EXHIBIT 99.1

COMPENSATION OF DIRECTORS

Directors of the Company may be reimbursed for necessary expenses incurred
in connection with their attendance at Board and committee meetings. Each
"outside" director receives a $15,000 annual fee, $1,500 for each Board meeting
he attends, and $750 for each committee meeting he attends (if such committee
meeting is not held the same day as a Board meeting). The members of the Board
deemed to be "outside" directors for this purpose (since they are neither
employed by the Company nor affiliated with a major stockholder of the Company)
are currently Messrs. Coleman, Petersen, Roach and Simpson.

On December 3, 1993, concurrent with Mr. Arnold L. Johnson's resignation
from the Board, the Company accelerated the remaining payments he otherwise
would have received in 1994 under the agreement Mr. Johnson and the Company
entered into in connection with Mr. Johnson's resignation as an officer of the
Company in June 1991 (the "June 1991 Agreement"). Such accelerated payment to
satisfy the Company's obligations to Mr. Johnson under the June 1991 Agreement
amounted to approximately $1,164,000, which included a cash payment for Mr.
Johnson's supplemental benefit plan accounts. Mr. Shepard receives an annual
payment of $15,000 for serving as a shareholder relations consultant to the
Company.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table presents information about compensation awarded over
the Company's last three fiscal years to Mr. Pankratz and the Company's
other four most highly compensated executive officers as of December 31, 1993.

ANNUAL
COMPENSATION LONG-TERM COMPENSATION AWARDS
----------------- ----------------------------------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS COMPENSATION
POSITION YEAR ($) ($)(1) ($)(2) ($)(3) (#)(4) ($)(5)
- ----------------------------- ---- -------- -------- ------------ ----------- ------------ ------------

Paul M. Pankratz(6)(7)....... 1993 $263,250 $389,688 -- -- 48,000 $ 69,226
Chairman of the Board of 1992 229,166 202,500 -- -- 66,000(8) 142,967(9)
Directors 1991 N/A N/A N/A N/A N/A N/A
Ralph W. Boeker(6)(10)....... 1993 206,731 289,688 -- $167,500(11) 65,000 453,309(12)
President and Chief 1992 N/A N/A N/A N/A N/A N/A
Executive Officer 1991 N/A N/A N/A N/A N/A N/A
Jon R. Peele................. 1993 153,346 125,531 -- N/A 7,500 31,760
Executive Vice President, 1992 145,000 87,750 -- -- 30,000 26,305
Secretary, General Counsel 1991 138,439 90,000 -- -- 15,000 --
Trond Aschehoug(13).......... 1993 139,356 86,906 -- $65,625(14) 0 17,554
Vice President & Director of 1992 N/A N/A N/A N/A N/A N/A
North American Operations 1991 N/A N/A N/A N/A N/A N/A
Wallace C. Dieckmann......... 1993 119,563 67,594 -- N/A 0 24,153
Vice President & Chief 1992 108,500 40,500 -- -- 11,600 15,371
Financial Officer 1991 104,834 30,000 -- -- 3,500 --

- ---------
(1) Cash bonuses are paid to executive officers of the Company based upon their
individual contribution to the Company and the Company's overall financial
performance. A portion of the bonuses for 1993 were paid in the fourth
quarter of 1993, and the balance was paid in the first quarter of 1994.

(2) Excludes the value of perquisites and other personal benefits. The
incremental cost to the Company of providing such perquisites and other
personal benefits did not, during 1993, exceed the lesser of $50,000 or
10% of annual salary and bonus for the respective individuals named in
the Summary Compensation Table.

(3) Company Deferred Stock is subject to vesting based on continuing
employment, and the holder of such Deferred Stock is not entitled to vote
or receive dividends until such Deferred Stock is vested. The grant date
value shown may overstate the value of Deferred Stock because it does not
take into account the negative effect of the lack of transferability,
vesting restrictions and potential loss of the Deferred Stock upon
termination of employment. This table excludes shares of Company Deferred
Stock which are expected to be granted to Messrs. Peele, Aschehoug and
Dieckmann following the Annual Stockholders Meeting if and to the extent
that the 1994 Equity Participation Plan is approved.

(4) There are currently no SARs outstanding.

(5) Represents amounts allocated by the Company for the accounts of the named
individuals to the Company Benefit Plans (as defined below) in 1993 as
follows:

EMPLOYEE
RETIREMENT EMPLOYEES' EXECUTIVE
SAVINGS PENSION SUPPLEMENTAL
NAME PLAN PLAN PLAN
---- ---------- -------- ------------
Paul M. Pankratz................... $6,855 $14,043 $48,328
Ralph W. Boeker.................... 4,400 14,150 29,901
Jon R. Peele....................... 6,855 14,043 10,862
Trond Aschehoug.................... 5,096 8,903 3,555
Wallace C. Dieckmann............... 6,716 13,311 4,126

(6) Prior to January 11, 1994, Mr. Pankratz served as Chairman and CEO and Mr.
Boeker served in the capacity of President.

(7) Mr. Pankratz joined the Company as of February 1, 1992.

(8) Includes 30,000 options granted to Mr. Pankratz in conjunction with his
initial employment by the Company.

(9) Includes the fair market value on the grant date ($98,750) of 5,000 shares
of the Company Common Stock awarded to Mr. Pankratz, without restrictions,
in conjunction with his initial employment by the Company.

(10) Mr. Boeker joined the Company on March 1, 1993.

(11) Represents the value on the grant date of 5,000 shares of Company Deferred
Stock granted in conjunction with Mr. Boeker's initial employment by the
Company on March 1, 1993.

(12) Includes $404,858 associated with Mr. Boeker's relocation to Southern
California from Midland, Michigan.

