Omagine

Dear Omagine Investors,

Omagine, Inc. has today filed its quarterly report with the SEC on Form 10-Q for the period ended September 30, 2014 (the “Report”).

Below are certain excerpts from the Report. The excerpts do not purport to be or represent the full filing. Please use the following link to view the complete text of the Report:

http://www.sec.gov/Archives/edgar/data/820600/000101376214001369/f10q0914_omagine.htm

Excerpts from theReport

On behalf of the Government, the Minister of Tourism of Oman signed the Development Agreement with LLC on October 2, 2014 (the “Execution Date”). The DA must now be ratified by the Ministry of Finance which process we have been informed by MOT is presently underway. The term of the Development Agreement (the “DA Term”) is for twenty (20) years from the date of such ratification by MOF (the “Effective Date”). Various time periods for execution of project tasks called for in the DA are measured sometimes from the Effective Date and sometimes from the Execution Date. The five year time period, as such time period may be extended in accordance with the terms of the DA, within which LLC is required to substantially complete the construction of the seven Pearl buildings and one hotel (the “Minimum Build Obligation” or “MBO”) is measured from the Effective Date. (See Exhibits 10.24 and 10.25).

The contracts between the Government and LLC governing the land constituting the Omagine Site are the DA and the “Usufruct Agreement” (the “UA”). The UA is an exhibit to and is incorporated by reference into the DA and both the DA and the UA stipulate that in the event of any conflict between the terms and conditions of the DA and the terms and conditions of the UA, the terms and conditions of the DA will control. The UA, must however be separately signed by the Minister of Tourism; but such signing may, as a matter of protocol, occur only on or after the Effective Date on which the DA is ratified by the MOF. Then, on or after the Effective Date, the UA will also be signed by the Minister of Housing and thereafter it will be registered by LLC with the MOH. After ratification of the DA by the MOF (by counter-signature of the DA by the Minister of Finance) and signature of the UA by both the Minister of Tourism and the Minister of Housing, the MOH will contact LLC to arrange for a representative of LLC to come to MOH to: (i) counter-sign the UA in the presence of MOH staff, (ii) register the UA with MOH, and (iii) pay the appropriate usufruct registration fee.

The foregoing DA ratification and UA registration processes are routine bureaucratic procedures, but they are not automatic and, although the DA gives the MOF ninety (90) days after the Execution Date to accomplish the DA ratification, these processes are presently expected to be completed within thirty days from the date hereof.

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The Shareholder Agreement (See: Exhibit 10.5) defines a “Financing Agreement” as follows:

Financing Agreement means a legally binding agreement between LLC and an investment fund, Lender or other Person, pursuant to which such investment fund, Lender or other Person agrees to provide Debt Financing for the first phase or for any or all phases of the Omagine Project and such legally binding Financing Agreement may or may not be subject to the satisfaction or waiver of certain conditions precedent and the first such Financing Agreement shall be in an amount sufficient to finance the first phase of the Omagine Project’s construction plus the installment payments due to OMAG specified in clause 16.5(i) and clause 16.6.

The Shareholder Agreement defines the “Financing Agreement Date” as follows:

Financing Agreement Date means the Day upon which LLC and an investment fund, Lender or other Person first execute and deliver a Financing Agreement.

Omagine and the New Shareholders also agreed in the Shareholder Agreement that a portion of their New Investment into LLC would be Deferred Cash Investments and subject to the satisfaction of certain conditions precedent. Pursuant to the Shareholder Agreement the aggregate 26,838,125 Omani Rial [$69,779,125] Deferred Cash Investments from Omagine and the New Shareholders will be invested on or before the Financing Agreement Date as follows:

The CCC-Oman Contract:

Once the Contract Date occurs, the single remaining condition precedent necessary to be satisfied for the New Shareholders to invest their $69,233,125 aggregate Deferred Cash Investments (the “New Shareholder Deferred Cash Investment”) into LLC is the occurrence of the Financing Agreement Date.

