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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                           COMMISSION FILE NO. 1-9859

                             PIONEER COMPANIES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

               DELAWARE                                  06-1215192
    (STATE OR OTHER JURISDICTION OF         (I.R.S. EMPLOYER IDENTIFICATION NO.)
    INCORPORATION OR ORGANIZATION)


             700 LOUISIANA STREET, SUITE 4300, HOUSTON, TEXAS 77002
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 570-3200

                         SECURITIES REGISTERED PURSUANT
                          TO SECTION 12(b) OF THE ACT:
<Table>
<Caption>

        TITLE OF EACH CLASS           NAME OF EACH EXCHANGE ON WHICH REGISTERED
        -------------------           -----------------------------------------
<S>                                   <C>
               NONE                                NOT APPLICABLE
</Table>


           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                                (TITLE OF CLASS)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

         Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [ ] No
[X]

         Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]

         There were 10,000,000 shares of the registrant's common stock
outstanding on March 28, 2003. The aggregate market value of the voting stock
held by non-affiliates of the registrant on June 28, 2002, based on the last
reported trading price of the registrant's common stock on the OTC Bulletin
Board on that date, was $13.4 million. For purposes of the above statement only,
all directors, executive officers and 10% shareholders are deemed to be
affiliates.

         DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's
definitive proxy statement for the registrant's 2003 Annual Meeting of
Stockholders are incorporated by reference into Part III of this report.



<PAGE>


                                TABLE OF CONTENTS

<Table>
<Caption>

                                     PART I

<S>       <C>                                                                 <C>
Item 1.   Business............................................................. 1
Item 2.   Properties...........................................................17
Item 3.   Legal Proceedings....................................................19
Item 4.   Submission of Matters to a Vote of Security Holders..................19
Item 4A.  Executive Officers of the Registrant.................................19

                                     PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder
          Matters..............................................................21
Item 6.   Selected Financial Data..............................................23
Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations................................................24
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk...........35
Item 8.   Financial Statements and Supplementary Data..........................36
Item 9.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure.................................................36

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant...................36
Item 11.  Executive Compensation...............................................37
Item 12.  Security Ownership of Certain Beneficial Owners and Management.......37
Item 13.  Certain Relationships and Related Transactions.......................37
Item 14.  Controls and Procedures..............................................37

                                     PART IV

Item 15.  Exhibits, Financial Statement Schedules and Reports on Form 8-K......37
</Table>




                                       i
<PAGE>

                                     PART I

ITEM 1. BUSINESS.

OVERVIEW

         Pioneer Companies, Inc. and its subsidiaries have manufactured and
marketed chlorine, caustic soda and related products in North America since
1988. We conduct our primary business through our operating subsidiaries: PCI
Chemicals Canada Company (which we refer to as PCI Canada) and Pioneer Americas
LLC (which we refer to as Pioneer Americas).

         Chlorine and caustic soda are commodity chemicals which we believe are
the seventh and sixth most commonly produced chemicals, respectively, in the
United States, based on volume, and are used in a wide variety of applications
and chemical processes. Caustic soda and chlorine are co-products, concurrently
produced in a ratio of approximately 1.1 to 1 through the electrolysis of salt
water. An electrochemical unit, which we refer to as an ECU, consists of 1.1
tons of caustic soda and 1 ton of chlorine.

         Chlorine is used in 60% of all commercial chemistry, 85% of all
pharmaceutical chemistry and 95% of all crop protection chemistry. More than
15,000 products, including water treatment chemicals, plastics, detergents,
pharmaceuticals, disinfectants and agricultural chemicals, are manufactured with
chlorine as a raw material. Chlorine is also used directly in water disinfection
applications. In the United States and Canada, virtually all public drinking
water is made safe to drink by chlorination, and a significant portion of
industrial and municipal wastewater is treated with chlorine or chlorine
derivatives to kill water-borne pathogens.

         Caustic soda is a versatile chemical alkali used in a diverse range of
manufacturing processes, including pulp and paper production, metal smelting and
oil production and refining. Caustic soda is combined with chlorine to produce
bleach which is used for water treatment and as a cleaning disinfectant. Caustic
soda is also used as an active ingredient in a wide variety of other end-use
products, including detergents, rayon and cellophane.

         We believe that we are the seventh largest chlor-alkali producer in
North America, with approximately 5% of North American production capacity. We
currently own and operate the following four chlor-alkali plants in North
America that produce chlorine and caustic soda and related products:

<Table>
<Caption>
                      LOCATION                      MANUFACTURED PRODUCTS
                      --------                      ---------------------
<S>                                                 <C>
                      Becancour, Quebec             Chlorine and caustic soda
                                                    Hydrochloric acid
                                                    Bleach
                                                    Hydrogen

                      St. Gabriel, Louisiana        Chlorine and caustic soda
                                                    Hydrogen

                      Henderson, Nevada             Chlorine and caustic soda
                                                    Hydrochloric acid
                                                    Bleach
                                                    Hydrogen

                      Dalhousie, New Brunswick      Chlorine and caustic soda
                                                    Sodium chlorate
                                                    Hydrogen
</Table>

         Effective March 15, 2002, we idled our Tacoma, Washington chlor-alkali
plant, which reduced our currently utilized annual production capacity from
approximately 950,000 ECUs to approximately 725,000 ECUs. The Tacoma
chlor-alkali plant site is now being used principally as a terminal to serve our
customers in the Pacific Northwest. The four facilities that we now operate
produce chlorine and caustic soda for sale in the merchant markets and for use
as raw materials in the manufacture of our downstream products. Some of the
important characteristics of our chlor-alkali plants are as follows:


                                       1
<PAGE>


                  o  our Becancour facility is a low-cost production facility,
                     which results in part from that facility's use of
                     hydropower;

                  o  our St. Gabriel facility has three pipelines that allow us
                     to efficiently transport and supply chlorine to customers
                     in Louisiana;

                  o  our Henderson facility is the only currently operating
                     chlor-alkali production facility in the western region of
                     the United States which provides us with a strong regional
                     presence, transportation cost advantages and a consistent
                     and reliable source of supply for our bleach production and
                     chlorine repackaging operations in California and
                     Washington; and o our idled Tacoma facility represents a
                     means of increasing our production capacity to take greater
                     advantage of any sustained market upturn.

         We also operate two bleach production and chlorine repackaging
facilities in Santa Fe Springs and Tracy, California and one bleach production
and chlorine repackaging facility in Tacoma, Washington. We distribute these
products to municipalities and selected commercial markets in the western United
States through various distribution channels. All of the chlorine and caustic
soda used as raw materials at these facilities is supplied by our chlor-alkali
facilities. Our Cornwall, Ontario facility produces hydrochloric acid, bleach,
chlorinated paraffins sold under the brand name Cereclor(R), and IMPAQT(R), a
proprietary pulping additive.

         On December 31, 2001, we and our direct and indirect wholly-owned
subsidiaries emerged from protection under Chapter 11 of the U.S. Bankruptcy
Code, and on the same date PCI Canada emerged from protection under the
provisions of Canada's Companies Creditors' Arrangement Act. On that date, our
plan of reorganization, which was confirmed by the U.S. Bankruptcy Court on
November 28, 2001, became effective.

RECENT DEVELOPMENTS

Settlement of Dispute with the Colorado River Commission

         Beginning in 2001, we disputed our responsibility for certain
contractual obligations that were undertaken by the Colorado River Commission, a
Nevada state agency that supplies power to our Henderson facility and which we
refer to as CRC. All of the conditions of a settlement of that dispute were
satisfied on March 3, 2003. As a result of the settlement, which is effective as
of January 1, 2003, we have been released from all claims for liability with
respect to electricity derivatives positions, and all litigation between Pioneer
and CRC has been dismissed.

         Prior to the settlement with CRC, approximately 35% of the electric
power supply for our Henderson facility was hydropower furnished under a
low-cost, long-term contract with CRC, approximately 50% was provided under a
supplemental supply contract with CRC, and the remaining 15% was provided under
a long-term arrangement with a third party. The supplemental supply contract
entered into in March 2001 set forth detailed procedures governing the
procurement of power by CRC on our behalf.

         The dispute with CRC involved various derivative positions that were
executed by CRC, purportedly for our benefit under the supplemental supply
contract. The dispute arose prior to our bankruptcy proceedings, but was not
resolved as a part of our plan of reorganization. The derivative positions
consisted of contracts for the forward purchase and sale of electricity as well
as put and call options that were written for electric power. We disputed CRC's
contention that certain derivative positions (the "Disputed Derivatives") with a
net liability at December 31, 2002, of $82.3 million were our responsibility. A
net liability of $87.3 million, consisting of the $82.3 million liability for
the Disputed Derivatives and a $5.0 million liability relating to transactions
that we did not dispute (the "Approved Derivatives"), was recorded by us and is
reflected in our December 31, 2002 balance sheet. CRC further contended that
other contracts (the "Rejected Derivatives") reflecting an additional net
liability of $41.0 million as of December 31, 2002, were our responsibility. We
did not record any net liability with respect to the Rejected Derivatives.

         We recorded estimated realized income and expense related to fulfilling
or settling the obligations that could arise with respect to the Approved
Derivatives and Disputed Derivatives as a component of cost of sales. We
recorded in "Other Assets" a net receivable from CRC of $21.0 million at
December 31, 2002. The net receivable included $14.8 million of cash that CRC
collected in the form of premiums related to options that expired prior to
December 31, 2002, but did not remit to us. The remaining $6.2 million of the
net receivable represented our estimate of CRC's net proceeds from the
settlement of certain Approved Derivatives and Disputed Derivatives on their
delivery dates during 2002 that were not remitted to us.

         In accordance with the terms of the settlement, we assigned our
low-cost, long-term hydropower contracts to the Southern Nevada Water Authority
and entered into a new supply agreement with CRC. CRC will provide power to meet
approximately 85% of our


                                       2
<PAGE>


Henderson facility's needs at a market index rate, during a term extending to
December 31, 2006, although Pioneer and CRC may agree to extend the term. CRC
will retain all amounts of cash previously collected by CRC under the terms of
the derivatives agreements, with $3 million of such amount to be held as a
collateral deposit in satisfaction of a requirement under the supply agreement.

         The market index rate under the supply agreement is expected to be
higher than the rates under the hydropower contracts that were assigned to the
Southern Nevada Water Authority as part of the settlement. Since our hydropower
contracts were not derivative contracts and the power purchased under the
contracts could not be resold by us at market rates, the contracts were not
recorded as an asset on our balance sheet. The fair market value of our
hydropower contracts, using the same valuation methodology that was used with
respect to the derivatives, would have been approximately $59 million as of
December 31, 2002.

         In the absence of a settlement with CRC, we would have continued our
efforts in seeking a court determination that CRC, rather than Pioneer, was
responsible for satisfying the Disputed Derivatives and the Rejected
Derivatives. The cost of satisfying the Approved Derivative and Disputed
Derivative contracts could have ranged from $17.2 million in 2004 to as high as
$25.3 million in 2006, based on future price estimates as of December 31, 2002.
We may not have had sufficient liquidity to allow us to make those payments
prior to the time a court would likely have rendered a judgment in the case.

         Although the settlement with CRC will not generate any cash proceeds
for us, we expect to record a net non-cash gain from the settlement of
approximately $66 million in the first quarter of 2003. Due to the assignment of
our long-term hydropower contracts to the Southern Nevada Water Authority and
the resulting higher energy prices under the new supply agreement effective in
2003, we expect to record an approximate $41 million impairment of the Henderson
facility as the result of reduced plant profitability estimates. The net impact
of the foregoing may result in a redemption obligation under our Senior
Guaranteed Notes and Senior Floating Notes. See " - Matters Affecting our
Liquidity" and " - Asset Impairments" below.

Recent Pricing Trends

         As we discuss below, our average ECU netback (that is, price adjusted
to eliminate the product transportation element) was $270 in 2002, a decrease
from $336 in 2001. However, beginning in July 2002 through the end of the year,
our ECU netback ranged from $300 to $322. The increase in price toward the
latter part of the year resulted from an 8% reduction in industry capacity from
the 2001 level and a continuation of stronger demand for chlorine from vinyl
producers. During the first quarter of 2003, we announced price increases, and
we have also announced our intention to impose a fuel cost surcharge in the
future, based on increases in the market price of natural gas (which is a basic
component of the cost of electricity, our largest raw material cost). We intend
to implement the price increases during the second quarter of 2003 as contracts
permit, although individual contract terms will in some cases limit or prohibit
the imposition of the increases, and competitive restraints may also affect the
realization of the increases. We believe that during the first six months of
2003 our average ECU netback will be substantially greater than the 2002
average.

MATTERS AFFECTING OUR LIQUIDITY

         Our senior secured debt consists of Senior Secured Floating Rate
Guaranteed Notes due 2006 in the aggregate principal amount of $45.4 million
(the "Senior Guaranteed Notes"), Floating Rate Term Notes due 2006 in the
aggregate principal amount of $4.6 million (the "Senior Floating Notes"), 10%
Senior Secured Guaranteed Notes due 2008 in the aggregate principal amount of
$150 million (the "10% Senior Secured Notes"), and a Revolving Credit Facility
with a $30 million commitment and a borrowing base restriction (the "Revolver").
Collectively, the $200 million in Senior Guaranteed Notes, Senior Floating Notes
and 10% Senior Secured Notes are referred to as the "Senior Notes" and, together
with the Revolver, are referred to as the "Senior Secured Debt." The Senior
Secured Debt requires payments of interest in cash and the related agreements
contain various covenants including financial covenants in our Revolver (which
if violated will create a default under the cross-default provisions of the
Senior Notes) that obligate us to comply with certain cash flow requirements.
The interest payment requirements of the Senior Secured Debt and the financial
covenants in the Revolver were set at levels based on financial projections of
an assumed minimum ECU netback and do not accommodate significant downward
variations in operating results.

         Our ECU netback averaged $270 in 2002, while the projections prepared
in connection with our plan of reorganization assumed an average ECU netback of
approximately $300. The low ECU netback experienced during 2002 created lower
than anticipated liquidity, and we responded by cutting costs and reducing
expenditures, including idling manufacturing capacity and laying off operating
and administrative employees. Unless the anticipated improvement in operating
margins as a result of increased product prices occurs, we may not have the
liquidity necessary to meet all of our debt service and other obligations in
2003, and we may be unable to satisfy the financial covenants in the Revolver.
The amount of liquidity ultimately needed by us to meet all of our obligations
going forward will


                                       3
<PAGE>


depend on a number of factors, some of which are uncertain, although the recent
resolution of our derivatives dispute with CRC has reduced some of the
uncertainty as to our future liquidity needs. See " - Recent Developments -
Settlement of Dispute with the Colorado River Commission" above and " - Risks -
Our operating results could be negatively affected during economic downturns"
and " - Risks - Our profitability could be reduced by declines in average
selling prices" below.

         We amended our Revolver in April 2002 and again in June 2002. As
amended, one of the covenants in the Revolver requires us to generate at least:

                  o     $5.608 million of net earnings before extraordinary
                        gains, the effects of the derivative instruments
                        excluding derivative expenses paid by us, interest,
                        income taxes, depreciation and amortization (referred to
                        as "Lender-Defined EBITDA") during the quarter ending
                        December 31, 2002, and $10.910 million of Lender-Defined
                        EBITDA during the nine-month period ending on the same
                        date,

                  o     $10.640 million of Lender-Defined EBITDA during the
                        quarter ending March 31, 2003, and

                  o     $21.550 million of Lender-Defined EBITDA for the
                        twelve-month period ending March 31, 2003, and for each
                        twelve month period ending each fiscal quarter
                        thereafter.

         Our Lender-Defined EBITDA for the nine months ended December 31, 2002
was a positive $1.2 million, and our Lender-Defined EBITDA for the three months
ended December 31, 2002 was a negative $10.7 million. Those amounts were less
than the amounts required under the Revolver covenant for those periods. In the
absence of a $16.9 million asset impairment charge, our Lender-Defined EBITDA
would have exceeded the covenant requirement, and the lender under our Revolver
has waived our noncompliance with the covenant requirement. We anticipate that
as a result of an additional asset impairment charge in the first quarter of
2003, we will also be required to seek a waiver from the lender under our
Revolver with respect to our compliance with the covenant requirement for that
quarter. In addition, we anticipate that impairment charges in the fourth
quarter of 2002 and the first quarter of 2003 will likely result in the need for
future waivers from the lender under our Revolver, since the impairments will
have a negative effect on Lender-Defined EBITDA for the twelve-month periods
ending each quarter through March 31, 2004.

         As a result of the amendments, we are also required to maintain
Liquidity (as defined) of at least $5.0 million, and limit our capital
expenditure levels to $20.0 million in 2002 and $25.0 million in each fiscal
year thereafter. At December 31, 2002, our Liquidity was $14.2 million,
consisting of borrowing availability of $11.4 million and cash of $2.8 million.
Capital expenditures were $10.6 million during 2002 (a level limited by
liquidity constraints), and we estimate capital expenditures will be
approximately $13.2 million during 2003.

         The Revolver also provides that as a condition of borrowings there
shall not have occurred any material adverse change in our business, prospects,
operations, results of operations, assets, liabilities or condition (financial
or otherwise).

         If the required Lender-Defined EBITDA level under the Revolver is not
met and the lender under the Revolver does not waive our failure to comply with
the requirement, we will be in default under the terms of the Revolver.
Moreover, if conditions constituting a material adverse change occur or have
occurred, our lender can exercise its rights under the Revolver and refuse to
make further advances. Following any such refusal, customer receipts would be
applied to our borrowings under the Revolver, and we would not have the ability
to reborrow. This would cause us to suffer a rapid loss of liquidity and we
would lose the ability to operate on a day-to-day basis. In addition, a default
under the Revolver would allow our lender to accelerate the outstanding
indebtedness under the Revolver and would also result in a cross-default under
our Senior Notes which would provide the holders of our Senior Notes with the
right to accelerate the $200 million in Senior Notes outstanding and demand
immediate repayment. See " - Risks - The restrictive terms of our indebtedness
may limit our ability to grow and compete and prevent us from fulfilling our
obligations under our indebtedness" below.

         Our Senior Guaranteed Notes and Senior Floating Notes (collectively
referred to as the "Tranche A Notes") provide that, within 60 days after each
calendar quarter during 2003 through 2006, we are required to redeem (i) $2.5
million principal amount of Tranche A Notes if Pioneer Americas' net income
before extraordinary items, other income, net, interest, income taxes,
depreciation and amortization (which we refer to as Pioneer Americas' EBITDA)
for such calendar quarter is greater than $20 million but less than $25 million,
(ii) $5 million principal amount of Tranche A Notes if Pioneer Americas' EBITDA
for such calendar quarter is greater than $25 million but less than $30 million
and (iii) $7.5 million principal amount of Tranche A Notes if Pioneer Americas'
EBITDA for such calendar quarter is greater than $30 million, in each case plus
accrued and unpaid interest thereon to the redemption date.


                                       4
<PAGE>


         Although we will not receive any cash proceeds from our settlement with
CRC, we expect the settlement to result in a net gain of approximately $66
million in the first quarter of 2003. Due to the assignment of our long-term
hydropower contracts to the Southern Nevada Water Authority and the resulting
higher energy prices under the new supply agreement effective in 2003, we expect
to record an approximate $41 million impairment of the Henderson facility as the
result of reduced plant profitability estimates. The net impact of the
foregoing, which we expect will increase Pioneer Americas' EBITDA by
approximately $25 million for the first quarter of 2003, may result in a partial
redemption obligation under our Tranche A Notes as described above. Any such
redemption would also accelerate our obligation to repay approximately $3.6
million in principal and interest on certain other notes. See " - Recent
Developments - Settlement of Dispute with the Colorado River Commission" above
and " - Asset Impairments" below.

         Excluding the potential impact of the redemption obligation discussed
above, in 2003 we expect to have cash requirements, in addition to operating and
administrative costs, of approximately $40.3 million in the aggregate,
consisting of the following: (i) interest payments of $19.5 million, (ii)
capital expenditures of $13.2 million, (iii) bankruptcy-related vendor payments
of $1.0 million, (iv) severance payments of $1.7 million and (v) contractual
debt repayments of $4.9 million. We expect to fund these obligations through
available borrowings under our Revolver and internally-generated cash flows from
operations, including changes in working capital. We can provide no assurance
that we will have sufficient resources to fund all of these obligations and
investments.

         Due to the uncertainties affecting our liquidity as a result of the
restrictive financial covenants and redemption obligations described above, no
assurances can be made regarding our ability to continue as a going concern.

ASSET IMPAIRMENTS

         As indicated above, the settlement of the dispute with CRC in 2003
involved the assignment of our low-cost, long-term hydropower resource rights to
the Southern Nevada Water Authority. The anticipated increase in power costs at
our Henderson facility due to the assignment of these hydropower rights as a
result of the settlement agreement necessitated an impairment analysis of our
Henderson facility during the first quarter of 2003. Based on the results of
that analysis, we expect to record an impairment of approximately $41 million in
March 2003.

         Due to poor chlorine markets and historically high power costs in the
Pacific Northwest, resulting in part from difficulties in the California energy
market and a severe drought, we curtailed production operations at our Tacoma
plant by 50% in March 2001 and idled the remaining Tacoma chlor-alkali
production in March 2002. Due to the continuation of the shutdown and
uncertainty as to when we will restart the Tacoma facility, we reviewed the
Tacoma facility for impairment as of December 31, 2002. Based on our analysis,
we determined that the book value of the facility exceeded its estimated fair
value, and we recognized a $16.9 million impairment loss in December 2002.

PRICING, PRODUCTION, DISTRIBUTION AND MARKETING

Pricing

         In 2002 our average ECU netback was $270 compared to $336 in 2001 and
$327 in 2000. Chlor-alkali demand in the United States grew by approximately 1%
during 2002, primarily led by improved demand for vinyl products during the
first half of the year. Strong vinyl demand pushed up operating rates and
created a surplus of caustic soda, resulting in sharply lower caustic soda
prices by the second quarter. The effects of capacity rationalization (including
our idling of our Tacoma chlor-alkali plant in March 2002) allowed caustic soda
pricing to begin a recovery during the third quarter. By mid-year the ECU
netback had begun to recover and reached the $300 mark in July. Cash flows near
the end of the year began to improve as the ECU netback remained between $300
and $322. During the first quarter of 2003, we announced price increases, and we
have also announced our intention to impose a fuel cost surcharge in the future,
based on increases in the market price of natural gas (which is a basic
component of the cost of electricity, our largest raw material cost). We intend
to implement the price increases during the second quarter of 2003 as contracts
permit, although individual contract terms will in some cases limit or prohibit
the imposition of the increases, and competitive restraints may also affect the
realization of the increases.

Production

         The production of chlor-alkali products principally requires salt,
electricity and water as raw materials. In 2002, approximately 8% of our cost of
sales-product was attributable to our salt requirements and 22% of our cost of
sales-product was attributable to our power requirements. The amounts expended
for salt and power, as a percentage of our cost of sales-product, have generally
averaged 7% and 24%, respectively, for the last three years. Our salt supplies
are provided under long-term contracts and adequate water

                                       5
<PAGE>

supplies are available at each of our operating locations. We procure most of
our energy requirements from sources that rely on hydropower or natural gas.
During 2002, our costs for power decreased $16.9 million from 2001, of which
$14.2 million was attributable to the idling of the Tacoma facility. Our power
costs in 2001 were $10 million lower than in 2000. Our energy costs associated
with producing chlor-alkali products can materially affect our results of
operations since each one dollar change in our cost for a megawatt hour of
electricity generally results in a corresponding change in our cost to produce
an ECU of approximately $2.75.

         Generally, electric power supplies for our Henderson facility are
primarily provided by CRC under a new long-term supply contract. Variations in
the cost of power used at our Henderson facility have a material impact on that
facility's cost structure. See " - Recent Developments - Settlement of Dispute
with the Colorado River Commission" above.

         Electric power for our Becancour and Dalhousie facilities are provided
under public utility tariffs that are based to a substantial extent on low-cost
hydropower resources, which enables us to procure electricity at economical
rates. The St. Gabriel facility, like many in the industry, uses electricity
under a public utility tariff that is based primarily on natural gas resources
and that typically costs more than electricity provided under contracts that
rely on hydropower sources. Because all of the power requirements for our four
chlor-alkali facilities, other than the power procured through the supply
contract for our Henderson facility, are procured in regulated markets, our cost
for power is primarily determined based on the underlying cost of producing such
power (as opposed to market rate pricing). As a result, our Canadian facilities,
which procure power from sources that rely on hydropower, are generally able to
obtain power at favorable rates that are relatively stable over time. Our U.S.
facilities, which procure power from sources that rely on natural gas, will
generally experience higher rates than for hydropower as prices are based on the
underlying price of natural gas.

         Production rates for chlorine and caustic soda are generally set based
upon demand for chlorine, because storage capacity for chlorine is both limited
and expensive. When demand for chlorine is high and operational capacity is
expanded accordingly, an increase in the supply of both chlorine and caustic
soda occurs since chlorine and caustic soda are produced in a fixed ratio. The
price of caustic soda is depressed as there is insufficient demand for the
increased supply. This imbalance may have the short-term effect of limiting our
operating profits as improving margins in chlorine may be offset by declining
margins in caustic soda. When demand for chlorine declines to a level below
plant operational capacity and available storage is filled, production
operations must be curtailed, even if demand for caustic soda has increased.
This imbalance may also have the short-term effect of limiting our operating
profits as improving margins in caustic soda may be offset by both declining
margins in chlorine and the reduced production of both products. Our railcars
can, under certain circumstances, be used to provide additional storage
capacity.

Distribution

         The chlorine that we produce is transported to our customers in
railcars and trucks, and with respect to customers near our plant in St.
Gabriel, Louisiana, by pipelines. Caustic soda is transported by railcars,
trucks, ships or barges. Our other products, such as bleach and hydrochloric
acid, are transported by railcars or trucks. We lease a fleet of approximately
2,000 railcars, and use third-party transportation operators for truck and
water-borne distribution.

Marketing

         Chlorine and caustic soda are commodity chemicals that we typically
sell under contracts to customers in the United States and Canada, although we
occasionally export an immaterial amount of caustic soda on a spot basis. These
contracts contain pricing that is generally determined on a quarterly basis by
mutual agreement. Because chlorine and caustic soda are commodity chemicals and
our contracts typically contain "meet or release clauses" that allow the
customer to terminate the contract if we do not meet a better price obtained by
the customer from a competitor for the product, price is the principal method of
competition. Both the chlorine and caustic soda markets have been, and are
likely to continue to be, cyclical. Periods of high demand, high capacity
utilization and increasing operating margins tend to result in new plant
investments and increased production until supply exceeds demand, followed by a
period of declining prices and declining capacity utilization until the cycle is
repeated. See " - Risks - Our operating results could be negatively affected
during economic downturns" below.

         Approximately 28% of our 2002 revenues was derived from sales of
products for use in the water treatment industry, approximately 26% resulted
from sales for use in the pulp and paper industry, and approximately 7% was
derived from sales for use by urethane producers. We rely heavily on repeat
customers, and our management and dedicated sales personnel are responsible for
developing and maintaining successful long-term relationships with key
customers. No customer accounted for more than 10% of our total revenues in any
of our last three fiscal years.


                                       6
<PAGE>


COMPETITION

         The chlor-alkali industry is highly competitive. Many of our
competitors, including the Dow Chemical Company ("Dow"), Occidental Chemical
Corporation ("OxyChem"), and PPG Industries, Inc., are larger and have greater
financial resources than we do. Our ability to compete effectively depends on
our ability to maintain competitive prices, to provide reliable and responsive
service to our customers and to operate in a safe and environmentally
responsible manner. Our cost structure is also a factor in determining whether
we can compete effectively. While a significant portion of our business is based
upon widely available technology, capital requirements and the difficulty in
obtaining permits for the production of chlor-alkali and chlor-alkali related
products may be barriers to entry.

         North America represents approximately 29% of world chlor-alkali annual
production capacity, with approximately 15.8 million tons of chlorine and 16.7
million tons of caustic soda production capacity. OxyChem and Dow are the two
largest chlor-alkali producers in North America, together representing
approximately 51% of North American capacity. The remaining capacity is held by
approximately 20 companies. Approximately 72% of North American chlor-alkali
capacity is located on the Gulf Coast. We believe that our chlor-alkali capacity
represents approximately 5% of total North American production capacity. The
chlorine and caustic soda currently produced at our Henderson facility provides
a significant source of supply for the West Coast region, where we believe that
we are the largest supplier of chlorine and bleach for water treatment purposes.
We believe our strong regional presence in eastern Canada and the western United
States contributes to the competitiveness of our operations.

         Our St. Gabriel and Dalhousie facilities use a mercury cell production
process that yields premium grade, low-salt caustic soda, a niche product that
is required for certain end-uses and as a result can command premium prices. Our
nine-mile pipeline is used to transport chlorine from our St. Gabriel facility
to our customers at the Geismar industrial complex, and two customers with
plants adjacent to the facility are also served by pipeline connections. The
resulting advantage in transportation costs also distinguishes us from our
competitors.

TECHNOLOGY

         We utilize three different technologies in the production of
chlor-alkali products through the electrolysis of brine: diaphragm cell
technology, mercury cell technology and membrane cell technology. Diaphragm cell
technology, which is used for approximately 60% of our production capacity,
employs a coated titanium anode, a steel cathode and an asbestos or
asbestos/polymer separator. While diaphragm cell technology consumes less power,
it produces caustic soda with a relatively higher salt content that requires
evaporation with steam to reach a commercial concentration. Mercury cell
technology, which is used in approximately 31% of our production capacity,
employs a coated titanium anode and flowing mercury as a cathode. Mercury cell
technology produces higher purity caustic soda that does not require
evaporation, but it consumes relatively more power and the mercury requires
heightened handling and disposal practices. Membrane cell technology, which is
used in approximately 9% of our production capacity and is generally the most
efficient technology, employs a coated titanium anode, a nickel cathode and a
fluorocarbon membrane separator. Membrane cell technology produces higher purity
caustic soda, and its advantages include lower power consumption and low steam
consumption. See Item 2 "Properties - Facilities" below for information
regarding the use of these technologies by our chlor-alkali production
facilities.

ENVIRONMENTAL REGULATION - U.S.

         General. Various federal, state and local laws and regulations
governing the discharge of materials into the environment, or otherwise relating
to the protection of the environment, affect our operations and costs. In
particular, our activities in connection with the production of chlor-alkali and
chlor-alkali related products are subject to stringent environmental regulation.
As with the industry generally, compliance with existing and anticipated
regulations affects our overall cost of business. Areas affected include capital
costs to construct, maintain and upgrade equipment and facilities. While these
regulations affect our capital expenditures and earnings, we believe that these
regulations do not affect our competitive position in that the operations of our
competitors that comply with such regulations are similarly affected.
Environmental regulations have historically been subject to frequent change by
regulatory authorities, and we are unable to predict the ongoing cost to us of
complying with these laws and regulations or the future impact of such
regulations on our operations. Violation of federal or state environmental laws,
regulations and permits can result in the imposition of significant civil and
criminal penalties, injunctions and construction bans or delays. A discharge of
chlorine or other hazardous substances into the environment could, to the extent
such event is not insured, subject us to substantial expense, including both the
cost to comply with applicable regulations and claims by neighboring landowners
and other third parties for personal injury and property damage.


                                       7
<PAGE>


         Air Emissions. Our U.S. operations are subject to the Federal Clean Air
Act and comparable state and local statutes. We believe that our operations are
in substantial compliance with these statutes in all states in which we operate.

         Amendments to the Federal Clean Air Act enacted in late 1990 (the "1990
Federal Clean Air Act Amendments") require or will require most industrial
operations in the U.S. to incur capital expenditures in order to meet air
emission control standards developed by the Environmental Protection Agency (the
"EPA") and state environmental agencies. Among the requirements that are
potentially applicable to us are those that require the EPA to establish
hazardous air pollutant emissions limitations and control technology
requirements for chlorine production facilities. In 2002 the EPA issued draft
hazardous air pollutant emissions limitations for mercury-cell chlor-alkali
facilities, which if adopted will apply to our St. Gabriel facility. We
anticipate that the cost that we will incur to comply with the regulation will
be approximately $3.0 million. It is expected that the regulation will be
adopted in 2003 with a two-year period to achieve compliance. Although we can
give no assurances, we believe implementation of the 1990 Federal Clean Air Act
Amendments will not have a material adverse effect on our financial condition or
results of operations.

         Most of our plants manufacture or use chlorine, which is in gaseous
form if released into the air. Chlorine gas in relatively low concentrations can
irritate the eyes, nose and skin and in large quantities or high concentrations
can cause permanent injury or death. From 1999 to date, there have been minor
releases at our plants, none of which has had any known impact on human health
or the environment. Those releases were controlled by plant personnel, and there
were no material claims against us as a result of those incidents. We maintain
systems to detect emissions of chlorine at our plants, and the St. Gabriel and
Henderson facilities are members of their local industrial emergency response
networks. We believe that our insurance coverage is adequate with respect to
costs that might be incurred in connection with any future release, although
there can be no assurance that we will not incur substantial expenditures that
are not covered by insurance if a major release occurs in the future.

         Water. The Federal Water Pollution Control Act of 1972 ("FWPCA")
imposes restrictions and strict controls regarding the discharge of pollutants
into navigable waters. Permits must be obtained to discharge pollutants into
state and federal waters. The FWPCA imposes substantial potential liability for
the costs of removal, remediation and damages. We maintain wastewater discharge
permits for many of our facilities pursuant to the FWPCA and comparable state
laws. Where required, we have also applied for permits to discharge stormwater
under such laws. We believe that compliance with existing permits and compliance
with foreseeable new permit requirements will not have a material adverse effect
on our financial condition or results of operations.

         Some states maintain groundwater and surfacewater protection programs
that require permits for discharges or operations that may impact groundwater or
surfacewater conditions. The requirements of these laws vary and are generally
implemented through a state regulatory agency. These water protection programs
typically require site discharge permits, spill notification and prevention and
corrective action plans. We plan to spend approximately $3.0 million during the
next two years on improvements at our Henderson facility to discontinue the use
of two chlor-alkali wastewater disposal ponds, replacing them with systems to
recycle wastewater, and to convert a third wastewater disposal pond into a
stormwater retention pond.

         Solid Waste. We generate non-hazardous solid wastes that are subject to
the requirements of the Federal Resource Conservation and Recovery Act ("RCRA")
and comparable state statutes. The EPA is considering the adoption of stricter
disposal standards for non-hazardous wastes. RCRA also governs the disposal of
hazardous wastes. We are not currently required to comply with a substantial
portion of RCRA's requirements because many of our operations do not generate
quantities of hazardous wastes that exceed the threshold levels established
under RCRA. However, it is possible that additional wastes, which could include
wastes currently generated during operations, will in the future be designated
as "hazardous wastes." Hazardous wastes are subject to more rigorous and costly
disposal requirements than are non-hazardous wastes. Such changes in the
regulations could result in additional capital expenditures and operating
expenses.

         The EPA has adopted regulations banning the land disposal of certain
hazardous wastes unless the wastes meet defined treatment or disposal standards.
Our disposal costs could increase substantially if our present disposal sites
become unavailable due to capacity or regulatory restrictions. We presently
believe, however, that our current disposal arrangements will allow us to
continue to dispose of land-banned wastes with no material adverse effect on us.

         Hazardous Substances. The Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), also known as "Superfund," imposes
liability, without regard to fault or the legality of the original act, on
certain classes of persons that contributed to the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the site and companies that disposed or arranged for the disposal of the
hazardous substances found at the site. CERCLA also authorizes the EPA and, in
some instances, third parties to act in response to threats to the public health
or the environment and to seek to recover from the responsible classes of
persons the costs they incur. In the course of our ordinary operations, we may
generate waste that falls within


                                       8
<PAGE>


CERCLA's definition of a "hazardous substance." We may be jointly and severally
liable under CERCLA for all or part of the costs required to clean up sites at
which such hazardous substances have been disposed of or released into the
environment.

         We currently own or lease, and have in the past owned or leased,
properties at which hazardous substances have been or are being handled.
Although we have utilized operating and disposal practices that were standard in
the industry at the time, hazardous substances may have been disposed of or
released on or under the properties owned or leased by us or on or under other
locations where these wastes have been taken for disposal. In addition, many of
these properties have been operated by third parties whose treatment and
disposal or release of hydrocarbons or other wastes was not under our control.
These properties and wastes disposed thereon may be subject to CERCLA, RCRA and
analogous state laws. Under such laws, we could be required to remove or
remediate previously disposed wastes (including wastes disposed of or released
by prior owners or operators), to clean up contaminated property (including
contaminated groundwater) or to perform remedial plugging operations to prevent
future contamination. However, no investigations or remedial activities are
currently being conducted under CERCLA by third parties at any of our
facilities, with the exception of the former Tacoma chlor-alkali facility, where
the activities are covered by an indemnity from the previous owner. Such
activities are being carried out at certain facilities under the other statutory
authorities discussed above pursuant to provisions of indemnification agreements
protecting us from liability.

         Environmental Remediation. Contamination resulting from spills of
hazardous substances is not unusual within the chemical manufacturing industry.
Historic spills and past operating practices have resulted in soil and
groundwater contamination at several of our facilities and at certain sites
where operations have been discontinued. We are currently addressing soil and/or
groundwater contamination at several sites through assessment, monitoring and
remediation programs with oversight by the applicable state agency. In some
cases, we are conducting this work under administrative orders. We believe that
adequate accruals have been established to address all known remedial
obligations. In the aggregate, we have estimated that the total liability for
addressing these sites is approximately $11.6 million although there can be no
guarantee that the actual remedial costs or associated liabilities will not
exceed this amount. At some of these locations, the regulatory agencies are
considering whether additional actions are necessary to protect or remediate
surface or groundwater resources. We could be required to incur additional costs
to construct and operate remediation systems in the future.

         OSHA. We are also subject to the requirements of the Federal
Occupational Safety and Health Act ("OSHA") and comparable state statutes that
regulate the protection of the health and safety of workers. In addition, the
OSHA hazard communication standard requires that certain information be
maintained about hazardous materials used or produced in operations and that
this information be provided to employees, state and local government
authorities and citizens. We believe that our operations are in substantial
compliance with OSHA requirements, including general industry standards, record
keeping requirements and monitoring of occupational exposure to regulated
substances.