(13) Includes amounts paid to Dow for Mr. Aschehoug as a "leased employee" from
Dow. Mr. Aschehoug became an employee of the Company on July 1, 1993.
Excludes options granted to Mr. Aschehoug prior to his becoming an employee
of the Company.

(14) Represents the value on the grant date of 2,100 shares of Company Deferred
Stock granted to Mr. Aschehoug in conjunction with his employment on July
1, 1993.

OPTION GRANT TABLE

The following table presents information about options granted to Mr.
Pankratz and to the Company's four other most highly compensated executive
officers as of December 31, 1993.

OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)

GRANT DATE
PRESENT
INDIVIDUAL GRANTS VALUE
- ------------------------------------------------------------------------------------------------- ----------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS GRANT
OPTIONS/ GRANTED TO EXERCISE DATE
SARS ALL OR BASE MARKET GRANT DATE
GRANTED EMPLOYEES IN PRICE PRICE EXPIRATION PRESENT
NAME (#)(1) FISCAL YEAR ($/SHARE) ($/SHARE) DATE VALUE $(2)
- -------------------------- ---------- ------------ --------- --------- ---------- -----------

Paul M. Pankratz.......... 48,000(3) 17.4% $33.300 $37.000 11/15/03 $1,035,840
Ralph W. Boeker........... 30,000(4) 10.9% $28.130 $31.000 1/11/03 $ 540,000
35,000(3) 12.7% $33.300 $37.000 11/15/03 $ 755,300
Jon R. Peele.............. 7,500(3) 2.7% $33.300 $37.000 11/15/03 $ 161,850
Trund Aschehoug........... 0 0% -- -- -- $ 0
Wallace C. Dieckmann...... 0 0% -- -- -- $ 0
- --------

(1) There are currently no SARs outstanding.

(2) Those potential values were calculated using the Black-Scholes Option
Valuation Method. The Black-Scholes Option Valuation Method used does not
take into account the negative effect on value of the lack of
transferability, vesting restrictions and potential loss of the option upon
termination of employment and therefore overstates the value of an
executive's stock option. The assumptions used under the Black-Scholes model
include a volatility of 26.5 percent based on one-year historical volatility
of the Common Stock ending February 28, 1994; a risk-free rate of 6.67
percent based on the ten-year zero coupon treasury bond and a dividend yield
of 0.0 percent based on the current dividend rate and an option term equal
to the full ten-year stated option term. These potential values have not and
may never be realized. The underlying options have not been, and may never
be, exercised. The actual value of these options (if any) will depend upon
the value of Common Stock on the date of exercise (if any).

(3) The grant date is 10 years prior to the expiration date noted in the table.
The shares of Common Stock covered by each such option vests and becomes
exercisable on the first anniversary of the grant date.

(4) The grant date is 10 years prior to the expiration date noted in the table.
One-third of the shares of Common Stock covered by each such option vests
and becomes exercisable on the first, second and third anniversaries of the
grant date.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES

The following table summarizes for each of the named executive officers the
number of shares of Common Stock received upon exercise of stock options, if
any, during 1993, the aggregate dollar value realized upon exercise, the total
number of shares of Common Stock with respect to which unexercised options were
held as of December 31, 1993, if any, and the aggregate dollar value of in-the-
money, unexercised options held as of December 31, 1993.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES

NUMBER OF
UNEXERCISED
OPTIONS/SARS
SHARES AT FY-END VALUE OF UNEXERCISED
ACQUIRED ON VALUE (#)(1) IN-THE-MONEY OPTIONS/SARS AT
EXERCISE REALIZED EXERCISABLE/ FY-END ($)(1)
NAME (#) ($) UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(2)
- --------------------------- ----------- -------- ------------- ----------------------------

Paul M. Pankratz.......... 0 $ 0 66,000/48,000 $1,093,680/$ 93,600
Ralph W. Boeker............ 0 $ 0 0/65,000 0/ 281,850
Jon R. Peele............... 26,000 $423,180 20,000/27,500 85,250/ 344,925
Trond Aschehoug............ 0 $ 0 3,000/6,000 51,390/ 102,780
Wallace C. Dieckmann....... 4,000 $ 73,520 13,242/10,358 101,887/ 152,803
- --------

(1) There are currently no SARS outstanding.
(2) These potential values have not been and may never be, realized. The
underlying options have not been, and may never be, exercised; actual gains,
if any, on exercise will depend on the value of Common Stock on the date of
exercise, if any.

COMPANY BENEFIT PLANS

Employee Retirement Savings Plan. The Company provides a Retirement Savings
Plan (the "401(k) Plan") pursuant to Section 401(k) of the Internal Revenue
Code of 1986 (the "Code"). The 401(k) Plan became effective April 1, 1988, and
covers all of the Company's employees who have completed one year of service
with the Company. Under the 401(k) Plan, the Company is obligated to contribute
1% of each participating employee's eligible compensation and to match 50% of
the first 6% of the employee's contributions. In addition, the Company may also
make discretionary contributions. In fiscal year 1993, the Company made no such
discretionary contributions.

Employees' Pension Plan. The Magma Power Company Pension Plan (the "Pension
Plan") covers all of the Company's full-time regular employees who have
completed one year of service with the Company. The Pension Plan was effective
as of January 1, 1990. It is a qualified plan pursuant to Section 401(a) of the
Code. Under the Pension Plan, the Company is obligated to contribute an amount
equal to 6% of the eligible compensation of each of the participants in the
Pension Plan.

