##### Table of Contents









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, 2005


Commission File No. 000-31230


Pioneer Companies, Inc.


(Exact name of registrant as specified in its charter)


|                                                                                              |  |                                     
|--------------------------------------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                                                      |  | 06-1215192                          
|(State or other jurisdiction of
     incorporation or organization)                           |  | (I.R.S. Employer Identification No.)
|700 Louisiana Street, Suite 4300,
     Houston, Texas(Address of principal executive offices) |  | 77002(Zip code)                     

Registrants telephone number, including area code:


(713) 570-3200


Securities registered pursuant to Section 12(b) of the
Act:


|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of each class |  | Name of each exchange on which registered
|                    |  |                                          
|None                |  | Not applicable                           

Securities registered pursuant to Section 12(g) of the
Act:


Common stock, par value $.01 per share


(Title of class)


o þ


o þ


þ o


S-K 10-K 10-K. o


12b-2




|                          |                     |                        
|------------------------- | ------------------- | -----------------------
|Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o

12b-2 o þ


þ o






DOCUMENTS INCORPORATED BY REFERENCE:












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TABLE OF CONTENTS


|                                                                                               |  |                                                                                                                      |  |          |    | 
|---------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | -------- | -- | 
|                                                                                               |  |                                                                                                                      |  | Page No.
|                                                                                               |  |                                                                                                                      |  |         
|PART I                                                                                        
|Item 1.                                                                                        |  | Business                                                                                                             |  |          | 1  | 
|Item 1A.                                                                                       |  | Risk Factors                                                                                                         |  |          | 17 | 
|Item 1B.                                                                                       |  | Unresolved Staff Comments                                                                                            |  |          | 24 | 
|Item 2.                                                                                        |  | Properties                                                                                                           |  |          | 25 | 
|Item 3.                                                                                        |  | Legal Proceedings                                                                                                    |  |          | 26 | 
|Item 4.                                                                                        |  | Submission of Matters to a Vote of Security
    Holders                                                              |  |          | 27 | 
|Item 4A.                                                                                       |  | Executive Officers of the Registrant                                                                                 |  |          | 27 | 
|                                                                                              
|PART II                                                                                       
|Item 5.                                                                                        |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |  |          | 28 | 
|Item 6.                                                                                        |  | Selected Financial Data                                                                                              |  |          | 29 | 
|Item 7.                                                                                        |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |  |          | 32 | 
|Item 7A.                                                                                       |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                       |  |          | 49 | 
|Item 8.                                                                                        |  | Financial Statements and Supplementary
    Data                                                                      |  |          | 49 | 
|Item 9.                                                                                        |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |  |          | 49 | 
|Item 9A.                                                                                       |  | Controls and Procedures                                                                                              |  |          | 49 | 
|Item 9B.                                                                                       |  | Other Information                                                                                                    |  |          | 52 | 
|                                                                                              
|PART III                                                                                      
|Item 10.                                                                                       |  | Directors and Executive Officers of the
    Registrant                                                               |  |          | 52 | 
|Item 11.                                                                                       |  | Executive Compensation                                                                                               |  |          | 52 | 
|Item 12.                                                                                       |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |  |          | 52 | 
|Item 13.                                                                                       |  | Certain Relationships and Related
    Transactions                                                                   |  |          | 52 | 
|Item 14.                                                                                       |  | Principal Accounting Fees and Services                                                                               |  |          | 52 | 
|                                                                                              
|PART IV                                                                                       
|Item 15.                                                                                       |  | Exhibits and Financial Statement
    Schedules                                                                       |  |          | 53 | 
|First Supplemental Indenture                                                                  
|Indemnity Agreement dated May 13, 2004 - Charles L. Mears                                     
|Indemnity Agreement dated May 12, 2005 - Richard L. Urbanowski                                
|Indemnity Agreement dated January 24, 2006 - Robert E. Allen                                  
|Notice Letter dated November 14, 2005 - Kent R. Stephenson                                    
|First Amendment and Assignment of Agreement of Purchase and Sale and Joint Escrow Instructions
|Consent of Independent Registered Public Accounting Firm                                      
|Certification of Michael Y. McGovern required by Rule 13a-14a/15d-14a                         
|Certification of Gary L. Pittman required by Rule 13a-14a/15d-14a                             
|Certification of Michael Y. McGovern required by Rule 13a-14a/15d-14a                         
|Certification of Gary L. Pittman required by Rule 13a-14a/15d-14a                             
|Schedule II--Valuation and Qualifying Accountants                                             



Certain statements in this
Form 10-K
regarding future expectations of Pioneers business and
Pioneers results of operations, financial condition and
liquidity may be regarded as forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act. Forward-looking statements relate to
matters that are not historical facts. Such statements involve
risks and uncertainties, including, but not limited to, the
risks and uncertainties described in Item 1A of this
Form 10-K. Actual
outcomes may vary materially.




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PART I







|        |         
|------- | --------
|ITEM 1. | BUSINESS

Overview




| |                      
| | ---------------------
| | Business and Products











| |                
| | ---------------
| | Plant Locations



|                             |  |                       |                   |            |  |  |         | 
|---------------------------- |  | --------------------- | ----------------- | ---------- |  |  | ------- | 
|                             |  |                       |                   | Production
|Location                     |  | Manufactured Products |                   | Capacity  
|                             |  |                       |                   |           
|Becancour, Quebec            |  |                       | Chlorine          |            |  |  | 340,000 | 
|                             |  |                       | Caustic soda      |            |  |  | 383,000 | 
|                             |  |                       | Hydrochloric acid |            |  |  | 250,000 | 
|                             |  |                       | Bleach            |            |  |  | 236,000 | 
|St. Gabriel, Louisiana       |  |                       | Chlorine          |            |  |  | 197,000 | 
|                             |  |                       | Caustic soda      |            |  |  | 216,700 | 
|Henderson, Nevada            |  |                       | Chlorine          |            |  |  | 152,000 | 
|                             |  |                       | Caustic soda      |            |  |  | 167,200 | 
|                             |  |                       | Hydrochloric acid |            |  |  | 130,000 | 
|                             |  |                       | Bleach            |            |  |  | 180,000 | 
|Dalhousie, New Brunswick     |  |                       | Chlorine          |            |  |  | 36,000  | 
|                             |  |                       | Caustic soda      |            |  |  | 40,000  | 
|                             |  |                       | Sodium chlorate   |            |  |  | 22,000  | 
|Tracy, California            |  |                       | Bleach            |            |  |  | 233,000 | 
|Santa Fe Springs, California |  |                       | Bleach            |            |  |  | 233,000 | 
|Tacoma, Washington           |  |                       | Bleach            |            |  |  | 90,000  | 

1



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| |                              
| | -----------------------------
| | Asset Sales and Redeployments

Sale of Tacoma, Washington Facility.






Termination of Operations at Cornwall; Sale of Paraffin
Operations.