ENVIRONMENTAL LAWS - CANADA

         General. Our Canadian facilities are governed by federal environmental
laws administered by Environment Canada and by provincial environmental laws
enforced by administrative agencies. Many of these laws are comparable to the
U.S. laws described above. In particular, the Canadian environmental laws
generally provide for control and/or prohibition of pollution, for the issuance
of certificates of authority or certificates of authorization, which permit the
operation of regulated facilities and prescribe limits on the discharge of
pollutants, and for penalties for the failure to comply with applicable laws.
These laws include the substantive areas of air pollution, water pollution,
solid and hazardous waste generation and disposal, toxic substances, petroleum
storage tanks, protection of surface and subsurface waters, and protection of
other natural resources. However, there is no Canadian law similar to CERCLA
that would make a company liable for legal off-site disposal.

         The Canadian Environmental Protection Act (the "CEPA") is the primary
federal statute that governs environmental matters throughout the provinces. The
federal Fisheries Act is the principal federal water pollution control statute.
This law would apply in the event of a spill of caustic soda or another
deleterious substance that adversely impacts marine life in a waterway. The
Becancour, Dalhousie and Cornwall facilities are all adjacent to major waterways
and are therefore subject to the requirements of this statute. The Chlor-Alkali
Mercury Release Regulations and the Chlor-Alkali Mercury Liquid Effluent
Regulations, adopted under the CEPA, regulate the operation of the Dalhousie
facility. In particular, these regulations provide for the quantity of mercury a
chlor-alkali plant may release into the ambient air and the quantity of mercury
that may be released with liquid effluent. We believe we have operated and are
currently operating in compliance with these statutes.


                                       9
<PAGE>


         The primary provincial environmental laws include the Environmental
Protection Act in the province of Ontario, the Quebec Environment Quality Act in
Quebec and the Clean Environment Act in New Brunswick. In general, each of these
acts regulates the discharge of a contaminant into the natural environment if
such discharge causes or is likely to cause an adverse effect.

INDEMNITIES

         ZENECA Indemnity. Our Henderson facility is located within what is
known as the "Black Mountain Industrial Park." Soil and groundwater
contamination have been identified within and adjoining the Black Mountain
Industrial Park, including land owned by us. A groundwater treatment system has
been installed at the facility and, pursuant to a consent agreement with the
Nevada Division of Environmental Protection, studies are being conducted to
further evaluate soil and groundwater contamination at the facility and other
properties within the Black Mountain Industrial Park and to determine whether
additional remediation will be necessary with respect to our property.

         In connection with our 1988 acquisition of the St. Gabriel and
Henderson facilities, the sellers agreed to indemnify us with respect to, among
other things, certain environmental liabilities associated with historical
operations at the Henderson site. ZENECA Delaware Holdings, Inc. and ZENECA,
Inc. (collectively, the "ZENECA Companies") have assumed the indemnity
obligations which benefit us. In general, we are indemnified against
environmental costs which arise from or relate to pre-closing actions which
involved disposal, discharge or release of materials resulting from the former
agricultural chemical and other non-chlor-alkali manufacturing operations at the
Henderson facility. The ZENECA Companies are also responsible for costs arising
out of the pre-closing actions at the Black Mountain Industrial Park. Under the
ZENECA Indemnity, we may only recover indemnified amounts for environmental work
to the extent that such work is required to comply with environmental laws or is
reasonably required to prevent an interruption in the production of chlor-alkali
products. We are responsible for environmental costs relating to the
chlor-alkali manufacturing operations at the Henderson facility, both pre- and
post-acquisition, for certain actions taken without the ZENECA Companies'
consent and for certain operation and maintenance costs of the groundwater
treatment system at the facility.

         Payments for environmental liabilities under the ZENECA Indemnity,
together with other non-environmental liabilities for which the ZENECA Companies
agreed to indemnify us, are limited to approximately $65 million. To date we
have been reimbursed for approximately $12 million of costs covered by the
ZENECA Indemnity, but the ZENECA Companies may have directly incurred additional
costs that would further reduce the total amount remaining under the ZENECA
Indemnity. In 1994, we recorded a $3.2 million environmental reserve related to
pre-closing actions at sites that are the responsibility of the ZENECA
Companies. At the same time a receivable was recorded from the ZENECA Companies
for the same amount. It is our policy to record such amounts when a liability
can be reasonably estimated. In 2000, based on the results of a third-party
environmental analysis, the $3.2 million environmental reserve and receivable
were adjusted to the discounted future cash flows for estimated environmental
remediation, which was $2 million. In the course of evaluating future cash flows
upon emerging from bankruptcy, we determined that the timing of future cash
flows for environmental work is uncertain and that those cash flows no longer
qualify for discounting under generally accepted accounting principles. As a
result, we no longer discount the environmental liabilities and related
receivables, which are now recorded at their undiscounted amounts of $3.2
million at December 31, 2002.

         The ZENECA Indemnity continues to cover claims after the April 20, 1999
expiration of the term of the indemnity to the extent that, prior to the
expiration of the indemnity, proper notice to the ZENECA Companies was given and
either the ZENECA Companies have assumed control of such claims or we were
contesting the legal requirements that gave rise to such claims, or had
commenced removal, remedial or maintenance work with respect to such claims, or
commenced an investigation which resulted in the commencement of such work
within ninety days. Our management believes proper notice was provided to the
ZENECA Companies with respect to outstanding claims under the ZENECA Indemnity,
but the amount of such claims has not yet been determined given the ongoing
nature of the environmental work at Henderson. We believe that the ZENECA
Companies will continue to honor their obligations under the ZENECA Indemnity
for claims properly presented by us. It is possible, however, that disputes
could arise between the parties concerning the effect of contractual language
and that we would have to subject our claims for cleanup expenses, which could
be substantial, to the contractually-established arbitration process.

         Pioneer Americas Sellers' Indemnity. In connection with the 1995
transaction pursuant to which we acquired all of the outstanding common stock
and other equity interests of a predecessor of Pioneer Americas from the holders
of those interests (the "Sellers"), the Sellers agreed to indemnify us and our
affiliates for certain environmental remediation obligations, arising prior to
the closing date from or relating to certain plant sites or arising before or
after the closing date with respect to certain environmental liabilities
relating to certain properties and interests held by us for the benefit of the
Sellers (the "Contingent Payment Properties"). Amounts payable in respect of
such liabilities would generally be payable as follows: (i) out of specified
reserves established on the predecessor's balance sheet at December 31, 1994;
(ii) either by offset against the amounts payable under the $11.5 million in
notes payable by us to the


                                       10
<PAGE>


Sellers, or from amounts held in an account (the "Contingent Payment Account")
established for the deposit of proceeds from the Contingent Payment Properties;
and (iii) in certain circumstances and subject to specified limitations, out of
the personal assets of the Sellers. To the extent that liabilities exceeded
proceeds from the Contingent Payment Properties, we would be limited, for a
ten-year period, principally to our rights of offset against the Sellers' notes
to cover such liabilities.

         In 1999 disputes arose between us and the Sellers as to the proper
scope of the indemnity. During June 2000, we effected an agreement with the
Sellers, pursuant to which we, in exchange for cash and other consideration,
relieved the Sellers from their environmental indemnity obligations and agreed
to transfer to the Sellers the record title to the Contingent Payment Properties
and the $0.8 million remaining cash balance in the Contingent Payment Account
that we determined to be in excess of anticipated environmental liability. The
cash balance in the Contingent Payment Account at the time of this transaction
was $6.1 million. This cash balance was not previously reflected on our balance
sheet since a right of setoff existed.

         A third-party environmental analysis that was performed on all of our
sites subject to the indemnity provided the basis for the anticipated
environmental liability. We then adjusted the remediation reserve on our balance
sheet to the discounted future cash flows for estimated environmental
remediation. As a result of the above transaction and the new environmental
analysis, we reported a pre-tax gain of $1.8 million during the second quarter
of 2000, which was reflected as a reduction of cost of sales. As indicated
above, we are no longer discounting the environmental liabilities and related
receivables, which are now recorded at their undiscounted amounts of $11.6
million at December 31, 2002.

         OCC Tacoma Indemnity. We acquired the chlor-alkali facility in Tacoma
from OCC Tacoma, Inc. ("OCC Tacoma"), a subsidiary of OxyChem, in June 1997. In
connection with the acquisition, OCC Tacoma agreed to indemnify us with respect
to certain environmental matters, which indemnity is guaranteed by OxyChem. In
general, OCC Tacoma has agreed to indemnify us against damages incurred for
remediation of certain environmental conditions, for certain environmental
violations caused by pre-closing operations at the site and for certain common
law claims. The conditions subject to the indemnity are sites at which hazardous
materials have been released prior to closing as a result of pre-closing
operations at the site. In addition, OCC Tacoma has agreed to indemnify us for
certain costs relating to releases of hazardous materials from pre-closing
operations at the site into the Hylebos Waterway, site groundwater containing
certain volatile organic compounds that must be remediated under an RCRA permit,
and historical disposal areas on the embankment adjacent to the site for maximum
periods of 24 or 30 years from the June 1997 acquisition date, depending upon
the particular condition, after which we will have full responsibility for any
remaining liabilities with respect to such conditions. OCC Tacoma may obtain an
early expiration date for certain conditions by obtaining a discharge of
liability or an approval letter from a governmental authority. At this time we
cannot determine if the presently anticipated remediation work will be completed
prior to the expiration of the indemnity or if additional remedial requirements
will be imposed thereafter.

         OCC Tacoma has also agreed to indemnify us against certain other
environmental conditions and environmental violations caused by pre-closing
operations that are identified after the closing. Environmental conditions that
are subject to formal agency action before June 2002 or to an administrative or
court order before June 2007, and environmental violations that are subject to
an administrative or court order before June 2002, will be covered by the
indemnity up to certain dollar amounts and time limits. We have agreed to
indemnify OCC Tacoma for environmental conditions and environmental violations
identified after the closing if (i) an order or agency action is not imposed
within the relevant time frames or (ii) applicable expiration dates or dollar
limits are reached. As of December 31, 2002, no orders or agency actions had
been imposed.

         The EPA has advised OCC Tacoma and us that we have been named as a
"potentially responsible party" in connection with the remediation of the
Hylebos Waterway in Tacoma, by virtue of our current ownership of the Tacoma
site. The state Department of Ecology notified OCC Tacoma and us of its concern
regarding high pH groundwater in the Hylebos Waterway embankment area and has
requested additional studies. OCC Tacoma has acknowledged its obligation to
indemnify us against liability with respect to the remediation activities,
subject to the limitations included in the indemnity agreement. We have reviewed
the time frames currently estimated for remediation of the known environmental
conditions associated with the plant and adjacent areas, including the Hylebos
Waterway, and we presently believe that we will have no material liability upon
the termination of OCC Tacoma's indemnity. However, the OCC Tacoma indemnity is
subject to limitations as to dollar amount and duration, as well as certain
other conditions, and there can be no assurance that such indemnity will be
adequate to protect us, that remediation will proceed on the present schedule,
that it will involve the presently anticipated remedial methods, or that
unanticipated conditions will not be identified. If these or other changes
occur, we could incur a material liability for which we are not insured or
indemnified.

         PCI Canada Acquisition Indemnity. In connection with our acquisition of
the assets of PCI Canada in 1997, Imperial Chemical Industrials PLC ("ICI") and
certain of its affiliates (together the "ICI Indemnitors") agreed to indemnify
us for certain liabilities associated with environmental matters arising from
pre-closing operations of the Canadian facilities. In particular, the ICI
Indemnitors


                                       11
<PAGE>


have agreed to retain unlimited responsibility for environmental liabilities
associated with the Cornwall site, liabilities arising out of the discharge of
contaminants into rivers and marine sediments and liabilities arising out of
off-site disposal sites. The ICI Indemnitors are also subject to a general
environmental indemnity for other pre-closing environmental matters. This
general indemnity will terminate on October 31, 2007, and is subject to a limit
of $25 million (Cdn). We may not recover under the environmental indemnity until
we have incurred cumulative costs of $1 million (Cdn), at which point we may
recover costs in excess of $1 million (Cdn). As of December 31, 2002, we had
incurred no cumulative costs towards the $25 million (Cdn) indemnity.

         With respect to the Becancour and Dalhousie facilities, the ICI
Indemnitors have agreed to be responsible under the general environmental
indemnity for 100% of the costs incurred in the first five years after October
31, 1997 and for a decreasing percentage of such costs incurred in the following
five years. Thereafter, we will be responsible for environmental liabilities at
such facilities (other than liabilities arising out of the discharge of
contaminants into rivers and marine sediments and liabilities arising out of
off-site disposal sites). We have agreed to indemnify ICI for environmental
liabilities arising out of post-closing operations and for liabilities arising
out of pre-closing operations for which we are not indemnified by the ICI
Indemnitors.

         In March 2003 we initiated arbitration proceedings to resolve a dispute
with ICI regarding the applicability of certain of ICI's covenants with respect
to approximately $1.3 million of equipment modification costs that we incurred
to achieve compliance with air emissions standards at the Becancour facility. We
believe that the indemnity provided by ICI will be adequate to address the known
environmental liabilities at the acquired facilities, and that residual
liabilities, if any, incurred by us will not be material.

RISKS

Our operating results could be negatively affected during economic downturns.

         The businesses of most of our customers are, to varying degrees,
cyclical and have historically experienced periodic downturns. These economic
and industry downturns have been characterized by diminished product demand,
excess manufacturing capacity and, in most cases, lower average selling prices.
Therefore, any significant downturn in our customers' markets or in global
economic conditions could result in a reduction in demand for our products and
could adversely affect our results of operations and financial condition. As a
result of the depressed economic conditions beginning in the fourth quarter of
2000 and continuing throughout 2001 and into 2002, our vinyls, urethanes and
pulp and paper customers had lower demand for our chlor-alkali products. This
lower demand materially adversely affected our business and results of
operations. While demand from the vinyl and urethane industries increased during
the latter half of 2002, providing positive benefits to our business and results
of operations, domestic economic conditions are still uncertain and could
materially adversely affect demand for our products in 2003 or thereafter.

         Although we sell only a small percentage of our products directly to
customers abroad, a large part of our financial performance is dependent upon
economies beyond the United States and Canada. Our customers sell a portion of
their products abroad and caustic soda is often imported from overseas when
market conditions make it economical to do so. As a result, our business is
affected by general economic conditions and other factors beyond the United
States and Canada, including fluctuations in interest rates, market demand,
labor costs and other factors beyond our control. The demand for our customers'
products, and therefore, our products, as well as the domestic supply of caustic
soda, is directly affected by such fluctuations. There can be no assurance that
events having a material adverse effect on the industry in which we operate will
not occur or continue, such as a further downturn in the world economies,
increases in interest rates, unfavorable currency fluctuations or a prolonged
slowdown in the industries which consume our chlor-alkali products.

Our profitability could be reduced by declines in average selling prices.

         Our historical operating results reflect the cyclical and sometimes
transitory nature of the chemical industry. We experience cycles of fluctuating
supply and demand in our chlor-alkali products business, which result in changes
in selling prices. Periods of high demand, tight supply and increasing operating
margins tend to result in increased capacity and production until supply exceeds
demand, generally followed by periods of oversupply and declining prices. For
example, in 1995 and 1996, the chlor-alkali industry was very profitable due to
a tight supply/demand balance, which resulted in both higher operating rates and
higher ECU prices. Higher profits led to reinvestment to expand capacity. This
new capacity became operational in 1998 and 1999, resulting in industry
over-capacity. This imbalance was exacerbated by falling demand as a result of
the Asian financial crisis. The supply/demand imbalance resulted in both lower
operating rates and lower ECU prices, and in 1999, many chlor-alkali producers
had operating losses. The supply/demand balance improved due to improved
economic conditions in 2000 compared to 1999, and ECU prices increased in 2000
compared to 1999. As the U.S. and world economies deteriorated in 2001 and early
2002, the chlor-alkali industry again experienced a period of oversupply because
of lower industry demand for both chlorine and caustic soda. That in turn led to
a reduction in industry


                                       12
<PAGE>


capacity, including the idling of our own Tacoma chlor-alkali facility.
Beginning in mid-2002, a combination of higher industry demand and reduced
industry capacity resulted in an increase in ECU prices.

         When demand for chlorine is high and operational capacity is expanded
accordingly, an increase in the supply of both chlorine and caustic soda occurs
since chlorine and caustic soda are produced in a fixed ratio. In that event the
price of caustic soda may be depressed if there is insufficient demand for the
increased supply. This imbalance may have the short-term effect of limiting our
operating profits as improving margins in chlorine may be offset by declining
margins in caustic soda. When demand for chlorine declines to a level below
plant operational capacity and available storage is filled, production
operations must be curtailed, even if demand for caustic soda has increased.
This imbalance may also have the short-term effect of limiting our operating
profits as improving margins in caustic soda may be offset by both declining
margins in chlorine and the reduced production of both products. When
substantial imbalances occur, we will often face reduced prices or take actions
that could have a material adverse effect on our results of operations and
financial condition.

         Most of our customers consider price one of the most significant
factors when choosing among the various suppliers of chlor-alkali products. We
have limited ability to influence prices in this large commodity market.
Decreases in the average selling prices of our products could have a material
adverse effect on our profitability. While we strive to maintain or increase our
profitability by reducing costs through improving production efficiency,
emphasizing higher margin products, and by controlling selling and
administration expenses, we cannot provide any assurance that these efforts will
be sufficient to offset fully the effect of changes in pricing on operating
results.

         Because of the cyclical nature of our business, we cannot provide any
assurance that pricing or profitability in the future will be comparable to any
particular historical period. We cannot provide any assurance that the
chlor-alkali industry will not experience adverse trends in the future, or that
our operating results and/or financial condition will not be materially
adversely affected by them.

Higher energy prices can impair our ability to produce chlor-alkali products
economically and adversely impact our results of operations.

         Energy costs comprise the largest component of the raw material costs
associated with producing chlor-alkali products. As a result, and because we
have limited ability to influence pricing, increases in the cost of energy can
materially adversely affect our results of operations and may cause our
production of chlor-alkali products to become uneconomical. Increases in natural
gas prices increase our cost of operations at our facilities that procure their
power from sources that rely on natural gas to generate power. Likewise, drought
conditions can have the effect of increasing the price that our facilities must
pay to procure power from sources that rely on hydropower to produce energy, and
drought conditions or other factors that decrease the availability of hydropower
may cause us to have to purchase power from other, more expensive sources. As a
result of the settlement of our dispute with CRC, the power requirements of our
Henderson facility are now primarily based on market rates (rather than the
below-market rates under the contracts that were assigned to the Southern Nevada
Water Authority) and supplied from sources that rely on natural gas to generate
power, rather than hydropower, and natural gas based power has generally been
more costly than hydropower and has experienced greater price volatility in the
past. The current contract with CRC terminates in 2006, and in the absence of an
extension of the term it will be necessary to seek an alternative arrangement
for the purchase of power for our Henderson facility, and any such arrangement
might involve greater costs.

         To the extent our competitors are able to secure less expensive power
than we are due to their geographic location or otherwise, we will be unable to
compete economically with them in terms of price. We are unable to predict the
future impact that energy prices may have on the results of our operations. See
" - Pricing, Production, Distribution and Marketing" above.

The restrictive terms of our indebtedness may limit our ability to grow and
compete and prevent us from fulfilling our obligations under our indebtedness.

As of December 31, 2002, we had approximately $214.7 million of Senior Secured
Debt outstanding, as well as $12.4 million of other notes. Our borrowings under
the Revolver as of February 28, 2003 were $15.2 million. As of that date, our
$30 million Revolver commitment was subject to borrowing base limitations
related to the level of accounts receivable, inventory and reserves, and was
further reduced by letters of credit that were outstanding on that date. As a
result, on February 28, 2003, our additional availability under the Revolver was
approximately $11.5 million and our Liquidity was $13.1 million. Our operating
flexibility is limited by covenants contained in our debt instruments, including
our Senior Notes and Revolver, which limit our ability to incur additional
indebtedness, prepay or modify debt instruments, create additional liens upon
assets, guarantee any obligations, sell assets and make dividend payments. Our
compliance with the covenants contained in our debt instruments could limit our
ability to grow


                                       13
<PAGE>


and compete and prevent us from fulfilling our obligations under those debt
instruments.

         Our Revolver requires us to generate a specified amount of
Lender-Defined EBITDA. We cannot provide any assurance that we will generate the
necessary level of earnings, and our failure to do so would constitute a default
under the Revolver, unless the lender under our Revolver agrees to waive the
default. A default, if not waived, could have a material adverse effect on our
business, financial condition and results of operations. A default under our
Revolver, which would also constitute a default under our Senior Notes, would
give the lender under the Revolver and the holders of the Senior Notes the right
to cause the acceleration of all indebtedness outstanding thereunder. This would
cause us to suffer a rapid loss of liquidity and we would lose the ability to
operate on a day-to-day basis. In addition, the lender under our Revolver may
refuse to make further advances if a material adverse change in our business,
prospects, operations, results of operations, assets, liabilities or condition
(financial or otherwise) has occurred.

         Our Lender-Defined EBITDA for the nine months ended December 31, 2002
was a positive $1.2 million, and our Lender-Defined EBITDA for the three months
ended December 31, 2002 was a negative $10.7 million. Those amounts were less
than the amounts required under the Revolver covenant for those periods. Since
in the absence of a fourth quarter 2002 asset impairment charge of $16.9 million
(as discussed above) our Lender-Defined EBITDA would have exceeded the covenant
requirement, the lender under our Revolver has waived our noncompliance with the
covenant requirement. We anticipate that as a result of an additional asset
impairment charge in the first quarter of 2003, we will also be required to seek
a waiver from the lender under our Revolver with respect to our compliance with
the covenant requirement for that quarter. In addition, we anticipate that
impairment charges for the fourth quarter of 2002 and the first quarter of 2003
will likely result in the need for future waivers from the lender under our
Revolver, since the impairments will have a negative effect on Lender-Defined
EBITDA for the twelve-month periods ending each quarter through March 31, 2004.

         During March 2002, the lender under the Revolver advised us that it
believed that a material adverse change had occurred, although it continued to
fund loans under the Revolver. In order to address concerns about adverse
changes in our financial condition and the possibility that we might not comply
with the financial covenant included in the Revolver during the remainder of
2002, we had discussions with the lender on the proposed terms of an amendment
to the Revolver. The lender rescinded its notice that a material adverse change
had occurred. We entered into the April 2002 amendment to our Revolver (the
"First Amendment") to (i) revise the Revolver's financial covenant to exclude
the effects of changes in the fair value of derivative instruments, (ii)
eliminate the availability of interest rates based on the London interbank
offered rate ("LIBOR") and (iii) replace the previously applicable margin over
the prime rate (the "Previous Rate") with the Previous Rate plus 2.25% for all
loans that are and will be outstanding under the Revolver. We paid a forbearance
fee of $250,000 in connection with the First Amendment. Also in connection with
the First Amendment, we agreed with our lender to effect another amendment to
further revise the financial covenant to exclude realized gains and losses
(except to the extent such losses are paid by us) on derivatives, to take into
account our expectations for the amount of Lender-Defined EBITDA that would be
generated during 2002 as agreed to by the lender, and to add such other
financial covenants to the Revolver as the lender deemed necessary to monitor
our performance in meeting such projections. The June 2002 amendment to the
Revolver (the "Second Amendment") requires us to meet the Lender-Defined EBITDA
amounts set forth above and adds the additional financial covenants contemplated
in the First Amendment. The additional covenants require us to maintain
Liquidity (as defined in the Second Amendment) of at least $5.0 million, and
limit capital expenditure levels to $20.0 million in 2002 and $25.0 million in
each fiscal year thereafter. At December 31, 2002, our liquidity was $14.2
million. Capital expenditures were $10.6 million during 2002. We estimate
capital expenditures will be approximately $13.2 million during 2003. See " -
Matters Affecting our Liquidity" above and Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" in Part II of this report.

         Our Tranche A Notes provide that, within 60 days after each calendar
quarter during 2003 through 2006, we are required to redeem (i) $2.5 million
principal amount of Tranche A Notes if Pioneer Americas' EBITDA for such
calendar quarter is greater than $20 million but less than $25 million, (ii) $5
million principal amount of Tranche A Notes if Pioneer Americas' EBITDA for such
calendar quarter is greater than $25 million but less than $30 million and (iii)
$7.5 million principal amount of Tranche A Notes if Pioneer Americas' EBITDA for
such calendar quarter is greater than $30 million, in each case plus accrued and
unpaid interest thereon to the redemption date, provided that, if Pioneer
Americas' excess cash flow for specified periods during 2003 through 2006, when
multiplied by a percentage determined by reference to its average liquidity, is
greater than the applicable principal amount above, then we must redeem the
greater principal amount of Tranche A Notes. As a consequence of these
redemption requirements, we will not be able to apply any significant amount of
our income from operations to the expansion of our business or otherwise until
we have redeemed the Tranche A Notes. In addition, we may be required to redeem
some or all of the Tranche A Notes due to the increase in Pioneer Americas'
EBITDA resulting from non-cash transactions, including the settlement with CRC.


                                       14
<PAGE>


Our ability to generate cash depends on many factors beyond our control. We may
not be able to generate sufficient cash to service our debt, which may require
us to refinance our indebtedness on less favorable terms or default on our
scheduled debt payments.

         Our ability to generate sufficient cash flow from operations to make
scheduled payments on our debt depends on a range of economic, competitive and
business factors, many of which are outside our control. We cannot provide any
assurance that our business will generate sufficient cash flow from operations.
If we are unable to meet our expenses and debt obligations, we may need to
refinance all or a portion of our indebtedness, sell assets or raise equity.

         As of December 31, 2002, we had approximately $214.7 million of
indebtedness under various loan agreements, including the Revolver, which
expires in 2004, the Tranche A Notes due in 2006 and the 10% Senior Secured
Notes due in 2008. As of February 28, 2003, our borrowings under our $30 million
Revolver were $15.2 million. To the extent that we continue to need access to
this amount of committed credit, it will be necessary to extend or replace our
Revolver on or before its expiration in 2004. We will also need to redeem or
refinance our outstanding Senior Notes on or before their respective due dates.
The success of our future financing efforts may depend, at least in part, on:

                  o        general economic and capital market conditions;

                  o        credit availability from banks and other financial
                           institutions;

                  o        investor confidence in us and the market in which we
                           operate;

                  o        maintenance of acceptable credit ratings;

                  o        market expectations regarding our future earnings and
                           probable cash flows;

                  o        market perceptions of our ability to access capital
                           markets on reasonable terms; and

                  o        provisions of relevant tax and securities laws.

         We cannot provide any assurance that we would be able to refinance any
of our indebtedness, sell assets or raise equity on commercially reasonable
terms or at all, which could cause us to default on our obligations and impair
our liquidity. Our inability to generate sufficient cash flow to satisfy our
debt obligations, or to refinance our obligations on commercially reasonable
terms, would have a material adverse effect on our business, financial condition
and results of operations, as well as on our ability to satisfy our debt
obligations. See " - Recent Developments" and " - Matters Affecting our
Liquidity" above and Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" in Part
II of this report.

We face industry credit risks from concentration of customer base.

         In 2002, approximately 26% of our revenues was generated by sales of
products for use in the pulp and paper industry. Poor economic conditions
affecting the pulp and paper industry could make it more difficult to collect
amounts due from customers in that industry and could reduce future demand for
our products from such customers, and as a result there could be a material
adverse effect on our financial condition, results of operations or cash flows.

Uncertainty regarding our financial condition may adversely impact our
relationship with our trade creditors and our customers.

         Due to prevailing market conditions and other business factors, the
uncertainty of our financial condition could cause our suppliers and customers
to do business with us only on terms that are more burdensome than those that
characterize our current relationship or they may decide to curtail our current
business relationship with them. As a result, we could face liquidity issues
that could adversely affect our results of operations. There can be no
assurances with respect to any actions that our trade creditors, competitors or
customers might take in this regard.


                                       15
<PAGE>


We face competition from other chemical companies, which could adversely affect
our revenues and financial condition.

         The chlor-alkali industry in which we operate is highly competitive. We
encounter competition in price, delivery, service, performance, and product
recognition and quality, depending on the product involved. Many of our
competitors are larger, have greater financial resources and have less debt than
we do. Among our competitors are two of the world's largest chemical companies,
OxyChem and Dow. Because of their greater financial resources, these companies
may be better able to withstand severe price competition and volatile market
conditions. If we do not compete successfully, our business, financial condition
and results of operations could be materially adversely affected. See " -
Competition" above.

We have ongoing environmental costs, which could have a material adverse effect
on our financial condition.

         The nature of our operations and products, including the raw materials
we handle, exposes us to a risk of liabilities or claims with respect to
environmental matters. We have incurred, and will continue to incur, significant
costs and capital expenditures in complying with these environmental laws and
regulations.

         The ultimate costs and timing of environmental liabilities are
difficult to predict. Liability under environmental laws relating to
contaminated sites can be imposed retroactively and on a joint and several
basis. One liable party could be held responsible for all costs at a site,
regardless of fault, percentage of contribution to the site or the legality of
the original disposal. We could incur significant costs, including cleanup
costs, natural resources damages, civil or criminal fines and sanctions and
third-party claims, as a result of past or future violations of, or liabilities
under, environmental laws. In addition, future events, such as changes to or
more rigorous enforcement of environmental laws, could require us to make
additional expenditures, modify or curtail our operations and/or install
pollution control equipment. See " - Environmental Regulation - U.S." and " -
Environmental Laws - Canada" above and Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Part II of this
report.

         We are entitled to be indemnified by various third parties for
particular environmental costs and liabilities associated with real property
sold to us by those third parties. We could incur significant costs upon the
inadequacy of the coverage limits or termination or expiration of one or more of
these indemnification agreements, or if an indemnifying party is unable to
fulfill its obligation to indemnify us. See " - Indemnities" above.

Our facilities are subject to operating hazards, which may disrupt our business.

         We are dependent upon the continued safe operation of our production
facilities. Our production facilities are subject to hazards associated with the
manufacture, handling, storage and transportation of chemical materials and
products, including leaks and ruptures, chemical spills or releases, pollution,
explosions, fires, inclement weather, natural disasters, unscheduled downtime
and environmental hazards. From time to time in the past, incidents have
occurred at our plants, including particularly hazardous chlorine releases, that
have temporarily shut down or otherwise disrupted our manufacturing, causing
production delays and resulting in liability for injuries, although no such
incident has occurred since 1995. Our operating and safety procedures are
consistent with those established by the chemical industry as well as those
recommended or required by federal, state and local governmental authorities.
However, we cannot provide any assurance that we will not experience these types
of incidents in the future or that these incidents will not result in production
delays or otherwise have a material adverse effect on our business, financial
condition or results of operations.

         We maintain general liability insurance and property and business
interruption insurance with coverage limits we believe are adequate. However,
because of the nature of industry hazards, we cannot provide any assurance that
liabilities for pollution and other damages arising from a major occurrence will
not exceed insurance coverage or policy limits or that adequate insurance will
be available at reasonable rates in the future.

The distribution of our products may be disrupted by various events.

         We distribute a large portion of the hazardous chemicals that we
produce by railcar, and the rail transportation system in the United States and
Canada is subject to various hazards that are beyond our control, such as
derailments or weather-related delays. The U.S. transportation system is
currently the subject of intensified examination as a result of the risk of
terrorist activities, and procedures that may be adopted to deal with that risk
may make the distribution of our products more difficult and expensive. The
implementation of any such procedures could have a material adverse effect on
our business, financial condition or results of operations.


                                       16
<PAGE>


Availability of our operating loss carryforward may be limited by the Internal
Revenue Code.

         We have net operating loss carryforwards ("NOLs") for income tax
reporting purposes, which may be available for offset against future federal
taxable income if generated during the carryforward period. As the result of our
emergence from bankruptcy and certain changes in the ownership of Pioneer, the
utilization of pre-emergence NOLs is subject to limitation under the Internal
Revenue Code and may be substantially and permanently restricted. In addition,
while post-emergence NOLs are not subject to limitation, the future realization
of such NOLs depends on our ability to maintain adequate liquidity and to
generate sufficient taxable income within the carryforward periods. The
limitation on NOL utilization may adversely affect our after-tax cash flow in
future periods.

We are dependent upon a limited number of key suppliers.

         The production of chlor-alkali products principally requires
electricity, salt and water as raw materials, and if the supply of such
materials were limited or a significant supplier failed to meet its obligations
under our current supply arrangements, we could be forced to incur increased
costs which could have a material adverse effect on our financial condition,
results of operations or cash flows.

EMPLOYEES

         As of December 31, 2002, we had 652 employees, 299 of which are covered
by collective bargaining agreements. Seventy-nine of our employees at our
Henderson, Nevada facility are covered by collective bargaining agreements with
the United Steelworkers of America and with the International Association of
Machinists and Aerospace Workers that are in effect until March 13, 2004. At our
Becancour facility, 139 employees are covered by collective bargaining
agreements with the Communication, Energy and Paperworkers Union that are in
effect until April 30, 2006, and 28 employees at our Cornwall facility are
represented by the United Steelworkers Union, with a collective bargaining
agreement that expires in November 2003. Forty-five of our employees at the
Dalhousie, New Brunswick plant are covered by a collective bargaining agreement
with the Communication, Energy and Paperworkers Union of Canada that is in
effect until May 2007. Eight employees at our Tacoma bleach facility are covered
by a collective bargaining agreement with the Teamsters Union that is in effect
until January 2006. Our employees at other production facilities are not covered
by union contracts or collective bargaining agreements. We consider our
relationship with our employees to be satisfactory, and we have not experienced
any strikes or work stoppages.

FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

         For financial information about our geographic areas of operation,
please see the table in Note 15 of our consolidated financial statements, which
presents revenues attributable to each of our geographic areas for the years
ended December 31, 2002, 2001 and 2000 and assets attributable to each of our
geographic areas as of December 31, 2002 and 2001.

ITEM 2. PROPERTIES.

FACILITIES

         The following table summarizes information regarding our principal
production, distribution and storage facilities as of February 28, 2003. All
property is owned by us unless otherwise indicated.

<Table>
<Caption>

                 LOCATION                                MANUFACTURED PRODUCTS
                 --------                                ---------------------
<S>                                                      <C>
                 Becancour, Quebec                       Chlorine and caustic soda
                                                         Hydrochloric acid
                                                         Bleach
                                                         Hydrogen

                 St. Gabriel, Louisiana                  Chlorine and caustic soda
                                                         Hydrogen

                 Henderson, Nevada                       Chlorine and caustic soda
                                                         Hydrochloric acid
                                                         Bleach
                                                         Hydrogen
</Table>





                                       17
<PAGE>

<Table>
<Caption>

                 LOCATION                                MANUFACTURED PRODUCTS
                 --------                                ---------------------
<S>                                                      <C>
                 Dalhousie, New Brunswick                Chlorine and caustic soda
                                                         Sodium chlorate
                                                         Hydrogen

                 Cornwall, Ontario*                      Hydrochloric Acid
                                                         Bleach
                                                         Cereclor(R) chlorinated paraffin
                                                         IMPAQT(R) pulping additive

                 Tracy, California*                      Bleach
                                                         Chlorine repackaging

                 Santa Fe Springs, California*           Bleach
                                                         Chlorine repackaging

                 Tacoma, Washington (2 sites)            Bleach
                                                         Chlorine repackaging
                                                         Calcium chloride
                                                         Terminal facility
</Table>

----------

* Leased property

     Becancour, Quebec. The Becancour facility is located on a 100-acre site in
an industrial park on the deep-water St. Lawrence Seaway. The facility was
constructed in 1975, with additions in 1979 and 1997. Annual production capacity
is 340,000 tons of chlorine, 383,000 tons of caustic soda and 150,000 tons of
hydrochloric acid. In addition, the site has a bleach production facility
capable of producing 9,600 tons of bleach per year. Approximately 82% of the
Becancour facility's production is based on diaphragm cell technology, and more
efficient membrane cell technology accounts for the remaining approximately 18%
of production.

     St. Gabriel, Louisiana. The St. Gabriel facility is located on a 100-acre
site near Baton Rouge, Louisiana. Approximately 228 acres adjoining the site are
available to us for future industrial development. The St. Gabriel facility was
completed in 1970 and is situated on the Mississippi River with river frontage
and deepwater docking, loading and unloading facilities. Annual production
capacity at the St. Gabriel facility is 197,000 tons of chlorine and 216,700
tons of caustic soda, using mercury cell technology.

     Henderson, Nevada. The Henderson facility is located on a 374-acre site
near Las Vegas, Nevada. Approximately 70 acres are developed and used for
production facilities. The Henderson facility, which began operation in 1942 and
was upgraded and rebuilt in 1976-1977, uses diaphragm cell technology. Annual
production capacity at the Henderson facility is 152,000 tons of chlorine,
167,200 tons of caustic soda and 130,000 tons of hydrochloric acid. In addition,
the facility is capable of producing 180,000 tons of bleach per year. The
Henderson facility is part of an industrial complex shared with three other
manufacturing companies. Common facilities and property are owned and managed by
subsidiaries of Basic Management, Inc. ("BMI"), which provide common services to
the four site companies. BMI's facilities include extensive water and high
voltage power distribution systems and access roads.

     Dalhousie, New Brunswick. The Dalhousie facility is located on a 36-acre
site along the north shore of New Brunswick on the Restigouche River. The
Dalhousie facility consists of a mercury cell chlor-alkali plant built in 1963
and expanded in 1971 and a sodium chlorate plant built in 1992. Annual
production capacity is 36,000 tons of chlorine, 40,000 tons of caustic soda and
22,000 tons of sodium chlorate.

     Cornwall, Ontario. The Cornwall units are located on leased portions of a
36-acre site on the St. Lawrence River in Cornwall, Ontario, which portions are
leased under a lease expiring in the year 2007, with two five-year renewal
options. The facilities consist of a bleach plant with an annual production
capacity of 236,000 tons, a Cereclor(R) chlorinated paraffin plant capable of
producing 9,800 tons per year, an IMPAQT(R) pulping additive plant capable of
producing 3,000 tons per year and a hydrochloric acid plant with an annual
production capacity of 14,700 tons.

