
Escrow Agent shall not be liable to the Lender and Borrower or to any other
person, firm, corporation or entity by reason of such compliance.
 
4.3 Payment. The Escrow Agent will be paid $2,500 a month for performing its
services under this Agreement (“Escrow Agent Fee”). The Borrower shall be
reposnsible for payment Escrow Agent Fee. If the Borrower fails to pay the
Escrow Agent Fee, the Lenders agree to pay any pastdue Escrow Agent Fees.

ARTICLE V
GENERAL MATTERS
 
5.1. Term and Termination.
 
(a) This Agreement, which shall inure to the benefit of and shall be binding
upon the respective successors and permitted assigns of Borrower and Lender,
shall become effective on the date hereof and shall continue in full force and
effect until the earliest to occur of (a) 60-months from the date hereof, (b) a
date not less than thirty (30) days after Lender gives notice of such date to
Borrower of termination, (c) the date on which this Agreement shall be
terminated in accordance with the provisions hereof; (d) the Lockbox Debt (as
that term is defined in the Intercreditor Agreement entered into between the
Lenders and the Borrower on or about the date of this Agreement) have been
satisified (the “Termination Date”; such period referred to herein as the
“Term”).

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(b) The termination of this Agreement shall not affect Lender’s rights, or any
of the Obligations (as that term is defined in the Intercreditor Agreement
entered into between the Lenders and the Borrower on or about the date of this
Agreement) having their inception prior to the effective date of such
termination, and the provisions hereof shall continue to be fully operative
until all transactions entered into, rights or interests created or Obligations
have been fully disposed of, concluded or liquidated. The rights granted to
Lender hereunder shall continue in full force and effect, notwithstanding the
termination of this Agreement or the fact that Borrower’s Account may from time
to time be temporarily in a zero or credit position, until all of the
Obligations of Borrower have been paid or performed in full. Accordingly,
Borrower waives any rights which it may have under Section 9-513 of the UCC to
demand the filing of termination statements with respect to the Accounts, and
Lender shall not be required to send such termination statements to Borrower, or
to file them with any filing office, unless and until this Agreement shall have
been terminated in accordance with its terms and all Obligations paid in full in
immediately available funds. All representations, warranties, waivers and
agreements contained herein shall survive termination hereof until all
Obligations are paid or performed in full.
 
5.2. Notices. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be:
 
(a) If to the Borrower, to:

VoIP, Inc.
151 So. Wymore Road, Suite 3000
Altamonte Springs, FL 32714
Attn: Anthony Cataldo, CEO
Fax: (407) 389-3233

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With a copy by telecopier only to:

Sichenzia Ross Friedman Ference LLP
61 Broadway, 32nd Floor
New York, NY 10006
Attn: Marc Ross, Esq. .
Fax: (212) 930-9725
 
(b) If to the Lender, to: the addresses and fax numbers listed on Schedule A
hereto.
 
(c) If to the Escrow Agent, to:
 
Grushko & Mittman, P.C.
551 Fifth Avenue, Suite 1601
New York, New York 10176
Fax: 212-697-3575
 
or to such other address as any of them shall give to the others by notice made
pursuant to this Section 5.2.
 
5.3. Interest. The Escrowed Payment shall not be held in an interest bearing
account nor will interest be payable in connection therewith. In the event the
Escrowed Payment is deposited in an interest bearing account, the Lender shall
be entitled to receive any accrued interest thereon, but only if the Escrow
Agent receives from the Lender the Lender’s United States taxpayer
identification number and other requested information and forms.
 
5.4. Assignment; Binding Agreement. Neither this Agreement nor any right or
obligation hereunder shall be assignable by any party without the prior written
consent of the other parties hereto. This Agreement shall enure to the benefit
of and be binding upon the parties hereto and their respective legal
representatives, successors and assigns.
 
5.5. Invalidity. In the event that any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid,
illegal, or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be in any way impaired thereby,
it being intended that all of the rights and privileges of the parties hereto
shall be enforceable to the fullest extent permitted by law.
 
5.6. Counterparts/Execution. This Agreement may be executed in any number of
counterparts and by different signatories hereto on separate counterparts, each
of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument. This Agreement
may be executed by facsimile transmission and delivered by facsimile
transmission.

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5.7. Agreement. Each of the undersigned states that he has read the foregoing
Funds Escrow Agreement and understands and agrees to it.

 
VOIP, INC.
 
the “Borrower”
     
By:___________________________________

“LENDERS”

________________________________________
ALPHA CAPITAL ANSTALT f/k/a ALPHA CAPITAL AKTIENGESELLSCHAFT
   
________________________________________
_______________________________________
BRIO CAPITAL L.P.
BRISTOL INVESTMENT FUND, LTD.
   
________________________________________
_______________________________________
CENTURION MICROCAP, L.P.
CHESTNUT RIDGE PARTNERS LP
   
________________________________________
_______________________________________
GRUSHKO & MITTMAN, P.C. .
CMS CAPITAL
   
________________________________________
_______________________________________
DOUBLE U MASTER FUND L.P.
ELLIS INTERNATIONAL LTD.
   
________________________________________
_______________________________________
OSHER CAPITAL INC.
PLATINUM LONG TERM GROWTH I INC.
   
_______________________________________
 
WHALEHAVEN CAPITAL FUND LTD.
     
ESCROW AGENT:
     
_______________________________________
 
GRUSHKO & MITTMAN, P.C.
 

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SCHEDULE A TO FUNDS ESCROW AGREEMENT
 
Alpha Capital Anstalt
Iroquois Capital
Pradafant 7
641 Lexington Avenue, 26th Floor
9490 Furstentums
New York, NY 10022
Vaduz, Lichtenstein
***
Fax: ***
   
Osher Capital
Brio Capital, L.P.
5 Sansberry Lane
523 Albermale Road
Spring Valley, NY 10977
Cedarhurst, NY 11516
***
Fax: ***
   
Platinum Long term Growth II, Inc.
Bristol Investment Fund, Ltd.
152 West 57th Street
c/o Bristol Capital Advisers, LLC
New York, NY 10019
10990 Wilshire Boulevard, Suite 1410
***
Los Angeles, California 90024
 
Fax: (310) 696-0334
Whalehaven Capital Fund Limited
Attn: ***
c/o FWS Capital Ltd.
 
3rd Floor, 14 Par-Laville Road
Centurion Microcap, L.P.
Hamilton, Bermuda HM08
3014 Avenue L
***
Brooklyn, NY 11210
 
Fax: ***
     
Chestnut Ridge Partners, L.P.
 
50 Tice Boulevard
 
Woodcliff Lake, NJ 07677
 
Fax: ***
     
CMS Capital
 
9612 Van Nuys Boulevard, Suite 108
 
Panorama City, CA 91402
 
***
     
Double U Master Fund, L.P.
 
c/o Navigator Management, Ltd.
 
Harbor House, Waterfront Drive, P.O Box 972
 
Road Town BVI
 
***
     
Ellis International Ltd.
 
53rd Street Urbanizacion Obarrio
 
Swiss Tower, 16th Floor, Panama
 
Republic of Panama
 
***
     
Grushko & Mittman, P.C.
 
551 Fifth Avenue, Suite 1601
 
New York, New York 10176
 
***
 

 
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