Exhibit 10.2

 

Execution Version

 

PLEDGE AGREEMENT

 

THIS PLEDGE AGREEMENT (this “Pledge Agreement”), dated as of December 12, 2005,
is by and between Transmeridian Exploration Incorporated, a Delaware corporation
(“Pledgor”), The Bank of New York, in its capacity as Collateral Agent for the
benefit of the Trustee referred to below and the holders of the Notes referred
to below (in such capacity, the “Collateral Agent”), and The Bank of New York,
in its capacity as Trustee under the Indenture referred to below (in such
capacity, the “Trustee”).

 

RECITALS

 

WHEREAS, pursuant to that certain Indenture, dated as of the date hereof, by and
among Transmeridian Exploration, Inc., a company organized under the laws of the
British Virgin Islands and a wholly-owned subsidiary of Pledgor (“Issuer”), the
Trustee, Pledgor, as a guarantor, and the other guarantors party thereto (the
“Indenture”), Issuer will issue an aggregate $250 million principal amount of
its Senior Secured Notes due 2010 (the “Notes”); and

 

WHEREAS, pursuant to the terms of the Indenture, the Notes, and the Issuer’s
payment obligations under the Indenture, including obligations to the Trustee,
will be secured, in part, by a full and unconditional guarantee by Pledgor (the
“Guarantee”) and, in turn, the Guarantee will be secured by a pledge of all of
the capital stock held by Pledgor in Issuer and by a pledge of all of the
capital stock directly held by Pledgor in any future subsidiary.

 

NOW, THEREFORE, in consideration of these premises and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:

 

1. Definitions. Unless otherwise defined herein, capitalized terms used herein
shall have the meanings ascribed to such terms in the Indenture, and the
following terms that are defined in the Uniform Commercial Code from time to
time in effect in the State of New York (the “UCC”) are used herein as so
defined: Certificated Security, Control, Entitlement Order, Financial Asset,
Investment Company Security, Securities Account, Security, Security Entitlement,
Securities Intermediary and Uncertificated Security.

 

2. Pledge and Grant of Security Interest. Subject to the terms and conditions of
this Agreement and to secure the performance of the Secured Obligations (as
defined in Section 3 hereof), Pledgor hereby pledges and grants to the
Collateral Agent, for the benefit of the holders of the Notes, a continuing
security interest in any and all right, title and interest of Pledgor in and to
the following, whether now owned or existing or owned, acquired, or arising
hereafter (collectively, the “Pledged Collateral”):

 

(a) Pledged Capital Stock. All of the issued and outstanding Capital Stock
directly owned by Pledgor of each Person set forth on Schedule 2(a) attached
hereto (collectively, together with the Capital Stock and other interests
described in clauses (A) and (B) and in Section 2(b) below, the “Pledged Capital
Stock”), including, but not limited to, the following:

 

(A) all shares, securities, membership interests or other equity interests
representing a dividend on any of the Pledged Capital Stock, or representing a

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distribution or return of capital upon or in respect of the Pledged Capital
Stock, or resulting from a stock split, revision, reclassification or other
exchange therefor, and any subscriptions, warrants, rights or options issued to
the holder of, or otherwise in respect of, the Pledged Capital Stock; and

 

(B) without affecting the obligations of Pledgor under any provision prohibiting
such action hereunder or under the Indenture, in the event of any consolidation
or merger involving the issuer of any Pledged Capital Stock and in which such
issuer is not the surviving entity, all shares of each class of the Capital
Stock of the successor entity formed by or resulting from such consolidation or
merger.

 

(b) Additional Interests. Any and all other Capital Stock or other equity
interests directly owned by Pledgor in any Person now or in the future, whether
or not reflected on Schedule 2(a) and whether or not Schedule 2(a) is amended to
refer to such additional interests.

 

(c) Proceeds. All proceeds and products of the foregoing, however and whenever
acquired and in whatever form, subject to Section 10(e).

 

Without limiting the generality of the foregoing, it is hereby specifically
understood and agreed that Pledgor may from time to time hereafter pledge and
deliver additional shares of Capital Stock or other equity interests to the
Collateral Agent as collateral security for the Secured Obligations. Upon such
pledge and delivery to the Collateral Agent, such additional shares of Capital
Stock or other equity interests shall be deemed to be part of the Pledged
Collateral and shall be subject to the terms of this Pledge Agreement whether or
not Schedule 2(a) is amended to refer to such additional shares or interests.