In October 2014, LLC management continued and extended its longstanding discussions with respect to the CCC-Oman Contract with CCC-Oman management in Muscat, Oman. In November 2014, LLC management held extensive and definitive discussions about concluding the CCC-Oman Contract with CCIC management at CCIC headquarters in Athens, Greece. The result of the foregoing meetings was an agreement in principal with respect to the parameters of the final CCC-Oman Contract. Management presently expects that a complete draft of the CCC-Oman Contract will be ready by the end of November 2014 (the “Draft Construction Contract”) and that such Draft Construction Contract will specify a two part approach to the contracting process.

Part one will encompass a time period beginning on the Effective Date and lasting approximately 10 to 12 months subsequent to the Effective Date (the “Pre-Design Period”) during which LLC’s designers and architects will be undertaking the design work for the Omagine Project (“Design Work”) and during which LLC will pay CCC-Oman for its services via an agreed upon “bill-of-quantities” specifying the agreed upon costs for various services expected to be performed during the Pre-Design Period. Part two (the “Post-Design Period”) will encompass the time period beginning at the conclusion of the Pre-Design Period and lasting until the conclusion of all necessary and required construction work on the Omagine Project is completed. This Post-Design Period is presently expected to commence when approximately 30% of the Design Work is completed and a reasonable enough amount of specifications and design criteria have been established that will enable LLC and CCC-Oman to agree on a lump-sum price for the remaining work on the Omagine Project.

The CCC-Oman Contract will be based on internationally accepted contracting standards as promulgated by the International Federation of Consulting Engineers [Fédération Internationale des Ingénieurs-Conseils] (“FIDIC”). Before being finalized with CCC-Oman, the Draft Construction Contract will be reviewed and challenged by two expert construction cost consultants employed by LLC: (i) LLC’s design engineering consultants (Baker, or an equivalent firm), and (ii) an Omani based quantity surveying company specializing in construction cost consulting. Once the CCC-Oman Contract is finalized, it will be presented to the LLC shareholders for their consideration and expected approval. Management presently estimates that the CCC-Oman Contract will be executed by the parties before December 31, 2014.

The Payment-In-Kind (“PIK”)Valuation:

In addition to its Deferred Cash Investment mentioned in (ii) above, RCA is making a further non-cash investment into LLC – the PIK – which investment will be perfected concurrent with the registration of the Usufruct Agreement at the MOH. The PIK represents the value to LLC of the land previously owned by His Majesty Sultan Qaboos bin Said, the ruler of Oman, which His Majesty transferred to MOT on condition it be used for development of the Omagine Project. Pursuant to the DA and UA the MOT granted usufruct rights over such land to LLC. The value of the PIK will be determined by appraisal.

On November 10, 2014, LLC engaged the services of Savills of Oman to perform the valuation analysis and appraisal of the land constituting the Omagine Site. The definitive value of the PIK will be determined by Savills in accordance with the requirements and procedures specified for such a valuation by the Royal Institute of Chartered Surveyors of London, England (“RICS”). The Managing Director of Savills-Oman who will perform this valuation analysis for LLC is a RICS Fellow. Only after such value for the PIK is agreed by the Company’s independent accountant and auditor, Deloitte & Touche (M.E.) & Co. LLC., will it be booked in accordance with International Financial Reporting Standards (“IFRS”) on the financial records of LLC as a non-cash capital investment by RCA into LLC. The PIK valuation is expected to be completed by Savills during November or December 2014.