     Tracy, California. The Tracy facility includes a bleach production plant
capable of producing 233,000 tons per year and a chlorine



                                       18
<PAGE>

repackaging plant on a 15-acre tract. The land at the facility is leased under a
lease expiring in the year 2005, with two five-year renewal options.

     Santa Fe Springs, California. The Santa Fe Springs facility includes a
bleach production plant capable of producing 180,000 tons per year and a
chlorine repackaging plant on a 4.5-acre tract. The land at the facility is
leased under a lease expiring in 2008.

     Tacoma, Washington. The Tacoma bleach facility serves the Pacific Northwest
market. The bleach production facility, which has an annual production capacity
of 90,000 tons, and a chlorine repackaging facility are located on a five-acre
company-owned site in Tacoma, Washington. The separate, now-idled Tacoma
chlor-alkali plant is located on a 31-acre site which is part of an industrial
complex on the Hylebos Waterway in Tacoma, Washington. The chlor-alkali plant,
which used both diaphragm cell and membrane cell technology, was upgraded and
expanded in the late 1970s and in 1998, and has rail facilities as well as docks
capable of handling ocean-going vessels. The site is now used for the production
of calcium chloride, with annual capacity of 8,800 tons, and as a terminal
facility.

     Other Facilities. Our corporate headquarters is located in leased office
space in Houston, Texas under a lease terminating in 2006. We also lease office
space in Montreal, Quebec under a lease terminating in 2011.

ITEM 3. LEGAL PROCEEDINGS.

     From time to time and currently, we are involved in litigation relating to
claims arising out of our operations in the normal course of our business. We
maintain insurance coverage against potential claims in amounts that we believe
to be adequate. During the course of our bankruptcy proceedings, Tacoma Power, a
municipally-owned utility, filed a claim in the amount of $2.1 million with
respect to amounts owed by us to Tacoma Power prior to the filing of the
bankruptcy petition. Tacoma Power has asserted that as a result of a state
statutory provision, its claim gave rise to a lien against our Tacoma
chlor-alkali plant site, so that it is entitled to a cash payment of $2.1
million in full satisfaction of its claim in accordance with the provisions of
our plan of reorganization. The Bankruptcy Court has ruled that Tacoma Power's
claim is not secured by a lien; consequently, Tacoma Power is entitled to the
receipt of a pro rata portion of the 300,000 shares of our common stock
allocated by the plan of reorganization to unsecured claims, rather than a cash
payment. Tacoma Power has appealed that decision to the U.S. District Court for
the Southern District of Texas, and the parties are waiting for a decision from
that court.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     No matters were submitted during the fourth quarter of 2002 to a vote of
security holders.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.

     The names, ages and current offices of our executive officers, each of whom
is to serve until the officer's successor is elected or appointed and qualified
or until the officer's death, resignation or removal by the Board of Directors,
are set forth below.

<Table>
<Caption>
                     NAME AND AGE                      AGE                      OFFICE
                     ------------                      ---                      ------
<S>                                                    <C>     <C>
           Michael Y. McGovern..................        51     Director, President and Chief Executive Officer
           Gary L. Pittman......................        47     Vice President and Chief Financial Officer
           James E. Glattly.....................        56     Vice President, Sales and Marketing
           David A. Scholes.....................        57     Vice President, Manufacturing
           Kent R. Stephenson...................        53     Vice President, General Counsel and Secretary
</Table>

     Michael Y. McGovern has served as President and Chief Executive Officer
since September 2002. He has been a director of Pioneer since December 31, 2001.
From April 2001 until January 2003, he was President and Chief Executive Officer
and a director of Coho Energy, Inc., a publicly-held oil and gas exploitation,
exploration and development company. From 1998 to March 2000 he was Managing
Director of Pembrook Capital Corporation, a privately held company involved in
providing advisory services to distressed or constrained energy companies, and
from July 1993 to October 1997 he was Chairman and Chief Executive Officer of
Edisto Resources Corporation and Convest Energy Corporation, which are
publicly-held oil and gas exploration and development companies. He also serves
as a director of Goodrich Petroleum Corporation, a public oil and gas company.

     Gary L. Pittman has served as Vice President and Chief Financial Officer
since December 2002. From April 2000 to September 2002 he was Vice President and
Chief Financial Officer of Coho Energy, Inc. From August 1999 to March 2000 he
was Chief



                                       19
<PAGE>

Financial Officer of Bell Geospace, Inc., a privately-held data-based oil
service company. From 1998 to 1999 he served as a consultant to Perception,
Inc., a privately-held kayak manufacturer, and from 1995 to 1997 he was
Executive Vice President, Chief Financial Officer and Treasurer of Convest
Energy Corporation, a publicly-held oil and gas exploration and production
company.

     James E. Glattly has served as Vice President, Sales and Marketing since
August 2001. He was Vice President, Marketing from March 2001 to August 2001,
Senior Vice President, Sales & Marketing - West from June 1999 to March 2001,
and President of a predecessor of Pioneer Americas from December 1996 to June
1999. He was Vice President, Sales and Marketing of predecessors of Pioneer
Americas from 1988 to 1996.

     David A. Scholes has served as Vice President, Manufacturing since March
2001. He was Vice President, Manufacturing - U.S. from November 1999 to March
2001, and Vice President - Manufacturing of a predecessor of Pioneer Americas
from January 1997 to November 1999. Prior to that time, he was manager of
Occidental Chemical Corporation's Houston chemical complex.

     Kent R. Stephenson has served as Vice President, General Counsel and
Secretary since June 1995. He was Vice President, General Counsel and Secretary
of a predecessor of Pioneer Americas from 1993 to 1995. Prior to 1993, he was
Senior Vice President and General Counsel of Zapata Corporation, then an oil and
gas services company.

           CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS.

     We are including the following discussion to inform our existing and
potential security holders generally of some of the risks and uncertainties that
can affect our company and to take advantage of the "safe harbor" protection for
forward-looking statements that applicable federal securities law affords.

     From time to time, our management or persons acting on our behalf make
forward-looking statements to inform existing and potential security holders
about our company. These statements may include projections and estimates
concerning the timing and success of specific projects and our future prices,
liquidity, backlog, revenue, income and capital spending. Forward-looking
statements are generally accompanied by words such as "estimate," "project,"
"predict," "believe," "expect," "anticipate," "plan," "forecast," "budget,"
"goal" or other words that convey the uncertainty of future events or outcomes.
In addition, sometimes we will specifically describe a statement as being a
forward-looking statement and refer to this cautionary statement.

     Various statements this report contains, including those that express a
belief, expectation or intention, as well as those that are not statements of
historical fact, are forward-looking statements. Those forward-looking
statements appear in Item 1 "Business," Item 2 "Properties" and Item 3 "Legal
Proceedings" in Part I of this report and in Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations," Item 7A
"Quantitative and Qualitative Disclosures About Market Risk" and in the Notes to
the consolidated financial statements incorporated into Item 8 of Part II of
this report and elsewhere in this report. These forward-looking statements speak
only as of the date of this report, we disclaim any obligation to update these
statements, and we caution against any undue reliance on them. We have based
these forward-looking statements on our current expectations and assumptions
about future events. While our management considers these expectations and
assumptions to be reasonable, they are inherently subject to significant
business, economic, competitive, regulatory and other risks, contingencies and
uncertainties, most of which are difficult to predict and many of which are
beyond our control. These risks, contingencies and uncertainties relate to,
among other matters, the following:

          o    general economic, business and market conditions, including
               economic instability or a downturn in the markets served by us;

          o    the cyclical nature of our product markets and operating results;

          o    competitive pressures affecting selling prices and volumes;

          o    the supply/demand balance for our products, including the impact
               of excess industry capacity;

          o    the occurrence of unexpected manufacturing interruptions/outages,
               including those occurring as a result of production hazards;

          o    failure to fulfill financial covenants contained in our debt
               instruments;



                                       20
<PAGE>

          o    inability to make scheduled payments on or refinance our
               indebtedness;

          o    loss of key customers or suppliers;

          o    higher than expected raw material and utility costs;

          o    disruption of transportation or higher than expected
               transportation and/or logistics costs;

          o    environmental costs and other expenditures in excess of those
               projected;

          o    changes in laws and regulations inside or outside the United
               States;

          o    uncertainty with respect to interest rates; and

          o    the occurrence of extraordinary events, such as the attacks on
               the World Trade Center and The Pentagon that occurred on
               September 11, 2001, or the war in Iraq.

     We believe the items we have outlined above are important factors that
could cause our actual results to differ materially from those expressed in a
forward-looking statement made in this report or elsewhere by us or on our
behalf. We have discussed most of these factors in more detail elsewhere in this
report. These factors are not necessarily all the important factors that could
affect us. Unpredictable or unknown factors we have not discussed in this report
could also have material adverse effects on actual results of matters that are
the subject of our forward-looking statements. We do not intend to update our
description of important factors each time a potential important factor arises.
We advise our security holders that they should (i) be aware that important
factors we do not refer to above could affect the accuracy of our
forward-looking statements and (ii) use caution and common sense when
considering our forward-looking statements.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

RECENT SALES OF UNREGISTERED SECURITIES

     On December 31, 2001, our plan of reorganization became effective. Under
the plan of reorganization, (i) an aggregate of 10,000,000 shares of our common
stock were issued to persons who were our creditors immediately prior to
effectiveness of the plan of reorganization and (ii) the holders of our senior
secured debt existing immediately prior to effectiveness of the plan of
reorganization received $200 million principal amount of new senior secured
debt. The shares issued to creditors and the new senior secured debt were issued
in exchange for our debt and other obligations which were outstanding
immediately prior to effectiveness of the plan of reorganization. The common
stock and the new senior secured debt were issued in reliance on an exemption
from the registration requirements of the Securities Act of 1933 provided by
Section 1145(a)(1) of the U.S. Bankruptcy Code.

MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our common stock is currently quoted on the OTC Bulletin Board under the
symbol "PONR." The Class A common stock existing before our reorganization was
listed and traded on the NASDAQ SmallCap Market under the symbol "PIONA." There
was no established trading market for our Class B common stock that existed
prior to our reorganization. The NASDAQ SmallCap Market delisted our Class A
common stock on January 12, 2001 after which time the Class A common stock
traded on the OTC Bulletin Board under the symbol "PIOAE" until its cancellation
on December 31, 2001. On December 31, 2001, all shares of our Class A common
stock and Class B common stock existing before our reorganization were cancelled
and new shares of our common stock were issued. On February 20, 2002, our newly
issued common stock began trading on the OTC Bulletin Board. As of March 11,
2003 we had 10,000,000 shares of common stock outstanding and had 672
shareholders of record. The last sale of shares of our common stock on March 26,
2003 as quoted on the OTC Bulletin Board, was at a price of $4.00.

     The following table contains information about the high and low sales price
per share of (i) our Class A common stock before our plan of reorganization
became effective on December 31, 2001, and (ii) our common stock following the
effectiveness of our plan of



                                       21
<PAGE>

reorganization. Sales price information for periods on or before January 12,
2001 reflect prices reported by the NASDAQ SmallCap Market. Sales price
information for periods from January 12, 2001 to December 31, 2002 reflects
quotes from the OTC Bulletin Board. Information about OTC bid quotations
represents prices between dealers, does not include retail mark-ups, mark-downs
or commissions, and may not necessarily represent actual transactions.
Quotations on the OTC Bulletin Board are sporadic and currently there is no
established public trading market for our common stock.

     As our Class A common stock was cancelled on December 31, 2001, the prices
set forth on the following table for 2001 are not relevant to or indicative of
the present or future value of our newly issued common stock.

<Table>
<Caption>
                                                        SALES PRICE
                                                    ---------------------
                                                      HIGH          LOW
                                                    -------      --------
<S>                                                 <C>          <C>
     Currently outstanding shares -- 2002
             Fourth Quarter                         $  3.75      $  1.50
             Third Quarter                             4.00         1.62
             Second Quarter                            2.87         0.96
             First Quarter                             3.19         1.70

     Cancelled Class A shares -- 2001
              Fourth Quarter                        $  0.08      $  0.00
              Third Quarter                            0.18         0.01
              Second Quarter                           0.75         0.03
              First Quarter                            2.00         0.63
</Table>

DIVIDEND POLICY

     We currently do not anticipate paying dividends on our common stock. The
covenants in the agreements related to our Senior Secured Debt prohibit the
payment of dividends on our common stock, other than dividends payable solely in
our common stock, so long as any Senior Secured Debt remains outstanding. Unless
we prepay amounts outstanding on our Senior Secured Debt, we will have
borrowings outstanding thereunder until December 31, 2008. Any determination to
declare or pay dividends out of funds legally available for that purpose after
repayment of our Senior Secured Debt will be at the discretion of our board of
directors and will depend on our future earnings, results of operations,
financial condition, capital requirements, future contractual restrictions and
other factors our board of directors deems relevant. No cash dividends have been
declared or paid during the three most recent fiscal years.

EQUITY COMPENSATION PLAN INFORMATION

The following table presents information regarding our 2001 Employee Stock
Option Plan as of December 31, 2002:

<Table>
<Caption>
                                                                                              NUMBER OF SECURITIES
                                                                                              REMAINING AVAILABLE
                                                                                              FOR FUTURE ISSUANCE
                                             NUMBER OF SECURITIES     WEIGHTED AVERAGE           UNDER EQUITY
                                               TO BE ISSUED UPON      EXERCISE PRICE OF       COMPENSATION PLANS
                                                 EXERCISE OF             OUTSTANDING         (EXCLUDING SECURITIES
                                             OUTSTANDING OPTIONS,     OPTIONS, WARRANTS       REFLECTED IN COLUMN
                                              WARRANTS AND RIGHTS        AND RIGHTS                  (a))

           PLAN CATEGORY                             (a)                     (b)                     (c)
--------------------------------------       --------------------     -----------------      ---------------------
<S>                                          <C>                      <C>                    <C>
Equity compensation plans approved by
security holders* ....................                 718,000          $         2.96                 282,000
Equity compensation plans not approved
by security holders ..................                      --                      --                      --
                                                --------------          --------------          --------------
Total                                                  718,000          $         2.96                 282,000
                                                ==============          ==============          ==============
</Table>


* The adoption of our 2001 Employee Stock Option Plan was included in our plan
of reorganization, as confirmed by the Bankruptcy Court after approval by our
creditors.




                                       22
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

     The following selected consolidated financial information is derived from
our consolidated financial statements for periods both before and after emerging
from bankruptcy protection on December 31, 2001. Certain amounts have been
reclassified in prior years to conform to the current year presentation. Per
share information for our company prior to our emergence from bankruptcy (the
"Predecessor Company") reflects 7% stock dividends on the Predecessor Company's
Class A common stock and Class B common stock in 1999 and 1998. No cash
dividends were declared or paid for the periods presented below. The data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
including the related notes.

     The consolidated statements of operations information for the year ended
December 31, 2002 and the consolidated balance sheet information at December 31,
2002 and December 31, 2001 reflects the financial position and operating results
after the effect of the plan of reorganization and the application of the
principles of fresh start accounting in accordance with the provisions of
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code" ("SOP 90-7"). Accordingly, such financial information
is not comparable to the historical financial information before December 31,
2001.

<Table>
<Caption>
                                                                               YEAR ENDED DECEMBER 31,
                                                             -------------------------------------------------------------
                                                               2002         2001         2000         1999         1998
                                                             ---------    ---------    ---------    ---------    ---------
                                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                                             SUCCESSOR
                                                              COMPANY                 PREDECESSOR COMPANY
                                                             ---------    ------------------------------------------------
<S>                                                          <C>          <C>          <C>          <C>          <C>
Statement of Operations Data:
    Revenues ............................................... $ 316,910    $ 383,482    $ 402,908    $ 354,421    $ 441,706
    Cost of sales - product (1) ............................   297,157      349,061      370,997      343,688      358,811

    Cost of sales - derivatives ............................   (12,877)     (10,725)          --           --           --
                                                             ---------    ---------    ---------    ---------    ---------
    Gross profit ...........................................    32,630       45,146       31,911       10,733       82,895
    Selling, general and administrative expenses ...........    23,121       41,526       43,424       49,580       50,162
    Change in fair value of derivatives ....................   (23,566)     110,837           --           --           --
    Asset impairment and other charges (2) .................    21,409       12,938           --           --        1,661
                                                             ---------    ---------    ---------    ---------    ---------
    Operating income (loss) ................................    11,666     (120,155)     (11,513)     (38,847)      31,072
    Interest expense, net (3) ..............................   (18,891)     (36,010)     (56,328)     (51,927)     (50,521)
    Reorganization items (4) ...............................        --       (6,499)          --           --           --
    Fresh start adjustments (5) ............................        --     (106,919)          --           --           --
    Other income, net (6) ..................................     1,687        1,169        3,309       14,176        1,755
                                                             ---------    ---------    ---------    ---------    ---------
    Loss before income taxes and extraordinary
       Items ...............................................    (5,538)    (268,414)     (64,532)     (76,598)     (17,694)
    Income tax (expense) benefit (7) .......................       781       (3,123)     (41,031)      26,214        4,677
                                                             ---------    ---------    ---------    ---------    ---------
    Net loss before extraordinary item .....................    (4,757)    (271,537)    (105,563)     (50,384)     (13,017)
    Extraordinary gain, net of tax (8) .....................        --      414,312           --           --           --
                                                             ---------    ---------    ---------    ---------    ---------
  Net income (loss) ........................................ $  (4,757)   $ 142,775    $(105,563)   $ (50,384)   $ (13,017)
                                                             =========    =========    =========    =========    =========
  Net loss before extraordinary item per share:
     basic and diluted ..................................... $   (0.48)   $  (23.53)   $   (9.15)   $   (4.38)   $   (1.14)
                                                             =========    =========    =========    =========    =========
  Other Financial Data:
    Capital expenditures ................................... $  10,615    $  13,112    $  18,697    $  28,318    $  34,759
    Depreciation and amortization ..........................    24,926       46,810       50,242       54,713       50,316
    Net cash flows from operating activities ...............       250       32,906       13,137      (52,349)      39,337
    Net cash flows from investing activities ...............    (8,568)     (12,879)     (15,819)     (15,159)     (34,424)
    Net cash flows from financing activities ...............     6,392      (21,489)       4,486       17,658       (2,264)
</Table>

<Table>
<Caption>
                                                                 SUCCESSOR COMPANY                  PREDECESSOR COMPANY
                                                            ---------------------------   -----------------------------------------
<S>                                                         <C>            <C>            <C>             <C>             <C>
Balance Sheet Data:
  Total assets ...........................................  $    474,146   $    706,912   $    590,037    $    680,606    $ 731,442
  Total long-term debt (exclusive of current
    maturities), and redeemable preferred stock (9) ......       207,463        208,701          9,586         600,223      589,668
  Stockholders' equity (deficiency in assets) ............         1,252         10,527       (132,324)        (26,702)      23,553
</Table>

----------

(1)     During March 2001 there was a 50% curtailment of the operations at our
        Tacoma chlor-alkali plant, and in March 2002 the Tacoma chlor-alkali
        plant was idled. In addition, Pioneer stopped amortizing goodwill
        effective January 1, 2002, in accordance with SFAS 142.

(2)     Asset impairment and other charges for 2002 includes a $16.9 million
        impairment loss relating to our Tacoma chlor-alkali facility. Asset
        impairments and other charges in 2001 include $9.1 million of
        restructuring expenses for severance and professional fees incurred
        prior to the Chapter 11 bankruptcy filings, and a $3.8 million loss from
        an asset impairment. See Note 16 to the consolidated financial
        statements.



                                       23
<PAGE>


(3)     Interest expense for 2001 excludes contractual interest of $21.8
        million, which was not recorded in accordance with SOP 90-7 as it
        related to compromised debt.

(4)     Reorganization items include legal and professional fees and expenses
        incurred subsequent to the Chapter 11 bankruptcy filings and executive
        retention bonuses, offset by gains from individually-negotiated
        settlements of certain pre-petition liabilities. See Note 4 to the
        consolidated financial statements.

(5)     For information regarding fresh start adjustments, see Note 4 to the
        consolidated financial statements.

(6)     Other income in 1999 included a $12.0 million gain on the sale of our
        15% partnership interest in Saguaro Power Company.

(7)     Income tax expense in 2000 includes a valuation allowance of $67.8
        million reducing U.S. deferred tax assets to zero. See Note 19 to the
        consolidated financial statements.

(8)     An extraordinary gain of $414.3 million related to debt cancelled in
        accordance with the plan of reorganization was recorded in 2001, net of
        income tax expense of $8.7 million.

(9)     Because we were in default under various loan agreements on December 31,
        2000, $597.7 million of debt outstanding under various agreements was
        classified as a current liability on our consolidated balance sheet.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

     All statements in this report, other than statements of historical facts,
including, without limitation, statements regarding our business strategy, plans
for future operations and industry conditions, are forward-looking statements
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are subject to various
risks, uncertainties and assumptions, including those we refer to under the
heading "Cautionary Statement Concerning Forward-Looking Statements" in Part I
of this report. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, because of the inherent limitations
in the forecasting process, as well as the relatively volatile nature of the
industries in which we operate, we can give no assurance that those expectations
will prove to have been correct. Accordingly, evaluation of our future prospects
must be made with caution when relying on forward-looking information.

OVERVIEW

     Pioneer Companies, Inc. and its subsidiaries have manufactured and marketed
chlorine, caustic soda and related products in North America since 1988. We
conduct our primary business through our operating subsidiaries: PCI Chemicals
Canada Company (which we refer to as PCI Canada) and Pioneer Americas LLC (which
we refer to as Pioneer Americas).

     Chlorine and caustic soda are commodity chemicals which we believe are the
seventh and sixth most commonly produced chemicals, respectively, in the United
States, based on volume, and are used in a wide variety of applications and
chemical processes. Caustic soda and chlorine are co-products, concurrently
produced in a ratio of approximately 1.1 to 1 through the electrolysis of salt
water. An electrochemical unit, which we refer to as an ECU, consists of 1.1
tons of caustic soda and 1 ton of chlorine.

     Chlorine is used in 60% of all commercial chemistry, 85% of all
pharmaceutical chemistry and 95% of all crop protection chemistry. More than
15,000 products, including water treatment chemicals, plastics, detergents,
pharmaceuticals, disinfectants and agricultural chemicals, are manufactured with
chlorine as a raw material. Chlorine is also used directly in water disinfection
applications. In the United States and Canada, virtually all public drinking
water is made safe to drink by chlorination, and a significant portion of
industrial and municipal wastewater is treated with chlorine or chlorine
derivatives to kill water-borne pathogens.

     Caustic soda is a versatile chemical alkali used in a diverse range of
manufacturing processes, including pulp and paper production, metal smelting and
oil production and refining. Caustic soda is combined with chlorine to produce
bleach, which is used for water treatment and as a cleaning disinfectant.
Caustic soda is also used as an active ingredient in a wide variety of other
end-use products, including detergents, rayon and cellophane.



                                       24
<PAGE>

     We believe that we are the seventh largest chlor-alkali producer in North
America, with approximately 5% of North American production capacity. We
currently own and operate the following four chlor-alkali plants in North
America that produce chlorine and caustic soda and related products:

<Table>
<Caption>

         LOCATION                                             MANUFACTURED PRODUCTS
         --------                                             ---------------------
<S>                                                           <C>
         Becancour, Quebec                                    Chlorine and caustic soda
                                                              Hydrochloric acid
                                                              Bleach
                                                              Hydrogen

         St. Gabriel, Louisiana                               Chlorine and caustic soda
                                                              Hydrogen

         Henderson, Nevada                                    Chlorine and caustic soda
                                                              Hydrochloric acid
                                                              Bleach
                                                              Hydrogen

         Dalhousie, New Brunswick                             Chlorine and caustic soda
                                                              Sodium chlorate
                                                              Hydrogen
</Table>

     Effective March 15, 2002, we idled our Tacoma, Washington chlor-alkali
plant, which reduced our currently utilized annual production capacity from
approximately 950,000 ECUs to approximately 725,000 ECUs. The Tacoma
chlor-alkali plant site is now being used principally as a terminal to serve our
customers in the Pacific Northwest. The four facilities that we now operate
produce chlorine and caustic soda for sale in the merchant markets and for use
as raw materials in the manufacture of our downstream products. Some of the
important characteristics of our chlor-alkali plants are as follows:

          o    our Becancour facility is a low-cost production facility, which
               results in part from that facility's use of hydropower;

          o    our St. Gabriel facility has three pipelines that allow us to
               efficiently transport and supply chlorine to customers in
               Louisiana;

          o    our Henderson facility is the only currently operating
               chlor-alkali production facility in the western region of the
               United States, which provides us with a strong regional presence,
               transportation cost advantages and a consistent and reliable
               source of supply for our bleach production and chlorine
               repackaging operations in California and Washington; and

          o    our idled Tacoma facility represents a means of increasing our
               production capacity to take greater advantage of any sustained
               market upturn.

     We also operate two bleach production and chlorine repackaging facilities
in Santa Fe Springs and Tracy, California and one bleach production and chlorine
repackaging facility in Tacoma, Washington. We distribute these products to
municipalities and selected commercial markets in the western United States
through various distribution channels. All of the chlorine and caustic soda used
as raw materials at these facilities is supplied by our chlor-alkali facilities.
Our Cornwall, Ontario facility produces hydrochloric acid, bleach, chlorinated
paraffins sold under the brand name Cereclor(R), and IMPAQT(R), a proprietary
pulping additive.

EMERGENCE FROM BANKRUPTCY

     On December 31, 2001, we and our direct and indirect wholly-owned
subsidiaries emerged from protection under Chapter 11 of the U.S. Bankruptcy
Code, and on the same date PCI Canada emerged from protection under the
provisions of Canada's Companies Creditors' Arrangement Act. On that date, our
plan of reorganization, which was confirmed by the U.S. Bankruptcy Court on
November 28, 2001, became effective.

     Upon emergence from bankruptcy, our Senior Secured Debt aggregated $206.7
million, consisting of the Senior Guaranteed Notes due 2006 in the aggregate
principal amount of $45.4 million, the Senior Floating Notes due 2006 in the
aggregate principal amount of $4.6 million, the 10% Senior Secured Notes due
2008 in the aggregate principal amount of $150 million, and the Revolver with a
$30 million commitment and a borrowing base restriction, borrowings under which
were used shortly after our emergence from bankruptcy to replace $6.7 million of
debtor-in-possession financing which was outstanding as of December 31, 2001.
The Senior



                                       25
<PAGE>

Secured Debt requires payments of interest in cash and the related agreements
contain various covenants including financial covenants in our Revolver (which
if violated will create a default under the cross-default provisions of the
Senior Notes) that obligate us to comply with certain cash flow requirements.
The interest payment requirements of the Senior Secured Debt and the financial
covenants in the Revolver were set at levels based on financial projections of
an assumed minimum ECU netback and do not accommodate significant downward
variations in operating results.

     The financial results for the twelve months ended December 31, 2001 were
affected by our filing for reorganization under Chapter 11 of the U.S.
Bankruptcy Code and a parallel filing under the Canadian Companies Creditors'
Arrangement Act on July 31, 2001 and our emergence from bankruptcy on December
31, 2001, the effective date of our plan of reorganization. Our post-emergence
consolidated financial statements reflect results after the consummation of the
plan of reorganization and the application of the principles of fresh start
accounting in accordance with the provisions of SOP 90-7. See Note 4 to the
consolidated financial statements. The company as it existed prior to our
emergence from bankruptcy (which we refer to as the Predecessor Company) and the
Successor Company after adopting fresh start accounting are different reporting
entities and the consolidated financial statements are not comparable.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     We apply those accounting policies that we believe best reflect the
underlying business and economic events, consistent with generally accepted
accounting principles. Inherent in such policies are certain key assumptions and
estimates that we have made. Our more significant accounting policies include
those related to derivatives, long-lived assets, accruals for long-term employee
benefit costs such as pension, postretirement and other postemployment costs,
revenue recognition, environmental liabilities, inventory reserves, allowance
for doubtful accounts, and income taxes.

     Fresh Start Accounting. We applied fresh start accounting to the
consolidated balance sheet as of December 31, 2001 in accordance with SOP 90-7.
Under fresh start accounting, a new reporting entity is considered to be created
and the recorded amounts of assets and liabilities are adjusted to reflect their
estimated fair values at the date fresh start accounting is applied. See Note 4
to the consolidated financial statements, which, together with the notes related
to these statements, we refer to in this report as our "consolidated financial
statements."

     Planned Major Maintenance Activities. In connection with the application of
fresh start accounting, we adopted a policy of expensing major maintenance costs
when incurred. Such costs are incurred when major maintenance activities are
performed on our chlor-alkali plants. The change in accounting policy affects
the accounting for major maintenance at St. Gabriel, since previously the costs
were amortized over the period, generally two years or more, between major
maintenance activity. We incurred $1.6 million of major maintenance expenses at
St Gabriel in the fourth quarter of 2002. We perform major maintenance at our
other chlor-alkali plants on an annual basis.

     Derivatives. We account for the Approved Derivatives and the Disputed
Derivatives based upon the fair value accounting methods prescribed by Statement
of Financial Accounting Standard 133, "Accounting For Derivative Instruments and
Hedging Activities," as interpreted and amended ("SFAS 133"). SFAS 133 requires
that we determine the fair value of the instruments in our portfolios of
Approved Derivatives and Disputed Derivatives and reflect them in our balance
sheet at their fair values. Changes in the fair value from period to period for
the Approved Derivatives and the Disputed Derivatives are recorded in our income
statement each period. We have settled our dispute with CRC and do not believe
that derivative accounting will have a future impact on our financial statements
subsequent to the recognition of the estimated gain from the settlement. One of
the primary factors that had an impact on our results each period was the price
assumptions used to value the derivative instruments. Some of these instruments
had quoted market prices. However, we were required to use valuation techniques
or models to estimate the fair value of instruments that were not traded on an
active exchange or that had terms that extended beyond the time period for which
exchange-based quotes were available. These modeling techniques required
estimates of future prices, price correlation, interest rates and market
volatility and liquidity. The estimates also reflected modeling risk, credit
risk of the transaction counterparties and operational risk. The amounts we
reported in our financial statements changed as these estimates were revised to
reflect actual results, changes in market conditions or other factors, many of
which were beyond our control. Additional information on the Approved
Derivatives and the Disputed Derivatives appears in Notes 3 and 24 to the
consolidated financial statements and Item 7A "- Quantitative and Qualitative
Disclosures about Market Risk" below.

     Long-Lived Assets. Key assumptions include the estimate of useful lives and
the recoverability of carrying values of fixed assets and goodwill. In assessing
the recoverability of long-lived assets, we must make assumptions regarding
estimated future cash flows and other factors to determine the fair value of the
assets. Such estimates could be significantly modified and/or the carrying
values of



                                       26
<PAGE>

the assets could be impaired by such factors as new technological developments,
new chemical industry entrants with significant raw material cost advantages,
uncertainties associated with the United States and world economies, the
cyclical nature of the chemical industry, and uncertainties associated with
governmental actions.

     Long-Term Employee Benefit Costs. Key assumptions include the long-term
rate of return on pension assets, the annual rate of inflation of health care
costs and the applicable interest rate. Effective December 31, 2002, we
decreased our interest rate assumption for the U.S. plans. The interest rate
decrease and lower-than-expected returns on plan assets are expected to increase
our net periodic pension and post-retirement benefits expense by approximately
$1 million in 2003.

     Revenue Recognition. We recognize revenue from product sale at the time of
shipment and when collection is reasonably assured. We classify amounts billed
to customers for shipping and handling as revenues, with related shipping and
handling costs included in cost of goods sold. Such revenues do not involve
difficult, subjective, or complex judgments.

     Environmental Liabilities. We establish reserves for environmental matters
and other contingencies when it is probable that a liability has been incurred
and the amount of the liability is reasonably estimable. If the contingency is
resolved for an amount greater or less than has been accrued, or our share of
the contingency increases or decreases, or other assumptions relevant to the
development of the estimate were to change, we would recognize an additional
expense or benefit in income in the period such determination was made.

     Inventory Reserves. We establish lower of cost or market reserves for our
raw materials and finished goods inventory as needed. If we do not accurately
estimate the lower of cost or market of our inventory and it is determined to be
undervalued, we may have over-reported our cost of sales in previous periods and
would be required to recognize such additional operating income at the time of
sale. We maintain reserves for slow moving and obsolete inventory items equal to
the difference between the carrying cost of the inventory and the estimated
market value.

     Allowance for Doubtful Accounts. We maintain allowances for doubtful
accounts for estimated losses resulting from the inability of our customers to
make required payments and the unwillingness of our customers to make required
payments due to disagreements regarding product price. Allowance for doubtful
accounts are based on historical experience and known factors regarding specific
customers and industries in which they operate. If the financial condition of
our customers were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances would be required.

     Income Taxes. We have significant amounts of deferred tax assets that are
reviewed periodically for recoverability. These assets are evaluated by using
estimates of future taxable income streams and the impact of tax planning
strategies. Valuations related to tax accruals and assets could be impacted by
changes to tax codes, changes in the statutory tax rates and our future taxable
income levels. We have provided a valuation allowance for the full amount of the
U.S. net deferred tax assets due to uncertainties relating to limitations on
utilization under the Internal Revenue Code and our ability to generate
sufficient taxable income within the carryforward period.

     We periodically update our estimates used in the preparation of the
financial statements based on our latest assessment of the current and projected
business and general economic environment.

LIQUIDITY AND CAPITAL RESOURCES

     Our Senior Secured Debt consists of the Senior Guaranteed Notes due 2006 in
the aggregate principal amount of $45.4 million, the Senior Floating Notes due
2006 in the aggregate principal amount of $4.6 million, 10% Senior Secured Notes
due 2008 in the aggregate principal amount of $150 million, and the Revolver
with a $30 million commitment and a borrowing base restriction. The Senior
Secured Debt requires payments of interest in cash and the related agreements
contain various covenants including financial covenants in our Revolver (which
if violated will create a default under the cross-default provisions of the
Senior Notes) that obligate us to comply with certain cash flow requirements.
The interest payment requirements of the Senior Secured Debt and the financial
covenants in the Revolver were set at levels based on financial projections of
an assumed minimum ECU netback and do not accommodate significant downward
variations in operating results.

     The debt agreements also contain covenants limiting our ability to, among
other things, incur additional indebtedness, prepay or modify debt instruments,
grant additional liens, guarantee any obligations, sell assets, engage in
another type of business or suspend or terminate a substantial portion of
business, declare or pay dividends, make investments, make capital expenditures
in excess of certain amounts, or make use of the proceeds of borrowings for
purposes other than those specified in the agreements. The agreements also


                                       27
<PAGE>

include customary events of default, including a change of control under the
Revolver. Borrowings under the Revolver will generally be available subject to
the accuracy of all representations and warranties, including the absence of a
material adverse change and the absence of any default or event of default.

     We are required to redeem the Tranche A Notes from and to the extent of net
cash proceeds of certain asset sales, new equity issuances in excess of $5
million and excess cash flow (as defined in the related agreements). We also
have a redemption obligation if certain levels of Pioneer Americas' EBITDA are
realized, as discussed below, or if there is a change of control.

     The holders of the 10% Senior Secured Notes may require us to redeem 10%
Senior Secured Notes with net cash proceeds of certain asset sales and of new
equity issuances in excess of $35 million (if there is no indebtedness
outstanding under the Tranche A Notes). In addition, the holders may require us
to repurchase all or a portion of the notes upon the occurrence of a change of
control.

     The obligations under the Revolver are secured by liens on our accounts
receivable and inventory, and the obligations under the Senior Notes are secured
by liens on substantially all of our other assets, with the exception of certain
assets that secure the obligations under certain other long-term liabilities.

     Our ECU netback averaged $270 in 2002, while the projections prepared in
connection with our plan of reorganization assumed an average ECU netback of
approximately $300. The low ECU netback experienced during 2002 created lower
than anticipated liquidity, and we responded by cutting costs and reducing
expenditures, including idling manufacturing capacity and laying off operating
and administrative employees. Unless the anticipated improvement in operating
margins as a result of increased product prices occurs, we may not have the
liquidity necessary to meet all of our debt service and other obligations in
2003, and we may be unable to satisfy the financial covenants in the Revolver.
The amount of liquidity ultimately needed by us to meet all of our obligations
going forward will depend on a number of factors, some of which are uncertain,
although the recent resolution of our derivatives dispute with CRC has reduced
some of the uncertainty as to our future liquidity needs.

     The amount of liquidity ultimately needed by us to meet all of our
obligations going forward will depend on a number of factors, some of which are
uncertain. We will need to realize the anticipated improvement in operating
margins as a result of increases in ECU prices in order to be able to meet all
of our obligations during 2003. Should we not realize the anticipated increases,
additional amendments of or waivers under the debt agreements, or deferrals of
payments, will likely be necessary. We cannot provide any assurance that we will
be able to obtain these amendments, waivers or deferrals. Should our cash flow
be insufficient to meet our obligations, we will have to take appropriate action
including refinancing, restructuring or reorganizing all or a portion of our
indebtedness, defer payments on our debt, sell assets, obtain additional debt or
equity financing or tae other actions, including seeking protection under
Chapter 11 of the U.S. Bankruptcy Code and under Canada's Companies Creditors'
Arrangement Act.

     We amended our Revolver in April 2002 and again in June 2002. We entered
into the amendments to the Revolver to revise a financial covenant requirement
to exclude the effects of changes in the fair value of derivative instruments
and any realized gains and losses (except to the extent paid by us) on
derivatives, eliminate the availability of interest rates based on the LIBOR,
and replace the previously applicable margin over the prime rate with the
Previous Rate plus 2.25% for all loans that are and will be outstanding under
the Revolver. In connection with the amendments there was an increase in the
fees applicable to letters of credit issued pursuant to the Revolver, to a rate
equal to 4.25% times the daily balance of the undrawn amount of all outstanding
letters of credit, and we paid a forbearance fee of $250,000. As amended, one of
the covenants in the Revolver requires us to generate at least:

          o    $5.608 million of Lender-Defined EBITDA during the quarter ending
               December 31, 2002, and $10.910 million of Lender-Defined EBITDA
               during the nine-month period ending on the same date,

          o    $10.640 million of Lender-Defined EBITDA during the quarter
               ending March 31, 2003, and

          o    $21.550 million of Lender-Defined EBITDA for the twelve-month
               period ending March 31, 2003, and for each twelve month period
               ending each fiscal quarter thereafter.