 

3. Security for Secured Obligations. The security interest created hereby in the
Pledged Collateral of Pledgor constitutes continuing collateral security for all
of the following, whether now existing or hereafter incurred (the “Secured
Obligations”): (a) the Guarantee and (b) all expenses and charges, legal and
otherwise, incurred by the Collateral Agent, the Trustee and/or the holders of
the Notes in enforcing the Guarantee or in realizing on or protecting any
security therefor, including without limitation the security granted hereunder.

 

4. Delivery of the Pledged Collateral; Perfection of Security Interest. Pledgor
hereby agrees that:

 

(a) Delivery of Certificates and Instruments. Pledgor shall deliver as security
to the Collateral Agent, (i) simultaneously with or prior to the execution and
delivery of this Pledge Agreement, all certificates representing the Pledged
Capital Stock owned by Pledgor, together with the delivery of signed, undated
stock transfer forms for the Pledged Capital Stock to the Collateral Agent or
its designee; and (ii) promptly upon the receipt thereof by or on behalf of
Pledgor, all other certificates and instruments constituting Pledged Collateral
owned by Pledgor; provided, notwithstanding the foregoing, that Pledgor shall
deliver all certificates and instruments representing the Capital Stock (as
defined in the Indenture) of TMEI (as defined in the Indenture) to the
Collateral Agent subsequent to the consummation of the Bramex Acquisition (as
defined in the Indenture) in accordance with Section 4.40(b) of the Purchase
Agreement (as defined in the Indenture). Prior to delivery to the Collateral
Agent, all such certificates and instruments constituting Pledged Collateral of
Pledgor shall

 

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be held in trust by Pledgor for the benefit of the Collateral Agent pursuant
hereto. All such certificates shall be delivered in suitable form for transfer
by delivery or shall be accompanied by duly executed instruments of transfer or
assignment in blank, in forms reasonably acceptable to the Collateral Agent.

 

(b) Additional Securities. If Pledgor shall receive by virtue of its being or
having been the owner of any Pledged Collateral, any (i) certificate, including
without limitation, any certificate representing a dividend or distribution in
connection with any increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares of Capital Stock, stock
splits, spin-off or split-off, promissory notes or other instruments;
(ii) option or right, whether as an addition to, substitution for, or an
exchange for, any Pledged Collateral or otherwise; (iii) dividends payable in
Capital Stock; or (iv) distributions of Capital Stock or other equity interests
in connection with a partial or total liquidation, dissolution or reduction of
capital, capital surplus or paid-in surplus, then Pledgor shall receive such
certificate, instrument, option, right or distribution in trust for the benefit
of the Collateral Agent, shall segregate it from Pledgor’s other property and
shall deliver it forthwith to the Collateral Agent in the exact form received
accompanied by duly executed instruments of transfer or assignment in blank, in
forms reasonably acceptable to the Collateral Agent, to be held by the
Collateral Agent as Pledged Collateral and as further collateral security for
the Secured Obligations.

 

(c) Financing Statements; Other Perfection Actions. Pledgor hereby agrees to
prepare and file such financing statements (including continuation statements)
or amendments thereof or supplements thereto or other instruments as are
necessary or appropriate in order to perfect and maintain the security interests
granted hereunder in accordance with the UCC that specifically describes the
Pledged Collateral in such manner as is necessary or advisable. Pledgor shall
also execute and deliver to the Collateral Agent and/or file such agreements,
assignments or instruments (including affidavits, notices, reaffirmations,
amendments and restatements of existing documents and, subject to the terms of
the Indenture, any documents as may be necessary if the law of any jurisdiction
other than New York becomes or is applicable to the Pledged Collateral or any
portion thereof, in each case, including as the Collateral Agent may reasonably
request) and do all such other things as are necessary or appropriate (i) to
assure to the Collateral Agent its security interests hereunder are perfected,
including such financing statements (including continuation statements) or
amendments thereof or supplements thereto or other instruments, including as the
Collateral Agent may from time to time reasonably request in order to perfect
and maintain the security interests granted hereunder in accordance with the UCC
and any other personal property security legislation in the appropriate
jurisdictions, (ii) to consummate the transactions contemplated hereby and
(iii) to otherwise protect and assure the Collateral Agent of its rights and
interests hereunder.