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Financing / Phase One Activities / The Financing Agreement Date:

No assurance can be given at this time as to whether the Company or LLC will be able to obtain the significant amount of financing necessary to execute the development of the Omagine Project, notwithstanding anything contained in this section or anywhere else in this Report, including but not limited to the discussion below and elsewhere in this Report, regarding proposed or planned sales of equity securities by Omagine or LLC, loans from Omagine to LLC, or the obtaining by LLC of any project finance facilities or other debt facilities with banks, financial institutions or other persons. The DA was recently signed on October 2, 2014 and management is now in the early stages of the processes required to arrange the necessary financing to execute the Omagine Project. No assurance can be given at this time that our efforts in this regard will be successful. As of the date hereof LLC has only a letter of intent (“LOI”) with BNP Paribas regarding BNP Paribas possibly becoming LLC’s financial adviser and although it is presently expected that a definitive and binding agreement between BNP Paribas and LLC will be signed, no assurance can be given that such an agreement will be signed until it is actually signed by the parties.

It is anticipated that the Omagine Project will be developed in several “phases’ and therefore several Financing Agreements will be executed during the course of the project’s development; each such Financing Agreement coinciding with the beginning of a new phase of the development. As indicated above, the execution date of the first such Financing Agreement is defined in the Shareholder Agreement as the “Financing Agreement Date”. Although Omagine and the New Shareholders will have invested an aggregate of 360,000 Omani Rials (equivalent to approximately $936,000) before the Financing Agreement Date, the 26,628,125 Omani Rials ($69,233,125) New Shareholder Deferred Cash Investment will not be invested by the New Shareholders or received by LLC until the Financing Agreement Date occurs.

If the financing becomes available, the first phase of the development of the Omagine Project (“Phase One”) could, occur during, and in parallel with, the Pre-Design Period (i.e. the 10 to 12 months immediately subsequent to the Effective Date). The scope of Phase One will comprise that set of activities designated by LLC as being within Phase One and could include all or some of the initial planning, design, environmental studies and approvals, master planning, surveying, soil engineering and testing, initial site work, initial additions by LLC of personnel and equipment, and initial administrative, organizational, marketing and public relations efforts (collectively, as so designated by LLC, the “Phase One Activities”). The cost for the Phase One Activities could vary substantially from between $5 million to over $20 million depending on which Phase One Activities LLC determines to undertake – which determination will be driven entirely by the availability of financing for the Phase One Activities.

LLC presently expects that BNP Paribas (i) will be its financial adviser (See: “Financial Adviser”), and (ii) will arrange for the syndication among several banks of debt financing for use by LLC to design, develop and construct the Omagine Project (the “Syndicated Project Financing”). The closing of each tranche of such Syndicated Project Financing will be memorialized by a Financing Agreement (each, a “Syndicated Financing Agreement”). The arrangement for and closing of such Syndicated Project Financing is presently projected by LLC management to occur within twelve months after the Effective Date.

Provided the execution and delivery of a Syndicated Financing Agreement is the first Financing Agreement to be executed and delivered, the date of such execution and delivery will therefore be the Financing Agreement Date and the New Shareholders will then be obligated pursuant to the Shareholder Agreement to invest the $69,233,125 New Shareholder Deferred Cash Investment into LLC. LLC may wait until the closing of the Syndicated Project Financing to begin the Phase One Activities.

LLC management however is of the opinion that the optimum development plan for the Omagine Project involves a “fast-track” strategy which undertakes the Phase One Activities as soon as possible. By fully launching the design and development processes in parallel with the up to 12 months required for the Syndicated Project Financing effort, LLC would realize many benefits. This “fast-track” strategy however is not possible to execute absent financing for the Phase One Activities.

LLC is presently considering three methods to finance this “fast-track” development strategy for the Omagine Project in an effort to facilitate the initiation, early implementation, and completion of the maximum amount of Phase One Activities. The three methods presently under consideration are:

1. the sale to interested non-U.S. investors of mandatory convertible LLC promissory notes (“Notes”), which Notes would automatically convert at a future date into shares of LLC capital stock representing a minority LLC equity stake, or
2. a secured loan from Omagine, Inc. to Omagine LLC, or
3. the sale to interested non-U.S. investors of a minority equity stake in LLC.