     Our Lender-Defined EBITDA for the nine months ended December 31, 2002 was a
positive $1.2 million, and our Lender-Defined EBITDA for the three months ended
December 31, 2002 was a negative $10.7 million. Those amounts were less than the
amounts required under the Revolver covenant for those periods. In the absence
of a $16.9 million asset impairment charge, our Lender-Defined EBITDA would have
exceeded the covenant requirement, and our lender under our Revolver has waived
our noncompliance with the covenant requirement. We anticipate that as a result
of an additional asset impairment charge in the first quarter of 2003, we



                                       28
<PAGE>

will also be required to seek a waiver from the lender under our Revolver with
respect to the our compliance with covenant requirement for that quarter. In
addition, we anticipate that impairment charges in the fourth quarter of 2002
and the first quarter of 2003 will likely result in the need for future waivers
from the lender under our Revolver, since the impairments will have a negative
effect on Lender-Defined EBITDA for the twelve-month periods ending each quarter
through March 31, 2004.

     As a result of the amendments, we are also required to maintain Liquidity
(as defined) of at least $5.0 million, and limit our capital expenditure levels
to $20.0 million in 2002 and $25.0 million in each fiscal year thereafter. At
December 31, 2002, our Liquidity was $14.2 million, consisting of borrowing
availability of $11.4 million and cash of $2.8 million. Capital expenditures
were $10.6 million during 2002 (a level limited by liquidity constraints) and we
estimate capital expenditures will be approximately $13.2 million during 2003.

     The Revolver also provides that as a condition of borrowings there shall
not have occurred any material adverse change in our business, prospects,
operations, results of operations, assets, liabilities or condition (financial
or otherwise).

     If the required Lender-Defined EBITDA level under the Revolver is not met
and the lender under the Revolver does not waive our failure to comply with the
requirement, we will be in default under the terms of the Revolver. Moreover, if
conditions constituting a material adverse change occur or have occurred, our
lender can exercise its rights under the Revolver and refuse to make further
advances. Following any such refusal, customer receipts would be applied to our
borrowings under the Revolver, and we would not have the ability to reborrow.
This would cause us to suffer a rapid loss of liquidity and we would lose the
ability to operate on a day-to-day basis. In addition, a default under the
Revolver would allow our lender to accelerate the outstanding indebtedness under
the Revolver and would also result in a cross-default under our Senior Notes
which would provide the holders of our Senior Notes with the right to accelerate
the $200 million in Senior Notes outstanding and demand immediate repayment.

     Our borrowings under the Revolver as of February 28, 2003 were $15.2
million. As of that date, our $30 million Revolver commitment was subject to
borrowing base limitations related to the level of accounts receivable,
inventory and reserves, and was further reduced by letters of credit that were
outstanding on that date. As a result, on February 28, 2003, our additional
availability under the Revolver was approximately $11.5 million and our
Liquidity was $13.1 million.

     Our Tranche A Notes provide that, within 60 days after each calendar
quarter during 2003 through 2006, we are required to redeem (i) $2.5 million
principal amount of Tranche A Notes if Pioneer Americas' EBITDA for such
calendar quarter is greater than $20 million but less than $25 million, (ii) $5
million principal amount of Tranche A Notes if Pioneer Americas' EBITDA for such
calendar quarter is greater than $25 million but less than $30 million and (iii)
$7.5 million principal amount of Tranche A Notes if Pioneer Americas' EBITDA for
such calendar quarter is greater than $30 million, in each case plus accrued and
unpaid interest thereon to the redemption date.

     Although we will not receive any cash proceeds from our settlement with
CRC, we expect the settlement to result in a net gain of approximately $66
million in the first quarter of 2003. Due to the assignment of our long-term
hydropower contracts to the Southern Nevada Water Authority and the resulting
higher energy prices under the new supply agreement effective in 2003, we expect
to record an approximate $41 million impairment of the Henderson facility as the
result of reduced plant profitability estimates. The net impact of the
foregoing, which we expect will increase Pioneer Americas' EBITDA by
approximately $25 million for the first quarter of 2003, may result in a partial
redemption obligation under our Tranche A Notes as described above. Any such
redemption would also accelerate our obligation to repay approximately $3.6
million in principal and interest on certain other notes.

     Excluding the potential impact of the redemption obligation discussed
above, in 2003 we expect to have cash requirements, in addition to operating and
administrative costs, of approximately $40.3 million in the aggregate consisting
of the following: (i) interest payments of $19.5 million (comprised of interest
on our Senior Notes of $0.7 million on March 31, 2003, $8.2 million on June 30,
2003, $0.7 million on September 30, 2003, and $8.2 on December 31, 2003, and
anticipated monthly payments of interest on the Revolver ranging from $75,000 to
$150,000), (ii) capital expenditures of $13.2 million, (iii) bankruptcy-related
vendor payments of $1.0 million, (iv) severance payments of $1.7 million, and
(v) contractual debt repayments of $4.9 million. We expect to fund these
obligations through available borrowings under our Revolver and
internally-generated cash flows from operations, including changes in working
capital. We can provide no assurance that we will have sufficient resources to
fund all of these obligations and investments.




                                       29
<PAGE>



     The following table sets forth our obligations and commitments to make
future payments under debt agreements, non-cancelable operating lease
agreements, energy commitments, and net electricity forward purchase derivative
contracts as of December 31, 2002. The table excludes option contracts related
to electricity as the exercise of those options was uncertain. Our future
liability with respect to the energy commitments and the net electricity forward
purchase derivative contracts listed in the table below has been resolved in
accordance with the settlement of our dispute with CRC. See Item 1 "Business -
Recent Developments - Settlement of Dispute with the Colorado River Commission"
in Part I of this report and Item 7A "Quantitative and Qualitative Disclosures
about Market Risk" below and Note 24 to the consolidated financial statements.

<Table>
<Caption>
                         TOTAL       2003        2004        2005        2006        2007      THEREAFTER
                       ---------   ---------   ---------   ---------   ---------   ---------   ----------

<S>                    <C>         <C>         <C>         <C>         <C>         <C>         <C>
Long-term debt (a)     $ 227,055   $   4,887   $  16,253   $   1,652   $  51,641   $     855   $ 151,767
Short-term debt            1,520       1,520          --          --          --          --          --
Leases(b)                 50,036      14,908      11,630       6,664       4,998       4,065       7,771
Electricity (c)           50,146       9,893       9,893       9,893       9,893       1,298       9,276
Net forward purchase
 (sale) contracts(d)     266,119      43,568      74,063      74,244      74,244          --          --
</Table>


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

(a)  Includes the maturity of the Revolver in 2004, the Senior Guaranteed Notes
     and Senior Floating Notes in 2006 and the 10% Senior Secured Notes in 2008.
     The amount outstanding under the Revolver is included as short-term debt
     for financial reporting purposes. The timing and amount of payments that
     are set forth do not take into consideration any early redemption
     obligations that may arise.

(b)  Consists primarily of tankcar leases and leases of certain plant facilities
     and equipment.

(c)  Includes purchase commitments under the hydropower contracts and the
     forward purchase contracts that were not treated as derivatives because
     they were intended to be used in normal operations. The obligations were
     terminated effective January 1, 2003.

(d)  Represents the net notional cost of the forward purchase and sale
     derivative contracts. See Note 3 to the consolidated financial statements.
     The obligations were terminated effective January 1, 2003.

     Capital and Environmental Expenditures. Total capital expenditures were
approximately $10.6 million, $13.1 million and $18.7 million for the years ended
December 31, 2002, 2001, and 2000, respectively, and are expected to be
approximately $13.2 million for the year ending December 31, 2003. Total capital
expenditures include expenditures for environmental-related matters at existing
facilities of approximately $1.4 million, $2.9 million and $1.8 million for the
years ended December 31, 2002, 2001 and 2000, respectively. Capital expenditures
for environmental-related matters are expected to be approximately $4.7 million
for the year ending December 31, 2003.

     We routinely incur operating expenditures associated with hazardous
substance management and environmental compliance matters in ongoing operations.
These operating expenses include items such as waste management, fuel,
electricity and salaries. The amounts of these operating expenses were
approximately $3.2 million, $2.7 million and $2.7 million in 2002, 2001 and
2000, respectively. We do not anticipate an increase in these types of expenses
during 2003. We classify these types of environmental expenditures within cost
of sales. At December 31, 2002 and 2001 we maintained an accrual of $11.6
million for environmental liabilities.

     Net Operating Loss Carryforward. At December 31, 2002, we had, for income
tax purposes, approximately $259 million of U.S. NOLs. Approximately $59.0
million of the NOLs (the "Successor Company NOLs") was generated in 2002. The
Successor Company NOLs will expire in 2022 and are not subject to limitation.
The remaining $200 million of NOLs (the "Predecessor Company NOLs"), expiring
from 2009 to 2021, were generated prior to our emergence from bankruptcy on
December 31, 2001. As a result of our emergence from bankruptcy and certain
changes in the ownership of the Company in 2001, the utilization of the
Predecessor Company NOLs is subject to limitation under the Internal Revenue
Code and may be substantially and permanently restricted. The limitation on NOL
utilization may adversely affect our after-tax cash flow in future periods. See
Item 1 "Business - Risks - Availability of our operating loss carryforward may
be limited by the Internal Revenue Code" in Part I of this report and Note 19 to
our consolidated financial statements.

     Foreign Operations and Exchange Rate Fluctuations. We have operating
activities in Canada, and we engage in export sales to various countries.
International operations and exports to foreign markets are subject to a number
of risks, including currency exchange rate fluctuations, trade barriers,
exchange controls, political risks and risks of increases in duties, taxes and
governmental royalties, as well as changes in laws and policies governing
foreign-based companies. In addition, earnings of foreign subsidiaries and
intracompany payments are subject to foreign taxation rules.

     A portion of our sales and expenditures are denominated in Canadian
dollars, and accordingly, our results of operations and cash flows may be
affected by fluctuations in the exchange rate between the U.S. dollar and the
Canadian dollar. In addition, because a



                                       30
<PAGE>

portion of our revenues, cost of sales and other expenses are denominated in
Canadian dollars, we have a translation exposure to fluctuation in the Canadian
dollar against the U.S. dollar. Due to the significance of the U.S.
dollar-denominated long-term debt of our Canadian subsidiary and certain other
U.S. dollar-denominated assets and liabilities, the entity's functional
accounting currency is the U.S. dollar. Currently, we are not engaged in forward
foreign exchange contracts, but may enter into such hedging activities in the
future.

     Working Capital. Excluding the effect of the net current derivative
mark-to-market liability, which decreased by $28.9 million, our working capital
was $3.4 million and $8.7 million as of December 31, 2002 and 2001,
respectively. The decrease in working capital of $5.3 million was due primarily
to the payment of bankruptcy-related expenses and pre-petition debt offset by an
increase in amounts borrowed under the Revolver, which are classified as current
in the consolidated balance sheet.

     Net Cash Flows from Operating Activities. Net cash from operating
activities was $0.3 million in 2002, compared to cash from operations of $32.9
million in 2001. The decrease was primarily due to a $15.9 million increase in
cash paid for interest expense, as well as payments on pre-petition liabilities
and a decrease in sales revenue resulting from decreased ECU netbacks.

     Net Cash Flows used in Investing Activities. Net cash used in investing
activities, consisting primarily of capital expenditures, was $8.6 million in
2002, as compared to $12.9 million in 2001.

     Net Cash Flows from Financing Activities. Net cash provided by financing
activities in 2002 was $6.4 million, versus cash outflows of $21.5 million in
2001. The 2002 cash inflows were due to net borrowings under the Revolver,
offset by scheduled debt repayments. The 2001 cash outflows were due primarily
to scheduled debt repayments and net repayments of amounts outstanding under the
pre- and post-petition revolving credit facilities.

RESULTS OF OPERATIONS

     The following table sets forth certain operating data of the Successor
Company and the Predecessor Company for the periods indicated (dollars in
thousands and percentages of revenues). The consolidated statements of
operations information for the year ended December 31, 2002 reflects the
operating results after the effect of the plan of reorganization and the
application of the principles of fresh start accounting. Accordingly, such
financial information is not comparable to the historical financial information
before December 31, 2001.

<Table>
<Caption>
                                                        SUCCESSOR
                                                         COMPANY                          PREDECESSOR COMPANY
                                                   ----------------------     -------------------------------------------------
                                                                               YEAR ENDED DECEMBER 31,
                                                   ----------------------------------------------------------------------------
                                                            2002                       2001                      2000
                                                   -----------------------    ----------------------     ----------------------

<S>                                                <C>          <C>           <C>          <C>           <C>          <C>
Revenues .......................................   $ 316,910          100%    $ 383,482          100%    $ 402,908          100%
Cost of sales - product ........................     297,157           94       349,061           91       370,997           92
Cost of sales - derivatives ....................     (12,877)          (4)      (10,725)          (3)           --           --
                                                   ---------    ---------     ---------    ---------     ---------    ---------
 Total cost of sales ...........................     284,280           90       338,336           88       370,997           92
                                                   ---------    ---------     ---------    ---------     ---------    ---------
Gross profit ...................................      32,630           10        45,146           12        31,911            8
Selling, general and administrative expenses ...      23,121            7        41,526           11        43,424           11
Change in fair value of derivatives ............     (23,566)          (8)      110,837           29            --           --
Asset impairment and other charges .............      21,409            7        12,938            3            --           --
                                                   ---------    ---------     ---------    ---------     ---------    ---------
Operating income (loss) ........................      11,666            4      (120,155)         (31)      (11,513)          (3)
Interest expense, net ..........................     (18,891)          (6)      (36,010)          (9)      (56,328)         (14)
Reorganization items ...........................          --           --        (6,499)          (2)           --           --
Fresh start adjustments ........................          --           --      (106,919)         (28)           --           --
Other income, net ..............................       1,687           --         1,169           --         3,309            1
                                                   ---------    ---------     ---------    ---------     ---------    ---------
Loss before income taxes and extraordinary
   Items .......................................      (5,538)          (2)     (268,414)         (70)      (64,532)         (16)
Income tax (expense) benefit ...................         781           --        (3,123)          (1)      (41,031)         (10)
                                                   ---------    ---------     ---------    ---------     ---------    ---------
Net loss before extraordinary item .............      (4,757)          (2)     (271,537)         (71)     (105,563)         (26)
Extraordinary gain, net of tax .................          --           --       414,312          108            --           --
                                                   ---------    ---------     ---------    ---------     ---------    ---------
Net income (loss) ..............................   $  (4,757)          (2)%   $ 142,775           37%    $(105,563)         (26)%
                                                   =========    ---------     =========    =========     =========    =========
</Table>

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

     Revenues. Revenues decreased by $66.6 million, or approximately 17%, to
$316.9 million for the year ended December 31, 2002, as compared to 2001. The
decrease was primarily due to lower ECU netbacks. Our average ECU netback for
the year ended December 31, 2002 was $270, a decrease of approximately 20% from
the average netback in 2001 of $336.



                                       31
<PAGE>

     Cost of Sales - Product. Cost of sales - product, decreased approximately
$51.9 million, or approximately 15% in 2002 as compared to 2001. Cost savings
resulting from idling the Tacoma plant in March 2002 accounted for approximately
$25.5 million of the decrease, including the impact of a $1.2 million
curtailment gain for the Tacoma pension plan. Another $8.2 million of the
decrease resulted from lower depreciation expense due to the revaluation of
property, plant and equipment pursuant to fresh start accounting. The remaining
decrease resulted primarily from cost savings from an organizational
restructuring and other cost reduction initiatives, offset somewhat by a $1.4
million inventory adjustment to reduce the amount recorded for stores (spare
parts) inventory based on a physical count, and $1.6 million of planned major
maintenance expense at our St. Gabriel facility.

     Cost of Sales - Derivatives. Under the supplemental power contract with
CRC, CRC was to provide any needed electric power that exceeded the power
provided to our Henderson facility from hydroelectric sources. CRC maintained
that it had entered into various derivative positions, as defined by SFAS 133,
under the supplemental power contract, including forward purchases and sales of
electricity as well as options that were purchased or written for electric
power. We maintained that CRC engaged in speculative trading that was not in
accordance with the supplemental power contract, that CRC did not obtain proper
approval for most of the trades in accordance with procedures agreed upon by
both parties, and that the trades entered into by CRC purportedly on our behalf
were excessive in relation to our power requirements.

     Cost of sales - derivatives, represents the estimated net gain from matured
derivatives. The estimated net proceeds from matured derivatives increased $2.2
million from 2001 to 2002 due to variances in the number and type of derivative
contracts maturing in 2002 versus 2001. Since CRC had not remitted the cash
proceeds from matured derivatives to Pioneer, the amount of the proceeds is
recorded as a receivable from CRC in Pioneer's balance sheet as part of "Other
Assets". See Item 1 "Business - Recent Developments - Settlement of Dispute with
the Colorado River Commission" in Part I of this report and Notes 3 and 24 in
the consolidated financial statements.

     Gross Profit. Gross profit decreased to 10% in 2002 from 12% in 2001, due
to the factors discussed above. Excluding derivatives items, gross profit margin
was 6% in 2002, compared with 9% in 2001.

     Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $18.4 million, or approximately 44%, for the
year ended December 31, 2002, as compared to the year ended December 31, 2001.
This decrease is primarily comprised of non-cash items, including $3.7 million
related to a reduction in bad debt expense, $2.3 million resulting from the
absence of amortization of debt issuance costs, which were written off upon
emergence from bankruptcy when the related debt was forgiven, $8.9 million due
to the absence of goodwill amortization resulting from the adoption of SFAS 142,
"Goodwill and Other Intangible Assets," on January 1, 2002, and a $2.4 million
decrease in depreciation and amortization expense caused by the revaluation of
property, plant and equipment and intangibles upon emergence from bankruptcy.
The remaining decrease is primarily attributable to cost savings from the
organizational restructuring and other cost reduction initiatives.

     Change in Fair Value of Derivatives. For 2002, the change in fair value of
the derivative positions was a net gain of $23.6 million of which $18.3 million
was related to the Disputed Derivatives and the remaining $5.3 million was
related to the Approved Derivatives. For 2001, the change in fair value of the
derivative positions was a net loss of $110.8 million, of which $100.5 million
related to the Disputed Derivatives and $10.3 million related to the Approved
Derivatives. See Item 1 "Business -- Recent Developments - Settlement of Dispute
with the Colorado River Commission" in Part I of this report and Notes 3 and 24
to the consolidated financial statements.

     Asset Impairment and Other Charges. In December 2002, due to increasing
power costs and the uncertainty of restarting the Tacoma facility, we recorded
an impairment of $16.9 million to reduce the book value of the facility to
estimated fair value at December 31, 2002. Asset impairment and other charges in
2002 also included $2.9 million of severance expense, $0.7 million of Tacoma
shut down costs and $0.5 million of legal expenses related to Pioneer's
emergence from bankruptcy. Asset impairment and other charges for 2001 included
$3.8 million from an asset impairment, $4.8 million of severance expense, and
$4.3 million of professional fees related to Pioneer's financial reorganization
incurred prior to the Chapter 11 filing on July 31, 2001.

     Interest Expense, Net. Contractual interest expense, net, decreased by
$38.8 million, or 67% during 2002 as compared to 2001. The decrease resulted
primarily from debt forgiveness of $368 million, which represents a 63% decrease
from the amount of debt outstanding immediately prior to emergence from Chapter
11. This decrease from debt forgiveness was partially offset by an increase in
interest rates.

     Other Income, Net. Other income, net, for 2002 was primarily comprised of a
$1.1 million gain from the sale of assets. For 2001, other income, net included
a sales tax refund of $0.5 million.


                                       32
<PAGE>

     Income Tax Benefit. Income tax benefit for 2002 was $0.8 million,
reflecting foreign tax benefit on the net loss of our Canadian operations. Due
to uncertainty as to the use of our U.S. NOLs and other deferred tax assets in
future years, a 100% valuation allowance amounting to $141.6 million is recorded
in connection with our U.S. deferred tax assets at December 31, 2002. During
2002, we recorded a credit of $0.5 million to additional paid-in capital in
connection with a refund relating to the carryback of Predecessor Company NOLs.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

     Revenues. Revenues decreased by $19.4 million, or approximately 5%, to
$383.5 million for the year ended December 31, 2001, as compared to 2000. The
decrease was primarily attributable to the sale of the operations of two former
operating subsidiaries ("Kemwater") in 2000, which resulted in an $8.7 million
decrease in revenues from 2000 to 2001. In addition, sales volumes decreased,
particularly at the Tacoma chlor-alkali facility and amounts billed to customers
for shipping, which are included in revenues but excluded from the ECU netback,
decreased $4.6 million, or 8%, in 2001. These decreases were slightly offset by
a 3% increase in the average ECU netback. Our average ECU netback for the year
ended December 31, 2001 was $336, an increase of approximately 3% from the
average netback in 2000 of $327.

     Cost of Sales - Product. Cost of sales - product decreased $21.9 million or
approximately 6% in 2001, as compared to 2000. The decrease was primarily
attributable to decreased sales volumes, a decrease in power costs of
approximately $10 million, an $8.6 million reduction due to the Kemwater sale
and a $4.6 million decrease in shipping costs.

     Cost of Sales - Derivatives. Cost of sales - derivatives for 2001 was a
benefit of $10.7 million, representing the net gain from matured derivatives. .
See Item 1 "Business - Recent Developments - Settlement of Dispute with the
Colorado River Commission" in Part I of this report and Notes 3 and 24 to the
consolidated financial statements.

     Gross Profit. Gross profit increased $13.2 million, resulting in a gross
profit margin of 12% in 2001, compared to 8% in 2000, primarily as a result of a
3% increase in average ECU netback, decreased power costs, and the $10.7 million
benefit from matured derivatives.

     Change in Fair Value of Derivatives. For 2001, the decrease in fair value
of the derivative positions was a net loss of $110.8 million, principally
because market power rates decreased substantially. Of the $110.8 million,
$100.5 million related to the Disputed Derivatives and the remaining $10.3
million related to the Approved Derivatives. See Item 1 "Business - Recent
Developments - Settlement of Dispute with the Colorado River Commission" in Part
I of this report and Notes 3 and 24 to the consolidated financial statements.

     Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $1.9 million, or approximately 4%, for the
year ended December 31, 2001. This decrease is primarily attributed to the
Kemwater sale.

     Interest Expense, Net. Interest expense, net, decreased in 2001 as a result
of contractual interest expense of $21.7 million on debt subject to compromise
in the Chapter 11 proceedings not being recorded in accordance with SOP 90-7.
Contractual interest cost increased $1.4 million to $57.7 million in 2001 as a
result of increased interest rates and borrowing levels. The interest rates
related to the debtor-in possession credit facility were greater than the rates
that had been in effect under the previous revolving credit facility.

     Reorganization Items. Reorganization items for 2001 of $6.5 million were
comprised of $13.4 million of professional fees incurred subsequent to the
Chapter 11 filings, $1.3 million of severance expense and $0.5 million of
executive retention bonuses, offset by $8.7 million of gains from court approved
settlements of pre-petition liabilities.

     Fresh Start Adjustments. As a result of our reorganization, the application
of fresh start accounting under SOP 90-7 resulted in adjustments totaling $106.9
million, related to the allocation of reorganization value to the fair value of
identifiable assets and liabilities. These items are more fully discussed in
Note 4 of our consolidated financial statements.

     Other Income, Net. Other income, net, decreased from $3.3 million for the
year ended December 31, 2000 to $1.2 million for the year ended December 31,
2001. For 2001, other income, net included a sales tax refund of $0.5 million.
The 2000 amount was the result of a $3.3 million gain from the sale of certain
excess property at our Henderson plant.

     Income Tax Expense (Benefit). Income tax expense for 2001 was $3.1 million,
reflecting foreign tax expense on the income of our Canadian operations. Due to
recurring losses of our U.S. operations and uncertainty as to the effect of our
restructuring on the availability and use of our U.S. NOLs, a 100% valuation
allowance amounting to $121.8 million was recorded in connection with our



                                       33
<PAGE>

U.S. deferred tax assets at December 31, 2001. During 2001, we recorded a
valuation allowance in an amount equal to the benefit from income taxes
generated by the operating losses from our U.S. operations.

     Extraordinary Gain, Net of Tax. As a result of our reorganization, we had
an extraordinary gain, net of tax, resulting from debt forgiveness of $414.3
million in 2001.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 141, "Business
Combinations," and SFAS 142, "Goodwill and Other Intangible Assets." SFAS 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 20, 2001. Use of the pooling-of-interest
method is prohibited. SFAS 142 requires that an intangible asset that is
acquired shall be initially recognized and measured based on its fair value and
was adopted by us effective December 31, 2001. The statement also provides that
goodwill should not be amortized, but must be tested for impairment annually, or
more frequently if circumstances indicate potential impairment.

     We allocated reorganization value in connection with the application of
fresh start accounting in accordance with SOP 90-7 and SFAS 141. This allocation
included the writeoff of $170.6 million of prior goodwill and resulted in
reorganization value in excess of fair value of identifiable assets of $84.1
million, which related to our Canadian operations. In accordance with SFAS 142,
we will not amortize the reorganization value in excess of fair value, but we
will review it for impairment at least annually. Goodwill amortization expense
for the years ended December 31, 2001 and 2000 was $8.9 million and $9.0
million, respectively. For 2001 and 2000, net income (loss), excluding goodwill
amortization expense, would have been $149.8 million and $(98.4) million,
respectively, and basic and diluted income (loss) per share, excluding goodwill
amortization expense, would have been $12.99 and $(8.53), respectively. We have
provided the additional disclosures required under SFAS 142 in the consolidated
financial statements.

     In August 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations." SFAS 143, which must be applied to fiscal years beginning after
June 15, 2002, addresses the financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. We are currently evaluating the impact of adopting FAS
143.

     In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 amends existing
accounting guidance on asset impairment and provides a single accounting model
for long-lived assets to be disposed of. Among other provisions, the new rules
change the criteria for classifying an asset as held-for-sale. The standard also
broadens the scope of businesses to be disposed of that qualify for reporting as
discontinued operations, and changes the timing of recognizing losses on such
operations. We adopted SFAS 144 effective December 31, 2001, and the adoption
has not had a material effect on our results of operations or financial
condition.

     In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS 145 amended SFAS 13, "Accounting for Leases," to require sale-leaseback
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. SFAS No. 145 also rescinds SFAS No. 4,
"Reporting Gains and Losses from Extinguishment of Debt." Accordingly, gains or
losses on the extinguishment of debt shall not be reported as extraordinary
items unless the extinguishment qualifies as an extraordinary item under the
criteria of Accounting Principles Board ("APB) Opinion 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." Gains or losses from extinguishments of debt that do not meet the
criteria of APB No. 30 should be reclassified to income from continuing
operations in all prior periods presented. The provisions of this statement
relating to the rescission of SFAS 4 are effective for fiscal years beginning
after May 15, 2002; the provisions of this statement relating to the amendment
of SFAS 13 are effective for transactions occurring after May 15, 2002; and all
other provisions of this statement are effective for financial statements issued
on or after May 15, 2002. We adopted SFAS No. 145 effective January 1, 2003 and
will reclassify gains on early extinguishments of debt and related taxes
previously recorded as an extraordinary item.

     In July 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which is effective for fiscal years beginning
after December 31, 2002. SFAS 146 requires that the liability for costs
associated with exit or disposal activities be recognized when incurred, rather
than at the date of a commitment to an exit or disposal plan. As required, we
will apply SFAS 146 prospectively to exit or disposal activities initiated after
December 31, 2002.




                                       34
<PAGE>



     In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation, Transition and Disclosure." SFAS 148 provides alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. SFAS 148 also requires that
disclosures of the pro forma effect of using the fair value method of accounting
for stock-based employee compensation be displayed more prominently and in a
tabular format. Additionally, SFAS 148 requires disclosure of the pro forma
effect in interim financial statements. The transition and annual disclosure
requirements of SFAS 148 are effective for fiscal year 2002. We do not expect
SFAS 148 to have a material effect on our results of operations or financial
condition, as we intend to continue to follow APB 25, "Accounting for Stock
Issued to Employees." We have provided the additional disclosures required by
SFAS 148 in the consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

MARKET RISK RELATING TO ELECTRICITY DERIVATIVES

     The production of chlor-alkali products principally requires electricity,
salt and water as raw materials, and energy costs comprise the largest component
of the raw material costs. We generally procure energy from sources which rely
on hydropower or natural gas as resources. Increases in natural gas prices
increase our cost of operations from our facilities which procure their power
from sources which rely on natural gas to generate power. Likewise, drought
conditions can have the effect of increasing the price which our facilities must
pay to procure power from sources which rely on hydropower to produce energy. In
addition, drought conditions may decrease the availability of hydropower and may
cause us to have to purchase power from other, more expensive sources. See Item
1 "Business - Pricing, Production, Distribution and Marketing" in Part I of this
report.

     During all periods prior to January 1, 2003, CRC supplied power to our
Henderson facility pursuant to contracts covering hydro-generated power, power
requirements in excess of hydropower, and power transmission and supply
balancing services. CRC is a state agency established in 1940 to manage federal
hydropower contracts with utilities and other customers in Southern Nevada,
including our Henderson facility. Since the low cost hydropower supplied by CRC
did not entirely meet our Henderson facility's power demands and those of CRC's
other customers, CRC purchased supplemental power from various sources and
resold it to us and other customers.

     Approximately 50% of the electric power supply for our Henderson facility
was provided under a supplemental supply contract with CRC. The supplemental
supply contract set forth detailed procedures governing the procurement of power
by CRC on our behalf. This agreement was not intended to provide for speculative
power purchases on our behalf.

     We have recorded a net liability of $87.3 million at December 31, 2002 with
respect to various derivative positions executed by CRC under the supplemental
supply arrangements. The derivative positions consisted of contracts for the
forward purchase and sale of electricity as well as put and call options that
were written for electric power. While a portion of the net liability, in the
amount of $5.0 million at December 31, 2002, related to the Approved
Derivatives, we disputed CRC's contention that the Disputed Derivatives with an
additional net liability at December 31, 2002, of $82.3 million were our
responsibility. At the time, the outcome of the dispute was in doubt, although
all $87.3 million of such net liability is reflected in our December 31, 2002
consolidated balance sheet. CRC further contended that the Rejected Derivatives,
reflecting an additional net liability of $41.0 million as of December 31, 2002
were our responsibility, although CRC did not provide any documentation of any
relationship of those contracts to us. We did not record any unrealized loss
with respect to the Rejected Derivatives, and CRC's contention that we had any
liability with respect to those derivatives was being contested. See Item 1
"Business - Recent Developments - Settlement of Dispute with the Colorado River
Commission" in Part I of this report and Notes 3 and 24 to the consolidated
financial statements.

     The derivative positions included many types of contracts with varying
strike prices and maturity dates extending through 2006. The fair value of the
instruments varied over time based upon market circumstances. The fair value of
the derivative positions was determined for us by an independent consultant
using available market information and appropriate valuation methodologies that
included current and forward pricing. Considerable judgment, however, was
necessary to interpret market data and develop the related estimates of fair
value. Accordingly, the estimates for the fair value of the derivative positions
are not necessarily indicative of the amounts that could be realized upon
disposition of the derivative positions or the ultimate amount that would be
paid or received when the positions were settled. The use of different market
assumptions and/or estimation methodologies would result in different fair
values. We believe that the market information, methodologies and assumptions
used by the independent consultant to fair value the derivative positions
produced a reasonable estimation of the fair value of the derivative positions
at December 31, 2002.

     We have recorded as "Other Assets" $14.8 million in cash that CRC collected
in the form of premiums (related to options that expired prior to December 31,
2002). A total of $0.6 million of that amount was attributable to the Approved
Derivatives and $14.2



                                       35
<PAGE>

million was attributable to the Disputed Derivatives. We also recorded as "Other
Assets" $6.2 million in estimated proceeds from the settlement of Approved
Derivatives and Disputed Derivatives on their delivery dates during 2002. While
the amount of any actual cash flow effect from the derivative positions would
have been determined by electricity prices at the time, based on future price
estimates as of December 31, 2002, the cost of the derivative positions,
considered without regard to other factors, could have ranged from $17.2 million
in 2004 to as high as $25.3 million in 2006. A portion of the power needs of our
Henderson plant were met by two forward purchases arranged by CRC, which were
not accounted for as derivative transactions as we designated them as purchases
in the normal course of business. Had these two forward purchase contracts been
accounted for as derivative transactions, they would have resulted in a net
liability to us of $15.2 million at December 31, 2002.

     As a result of the settlement agreement that was fully executed on March 3,
2003, the dispute with CRC was settled, effective as of January 1, 2003. See
Item 1 "Business - Recent Developments - Settlement of Dispute with the Colorado
River Commission" in Part I of this report, and Note 24 to the consolidated
financial statements.

OTHER MARKET RISK

     The table below provides information about our market-sensitive debt
instruments and constitutes a "forward-looking statement." Our fixed rate debt
has no earnings exposure to changes in interest rates. We have certain variable
rate instruments that are subject to market risk. An increase in the market
interest rates would increase our interest expense and our cash requirements for
interest payments. For example, an average increase of 0.25% in the variable
interest rate would increase our annual interest expense and payments by
approximately $0.2 million.

<Table>
<Caption>
                                             EXPECTED MATURITY DATE AT DECEMBER 31, 2002                FAIR VALUE AT
                                                  FISCAL YEAR ENDING DECEMBER 31,                        DECEMBER 31,
                             ---------------------------------------------------------------------   ---------------------
                               2003        2004         2005        2006       2007     THEREAFTER     TOTAL       2002
                             ---------   ---------   ---------   ---------   ---------  ----------   ---------   ---------
<S>                          <C>         <C>         <C>         <C>         <C>        <C>          <C>         <C>
Fixed rate debt (a) ......       2,979   $   1,549   $   1,652   $   1,640   $     855   $ 150,007   $ 158,683   $ 117,110
Variable rate debt (b) ...       3,428      14,704          --      50,000          --       1,760      69,892      48,114
                             ---------   ---------   ---------   ---------   ---------   ---------   ---------   ---------
      Total debt .........   $   6,407   $  16,253   $   1,652   $  51,640   $     855   $ 151,767   $ 228,575   $ 165,224
                             =========   =========   =========   =========   =========   =========   =========   =========
</Table>

(a)  Debt instruments at fixed interest rates ranging from 8.0% to 10.0%, with
     the majority at 10.0%; includes the payment of the 10% Senior Secured Notes
     in 2008.

(b)  Debt instruments at variable interest rates, including LIBOR based loans,
     ranging from 1.65% to 7.25% at December 31, 2002; includes the maturity of
     the Senior Guaranteed Notes and Senior Floating Notes in 2006; includes the
     maturity of the Revolver in 2004, although the Revolver is classified as
     short-term debt for financial reporting purposes. The timing and amount of
     payments that are set forth do not take into consideration any early
     redemption obligations that may arise.

     We operate in Canada and are subject to foreign currency exchange rate
risk. Due to the significance of our Canadian subsidiary's United States
dollar-denominated long-term debt and certain other United States
dollar-denominated assets and liabilities, the entity's functional accounting
currency is the United States dollar. Certain other items of working capital are
denominated in Canadian dollars. An average change of 1% in the currency
exchange rate would change total assets by approximately $0.2 million.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     In this report, our consolidated financial statements and supplementary
data appear following the signature page to this report and are hereby
incorporated by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

     None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     Pursuant to General Instruction G of Form 10-K, the information called for
by Item 10 of Part III of Form 10-K is incorporated by reference to the
information to be set forth in Pioneer's definitive proxy statement relating to
the 2003 Annual Meeting of Stockholders of Pioneer (the "2003 Proxy Statement")
to be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), in response to Items 401 and 405 of
Regulation S-K under the Securities Act of 1933, as amended, and the Exchange
Act ("Regulation S-K"). If the 2003 Proxy Statement is not so filed within 120
days after December 31, 2002, such information will be included in an amendment
to this report filed not later than the end of such period. Reference is also
made to the information appearing in Item 4A of Part I of this report under the
caption "Executive Officers of the Registrant."


                                       36
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION.

     Pursuant to General Instruction G of Form 10-K, the information called for
by Item 11 of Part III of Form 10-K is incorporated by reference to the
information to be set forth in the 2003 Proxy Statement in response to Item 402
of Regulation S-K, or if the 2003 Proxy Statement is not so filed within 120
days after December 31, 2002, such information will be included in an amendment
to this report filed not later than the end of such period.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     Pursuant to General Instruction G of Form 10-K, the information called for
by Item 12 of Part III of Form 10-K is incorporated by reference to the
information to be set forth in the 2003 Proxy Statement in response to Item 403
of Regulation S-K, or if the 2003 Proxy Statement is not so filed within 120
days after December 31, 2002, such information will be included in an amendment
to this report filed not later than the end of such period.

     See the information contained under the heading "Equity Compensation Plan
Information" in Item 5 of this report regarding shares authorized for issuance
under equity compensation plans approved by stockholders and not approved by
stockholders. For descriptions of our equity compensation plans, including the
2001 Employee Stock Option Plan, see Note 11 to the consolidated financial
statements.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Pursuant to General Instruction G of Form 10-K, the information called for
by Item 13 of Part III of Form 10-K is incorporated by reference to the
information to be set forth in the 2003 Proxy Statement in response to Item 404
of Regulation S-K, or if the 2003 Proxy Statement is not so filed within 120
days after December 31, 2002, such information will be included in an amendment
to this report filed not later than the end of such period.

ITEM 14. CONTROLS AND PROCEDURES

     Within 90 days prior to the filing of this report, an evaluation was
performed under the supervision and with the participation of our management,
including our President and Chief Executive Officer and our Vice President and
Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on that evaluation, our management,
including our President and Chief Executive Officer and our Vice President and
Chief Financial Officer, concluded that our disclosure controls and procedures
were effective in ensuring that material information relating to us with respect
to the period covered by this report was made known to them. There have been no
significant changes in our internal controls or in other factors that could
significantly affect internal controls subsequent to the date of that
evaluation.