 

(d) With respect to the pledged Capital Stock of the Issuer, Pledgor shall
request and procure the entry on the share register of the Issuer of (i) a
statement that the Capital Stock is charged; (ii) the name of the Collateral
Agent; and (iii) the date on which the aforesaid particulars are entered into
the share register. In addition, the Pledgor shall procure the filing of same
with the Registrar of Corporate Affairs in the British Virgin Islands.

 

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5. Representations and Warranties. Pledgor hereby represents and warrants to the
Collateral Agent for the benefit of the Trustee and the holders of the Notes
that:

 

(a) Authorization of Pledged Capital Stock. The Pledged Capital Stock is duly
authorized and validly issued, is fully paid and nonassessable and is not
subject to the preemptive rights of any Person.

 

(b) Title. Pledgor has good and indefeasible title to the Pledged Collateral and
will at all times be the legal and beneficial owner of such Pledged Collateral
free and clear of any Lien, other than Permitted Liens. There exists no “adverse
claim” within the meaning of Section 8-102 of the UCC with respect to the
Pledged Capital Stock.

 

(c) Exercising of Rights. The exercise by the Collateral Agent of its rights and
remedies hereunder will not violate any law or governmental regulation or any
material contractual restriction binding on or affecting Pledgor or any of its
property.

 

(d) Pledgor’s Authority. No authorization, approval or action by, and no notice
or filing with any Governmental Authority, the issuer of any Pledged Capital
Stock or third party is required either (i) for the pledge made by Pledgor or
for the granting of the security interest by Pledgor pursuant to this Pledge
Agreement or (ii) for the exercise by the Collateral Agent, the Trustee or the
holders of the Notes of their rights and remedies hereunder (except as may be
required by laws affecting the offering and sale of securities).

 

(e) Security Interest/Priority. This Pledge Agreement creates a valid security
interest in favor of the Collateral Agent, for the benefit of the Trustee and
the ratable benefit of the holders of the Notes, in the Pledged Collateral. The
taking of possession by the Collateral Agent of the certificates (if any)
representing the Pledged Capital Stock and the relevant stock transfer forms and
all other certificates and instruments constituting Pledged Collateral will
perfect and establish the first priority of the Collateral Agent’s security
interest in all certificated Pledged Capital Stock and such certificates and
instruments. Upon the filing of UCC financing statements by the Pledgor in the
location of Pledgor’s state of organization, the Collateral Agent shall have a
first priority perfected security interest in all uncertificated Pledged Capital
Stock consisting of partnership or limited liability company interests that do
not constitute a Security pursuant to Section 8-103(c) of the UCC. With respect
to any Pledged Collateral consisting of an Uncertificated Security or a Security
Entitlement or any Pledged Collateral held in a Securities Account, upon
execution and delivery by Pledgor, the Collateral Agent and the applicable
Securities Intermediary or the applicable issuer of the Uncertificated Security
of an agreement granting Control to the Collateral Agent over such Pledged
Collateral, the Collateral Agent shall have a first priority perfected security
interest in such Pledged Collateral. Except as set forth in this Section 5(e),
no action is necessary to perfect the Collateral Agent’s security interest.

 

6. Covenants. Pledgor hereby covenants and agrees with the Collateral Agent that
Pledgor shall:

 

(a) Defense of Title. Warrant and defend title to and ownership of the Pledged
Collateral at its own expense against the claims and demands of all other
parties claiming an interest therein; keep the Pledged Collateral free from all
Liens, other than Permitted Liens; and not sell, exchange, transfer, assign,
lease or otherwise dispose of the Pledged Collateral or any interest therein,
except as permitted under the Indenture.

 

(b) Further Assurances. Subject to the terms of the Indenture, promptly execute
and deliver at its expense all further instruments and documents and take all
further action that may be necessary and desirable or that the Collateral Agent
may request in order to (i)

 

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perfect and protect the security interest created hereby in the Pledged
Collateral (including, without limitation, execution and delivery of one or more
control agreements reasonably acceptable to the Collateral Agent, filing of UCC
financing statements and any and all other actions reasonably necessary to
satisfy the Collateral Agent that the Collateral Agent has obtained a first
priority perfected security interest in all Pledged Collateral); and (ii) enable
the Collateral Agent to exercise and enforce its rights and remedies hereunder
in respect of the Pledged Collateral.

 

(c) Amendments. Not make or consent to any amendment or other modification or
waiver with respect to any of the Pledged Collateral or enter into any agreement
or allow to exist any restriction with respect to any of the Pledged Collateral
other than pursuant hereto or as may be permitted under the Indenture.