Executive Supplemental Plan. The Company maintains a Special Supplemental
Retirement Plan covering a select group of management and upper level employees.
The Supplemental Plan is an unfunded nonqualified plan under Section 401(a) of
the Code. It is designed to receive certain allocations of funds that could not
be contributed to the participants' 401(k) Plan or Pension Plan accounts under
current tax law limitations. Additionally, under the Supplemental Plan,
participating employees may defer income, and the Company may also allocate
amounts such as discretionary contributions.

1987 Stock Option Plan. The Magma Power Company 1987 Stock Option Plan
(which is a Rule 16b-3 Plan) provides that options to purchase an aggregate
of 1,000,000 shares of the Company's Common Stock may be granted to salaried
employees and consultants of the Company and its subsidiaries, as selected
by the Option Sub-Committee of the Compensation Committee. The purchase price
which must be paid for stock on exercise of an option granted under the 1987
Stock Option Plan will be fixed by the Option Sub-Committee when the option is
granted, but such price may not be less than 90% of the fair market value of
the stock on the grant date and must be at least 100% of such fair market
value for any option intended to be an "incentive stock option" under federal
tax law. It is unlikely that additional grants will be made under the 1987 Plan
if the 1994 Equity Participation Plan is approved by the Company's stockholders.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS

On January 20, 1992, the Company entered into an arrangement with
Paul M. Pankratz in connection with his initial employment with the Company.
This arrangement provides for the payment of one year's base salary and the
immediate vesting of all previously unvested stock options held by
Mr. Pankratz in the event that Mr. Pankratz' employment with the Company
should be terminated without cause after a change-in-control. This agreement
is scheduled to terminate January 31, 1995. See "Compensation Committee
Report on Executive Compensation" below.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION*

As members of the Compensation Committee, it is our duty to oversee the
Company's overall compensation programs to ensure compliance with the Company's
compensation philosophy, to evaluate the performance of the Chief Executive
Officer (CEO), review the performance of the executive management group,
establish the compensation level of the CEO, review compensation levels for
the executive management group, and consider related matters.

The compensation programs of the Company are designed to align executive
officers' compensation with the strategic goals and performance of the
Company. The Compensation Committee strives to develop and administer programs
that will:

. Attract and retain key executive officers critical to the
long-term success of the Company;

. Provide salary and total compensation levels for executive
officers which are competitive with the median salary and
compensation levels for the Company's competitors;

. Motivate executive officers to enhance long-term stockholder
value in the Company; and

. Integrate the Company's compensation programs with its
strategic planning and measurement processes.

The compensation philosophy of the Company, which is endorsed by the
Compensation Committee, is to provide salary and total compensation levels
comparable to the median of the Company's compensation peer group,
specifically, those publicly traded independent power producers and growth
companies similar to the Company. This peer group includes substantially
all of the members of the Industry Peer Group reflected in the 1993 Proxy
Performance graph plus an additional group of publicly traded technology
growth companies with annual revenues, growth history, and other
performance and business characteristics similar to the Company but which
may not directly compete with the Company in its independent power
business.
- ----------
* Neither this Report nor the Performance Graph set forth below shall be deemed
to be incorporated by reference into any filing by the Company under either
the Securities Act of 1933, as amended (the "1933 Act") or the 1934 Act,
except to the extent that the Company specifically incorporates the same by
reference.

The compensation philosophy also calls for a substantial portion of the annual
compensation of each executive officer to relate to, and be contingent upon the
performance of the Company and the individual contribution of such executive
officer to such performance. As a result, much of an executive officer's
compensation is "at risk" with annual incentive bonus compensation amounting to
a significant portion of total cash compensation.

The Compensation Committee retained in 1993 the services of an outside
executive compensation consulting firm to assist in the performance of its
various duties. The results of the consulting firm's study disclosed that the
Company's executive compensation levels, base salary, annual and long-term
incentives, were below the median of its peer group. As such, the Committee
approved a program to bring compensation levels in line with its philosophy over
a two-year period. The Committee takes into account the Company's performance as
well as the competitiveness of the Company's compensation levels to the
comparable levels paid by the Company's compensation peer group.

The base salary and target bonus for the Company's newly appointed Chief
Executive Officer, Mr. Ralph W. Boeker, were based principally on his rights
under his offer of employment as President of the Company as detailed in the
letter dated January 20, 1993 (the "January 20, 1993 Letter"). On January 11,
1994, the Compensation Committee recommended to the Board of Directors, and the
Board of Directors approved, that Mr. Boeker's base annual salary be increased
to $300,000 concurrent with his appointment as the Company's Chief Executive
Officer. This increase was based on the compensation survey data provided by the
Company's executive compensation consulting firm and is in line with the
Company's compensation philosophy to compensate at the median level of its peer
group. The January 20, 1993 Letter also provided for (i) the grant by the Stock
Option Committee to Mr. Boeker of 30,000 options under the Company's 1987 Stock
Option Plan with an exercise price of 90% of the fair market value of the Common
Stock on the grant date and with three years vesting and (ii) the grant of 5,000
shares of restricted Common Stock vesting 1,000 shares on date of hire and 1,000
shares per year on the succeeding four anniversaries of the date of hire. The
terms of the January 20, 1993 Letter were designed to provide Mr. Boeker with
total compensation levels comparable to the median of the Company's compensation
peer group.

The base salary and target bonus for the Company's former Chief Executive
Officer and current Chairman of the Board of Directors, Mr. Paul M. Pankratz,
were unchanged from the levels reported last year.