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

        (a)(1)     Financial Statements.

                   See Index to Consolidated Financial Statements on page 45.

            (2)    Financial Statement Schedule.

                   See Index to Consolidated Financial Statements on page 45.

            (3)       Exhibits

<Table>
<Caption>

                    EXHIBIT NO.                                DESCRIPTION
<S>                                <C>
                       2.1*        Pioneer Companies, Inc. Amended Joint Plan of Reorganization under Chapter
                                   11 of the United States Bankruptcy Code (incorporated by reference to
                                   Exhibit 2.1 to Pioneer's Annual Report on Form 10-K for the fiscal year
                                   ended December 31, 2001).
</Table>



                                                      37
<PAGE>
<Table>
<Caption>

                    EXHIBIT NO.                                DESCRIPTION
<S>                                <C>
                       2.2*        Order Approving Disclosure Statement, dated September 21, 2001
                                   (incorporated by reference to Exhibit 2.2 to Pioneer's Annual Report on
                                   Form 10-K for the fiscal year ended December 31, 2001). 2.3* Order
                                   Confirming Joint Plan of Reorganization, dated November 28, 2001
                                   (incorporated by reference to Exhibit 2.4 to Pioneer's Current Report on
                                   Form 8-K filed on December 28, 2001).

                       2.4*        Asset Purchase Agreement, dated as of May 14, 1997, by and between OCC
                                   Tacoma, Inc. and Pioneer Companies, Inc. (incorporated by reference to
                                   Exhibit 2 to Pioneer's Current Report on Form 8-K filed on July 1, 1997).

                       2.5*        Asset Purchase Agreement, dated as of September 22, 1997 between PCI
                                   Chemicals Canada Inc. ("PCICC"), PCI Carolina, Inc. and Pioneer Companies,
                                   Inc. and ICI Canada Inc., ICI Americas, Inc. and Imperial Chemical
                                   Industries plc (incorporated by reference to Exhibit 2 to Pioneer's
                                   Quarterly Report on Form 10-Q for the quarter ended September 30, 1997).

                       2.6*        First Amendment to Asset Purchase Agreement, dated as of October 31, 1997,
                                   between PCICC, PCI Carolina, Inc. and Pioneer Companies, Inc. and ICI
                                   Canada Inc., ICI Americas, Inc. and Imperial Chemical Industries plc
                                   (incorporated by reference to Exhibit 2 to Pioneer's Current Report on Form
                                   8-K filed on November 17, 1997).

                       3.1*        Fourth Amended and Restated Certificate of Incorporation of Pioneer
                                   Companies, Inc. (incorporated by reference to Exhibit 3.1 to Pioneer's
                                   Annual Report on Form 10-K for the fiscal year ended December 31, 2001).

                       3.2*        Amended and Restated By-laws of Pioneer Companies, Inc. (incorporated by
                                   reference to Exhibit 3.2 to Pioneer's Annual Report on Form 10-K for the
                                   fiscal year ended December 31, 2001).

                       4.1*        Specimen Pioneer Companies, Inc. Stock Certificate (incorporated by
                                   reference to Exhibit 4.1 to Pioneer's Annual Report on Form 10-K for the
                                   fiscal year ended December 31, 2001).

                       4.2*        Indenture, dated as of December 31, 2001, among PCI Chemicals Canada
                                   Company, the guarantors named therein and Wells Fargo Bank Minnesota,
                                   National Association, as trustee, relating to $150,000,000 principal amount
                                   of 10% Senior Secured Guaranteed Notes due 2008 (incorporated by reference
                                   to Exhibit 4.3 to Pioneer's Annual Report on Form 10-K for the fiscal year
                                   ended December 31, 2001).

                       4.3*        Term Loan Agreement, dated as of December 31, 2001, among Pioneer Americas
                                   LLC, the guarantors named therein, the lenders from time to time parties
                                   thereto and Wells Fargo Bank Minnesota, National Association, as
                                   administrative agent (incorporated by reference to Exhibit 4.4 to Pioneer's
                                   Annual Report on Form 10-K for the fiscal year ended December 31, 2001).

                       4.4*        Indenture, dated as of December 31, 2001, among Pioneer Americas LLC, the
                                   guarantors named therein, and Wells Fargo Bank Minnesota, National
                                   Association, as trustee, relating to up to $50,000,000 principal amount of
                                   Senior Secured Floating Rate Guaranteed Notes due 2006 (incorporated by
                                   reference to Exhibit 4.5 to Pioneer's Annual Report on Form 10-K for the
                                   fiscal year ended December 31, 2001).

                       4.5*        Loan and Security Agreement, dated as of December 31, 2001, among PCI
                                   Chemicals Canada Company, Pioneer Americas LLC, the lenders that are
                                   signatories thereto and Foothill Capital Corporation, as arranger and
                                   administrative agent (incorporated by reference to Exhibit 4.6 to Pioneer's
                                   Annual Report on Form 10-K for the fiscal year ended December 31, 2001).

                       4.6*        First Amendment to Loan and Security Agreement, dated April 15, 2002,
                                   between and among the lenders identified on the signature pages thereto,
                                   Foothill Capital Corporation, PCI Chemicals Canada Company and Pioneer
                                   Americas LLC (incorporated by reference to Exhibit 4.7 to Pioneer's Annual
                                   Report on Form 10-K for the fiscal year ended December 31, 2001).
</Table>



                                                      38
<PAGE>
<Table>
<Caption>

                    EXHIBIT NO.                                DESCRIPTION
<S>                                <C>
                       4.7*        Second Amendment to Loan and Security Agreement effective as of May 31,
                                   2002, between and among the lenders identified on the signature pages
                                   thereof, Foothill Capital Corporation, PCI Chemicals Canada Company and
                                   Pioneer Americas LLC (incorporated by reference to Exhibit 4.1 to Pioneer's
                                   Current Report on Form 8-K filed on June 14, 2002), (incorporated by
                                   reference to Exhibit 4.7 to Pioneer's Annual Report on Form 10-K for the
                                   fiscal year ended December 31, 2001).

                       4.8         Third Amendment to Loan and Security Agreement effective as of July 29,
                                   2002, between and among the lenders identified on the signature pages
                                   thereof, Foothill Capital Corporation, PCI Chemicals Canada Company and
                                   Pioneer Americas LLC.

                       4.9         Fourth Amendment to Loan and Security Agreement effective as of December
                                   10, 2002, between and among the lenders identified on the signature pages
                                   thereof, Foothill Capital Corporation, PCI Chemicals Canada Company and
                                   Pioneer Americas LLC.

                       4.10*       Common Security and Intercreditor Agreement, dated as of December 31, 2001
                                   by and among the grantors named therein and Wells Fargo Bank Minnesota,
                                   National Association (incorporated by reference to Exhibit 4.8 to Pioneer's
                                   Annual Report on Form 10-K for the fiscal year ended December 31, 2001).

                       10.1+*      Pioneer Companies, Inc. 2001 Employee Stock Option Plan (incorporated by
                                   reference to Exhibit 10.1 to Pioneer's Annual Report on Form 10-K for the
                                   fiscal year ended December 31, 2001).

                       10.2+       Employment Agreement, dated September 17, 2002, between Pioneer Companies,
                                   Inc. and Michael Y. McGovern.

                       10.3+       Severance Agreement, dated September 30, 2002, between Pioneer Companies,
                                   Inc. and Michael J. Ferris.

                       10.4+       Services Agreement, dated October 17, 2002, between Pioneer Companies, Inc.
                                   and Philip J. Ablove.

                       21.1*       List of Subsidiaries (incorporated by reference to Exhibit 21.1 to
                                   Pioneer's Annual Report on Form 10-K for the fiscal year ended December 31,
                                   2001).

                       99.1        Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                                   Section 906 of the Sarbanes-Oxley Act of 2002.

                       99.2        Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                                   Section 906 of the Sarbanes-Oxley Act of 2002.
</Table>

----------

*    Indicates exhibit previously filed with the Securities and Exchange
     Commission as indicated and incorporated herein by reference.

+    Indicates management contract or compensatory plan or arrangement.

     (b)  Reports on Form 8-K.

     On March 7, 2003, we filed a report on Form 8-K. Under Item 5 of the report
("Other Events and Regulation FD Disclosure"), we reported that Pioneer had
issued a press release announcing that its previously-announced settlement with
CRC, an agency of the State of Nevada, was fully effective. The settlement
relates to disputes over various derivative positions that CRC entered into
purportedly for the benefit of Pioneer's chlor-alkali plant in Henderson,
Nevada. The derivative positions consisted of contracts for the forward purchase
and sale of electricity as well as put and call options that were written for
electric power. As a result of the settlement, which was effective as of January
1, 2003, Pioneer has been released from all claims for liability with respect to
the derivatives positions.




                                       39
<PAGE>



                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        PIONEER COMPANIES, INC.
                                        (Registrant)

Date: March 28, 2003                    By:      /s/ MICHAEL Y. MCGOVERN
                                           -------------------------------------
                                                    Michael Y. McGovern
                                           President and Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

<Table>
<Caption>
            SIGNATURE                                TITLE                                        DATE
----------------------------------          -----------------------------                   ---------------
<S>                                         <C>                                             <C>

     /s/ MICHAEL Y. MCGOVERN                President, Chief Executive                      March 28, 2003
----------------------------------          Officer and Director
       (Michael Y. McGovern)

       /s/ GARY L. PITTMAN                  Vice President and                              March 28, 2003
----------------------------------          Chief Financial Officer
         (Gary L. Pittman)                  (Principal Financial Officer)


       /s/ LYN N. GARLAND                   Vice President and Controller                   March 28, 2003
----------------------------------          (Principal Accounting Officer)
          (Lyn N. Garland)

     /s/ DAVID N. WEINSTEIN                 Chairman of the Board of Directors              March 28, 2003
----------------------------------
        (David N. Weinstein)

      /s/ MARVIN E. LESSER                  Director                                        March 28, 2003
----------------------------------
         (Marvin E. Lesser)

      /s/ GARY L. ROSENTHAL                 Director                                        March 28, 2003
----------------------------------
       (Gary L. Rosenthal)
</Table>




                                       40
<PAGE>




                                  CERTIFICATION

I, Gary Pittman, certify that:

1.    I have reviewed this annual report on Form 10-K of Pioneer Companies, Inc.
      (the "registrant");

2.    Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this annual report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this annual
      report;

4.    The registrant's other certifying officer and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
      have:

      a)    designed such disclosure controls and procedures to ensure that
            material information relating to the registrant, including its
            consolidated subsidiaries, is made known to us by others within
            those entities, particularly during the period in which this annual
            report is being prepared;

      b)    evaluated the effectiveness of the registrant's disclosure controls
            and procedures as of a date within 90 days prior to the filing date
            of this annual report (the "Evaluation Date"); and

      c)    presented in this annual report our conclusions about the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date;

5.    The registrant's other certifying officer and I have disclosed, based on
      our most recent evaluation, to the registrant's auditors and the audit
      committee of registrant's board of directors (or persons performing the
      equivalent functions):

      a)    all significant deficiencies in the design or operation of internal
            controls which could adversely affect the registrant's ability to
            record, process, summarize and report financial data and have
            identified for the registrant's auditors any material weaknesses in
            internal controls; and

      b)    any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal controls; and

6.    The registrant's other certifying officer and I have indicated in this
      annual report whether or not there were significant changes in internal
      controls or in other factors that could significantly affect internal
      controls subsequent to the date of our most recent evaluation, including
      any corrective actions with regard to significant deficiencies and
      material weaknesses.

Date: March 28, 2003

/s/ Gary L. Pittman
------------------------------
Gary L. Pittman
Vice President and
Chief Financial Officer
(Principal Financial Officer)



                                       41
<PAGE>



                                  CERTIFICATION

I, Michael Y. McGovern, certify that:

1.    I have reviewed this annual report on Form 10-K of Pioneer Companies, Inc.
      (the "registrant");

2.    Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this annual report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this annual
      report;

4.    The registrant's other certifying officer and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
      have:

            a.    designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

            b.    evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

            c.    presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.    The registrant's other certifying officer and I have disclosed, based on
      our most recent evaluation, to the registrant's auditors and the audit
      committee of registrant's board of directors (or persons performing the
      equivalent functions):

            a.    all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

            b.    any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.    The registrant's other certifying officer and I have indicated in this
      annual report whether or not there were significant changes in internal
      controls or in other factors that could significantly affect internal
      controls subsequent to the date of our most recent evaluation, including
      any corrective actions with regard to significant deficiencies and
      material weaknesses.

Date:  March 28, 2003

/s/ Michael Y. McGovern
-----------------------------
Michael Y. McGovern
President and Chief Executive Officer



                                       42
<PAGE>




INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENT
SCHEDULES

<Table>
<Caption>
                                                                                                          PAGE
                                                                                                          -----
<S>                                                                                                       <C>
Independent Auditors' Report .......................................................................         44
Consolidated Financial Statements, Pioneer Companies, Inc.
   and subsidiaries:
    Consolidated Balance Sheets as of December 31, 2002
       and 2001 (Successor Company) ................................................................         45
    Consolidated Statements of Operations for the years ended December 31, 2002
       (Successor Company), 2001 and 2000 (Predecessor Company) ....................................         46
    Consolidated Statements of Stockholders' Equity (Deficiency in Assets) for the
       years ended December 31, 2002 (Successor Company), December 31, 2001
       and 2000 (Predecessor Company) ..............................................................         47
    Consolidated Statements of Cash Flows for the years ended December 31, 2002
       (Successor Company), 2001 and 2000 (Predecessor Company) ....................................         48
    Notes to Consolidated Financial Statements .....................................................         59
Supplemental Schedule:
    Schedule II -- Valuation and Qualifying Accounts ...............................................         79
</Table>

     All schedules, except the one listed above, have been omitted because they
are not required under the relevant instructions or because the required
information is included in the consolidated financial statements or notes
thereto.



                                       43
<PAGE>



                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of Pioneer Companies, Inc.

We have audited the accompanying consolidated balance sheets of Pioneer
Companies, Inc. and subsidiaries ("Pioneer") as of December 31, 2002 and 2001
(Successor Company balance sheets), and the related consolidated statements of
operations, stockholders' equity (deficiency in assets) and cash flows for the
year ended December 31, 2002 (Successor Company operations) and for each of the
two years in the period ended December 31, 2001 (Predecessor Company
operations). Our audits also included the financial statement schedule listed in
the Index referred to in Item 15 of the Successor Company and Predecessor
Company as of the respective dates referred to above. These financial statements
and the financial statement schedule are the responsibility of Pioneer's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

As discussed in Note 1 to the consolidated financial statements, on July 31,
2001, Pioneer and each of its direct and indirect wholly-owned subsidiaries
filed a petition for relief under Chapter 11 of the U. S. Bankruptcy Code in
Houston, Texas. On the same day, a parallel filing under the Canadian Companies'
Creditors Arrangement Act was filed in Superior Court in Montreal, Canada. These
filings were jointly administered, and on November 28, 2001, the Bankruptcy
Court entered an order confirming the plan of reorganization, which became
effective on December 31, 2001. Accordingly, the accompanying financial
statements and the financial statement schedule have been prepared in conformity
with AICPA Statement of Position 90-7, "Financial Reporting for Entities in
Reorganization Under the Bankruptcy Code," for the Successor Company as a new
entity with assets, liabilities, and a capital structure having carrying values
not comparable with prior periods.

In our opinion, the Successor Company financial statements present fairly, in
all material respects, the financial position of Pioneer as of December 31, 2002
and 2001, and the results of its operations and its cash flows for the year
ended December 31, 2002 in conformity with accounting principles generally
accepted in the United States of America. Further, in our opinion, the
Predecessor Company financial statements referred to above present fairly, in
all material respects, the results of its operations and its cash flows for each
of the two years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein as of December 31,
2002 and 2001 and for each of the three years in the period ended December 31,
2002.

As discussed in Note 3 to the consolidated financial statements, Pioneer changed
its method of accounting for derivative instruments to conform with Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended and interpreted on January 1,
2001, and changed its method of accounting for goodwill and other intangible
assets to conform with SFAS No. 142, "Goodwill and Other Intangible Assets," on
January 1, 2002.

The accompanying consolidated financial statements have been prepared assuming
that Pioneer will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, Pioneer has limited liquidity; its senior
secured debt agreements contain restrictive financial covenants and prepayment
requirements; and its revolving credit facility contains restrictive financial
covenants, a subjective precondition to lending clause and a lock-box
arrangement. Pioneer has not demonstrated with certainty that it will be able to
comply with such provisions at future reporting dates. These matters raise
substantial doubt about Pioneer's ability to continue as a going concern.
Management's plans concerning these matters are also discussed in Note 2. The
consolidated financial statements do not include adjustments that might result
from the outcome of these uncertainties.

DELOITTE & TOUCHE LLP

March 24, 2003
Houston, Texas




                                       44
<PAGE>



                             PIONEER COMPANIES, INC.

                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT PAR VALUE)

<Table>
<Caption>

                                                                                              SUCCESSOR COMPANY
                                                                                        ---------------------------------
                                                                                        DECEMBER 31,        DECEMBER 31,
                                                                                            2002                2001
                                                                                        -------------       -------------
<S>                                                                                     <C>                 <C>
                                     ASSETS

Current assets:
  Cash and cash equivalents ........................................................    $       2,789       $       3,624
  Accounts receivable, less allowance for doubtful accounts:
    2002, $1,337;  2001, $2,406 ....................................................           39,983              41,568
  Inventories, net .................................................................           15,311              19,615
  Current derivative asset .........................................................           17,834             178,028
  Prepaid expenses and other current assets ........................................            4,779               5,922
                                                                                        -------------       -------------
         Total current assets ......................................................           80,696             248,757
Property, plant and equipment:
  Land .............................................................................            7,327               7,732
  Buildings and improvements .......................................................           40,936              41,457
  Machinery and equipment ..........................................................          231,676             222,376
  Construction in progress .........................................................            4,085               3,085
                                                                                        -------------       -------------
                                                                                              284,024             274,650
Less accumulated depreciation ......................................................          (41,755)                 --
                                                                                        -------------       -------------
                                                                                              242,269             274,650
Other assets, net ..................................................................           25,755              11,816
Non-current derivative asset .......................................................           41,362              87,625
Excess reorganization value over the fair value of identifiable assets .............           84,064              84,064
                                                                                        -------------       -------------
         Total assets ..............................................................    $     474,146       $     706,912
                                                                                        =============       =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable .................................................................    $      20,193       $      20,775
  Accrued liabilities ..............................................................           18,161              32,968
  Current derivative liability .....................................................           37,614             168,865
  Short-term debt, including current portion of long-term debt .....................           21,112               8,312
                                                                                        -------------       -------------
         Total current liabilities .................................................           97,080             230,920
Long-term debt, less current portion ...............................................          207,463             208,701
Accrued pension and other employee benefits ........................................           26,132              22,445
Non-current derivative liability ...................................................          108,852             207,625
Other long-term liabilities ........................................................           33,367              26,694
Commitments and contingencies (Note 18)
Stockholders' equity:
    Common stock, $.01 par value, authorized 50,000 shares, issued
      and outstanding 10,000 shares ................................................              100                 100
Additional paid-in capital .........................................................           10,933              10,427
Other comprehensive loss ...........................................................           (5,024)                 --
Retained deficit ...................................................................           (4,757)                 --
                                                                                        -------------       -------------
         Total stockholders' equity ................................................            1,252              10,527
                                                                                        -------------       -------------
         Total liabilities and stockholders' equity ................................    $     474,146       $     706,912
                                                                                        =============       =============
</Table>




                 See notes to consolidated financial statements.



                                       45
<PAGE>







                             PIONEER COMPANIES, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
                                                                SUCCESSOR
                                                                 COMPANY              PREDECESSOR COMPANY
                                                                ----------       ---------------------------
                                                                          YEAR ENDED DECEMBER 31,
                                                                --------------------------------------------
                                                                   2002             2001             2000
                                                                ----------       ----------       ----------
<S>                                                             <C>              <C>              <C>
Revenues .................................................      $  316,910       $  383,482       $  402,908

Cost of sales - product ..................................         297,157          349,061          370,997
Cost of sales - derivatives ..............................         (12,877)         (10,725)              --
                                                                ----------       ----------       ----------
Total cost of sales ......................................         284,280          338,336          370,997
                                                                ----------       ----------       ----------

Gross profit .............................................          32,630           45,146           31,911

Selling, general and administrative expenses .............          23,121           41,526           43,424
Change in fair value of derivatives ......................         (23,566)         110,837               --
Asset impairment and other charges .......................          21,409           12,938               --
                                                                ----------       ----------       ----------
Operating income (loss) ..................................          11,666         (120,155)         (11,513)

Interest expense, net (contractual interest
    expense for 2001: $57,728) ...........................         (18,891)         (36,010)         (56,328)
Reorganization items .....................................              --           (6,499)              --
Fresh start adjustments ..................................              --         (106,919)              --
Other income, net ........................................           1,687            1,169            3,309
                                                                ----------       ----------       ----------
Loss before income taxes and
   extraordinary item ....................................          (5,538)        (268,414)         (64,532)

Income tax (expense) benefit .............................             781           (3,123)         (41,031)
                                                                ----------       ----------       ----------
Net loss before extraordinary item .......................          (4,757)        (271,537)        (105,563)

Extraordinary item - net of tax ..........................              --          414,312               --
                                                                ----------       ----------       ----------
Net income (loss) ........................................      $   (4,757)      $  142,775       $ (105,563)
                                                                ==========       ==========       ==========

Income (loss) per common share -- basic and diluted:
    Net loss before extraordinary item ...................      $    (0.48)      $   (23.53)      $    (9.15)
    Extraordinary item ...................................      $       --       $    35.91       $       --
                                                                ----------       ----------       ----------
    Net income (loss) ....................................      $    (0.48)      $    12.38       $    (9.15)
                                                                ==========       ==========       ==========
Weighted average number of shares outstanding:
  Basic and diluted ......................................          10,000           11,538           11,535
</Table>

                 See notes to consolidated financial statements.



                                       46
<PAGE>
                             PIONEER COMPANIES, INC.

     CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
                                 (IN THOUSANDS)

<Table>
<Caption>


                                                            OLD COMMON STOCK
                                            ------------------------------------------------         NEW COMMON
                                                   CLASS A                   CLASS B                    STOCK            ADDITIONAL
                                            ----------------------    ----------------------    ---------------------     PAID-IN
                                             SHARES       AMOUNT       SHARES       AMOUNT       SHARES      AMOUNT       CAPITAL
                                            =========    =========    =========    =========    =========   =========    =========

PREDECESSOR COMPANY:
<S>                                         <C>          <C>          <C>          <C>          <C>         <C>          <C>
Balance at January 1, 2000 ..............      10,656    $     106          859    $       9           --   $      --    $  55,176
Comprehensive loss:
  Net loss ..............................          --           --           --           --           --          --           --
  Other comprehensive loss, net
  of taxes:
  Additional minimum pension
  liability .............................          --           --           --           --           --          --           --
    Total comprehensive loss ............
  Stock issued ..........................          23           --           --           --           --          --           17
                                            ---------    ---------    ---------    ---------    ---------   ---------    ---------
Balance at December 31, 2000 ............      10,679          106          859            9                                55,193
Comprehensive income:
  Net income ............................          --           --           --           --           --          --           --
  Other comprehensive loss, net
  of taxes:
   Additional minimum pension
    liability ...........................          --           --           --           --           --          --           --
    Total comprehensive
    income ..............................
    Cancellation of old shares ..........     (10,679)        (106)        (859)          (9)          --          --           --
    Reorganization adjustments ..........          --           --           --           --           --          --      (44,766)
                                            ---------    ---------    ---------    ---------    ---------   ---------    ---------
Balance at December 31, 2001 ............          --           --           --           --           --          --       10,427
SUCCESSOR COMPANY:
Stock issued in reorganization ..........          --           --           --           --       10,000         100           --
                                            ---------    ---------    ---------    ---------    ---------   ---------    ---------
Balance at December 31, 2001 ............          --           --           --           --       10,000         100       10,427
Utilization of Predecessor
   Company net operating loss
    carryback benefit ...................          --           --           --           --           --          --          506
Comprehensive loss:
  Net loss ..............................          --           --           --           --           --          --           --

  Other comprehensive loss, net of taxes:
   Additional minimum pension
     liability ..........................          --           --           --           --           --          --           --
    Total comprehensive loss ............
                                            ---------    ---------    ---------    ---------    ---------   ---------    ---------
Balance at December 31, 2002 ............          --    $      --           --    $      --       10,000   $     100    $  10,933
                                            =========    =========    =========    =========    =========   =========    =========


<Caption>

                                                            ACCUMULATED
                                               RETAINED        OTHER
                                               EARNINGS    COMPREHENSIVE
                                              (DEFICIT)    INCOME (LOSS)      TOTAL
                                              =========    =============    =========

PREDECESSOR COMPANY:
<S>                                           <C>          <C>                <C>
Balance at January 1, 2000 ..............     $ (81,993)   $          --      (26,702)
Comprehensive loss:
  Net loss ..............................      (105,563)              --
  Other comprehensive loss, net
  of taxes:
  Additional minimum pension
  liability .............................            --              (76)
    Total comprehensive loss ............                                    (105,639)
  Stock issued ..........................            --               --           17
                                              ---------    -------------    ---------
Balance at December 31, 2000 ............      (187,556)             (76)    (132,324)
Comprehensive income:
  Net income ............................       142,775               --
  Other comprehensive loss, net
  of taxes:
   Additional minimum pension
    liability ...........................            --             (576)
    Total comprehensive
    income ..............................                                     142,199
    Cancellation of old shares ..........            --               --         (115)
    Reorganization adjustments ..........        44,781              652          667
                                              ---------    -------------    ---------
Balance at December 31, 2001 ............            --               --    $  10,427
SUCCESSOR COMPANY:
Stock issued in reorganization ..........            --               --          100
                                              ---------    -------------    ---------
Balance at December 31, 2001 ............            --               --       10,527
Utilization of Predecessor
   Company net operating loss
    carryback benefit ...................            --               --          506
Comprehensive loss:
  Net loss ..............................        (4,757)              --

  Other comprehensive loss, net of taxes:
   Additional minimum pension
     liability ..........................            --           (5,024)
    Total comprehensive loss ............                                      (9,781)
                                              ---------    -------------    ---------
Balance at December 31, 2002 ............     $  (4,757)   $      (5,024)   $   1,252
                                              =========    =============    =========
</Table>

                 See notes to consolidated financial statements.



                                       47

<PAGE>



                             PIONEER COMPANIES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                  SUCCESSOR
                                                                   COMPANY               PREDECESSOR COMPANY
                                                                 ------------      ------------------------------
                                                                              YEAR ENDED DECEMBER 31,
                                                                 ------------------------------------------------
                                                                     2002              2001              2000
                                                                 ------------      ------------      ------------
<S>                                                              <C>               <C>               <C>
Operating activities:
  Net income (loss) ........................................     $     (4,757)     $    142,775      $   (105,563)
  Adjustments to reconcile net income (loss) to net
     cash flows from operating activities:
     Fresh start adjustments ...............................               --           106,919                --
     Extraordinary item, net ...............................               --          (414,312)               --
     Depreciation and amortization .........................           24,926            46,810            50,242
     Provision for (recovery of) loss on accounts
       receivable ..........................................             (848)            2,848                93
     Deferred tax expense (benefit) ........................             (781)            3,071            41,255
     Change in fair value of derivatives ...................          (23,566)          110,837                --
     Asset impairment ......................................           16,941             3,881                --
     Gain on disposal of assets ............................           (1,034)              (29)           (2,257)
     Foreign exchange (gain) loss ..........................              (92)             (663)              636
     Net effect of changes in operating assets and
       liabilities .........................................          (10,539)           30,769            28,731
                                                                 ------------      ------------      ------------
          Net cash flows from operating activities .........              250            32,906            13,137
                                                                 ------------      ------------      ------------
Investing activities:
  Capital expenditures .....................................          (10,615)          (13,112)          (18,697)
  Proceeds from disposal of assets .........................            2,047               233             2,878
                                                                 ------------      ------------      ------------
          Net cash flows from investing activities .........           (8,568)          (12,879)          (15,819)
                                                                 ------------      ------------      ------------
Financing activities:
  Debtor-in-possession credit facility, net ................           (6,663)            6,663                --
  Revolving credit borrowings, net .........................           14,704           (27,581)            6,418
  Repayments on long-term debt .............................           (1,649)             (571)           (1,950)
  Other ....................................................               --                --                18
                                                                 ------------      ------------      ------------
          Net cash flows from financing activities .........            6,392           (21,489)            4,486
                                                                 ------------      ------------      ------------
Effect of exchange rate changes on cash and
  cash equivalents .........................................            1,091              (849)           (1,379)
                                                                 ------------      ------------      ------------
Net increase (decrease) in cash and cash equivalents .......             (835)           (2,311)              425
                                                                 ------------      ------------      ------------
Cash and cash equivalents at beginning of period ...........            3,624             5,935             5,510
                                                                 ------------      ------------      ------------
Cash and cash equivalents at end of period .................     $      2,789      $      3,624      $      5,935
                                                                 ============      ============      ============
</Table>





                 See notes to consolidated financial statements.

                                       48
<PAGE>







                             PIONEER COMPANIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

     The consolidated financial statements include the accounts of Pioneer
Companies, Inc. (the "Company" or "PCI") and its consolidated subsidiaries
(collectively, "Pioneer"). The term "Predecessor Company" refers to Pioneer
prior to its emergence from bankruptcy on December 31, 2001, and the term
"Successor Company" refers to Pioneer after its emergence from bankruptcy on
December 31, 2001. References to predecessors of Pioneer Americas LLC ("Pioneer
Americas"), an indirect wholly-owned subsidiary of PCI, include Pioneer
Americas, Inc., Pioneer Corporation of America and Pioneer Chlor-Alkali Company,
Inc. during the period from 1999 to 2001. All significant intercompany balances
and transactions have been eliminated in consolidation.

     Pioneer operates in one industry segment, the production, marketing and
selling of chlor-alkali and related products. Pioneer operates in one geographic
area, North America. Pioneer conducts its primary business through its operating
subsidiaries: PCI Chemicals Canada Company (formerly known as PCI Chemicals
Canada Inc.) ("PCI Canada") and Pioneer Americas.

     On December 31, 2001, the Company and each of its direct and indirect
wholly-owned subsidiaries emerged from protection under Chapter 11 of the U.S.
Bankruptcy Code, and on the same date PCI Canada, a wholly-owned subsidiary of
PCI, emerged from protection under the provisions of Canada's Companies
Creditors' Arrangement Act. On that date, Pioneer's plan of reorganization,
which was confirmed by the U.S. Bankruptcy Court on November 28, 2001, became
effective.

     The financial results for the twelve months ended December 31, 2001 were
affected by our filing for reorganization under Chapter 11 of the U.S.
Bankruptcy Code and a parallel filing under the Canadian Companies Creditors'
Arrangement Act on July 31, 2001 and our emergence from bankruptcy on December
31, 2001, the effective date of our plan of reorganization. Our post-emergence
consolidated financial statements reflect results after the consummation of the
plan of reorganization and the application of the principles of fresh start
accounting in accordance with the provisions of the American Institute of
Certified Public Accountants' Statement of Position 90-7 "Financial Reporting by
Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7"). See Note 4.
The Predecessor Company, as it existed prior to our emergence from bankruptcy,
and the Successor Company, after the adoption of fresh start accounting, are
different reporting entities and the consolidated financial statements are not
comparable.

     Dollar amounts, other than per share amounts, in tabulations in the notes
to the consolidated financial statements are stated in thousands of dollars
unless otherwise indicated.

2. MATTERS AFFECTING LIQUIDITY

     Upon emergence from bankruptcy on December 31, 2001, Pioneer's senior
secured debt aggregated $206.7 million, consisting of Senior Secured Floating
Rate Guaranteed Notes due 2006 in the aggregate principal amount of $45.4
million (the "Secured Guaranteed Notes"), Senior Floating Rate Term Notes due
2006 in the aggregate principal amount of $4.6 million (the "Senior Floating
Notes"), 10% Senior Secured Guaranteed Notes due 2008 in the aggregate principal
amount of $150 million (the "10% Senior Secured Notes"), and a Revolving Credit
Facility with a $30 million commitment and a borrowing base restriction (the
"Revolver"). Borrowings under the Revolver were used shortly after the emergence
from bankruptcy to replace $6.7 million of debtor-in-possession financing that
was outstanding as of December 31, 2001. Collectively, the $200 million in
Senior Guaranteed Notes, Senior Floating Notes and 10% Senior Secured Notes are
referred to as the Senior Notes and together with the Revolver are referred to
as the Senior Secured Debt. The Senior Secured Debt requires payments of
interest in cash and contains various covenants including financial covenants in
the Revolver (which if violated will create a default under the cross-default
provisions of the Senior Notes) that obligate Pioneer to comply with certain
cash flow requirements. The interest payment requirements of the Senior Secured
Debt and the financial covenants in the Revolver were set at levels based on
financial projections of an assumed minimum ECU netback and do not accommodate
significant downward variations in operating results.

     Pioneer's ECU netback averaged $270 in 2002, while the projections prepared
in connection with Pioneer's plan of reorganization assumed an average ECU
netback of approximately $300. The low ECU netback experienced during 2002
created lower than anticipated liquidity, and Pioneer responded by cutting costs
and reducing expenditures, including idling manufacturing capacity and laying
off operating and administrative employees. Unless the anticipated improvement
in product prices occurs, Pioneer may not have the liquidity necessary to meet
all of its debt service and other obligations in 2003, and Pioneer may be unable
to satisfy the financial covenants in the Revolver. The amount of liquidity
ultimately needed by Pioneer to meet all of its obligations going forward



                                       49
<PAGE>

will depend on a number of factors, some of which are uncertain, although the
recent resolution of the derivatives dispute with the Colorado River Commission
("CRC") has reduced some uncertainty as to future liquidity needs. See Notes 3
and 24 regarding the settlement of the dispute with CRC.

     Pioneer amended its Revolver in April 2002 and again in June 2002. Pioneer
entered into the amendments to the Revolver to revise a financial covenant
requirement to exclude the effects of changes in the fair value of derivative
instruments and any realized gains and losses (except to the extent paid by
Pioneer) on derivatives, eliminate the availability of interest rates based on
the London interbank offered rate ("LIBOR"), and replace the previously
applicable margin over the prime rate (the "Previous Rate") with the Previous
Rate plus 2.25% for all loans that are and will be outstanding under the
Revolver. As a result of the amendments, Pioneer is also required to maintain
Liquidity (as defined) of at least $5.0 million, and limit its capital
expenditure levels to $20.0 million in 2002 and $25.0 million in each fiscal
year thereafter. In connection with the amendments there was an increase in the
fees applicable to letters of credit issued pursuant to the Revolver, to a rate
equal to 4.25% times the daily balance of the undrawn amount of all outstanding
letters of credit, and Pioneer paid a forbearance fee of $250,000. As amended,
one of the covenants in the Revolver requires Pioneer to generate at least:

          o    $5.608 million of net earnings before extraordinary gains, the
               effects of the derivative instruments excluding derivative
               expenses paid by Pioneer, interest, income taxes, depreciation
               and amortization (referred to as "Lender-Defined EBITDA") during
               the quarter ending December 31, 2002, and $10.910 million of
               Lender-Defined EBITDA during the nine-month period ending on the
               same date,

          o    $10.640 million of Lender-Defined EBITDA during the quarter
               ending March 31, 2003, and

          o    $21.550 million of Lender-Defined EBITDA for the twelve-month
               period ending March 31, 2003, and for each twelve month period
               ending each fiscal quarter thereafter.

     Lender-Defined EBITDA for the nine months ended December 31, 2002 was a
positive $1.2 million, and Lender-Defined EBITDA for the three months ended
December 31, 002 was a negative $10.7 million. Those amounts were less than the
amounts required under the Revolver covenant for those periods. Since in the
absence of a $16.9 million asset impairment charge relating to the Tacoma
facility (as discussed in Note 16) Lender-Defined EBITDA would have exceeded the
covenant requirement, the lender under the Revolver has waived the noncompliance
with the covenant requirements. It is anticipated that as a result of an
additional asset impairment charge in the first quarter of 2003 (as discussed
below and in Note 24), we will also be required to seek a waiver from the lender
under the Revolver with respect to the covenant requirement for that quarter. In
addition, it is anticipated that the impairment charges in the fourth quarter of
2002 and the first quarter of 2003 will likely result in the need for future
waivers from the lender under the Revolver, since the impairments will have a
negative effect on Lender Defined EBITDA for the twelve-month periods ending
each quarter through March 31, 2004.

     As a result of the amendments, Pioneer is also required to maintain
Liquidity (as defined) of at least $5.0 million, and limit capital expenditure
levels to $20.0 million in 2002 and $25.0 million in each fiscal year
thereafter. At December 31, 2002, Liquidity was $14.2 million, consisting of
borrowing availability of $11.4 million and cash of $2.8 million. Capital
expenditures were $10.6 million during 2002.

     If the required Lender-Defined EBITDA level under the Revolver is not met
and the lender under the Revolver does not waive Pioneer's failure to comply
with the requirement, Pioneer will be in default under the terms of the
Revolver. Moreover, if conditions constituting a material adverse change occur
or have occurred, the lender can exercise its rights under the Revolver and
refuse to make further advances. Following any such refusal, customer receipts
would be applied to Pioneer's borrowings under the Revolver, and Pioneer would
not have the ability to reborrow. This would cause Pioneer to suffer a rapid
loss of liquidity and it would lose the ability to operate on a day-to-day
basis. In addition, a default under the Revolver would allow the lender to
accelerate the outstanding indebtedness under the Revolver and would also result
in a cross-default under the Senior Notes which would provide the holders of the
Senior Notes with the right to accelerate the $200 million in Senior Notes
outstanding and demand immediate repayment.

     The Revolver also provides that as a condition of borrowings there shall
not have occurred any material adverse change in Pioneer's business, prospects,
operations, results of operations, assets, liabilities or condition (financial
or otherwise).