 

(d) Compliance with Securities Laws. File all reports and other information now
or hereafter required to be filed by Pledgor with the United States Securities
and Exchange Commission and any other state, federal or foreign agency in
connection with the ownership of the Pledged Collateral.

 

7. Performance of Obligations; Advances by Collateral Agent. On failure of
Pledgor to perform any of the covenants and agreements contained herein, the
Collateral Agent may, at its sole option and in its sole discretion, but shall
not be required to, perform or cause to be performed the same and in so doing
may expend such sums as the Collateral Agent may reasonably deem advisable in
the performance thereof, including, without limitation, the payment of any
insurance premiums, the payment of any taxes, a payment to obtain a release of a
Lien or potential Lien (other than in either case a Permitted Lien),
expenditures made in defending against any adverse claim and all other
expenditures which the Collateral Agent may make for the protection of the
security interest hereof or may be compelled to make by operation of law. All
such sums and amounts so expended shall be repayable by Pledgor promptly upon
timely notice thereof and demand therefor and shall constitute additional
Secured Obligations. No such performance of any covenant or agreement by the
Collateral Agent on behalf of Pledgor, and no such advance or expenditure
therefor, shall relieve Pledgor of any default under the terms of this Pledge
Agreement or the Indenture. The Collateral Agent may make any payment hereby
authorized in accordance with any bill, statement or estimate procured from the
appropriate public office or holder of the claim to be discharged without
inquiry into the accuracy of such bill, statement or estimate or into the
validity of any tax assessment, sale, forfeiture, tax lien, title or claim
except to the extent such payment is being contested in good faith by Pledgor in
appropriate proceedings and against which adequate reserves are being maintained
in accordance with GAAP.

 

Pledgor covenants and agrees to indemnify the Collateral Agent to the same
extent as the Trustee is indemnified under the terms of the Indenture by the
Issuer of the Notes, for any claims, costs, liabilities or expense of any kind
(including the fees and expenses of counsel) arising out of or in connection
with performance of its duties hereunder or with respect to the Escrow
Agreement, and such expenses shall, until paid in full, constitute additional
secured obligations (as defined in the Indenture).

 

8. Events of Default. The occurrence of an event which under the Indenture would
constitute an Event of Default shall be an event of default hereunder (an “Event
of Default”).

 

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9. Remedies.

 

(a) General Remedies. Upon the occurrence of an Event of Default and during the
continuation thereof, the Collateral Agent shall have, in respect of the Pledged
Collateral, in addition to the rights and remedies provided herein and in the
Indenture, the rights and remedies of a secured party under the UCC or any other
applicable law.

 

(b) Sale of Pledged Collateral. Upon the occurrence of an Event of Default and
during the continuation thereof, without limiting the generality of this
Section 9 and without notice, the Collateral Agent may, in its sole discretion,
sell or otherwise dispose of or realize upon the Pledged Collateral, or any part
thereof, in one or more parcels, at public or private sale, at any exchange or
broker’s board or elsewhere, at such price or prices and on such other terms as
the Collateral Agent may deem commercially reasonable, for cash, credit or for
future delivery or otherwise in accordance with applicable law. To the extent
permitted by law, any holder of the Notes may, in such event, bid for the
purchase of such securities. Pledgor agrees that, to the extent notice of sale
shall be required by law and has not been waived by Pledgor, any requirement of
reasonable notice shall be met if notice, specifying the place of any public
sale or the time after which any private sale is to be made, is personally
served on or mailed, postage prepaid, to Pledgor, in accordance with Section 16
at least ten (10) days before the time of such sale. The Collateral Agent shall
not be obligated to make any sale of Pledged Collateral regardless of notice of
sale having been given. The Collateral Agent may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned.