Pending Sale of Acreage in Henderson, Nevada.




| |                                      
| | -------------------------------------
| | Chlorine Products Market; Competition



2



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Competitive Advantages and Disadvantages.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our Becancour facility is a lower-cost production facility as a
    result of the availability of lower-priced hydropower;                                                                                                                                                                                                                                                                                                        
|
| |  | our St. Gabriel facility has three pipelines that allow us to
    efficiently transport and supply chlorine to customers in the
    area; and                                                                                                                                                                                                                                                                                     
|
| |  | our Henderson facility is the only currently operating
    chlor-alkali production facility in the southwestern region of
    the United States, providing us with a strong regional presence
    and transportation cost advantages. However, a competitor is
    expected to start production at a new plant in the Northwestern
    U.S. in early 2006 with a production capacity reported to
    be approximately 80,000 ECUs.







| |   |                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | relatively high power costs at our Henderson and St. Gabriel
    facilities, which costs are largely dependent on the price of
    natural gas which can be volatile;                                           
|
| |  | our inability to serve some customers in Canada and the United
    States without incurring significant transportation costs;                                                                                   
|
| |  | our need to acquire salt from third-party producers, with
    attendant availability, cost and transportation issues;                                                                                           
|
| |  | our inability to spread our fixed costs over a large
    manufacturing base, like some of our much larger
    competitors; and                                                                                  
|
| |  | our St. Gabriel and Dalhousie facilities use the mercury cell
    production process, rather than the more efficient membrane cell
    technology used by many of our competitors which requires less
    power.

See


Marketing, Pricing, Production and Transportation




| |          
| | ---------
| | Marketing



3



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See










| |        
| | -------
| | Pricing





|               |  |      |     |  |      |   |     |      |  |   |     | 
|-------------- |  | ---- | --- |  | ---- | - | --- | ---- |  | - | --- | 
|               |  | 2005 |     |  | 2004 |   |     | 2003 | 
|               |  |      |     |  |      |   |     |      | 
|First Quarter  |  | $    | 548 |  |      | $ | 339 |      |  | $ | 362 | 
|Second Quarter |  |      | 577 |  |      |   | 354 |      |  |   | 406 | 
|Third Quarter  |  |      | 581 |  |      |   | 409 |      |  |   | 392 | 
|Fourth Quarter |  |      | 619 |  |      |   | 480 |      |  |   | 366 | 



4



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|      |                                 |          |   |    |              |  |   |     |    
|----- | ------------------------------- | -------- | - | -- | ------------ |  | - | --- | ---
|      |                                 | Chlorine |   |    | Caustic Soda | 
|      |                                 |          |   |    |              | 
|2004: |                                 |          |   |    |              |  |   |    
|      | First Quarter                   |          | $ | 75 |              |  | $ |    |    
|      | Second Quarter                  |          |   | 20 |              |  |   | 95  |    
|      | Third Quarter                   |          |   | 20 |              |  |   | 110 |    
|      | Fourth Quarter                  |          |   | 20 |              |  |   | 50  |    
|2005: |                                 |          |   |    |              |  |   |    
|      | First Quarter                   |          | $ | 20 |              |  | $ | 40  |    
|      | Second Quarter                  |          |   |   |              |  |   | 30  |    
|      | Third Quarter                   |          |   | 25 |              |  |   | 125 |    
|      | Fourth Quarter                  |          |   |   |              |  |   | 60  | (1)
|2006: |                                 |          |   |    |              |  |   |    
|      | First Quarter (through March 1) |          |   | 25 |              |  |   |    |    






| |     |                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | In late October 2005, we announced an additional caustic soda
    price increase of $160 per ton, although this increase was
    subject to a temporary voluntary allowance of $100 per ton.
    We reserved the right to remove all or any portion of the
    temporary voluntary allowance at any time following the
    effective date of the price increase, upon notice to our
    customers.









5



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| |           
| | ----------
| | Production



|                                  |  |                |            |                 |          |  |            |      |  |  |            |  |  |      |     |  |      |  |     |  |  |  |     | 
|--------------------------------- |  | -------------- | ---------- | --------------- | -------- |  | ---------- | ---- |  |  | ---------- |  |  | ---- | --- |  | ---- |  | --- |  |  |  | --- | 
|                                  |  |                |            | % of Production |         
|                                  |  | ECUs (in tons) |            |                 | Capacity | 
|                                  |  |                |            |                 |          | 
|                                  |  | 2005           |            |                 | 2004     |  |            | 2003 |  |  | 2005       |  |  | 2004 |     |  | 2003 | 
|                                  |  |                |            |                 |          |  |            |      |  |  |            |  |  |      |     |  |      | 
|Pioneer production volume         |  |                | 671,000    |                 |          |  | 704,000    |      |  |  | 671,000    |  |  |      | 93% |  |      |  | 97% |  |  |  | 93% | 
|Industry production
    volume(1) |  |                | 13,264,000 |                 |          |  | 14,385,000 |      |  |  | 13,890,000 |  |  |      | 90% |  |      |  | 97% |  |  |  | 84% | 






| |     |                                                          
| | --- | ---------------------------------------------------------
| | (1) | Sources: Chlorine Institute, CMAI and internal estimates.





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| |                               
| | ------------------------------
| | Production Disruptions in 2005





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Rail Transportation Disruptions. Disruptions in rail
    transportation can reduce our ability to obtain adequate amounts
    of salt and also interrupt our ability to transport our products
    to our customers. In January 2005, we reduced production at our
    Henderson plant due to flooding in California and Utah that
    disrupted rail transportation of salt to the plant and shipments
    from the plant to our customers and our bleach plants in
    California. In the third quarter of 2005, Hurricanes Katrina and
    Rita caused a shortage of available railcars and other
    transportation disruptions that caused our Becancour
    chlor-alkali plant to operate at a reduced capacity for a
    portion of the third quarter.
|
| |  | Unexpected Reductions in Customer Orders. Reductions in
    orders from our customers caused by seasonal fluctuations in
    usage or other factors, such as production disruptions at their
    facilities, can cause us to reduce plant production if we are
    not able to find alternate customers to purchase the excess
    product on short notice. These types of reductions affected our
    Becancour plant in January 2005 and our St. Gabriel plant in
    June 2005.                                                                                                                                                                                                                                                                           
|
| |  | Planned and Unplanned Maintenance Outages. We regularly
    schedule maintenance outages at our plants to perform needed
    maintenance on the equipment. In addition, we may experience
    equipment failures or other problems that require a plant to be
    shut down to fix the problem. We had planned maintenance outages
    at our St. Gabriel plant in March 2005, and at our Becancour,
    Dalhousie and Henderson plants in the fourth quarter of 2005. We
    also encountered temporary production difficulties at our
    Becancour plant as well as a plant shutdown at our St. Gabriel
    plant in late September caused by an electrical problem that was
    resolved during the first week of October.                               
|
| |  | Acts of Nature. In August and September 2005, our St.
    Gabriel plant was shut down as a precaution when Hurricanes
    Katrina and Rita approached the Gulf Coast. The plant sustained
    minor storm damage from Hurricane Katrina which caused the plant
    to be shut down for six days.                                                                                                                                                                                                                                                                                                                                                                                                                                                             





| |                                          
| | -----------------------------------------
| | Environmental Health and Safety Practices





| |   |                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | complying with legal requirements related to safety, health and
    environmental quality;                                                                           
|
| |  | regularly inspecting and maintaining our facilities in a safe
    operating condition;                                                                               
|
| |  | providing workplace policies, procedures and training so that
    employees can perform their jobs in a safe, healthy and
    environmentally responsible manner; and
|
| |  | providing management leadership and requiring our employees to
    share accountability for ongoing improvement in health, safety
    and environmental performance. 