Under the Company's annual management incentive bonus plan, bonuses are
based one-half on the individual's performance and one-half on the performance
of the Company, with target bonuses of approximately 35% to 50% of total cash
compensation, except in extraordinary circumstances. The Company's performance
for purposes of compensation decisions is measured under the annual incentive
bonus plan against goals established for a given fiscal year by the Compensation
Committee. The 1993 goals consisted of performance objectives for both the
individuals and the Company. Company performance was measured by actual 1993
income before taxes (net income plus provision for taxes) compared to targeted
1993 income before taxes ("IBT"). In 1993 the Company materially exceeded the
targeted IBT goal and in 1992, the Company substantially met the targeted IBT
objective. The Committee evaluated individual performance, so that, on average,
together with the over achievement on Company performance, total 1993 annual
incentive bonuses represented approximately 43% of total cash compensation for
the executive officers. In assessing the individual performances of Messrs.
Pankratz and Boeker, the Committee was influenced by (a) the successful
integration of the acquired geothermal assets from Union Oil of California into
the Company's operation, (b) the successful consummation of an energy conversion
agreement with the Philippine National

Oil Company for a 231 MW (gross) geothermal generating facility on the island of
Leyte, and (c) the Company's record results in 1993 with net income up 51% and
revenues 53% greater than the previous year.

In addition to the annual incentive bonus plan, the Company's 1987 Stock
Option Plan is an integral part of the Company's long-term compensation program.
Such long-term compensation is designed to encourage and create ownership and
retention of the Company's stock by key employees and to provide incentives to
increase the profits and long-term profitable growth of the Company. This
program is designed to align the long range interests of key employees with
those of the stockholders. The 1987 Stock Option Plan is administered by the
Option Sub-Committee of the Compensation Committee. In November of 1993, under
the 1987 Stock Option Plan, Mr. Boeker was granted by the Option Sub-Committee a
performance award of 35,000 options, and Mr. Pankratz was granted by the Option
Sub-Committee a performance award of 48,000 options, all at an exercise price of
90% of the fair market value of the Common Stock on the grant date. Such options
were based on an evaluation of these executives' performance and their
contributions to the Company, their options granted previously, and the
long-term compensation and total compensation levels provided at the Company's
compensation peer group. Such options fully vest one year after the grant date.
In addition, Jon R. Peele received 7,500 options fully vested after one year
from the date of grant. These option grants were structured to provide these
executive officers with total compensation levels comparable to the median of
the Company's compensation peer group.

Roger L. Kesseler, Chairman
Bent Petersen
James D. Shepard

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee during 1993 were Mr. Kesseler, Mr.
Petersen and Mr. Shepard. As of the record date, the members of the Compensation
Committee are Messrs. Kesseler, Pankratz, Roach and Shepard, with Messrs. Roach
and Shepard serving as members of the Option Sub-Committee. Mr. Shepard is a
former Vice President and Treasurer of the Company.

PERFORMANCE GRAPH

The Performance Graph below shows changes over the past five years in the
value of $100 invested in (a) the Common Stock of the Company; (b) an industry
peer group of publicly-traded, non-utility companies in the independent power
generation industry compiled by the Company; and (c) the Standard & Poor's
MidCap 400 Index. The Bridge Information Services Utilities & Electric Index
shown in 1992 is no longer available for the Performance Graph.

The year-end values of each of such investments are based on share price
appreciation plus dividends paid in cash, with such dividends reinvested on
the date they were paid. The calculations of such values exclude trading
commissions and taxes. The industry peer group calculations reflect weighted
average total returns for the entire group.

PERFORMANCE GRAPH APPEARS HERE

COMPARISON OF FIVE-YEAR CUMULATIVE RETURN
AMONG MAGMA POWER COMPANY, PEER GROUP INDEX, S&P
MIDCAP 400 AND ADJUSTED PEER GROUP

Magma
Measurement Period Power S&P Adjusted
(Fiscal Year Covered) Company Peer Group Midcap 400 Peer Group
- ------------------- ---------- ---------- ---------- ----------

12/30/88 $100 $100 $100 $100
12/29/89 $159 $122 $136 $132
12/31/90 $144 $100 $129 $100
12/31/91 $157 $129 $193 $129
12/30/92 $205 $113 $216 $113
12/31/93 $224 $118 $246 $122

- ---------
(1) Stock price performance shown is not necessarily indicative of future
price performance.
(2) Industry peer group includes: The AES Corporation; California Energy
Company, Inc.; Destec Energy, Inc.; O'Brien Environmental Energy, Inc.;
and Ogden Projects, Inc.
(3) Adjusted Industry peer group includes: The AES Corporation; California
Energy Company, Inc.; Destec Energy, Inc.; Kenetech Corp.; O'Brien
Environmental Energy, Inc.; Ogden Projects, Inc.; and Sithe Energies,
Inc. Both of the two companies added to this adjusted industry peer
group (Kenetech Corp. and Sithe Energies, Inc.) became publicly
traded for the first time in 1993.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Dow Services. Under two technical services agreements between the Company
and Dow, Dow agreed to furnish certain technical and other services in
connection with the operation of the Company's geothermal power plants. The
Company, in turn, agreed to pay for such services in cash payments or through
the issuance of previously authorized but unissued shares of Common Stock. In
1993, the Company entered into a new agreement with Dow (the "1993 Technical
Services Agreement") which amends, restates and supersedes the prior technical
services agreements. Under the 1993 Technical Services Agreement, Dow has agreed
to provide technical services for the Company's geothermal power plants until
January 1, 2000. The Company, in turn, has agreed to make payments for such
technical services in the amounts of $575,000 for 1993 and $550,000 for 1994 and
thereafter in annual amounts reduced by $50,000 each year to $300,000 for 1999.
Such annual payments entitle the Company each year to receive technical services
from Dow equivalent in value to such year's payment, invoiced at Dow's internal
interdepartmental charge rates. The Company may obtain additional technical
services from Dow (if available), invoiced and paid for by the Company at such
scheduled rates. The Company is also entitled to receive from Dow technical
services for additional power plants by increasing the annual payments to Dow by
$50,000 for each such plant, subject to certain limitations. Payments under the
1993 Technical Services Agreement are to be made exclusively in cash--there is
no provision for payment in Company Stock. In 1993, the Company paid Dow
$575,000 under the 1993 Technical Services Agreement. In addition, in March 1994
the Company signed a five-year agreement (the "1994 Engineering and Construction
Management Services Agreement") with Dow Engineering Company ("DEC"). Under the
Agreement, DEC will provide engineering, procurement and construction management
services to Magma, including process engineering, project design, procurement
and construction management services for Magma's existing and future geothermal
power projects in North America. The Company believes that the 1993 Technical
Services Agreement and the 1994 Engineering and Construction Management Services
Agreement are on terms at least as favorable to the Company as would be
available from an unaffiliated third party.