 

(c) Private Sale. Upon the occurrence of an Event of Default and during the
continuation thereof, Pledgor recognizes that the Collateral Agent may deem it
impracticable to effect a public sale of all or any part of the Pledged
Collateral and that the Collateral Agent may, therefore, determine to make one
or more private sales of any such Pledged Collateral to a restricted group of
purchasers who will be obligated to agree, among other things, to acquire such
Pledged Collateral for their own account, for investment and not with a view to
the distribution or resale thereof. Pledgor acknowledges that any such private
sale may be at prices and on terms less favorable to the seller than the prices
and other terms which might have been obtained at a public sale and,
notwithstanding the foregoing, agrees that such private sale shall be deemed to
have been made in a commercially reasonable manner and that the Collateral Agent
shall have no obligation to delay sale of any such Pledged Collateral for the
period of time necessary to permit the issuer of such Pledged Collateral to
register such Pledged Collateral for public sale under the Securities Act of
1933. Pledgor further acknowledges and agrees that any offer to sell such
Pledged Collateral which has been (i) publicly advertised on a bona fide basis
in a newspaper or other publication of general circulation in the financial
community of New York, New York (to the extent that such offer may be advertised
without prior registration under the Securities Act of 1933), or (ii) made
privately in the manner described above, shall be deemed to involve a “public
sale” under the UCC, notwithstanding that such sale may not constitute a “public
offering” under the Securities Act of 1933, and the Collateral Agent or any
holder of the Notes may, in such event, bid for the purchase of such Pledged
Collateral, in each case except to the extent limited or prohibited by
applicable law.

 

(d) Retention of Pledged Collateral. In addition to the rights and remedies
hereunder, upon the occurrence of an Event of Default and during the
continuation thereof, the Collateral Agent may, after providing the notices
required by Sections 9-620 and 9-621 of

 

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the UCC (or any successor sections of the UCC) or otherwise complying with the
notice requirements of applicable law of the relevant jurisdiction, accept or
retain all or any portion of the Pledged Collateral in satisfaction of the
Secured Obligations. Unless and until the Collateral Agent shall have provided
such notices, however, the Collateral Agent shall not be deemed to have retained
any Pledged Collateral in satisfaction of any Secured Obligations for any
reason.

 

(e) Deficiency. In the event that the proceeds of any sale, collection or
realization are insufficient to pay all amounts to which the Collateral Agent,
the Trustee or the holders of the Notes are legally entitled, Pledgor shall be
liable for the deficiency, together with the costs of collection and the
reasonable fees of any attorneys employed by the Collateral Agent to collect
such deficiency. Any surplus remaining after the full payment and satisfaction
of the Secured Obligations shall be returned to Pledgor or to whomsoever a court
of competent jurisdiction shall determine to be entitled thereto.

 

(f) Other Security. To the extent that any of the Secured Obligations are now or
hereafter secured by property other than the Pledged Collateral (including,
without limitation, real and other personal property owned by Pledgor), or by a
guarantee, endorsement or property of any other Person, then the Collateral
Agent shall have the right to proceed against such other property, guarantee or
endorsement upon the occurrence and during the continuation of any Event of
Default, and the Collateral Agent shall have the right, in its sole discretion,
to determine which rights, security, Liens, security interests or remedies the
Collateral Agent shall at any time pursue, relinquish, subordinate, modify or
take with respect thereto, without in any way modifying or affecting any of
them, any of the Collateral Agent’s rights or the Secured Obligations under this
Pledge Agreement or under the Indenture.

 

10. Rights of the Collateral Agent.

 

(a) Power of Attorney. Pledgor hereby designates and appoints the Collateral
Agent, on behalf of the Trustee and the holders of the Notes, and each of its
designees or agents as attorney-in-fact of Pledgor, irrevocably and with power
of substitution, with authority to take any or all of the following actions upon
the occurrence and during the continuation of an Event of Default:

 

(i) to demand, collect, settle, compromise, adjust and give discharges and
releases concerning the Pledged Collateral of Pledgor, all as the Collateral
Agent may reasonably determine in respect of the Pledged Collateral;

 

(ii) to commence and prosecute any actions at any court for the purposes of
collecting any of the Pledged Collateral and enforcing any other right in
respect thereof;

 

(iii) to defend, settle, adjust or compromise any action, suit or proceeding
brought with respect to the Pledged Collateral and, in connection therewith,
give such discharge or release as the Collateral Agent may deem reasonably
appropriate;

 

(iv) to pay or discharge taxes, Liens, security interests, or other encumbrances
levied or placed on or threatened against the Pledged Collateral;

 

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(v) to direct any parties liable for any payment under any of the Pledged
Collateral to make payment of any and all monies due and to become due
thereunder directly to the Collateral Agent or as the Collateral Agent shall
direct;

 

(vi) to receive payment of and receipt for any and all monies, claims, and other
amounts due and to become due at any time in respect of or arising out of any of
the Pledged Collateral;

 

(vii) to sign and endorse any drafts, assignments, proxies, stock powers,
verifications, notices and other documents relating to the Pledged Collateral;