7



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| |                                     
| | ------------------------------------
| | Energy Costs and Other Raw Materials





|               |  |                |        |               |  |  |     | 
|-------------- |  | -------------- | ------ | ------------- |  |  | --- | 
|               |  | Total Power    |        | Percentage of
|               |  | Costs          |        | Cost of Sales
|               |  |                |        |              
|               |  | (In thousands)
|2004           |  |                |        |               |  |  |     | 
|First Quarter  |  | $              | 19,989 |               |  |  | 23% | 
|Second Quarter |  |                | 21,273 |               |  |  | 25% | 
|Third Quarter  |  |                | 23,051 |               |  |  | 26% | 
|Fourth Quarter |  |                | 22,201 |               |  |  | 24% | 
|2005           |  |                |        |               |  |  |     | 
|First Quarter  |  |                | 20,334 |               |  |  | 23% | 
|Second Quarter |  |                | 23,594 |               |  |  | 25% | 
|Third Quarter  |  |                | 25,109 |               |  |  | 26% | 
|Fourth Quarter |  |                | 31,251 |               |  |  | 31% | 







| |                     
| | --------------------
| | Transportation Costs







8



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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 than mercury
    cell technology, it produces caustic soda with a relatively
    higher salt content than other technologies and 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
    high purity caustic soda and does not require evaporation, but
    it consumes relatively more power, and the mercury requires
    heightened handling and control 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. Compared to diaphragm
    cell technology, membrane cell technology produces higher-purity
    caustic soda and it requires lower power consumption and lower
    steam consumption. We believe that all of the new chlor-alkali
    plants that have been built in recent years use the membrane
    cell technology.

See


Environmental Regulation




| |                  
| | -----------------
| | U.S. Requirements

General.


9



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Air Emissions.








See




Water.


10



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Solid Waste.




Hazardous Substances.


See See also


Environmental Remediation.


11



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Environmental Assessment and Reserve.


See




OSHA.




| |                      
| | ---------------------
| | Canadian Requirements

General.




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| |            
| | -----------
| | Indemnities

ZENECA Indemnity.








13



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PCI Canada Acquisition Indemnity.






OxyChem Indemnity for Tacoma Site.


14



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See


Employees




Financial Information about Geographic Areas




Access to Filings


10-K, 10-Q 8-K http://www.piona.com


CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS






15



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| |   |                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | general economic, business and market conditions, including
    economic instability or a downturn in the markets served by us;                                                                                            
|
| |  | the cyclical nature of our product markets and operating results;                                                                                                                                                          
|
| |  | competitive pressures affecting selling prices and volumes;                                                                                                                                                                
|
| |  | the supply/demand balance for our products, including the impact
    of excess industry capacity or the construction of new industry
    capacity;                                                                         
|
| |  | the occurrence of unexpected manufacturing interruptions and
    outages, including those occurring as a result of production
    hazards or an interruption in the supply of electricity, salt or
    other raw materials;
|
| |  | failure to comply with financial covenants contained in our debt
    instruments;                                                                                                                                          
|
| |  | inability to make scheduled payments on or refinance our
    indebtedness;                                                                                                                                                 
|
| |  | loss of key customers or suppliers;                                                                                                                                                                                        
|
| |  | increased prices for raw materials, including electricity;                                                                                                                                                                 
|
| |  | disruption of transportation or higher than expected
    transportation or logistics costs;                                                                                                                                
|
| |  | environmental costs and other expenditures in excess of those
    projected;                                                                                                                                               
|
| |  | changes in laws and regulations inside or outside the United
    States;                                                                                                                                                   
|
| |  | uncertainty with respect to interest rates and fluctuations in
    currency exchange rates;                                                                                                                                
|
| |  | limitations on our NOL utilization;                                                                                                                                                                                        
|
| |  | the outcome of the operational efficiency project that we began
    implementing in the first quarter of 2004;                                                                                                             
|
| |  | our ability to effect the sale of certain excess land and water
    rights at our Henderson facility; and                                                                                                                  
|
| |  | 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.                                                    



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ITEM 1A. RISK FACTORS


The chlor-alkali industry is cyclical and subject to
periodic downturns, so accordingly, our operating results should
be expected to be cyclical and subject to periodic
downturns.


See






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Sensitivity to cyclical demand from our customers and general
    economic conditions. 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 or domestic economic
    conditions could result in a reduction in demand for our
    products and could materially adversely affect our results of
    operations and financial condition. In addition, while we only
    sell a small percentage of our products overseas, our business
    is affected by general economic conditions outside of North
    America since many of our customers sell a portion of their
    products outside of North America. While demand for both
    chlorine and caustic soda has been strong during the past year,
    a decline in domestic and global economic conditions could
    materially adversely affect demand for our products in the
    future.                                                                                                                                                                                                                                                                        
|
| |  | Cyclical imbalances in chlorine and caustic soda demand and
    production constraints. Because chlorine and caustic soda
    are produced in a fixed ratio, the supply of one product can be
    constrained both by the physical capacity of the production
    facilities and the ability to sell and store the co-product.
    When chlorine demand is high and production increases as a
    result, the price of caustic soda may be depressed if there is
    insufficient demand for the increased supply. This imbalance may
    have the effect of reducing our operating profits, or even
    creating operating losses, as declining margins in caustic soda
    may partially or totally offset or even exceed improving margins
    in chlorine. On the other hand, when chlorine demand declines so
    that available storage is filled, production operations must be
    curtailed, even if demand for caustic soda has increased. This
    imbalance may also have the effect of reducing our operating
    profits or even creating operating losses because the improving
    margins for caustic soda may be partially or totally offset or
    even exceeded by both declining margins in chlorine and the
    reduced production of both products. When substantial imbalances
    occur, we will often be forced to reduce prices or take actions
    that could have a material adverse effect on our results of
    operations and financial condition.
|
| |  | New industry production capacity is added in large
    increments. In early 2006, a competitor is expected to begin
    production at a new chlor-alkali plant in the Northwestern
    U.S. with an estimated production capacity of approximately
    80,000 ECUs. This may impact the market served by our Henderson
    plant. In addition, another competitor has announced a new
    chlor-alkali facility in Louisiana with an estimated ultimate
    production capacity of 450,000 ECUs. This new plant is expected
    to commence operations in two stages, with the first stage
    estimated to occur during the second half of                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

17



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 2007 and the second stage estimated to occur by the end of 2008.
    While we anticipate that the chlorine produced by this new
    Louisiana facility will be used internally by the competitor to
    produce other products, the added production of caustic soda is
    expected to put downward pressure on caustic soda prices in the
    markets served by our St. Gabriel plant.                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Limited ability to control selling prices. 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 controlling
    selling and administration expenses, these efforts are usually
    not sufficient to offset fully the effect of any decline in ECU
    prices on operating results.