Dow Option Surrender. In October 1993 the Company acquired at a discount
Dow's option to purchase two million shares of Magma Common Stock. Magma
purchased the options for 857,143 shares of newly issued and unregistered shares
of its stock. J.P. Morgan Securities Inc. was retained by an independent
committee of the Company's Board of Directors to assist in valuing the option.
Under the Option Surrender Agreement, Dow has agreed not to sell the newly
issued shares before September 30, 1994. The newly issued shares did not
materially impact the Company's 1993 earnings per share calculations since the
option shares were already reflected in the number of shares used in calculating
primary earnings per share. Following the transaction, Dow holds over 5 million
shares of Magma Common Stock, approximately 4 million of which are currently
held in escrow for exchangeable notes (see below). By virtue of such remaining
percentage ownership of the Common Stock, Dow may still be deemed to control the
management and policies of the Company. According to Dow's Schedule 13D
currently on file with the Commission, the Common Stock held by Dow is held for
investment purposes.

1993 Stock Offering. Pursuant to a registration rights agreement, Dow
requested that the Company facilitate a registered public offering by Dow of
certain of its shares of Magma Common Stock. Accordingly, the Company filed, and
in June 1993 the Securities and Exchange Commission declared effective, a
registration statement covering the sale by Dow of 3,635,000 shares of Company
Common Stock and the sale by J. P. Morgan & Co. Incorporated of 365,000 shares
of Company Common Stock. Pursuant to the

registration rights agreement, the Company paid the first $100,000 of its
accounting, printing, legal and other expenses of the offering, and the two
selling shareholders paid the remainder of such expenses.

1991 Stock Offering. In April 1991, the Company registered 4,000,005 shares
(the "Registered Shares") of Common Stock owned by Dow. The Registered Shares
were placed in escrow by Dow for delivery upon exchange of the Notes. The Notes
are exchangeable at any time into shares of Common Stock at an exchange rate of
26.6667 shares per $1,000 principal amount of the Notes. Dow retains the right
to vote the shares placed in escrow. A registration statement covering the
Registered Shares (the "Registration Statement") was filed by the Company on
behalf of Dow pursuant to existing registration rights agreements between the
Company and Dow. The Company has agreed to keep the Registration Statement
current until the earlier of (i) the maturity of the Notes in 2001 or (ii) the
date on which all of the Notes have been exchanged or redeemed. The Company and
Dow have agreed to indemnify each other against certain liabilities, including
liabilities under the 1933 Act in connection with the Registration Statement and
another registration statement concurrently filed by Dow in connection with its
issuance of the Notes.

AGENDA ITEM 2: APPROVAL OF THE 1994 EQUITY PARTICIPATION
PLAN

DESCRIPTION OF THE 1994 EQUITY PARTICIPATION PLAN

In April 1994 the Company's Board of Directors adopted the 1994 Equity
Participation Plan of Magma Power Company (the "1994 Plan"). The 1994 Plan
succeeds the Company's Stock Option Plan of 1987 (the "1987 Plan"), which
covered 1,000,000 shares of the Company's Common Stock and was adopted by the
Board of Directors and then approved by the stockholders in 1987.

The principal purposes of the 1994 Plan are to provide incentives for
officers, key employees and consultants of the Company and its subsidiaries
through granting of options, restricted stock and other awards, thereby
stimulating their personal and active interest in the Company's development and
financial success, and inducing them to remain in the Company's employ. In
addition to grants and awards made to officers, employees or consultants, the
1994 Plan provides for the granting of options or stock to the Company's
non-employee directors in lieu of directors' fees (if any), as described in
further detail below.

Under the 1994 Plan, not more than 1,000,000 shares of Common Stock (or
their equivalent in other equity securities) are authorized for issuance upon
exercise of options, stock appreciation rights ("SARs"), and other awards, or
upon vesting of restricted or deferred stock awards. As of December 31, 1993,
under the 1987 Plan, a total of 598,250 shares were subject to outstanding stock
options held by approximately 77 officers and key employees and only 57,081
shares remained available for the grant of new stock options or SARs under the
1987 Plan. On March 31, 1994, the closing price of a share of the Company's
Common Stock on the NASDAQ National Market System was $32.25.

The shares available under the 1994 Plan upon exercise of stock options,
SARs and other awards, and for issuance as restricted or deferred stock, may be
either previously unissued shares or treasury shares, and may be equity
securities of the Company other than Common Stock. The 1994 Plan provides for
appropriate adjustments in the number and kind of shares subject to the 1994
Plan and to outstanding grants thereunder in the event of a stock split, stock
dividend or certain other types of recapitalizations, including restructurings.

If any portion of a stock option, SAR or other award terminates or lapses
unexercised, or is cancelled upon grant of a new option, SAR or other award
(which may be at a higher or lower exercise price than the option, SAR or other
award so cancelled), the shares which were subject to the unexercised portion of
such option, SAR or other award, will continue to be available for issuance
under the 1994 Plan.