 

(viii) to execute and deliver and/or file all assignments, conveyances,
statements, financing statements, continuation statements, pledge agreements,
affidavits, notices and other agreements, instruments and documents that the
Collateral Agent may determine necessary in order to perfect and maintain the
security interests and Liens granted in this Pledge Agreement and in order to
fully consummate all of the transactions contemplated herein;

 

(ix) to exchange any of the Pledged Collateral or other property upon any
merger, consolidation, reorganization, recapitalization or other readjustment of
the issuer thereof and, in connection therewith, deposit any of the Pledged
Collateral with any committee, depository, transfer agent, registrar or other
designated agency upon such terms as the Collateral Agent may determine;

 

(x) to vote for a shareholder, partner or member resolution, or to sign an
instrument in writing, sanctioning the transfer of any or all of the Pledged
Collateral into the name of the Collateral Agent or into the name of any
transferee to whom the Pledged Collateral or any part thereof may be sold
pursuant to Section 9 hereof; and

 

(xi) to do and perform all such other acts and things as the Collateral Agent
may reasonably deem to be necessary, proper or convenient in connection with the
Pledged Collateral.

 

This power of attorney is a power coupled with an interest and shall be
irrevocable for so long as any of the Secured Obligations (other than contingent
indemnity obligations that survive termination of the Indenture pursuant to the
stated terms thereof) remain outstanding. The Collateral Agent shall be under no
duty to exercise or withhold the exercise of any of the rights, powers,
privileges and options expressly or implicitly granted to the Collateral Agent
in this Pledge Agreement, and shall not be liable for any failure to do so or
any delay in doing so. The Collateral Agent shall not be liable for any act or
omission or for any error of judgment or any mistake of fact or law in its
individual capacity or its capacity as attorney-in-fact except acts or omissions
resulting from its gross negligence or willful misconduct. This power of
attorney is conferred on the Collateral Agent solely to perfect, protect,
preserve and realize upon its security interest in the Pledged Collateral.

 

(b) Assignment by the Collateral Agent. The Collateral Agent may from time to
time assign the Secured Obligations or any portion thereof and/or the Pledged
Collateral or any portion thereof to a successor Collateral Agent, and the
assignee shall be entitled to all of the rights and remedies of the Collateral
Agent under this Pledge Agreement in relation thereto.

 

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(c) The Collateral Agent’s Duty of Care. Other than the exercise of reasonable
care to assure the safe custody of the Pledged Collateral while being held by
the Collateral Agent hereunder, the Collateral Agent shall have no duty or
liability to preserve rights pertaining thereto, it being understood and agreed
that Pledgor shall be responsible for preservation of all rights in the Pledged
Collateral, and the Collateral Agent shall be relieved of all responsibility for
the Pledged Collateral upon surrendering it or tendering the surrender of it to
Pledgor. The Collateral Agent shall be deemed to have exercised reasonable care
in the custody and preservation of the Pledged Collateral in its possession if
such Pledged Collateral is accorded treatment substantially equal to that which
the Collateral Agent accords its own property, which shall be no less than the
treatment employed by a reasonable agent in the industry, it being understood
that the Collateral Agent shall not have responsibility for (i) ascertaining or
taking action with respect to calls, conversions, exchanges, maturities, tenders
or other matters relating to any Pledged Collateral, whether or not the
Collateral Agent has or is deemed to have knowledge of such matters; or
(ii) taking any necessary steps to preserve rights against any parties with
respect to any Pledged Collateral.

 

(d) Voting Rights in Respect of the Pledged Collateral.

 

(i) So long as no Event of Default shall have occurred and be continuing, to the
extent permitted by law, Pledgor may exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral or any part thereof for
any purpose not inconsistent with the terms of this Pledge Agreement or the
Indenture.

 

(ii) Subject to subsection (e) of this Section 10, upon the occurrence and
during the continuance of an Event of Default, all rights of Pledgor to exercise
the voting and other consensual rights which it would otherwise be entitled to
exercise pursuant to paragraph (i) of this subsection (d) shall cease and all
such rights shall thereupon become vested in the Collateral Agent, which shall
then have the sole right to exercise such voting and other consensual rights.

 

(e) Dividend and Distribution Rights in Respect of the Pledged Collateral.