Our profitability could decrease because of reduced
customer demand that is difficult to predict.






We face risks from continued declines in the pulp and
paper industry.




Higher energy prices could increase our cost of producing
chlor-alkali products.






18



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See


The shipment of chlorine by rail may be negatively
impacted by rail industry initiatives and potential changes to
existing regulatory and/or legislative requirements.






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Proposed new tank car standards. The AARs tank car
    standard setting committee, the Tank Car Committee, is
    considering adoption of a new tank car performance standard for
    chlorine and anhydrous ammonia tank cars that it believes would
    reduce the probability of a tank car release in the event of an
    accident. The Tank Car Committee also is proposing that the
    existing fleet of tank cars that transport TIH products be
    replaced within a period of 5-7 years by tank cars that
    meet the new standard. If adopted, this new requirement would
    require us to update our fleet of leased tank cars, which would
    result in increased lease costs for the new tank cars. In
    addition, the new tank car being proposed is heavier than
    existing tank cars when fully loaded (286,000 pounds versus
    263,000 pounds for existing tank cars), and substantial
    portions of the rail track on our existing routes are unable to
    handle the heavier tank cars when fully loaded. Therefore, the
    new tank car standard would require us to reduce the chlorine
    payload that is being shipped in the new tank cars, which in
    turn would require us to use more tank cars to ship our chlorine
    to customers and increase our shipping costs.
|
| |  | Increased rail transport prices. Rail industry pricing
    practices result in substantially higher rates for the
    transportation of chlorine than most other chemicals due to
    safety and security concerns with chlorine products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Proposed bans and/or re-routing requirements on the shipment
    of chlorine and other TIH products. In February 2005,
    Washington, D.C. passed a ban on the transportation of
    certain hazardous materials, including chlorine, by rail or
    truck through certain portions of Washington, D.C. on the
    belief that it will reduce the risk of a terrorist attack.
    Although the enforcement of this law has been stayed by
    litigation brought by a rail company on the basis that the D.C.
    law is preempted by the Federal Railroad Safety Act, other
    cities are considering similar legislation. If the D.C. ban were
    ultimately allowed, other cities may be expected to pass similar
    bans. In addition, one or more bills have been introduced in
    Congress that would require the Department of Homeland Security
    to re-route TIH and other hazardous materials, as well as
    implement other safety measures for the transport of hazardous
    materials. Any such re-routing requirements would disrupt our
    ability to ship chlorine to our customers since we would have to
    find alternate routes for our shipments, which would likely make
    the shipment of chlorine more costly.                                                                 
|
| |  | Proposed contract changes in our rail transport
    contracts. One of our existing rail transportation companies
    has notified its customers that ship chlorine, including us,
    that it will require new contract provisions that will have the
    effect of shifting any liability resulting from a rail car
    accident or terrorist attack to us. If we are required to accept
    such liability as a condition to maintaining our ability to ship
    chlorine, this could increase our insurance costs or hinder our
    ability to obtain insurance on commercially reasonable terms to
    cover these risks. Another of our existing rail transportation
    companies has requested the ability to terminate service to us
    upon 30 days notice. A railroads ability to
    force changes in the terms upon which services are provided to
    us, and to do so in a short period of time, means that available
    rail transportation could be reduced or even eliminated, or that
    we could be                                                                                                                                                                                                                                                                                         

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| |  |                                                                                                                                                                                                                                                                                                                                                                          
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | required to incur substantial increases in the cost of service.
    There could be further and more severe disruptions to rail
    service, which might affect our ability to meet our contractual
    obligations. Our chlorine plants are each served by only one
    rail carrier, so we do not have the ability to shift our
    business to alternate rail carriers.



We are subject to possible risk of terrorist attacks which
could adversely affect our operations.




Our facilities are subject to operating hazards and other
disruptions that may disrupt our operations.


See




Labor disputes under our collective bargaining agreements
may disrupt our business.






20



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We are exposed to the financial and tax effects of US to
Canadian dollar currency translation, which are subject to
economic forces beyond our control.






We have ongoing environmental costs and we may be exposed
to environmental liabilities that are not currently reserved for
in our financial statements.




See see




21



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See


See


We are undergoing management turnover with respect to our
Chief Executive Officer, other executive officers and our board
of directors.




We are subject to litigation and other claims, which could
cause us to incur significant expenses.




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


See


22



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Availability of our net operating loss carry-forward may
be limited by the Internal Revenue Code, which could negatively
affect our after-tax cash flows in future periods.






We have pension plans that are currently under-funded, and
may need to be funded in future years.




We are dependent upon a limited number of key
suppliers.


See


The restrictive terms of our indebtedness may limit our
ability to grow and compete.


See


We will need to pay or refinance our outstanding
indebtedness at or prior to its maturity in 2008.




23



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##### Table of Contents









| |   |                                                                                         
| | - | ----------------------------------------------------------------------------------------
| |  | the current and future outlook for the chlor-alkali industry;                           
|
| |  | general economic and capital market conditions;                                         
|
| |  | the availability of credit from banks and other financial
    institutions;             
|
| |  | investor confidence in us and the market in which we operate;                           
|
| |  | market expectations regarding our future earnings and probable
    cash flows;          
|
| |  | market perceptions of our ability to access capital markets on
    reasonable terms; and
|
| |  | provisions of relevant tax and securities laws.                                         



The concentrated ownership of our common stock may have
the effect of delaying or preventing a change of control of our
company.









|         |                          
|-------- | -------------------------
|ITEM 1B. | UNRESOLVED STAFF COMMENTS



24



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|        |           
|------- | ----------
|ITEM 2. | PROPERTIES

Facilities




Becancour, Quebec. 100-acre


St. Gabriel, Louisiana. 100-acre


Henderson, Nevada. 374-acre


Dalhousie, New Brunswick. 36-acre


Tracy, California. 15-acre


Santa Fe Springs, California. 4.5-acre


Tacoma, Washington.


Other Facilities.


25



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##### Table of Contents



See







|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS



St. Gabriel Mercury Vapor Emissions Release.




Claude
Frazier, et al. v. Pioneer Americas, LLC and State of
Louisiana through the Department of Environmental Quality,


Albany, N.Y. Mercury Refining Superfund Site. clean-up


26



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##### Table of Contents








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






ITEM 4A.EXECUTIVE
OFFICERS OF THE REGISTRANT




|                    |  |     |    |  |        |                                                          
|------------------- |  | --- | -- |  | ------ | ---------------------------------------------------------
|Name                |  | Age |    |  | Office
|                    |  |     |    |  |       
|Michael Y. McGovern |  |     | 54 |  |        | Director, Chairman, President and Chief Executive Officer
|David A. Scholes    |  |     | 60 |  |        | Director, Vice President, Manufacturing                  
|Jerry B. Bradley    |  |     | 60 |  |        | Vice President, Human Resources                          
|Ronald E. Ciora     |  |     | 64 |  |        | Vice President, Sales and Marketing                      
|Michael Mazzarello  |  |     | 51 |  |        | Vice President, Logistics and Materials Management       
|Carl Monticone      |  |     | 34 |  |        | Vice President and Controller                            
|Gary L. Pittman     |  |     | 50 |  |        | Vice President and Chief Financial Officer               
|Bruce K. Williams   |  |     | 52 |  |        | Vice President, Distribution                             