The principal features of the 1994 Plan are summarized below, but the
summary is qualified in its entirety by reference to the 1994 Plan itself, which
is available upon request from the Company.

Administration

The 1994 Plan is administered by the Compensation Committee or a
subcommittee thereof (referred to herein as the "Committee"), consisting of at
least two members of the Board, none of whom is an officer or employee of the
Company, and each of whom is a "disinterested person" as defined by Rule 16b-3.
The Committee is authorized to select from among the eligible employees and
consultants the individuals to whom options, SARs, restricted stock purchase
rights and other awards are to be granted and to determine the number of shares
to be subject thereto and the terms and conditions thereof, consistent with the
1994 Plan. The Committee is also authorized to adopt, amend and rescind rules
relating to the administration of the 1994 Plan.

Payment for Shares

The exercise or purchase price for all options, SARs, restricted stock and
other rights to acquire Company Common Stock, together with any applicable tax
required to be withheld, must be paid in full in cash at the time of exercise or
purchase or may, with the approval of the Committee, be paid in whole or in part
in Common Stock of the Company owned by the optionee (or issuable upon exercise
of the option) and having a fair market value on the date of exercise equal to
the aggregate exercise price of the shares so to be purchased. The Committee may
also provide, in the terms of an option or other right, that the purchase price
may be payable within thirty days after the date of exercise. The Committee may
also authorize other lawful consideration to be applied to the exercise or
purchase price of an award. This may also include services rendered, or the
difference between the exercise price of presently exercisable options and the
fair market value of the Common Stock covered by such options on the date of
exercise.

Amendment and Termination

Amendments of the 1994 Plan to increase the number of shares as to which
options, SARs, restricted stock and other awards may be granted (except for
adjustments resulting from stock splits and the like) require the approval of
the Company's stockholders. In all other respects the 1994 Plan can be amended,
modified, suspended or terminated by the Committee, unless such action would
otherwise require stockholder approval as a matter of applicable law, regulation
or rule. Amendments of the 1994 Plan will not, without the consent of the
participant, affect such person's rights under an award previously granted,
unless the award itself otherwise expressly so provides. No termination date is
specified for the 1994 Plan.

Eligibility

Options, SARs, restricted stock and other awards under the 1994 Plan may be
granted to individuals who are then officers or other employees of the Company
or any of its present or future subsidiaries and who are determined by the
Committee to be key employees. Such awards also may be granted to consultants of
the Company selected by the Committee for participation in the 1994 Plan.
Approximately 77 officers and other employees are currently eligible to
participate in the 1994 Plan. More than one option, SAR, restricted stock grant
or other award may be granted to a key employee or consultant, but the aggregate
fair market value (determined at the time of grant) of shares with respect to
which an Incentive Stock Option is first exercisable by an optionee (i.e.
"vests") during any calendar year cannot exceed $100,000.

Non-employee directors of the Company are eligible to participate in the
Plan pursuant to Plan provisions which allow such directors to elect to receive
options or stock in lieu of directors' fees, as described below.

Awards under the 1994 Plan

The 1994 Plan provides that the Committee may grant or issue stock options,
SARs, restricted stock, deferred stock, dividend equivalents, performance
awards, stock payments and other stock related benefits, or any combination
thereof. Each grant or issuance will be set forth in a separate agreement with
the person receiving the award and will indicate the type, terms and conditions
of the award.

Nonqualified stock options ("NQSOs") will provide for the right to purchase
Common Stock at a specified price which may be less than fair market value on
the date of grant (but not less than par value), and usually will become
exercisable (in the discretion of the Committee) in one or more installments
after the grant date. NQSOs may be granted for any term specified by the
Committee.

Director stock options are NQSOs granted to non-employee directors of the
Company who have elected in advance to receive such options in lieu of
directors' fees. The difference between the exercise price of such options and
the fair market value of the underlying Common Stock on the grant date will
equal the amount of directors' fees which the non-employee director has elected
to forgo. Alternatively, the Board may permit a non-employee director to receive
shares of Common Stock directly in lieu of directors' fees.

Incentive stock options, if granted, will be designed to comply with the
provisions of the Code and will be subject to restrictions contained in the
Code, including exercise prices equal to at least 100% of fair market value of
Common Stock on the grant date and a ten year restriction on their term, but may
be subsequently modified to disqualify them from treatment as an incentive stock
option. Incentive stock options may be granted only to employees.

Restricted stock may be sold to participants at various prices (but not
below par value) and made subject to such restrictions as may be determined by
the Committee. Restricted stock, typically, may be repurchased by the Company at
the original purchase price if the conditions or restrictions are not met. In
general, restricted stock may not be sold, or otherwise transferred or
hypothecated, until restrictions are removed or expire. Purchasers of restricted
stock, unlike recipients of options, will have voting rights and will receive
dividends prior to the time when the restrictions lapse.

Deferred stock may be awarded to participants, typically without payment of
consideration, but subject to vesting conditions based on continued employment
or on performance criteria established by the Committee. Like restricted stock,
deferred stock may not be sold, or otherwise transferred or hypothecated, until
vesting conditions are removed or expire. Unlike restricted stock, deferred
stock will not be issued until the deferred stock award has vested, and
recipients of deferred stock generally will have no voting or dividend rights
prior to the time when vesting conditions are satisfied.

Stock appreciation rights may be granted in connection with stock options
or other awards, or separately. SARs granted by the Committee in connection with
stock options or other awards typically will provide for payments to the holder
based upon increases in the price of the Company's Common Stock over the
exercise price of the related option or other awards, but alternatively may be
based upon criteria such as book value. There are no restrictions specified in
the 1994 Plan on the exercise of SARs or the amount of gain realizable
therefrom, although they can be imposed by the Committee in the SAR agreements.
The Committee may elect to pay SARs in cash or in Common Stock or in a
combination of cash and Common Stock.