 

(i) So long as no Event of Default shall have occurred and be continuing,
Pledgor may receive and retain any and all dividends (other than dividends
payable in the form of Capital Stock and other dividends constituting Pledged
Collateral which are required to be delivered to the Collateral Agent pursuant
to Section 4 above), distributions or interest paid in respect of the Pledged
Collateral to the extent they are allowed under the Indenture.

 

(ii) Upon the occurrence and during the continuation of an Event of Default:

 

(A) all rights of Pledgor to receive the dividends, distributions and interest
payments which it would otherwise be authorized to receive and retain pursuant
to paragraph (i) of this subsection (e) shall cease and all such rights shall
thereupon be vested in the Collateral Agent which shall then have the sole right
to receive and hold as Pledged Collateral such dividends, distributions and
interest payments; and

 

(B) all dividends, distributions and interest payments which are received by
Pledgor contrary to the provisions of clause (A) of this subsection

 

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(ii) shall be received in trust for the benefit of the Collateral Agent, shall
be segregated from other property or funds of Pledgor, and shall be forthwith
paid over to the Collateral Agent as Pledged Collateral in the exact form
received, to be held by the Collateral Agent as Pledged Collateral and as
further collateral security for the Secured Obligations.

 

(f) Release of Pledged Collateral. The Collateral Agent may release any of the
Pledged Collateral from this Pledge Agreement or may substitute any of the
Pledged Collateral for other Pledged Collateral without altering, varying or
diminishing in any way the force, effect, Lien, pledge or security interest of
this Pledge Agreement as to any Pledged Collateral not expressly released or
substituted, and this Pledge Agreement shall continue as a first priority Lien
on all Pledged Collateral not expressly released or substituted.

 

11. Application of Proceeds. After the exercise of remedies by the Collateral
Agent, the Trustee or the holders of the Notes under Section 6.5 of the
Indenture, any proceeds of the Pledged Collateral, when received by the
Collateral Agent or the holders of the Notes in cash or its equivalent, will be
applied in reduction of the Secured Obligations, and Pledgor irrevocably waives
the right to direct the application of such payments and proceeds and
acknowledges and agrees that the Collateral Agent shall have the continuing and
exclusive right to apply and reapply any and all such proceeds in the Collateral
Agent’s sole discretion, notwithstanding any entry to the contrary upon any of
its books and records.

 

12. Costs of Counsel. If at any time hereafter, whether upon the occurrence of
an Event of Default or not, the Collateral Agent employs counsel to prepare or
consider amendments, waivers or consents with respect to this Pledge Agreement,
or to take action or make a response in or with respect to any legal or arbitral
proceeding relating to this Pledge Agreement or relating to the Pledged
Collateral, or to protect the Pledged Collateral or exercise any rights or
remedies under this Pledge Agreement or with respect to the Pledged Collateral,
then Pledgor agrees to promptly pay the costs and expenses of the Collateral
Agent in accordance with the terms of the Indenture, all of which costs and
expenses shall constitute Secured Obligations hereunder.

 

13. Continuing Agreement.

 

(a) This Pledge Agreement shall be a continuing agreement in every respect and
shall remain in full force and effect so long as any of the Secured Obligations
(other than contingent indemnity obligations that survive termination of the
Indenture pursuant to the stated terms thereof) remain outstanding. Upon such
payment and termination, this Pledge Agreement shall be automatically terminated
and the Collateral Agent shall, upon the request and at the expense of Pledgor,
forthwith release all of the Liens and security interests granted hereunder and
shall deliver all UCC termination statements and/or other documents reasonably
requested by Pledgor evidencing such termination. Notwithstanding the foregoing,
all releases and indemnities provided hereunder shall survive termination of
this Pledge Agreement.

 

(b) This Pledge Agreement shall continue to be effective or be automatically
reinstated, as the case may be, if at any time payment, in whole or in part, of
any of the Secured Obligations is rescinded or must otherwise be restored or
returned by the Collateral Agent, the Trustee or any holder of the Notes as a
preference, fraudulent conveyance or otherwise under any bankruptcy, insolvency
or similar law, all as though such payment had not been made; provided that in
the event payment of all or any part of the Secured

 

10

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Obligations is rescinded or must be restored or returned, all reasonable costs
and expenses (including without limitation any reasonable legal fees and
disbursements) incurred by the Collateral Agent, the Trustee or any holder of
the Notes in defending and enforcing such reinstatement shall be deemed to be
included as a part of the Secured Obligations.