Michael Y. McGovern See


David A. Scholes


Jerry B. Bradley


Ronald E. Ciora


27



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Michael Mazzarello


Carl Monticone


Gary L. Pittman


Bruce K. Williams





PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED
    STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
    SECURITIES





|               |  |           |       |  |     |   |       | 
|-------------- |  | --------- | ----- |  | --- | - | ----- | 
|               |  | Bid Price |      
|               |  |           |      
|               |  | High      |       |  | Low |  
|               |  |           |       |  |     |  
|2005           |  |           |       |  |     |   |       | 
|Fourth Quarter |  | $         | 30.20 |  |     | $ | 21.26 | 
|Third Quarter  |  |           | 26.20 |  |     |   | 21.48 | 
|Second Quarter |  |           | 23.89 |  |     |   | 17.34 | 
|First Quarter  |  |           | 28.45 |  |     |   | 18.00 | 
|2004           |  |           |       |  |     |   |       | 
|Fourth Quarter |  | $         | 24.20 |  |     | $ | 14.56 | 
|Third Quarter  |  |           | 15.40 |  |     |   | 7.05  | 
|Second Quarter |  |           | 7.55  |  |     |   | 3.80  | 
|First Quarter  |  |           | 8.35  |  |     |   | 4.99  | 

28



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##### Table of Contents





Dividend Policy




Equity Compensation Plan Information




|                                                           |  |                      |         |                  |                   |                      |                         |                         |  |  |        | 
|---------------------------------------------------------- |  | -------------------- | ------- | ---------------- | ----------------- | -------------------- | ----------------------- | ----------------------- |  |  | ------ | 
|                                                           |  |                      |         |                  |                   | Number of Securities |                        
|                                                           |  |                      |         | Weighted Average |                   |                      | Remaining Available for |                        
|                                                           |  | Number of Securities |         |                  | Exercise Price of |                      |                         | Future Issuance Under   | 
|                                                           |  | to be Issued upon    |         |                  | Outstanding       |                      |                         | Equity Compensation     | 
|                                                           |  | Exercise of          |         |                  | Options,          |                      |                         | Plans (Excluding        | 
|                                                           |  | Outstanding Options, |         |                  | Warrants and      |                      |                         | Securities Reflected in | 
|                                                           |  | Warrants and Rights  |         |                  | Rights            |                      |                         | Column (a))             | 
|Plan Category                                              |  | (a)                  |         |                  | (b)               |                      |                         | (c)                     | 
|                                                           |  |                      |         |                  |                   |                      |                         |                         | 
|Equity compensation plans approved by security holders     |  |                      | 235,687 |                  |                   | $                    | 5.11                    |                         |  |  | 96,338 | 
|Equity compensation plans not approved by security holders |  |                      |        |                  |                   |                      |                        |                         |  |  |       | 
|                                                           |  |                      |         |                  |                   |                      |                         |                         | 
|Total                                                      |  |                      | 235,687 |                  |                   | $                    | 5.11                    |                         |  |  | 96,338 | 
|                                                           |  |                      |         |                  |                   |                      |                         |                         | 






|        |                        
|------- | -----------------------
|ITEM 6. | SELECTED FINANCIAL DATA



90-7, 90-7).