      The Senior Guaranteed Notes and Senior Floating Notes (collectively, the
"Tranche A Notes") provide that, within 60 days after each calendar quarter
during 2003 through 2006, Pioneer Americas is required to redeem (i) $2.5
million principal amount of Tranche



                                       50
<PAGE>

A Notes if Pioneer Americas' net income before extraordinary items, other
income, net, interest, income taxes, depreciation and amortization ("Pioneer
Americas' EBITDA") for such calendar quarter is greater than $20 million but
less than $25 million, (ii) $5 million principal amount of Tranche A Notes if
Pioneer Americas' EBITDA for such calendar quarter is greater than $25 million
but less than $30 million and (iii) $7.5 million principal amount of Tranche A
Notes if Pioneer Americas' EBITDA for such calendar quarter is greater than $30
million, in each case plus accrued and unpaid interest thereon to the redemption
date.

     Pioneer expects the settlement of derivative disputes with CRC (as
discussed in Notes 3 and 24), to result in a net gain of approximately $66
million in the first quarter of 2003. Due to the assignment of Pioneer's
long-term hydropower contracts to the Southern Nevada Water Authority and the
resulting higher energy prices under the new supply agreement effective in 2003,
Pioneer expects to record an approximate $41 million impairment of the Henderson
facility as the result of reduced plant profitability estimates. The net impact
of the foregoing, which is expected to increase Pioneer Americas' EBITDA by
approximately $25 million for the first quarter of 2003, may result in a
redemption obligation under the Tranche A Notes as described above. Any such
redemption would also accelerate Pioneer's obligation to repay approximately
$3.6 million in principal and interest on certain other notes.

     The uncertainties affecting Pioneer's liquidity as a result of the
restrictive financial covenants and redemption obligations described above raise
concern about Pioneer's ability to continue as a going concern. The accompanying
consolidated financial statements have been prepared on the going concern basis
of accounting, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The consolidated financial
statements do not include any adjustments that may result from the outcome of
these uncertainties.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Reorganization

     Reorganization items include legal and professional fees and expenses
related to Pioneer's reorganization incurred subsequent to the Chapter 11
filings and executive retention bonuses, offset by gains from
individually-negotiated settlements of critical vendor pre-petition liabilities
prior to confirmation of the plan of reorganization.

Cash and Cash Equivalents

     All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.

Inventories

     Inventories are valued at the lower of cost or market. Finished goods and
work-in-process costs are recorded under the average cost method, which includes
appropriate elements of material, labor and manufacturing overhead costs, while
the first-in, first-out method is utilized for raw materials, supplies and
parts. Pioneer enters into agreements with other companies to exchange
chlor-alkali inventories in order to minimize working capital requirements and
to optimize distribution logistics. Balances related to quantities due to or
payable by Pioneer are included in inventory.

Property, Plant and Equipment

     Property, plant and equipment are recorded at cost. Major renewals and
improvements that extend the useful lives of equipment are capitalized.
Disposals are removed at carrying cost less accumulated depreciation with any
resulting gain or loss reflected in operations.

     Depreciation is computed primarily under the straight-line method over the
estimated remaining useful lives of the assets. Asset lives range from 5 to 15
years with a predominant life of 10 years, which include buildings and
improvements with an average life of 15 years and machinery and equipment with
an average life of 9 years.

     Property, plant and equipment was revalued pursuant to fresh start
accounting. See Note 4.




                                       51
<PAGE>



Planned Major Maintenance Activities

     In connection with the application of fresh start accounting, Pioneer
adopted a policy of expensing major maintenance costs when incurred. Such costs
are incurred when major maintenance activities are performed on Pioneer's
chlor-alkali plants. The change in policy affects the accounting for major
maintenance at the St. Gabriel plant since previously the costs were amortized
over the period, generally two years or more, between major maintenance
activity. Pioneer incurred $1.6 million of major maintenance expenses at St
Gabriel in the fourth quarter of 2002. Major maintenance is performed at
Pioneer's other chlor-alkali plants on an annual basis.

Impairment of Long-Lived Assets

     Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Determination of recoverability is based on an estimate of
undiscounted future cash flows resulting from the use of the asset or its
disposition. Measurement of an impairment loss for long-lived assets that
management expects to hold and use are based on the estimated fair value of the
asset. Long-lived assets to be disposed of are reported at the lower of carrying
amount or net realizable value. See Note 16 for discussion of asset impairment
charges recorded in 2002 and 2001 and Note 24 for discussion of an impairment
charge expected in 2003.

Other Assets

     Other assets include amounts for deferred financing costs, which are being
amortized on a straight-line basis over the term of the related debt.
Amortization of such costs using the interest method would not have resulted in
material differences in the amounts amortized during the periods presented. At
December 31, 2001, unamortized debt issuance costs of $12.4 million were
written-off against the related debt balances in accordance with SOP 90-7.
Amortization expense for other assets for the years ended December 31, 2002,
2001 and 2000 was approximately $0.1 million, $3.8 million and $4.8 million,
respectively.

Excess Cost Over The Fair Value of Net Assets Acquired and Excess Reorganization
Value Over The Fair Value of Identifiable Assets

     Prior to Pioneer's emergence from bankruptcy and application of fresh start
accounting, excess cost over the fair value of net assets acquired ("goodwill")
was amortized on a straight-line basis over 25 years. Amortization expense for
excess cost over the fair value of net assets acquired was approximately $8.9
million and $9.0 million for the years ended December 31, 2001 and 2000,
respectively.

     Upon Pioneer's emergence from bankruptcy and application of fresh start
accounting, Pioneer recorded $84.1 million of excess reorganization value over
the fair value of identifiable assets ("goodwill") attributable to its Canadian
operations. In accordance with SFAS 142, "Goodwill and Other Intangible Assets,"
("SFAS 142"), this goodwill will not be amortized. The carrying value of
goodwill will be reviewed at least annually, and if this review indicates that
it will not be recoverable, as determined based on the estimated fair value of
the applicable reporting unit, Pioneer's carrying value will be adjusted in
accordance with SFAS 142. Pioneer tested goodwill for impairment as of January
1, 2003. Based on a fair value calculation using projected earnings before
interest, taxes, depreciation and amortization, the estimated fair value of the
Canadian operations exceeds book value.

     The changes in the carrying amount of goodwill for the years ended December
31, 2002 and 2001 are as follows:

<Table>
<S>                                                     <C>
          PREDECESSOR COMPANY:
            Balance as of January 1, 2001               $    179,560
            Amortization expense                              (8,948)
                                                        ------------
            Balance as of December 31, 2001                  170,612
            Fresh start accounting adjustments               (86,548)
                                                        ------------
          SUCCESSOR COMPANY:
            Balance as of December 31, 2001                   84,064
            2002 activity                                         --
                                                        ------------
            Balance as of December 31, 2002             $     84,064
                                                        ============
</Table>



                                       52
<PAGE>



The impact of goodwill amortization expense, net of income tax, on net loss
before extraordinary item, net income (loss), and earnings (loss) per share is
as follows:

<Table>
<Caption>
                                                                               SUCCESSOR
                                                                                COMPANY                PREDECESSOR COMPANY
                                                                               ------------        -----------------------------
                                                                                              YEAR ENDED DECEMBER 31,
                                                                               -------------------------------------------------
                                                                                   2002                 2001            2000
                                                                               ------------        ------------     ------------
<S>                                                                            <C>                 <C>              <C>
          Reported net loss before extraordinary item                          $     (4,757)       $   (271,537)    $   (105,563)
          Add back: Goodwill amortization, net of tax                                    --               7,043            7,119
                                                                               ------------        ------------     ------------
          Adjusted net loss before extraordinary item                          $     (4,757)       $   (264,494)    $    (98,444)
                                                                               ============        ============     ============

          Reported net income (loss)                                           $     (4,757)       $    142,775     $   (105,563)
                                                                                                                    ============
          Add back: Goodwill amortization, net of tax                                    --               7,043            7,119
                                                                               ------------        ------------     ------------
          Adjusted net income (loss)                                           $     (4,757)       $    149,818     $    (98,444)
                                                                               ============        ============     ============

          Basic and diluted loss per share before extraordinary item:
                Reported net loss                                              $      (0.48)       $     (23.53)    $      (9.15)
                Goodwill amortization, net of tax                                        --                0.61             0.62
                                                                               ------------        ------------     ------------
                Adjusted net loss                                              $      (0.48)       $     (22.92)    $      (8.53)
                                                                               ============        ============     ============

          Basic and diluted loss per share:
                Reported net income (loss)                                     $      (0.48)       $      12.38     $      (9.15)
                Goodwill amortization, net of tax                                        --                0.61             0.62
                                                                               ------------        ------------     ------------
                Adjusted net income (loss)                                     $      (0.48)       $      11.77     $      (8.53)
                                                                               ============        ============     ============
</Table>

Environmental Expenditures

     Remediation costs are accrued based on estimates of known environmental
remediation exposure. Such accruals are based upon management's best estimate of
the ultimate cost. Ongoing environmental compliance costs, including maintenance
and monitoring costs, are charged to operations as incurred. See Note 20.

Revenue Recognition

     Pioneer generates revenues through sales in the open market and long-term
supply contracts. Revenue is recognized when the products are shipped and
collection is reasonably assured. Pioneer classifies amounts billed to customers
for shipping and handling as revenues, with the related shipping and handling
costs included in cost of goods sold.

Research and Development Expenditures

     Research and development expenditures are expensed as incurred. Such costs
totaled $1.0 million in 2001, and $1.4 million in 2000. No research and
development costs were incurred during 2002.

Preferred Stock

     Upon emergence from bankruptcy, all outstanding preferred stock was
cancelled.

Income (Loss) Per Share

     All of the Class A and Class B Common Stock of the Predecessor Company was
cancelled upon emergence from bankruptcy. Accordingly, per share amounts for the
Successor Company and Predecessor Company are not comparable.

     Basic income (loss) per share is based on the weighted average number of
common shares outstanding during the period. Diluted income (loss) per share
considers, in addition to the above, the dilutive effect of potentially issuable
common shares during the period. Income (loss) per share for 2002, 2001 and 2000
were not affected by outstanding options to acquire shares of common stock
because the exercise prices of those options were greater than the average
market price of Pioneer's common stock during those periods. Income (loss) per
share for 2001 and 2000 was not affected by the 55,000 issued and outstanding
preferred shares that could be converted into 539,000 shares of common stock
because their effect was anti-dilutive.



                                       53
<PAGE>

Stock-Based Compensation

     SFAS 123, "Accounting for Stock-Based Compensation," as amended by SFAS
148, "Accounting for Stock-Based Compensation Transition and Disclosure,"
encourages all entities to adopt a fair value based method of accounting for
employee stock compensation plans, whereby compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. However, it also allows an entity
to continue to measure compensation cost for those plans using the intrinsic
value based method of accounting prescribed by Accounting Principals Board
("APB") 25, "Accounting for Stock Issued to Employees". Under this method,
compensation cost is the excess, if any, of the quoted market price of the stock
at the grant date (or other measurement date), over the amount an employee must
pay to acquire the stock. Stock options issued under Pioneer's stock option
plans have no intrinsic value at the grant date, and under APB 25, no
compensation cost is recognized for them. Pioneer has elected to continue with
the accounting methodology in APB 25, and, as a result, has provided pro forma
disclosures of the net earnings, earnings per share, and other disclosures, as
if the fair value based method of accounting had been applied.

     The fair value of each stock option grant was estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions used for the grants in 2002; risk free interest rate of
3.8%, no expected dividend yield for all years, expected life of 10 years, and
expected volatility of 95%. Stock options generally expire 10 years from the
date of grant and fully vest after 3 years. At December 31, 2002, the weighted
average remaining contractual life on outstanding options was 9.4 years. Had
compensation expense for the plans been determined consistent with SFAS 123,
Pioneer's pro forma net income (loss) and income (loss) per common share for the
three years ended December 31, 2002 would have been as indicated below:

<Table>
<Caption>
                                                                       SUCCESSOR
                                                                        COMPANY              PREDECESSOR COMPANY
                                                                      ------------      ------------------------------
                                                                          2002              2001              2000
                                                                      ------------      ------------      ------------
<S>                                                                   <C>               <C>               <C>
          Net loss before extraordinary item:
            As reported .........................................     $     (4,757)     $   (271,537)     $   (105,563)
            Pro forma stock compensation expense ................             (398)             (225)             (372)
                                                                      ------------      ------------      ------------
          Pro forma net loss before extraordinary item ..........           (5,155)         (271,762)         (105,935)
                                                                      ============      ============      ============

          Loss per common share - basic and diluted:
            Net loss before extraordinary item, as reported .....     $      (0.48)     $     (23.53)     $      (9.15)
            Net loss before extraordinary item, pro forma .......            (0.52)           (23.55)            (9.18)
</Table>

Foreign Currency Translation

     Following SFAS 52, "Foreign Currency Translation," the functional
accounting currency for Canadian operations is the U.S. dollar; accordingly,
gains and losses resulting from balance sheet translations are included in the
consolidated statement of operations.

Reclassifications

     Certain amounts have been reclassified in prior years to conform to the
current year presentation. All reclassifications have been applied consistently
for the periods presented.

Estimates and Assumptions

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America ("GAAP") requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from the
estimates.

Derivatives

     Pioneer adopted the accounting and reporting standards of SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," as interpreted
and amended, ("SFAS 133") as of January 1, 2001. SFAS 133 requires a company to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. Based upon the
contracts in effect at January 1, 2001, the adoption of SFAS 133 had no effect
on the consolidated financial statements at that date.




                                       54
<PAGE>

     Prior to the settlement of derivative disputes (as discussed below) with
CRC, approximately 35% of the electric power supply for Pioneer's Henderson
facility was hydropower furnished under a low-cost, long-term contract with CRC,
approximately 50% was provided under a supplemental supply contract with CRC,
and the remaining 15% was provided under a long-term arrangement with a third
party. The supplemental supply contract entered into in March 2001 set forth
detailed procedures governing the procurement of power by CRC on Pioneer's
behalf. This agreement was not intended to provide for speculative power
purchases on behalf of Pioneer.

     The dispute with CRC involved various derivative positions that were
executed by CRC, purportedly for Pioneer's benefit under the supplemental supply
contract. The derivative positions consisted of contracts for the forward
purchase and sale of electricity as well as put and call options that were
written for electric power. Pioneer disputed CRC's contention that certain
derivative positions (the "Disputed Derivatives") with a net liability at
December 31, 2002, of $82.3 million were its responsibility. A net liability of
$87.3 million, consisting of the $82.3 million liability for the Disputed
Derivatives and a $5.0 million liability relating to transactions that were not
disputed (the "Approved Derivatives"), was recorded by Pioneer and is reflected
in its December 31, 2002 balance sheet. CRC further contended that other
contracts (the "Rejected Derivatives") reflecting an additional net liability of
$41.0 million as of December 31, 2002, were Pioneer's responsibility. Pioneer
did not record any net liability with respect to the Rejected Derivatives
because CRC did not provide any documentation of any relationship of those
contracts to Pioneer.

     The derivative positions include many types of contracts with varying
strike prices and maturity dates extending through 2006. The fair value of the
instruments varied over time based upon market circumstances. The fair value of
the derivative positions was determined for Pioneer by an independent consultant
using available market information and appropriate valuation methodologies that
included current and forward pricing. Considerable judgment, however, is
necessary to interpret market data and develop the related estimates of fair
value. Accordingly, the estimates for the fair value of the derivative positions
are not necessarily indicative of the amounts that could be realized upon
disposition of the derivative positions or the ultimate amount that would be
paid or received when the positions are settled. The use of different market
assumptions and/or estimation methodologies would result in different fair
values. Management of Pioneer believes that the market information,
methodologies and assumptions used by the independent consultant to fair value
the derivative positions produced a reasonable estimation of the fair value of
the derivative positions.



                                       55
<PAGE>



      The information in the tables below presents the electricity futures and
options positions outstanding ($ in thousands, except per megawatt hour ("mwh")
amounts, and volumes in mwh) for Approved Derivatives and Disputed Derivatives
for the periods presented.

<Table>
<Caption>
                                                             DECEMBER 31, 2002                DECEMBER 31, 2001
                                                        -----------------------------    ----------------------------
                                                          APPROVED        DISPUTED         APPROVED       DISPUTED
                                                        ------------    -------------    ------------    ------------
<S>                                                     <C>             <C>              <C>             <C>
ELECTRICITY FUTURES CONTRACTS:
  Purchases:
     Contract volume (mwh) ..........................             --        9,335,840              --      12,785,000
     Range of expirations (years) ...................             --     1.00 to 4.00              --    0.25 to 5.00
     Weighted average years until expiration ........             --             3.42              --            3.41
     Weighted average contract price (per mwh) ......   $         --    $       52.13    $         --    $      59.38
     Notional amount ................................   $         --    $     486,699    $         --    $    759,210
     Weighted average fair value (per mwh) ..........   $         --    $       37.14    $         --    $      31.00
     Mark-to-market loss ............................   $         --    $    (139,995)   $         --    $   (362,821)

  Sales:
     Contract volume (mwh) ..........................             --        4,627,160         218,600       7,919,200
     Range of expirations (years) ...................             --     1.00 to 4.00    0.50 to 1.00    0.25 to 5.00
     Weighted average years until expiration ........             --             3.17             .72            2.53
     Weighted average contract price (per mwh) ......   $         --    $       47.67    $      38.72    $      62.59
     Notional amount ................................   $         --    $     220,580    $      8,464    $    495,679
     Weighted average fair value (per mwh) ..........   $         --    $       36.74    $      26.10    $      30.82
     Mark-to-market gain ............................   $         --    $      50,585    $      2,758    $    251,553

ELECTRICITY OPTION CONTRACTS:
  Put (purchase):
     Contract volume (mwh) ..........................        491,200               --         614,000              --
     Notional amount ................................   $     24,560    $          --    $     30,700    $         --
     Years until expiration .........................           4.00               --            5.00              --
     Weighted average strike price ..................   $       50.0    $          --    $      50.00    $         --
     Mark-to-market loss ............................   $     (5,019)   $          --    $    (13,375)   $         --

  Calls (sales):
     Contract volume (mwh) ..........................             --        3,288,000          61,600       4,534,200
     Notional amount ................................   $         --    $     174,264    $      3,080    $    246,549
     Range of expirations (years) ...................             --              3.0            0.25    0.25 to 4.00
     Weighted average years until expiration ........             --              3.0            0.25            2.97
     Weighted average strike price ..................   $         --    $       53.00    $      50.00    $      54.38
     Mark-to-market gain ............................   $         --    $       7,158    $        271    $     10,777
                                                        ------------    -------------    ------------    ------------

Total unrealized loss ...............................   $     (5,019)   $     (82,252)   $    (10,346)   $   (100,491)
                                                        ============    =============    ============    ============
</Table>

SUMMARY OF APPROVED AND DISPUTED DERIVATIVE ASSETS AND LIABILITIES:

<Table>
<Caption>

                                          DECEMBER 31, 2002          DECEMBER 31, 2001
                                          -----------------          -----------------
<S>                                       <C>                        <C>
Current derivative asset ...............   $     17,834                $    178,028
Non-current derivative asset ...........         41,362                      87,625
Current derivative liability ...........        (37,614)                   (168,865)
Non-current derivative liability .......       (108,853)                   (207,625)
                                           ------------                ------------
Net derivative liability ...............   $    (87,271)               $   (110,837)
                                           ============                ============
</Table>

     Pioneer recorded estimated realized income and expense related to
fulfilling or settling the obligations that could arise with respect to the
Approved Derivatives and Disputed Derivatives as a component of cost of sales. A
net receivable from CRC of $21.0 million at December 31, 2002, was recorded in
"Other Assets." The net receivable included $14.8 million of cash that CRC
collected in the form of premiums related to options that expired prior to
December 31, 2002, but did not remit to Pioneer. The remaining $6.2 million of
the net receivable represented an estimate of CRC's net proceeds from the
settlement of certain Approved Derivatives and Disputed Derivatives on their
delivery dates during 2002 that was not remitted to Pioneer. At December 31,
2001, the net receivable from CRC recorded in "Other Assets" was $8.4 million.



                                       56
<PAGE>

     All of the conditions of the settlement of Pioneer's dispute with the CRC
were satisfied on March 3, 2003. As a result of the settlement, which is
effective as of January 1, 2003, Pioneer has been released from all claims for
liability with respect to electricity derivatives positions, and all litigation
between Pioneer and CRC has been dismissed. See Note 24.

4.   REORGANIZATION AND FRESH START ADJUSTMENTS

     On December 31, 2001, the Company and each of its direct and indirect
wholly-owned U.S. subsidiaries emerged from protection under the U.S. Bankruptcy
Code, and on the same date PCI Canada emerged from protection under the
provisions of Canada's Companies Creditors' Arrangement Act.

     Under the plan of reorganization that was effective on December 31, 2001,
the common stock of the Predecessor Company was cancelled, the holders of the
Predecessor Company's senior secured debt received $200 million in principal
amount of new senior secured debt and 97% of the common stock of the reorganized
company and unsecured creditors were entitled to receive the remaining 3% of the
common stock. Trade creditors with small claims received cash, and other
critical vendors received or will receive payments determined under
individually-negotiated settlements. These share percentages exclude shares
issuable upon the exercise of options to be granted in connection with the
Management Equity Incentive Plan adopted as part of the reorganization
proceedings. See Note 11.

     Pioneer has applied fresh start accounting to the consolidated balance
sheet as of December 31, 2001 in accordance with SOP 90-7. Under fresh start
accounting, a new reporting entity is considered to be created and the recorded
amounts of assets and liabilities are adjusted to reflect their estimated fair
values at the date fresh start accounting is applied similar to the procedures
specified in accordance with SFAS 141, "Business Combinations." In addition, the
accumulated deficit of the Predecessor Company was eliminated and its common
stock was valued based on an enterprise value of $355 million. Pioneer
subsequently adjusted the equity value to include the effects of idling Tacoma
and the net derivative liability, which were not considered in the initial
valuation. Pioneer recorded the effects of the plan of reorganization and fresh
start accounting as of December 31, 2001, as follows:

<Table>
<Caption>
                                                           PREDECESSOR                                           SUCCESSOR
                                                             COMPANY                                              COMPANY
                                                           CONSOLIDATED     REORGANIZATION     FRESH START      CONSOLIDATED
                                                           BALANCE SHEET      ADJUSTMENTS      ADJUSTMENTS      BALANCE SHEET
                                                          --------------    --------------    --------------    --------------
<S>                                                       <C>               <C>               <C>               <C>
Current assets ........................................   $      250,570    $       (1,769)   $          (44)   $      248,757
Property, plant and equipment, net ....................          273,990                --               660           274,650
Other assets, net .....................................           13,031                --            (1,215)           11,816
Non-current derivative asset ..........................           87,625                --                --            87,625
Excess reorganization value over the fair
value of identifiable assets ..........................          170,612                --           (86,548)           84,064
                                                          --------------    --------------    --------------    --------------
  Total assets ........................................   $      795,828    $       (1,769)   $      (87,147)   $      706,912
                                                          ==============    ==============    ==============    ==============
Current liabilities ...................................   $      288,496    $      (55,350)   $       (2,226)   $      230,920
Long-term debt, net of current portion ................          563,932          (355,231)               --           208,701
Accrued pension and other employee benefits ...........           16,099                --             6,346            22,445
Non-current derivative liability ......................          207,625                --                --           207,625
Other long-term liabilities ...........................           11,694                --            15,000            26,694
Redeemable preferred stock ............................            5,500            (5,500)               --                --
                                                          --------------    --------------    --------------    --------------
  Total liabilities ...................................        1,093,346          (416,081)           19,120           696,385
Old common stock ......................................              115              (115)               --                --
New common stock ......................................               --               100                --               100
Additional paid-in capital ............................           55,193           414,327          (459,093)           10,427
Retained earnings (deficit) ...........................         (352,174)               --           352,174                --
Accumulated other comprehensive income ................             (652)               --               652                --
                                                          --------------    --------------    --------------    --------------
  Total shareholders' equity (deficiency in assets) ...         (297,518)          414,312          (106,267)           10,527
                                                          --------------    --------------    --------------    --------------
  Total liabilities and shareholder's equity
    (deficiency in assets) ............................   $      795,828    $       (1,769)   $      (87,147)   $      706,912
                                                          ==============    ==============    ==============    ==============
</Table>

     Reorganization adjustments reflect the forgiveness of debt, including
related accrued interest, and certain prepetition trade payables in
consideration for new debt and new common stock, resulting in an extraordinary
gain of $414.3 million.




                                       57
<PAGE>



5. DIVESTITURES

     In August 2000 Pioneer completed the disposition of two of its former
operating subsidiaries ("Kemwater", collectively), which manufactured and
supplied polyaluminum chlorides to certain potable and wastewater markets in the
United States. The products were used primarily to remove solids from wastewater
streams and to control hydrogen sulfide emissions. Kemwater also manufactured
and marketed aluminum sulfate to the wastewater and pulp and paper industries.
No material gain or loss was recognized upon completion of the sale of the
Kemwater assets in 2000. Kemwater had revenues of $8.7 million in 2000.

6. CASH FLOW INFORMATION

     The net effect of changes in operating assets and liabilities are as
follows:

<Table>
<Caption>
                                            SUCCESSOR
                                             COMPANY            PREDECESSOR COMPANY
                                           ------------    ----------------------------
                                                     YEAR ENDED DECEMBER 31,
                                           --------------------------------------------
                                               2002            2001            2000
                                           ------------    ------------    ------------
<S>                                        <C>             <C>             <C>
Accounts receivable ....................   $      3,851    $      4,463    $        844
Inventories ............................          4,454           6,489          (2,019)
Prepaid expenses .......................          4,356          (3,614)          1,054
Other assets ...........................        (13,918)         (6,923)          5,145
Accounts payable .......................          2,823          (5,636)         16,188
Accrued liabilities ....................         (8,733)         36,709          12,934
Other long-term liabilities ............         (3,372)           (719)         (5,415)
                                           ------------    ------------    ------------
Net change in operating accounts .......   $    (10,539)   $     30,769    $     28,731
                                           ============    ============    ============
</Table>

     Non-cash financing activities:

     In October 2002, Pioneer financed certain insurance premiums with two notes
totaling $1.5 million and payable to a third party financing company. Since the
financing company distributed cash directly to the insurance company, the
transaction was a non-cash transaction for Pioneer. The notes payable are
classified as short-term debt, and are payable in monthly installments through
June 2003. The payment made by the financing company to the insurance company is
classified as prepaid insurance, and will be amortized over the term of the
insurance policy.

     In connection with Pioneer's emergence from bankruptcy, Pioneer reached
agreements with certain vendors regarding the repayment of amounts owed to those
vendors whereby certain amounts will be repaid over several years. To reflect
their long-term due dates, $2.4 million from accounts payable and $1.2 million
from accrued liabilities were reclassified to long-term debt in September 2002.
Corresponding reclassifications are reflected at December 31, 2001.

     On May 15, 2002, Pioneer converted $3.4 million of amounts owed to certain
professionals for services provided during the bankruptcy proceedings into
interest bearing promissory notes due July 1, 2003. The $3.4 million was
reclassified from accrued liabilities to long-term debt.

     In accordance with SOP 90-7, $12.4 million of unamortized debt issuance
costs related to compromised debt was reclassified against the related debt
balance in Pioneer's consolidated balance sheet in 2001.

     Following is supplemental cash flow information:

<Table>
<Caption>
                                   SUCCESSOR
                                    COMPANY           PREDECESSOR COMPANY
                                 ------------    ---------------------------
                                             YEAR ENDED DECEMBER 31,
                                 -------------------------------------------
                                                      2001           2000
                                                 ------------   ------------
<S>                              <C>             <C>            <C>
Interest paid ................   $     19,195    $      3,343   $     46,613
Income taxes paid
   (refunded) ................           (506)            210             11
</Table>



                                       58
<PAGE>

7. INVENTORIES

     Inventories consisted of the following at December 31:

<Table>
<Caption>
                                                    2002           2001
                                                ------------   ------------
<S>                                             <C>            <C>
Raw materials, supplies and parts, net ......   $      8,105   $     10,748
Finished goods and work-in-process ..........          7,117          9,133
Inventories under exchange agreements .......             89           (266)
                                                ------------   ------------
                                                $     15,311   $     19,615
                                                ============   ============
</Table>

8. INVESTMENTS IN BASIC MANAGEMENT, INC. AND THE LANDWELL COMPANY, L.P.

     Prior to June 2000 the Company, through its predecessor subsidiary Pioneer
Americas, Inc. ("PAI"), was the record owner of approximately 32% of the common
stock of Basic Management, Inc. ("BMI"), which owns and maintains the water and
power distribution network within a Henderson, Nevada industrial complex. BMI is
the general partner of and has a 50% interest in The LandWell Company, L.P.
("LandWell"), which owns land in Henderson and Clark County, Nevada. Prior to
June 2000 PAI also owned an approximate 21% limited partnership interest in
LandWell.

     PAI's interests in BMI and LandWell, together with certain other California
and Louisiana real estate interests, constituted assets that were held for the
economic benefit of the previous owners of PAI. Dividends and distributions
received by Pioneer on account of such interests were deposited in a separate
cash account (the "Contingent Payment Account"), the balance of which was to be
applied in satisfaction of certain obligations of such previous owners under
environmental indemnity obligations in favor of Pioneer, provided that any
amounts not so applied prior to April 20, 2015 were to be remitted to such
persons.

     In June 2000 Pioneer and the previous owners effected an agreement pursuant
to which PAI agreed to transfer to the previous owners the record title to the
interests in BMI, LandWell and the California and Louisiana real estate
interests, as well as $0.8 million of the cash balance in the Contingent Payment
Account. The remaining $5.3 million balance in the Contingent Payment Account,
which was determined as an amount adequate to pay for future environmental
remediation costs that would be subject to the indemnity obligations of the
previous owners and was unrestricted, was retained by Pioneer, in exchange for
the release of the indemnity obligations. This transaction resulted in a gain of
$1.8 million. The Contingent Payment Account was closed as a consequence of this
transaction and the net proceeds from the settlement of $5.3 million were used
to reduce outstanding obligations under Pioneer's then existing revolving credit
facility.

9. OTHER ASSETS

     Other assets consist of the following at December 31:

<Table>
<Caption>
                                                                        2002           2001
                                                                   ------------   ------------
<S>                                                                <C>            <C>
Accounts receivable under indemnification of environmental
   reserve .....................................................   $      3,200   $      3,200
Receivable for net realized gain on matured derivatives ........         20,999          8,425
Other ..........................................................          1,556            191
                                                                   ------------   ------------
          Other assets, net ....................................   $     25,755   $     11,816
                                                                   ============   ============
</Table>

10. ACCRUED LIABILITIES

     Accrued liabilities consist of the following at December 31:

<Table>
<Caption>
                                                2002          2001
                                           ------------   ------------
<S>                                        <C>            <C>
Payroll and benefits ...................   $      5,042   $      7,541
Reorganization items ...................             --          9,468
Electricity ............................          5,310          4,089
Other accrued liabilities ..............          7,809         11,870
                                           ------------   ------------
      Accrued liabilities ..............   $     18,161   $     32,968
                                           ============   ============
</Table>




                                       59
<PAGE>

11. EMPLOYEE BENEFITS

Pension Plans

     Pioneer sponsors various non-contributory, defined benefit plans covering
substantially all union and non-union employees of Pioneer Americas and PCI
Canada. Pension plan benefits are based primarily on participants' compensation
and years of credited service. Annual pension costs and liabilities for Pioneer
under its defined benefit plans are determined by actuaries using various
methods and assumptions. Pioneer intends to contribute such amounts as are
necessary to provide assets sufficient to meet the benefits to be paid to its
employees. Pioneer's present intent is to make annual contributions, which are
actuarially computed, in amounts not more than the maximum nor less than the
minimum allowable under US and Canada statutory requirements. Plan assets at
December 31, 2002 and 2001 consist primarily of fixed income investments and
equity investments.

     In connection with Pioneer's application of fresh start accounting on
December 31, 2001, Pioneer adjusted the amounts recorded for pension and
post-retirement benefits other than pensions liabilities to include all
previously unrecognized actuarial gains and losses, as well as unrecognized
prior service costs.

     Global capital market developments resulted in negative returns on
Pioneer's defined benefit plan assets and a decline in the discount rates used
to estimate the liability. As a result, Pioneer was required to record an
additional minimum pension liability of $5.1 million for plans where the
accumulated benefit obligation exceeded the fair market value of the respective
plan assets. Additional minimum liability of $5.0 million was included in
Pioneer's accumulated other comprehensive loss. Information concerning the
pension obligation, plan assets, amounts recognized in Pioneer's financial
statements and underlying actuarial assumptions is stated below.

<Table>
<Caption>
                                                            SUCCESSOR      PREDECESSOR
                                                            COMPANY         COMPANY
                                                          ------------    ------------
                                                             2002             2001
                                                          ------------    ------------
<S>                                                       <C>             <C>
Change in benefit obligation:
  Projected benefit obligation, beginning of year .....   $     68,058    $     63,086
  Service cost ........................................          2,463           2,724
  Interest cost .......................................          4,640           4,556
  Actuarial losses ....................................            466             486
  Benefits paid .......................................         (3,108)         (1,780)
  Net transfer in (out) ...............................            949          (1,014)
  Curtailment gain ....................................         (1,220)             --
  Plan amendments .....................................              8              --
                                                          ------------    ------------
  Projected benefit obligation, end of year ...........   $     72,256    $     68,058
                                                          ============    ============
Change in plan assets:
  Market value of assets, beginning of year ...........   $     55,149    $     53,950
  Actual return on plan assets ........................         (3,563)            (25)
  Employer contributions ..............................          3,923           4,044
  Net transfer in (out) ...............................            949          (1,014)
  Benefits paid .......................................         (3,108)         (1,780)
  Administrative expenses .............................            (38)            (26)
                                                          ------------    ------------
  Market value of assets, end of year .................   $     53,312    $     55,149
                                                          ============    ============
Development of net amount recognized:
  Funded status .......................................   $    (18,944)   $    (12,701)
  Unamortized actuarial loss ..........................          8,323           4,292
  Unrecognized prior service cost .....................             13           1,233
                                                          ------------    ------------
  Net amount recognized ...............................   $    (10,608)   $     (7,176)
  Fresh start accounting adjustment ...................             --          (5,370)
                                                          ------------    ------------
  Net amount recognized ...............................   $    (10,608)   $    (12,546)
                                                          ============    ============
</Table>




                                       60
<PAGE>




<Table>
<Caption>
                                                                    SUCCESSOR COMPANY
                                                               ----------------------------
                                                                   2002           2001
                                                               ------------    ------------
<S>                                                            <C>             <C>
Amounts recorded in the consolidated balance sheets:
  Accrued pension liability ................................   $    (10,608)   $    (12,546)
  Additional minimum liability .............................         (5,115)             --
  Intangible asset .........................................             91              --
  Other comprehensive loss .................................          5,024              --
                                                               ------------    ------------
  Net amount recognized ....................................   $    (10,608)   $    (12,546)
                                                               ============    ============
</Table>

<Table>
<Caption>

                                                           SUCCESSOR              PREDECESSOR
                                                           COMPANY                  COMPANY
                                                         ------------     -----------------------------
                                                             2002             2001             2000
                                                         ------------     ------------     ------------
<S>                                                      <C>              <C>              <C>
Components of net periodic benefit cost:
  Service cost .......................................   $      2,463     $      2,724     $      2,766
  Interest cost ......................................          4,640            4,556            4,187
  Expected return on plan assets .....................         (4,294)          (4,273)          (4,109)
  Amortization of prior service cost .................             (5)             196              126
                                                         ------------     ------------     ------------
  Net period benefit cost ............................   $      2,804     $      3,203     $      2,970
                                                         ============     ============     ============
Weighted-average assumptions as of December 31:
  Discount rate ......................................            6.9%             7.1%             7.5%
  Expected return on plan assets .....................            8.0%             8.0%             8.0%
  Rate of compensation increase ......................            3.2%             3.9%             4.4%
</Table>

Defined Contribution Plans

     Pioneer offers defined contribution plans under which employees may
generally contribute from 1% to 15% of their compensation. Pioneer also
contributed funds to the plans in the amount of 50% of employee contributions up
to 4% to 6% of employee compensation, depending on the plan. Effective February
1, 2002, Pioneer suspended making matching contributions to the plans in order
to reduce fixed costs. Contribution expense under the plans were $0.1 million,
$1.0 million and $1.2 million in 2002, 2001 and 2000, respectively.

Post-Retirement Benefits Other Than Pensions

     Effective January 1, 1999, Pioneer modified its retiree health care
benefits plan. Employees retiring on or after January 1, 1999 will not receive
company-paid retiree medical benefits. Eligible employees who retired prior to
January 1, 1999 continued to receive certain company-paid health care benefits.
Pioneer provided certain life insurance benefits for qualifying retired
employees who reached normal retirement age while working for Pioneer.




                                       61
<PAGE>



     Information concerning the plan obligation, the funded status, amounts
recognized in Pioneer's financial statements and underlying actuarial
assumptions is stated below.