Dividend equivalents may be credited to a participant in the 1994 Plan. They
represent the value of the dividends per share paid by the Company, calculated
with reference to the number of shares covered by the stock options, SARs or
other awards held by the participant.

Performance awards may be granted by the Committee on an individual or group
basis. Generally, these awards will be based upon specific agreements and may be
paid in cash or in Common Stock or in a combination of cash and Common Stock.
Performance awards may include "phantom" stock awards that provide for payments
based upon increases in the price of the Company's Common Stock over a
predetermined period. Performance awards may also include bonuses which may be
granted by the Committee on an individual or group basis and which may be
payable in cash or in Common Stock or in a combination of cash and Common Stock.

Stock payments may be authorized by the Committee in the form of shares of
Common Stock or an option or other right to purchase Common Stock as part of a
deferred compensation arrangement in lieu of all or any part of compensation,
including bonuses, that would otherwise be payable to a key employee or
consultant in cash.

Miscellaneous Provisions

Options and other rights to acquire Common Stock of the Company granted
under the 1994 Plan may provide for their termination upon dissolution or
liquidation of the Company, the merger or consolidation of the Company into
another corporation, the acquisition by another corporation of all or
substantially all of the Company's assets, or the acquisition by another
corporation of 80% or more of the Company's then outstanding voting stock; but
in such event the Committee may also give optionees and other grantees the right
to exercise their outstanding options or rights in full during some period
prior to such event, even though the options or rights have not yet become fully
exercisable. Options and other rights granted under the 1994 Plan may provide
that in the event of a "change in control" of the Company (as defined in the
option or grant agreement) all previously unexercisable options and rights
become immediately exercisable unless such options and rights, or portions
thereof, are determined by the Committee to constitute, when exercised, "excess
parachute payments" (as defined in Section 280G of the Code). If any option or
other right does not contain such limitation, and its exercisability is
accelerated upon a change in control, it is possible that an optionee may be
liable for an excise tax on the amount attributable to such acceleration (and
any other payments made in connection with such change in control).

The 1994 Plan specifies that the Company may make loans to Plan participants
to enable them to exercise options, purchase shares or realize the benefits of
other awards granted under the Plan. The terms and conditions of such loans, if
any are made, are to be set by the Committee.

In consideration of the granting of a stock option, SAR, dividend
equivalent, performance award, stock payment, or right to receive restricted or
deferred stock, the employee or consultant must agree in the written agreement
embodying such award to remain in the employ of, or to continue as a consultant
for, the Company or a subsidiary of the Company for at least one year after the
award is granted.

The dates on which options or other awards under the 1994 Plan first become
exercisable and on which they expire will be set forth in individual stock
options or other agreements setting forth the terms of the awards. Such
agreements generally will provide that options and other awards expire upon
termination of the optionee's status as an employee, consultant or director,
although the Committee may provide that such options continue to be exercisable
following a termination without cause, or following a change in control of

the Company, or because of the grantee's retirement, death, disability or
otherwise. Similarly, restricted stock granted under the 1994 Plan which has
not vested generally will be subject to repurchase by the Company in the
event of the grantee's termination of employment or consultancy, although
the Committee may make exceptions, based on the reason for termination or
on other factors, in the terms of an individual restricted stock agreement.

No option, SAR or other right to acquire Common Stock granted under the
1994 Plan may be assigned or transferred by the grantee, except by will or
the laws of intestate succession, although the shares underlying such rights
may be transferred if all applicable restrictions have lapsed. During the
lifetime of the holder of any option or right, the option or right may be
exercised only by the holder.

The Company requires participants to discharge withholding tax obligations
in connection with the exercise of any option or other right granted under the
1994 Plan, or the lapse of restrictions on restricted stock, as a condition to
the issuance or delivery of stock or payment of other compensation pursuant
thereto. Shares held by or to be issued to a participant may also be used to
discharge tax withholding obligations related to exercise of options or
receipt of other awards, subject to the discretion of the Committee to
disapprove such use. In addition, the Committee may grant to employees a cash
bonus in the amount of any tax related to awards.

FEDERAL INCOME TAX CONSEQUENCES

The tax consequences of the 1994 Plan under current federal law are
summarized in the following discussion which deals with the general tax
principles applicable to the 1994 Plan, and is intended for general
information only. In addition, the tax consequences described below are
subject to the limitation of the 1993 Omnibus Budget Reconciliation Act
("OBRA"), as discussed in further detail below. Alternative minimum tax
and state and local income taxes are not discussed, and may vary
depending on individual circumstances and from locality to locality.

Nonqualified Stock Options. For Federal income tax purposes, the recipient
of NQSOs granted under the 1994 Plan will not have taxable income upon the
grant of the option, nor will the Company then be entitled to any deduction.
Generally, upon exercise of NQSOs the optionee will realize ordinary income,
and the Company will be entitled to a deduction, in an amount equal to the
difference between the option exercise price and the fair market value of the
stock at the date of exercise. An optionee's basis in the stock for purposes
of determining his gain or loss on his subsequent disposition of the shares
generally will be the fair market value of the stock on the date of exercise
of the NQSO. Special rules are applicable to NQSOs granted to directors in
lieu of directors' fees, as discussed below under "Director Elections."