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|                              |                                                                   |                                                                              |   |          |             |         |   |          |       |   |      |          |      |  |      |          |       |   |  |   |          |       | 
|----------------------------- | ----------------------------------------------------------------- | ---------------------------------------------------------------------------- | - | -------- | ----------- | ------- | - | -------- | ----- | - | ---- | -------- | ---- |  | ---- | -------- | ----- | - |  | - | -------- | ----- | 
|                              |                                                                   | Year Ended December 31,                                                      |  
|                              |                                                                   |                                                                              |  
|                              |                                                                   | 2005                                                                         |   |          | 2004        |         |   | 2003     |       |   | 2002 |          |      |  | 2001 |         
|                              |                                                                   |                                                                              |   |          |             |         |   |          |       |   |      |          |      |  |      |         
|                              |                                                                   |                                                                              |   |          | Predecessor |        
|                              |                                                                   | Successor Company                                                            |   |          |             | Company |  
|                              |                                                                   |                                                                              |   |          |             |         |  
|                              |                                                                   | (In thousands, except per share data)                                        |  
|Statement of Operations Data: |                                                                   |                                                                              |   |          |             |         |   |          |       |   |      |          |      |  |      |          |       |   |  |   |         
|                              | Revenues                                                          |                                                                              | $ | 515,715  |             |         | $ | 407,115  |       |   | $    | 378,675  |      |  | $    | 316,907  |       |   |  | $ | 383,482  |      
|                              | Cost of sales  product(1)                                        |                                                                              |   | (376,225 | )           |         |   | (353,454 | )     |   |      | (340,804 | )    |  |      | (296,622 | )     |   |  |   | (348,726 | )    
|                              | Cost of sales  derivatives(2)                                    |                                                                              |   |         |             |         |   |         |       |   |      | (20,999  | )    |  |      | 12,877   |       |   |  |   | 10,725   |      
|                              |                                                                   |                                                                              |   |          |             |         |   |          |       |   |      |          |      |  |      |         
|                              | Gross profit                                                      |                                                                              |   | 139,490  |             |         |   | 53,661   |       |   |      | 16,872   |      |  |      | 33,162   |       |   |  |   | 45,481   |      
|                              | Selling, general and administrative expenses                      |                                                                              |   | (38,187  | )           |         |   | (27,608  | )     |   |      | (23,204  | )    |  |      | (23,893  | )     |   |  |   | (41,861  | )    
|                              | Change in fair value of derivatives(2)                            |                                                                              |   |         |             |         |   |         |       |   |      | 87,271   |      |  |      | 23,566   |       |   |  |   | (110,837 | )    
|                              | Asset impairment(3)                                               |                                                                              |   |         |             |         |   |         |       |   |      | (40,818  | )    |  |      | (16,941  | )     |   |  |   | (3,832   | )    
|                              | Other items(4)                                                    |                                                                              |   | (1,222   | )           |         |   | (3,974   | )     |   |      | (340     | )    |  |      | (3,143   | )     |   |  |   | (9,106   | )    
|                              |                                                                   |                                                                              |   |          |             |         |   |          |       |   |      |          |      |  |      |         
|                              | Operating income (loss)                                           |                                                                              |   | 100,081  |             |         |   | 22,079   |       |   |      | 39,781   |      |  |      | 12,751   |       |   |  |   | (120,155 | )    
|                              | Interest expense, net(5)                                          |                                                                              |   | (15,267  | )           |         |   | (18,356  | )     |   |      | (19,064  | )    |  |      | (18,891  | )     |   |  |   | (36,010  | )    
|                              | Reorganization items(6)                                           |                                                                              |   |         |             |         |   |         |       |   |      |         |      |  |      |         |       |   |  |   | (6,499   | )    
|                              | Fresh-start adjustments(7)                                        |                                                                              |   |         |             |         |   |         |       |   |      |         |      |  |      |         |       |   |  |   | (106,919 | )    
|                              | Debt forgiveness income(8)                                        |                                                                              |   |         |             |         |   |         |       |   |      |         |      |  |      |         |       |   |  |   | 423,051  |      
|                              | Other income (expense), net(9)                                    |                                                                              |   | (1,543   | )           |         |   | (2,838   | )     |   |      | (5,816   | )    |  |      | 602      |       |   |  |   | 1,169    |      
|                              |                                                                   |                                                                              |   |          |             |         |   |          |       |   |      |          |      |  |      |         
|                              | Income (loss) before income taxes                                 |                                                                              |   | 83,271   |             |         |   | 885      |       |   |      | 14,901   |      |  |      | (5,538   | )     |   |  |   | 154,637  |      
|                              | Income tax (expense) benefit(10)                                  |                                                                              |   | (10,781  | )           |         |   | (2,127   | )     |   |      | 3,286    |      |  |      | 781      |       |   |  |   | (11,862  | )    
|                              |                                                                   |                                                                              |   |          |             |         |   |          |       |   |      |          |      |  |      |         
|                              | Income before cumulative effect of change in accounting principle |                                                                              |   | 72,490   |             |         |   | (1,242   | )     |   |      | 18,187   |      |  |      | (4,757   | )     |   |  |   | 142,775  |      
|                              | Cumulative effect of change in accounting principle, net of tax   |                                                                              |   | (2,194   | )           |         |   |         |       |   |      |         |      |  |      |         |       |   |  |   |         |      
|                              |                                                                   |                                                                              |   |          |             |         |   |          |       |   |      |          |      |  |      |         
|                              | Net income (loss)                                                 |                                                                              | $ | 70,296   |             |         | $ | (1,242   | )     |   | $    | 18,187   |      |  | $    | (4,757   | )     |   |  | $ | 142,775  |      
|                              |                                                                   |                                                                              |   |          |             |         |   |          |       |   |      |          |      |  |      |         
|                              | Income (loss) per share:                                          |                                                                              |   |          |             |         |   |          |       |   |      |          |      |  |      |          |       |   |  |   |          |      
|                              | Basic                                                             |                                                                              |   |          |             |         |   |          |       |   |      |          |      |  |      |          |       |   |  |   |          |      
|                              |                                                                   | Income (loss) before cumulative effect of change in accounting
    principle |   | $        | 6.37        |         |   | $        | (0.12 | ) |      | $        | 1.82 |  |      | $        | (0.48 | ) |  |   | $        | 12.37 | 
|                              |                                                                   | Cumulative effect of change in accounting principle, net of tax              |   |          | (0.19       | )       |   |          |      |   |      |          |     |  |      |          |      |   |  |   |          |      | 
|                              |                                                                   |                                                                              |   |          |             |         |   |          |       |   |      |          |      |  |      |         
|                              |                                                                   | Net income (loss)                                                            |   | $        | 6.18        |         |   | $        | (0.12 | ) |      | $        | 1.82 |  |      | $        | (0.48 | ) |  |   | $        | 12.37 | 
|                              |                                                                   |                                                                              |   |          |             |         |   |          |       |   |      |          |      |  |      |         
|                              | Diluted                                                           |                                                                              |   |          |             |         |   |          |       |   |      |          |      |  |      |          |       |   |  |   |          |      
|                              |                                                                   | Income (loss) before cumulative effect of change in accounting
    principle |   | $        | 6.14        |         |   | $        | (0.12 | ) |      | $        | 1.79 |  |      | $        | (0.48 | ) |  |   | $        | 12.37 | 
|                              |                                                                   | Cumulative effect of change in accounting principle, net of tax              |   |          | (0.19       | )       |   |          |      |   |      |          |     |  |      |          |      |   |  |   |          |      | 
|                              |                                                                   |                                                                              |   |          |             |         |   |          |       |   |      |          |      |  |      |         
|                              |                                                                   | Net income (loss)                                                            |   | $        | 5.95        |         |   | $        | (0.12 | ) |      | $        | 1.79 |  |      | $        | (0.48 | ) |  |   | $        | 12.37 | 
|                              |                                                                   |                                                                              |   |          |             |         |   |          |       |   |      |          |      |  |      |         

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|                      |                                                                                            |                                       |   |         |             |         |   |         |   |  |      |         |   |  |      |         |   |  |  |   |         |  
|--------------------- | ------------------------------------------------------------------------------------------ | ------------------------------------- | - | ------- | ----------- | ------- | - | ------- | - |  | ---- | ------- | - |  | ---- | ------- | - |  |  | - | ------- | -
|                      |                                                                                            | Year Ended December 31,               |  
|                      |                                                                                            |                                       |  
|                      |                                                                                            | 2005                                  |   |         | 2004        |         |   | 2003    |   |  | 2002 |         |   |  | 2001 |        
|                      |                                                                                            |                                       |   |         |             |         |   |         |   |  |      |         |   |  |      |        
|                      |                                                                                            |                                       |   |         | Predecessor |        
|                      |                                                                                            | Successor Company                     |   |         |             | Company |  
|                      |                                                                                            |                                       |   |         |             |         |  
|                      |                                                                                            | (In thousands, except per share data) |  
|Other Financial Data: |                                                                                            |                                       |   |         |             |         |   |         |   |  |      |         |   |  |      |         |   |  |  |   |        
|                      | Net cash flows from operating activities                                                   |                                       | $ | 102,948 |             |         | $ | 19,639  |   |  | $    | 14,261  |   |  | $    | 250     |   |  |  | $ | 32,906  |  
|                      | Net cash flows from investing activities                                                   |                                       |   | (10,350 | )           |         |   | (8,069  | ) |  |      | (9,998  | ) |  |      | (8,568  | ) |  |  |   | (12,879 | )
|                      | Net cash flows from financing activities                                                   |                                       |   | (46,094 | )           |         |   | 2,472   |   |  |      | (5,367  | ) |  |      | 6,392   |   |  |  |   | (21,489 | )
|                      | Capital expenditures                                                                       |                                       |   | 14,043  |             |         |   | 8,384   |   |  |      | 9,998   |   |  |      | 10,615  |   |  |  |   | 13,112  |  
|                      | Depreciation and amortization                                                              |                                       |   | 24,564  |             |         |   | 25,514  |   |  |      | 21,551  |   |  |      | 24,926  |   |  |  |   | 46,810  |  
|Balance Sheet Data:   |                                                                                            |                                       |   |         |             |         |   |         |   |  |      |         |   |  |      |         |   |  |  |   |        
|                      | Total assets                                                                               |                                       | $ | 398,937 |             |         | $ | 351,604 |   |  | $    | 339,000 |   |  | $    | 474,146 |   |  |  | $ | 706,912 |  
|                      | Total long-term debt (exclusive of current maturities), and
    redeemable preferred stock |                                       |   | 152,739 |             |         |   | 200,797 |   |  |      | 203,803 |   |  |      | 207,463 |   |  |  |   | 208,701 |  
|                      | Total stockholders equity                                                                 |                                       |   | 104,990 |             |         |   | 37,895  |   |  |      | 18,990  |   |  |      | 1,252   |   |  |  |   | 10,527  |  






| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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 Statement of Financial Accounting Standards
    (SFAS) 142.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | (2) | For information regarding derivatives transactions, see
    Note 2 Summary of Significant Accounting
    Policies to the consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | (3) | Asset impairment includes a $40.8 million impairment of our
    Henderson facilities for 2003, a $16.9 million impairment
    relating to our Tacoma chlor-alkali facility in 2002, and
    $3.8 million of asset impairment in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | (4) | For 2005, other items included severance and related costs of
    approximately $0.9 million for an organizational efficiency
    project and closure of the Tacoma plant, loss on closure of the
    Cornwall plant and related asset disposition of
    $1.8 million, loss on miscellaneous asset dispositions and
    asset write-offs of approximately $3.0 million, gain on the
    sale of our Tacoma facility of $4.1 million and gain of
    $0.4 million in connection with the satisfaction of certain
    purchase price contingencies in the six-month period ended
    December 31, 2005. For 2004, other items included severance
    costs related to an organizational efficiency project and the
    realignment of certain Canadian operations. Other items in 2003
    included a loss of $0.8 million from disposition of assets,
    partially offset by a gain of $0.4 million from early
    payment of debt. In 2002, other items predominantly included a
    $2.9 million severance charge and for the 2001 period
    included $9.1 million of severance expense and professional
    fees related to our financial reorganization incurred prior to
    our Chapter 11 filing on July 31, 2001.
|
| | (5) | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | (6) | Reorganization items include legal and professional fees and
    expenses incurred subsequent to our Chapter 11 bankruptcy
    filings in 2001 and executive retention bonuses, offset by gains
    from individually-negotiated settlements of certain pre-petition
    liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | (7) | On December 31, 2001, we emerged from protection under
    Chapter 11 of the bankruptcy code, and applied fresh-start
    accounting as of that date in accordance with
    SOP 90-7.
    Fresh-start adjustments were recorded to reflect the write-down
    of assets to estimated fair value, an increase in pension
    liability and an increase in other long-term liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | (8) | Debt forgiveness income of $423.1 million was recorded in
    2001 as a result of the cancellation of debt pursuant to the
    plan of reorganization adopted in connection with our
    Chapter 11 proceedings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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| |     |                                                                                                                                                                                                                                 
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (9) | Other income (expense), net is comprised primarily of currency
    exchange gain or loss resulting from increases or decreases in
    the rate at which Canadian dollar denominated amounts are
    converted into U.S. dollars.



|     |                                                                                                                                                                                                                                        
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Income tax expense increased $8,654 from 2004 to 2005 mainly
    because of increased operating income in Canada and the
    U.S. offset by a decrease in the valuation allowance
    attributable to the reduction in Predecessor NOL.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS



Overview of Our Business










32



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Significant Events in 2005




| |                       
| | ----------------------
| | 2005 Financial Results



|                                         |  |                                  |         |  |      |   |         |      |  |   |         |  |  |   |         |  
|---------------------------------------- |  | -------------------------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------- |  |  | - | ------- | -
|                                         |  | For the Years Ended December 31, |        
|                                         |  |                                  |        
|                                         |  | 2005                             |         |  | 2004 |   |         | 2003 |  |   | 2002    | 
|                                         |  |                                  |         |  |      |   |         |      |  |   |         | 
|                                         |  | (In thousands, except ECU data)  |        
|Revenues                                 |  | $                                | 515,715 |  |      | $ | 407,115 |      |  | $ | 378,675 |  |  | $ | 316,907 |  
|Operating income                         |  |                                  | 100,081 |  |      |   | 22,079  |      |  |   | 39,781  |  |  |   | 12,751  |  
|Net income (loss)                        |  |                                  | 70,296  |  |      |   | (1,242  | )    |  |   | 18,187  |  |  |   | (4,757  | )
|Net cash flows from operating activities |  |                                  | 102,948 |  |      |   | 19,639  |      |  |   | 14,261  |  |  |   | 250     |  
|Total debt (as of December 31)*          |  |                                  | 154,597 |  |      |   | 202,776 |      |  |   | 222,288 |  |  |   | 228,575 |  
|Average ECU netback prices               |  |                                  | 581     |  |      |   | 393     |      |  |   | 382     |  |  |   | 270     |  




*






| |   |                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An improving economy during this time period, which has resulted
    in greater demand for our chlor-alkali products.                                                                                                                                                                                                
|
| |  | Favorable price movement in our ECU netback, as shown in the
    table above.                                                                                                                                                                                                                                        
|
| |  | Reduced costs due to our organizational efficiency project
    referred to as Project STAR that was implemented in 2004 and
    2005. In addition to the reduced costs, this project also
    increased the efficiency and effectiveness of our plant and
    other operations, while continuing our focus on safety.





| |                                                           
| | ----------------------------------------------------------
| | Cost Reduction Measures; Asset Sales and
    Redeployments





33



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See




| |                   
| | ------------------
| | ECU Netback Prices

see






| |           
| | ----------
| | Production

See


34



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| |             
| | ------------
| | Energy Costs





|     |                |                |   |               |  |  |  |    |  
|---- | -------------- | -------------- | - | ------------- |  |  |  | -- | -
|     |                | Total Power    |   | Percentage of
|     |                | Costs          |   | Cost of Sales
|     |                |                |   |              
|     |                | (In thousands)
|2004 |                |                |   |               |  |  |  |   
|     | First Quarter  |                | $ | 19,989        |  |  |  | 23 | %
|     | Second Quarter |                |   | 21,273        |  |  |  | 25 | %
|     | Third Quarter  |                |   | 23,051        |  |  |  | 26 | %
|     | Fourth Quarter |                |   | 22,201        |  |  |  | 24 | %
|2005 |                |                |   |               |  |  |  |   
|     | First Quarter  |                |   | 20,334        |  |  |  | 23 | %
|     | Second Quarter |                |   | 23,594        |  |  |  | 25 | %
|     | Third Quarter  |                |   | 25,109        |  |  |  | 26 | %
|     | Fourth Quarter |                |   | 31,251        |  |  |  | 31 | %





| |               
| | --------------
| | Transportation



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|     |                |                |   |               |  |  |  |    |  
|---- | -------------- | -------------- | - | ------------- |  |  |  | -- | -
|     |                | Product        |   |              
|     |                | Transportation |   | Percentage of
|     |                | Costs          |   | Cost of Sales
|     |                |                |   |              
|     |                | (In thousands)
|2004 |                |                |   |               |  |  |  |   
|     | First Quarter  |                | $ | 21,093        |  |  |  | 24 | %
|     | Second Quarter |                |   | 22,265        |  |  |  | 26 | %
|     | Third Quarter  |                |   | 22,843        |  |  |  | 25 | %
|     | Fourth Quarter |                |   | 20,497        |  |  |  | 23 | %
|2005 |                |                |   |               |  |  |  |   
|     | First Quarter  |                |   | 20,674        |  |  |  | 24 | %
|     | Second Quarter |                |   | 22,503        |  |  |  | 24 | %
|     | Third Quarter  |                |   | 22,367        |  |  |  | 23 | %
|     | Fourth Quarter |                |   | 23,462        |  |  |  | 23 | %

Emergence from Bankruptcy


90-7.