<Table>
<Caption>
                                                                       SUCCESSOR     PREDECESSOR
                                                                        COMPANY        COMPANY
                                                                     ------------    ------------
                                                                         2002            2001
                                                                     ------------    ------------
<S>                                                                  <C>             <C>
Change in benefit obligation:
  Accumulated post-retirement benefit obligation,
    beginning of year ............................................   $      8,967    $      8,207
  Service cost ...................................................             98             117
  Interest cost ..................................................            589             602
  Actuarial (gain)/loss ..........................................           (276)            404
  Plan amendments ................................................           (192)             --
  Benefits paid ..................................................           (428)           (363)
                                                                     ------------    ------------
  Accumulated post-retirement benefit obligation, end of year ....   $      8,758    $      8,967
                                                                     ============    ============
  Funded status ..................................................   $     (8,758)   $     (8,967)
  Unrecognized prior service cost ................................           (192)             --
  Unrecognized net (gain) loss ...................................           (647)            404
                                                                     ------------    ------------
  Accrued benefit cost ...........................................   $     (9,597)   $     (8,563)
  Fresh start accounting adjustment ..............................             --            (404)
                                                                     ------------    ------------
  Accrued benefit cost ...........................................   $     (9,597)   $     (8,967)
                                                                     ============    ============
</Table>


<Table>
<Caption>
                                                           SUCCESSOR              PREDECESSOR
                                                            COMPANY                 COMPANY
                                                          ------------     ----------------------------
                                                              2002             2001            2000
                                                          ------------     ------------    ------------
<S>                                                       <C>              <C>             <C>
Components of net periodic benefit cost:
  Service cost ........................................   $         97     $        117    $        122
  Interest cost .......................................            589              602             579
  Amortization of net (gain) loss .....................            (30)              31              37
                                                          ------------     ------------    ------------
  Net period benefit cost .............................   $        656     $        750    $        738
                                                          ============     ============    ============
Weighted-average assumptions as of December 31:
  Discount rate .......................................            6.8%             7.2%            7.6%
</Table>

     The weighted-average annual assumed health care trend rate is assumed to be
8% for 2003. The rate is assumed to decrease gradually to 4.5% in 2012 and
remain level thereafter. Assumed health care cost trend rates have a significant
effect on the amounts reported for the health care plans. A one-percentage-point
change in assumed health care trend rates would have the following effects:

<Table>
<Caption>
                                                     1-PERCENTAGE     1-PERCENTAGE
                                                    POINT INCREASE   POINT DECREASE
                                                    --------------   --------------
<S>                                                 <C>              <C>
Effect on total of service and interest cost
  Components .....................................   $        101     $        (83)
Effect on post-retirement benefit obligation .....          1,125             (935)
</Table>

Stock Based Compensation

     Pioneer has a stock incentive plan that provides for the granting to key
personnel and directors of options to purchase up to 1.0 million shares of
common stock of the Successor Company. The options may be either qualified
incentive stock options or nonqualified stock options. Stock options granted to
date have an exercise price equal to or exceeding the market value of the shares
of common stock on the date of grant. Options awarded to Pioneer's employees
become exercisable in annual increments over a three-year period beginning one
year from the grant date. Options awarded to directors become exercisable on the
anniversary of the date of their election as directors.

     Prior to bankruptcy, Pioneer had two stock incentive plans, which provided
key employees the option to purchase shares of common stock. The plans
authorized the issuance of options to purchase up to a total of 2.3 million
shares of common stock, with vesting periods of up to three years and maximum
option terms of ten years. In addition, options for the purchase of 0.3 million
shares had been issued outside the scope of the stock option plans. These plans
were terminated and all outstanding options were cancelled pursuant to the plan
of reorganization.



                                       62
<PAGE>

     The following table summarizes the transactions with respect to the stock
options of the Successor Company for the year ended December 31, 2002 (shares in
thousands):

<Table>
<Caption>
                                                                                  WEIGHTED AVERAGE
                                                  NUMBER OF     EXERCISE PRICE     EXERCISE PRICE          OPTIONS
                                                   SHARES         PER SHARE          PER SHARE           EXERCISABLE
                                                  ---------     --------------    ----------------       -----------
<S>                                               <C>           <C>               <C>                    <C>
        2002:
        Granted.............................         892         $2.00 - $4.00         $2.87
        Forfeited...........................        (174)            $2.50             $2.50
                                                   -----
        Outstanding at December 31, 2002....         718         $2.00 - $4.00         $2.96                  40
                                                   =====
</Table>

     The following table summarizes the transactions with respect to the stock
options of the Predecessor Company for the two-year period ended December 31,
2001 (shares in thousands):

<Table>
<Caption>
                                                                                  WEIGHTED AVERAGE
                                                  NUMBER OF     EXERCISE PRICE     EXERCISE PRICE          OPTIONS
                                                   SHARES         PER SHARE          PER SHARE           EXERCISABLE
                                                  ---------     --------------    ----------------       -----------
<S>                                               <C>           <C>               <C>                    <C>
        Outstanding at December 31, 1999......        1,544       $4.08-$11.12         $ 5.08                520
        2000:
          Granted.............................          102              $5.45         $ 5.45
          Exercised...........................           (3)             $4.95         $ 4.95
          Forfeited...........................         (204)       $4.09-$7.86         $ 5.01
                                                  ---------
        Outstanding at December 31, 2000......        1,439       $4.08-$11.12         $ 5.11                773
        2001:
          Forfeited...........................          (90)       $4.09-$7.86         $ 5.10
          Cancelled...........................       (1,349)      $4.08-$11.12         $ 5.03
                                                  ---------
        Outstanding at December 31, 2001......           --                 --             --                 --
</Table>


                                       63
<PAGE>


12.   DEBT

     At December 31, 2002, in addition to the long-term debt shown below,
Pioneer had short-term notes payable of $1.5 million related to insurance
premium financing. The interest rate on the short-term notes is 5.36%. The
amount owed is payable in monthly installments through June 1, 2003.

     Long-term debt consisted of the following at December 31:

<Table>
<Caption>
                                                                                                   2002          2001
                                                                                                ----------    ----------
<S>                                                                                             <C>           <C>
       Senior Secured Debt:
         Senior Secured Floating Rate Guaranteed Notes, due December 2006, variable
            interest rates based on the three-month LIBOR rate plus 3.5% ....................   $   45,422    $   45,422
         Senior Floating Rate Term Notes, due December 2006, variable interest rates
            based on the three-month LIBOR  rate plus 3.5% ..................................        4,578         4,578
         10% Senior Secured Guaranteed Notes, due December 2008 .............................      150,000       150,000
         Revolving credit facility; variable interest rates based on U.S. prime
            rate plus a margin ranging from 2.75% to 3.50% expiring December 31, 2004 .......       14,704            --
         Debtor-in-Possession ("DIP") facility; variable interest rates based on
            U.S. prime Rate plus 0.5% and Canadian prime rate plus 1.25% ....................           --         6,663
       Other debt:
         Promissory notes for bankruptcy related professional fees due July 1,
            2003 (subject to payment on May 31, 2003, under certain circumstances);
            variable interest based on the three-month LIBOR rate plus 3.50% ................        3,428            --
         Unsecured, non-interest-bearing, long-term debt, denominated in Canadian
           dollars (amounts below are in Canadian dollars), original face value of
           $5.5 million, payable in five annual installments of $1.0 million and a
           final payment of $0.5 million, beginning January 10, 2002, with an
           effective interest rate of 8.25%, net of unamortized discount of $0.6
           million at December 31, 2002 .....................................................        2,473         2,881
       Other notes, maturing in various years through 2014, with various
           installments, at various interest rates ..........................................        6,450         7,469
                                                                                                ----------    ----------
            Total ...........................................................................      227,055       217,013
       Current maturities of long-term debt .................................................      (19,592)       (8,312)
                                                                                                ----------    ----------
            Long-term debt, less current maturities .........................................   $  207,463    $  208,701
                                                                                                ==========    ==========
</Table>

     Upon emergence from bankruptcy, senior secured debt outstanding under
various debt instruments consisted of the Senior Guaranteed Notes, the Senior
Floating Notes, the 10% Senior Secured Notes and the Revolver which was used
shortly after Pioneer's emergence from bankruptcy to replace $6.7 million of
debtor-in-possession financing which was outstanding as of December 31, 2001. In
addition, at December 31, 2002, Pioneer had $3.4 million of promissory notes for
fees owed to professionals for services they performed during the bankruptcy
proceedings; $2.5 million for an unsecured non-interest bearing instrument
payable to a critical vendor for the settlement of pre-petition amounts owed to
that vendor, which contains a covenant that allows the vendor to demand
immediate repayment and begin charging interest at a rate of 9.3% if Pioneer's
liquidity falls below $5 million (Canadian dollars); $1.2 million payable over
several years to another critical vendor; and $5.2 million of other debt
outstanding, comprised of notes maturing in various years through 2014. Because
the Revolver requires a lock-box arrangement and contains a clause that allows
the lender to refuse to fund further advances in the event of a material adverse
change in Pioneer's business, the Revolver must be classified as current debt.
Since the DIP Facility was refinanced with the Revolver, the $6.7 million
balance outstanding at December 31, 2001 is classified as current debt.

     The Revolver provides for revolving loans in an aggregate amount up to $30
million, subject to borrowing base limitations related to the level of accounts
receivable, inventory and reserves. The Revolver provides for up to an
additional $20.0 million of availability in the event of successful syndication
of additional credit to one or more lenders acceptable to the lender, but it is
not anticipated that such syndication efforts will occur in the near future.

     Borrowings under the Revolver are available through December 31, 2004 so
long as no default exits and all conditions to borrowings are met. Borrowings
under the Revolver accrue interest determined on the basis of the prime rate
plus a margin. Pioneer incurs a fee on the unused amount of the facility at a
rate of .375% per year.

     Note 2 includes a discussion of the financial covenants included in the
Revolver, and Pioneer's compliance with those covenants.


                                       64
<PAGE>


     Interest on the 10% Senior Secured Notes is payable on June 30th and
December 31st. Interest on the Senior Guaranteed Notes and the Senior Floating
Notes is payable quarterly on March 31st, June 30th, September 30th and December
31st.

     Pioneer is required to make mandatory redemptions of Senior Floating Notes
and Senior Guaranteed Notes from and to the extent of net cash proceeds of
certain asset sales, new equity issuances in excess of $5 million and excess
cash flow (as defined in the related agreements). Pioneer is also required to
make mandatory prepayments if certain levels of Pioneer Americas' EBITDA are
realized, and if there is a change of control. See Note 2 for a more detailed
discussion of an anticipated prepayment obligation in the first quarter of 2003
relating to Pioneer Americas' EBITDA.

     The holders of the 10% Senior Secured Notes may require Pioneer to redeem
10% Senior Secured Notes with net cash proceeds of certain asset sales and of
new equity issuance in excess of $35 million (if there is no indebtedness
outstanding under the Senior Floating Notes and the Senior Guaranteed Notes). In
addition, the holders may require Pioneer to repurchase all or a portion of the
notes upon the occurrence of a change of control.

     Pioneer may prepay amounts owed on the Senior Guaranteed Notes, the 10%
Senior Secured Notes and the Senior Floating Notes in minimum amounts of
$1,000,000 or more, and Pioneer may, at its option, terminate the Revolver. If
the Revolver is terminated early, there will be a premium due that ranges from
1% to 3% of $50 million, depending upon the termination date. On or after
December 31, 2005, Pioneer may redeem some or all of the 10% Senior Secured
Notes by paying the holders a percentage declining from 105% to 100% (depending
on the year of redemption) of the stated principal amount plus accrued and
unpaid interest to the redemption date.

     The obligations under the Revolver are secured by liens on Pioneer's
accounts receivable and inventory, and the obligations under the Senior Notes
are secured by liens on substantially all of Pioneer's other assets, with the
exception of certain assets that secure the obligations outstanding under
certain other long-term liabilities.

     The debt agreements contain covenants requiring Pioneer to meet minimum
liquidity levels, and limiting Pioneer's ability to, among other things, incur
additional indebtedness, prepay or modify debt instruments, grant additional
liens, guarantee any obligations, sell assets, engage in another type of
business or suspend or terminate a substantial portion of business, declare or
pay dividends, make investments, make capital expenditures in excess of certain
amounts, or make use of the proceeds of borrowings for purposes other than those
specified in the agreements. The agreements also include customary events of
default, including a change of control under the Revolver. Borrowings under the
Revolver will generally be available subject to the accuracy of all
representations and warranties, including the absence of a material adverse
change and the absence of any default or event of default.

     Scheduled maturities of long-term debt at December 31, 2002 are as follows:

<Table>
<Caption>
                                      SENIOR
                                      SECURED
                                        DEBT       OTHER     TOTAL
                                     ---------    -------   --------
<S>                                  <C>          <C>       <C>
                    2003             $      --    $ 4,887   $  4,887
                    2004                14,704      1,549     16,253
                    2005                    --      1,652      1,652
                    2006                50,000      1,641     51,641
                    2007                    --        855        855
                    Thereafter         150,000      1,767    151,767
</Table>

     On December 31, 2002, the borrowing base under the Revolver was $30.0
million. Borrowing availability after borrowings and letters of credit was $11.4
million, and net liquidity (consisting of cash and borrowing availability) was
$14.2 million.

13.   CONSOLIDATING FINANCIAL STATEMENTS

     PCI Canada (a wholly-owned subsidiary of PCI) is the issuer of the $150
million 10% Senior Secured Notes, which are fully and unconditionally guaranteed
on a joint and several basis by PCI and all of PCI's other direct and indirect
wholly-owned subsidiaries.

     Pioneer Americas (a wholly-owned subsidiary of PCI Canada) is the issuer of
the $45.4 million of Senior Guaranteed Notes and $4.6 million of Senior Floating
Notes, which are fully and unconditionally guaranteed on a joint and several
basis by PCI and all of PCI's other direct and indirect wholly-owned
subsidiaries. Together, PCI Canada, Pioneer Americas and the subsidiary note
guarantors comprise all of the direct and indirect subsidiaries of PCI.


                                       65
<PAGE>


     Condensed consolidating financial information for PCI and its wholly-owned
subsidiaries is presented below. Information is presented as though the
Successor Company organizational structure had been in place for all periods
presented. Separate financial statements of PCI Canada and Pioneer Americas are
not provided because we do not believe that such information would be material
to investors or lenders of the Company.

CONDENSED CONSOLIDATING BALANCE SHEET - SUCCESSOR COMPANY
DECEMBER 31, 2002

<Table>
<Caption>
                                                                   PCI        PIONEER        OTHER                       PIONEER
                                                        PCI       CANADA      AMERICAS     GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                                      --------   ---------    ---------    ----------   ------------   ------------
<S>                                                   <C>        <C>          <C>          <C>          <C>            <C>
                 ASSETS
Current assets:
  Cash and cash equivalents .......................   $     --   $   1,702    $   1,074    $       13   $         --   $      2,789
  Accounts receivable, net ........................         --       9,462       30,521                           --         39,983
  Inventories, net ................................         --       5,865        9,446            --             --         15,311
  Current derivative asset ........................         --          --       17,834            --             --         17,834
  Prepaid expenses and other current
    assets ........................................      2,687       1,702          390            --             --          4,779
                                                      --------   ---------    ---------    ----------   ------------   ------------
       Total current assets .......................      2,687      18,731       59,265            13             --         80,696
Property, plant and equipment, net ................         --     122,558      118,183         1,528             --        242,269
 Other assets, net ................................         --          --       25,755            --             --         25,755
 Intercompany receivable ..........................         --      70,265           --        54,526       (124,791)            --
 Investment in subsidiaries .......................      7,314          --           --            --         (7,314)            --
 Non-current derivative asset .....................         --          --       41,362            --             --         41,362
 Excess reorganization value over the fair value
   of identifiable assets .........................         --      84,064           --            --             --         84,064
                                                      --------   ---------    ---------    ----------   ------------   ------------
        Total assets ..............................   $ 10,001   $ 295,618    $ 244,565    $   56,067   $   (132,105)  $    474,146
                                                      ========   =========    =========    ==========   ============   ============
       LIABILITIES AND STOCKHOLDERS'
        EQUITY (DEFICIENCY IN ASSETS)
Current liabilities:
  Accounts payable.................................   $     --   $   6,679    $  13,481    $       33   $         --   $     20,193
  Accrued liabilities .............................          5       6,119       12,037            --             --         18,161
  Current derivative liability ....................         --          --       37,614            --             --         37,614
  Current portion of long-term debt ...............      1,520         474       19,091            27             --         21,112
                                                      --------   ---------    ---------    ----------   ------------   ------------
       Total current liabilities ..................      1,525      13,272       82,223            60             --         97,080
  Long-term debt, less current portion ............         --     151,999       55,375            89             --        207,463
  Investment in subsidiary ........................         --     146,947           --            --       (146,947)            --
  Intercompany payable ............................      7,224          --      117,567            --       (124,791)            --
  Accrued pension and other employee benefits .....         --       8,865       17,267            --             --         26,132
  Non-current derivative liability ................         --          --      108,852            --             --        108,852
  Other long-term liabilities .....................         --      20,739       10,228         2,400             --         33,367
  Stockholders' equity (deficiency in assets) .....      1,252     (46,204)    (146,947)       53,518        139,633          1,252
                                                      --------   ---------    ---------    ----------   ------------   ------------
       Total liabilities and stockholders'
           equity (deficiency in assets) ..........   $ 10,001   $ 295,618    $ 244,565    $   56,067   $   (132,105)  $    474,146
                                                      ========   =========    =========    ==========   ============   ============
</Table>


                                       66
<PAGE>


CONDENSED CONSOLIDATING BALANCE SHEET - SUCCESSOR COMPANY
DECEMBER 31, 2001

<Table>
<Caption>
                                                                 PCI        PIONEER        OTHER                       PIONEER
                                                      PCI       CANADA      AMERICAS     GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                                    --------   ---------    ---------    ----------   ------------   ------------
<S>                                                 <C>        <C>          <C>          <C>          <C>            <C>
                     ASSETS
Current assets:
  Cash and cash equivalents .....................   $     --   $   1,950    $   1,674    $       --   $         --    $      3,624
  Accounts receivable, net ......................         --       8,889       32,561           118             --          41,568
  Inventories, net ..............................         --       6,320       13,295            --             --          19,615
  Current derivative asset ......................         --          --      178,028            --             --         178,028
  Prepaid expenses and other current assets .....      2,202       3,138          582            --             --           5,922
                                                    --------   ---------    ---------    ----------   ------------    ------------
       Total current assets .....................      2,202      20,297      226,140           118             --         248,757
Property, plant and equipment, net ..............         --     132,726      140,396         1,528             --         274,650
 Other assets, net ..............................         --          --       11,816            --             --          11,816
 Intercompany receivable ........................         --      68,984           --        54,040       (123,024)             --
 Investment in subsidiaries .....................     16,188          --           --            --        (16,188)             --
 Non-current derivative asset ...................         --          --       87,625            --             --          87,625
 Excess reorganization value over fair value of
   identifiable Assets ..........................         --      84,064           --            --             --          84,064
                                                    --------   ---------    ---------    ----------   ------------    ------------
       Total assets .............................   $ 18,390   $ 306,071    $ 465,977    $   55,686   $   (139,212)   $    706,912
                                                    ========   =========    =========    ==========   ============    ============
          LIABILITIES AND STOCKHOLDERS'
          EQUITY (DEFICIENCY IN ASSETS)
Current liabilities:
  Accounts payable ..............................   $     --   $   8,311    $  12,458    $        6   $         --    $     20,775
  Accrued liabilities ...........................         --      14,760       18,208            --             --          32,968
  Current derivative liability ..................         --          --      168,865            --             --         168,865
  Current portion of long-term debt .............         --       6,402        1,883            27             --           8,312
                                                    --------   ---------    ---------    ----------   ------------    ------------
       Total current liabilities ................         --      29,473      201,414            33             --         230,920
  Long-term debt, less current portion ..........         --     152,253       56,331           117             --         208,701
  Investment in subsidiary ......................         --     139,311           --            --       (139,311)             --
  Intercompany payable ..........................      7,863          --      115,160            --       (123,023)             --
  Accrued pension and other employee benefits ...         --       8,378       14,067            --             --          22,445
  Non-current derivative liability ..............         --          --      207,625            --             --         207,625
  Other long-term liabilities ...................         --      14,675       10,691         1,328             --          26,694
  Stockholders' equity (deficiency in assets) ...     10,527     (38,019)    (139,311)       54,208        123,122          10,527
                                                    --------   ---------    ---------    ----------   ------------    ------------
       Total liabilities and stockholders'
           equity (deficiency in assets) ........   $ 18,390   $ 306,071    $ 465,977    $   55,686   $   (139,212)   $    706,912
                                                    ========   =========    =========    ==========   ============    ============
</Table>

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - SUCCESSOR COMPANY
FISCAL YEAR ENDED DECEMBER 31, 2002

<Table>
<Caption>
                                                              PCI         PIONEER       OTHER                        PIONEER
                                                  PCI        CANADA      AMERICAS     GUARANTORS   ELIMINATIONS    CONSOLIDATED
                                                --------    ---------    ---------    ----------   ------------    ------------
<S>                                             <C>         <C>          <C>          <C>          <C>             <C>
Revenues ....................................   $     --    $ 149,048    $ 238,499    $      --    $    (70,637)   $    316,910
Cost of sales ...............................         --      131,093      223,027          797         (70,637)        284,280
                                                --------    ---------    ---------    ---------    ------------    ------------
Gross profit ................................         --       17,955       15,472         (797)             --          32,630
Selling, general and administrative
  expenses ..................................        400        5,988       16,917         (184)             --          23,121
Change in fair value of derivatives .........         --           --      (23,566)          --              --         (23,566)
Asset impairment and other charges ..........         --          166       21,243           --              --          21,409
                                                --------    ---------    ---------    ---------    ------------    ------------
Operating income (loss) .....................       (400)      11,801          878         (613)             --          11,666
Interest expense, net .......................         --      (14,557)      (4,336)           2              --         (18,891)
Other income, net ...........................         --        1,426          340          (79)             --           1,687
                                                --------    ---------    ---------    ---------    ------------    ------------
Loss before income taxes ....................       (400)      (1,330)      (3,118)        (690)             --          (5,538)
Income tax benefit ..........................         --          781           --           --              --             781
                                                --------    ---------    ---------    ---------    ------------    ------------
Net loss before equity in earnings of
  Subsidiaries ..............................       (400)        (549)      (3,118)        (690)             --          (4,757)
Equity in net earnings (loss) of
  subsidiaries...............................     (4,357)      (3,118)          --           --           7,475              --
                                                --------    ---------    ---------    ---------    ------------    ------------
Net income (loss) ...........................   $ (4,757)   $  (3,667)   $  (3,118)   $    (690)   $      7,475    $     (4,757)
                                                ========    =========    =========    =========    ============    ============
</Table>


                                       67
<PAGE>


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - PREDECESSOR COMPANY
FISCAL YEAR ENDED DECEMBER 31, 2001

<Table>
<Caption>
                                                                 PCI        PIONEER       OTHER                         PIONEER
                                                    PCI         CANADA      AMERICAS    GUARANTORS    ELIMINATIONS    CONSOLIDATED
                                                  --------    ---------    ---------    ----------    ------------    ------------
<S>                                               <C>         <C>          <C>          <C>           <C>             <C>
Revenues ......................................   $     --    $ 166,300    $ 296,723    $       18    $    (79,559)   $    383,482
Cost of sales .................................         --      134,996      283,273            36         (79,969)        338,336
                                                  --------    ---------    ---------    ----------    ------------    ------------
Gross profit ..................................         --       31,304       13,450           (18)            410          45,146
Selling, general and administrative
  expenses ....................................        144       10,065       31,047           270              --          41,526
Change in fair value of derivatives ...........         --           --      110,837            --              --         110,837
Asset impairment and other charges ............         --        5,459        7,479            --              --          12,938
                                                  --------    ---------    ---------    ----------    ------------    ------------
Operating income (loss) .......................       (144)      15,780     (135,913)         (288)            410        (120,155)
Interest expense, net .........................       (514)     (10,416)     (25,173)           93              --         (36,010)
Reorganization items ..........................         --           (2)      (6,497)           --              --          (6,499)
Fresh start adjustments .......................     55,235      (64,766)    (180,858)         (607)         84,077        (106,919)
Other income (expense), net ...................         --          604       (4,702)        5,267              --           1,169
                                                  --------    ---------    ---------    ----------    ------------    ------------
Income (loss) before income taxes .............     54,577      (58,800)    (353,143)        4,465          84,487        (268,414)
Income tax expense ............................         --       (3,123)          --            --              --          (3,123)
                                                  --------    ---------    ---------    ----------    ------------    ------------
Net income (loss) before equity in earnings
  of subsidiaries and extraordinary item ......     54,577      (61,923)    (353,143)        4,465          84,487        (271,537)
Equity in net earnings (loss) of
  subsidiaries ................................    (14,084)      15,497           --            --          (1,413)             --
                                                  --------    ---------    ---------    ----------    ------------    ------------
Net income (loss) before extraordinary item ...     40,493      (46,426)    (353,143)        4,465          83,074        (271,537)
Extraordinary item - net of tax ...............     17,795       27,761      368,640           116              --         414,312
                                                  --------    ---------    ---------    ----------    ------------    ------------
Net income (loss) .............................   $ 58,288    $ (18,665)   $  15,497    $    4,581    $     83,074    $    142,775
                                                  ========    =========    =========    ==========    ============    ============
</Table>

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - PREDECESSOR COMPANY
FISCAL YEAR ENDED DECEMBER 31, 2000

<Table>
<Caption>
                                                                PCI       PIONEER        OTHER                          PIONEER
                                                   PCI        CANADA      AMERICAS     GUARANTORS    ELIMINATIONS    CONSOLIDATED
                                                 --------    ---------    ---------    ----------    ------------    ------------
<S>                                              <C>         <C>          <C>          <C>           <C>             <C>
Revenues .....................................   $     --    $ 160,543    $ 302,308    $   10,414    $    (70,357)   $    402,908
Cost of sales ................................         --      137,875      293,046        10,340         (70,264)        370,997
                                                 --------    ---------    ---------    ----------    ------------    ------------
Gross profit .................................         --       22,668        9,262            74             (93)         31,911
Selling, general and administrative
  expenses ...................................        541       13,283       27,295         2,305              --          43,424
                                                 --------    ---------    ---------    ----------    ------------    ------------
Operating income (loss) ......................       (541)       9,385      (18,033)       (2,231)            (93)        (11,513)
Interest expense, net ........................       (858)     (17,229)     (38,018)         (223)             --         (56,328)
Other income (expense), net ..................       (253)         152      (34,738)       38,148              --           3,309
                                                 --------    ---------    ---------    ----------    ------------    ------------
Income (loss) before income taxes ............     (1,652)      (7,692)     (90,789)       35,694             (93)        (64,532)
Income tax (expense) benefit .................     (7,929)       2,686      (35,788)           --              --         (41,031)
                                                 --------    ---------    ---------    ----------    ------------    ------------
Net income (loss) before equity in net
  earnings of Subsidiaries ...................     (9,581)      (5,006)    (126,577)       35,694             (93)       (105,563)
Equity in net earnings (loss) of
  subsidiaries ...............................    (95,889)    (126,577)          --            --         222,466              --
                                                 --------    ---------    ---------    ----------    ------------    ------------
Net income (loss) ............................   $(105,470)  $(131,583)   $(126,577)   $   35,694    $    222,373    $   (105,563)
                                                 ========    =========    =========    ==========    ============    ============
</Table>

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - SUCCESSOR COMPANY
FISCAL YEAR ENDED DECEMBER 31, 2002

<Table>
<Caption>
                                                                              PCI        PIONEER       OTHER          PIONEER
                                                                  PCI        CANADA     AMERICAS     GUARANTORS     CONSOLIDATED
                                                                --------    --------    --------    ------------    ------------
<S>                                                             <C>         <C>         <C>         <C>             <C>
     Net cash flows from operating activities ...............   $     --    $  6,348    $ (6,139)   $         41    $        250
                                                                --------    --------    --------    ------------    ------------
     Cash flows from investing activities:
       Capital expenditures .................................         --      (3,332)     (7,283)             --         (10,615)
       Proceeds from disposal of assets .....................         --       2,047          --              --           2,047
                                                                --------    --------    --------    ------------    ------------
               Net cash flows from investing activities .....         --      (1,285)     (7,283)             --          (8,568)
                                                                --------    --------    --------    ------------    ------------
     Cash flows from financing activities:
       Debtor-in-possession credit facility, net ............         --      (5,774)       (889)             --          (6,663)
       Revolving credit borrowings, net .....................         --          --      14,704              --          14,704
       Repayments on long-term debt .........................         --        (628)       (993)            (28)         (1,649)
                                                                --------    --------    --------    ------------    ------------
               Net cash flows from financing activities .....         --      (6,402)     12,822             (28)          6,392
     Effect of exchange rate changes on cash and
       cash equivalents .....................................         --       1,091          --              --           1,091
                                                                --------    --------    --------    ------------    ------------
     Net increase (decrease) in cash and cash equivalents ...         --        (248)       (600)             13            (835)
     Cash and cash equivalents at beginning of period .......         --       1,950       1,674              --           3,624
                                                                --------    --------    --------    ------------    ------------
     Cash and cash equivalents at end of period .............   $     --    $  1,702    $  1,074    $         13    $      2,789
                                                                ========    ========    ========    ============    ============
</Table>


                                       68
<PAGE>


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - PREDECESSOR COMPANY
FISCAL YEAR ENDED DECEMBER 31, 2001


<Table>
<Caption>
                                                                             PCI       PIONEER        OTHER           PIONEER
                                                                 PCI        CANADA     AMERICAS     GUARANTORS     CONSOLIDATED
                                                               --------    --------    --------    ------------    ------------
<S>                                                            <C>         <C>         <C>         <C>             <C>
      Net cash flows from operating activities .............   $   (668)   $  8,764    $ 25,154    $       (344)   $     32,906
                                                               --------    --------    --------    ------------    ------------
      Cash flows from investing activities:
        Capital expenditures ...............................         --      (3,772)     (9,340)             --         (13,112)
        Proceeds from disposal of assets ...................         --          17         216              --             233
                                                               --------    --------    --------    ------------    ------------
                Net cash flows from investing activities ...         --      (3,755)     (9,124)             --         (12,879)
                                                               --------    --------    --------    ------------    ------------
      Cash flows from financing activities:
        Debtor-in-possession credit facility, net ..........         --       5,774         889              --           6,663
        Pre-petition revolving credit borrowings, net ......         --     (11,737)    (15,844)             --         (27,581)
        Repayments on long-term debt .......................         --          --        (543)            (28)           (571)
                                                               --------    --------    --------    ------------    ------------
                Net cash flows from financing activities ...         --      (5,963)    (15,498)            (28)        (21,489)
      Effect of exchange rate changes on cash and
        cash equivalents ...................................         --        (849)         --              --            (849)
                                                               --------    --------    --------    ------------    ------------
      Net increase (decrease) in cash and cash equivalents .       (668)     (1,803)        532            (372)         (2,311)
      Cash and cash equivalents at beginning of period .....        668       3,753       1,142             372           5,935
                                                               --------    --------    --------    ------------    ------------
      Cash and cash equivalents at end of period ...........   $     --    $  1,950    $  1,674    $         --    $      3,624
                                                               ========    ========    ========    ============    ============
</Table>

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - PREDECESSOR COMPANY
FISCAL YEAR ENDED DECEMBER 31, 2000


<Table>
<Caption>
                                                                               PCI        PIONEER       OTHER          PIONEER
                                                                   PCI        CANADA     AMERICAS     GUARANTORS     CONSOLIDATED
                                                                 --------    --------    --------    ------------    ------------
<S>                                                              <C>         <C>         <C>         <C>             <C>
       Net cash flows from operating activities ..............   $   (923)   $  2,210    $ 15,295    $     (3,445)   $     13,137
                                                                 --------    --------    --------    ------------    ------------
       Cash flows from investing activities:
         Capital expenditures ................................         --      (3,944)    (14,753)             --         (18,697)
         Proceeds from disposal of assets ....................         --          --          29           2,849           2,878
                                                                 --------    --------    --------    ------------    ------------
                 Net cash flows from investing activities ....         --      (3,944)    (14,724)          2,849         (15,819)
                                                                 --------    --------    --------    ------------    ------------
       Cash flows from financing activities:
         Net proceeds under revolving credit arrangements ....         --       4,324       2,094              --           6,418
         Repayments on long-term debt ........................         --          --      (1,920)            (30)         (1,950)
         Other ...............................................         18          --          --              --              18
                                                                 --------    --------    --------    ------------    ------------
                 Net cash flows from financing activities ....         18       4,324         174             (30)          4,486
       Effect of exchange rate changes on cash and
         cash equivalents ....................................         --      (1,379)         --              --          (1,379)
                                                                 --------    --------    --------    ------------    ------------
       Net increase (decrease) in cash and cash equivalents ..       (905)      1,211         745            (626)            425
       Cash and cash equivalents at beginning of period ......      1,573       2,542         397             998           5,510
                                                                 --------    --------    --------    ------------    ------------
       Cash and cash equivalents at end of period ............   $    668    $  3,753    $  1,142    $        372    $      5,935
                                                                 ========    ========    ========    ============    ============
</Table>

     Pursuant to the terms of certain debt instruments, there are prohibitions
on the payment of dividends on the new common stock by the Company. Pioneer's
ability to incur additional new indebtedness is restricted, other than borrowing
available under the Revolver. See Note 12.

     PCI did not receive dividends from its subsidiaries during the years ended
December 31, 2002, 2001, and 2000.

14. FINANCIAL INSTRUMENTS

Concentration of Credit Risk

     Pioneer manufactures and sells its products to companies in diverse
industries. Pioneer performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Pioneer's sales
are primarily to customers throughout the United States and in eastern Canada.
Credit losses relating to these customers have historically been immaterial.

     In 2002, approximately 26% of Pioneer's revenues was generated by sales of
products for use in the pulp and paper industry. At December 31, 2002, Pioneer
had approximately $8.4 million of accounts receivable from pulp and paper
customers.

Fair Value of Financial Instruments

     In preparing disclosures about the fair value of financial instruments,
Pioneer has assumed that the carrying amount approximates fair value for cash
and cash equivalents, receivables, short-term borrowings, accounts payable and
certain accrued expenses because of the short maturities of those instruments.
The fair values of debt instruments are estimated based upon quoted market
values (if


                                       69
<PAGE>


applicable), or based on debt with similar terms and remaining maturities.
Considerable judgment is required in developing these estimates and,
accordingly, no assurance can be given that the estimated values presented
herein are indicative of the amounts that would be realized in a free market
exchange. The fair value of the derivative positions was determined for Pioneer
by a consultant, using available market information and appropriate valuation
methodologies that include current and forward pricing. Considerable judgment,
however, is necessary to interpret market data and develop the related estimates
of fair value. Accordingly, the estimates for the fair value of the derivative
positions are not necessarily indicative of the amounts that could currently be
realized upon disposition of the derivative positions or the ultimate amount
that would be paid or received when the positions are settled. The use of
different market assumptions and/or estimation methodologies would result in
different fair values. Management believes that the market information,
methodologies and assumptions used to fair value the derivative positions
produces a reasonable estimation of the fair value of the derivative positions.

     At December 31, 2002, the fair market value of Pioneer's debt instruments
approximated the carrying value, with the exceptions of the Senior Guaranteed
Notes, the Senior Floating Notes, and the 10% Senior Secured Notes, which had
book values of $45.4 million, $4.6 million, and $150 million, respectively, and
estimated fair values of $28.7 million, $2.9 million, and $105 million,
respectively.

15. GEOGRAPHIC INFORMATION

     Financial information relating to Pioneer by geographical area is as
follows. Revenues are attributed to countries based on delivery point.

<Table>
<Caption>
                                               SUCCESSOR         PREDECESSOR
                                                COMPANY            COMPANY
                                               ---------    ----------------------
                                                 2002         2001         2000
                                               ---------    ---------    ---------
<S>                                            <C>          <C>          <C>
                      REVENUES
                      United States........    $ 237,336    $ 301,917    $ 302,105
                      Canada...............       78,704       80,941       99,086
                      Other................          870          624        1,717
                                               ---------    ---------    ---------
                      Consolidated.........    $ 316,910    $ 383,482    $ 402,908
                                               =========    =========    =========
</Table>

<Table>
<Caption>
                                                            PREDECESSOR
                                                              COMPANY
                                                       ----------------------
                                                         2001         2000
                                                       ---------    ---------
<S>                                                    <C>          <C>
                       LONG-LIVED ASSETS
                       United States............       $ 186,828    $ 242,833
                       Canada...................         206,622      216,789
</Table>

     No individual customer constituted 10% or more of the total revenues in
2000, 2001 or 2002.

16. ASSET IMPAIRMENT AND OTHER CHARGES

     Due to the continuation of the shutdown and uncertainty as to when Pioneer
will restart the Tacoma chlor-alkali facility, Pioneer reviewed the facility for
impairment as of December 31, 2002. The impairment review showed that the book
value of the Tacoma assets exceeded the undiscounted sum of the expected future
cash flows from those assets. The expected future cash flows were calculated by
taking a weighted average of the cash flow streams associated with various
scenarios for the future use of the facility. The cash flows and probability of
occurrence of each scenario were determined using management's best estimates
based on current available information. Pioneer then discounted the expected
future cash flows using a risk free interest rate of 3.6% to determine the fair
value of the facility. Based on this analysis, Pioneer recognized a $16.9
million impairment of the Tacoma facility in December 2002.

     In March 2002, Pioneer idled the Tacoma chlor-alkali plant due to poor
market conditions. The idling of the Tacoma plant resulted in the termination of
84 employees, all of whom were terminated prior to June 30, 2002, and for whom
$1.9 million of severance expense was recorded during the quarter ended March
31, 2002. Substantially all of the accrued severance was paid out during 2002.
Additionally, the $2.6 million of asset impairment and other charges were
recorded during 2002 was primarily comprised of $0.7 million of exit costs
related to idling the Tacoma plant, $0.4 million related to staff reductions at
the Cornwall plant, $0.6 million of executive severance and $0.5 million of
legal expense related to Pioneer's emergence from bankruptcy.

     Of the $12.9 million of asset impairments and other charges recorded in
2001, $4.3 million represented professional fees related to Pioneer's financial
reorganization incurred prior to the Chapter 11 filing on July 31, 2001, $3.8
million related to an asset impairment charge relating to the Pioneer Technical
Center ("PTC"), and $4.8 million was attributable to severance expense.

     In March 2001, Pioneer announced a 50% curtailment in the capacity of its
Tacoma plant due to an inability to obtain sufficient


                                       70
<PAGE>


power at reasonable prices. The Tacoma curtailment resulted in the termination
of 55 employees, for which $1.9 million of accrued severance expense was
recorded in March 2001. Additionally, in connection with an organizational
restructuring undertaken by Pioneer, $1.6 million of severance expense was
recorded in March 2001 relating to terminations of 19 employees at other
locations, all whom were terminated prior to June 30, 2001. Severance payments
of approximately $3.0 million were made during the year ended December 31, 2001,
resulting in accrued severance of $0.5 million at December 31, 2001.