Pursuant to the provisions of the Shareholder Agreement and provided the proceeds therefrom were sufficient to finance the activities designated by LLC as Phase One Activities, then either the closing of the sale of Notes mentioned in (i) above or the closing of a loan from Omagine, Inc. mentioned in (ii) above would constitute a Financing Agreement and the date of any such closing would be the Financing Agreement Date.

The closing of debt financing by LLC sufficient to finance the design, development and construction activities designated by LLC as Phase One Activities, which debt financing consists of (i) the sale of Notes by LLC, or (ii) the Omagine, Inc. loan to LLC, or (iii) a combination of the sale of LLC Notes and the Omagine, Inc. loan to LLC (collectively, the “Phase One Financing”) will be memorialized by written agreements constituting a Financing Agreement (the “Phase One Financing Agreement”).

Provided the execution and delivery the Phase One Financing Agreement is the first Financing Agreement to be executed and delivered, the date of such execution and delivery will therefore be the Financing Agreement Date.

Because the closing of debt financing via the Phase One Financing Agreement would also be the Financing Agreement Date, in addition to such debt financing becoming available to finance the Phase One Activities, it would coincidently provide additional advantages to LLC:

1. it accelerates the Financing Agreement Date which is the date that the New Shareholders become obligated to make the $69,233,125 New Shareholder Deferred Cash Investment into LLC, and
2. it facilitates the Syndicated Project Financing effort which BNP Paribas will be conducting with the banks because: (i) LLC’s capital will be increased, (ii) the fixed price lump sum CCC-Oman Contract will be in effect and such fixed price construction contracts are very attractive to banks when considering construction financing for projects, (iii) much of the Omagine Project design will be greatly advanced or completed as the bank syndication process is underway, and (iv) many critical non-design activities included in the Phase One Activities will be underway or completed as the bank syndication process is underway.
3. it advances LLC’s marketing, advertising and sales schedules relevant to the sales releases of its residential and commercial properties, and
4. it advances LLC’s development and construction schedules with respect to such Phase One Activities by nine to twelve months ahead of the schedules that would otherwise be possible, and
5. it further solidifies LLC’s relationship with the Oman Government and the MOT as the relevant Government authorities see the development of the Omagine Project being rapidly initiated.

The DA was signed on October 2, 2014 and LLC management is presently pursuing the sale of a further percentage of LLC’s equity and/or convertible debt to one or more non-U.S. investors in the MENA Region. Management presently believes it can maintain Omagine’s majority control of LLC while successfully selling a further minority percentage of LLC’s equity to new non-U.S. investors in the MENA Region for an amount in excess of the average cash investment amount paid by the New Shareholders.

Subject to the necessary financial resources becoming available to Omagine, the Company presently intends, to trigger the Financing Agreement Date by having Omagine make a secured loan to LLC to finance Phase One of the development of the Omagine Project and the Phase One Activities. No assurance however can be given at this time as to whether such necessary financial resources required to make such secured loan to LLC will be available to Omagine. Management is also exploring additional financing mechanisms that will facilitate the initiation of its fast-track development strategy and the financing of the Phase One Activities. (See: “Design, Engineering, Content Development and Construction” below).

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The value of the Omagine Site is presently being definitively determined by Savills Oman, which is the local Omani office of Savills PLC, a global real estate services provider listed on the London Stock Exchange and a qualified independent real-estate appraiser. Savills Oman performs its valuations pursuant to the codes promulgated by the Royal Institute of Chartered Surveyors (“RICS”) and the individual at Savills-Oman performing the Omagine Site valuation for LLC is a RICS Fellow. Such valuation will be utilized (i) by BNP Paribas CIB in their discussions with banks and other financial institutions in order to arrange the Construction Financing, and (ii) by Deloitte & Touche (M.E.) & Co. LLC, in order to determine the proper accounting treatment of the PIK valuation in LLC’s financial statements.

Regards,

AGORACOM