Incentive Stock Options. There is no taxable income to an employee when an
ISO is granted to him or when that option is exercised; however, the amount by
which the fair market value of the shares at the time of exercise exceeds the
option price will be an "item of tax preference" for the optionee. Gain
realized by an optionee upon sale of stock issued on exercise of an ISO is
taxable at capital gains rates, and no tax deduction is available to the
Company, unless the optionee disposes of the shares within two years after the
date of grant of the option or within one year of the date the shares were
transferred to the optionee. In such event the difference between the option
exercise price and the fair market value of the shares on the date of the
option's exercise will be taxed at ordinary income rates, and the Company will
be entitled to a deduction to the extent the employee must recognize ordinary
income. An ISO exercised more than three months after an

optionee's retirement from employment, other than by reason of death or
disability, will be taxed as an NQSO, with the optionee deemed to have received
income upon such exercise taxable at ordinary income rates. The Company will be
entitled to a tax deduction equal to the ordinary income, if any, realized by
the optionee.

Stock Appreciation Rights. No taxable income is realized upon the receipt of
an SAR, but upon exercise of the SAR the fair market value of the shares (or
cash in lieu of shares) received must be treated as compensation taxable as
ordinary income to the recipient in the year of such exercise. The Company will
be entitled to a deduction for compensation paid in the same amount which the
recipient realized as ordinary income.

Restricted Stock and Deferred Stock. An employee to whom restricted or
deferred stock is issued will not have taxable income upon issuance and the
Company will not then be entitled to a deduction, unless in the case of
restricted stock an election is made under Section 83(b) of the Code. However,
when restrictions on shares of restricted stock lapse, such that the shares are
no longer subject to repurchase by the Company, the employee will realize
ordinary income and the Company will be entitled to a deduction in an amount
equal to the fair market value of the shares at the date such restrictions
lapse, less the purchase price therefor. Similarly, when deferred stock vests
and is issued to the employee, the employee will realize ordinary income and
the Company will be entitled to a deduction in an amount equal to the fair
market value of the shares at the date of issuance. If an election is made
under Section 83(b) with respect to restricted stock, the employee will
realize ordinary income at the date of issuance equal to the difference
between the fair market value of the shares at that date less the purchase
price therefor and the Company will be entitled to a deduction in the same
amount. The Code does not permit a Section 83(b) election to be made with
respect to deferred stock.

Dividend Equivalents. A recipient of a dividend equivalent award will not
realize taxable income at the time of grant, and the Company will not be
entitled to a deduction at that time. When a dividend equivalent is paid,
the participant will recognize ordinary income, and the Company will be
entitled to a corresponding deduction.

Performance Awards. A participant who has been granted a performance award
will not realize taxable income at the time of grant, and the Company will not
be entitled to a deduction at that time. When an award is paid, whether in
cash or Common Stock, the participant will have ordinary income, and the
Company will be entitled to a corresponding deduction.

Stock Payments. A participant who receives a stock payment in lieu of a
cash payment that would otherwise have been made will be taxed as if the cash
payment had been received, and the Company will have a deduction in the same
amount.

Deferred Compensation. Participants who defer compensation generally will
recognize no income, gain or loss for federal income tax purposes when
nonqualified stock options are granted in lieu of amounts otherwise payable,
and the Company will not be entitled to a deduction at that time. When and
to the extent options are exercised, the ordinary rules regarding nonqualified
stock options outlined above will apply.

Director Elections. A director who elects to receive NQSOs in lieu of
directors' fees will be subject to the foregoing rules described above under
"Nonqualified Stock Options," and will not realize income until the date of
exercise, if his or her election to receive NQSOs is properly made in advance
of the time he or she renders the services to which the option grant relates.
A director who does not make such election in advance of rendering services,
or a director who elects to receive shares of Common Stock rather than NQSOs,
will realize ordinary income upon the date of grant.

Effect of 1993 Omnibus Budget Reconciliation Act ("OBRA") on the 1994 Plan.
Under OBRA, which became law in August 1993, income tax deductions of
publicly-traded companies may be limited to the extent total compensation
(including base salary, annual bonus, stock option exercises and non-qualified
benefits paid in 1994 and thereafter) for certain executive officers exceeds $1
million (less the amount of any "excess parachute payments" as defined in
Section 280G of the Code) in any one year. However, under OBRA, the deduction
limit does not apply to certain "performance-based" compensation established by
an independent compensation committee which conforms to certain restrictive
conditions stated under the Code and related regulations. Because the Company
currently does not expect to pay total compensation to any one executive officer
in excess of $1 million per year, the Company is not seeking to conform the 1994
Plan to the restrictive conditions of the OBRA legislation and related
regulations.

REASONS FOR ADOPTION OF THE 1994 PLAN

The 1987 Plan currently provides that 1,000,000 shares of Common Stock are
authorized for issuance. As of December 31, 1993, approximately 57,081 shares
remained available for future awards under the 1987 Plan. Also on that date,
options held by approximately 77 officers and key employees and covering
approximately 598,250 shares were outstanding under the 1987 Plan, of which
approximately 216,249 were exercisable. The Board of Directors has determined
that it is advisable to continue to provide stock-based incentive compensation
to the Company's key employees and consultants, thereby continuing to align the
interests of such employees and consultants with those of the stockholders, and
that awards under the 1994 Plan are an effective means of providing such
compensation. In addition, the Board has determined that it is advisable to
provide non-employee directors of the Company with the opportunity to convert
their regular cash directors' fees into stock-based incentive compensation. The
Board recommends that the 1994 Plan be adopted, and that 1,000,000 shares of
Common Stock be reserved for issuance on exercise of options and other awards
thereunder.

REQUIRED VOTE FOR APPROVAL AND RECOMMENDATION OF THE BOARD OF DIRECTORS

The affirmative vote of a majority of the shares present or represented
and entitled to vote at the Annual Meeting is required to approve the 1994 Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE 1994
PLAN.