     In October 2001, Pioneer announced plans to shut down the PTC. This
shutdown resulted in the termination of 23 employees, for which $1.3 million of
accrued severance was recorded in reorganization items as of December 31, 2001.
During 2002, all of the employees were terminated, and substantially all of the
severance was paid. In December 2001, Pioneer performed an impairment analysis,
and determined that the PTC asset was impaired. As a result, Pioneer measured
the asset at current fair market value, based on sales prices for similar
properties less estimated selling costs, and recorded an impairment loss of $3.8
million during 2001. The sale of the PTC assets was completed in August 2002,
and a $0.7 million gain was recorded in "other income and expense."

     In 2000, $0.9 million was recorded in asset impairment and other charges
relating to the disposition of Kemwater's alum coagulant business at Antioch,
California.

17. INTEREST EXPENSE, NET

     Interest expense, net consisted of the following for the indicated periods:



<Table>
<Caption>
                                               SUCCESSOR         PREDECESSOR
                                                COMPANY            COMPANY
                                               ---------    ----------------------
                                                      YEAR ENDEND DECEMBER 31,
                                               -----------------------------------
                                                 2002         2001         2000
                                               ---------    ---------    ---------
<S>                                            <C>          <C>          <C>
             Interest expense...............   $  18,955    $  36,077    $  56,702
             Interest income................         (64)         (67)        (374)
                                               ---------    ---------    ---------
             Interest expense, net..........   $  18,891    $  36,010    $  56,328
                                               =========    =========    =========
</Table>

     No interest was capitalized in 2002, 2001 or 2000.

18. COMMITMENTS AND CONTINGENCIES

Letters of Credit

     At December 31, 2002, Pioneer had letters of credit outstanding of
approximately $5.1 million. These letters of credit were issued for the benefit
of municipal customers under sales agreements securing delivery of products
sold, state environmental agencies as required for manufacturers in the states
and holders of Pioneer's tax-exempt bonds. The letters of credit expire at
various dates in 2003 through 2010. No amounts were drawn on the letters of
credit at December 31, 2002.

Purchase Commitments

     At December 31, 2002, Pioneer had commitments related to the purchase of
electricity, which continued through the year 2017. Required purchase quantities
of commitments in excess of one year at December 31, 2002 are as follows:

<Table>
<Caption>
                                                                            MWH
                                                                        -----------
<S>                                                                     <C>
                  2003...........................................           291,316
                  2004...........................................           291,316
                  2005...........................................           291,316
                  2006...........................................           291,316
                  2007...........................................           121,956
                  Thereafter.....................................           766,467
                                                                        -----------
                            Total commitment quantities..........         2,053,687
                                                                        ===========
</Table>

     As a result of the settlement with CRC discussed in Notes 3 and 24, which
is effective January 1, 2003, Pioneer is no longer obligated for the above
purchase commitments.

     During the years ended December 31, 2002, 2001 and 2000, all required
purchase quantities under the above commitments were consumed during normal
operations.


                                       71
<PAGE>


Operating Leases

     Pioneer leases certain manufacturing and distribution facilities and
equipment, computer equipment, and administrative offices under non-cancelable
leases. Minimum future rental payments on such leases with terms in excess of
one year in effect at December 31, 2002 are as follows:

<Table>
<S>                                                               <C>
                              2003...........................     $ 13,033
                              2004...........................       11,630
                              2005...........................        6,664
                              2006...........................        4,998
                              2007...........................        4,065
                              Thereafter.....................        7,771
                                                                  --------
                                Total minimum obligations....     $ 48,161
                                                                  ========
</Table>

     Lease expense charged to operations for the years ended December 31, 2002,
2001, and 2000 was approximately $16.8 million, $18.4 million, and $20.2
million, respectively.

Litigation

     Pioneer is party to various legal proceedings and potential claims arising
in the ordinary course of its business. In the opinion of management, Pioneer
has adequate legal defenses and/or insurance coverage with respect to these
matters and management does not believe that they will materially affect
Pioneer's financial position or results of operations. See Notes 3 and 24 for
information concerning litigation related to Pioneer's derivatives dispute with
CRC.

19. INCOME TAXES

     Income taxes are recorded pursuant to SFAS 109, "Accounting for Income
Taxes," under which deferred income taxes are determined utilizing an asset and
liability approach. This method gives consideration to the future tax
consequences associated with differences between the financial accounting basis
and tax basis of the assets and liabilities, and the ultimate realization of any
deferred tax asset resulting from such differences. Pioneer considers all
foreign earnings as being permanently invested in that country.

     The components of income tax provision (benefit) are as follows:

<Table>
<Caption>
                                           SUCCESSOR
                                            COMPANY      PREDECESSOR COMPANY
                                           ---------     ---------------------
                                              2002         2001        2000
                                           ---------     --------   ----------
<S>                                        <C>           <C>        <C>
   Current income tax benefit:
    Foreign............................    $      --     $(13,383)  $       --
                                           ---------     --------   ----------
                                                  --      (13,383)          --
                                           ---------     --------   ----------
   Deferred income tax provision
     (benefit):
    U.S................................           --           --       42,353
    Foreign............................         (781)      16,506       (2,686)
    State..............................           --           --        1,364
                                           ---------     --------   ----------
      Total income tax expense
       (benefit).......................    $    (781)    $  3,123   $   41,031
   Current tax effect of extraordinary
     item (reduction of net operating
     loss carryforward)................           --       23,803           --
   Valuation allowance.................           --      (23,803)          --
   Deferred tax expense (1)............           --        8,739           --
                                           ---------     --------   ----------
   Total tax expense (benefit).........    $    (781)    $ 11,862   $   41,031
                                           =========     ========   ==========
</Table>

(1) Reflects the deferred tax effect of the cancellation of debt income in
Canada


                                       72
<PAGE>


     The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense (benefit) for the periods presented is as follows:

<Table>
<Caption>
                                                     SUCCESSOR
                                                      COMPANY                               PREDECESSOR COMPANY
                                              ------------------------     -----------------------------------------------------
                                                        2002                        2001                          2000
                                              ------------------------     ------------------------     ------------------------
                                                AMOUNT       PERCENT         AMOUNT       PERCENT         AMOUNT       PERCENT
                                              ----------    ----------     ----------    ----------     ----------    ----------
<S>                                           <C>           <C>            <C>           <C>            <C>           <C>
     Tax at U.S. statutory rates ...........  $   (1,938)          (35)%   $  (93,945)          (35)%   $  (22,586)          (35)%
     State and foreign income
      taxes, net of federal tax
      benefit ..............................        (100)           (2)         1,941             1         (6,068)           (9)
     Nondeductible fresh start adjustment ..          --            --         10,544             4             --            --
     Reorganization costs ..................          --            --          3,391             1             --            --
     Amortization of non-deductible
       goodwill ............................          --            --          2,756             1          1,850             3
     Other .................................         310             6            641            --            --             --
     Valuation allowance ...................         947            17         77,795            29         67,835           105
                                              ----------    ----------     ----------    ----------     ----------    ----------
       Total tax expense (benefit) .........  $     (781)          (14)%   $    3,123             1%    $   41,031            64%
                                              ==========    ==========     ==========    ==========     ==========    ==========
</Table>

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
deferred tax liabilities and assets are as follows at December 31:

<Table>
<Caption>
                                                                        2002          2001
                                                                    ----------    ----------
<S>                                                                 <C>           <C>
               Deferred tax liabilities:
                 Property, plant and equipment ..................   $  (42,223)   $  (27,112)
                 Other ..........................................           --        (8,739)
                                                                    ----------    ----------
                    Total deferred tax liabilities ..............      (42,223)      (35,851)
                                                                    ----------    ----------
               Deferred tax assets:
                 Futures contracts ..............................       32,290        41,009
                 Goodwill .......................................       13,374        13,653
                 Pension and other postretirement benefits ......        9,821        11,057
                 Environmental reserve ..........................        1,589         3,835
                 Tax credit and other tax loss carryovers .......        7,011         4,087
                 Other ..........................................        4,002        10,668
                 Net operating loss carryforward ................       95,920        71,598
                                                                    ----------    ----------
                   Total deferred tax assets ....................      164,007       155,907
                 Valuation allowance for deferred tax assets ....     (141,618)     (140,671)
                                                                    ----------    ----------
                   Net deferred tax assets ......................       22,389        15,236
                                                                    ----------    ----------
                   Net deferred taxes ...........................   $  (19,834)   $  (20,615)
                                                                    ==========    ==========
</Table>

     As of December 31, 2002, a valuation allowance for the full amount of the
U.S net deferred tax assets was recorded due to uncertainties as to whether
Pioneer will realize the benefit of the deferred tax assets.

     At December 31, 2002, Pioneer had net operating loss carryforwards ("NOLs")
of $259 million for U.S. federal income tax purposes that will expire in varying
amounts from 2009 to 2022, if not utilized. Approximately $59 million of NOLs,
(the "Successor Company NOLs"), was generated during 2002. The Successor Company
NOLs will expire in 2022 and are not subject to limitation. The remaining $200
million of NOLs (the "Predecessor Company NOLs") was generated prior to the
Company's emergence from bankruptcy on December 31, 2001. As a result of the
emergence from bankruptcy and certain changes in the ownership of Pioneer, the
utilization of the Predecessor Company NOLs is subject to limitation under the
Internal Revenue Code and may be substantially and permanently restricted.

     The income tax benefit, if any, resulting from any future realization of
the Predecessor Company NOLs will be credited to additional paid-in capital. In
2002, Pioneer recorded a credit of $0.5 million to additional paid-in capital in
connection with a refund relating to the carryback of Predecessor NOLs.

     At December 31, 2002, Pioneer also had various tax credits and other tax
loss carryforwards of approximately $7 million which includes primarily $4
million of Canadian capital loss and other loss carryforwards with no
expiration, and $2.8 million in Canadian and U.S. tax credits with varying
expiration periods from 2003 to 2011.


                                       73
<PAGE>


20.   OTHER LONG-TERM LIABILITIES -- ENVIRONMENTAL

     Pioneer's operations are subject to extensive environmental laws and
regulations related to protection of the environment, including those applicable
to waste management, discharge of materials into the air and water, clean-up
liability from historical waste disposal practices, and employee health and
safety. Pioneer is currently addressing soil and/or groundwater contamination at
several sites through assessment, monitoring and remediation programs with
oversight by the applicable state agency. In some cases, Pioneer is conducting
this work under administrative orders. Pioneer could be required to incur
additional costs to construct and operate remediation systems in the future.
Pioneer believes that it is in substantial compliance with existing government
regulations.

     Pioneer's Henderson facility is located within what is known as the Black
Mountain Industrial Park. Soil and groundwater contamination have been
identified within and adjoining the Black Mountain Industrial Park, including
land owned by Pioneer. A groundwater treatment system was installed at the
facility and, pursuant to a consent agreement with the Nevada Division of
Environmental Protection, studies are being conducted to further evaluate soil
and groundwater contamination at the facility and other properties within the
Black Mountain Industrial Park and to determine whether additional remediation
will be necessary with respect to Pioneer's property.

     In connection with the 1988 acquisition of the St. Gabriel and Henderson
facilities, the sellers agreed to indemnify Pioneer with respect to, among other
things, certain environmental liabilities associated with historical operations
at the Henderson site. ZENECA Delaware Holdings, Inc. and ZENECA Inc.,
(collectively the "ZENECA Companies") have assumed the indemnity obligations,
which benefit Pioneer. In general, the ZENECA Companies agreed to indemnify
Pioneer for environmental costs which arise from or relate to pre-closing
actions which involved disposal, discharge, or release of materials resulting
from the former agricultural chemical and other non-chlor-alkali manufacturing
operations at the Henderson facility. The ZENECA Companies are also responsible
for costs arising out of the pre-closing actions at the Black Mountain
Industrial Park. Under the ZENECA Indemnity, Pioneer may only recover
indemnified amounts for environmental work to the extent that such work is
required to comply with environmental laws or is reasonably required to prevent
an interruption in the production of chlor-alkali products. Pioneer is
responsible for environmental costs relating to the chlor-alkali manufacturing
operations at the Henderson facility, both pre- and post-acquisition, for
certain actions taken without the ZENECA Companies' consent and for certain
operation and maintenance costs of the groundwater treatment system at the
facility.

     Payments for environmental liabilities under the ZENECA Indemnity, together
with other non-environmental liabilities for which the ZENECA Companies agreed
to indemnify Pioneer, cannot exceed approximately $65 million. To date Pioneer
has been reimbursed for approximately $12 million of costs covered by the ZENECA
Indemnity, but the ZENECA Companies may have directly incurred additional costs
that would further reduce the total amount remaining under the ZENECA Indemnity.
In 1994, Pioneer recorded a $3.2 million environmental reserve related to
pre-closing actions at sites that are the responsibility of the ZENECA
Companies. At the same time a receivable was recorded from the ZENECA Companies
for the same amount. It is Pioneer's policy to record such amounts when a
liability can be reasonably estimated. In 2000, based on the results of a
third-party environmental analysis, the $3.2 million environmental reserve and
receivable were adjusted to the discounted future cash flows for estimated
environmental remediation, which was $2 million. In the course of evaluating
future cash flows upon emerging from bankruptcy, it was determined that the
timing of future cash flows for environmental work was uncertain and that those
cash flows no longer qualify for discounting under generally accepted accounting
standards. As a result, Pioneer no longer discounts the environmental
liabilities and related receivables, which are now recorded at their
undiscounted amounts of $3.2 million at December 31, 2002.

     The ZENECA Indemnity continues to cover claims after the April 20, 1999
expiration of the term of the indemnity to the extent that, prior to the
expiration of the indemnity, proper notice to the ZENECA Companies was given and
either the ZENECA Companies have assumed control of such claims or we were
contesting the legal requirements that gave rise to such claims, or had
commenced removal, remedial or maintenance work with respect to such claims, or
commenced an investigation which resulted in the commencement of such work
within ninety days. Management believes proper notice was provided to the ZENECA
Companies with respect to outstanding claims under the ZENECA Indemnity, but the
amount of such claims has not yet been determined given the ongoing nature of
the environmental work at Henderson. Pioneer believes that the ZENECA Companies
will continue to honor their obligations under the ZENECA Indemnity for claims
properly presented. It is possible, however, that disputes could arise between
the parties concerning the effect of contractual language and that Pioneer would
have to subject claims for cleanup expenses, which could be substantial, to the
contractually-established arbitration process.

     In connection with the 1995 transaction pursuant to which all of the
outstanding common stock and other equity interests of a predecessor of Pioneer
Americas was acquired from the holders of those interests (the "Sellers"), the
Sellers agreed to indemnify Pioneer and its affiliates for certain environmental
remediation obligations, arising prior to the closing date from or relating to
certain


                                       74
<PAGE>


plant sites or arising before or after the closing date with respect to certain
environmental liabilities relating to certain properties and interests held by
Pioneer for the benefit of the Sellers (the "Contingent Payment Properties").
Amounts payable in respect of such liabilities would generally be payable as
follows: (i) out of specified reserves established on the predecessor's balance
sheet at December 31, 1994; (ii) either by offset against the amounts payable
under the $11.5 million in notes payable to the Sellers, or from amounts held in
an account (the "Contingent Payment Account") established for the deposit of
proceeds from the Contingent Payment Properties; and (iii) in certain
circumstances and subject to specified limitations, out of the personal assets
of the Sellers. To the extent that liabilities exceeded proceeds from the
Contingent Payment Properties, Pioneer would be limited, for a ten-year period,
principally to rights of offset against the Sellers' notes to cover such
liabilities.

     In 1999 disputes arose between Pioneer and the Sellers as to the proper
scope of the indemnity. During June 2000, Pioneer effected an agreement with the
Sellers, pursuant to which Pioneer, in exchange for cash and other
consideration, relieved the Sellers from their environmental indemnity
obligations and agreed to transfer to the Sellers the record title to the
Contingent Payment Properties and the $0.8 million remaining cash balance in the
Contingent Payment Account that Pioneer determined to be in excess of
anticipated environmental liability. The cash balance in the Contingent Payment
Account at the time of this transaction was $6.1 million. This cash balance was
not previously reflected on the balance sheet since a right of setoff existed.

     A third-party environmental analysis that was performed on all of the sites
subject to the indemnity provided the basis for the anticipated environmental
liability. Pioneer then adjusted the remediation reserve on its balance sheet to
the discounted future cash flows for estimated environmental remediation. As a
result of the above transaction and the new environmental analysis, a pre-tax
gain of $1.8 million was reported during the second quarter of 2000, which was
reflected as a reduction of cost of sales. As indicated above, Pioneer is no
longer discounting the environmental liabilities and related receivables, which
are now recorded at their undiscounted amounts of $11.6 million at December 31,
2002.

     Pioneer acquired the chlor-alkali facility in Tacoma from OCC Tacoma, Inc.
("OCC Tacoma"), a subsidiary of OxyChem, in June 1997. In connection with the
acquisition, OCC Tacoma agreed to indemnify Pioneer with respect to certain
environmental matters, which indemnity is guaranteed by OxyChem. In general,
Pioneer will be indemnified against damages incurred for remediation of certain
environmental conditions, for certain environmental violations caused by
pre-closing operations at the site and for certain common law claims. The
conditions subject to the indemnity are sites at which hazardous materials have
been released prior to closing as a result of pre-closing operations at the
site. In addition, OCC Tacoma will indemnify Pioneer for certain costs relating
to releases of hazardous materials from pre-closing operations at the site into
the Hylebos Waterway, site groundwater containing certain volatile organic
compounds that must be remediated under an RCRA permit, and historical disposal
areas on the embankment adjacent to the site for maximum periods of 24 or 30
years from the June 1997 acquisition date, depending upon the particular
condition, after which Pioneer will have full responsibility for any remaining
liabilities with respect to such conditions. OCC Tacoma may obtain an early
expiration date for certain conditions by obtaining a discharge of liability or
an approval letter from a governmental authority. At this time we cannot
determine if the present anticipated remediation work will be completed prior to
the expiration of the indemnity, or if additional remedial requirements will be
imposed thereafter.

     OCC Tacoma will also indemnify Pioneer against certain other environmental
conditions and environmental violations caused by pre-closing operations that
are identified after the closing. Environmental conditions that are subject to
formal agency action before June 2002 or to an administrative or court order
before June 2007, and environmental violations that are subject to an
administrative or court order before June 2002, will be covered by the indemnity
up to certain dollar amounts and time limits. Pioneer will indemnify OCC Tacoma
for environmental conditions and environmental violations identified after the
closing if (i) an order or agency action is not imposed within the relevant time
frames or (ii) applicable expiration dates or dollar limits are reached. As of
December 31, 2002, no orders or agency actions had been imposed.

     The EPA has advised OCC Tacoma and Pioneer that Pioneer has been named as a
"potentially responsible party" in connection with the remediation of the
Hylebos Waterway in Tacoma, by virtue of its current ownership of the Tacoma
site. The state Department of Ecology notified OCC Tacoma and Pioneer of its
concern regarding high pH groundwater in the Hylebos Waterway embankment area
and has requested additional studies. OCC Tacoma has acknowledged its obligation
to indemnify Pioneer against liability with respect to the remediation
activities, subject to the limitations included in the indemnity agreement.
Pioneer has reviewed the time frames currently estimated for remediation of the
known environmental conditions associated with the plant and adjacent areas,
including the Hylebos Waterway, and presently believe that it will have no
material liability upon the termination of OCC Tacoma's indemnity. However, the
OCC Tacoma indemnity is subject to limitations as to dollar amount and duration,
as well as certain other conditions, and there can be no assurance that such
indemnity will be adequate to protect Pioneer, that remediation will proceed on
the present schedule, that it will involve the presently anticipated remedial
methods, or that unanticipated conditions will not be identified. If these or
other changes occur, Pioneer could incur a material liability for which it is
not insured or indemnified.


                                       75
<PAGE>


     In connection with the acquisition of the assets of PCI Canada in 1997,
Imperial Chemical Industrials PLC ("ICI") and certain of its affiliates
(together the "ICI Indemnitors") agreed to indemnify Pioneer for certain
liabilities associated with environmental matters arising from pre-closing
operations of the Canadian facilities. In particular, the ICI Indemnitors have
retained unlimited responsibility for environmental liabilities associated with
the Cornwall site, liabilities arising out of the discharge of contaminants into
rivers and marine sediments and liabilities arising out of off-site disposal
sites. The ICI Indemnitors are also subject to a general environmental indemnity
for other pre-closing environmental matters. This general indemnity will
terminate on October 31, 2007, and is subject to a limit of $25 million (Cdn).
Pioneer may not recover under the environmental indemnity until it has incurred
cumulative costs of $1 million (Cdn), at which point Pioneer may recover costs
in excess of $1 million (Cdn). As of December 31, 2002, we had incurred no
cumulative costs towards the $25 million (Cdn) indemnity.

     With respect to the Becancour and Dalhousie facilities, the ICI Indemnitors
will be responsible under the general environmental indemnity for 100% of the
costs incurred in the first five years after October 31, 1997 and for a
decreasing percentage of such costs incurred in the following five years.
Thereafter, Pioneer will be responsible for environmental liabilities at such
facilities (other than liabilities arising out of the discharge of contaminants
into rivers and marine sediments and liabilities arising out of off-site
disposal sites). Pioneer will indemnify ICI for environmental liabilities
arising out of post-closing operations and for liabilities arising out of
pre-closing operations for which Pioneer is not indemnified by the ICI
Indemnitors.

     In March 2003 we initiated arbitration proceedings to resolve a dispute
with ICI regarding the applicability of certain of ICI's covenants with respect
to approximately $1.3 million of equipment modification costs that we incurred
to achieve compliance with air emissions standards at the Becancour facility.
Pioneer believes that the indemnity provided by ICI will be adequate to address
the known environmental liabilities at the acquired facilities, and that
residual liabilities, if any, incurred by Pioneer will not be material.

     The imposition of more stringent standards or requirements under
environmental laws or regulations, new developments or changes respecting site
cleanup costs, or a determination that Pioneer is potentially responsible for
the release of hazardous substances at other sites could result in expenditures
in excess of amounts currently estimated by Pioneer to be required for such
matters. Further, there can be no assurance that additional environmental
matters will not arise in the future.

21.   RELATED PARTY TRANSACTIONS

     Prior to June 2000, Pioneer, through its predecessor subsidiary Pioneer
Americas, Inc., was the record owner of approximately 32% of the common stock of
BMI. In addition, until December 31, 2001, the chairman of BMI owned more than
5% of Pioneer's Class A Common Stock. Pioneer is a party to an agreement with
BMI for the delivery of Pioneer's water to the Henderson production facility.
The agreement provides for the delivery of a minimum of eight million gallons of
water per day. The agreement expires on December 31, 2014, unless terminated
earlier in accordance with the provisions of the agreement. In addition, BMI
owns the power facilities which transmit electricity to the Henderson facility.
For the years ended December 31, 2001 and 2000, for its services BMI charged
operating expenses to Pioneer of approximately $1.6 million, and $1.5 million,
respectively. Amounts due to BMI at December 31,2001 totaled $0.7 million. BMI
was not considered to be a related party during 2002.

     During 1999, Pioneer entered into arrangements with an affiliate of
Strategic Distribution, Inc. ("Strategic") pursuant to which Strategic's
affiliate provided procurement, handling and data management of maintenance,
repair and operating supplies at Pioneer's facilities in Henderson, Nevada and
St. Gabriel, Louisiana. During 2001, this arrangement was discontinued. William
R. Berkley, Chairman of the Board of Pioneer prior to Pioneer's emergence from
bankruptcy, owns approximately 23% of Strategic's common stock, and serves as
chairman of the board of directors of Strategic. Andrew R. Bursky and Jack
Nusbaum, directors of Pioneer prior to Pioneer's emergence from bankruptcy, are
directors of Strategic. For the years ending December 31, 2001 and 2000, for
materials and its services, Strategic charged operating expenses to Pioneer of
approximately $3.6 million and $4.6 million, respectively. Of the $3.6 million
charged during 2001, $1.0 million was discharged in bankruptcy. No amounts
remained payable to Strategic at December 31, 2002 or 2001.

22.   RECENT ACCOUNTING PRONOUNCEMENTS

     In August 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations." SFAS 143, which must be applied to fiscal years beginning after
June 15, 2002, addresses the financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. Pioneer is currently evaluating the impact of adopting
FAS 143.


                                       76
<PAGE>

     In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 amends existing
accounting guidance on asset impairment and provides a single accounting model
for long-lived assets to be disposed of. Among other provisions, the new rules
change the criteria for classifying an asset as held-for-sale. The standard also
broadens the scope of businesses to be disposed of that qualify for reporting as
discontinued operations, and changes the timing of recognizing losses on such
operations. Pioneer adopted SFAS 144 effective December 31, 2001, and the
adoption has not had a material effect on Pioneer's results of operations or
financial condition.

     In April 2002, the FASB issued SFAS 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS 145 amended SFAS 13, "Accounting for Leases," to require sale-leaseback
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. SFAS No. 145 also rescinds SFAS No. 4,
"Reporting Gains and Losses from Extinguishment of Debt." Accordingly, gains or
losses on the extinguishment of debt shall not be reported as extraordinary
items unless the extinguishment qualifies as an extraordinary item under the
criteria of Accounting Principles Board ("APB) Opinion 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." Gains or losses from extinguishments of debt that do not meet the
criteria of APB No. 30 should be reclassified to income from continuing
operations in all prior periods presented. The provisions of this statement
relating to the rescission of SFAS 4 are effective for fiscal years beginning
after May 15, 2002; the provisions of this statement relating to the amendment
of SFAS 13 are effective for transactions occurring after May 15, 2002; and all
other provisions of this statement are effective for financial statements issued
on or after May 15, 2002. Pioneer adopted SFAS No. 145 effective January 1, 2003
and will reclassify gains on early extinguishments of debt and related taxes
previously recorded as an extraordinary item.

     In July 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which is effective for fiscal years beginning
after December 31, 2002. SFAS 146 requires that the liability for costs
associated with exit or disposal activities be recognized when incurred, rather
than at the date of a commitment to an exit or disposal plan. As required,
Pioneer will apply SFAS 146 prospectively to exit or disposal activities
initiated after December 31, 2002.

23. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<Table>
<Caption>
                                                  FIRST          SECOND          THIRD            FOURTH
                                                 QUARTER         QUARTER        QUARTER          QUARTER
                                               ------------    ------------    ------------    ------------
<S>                                            <C>             <C>             <C>             <C>
SUCCESSOR COMPANY:
Year ended December 31, 2002
  Revenues .................................   $     71,796    $     74,244    $     86,579    $     84,291
  Gross profit (loss) ......................          4,598          (3,453)         22,924           8,561
  Operating income (loss) ..................         13,868          (3,995)          6,290          (4,497)
  Income (loss) before income taxes ........          9,131          (9,378)          3,929          (9,220)
  Net income (loss) ........................          9,863          (6,655)          3,273         (11,238)
  Per share data -
    Basic and diluted net income (loss) ....   $       0.99    $      (0.67)   $       0.33    $      (1.12)
                                               ============    ============    ============    ============
Predecessor Company:
Year ended December 31, 2001
  Revenues .................................   $    101,373    $    103,272    $     93,303    $     85,534
  Gross profit .............................         10,612          12,966          13,429           8,139
  Operating loss ...........................         (4,232)        (29,174)        (62,408)        (24,341)
  Loss before income taxes and
    extraordinary item .....................        (18,592)        (44,295)        (69,068)       (136,459)
  Net loss before extraordinary item .......        (20,130)        (44,932)        (71,880)       (134,595)
  Net income (loss) ........................        (20,130)        (44,932)        (71,880)        279,717
  Per share data -
    Basic and diluted net loss
     Before extraordinary item .............   $      (1.74)   $      (3.89)   $      (6.23)   $     (11.67)
                                               ============    ============    ============    ============
</Table>

----------

No cash dividends were declared or paid by Pioneer in 2002, 2001, or 2000.



                                       77
<PAGE>



24. SUBSEQUENT EVENTS

     Pioneer has entered into a settlement of the dispute with CRC, the
conditions of which were completed on March 3, 2003. As a result of the
settlement, which is effective as of January 1, 2003, Pioneer has been released
from all claims for liability with respect to all of the derivative positions,
and all litigation between Pioneer and CRC will be dismissed.

     Pioneer has entered into a new supply agreement under the terms of which
CRC will provide power to meet the majority of the Henderson plant's needs at a
market index rate. The new power supply agreement will have a term extending to
December 31, 2006, although Pioneer and CRC may agree to extend the term. The
market rate is expected to be higher than the rates under the long-term
hydropower contracts that were assumed by the Southern Nevada Water Authority as
part of the settlement.

     As the result of the settlement of derivative disputes with CRC (as
discussed in Note 3), Pioneer expects to record a net gain of approximately $66
million in the first quarter of 2003. Due to the assignment of Pioneer's
long-term hydropower contracts to the Southern Nevada Water Authority and the
resulting higher energy prices under the new supply agreement effective in 2003,
Pioneer expects to record an approximate $41 million impairment of the Henderson
facility as the result of a decrease in the estimated future cash flow from the
expected increase in power costs. See Note 2 for the net impact of the foregoing
event.



                                       78
<PAGE>




                                                                     SCHEDULE II

                             PIONEER COMPANIES, INC.

                        VALUATION AND QUALIFYING ACCOUNTS


<Table>
<Caption>
                                                 BALANCE AT    CHARGED TO                          BALANCE AT
                                                 BEGINNING     COSTS AND                            END OF
                   DESCRIPTION                   OF PERIOD     EXPENSE          DEDUCTIONS          PERIOD
---------------------------------------------   -----------   -----------       -----------       -----------
<S>                                             <C>           <C>               <C>               <C>
SUCCESSOR COMPANY:
Year Ended December 31, 2002:
  Allowance for doubtful accounts ...........   $     2,406   $      (848)(B)   $      (221)(A)   $     1,337
PREDECESSOR COMPANY:
Year Ended December 31, 2001:
  Allowance for doubtful accounts ...........         1,392         2,848            (1,834)(A)         2,406
</Table>

----------

(A) Uncollectible accounts written off, net of recoveries.

(B) Allowance for doubtful accounts was reduced in 2002 based on revised
estimates.

<Table>
<Caption>
      EXHIBIT NO.                             DESCRIPTION
      -----------                             -----------
<S>                         <C>
         2.1*               Pioneer Companies, Inc. Amended Joint Plan of
                            Reorganization under Chapter 11 of the United States
                            Bankruptcy Code (incorporated by reference to
                            Exhibit 2.1 to Pioneer's Annual Report on Form 10-K
                            for the fiscal year ended December 31, 2001).

         2.2*               Order Approving Disclosure Statement, dated
                            September 21, 2001 (incorporated by reference to
                            Exhibit 2.2 to Pioneer's Annual Report on Form 10-K
                            for the fiscal year ended December 31, 2001).

         2.3*               Order Confirming Joint Plan of Reorganization, dated
                            November 28, 2001 (incorporated by reference to
                            Exhibit 2.4 to Pioneer's Current Report on Form 8-K
                            filed on December 28, 2001).

         2.4*               Asset Purchase Agreement, dated as of May 14, 1997,
                            by and between OCC Tacoma, Inc. and Pioneer
                            Companies, Inc. (incorporated by reference to
                            Exhibit 2 to Pioneer's Current Report on Form 8-K
                            filed on July 1, 1997).

         2.5*               Asset Purchase Agreement, dated as of September 22,
                            1997 between PCI Chemicals Canada Inc. ("PCICC"),
                            PCI Carolina, Inc. and Pioneer Companies, Inc. and
                            ICI Canada Inc., ICI Americas, Inc. and Imperial
                            Chemical Industries plc (incorporated by reference
                            to Exhibit 2 to Pioneer's Quarterly Report on Form
                            10-Q for the quarter ended September 30, 1997).

         2.6*               First Amendment to Asset Purchase Agreement, dated
                            as of October 31, 1997, between PCICC, PCI Carolina,
                            Inc. and Pioneer Companies, Inc. and ICI Canada
                            Inc., ICI Americas, Inc. and Imperial Chemical
                            Industries plc (incorporated by reference to Exhibit
                            2 to Pioneer's Current Report on Form 8-K filed on
                            November 17, 1997).

         3.1*               Fourth Amended and Restated Certificate of
                            Incorporation of Pioneer Companies, Inc.
                            (incorporated by reference to Exhibit 3.1 to
                            Pioneer's Annual Report on Form 10-K for the fiscal
                            year ended December 31, 2001).

         3.2*               Amended and Restated By-laws of Pioneer Companies,
                            Inc. (incorporated by reference to Exhibit 3.2 to
                            Pioneer's Annual Report on Form 10-K for the fiscal
                            year ended December 31, 2001).
</Table>



                                       79
<PAGE>
<Table>
<Caption>
      EXHIBIT NO.                             DESCRIPTION
      -----------                             -----------
<S>                         <C>
         4.1*               Specimen Pioneer Companies, Inc. Stock Certificate
                            (incorporated by reference to Exhibit 4.1 to
                            Pioneer's Annual Report on Form 10-K for the fiscal
                            year ended December 31, 2001).

         4.2*               Indenture, dated as of December 31, 2001, among PCI
                            Chemicals Canada Company, the guarantors named
                            therein and Wells Fargo Bank Minnesota, National
                            Association, as trustee, relating to $150,000,000
                            principal amount of 10% Senior Secured Guaranteed
                            Notes due 2008 (incorporated by reference to Exhibit
                            4.3 to Pioneer's Annual Report on Form 10-K for the
                            fiscal year ended December 31, 2001).

         4.3*               Term Loan Agreement, dated as of December 31, 2001,
                            among Pioneer Americas LLC, the guarantors named
                            therein, the lenders from time to time parties
                            thereto and Wells Fargo Bank Minnesota, National
                            Association, as administrative agent (incorporated
                            by reference to Exhibit 4.4 to Pioneer's Annual
                            Report on Form 10-K for the fiscal year ended
                            December 31, 2001).

         4.4*               Indenture, dated as of December 31, 2001, among
                            Pioneer Americas LLC, the guarantors named therein,
                            and Wells Fargo Bank Minnesota, National
                            Association, as trustee, relating to up to
                            $50,000,000 principal amount of Senior Secured
                            Floating Rate Guaranteed Notes due 2006
                            (incorporated by reference to Exhibit 4.5 to
                            Pioneer's Annual Report on Form 10-K for the fiscal
                            year ended December 31, 2001).

         4.5*               Loan and Security Agreement, dated as of December
                            31, 2001, among PCI Chemicals Canada Company,
                            Pioneer Americas LLC, the lenders that are
                            signatories thereto and Foothill Capital
                            Corporation, as arranger and administrative agent
                            (incorporated by reference to Exhibit 4.6 to
                            Pioneer's Annual Report on Form 10-K for the fiscal
                            year ended December 31, 2001).

         4.6*               First Amendment to Loan and Security Agreement,
                            dated April 15, 2002, between and among the lenders
                            identified on the signature pages thereto, Foothill
                            Capital Corporation, PCI Chemicals Canada Company
                            and Pioneer Americas LLC (incorporated by reference
                            to Exhibit 4.7 to Pioneer's Annual Report on Form
                            10-K for the fiscal year ended December 31, 2001).

         4.7*               Second Amendment to Loan and Security Agreement
                            effective as of May 31, 2002, between and among the
                            lenders identified on the signature pages thereof,
                            Foothill Capital Corporation, PCI Chemicals Canada
                            Company and Pioneer Americas LLC (incorporated by
                            reference to Exhibit 4.1 to Pioneer's Current Report
                            on Form 8-K filed on June 14, 2002), (incorporated
                            by reference to Exhibit 4.7 to Pioneer's Annual
                            Report on Form 10-K for the fiscal year ended
                            December 31, 2001).

         4.8                Third Amendment to Loan and Security Agreement
                            effective as of July 29, 2002, between and among the
                            lenders identified on the signature pages thereof,
                            Foothill Capital Corporation, PCI Chemicals Canada
                            Company and Pioneer Americas LLC.

         4.9                Fourth Amendment to Loan and Security Agreement
                            effective as of December 10, 2002, between and among
                            the lenders identified on the signature pages
                            thereof, Foothill Capital Corporation, PCI Chemicals
                            Canada Company and Pioneer Americas LLC

         4.10*              Common Security and Intercreditor Agreement, dated
                            as of December 31, 2001 by and among the grantors
                            named therein and Wells Fargo Bank Minnesota,
                            National Association (incorporated by reference to
                            Exhibit 4.8 to Pioneer's Annual Report on Form 10-K
                            for the fiscal year ended December 31, 2001).
</Table>



                                       80
<PAGE>
<Table>
<Caption>
      EXHIBIT NO.                             DESCRIPTION
      -----------                             -----------
<S>                         <C>
         10.1+*             Pioneer Companies, Inc. 2001 Employee Stock Option
                            Plan (incorporated by reference to Exhibit 10.1 to
                            Pioneer's Annual Report on Form 10-K for the fiscal
                            year ended December 31, 2001).

         10.2+              Employment Agreement, dated September 17, 2002,
                            between Pioneer Companies, Inc. and Michael Y.
                            McGovern.

         10.3+              Severance Agreement, dated September 30, 2002,
                            between Pioneer Companies, Inc. and Michael J.
                            Ferris.

         10.4+              Services Agreement, dated October 17, 2002, between
                            Pioneer Companies, Inc. and Philip J. Ablove.

         21.1*              List of Subsidiaries (incorporated by reference to
                            Exhibit 21.1 to Pioneer's Annual Report on Form 10-K
                            for the fiscal year ended December 31, 2001).

         99.1               Certification pursuant to 18 U.S.C. Section 1350, as
                            adopted pursuant to Section 906 of the
                            Sarbanes-Oxley Act of 2002.

         99.2               Certification pursuant to 18 U.S.C. Section 1350, as
                            adopted pursuant to Section 906 of the
                            Sarbanes-Oxley Act of 2002.
</Table>

----------

* Indicates exhibit previously filed with the Securities and Exchange Commission
as indicated and incorporated herein by reference.

+ Indicates management contract or compensatory plan or arrangement.




                                       81