 

14. Amendments; Waivers; Modifications. This Pledge Agreement and the provisions
hereof may be amended, waived, modified, changed, discharged or terminated only
by a written instrument signed by the parties hereto.

 

15. Successors in Interest. This Pledge Agreement shall create a continuing
security interest in the Pledged Collateral and shall be binding upon Pledgor
and its successors and assigns and shall inure, together with the rights and
remedies of the Collateral Agent hereunder, to the benefit of the Collateral
Agent and the holders of the Notes and their respective successors and permitted
assigns; provided, however, that Pledgor may not assign its rights or delegate
its duties hereunder without the prior written consent of the Collateral Agent.

 

16. Notices. Any notice, consent, or other communication required or permitted
to be given under this Pledge Agreement to the Collateral Agent or Pledgor must
be in writing in the English language and delivered in person, by facsimile or
by registered or certified mail, return receipt requested, postage prepaid, as
follows:

 

To Collateral Agent:

   The Bank of New York      101 Barclay Street – 21 West      New York, NY
10286      Fax No.: 212-815-5802 (or 5803)      Attention: Global Structured
Finance

To Pledgor:

   Transmeridian Exploration Incorporated      397 N. Sam Houston Parkway E.,
Suite 300      Houston, Texas 77060      Telephone: 281-999-9091      Fax No.:
281-999-9094      Attention: Chief Financial Officer

with a copy to:

   Akin Gump Strauss Hauer & Feld LLP      1111 Louisiana Street, 44th Floor  
   Houston, Texas 77002-5200      Telephone: 713-220-5800      Fax No.:
713-236-0822      Attention: James L. Rice III

 

Any such notice, consent, or other communication shall be deemed given when
delivered in person, sent by confirmed fax or, if given by mail, five (5) days
after such communication is deposited in the mail, certified or registered with
return receipt requested.

 

17. Counterparts. This Pledge Agreement may be executed in counterparts, each of
which where so executed and delivered shall be an original, but all of which
shall constitute one and the same instrument. It shall not be necessary in
making proof of this Pledge Agreement to produce or account for more than one
such counterpart. Delivery of executed counterparts of this Pledge Agreement by
telecopy shall be effective as an original and shall

 

11

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constitute a representation that an original shall be delivered upon the request
of the Collateral Agent.

 

18. Headings. The headings of the sections and subsections hereof are provided
for convenience only and shall not in any way affect the meaning, construction
or interpretation of any provision of this Pledge Agreement.

 

19. Governing Law. THIS PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES THEREOF (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK
GENERAL OBLIGATIONS LAW).

 

20. Severability. If any provision of this Pledge Agreement is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.

 

21. Entirety. This Pledge Agreement and the Indenture represent the entire
agreement of the parties hereto and thereto, and supersede all prior agreements
and understandings, oral or written, if any, including any correspondence
relating to this Pledge Agreement or the Indenture or the transactions
contemplated herein and therein.

 

22. Rights of Note Holders. All rights of the Collateral Agent hereunder, if not
exercised by the Collateral Agent, may be exercised by the Trustee or (subject
to the terms of Section 6.5 of the Indenture) the holders of the Notes.

 

12

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Each of the parties hereto has caused a counterpart of this Pledge Agreement to
be duly executed and delivered as of the date first above written.

 

PLEDGOR:

TRANSMERIDIAN EXPLORATION

INCORPORATED,

a Delaware corporation

By:

  /s/    BRUCE A. FALKENSTEIN        

Name:

  Bruce A. Falkenstein

Title:

  Vice President Exploration and Geology Accepted and agreed to as of the date
first above
written.

THE BANK OF NEW YORK,

as Collateral Agent

By:

  /s/    LUIS PEREZ        

Name:

  Luis Perez

Title:

  Assistant Vice President

THE BANK OF NEW YORK,

as Trustee

By:

  /s/    LUIS PEREZ        

Name:

  Luis Perez

Title:

  Assistant Vice President

 

S-1

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Schedule 2(a)

 

ISSUER

--------------------------------------------------------------------------------

 

OWNER

--------------------------------------------------------------------------------

 

ISSUER’S
JURISDICTION
OF FORMATION

--------------------------------------------------------------------------------

  % OF
OWNERSHIP
INTEREST

--------------------------------------------------------------------------------

Transmeridian Exploration Inc.

  Transmeridian Exploration Incorporated   British Virgin Islands   100%

TMEI Operating, Inc.

  Transmeridian Exploration Incorporated   Texas   100%