Critical Accounting Policies and Estimates




Long-Lived Assets.


36



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Environmental Liabilities.


See


Defined Benefit Pension and Post-Retirement Plans.


|                               |                                |            |  |         |          |  |         |              |   |  |  |      |  
|------------------------------ | ------------------------------ | ---------- |  | ------- | -------- |  | ------- | ------------ | - |  |  | ---- | -
|                               |                                |            |  | Pioneer |          |  | Pioneer |             
|                               |                                | PCI Canada |  |         | Americas |  |         | Consolidated |  
|                               |                                |            |  |         |          |  |         |              |  
|Defined benefit plans:         |                                |            |  |         |          |  |         |              |   |  |  |     
|                               | Discount rate                  |            |  | 5.00    | %        |  |         | 5.50         | % |  |  | 5.30 | %
|                               | Expected return on plan assets |            |  | 7.75    | %        |  |         | 8.00         | % |  |  | 7.90 | %
|                               | Rate of compensation increase  |            |  | 3.50    | %        |  |         | 3.50         | % |  |  | 3.50 | %
|Post retirement benefit plans: |                                |            |  |         |          |  |         |              |   |  |  |     
|                               | Discount rate                  |            |  | 5.00    | %        |  |         | 5.50         | % |  |  | 5.00 | %
|                               | Health care cost inflation     |            |  | 9.80    | %        |  |         | 9.00         | % |  |  | 9.40 | %



37



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See




Allowance for Doubtful Accounts.


Income Taxes.




Liquidity and Capital Resources


Summary of Outstanding Debt and Borrowing Capability.




Debt Prepayments.


38



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Summary of Certain Debt Provisions.






Revolver Obligations.




39



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|                              |  |           |        |  |          |   |        |           |  |   |          |  |  |          |        |  |  |   |         | 
|----------------------------- |  | --------- | ------ |  | -------- | - | ------ | --------- |  | - | -------- |  |  | -------- | ------ |  |  | - | ------- | 
|                              |  | Three     |        |  | Three    |   |        | Three     |  |   | Three    |  |  | Twelve   |       
|                              |  | Months    |        |  | Months   |   |        | Months    |  |   | Months   |  |  | Months   |       
|                              |  | Ended     |        |  | Ended    |   |        | Ended     |  |   | Ended    |  |  | Ended    |       
|                              |  | March 31, |        |  | June 30, |   |        | Sept. 30, |  |   | Dec. 31, |  |  | Dec. 31, |       
|                              |  | 2005      |        |  | 2005     |   |        | 2005      |  |   | 2005     |  |  | 2005     |       
|                              |  |           |        |  |          |   |        |           |  |   |          |  |  |          |       
|Net income                    |  | $         | 15,020 |  |          | $ | 24,089 |           |  | $ | 20,102   |  |  | $        | 11,085 |  |  | $ | 70,296  | 
|Income tax expense            |  |           | 3,411  |  |          |   | 2,957  |           |  |   | 2,058    |  |  |          | 2,355  |  |  |   | 10,781  | 
|                              |  |           |        |  |          |   |        |           |  |   |          |  |  |          |       
|Income before income taxes    |  |           | 18,431 |  |          |   | 27,046 |           |  |   | 22,160   |  |  |          | 13,440 |  |  |   | 81,077  | 
|Depreciation and amortization |  |           | 5,685  |  |          |   | 6,647  |           |  |   | 6,250    |  |  |          | 5,982  |  |  |   | 24,564  | 
|Interest expense              |  |           | 4,256  |  |          |   | 4,114  |           |  |   | 3,597    |  |  |          | 3,300  |  |  |   | 15,267  | 
|                              |  |           |        |  |          |   |        |           |  |   |          |  |  |          |       
|Lender-Defined EBITDA         |  | $         | 28,372 |  |          | $ | 37,807 |           |  | $ | 32,007   |  |  | $        | 22,722 |  |  | $ | 120,908 | 
|                              |  |           |        |  |          |   |        |           |  |   |          |  |  |          |       

See




Future Payment Commitments.




|                            |                             |       |         |         |      |   |        |        |  |   |        |        |  |          |         |         |      |   |       |            |  |   |       |       |  |   |        |       | 
|--------------------------- | --------------------------- | ----- | ------- | ------- | ---- | - | ------ | ------ |  | - | ------ | ------ |  | -------- | ------- | ------- | ---- | - | ----- | ---------- |  | - | ----- | ----- |  | - | ------ | ----- | 
|                            |                             |       |         |         |      |   |        |        |  |   |        |        |  | 2011 and |        
|                            |                             | Total |         |         | 2006 |   |        | 2007   |  |   | 2008   |        |  | 2009     |         |         | 2010 |   |       | Thereafter | 
|                            |                             |       |         |         |      |   |        |        |  |   |        |        |  |          |         |         |      |   |       |            | 
|Consolidated Balance Sheet: |                             |       |         |         |      |   |        |        |  |   |        |        |  |          |         |         |      |   |       |            |  |   |       |       |  |   |        |      
|                            | Long-term
    debt(1)(2)    |       | $       | 200,284 |      |   | $      | 17,085 |  |   | $      | 16,092 |  |          | $       | 165,058 |      |   | $     | 58         |  |   | $     | 58    |  |   | $      | 1,933 | 
|                            | Other
    Obligations(3):   |       |         |         |      |   |        |        |  |   |        |        |  |          |         |         |      |   |       |            |  |   |       |       |  |   |        |       | 
|                            | Leases(4)                   |       |         | 59,398  |      |   |        | 16,286 |  |   |        | 12,804 |  |          |         | 10,388  |      |   |       | 6,957      |  |   |       | 4,806 |  |   |        | 8,157 | 
|                            | Purchase
    obligations(5) |       |         | 5,548   |      |   |        | 5,548  |  |   |        |       |  |          |         |        |      |   |       |           |  |   |       |      |  |   |        |      | 
|                            |                             |       |         |         |      |   |        |        |  |   |        |        |  |          |         |         |      |   |       |            | 
|Total                       |                             | $     | 265,230 |         |      | $ | 38,919 |        |  | $ | 28,896 |        |  | $        | 175,446 |         |      | $ | 7,015 |            |  | $ | 4,864 |       |  | $ | 10,090 |      
|                            |                             |       |         |         |      |   |        |        |  |   |        |        |  |          |         |         |      |   |       |            | 

40



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|    |                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes the maturity of the Senior Notes in 2008. The timing
    and amount of payments that are set forth do not take into
    consideration any early redemption obligations that may arise.
    Long-term debt is inclusive of interest payments based on
    interest rates in effect at December 31, 2005 as follows:
    Senior Notes  fixed 10%; and other notes at various
    interest rates.
|   
|(2) | Long-term debt includes $50.0 million in principal amount
    of long-term debt that was voluntarily redeemed in January 2006,
    but otherwise would not have been due until 2008. Long-term debt
    also includes interest payable on such redeemed amount of
    $5.0 million annually that would have been paid in each of
    2006, 2007 and 2008.                                               
|   
|(3) | Payments for environmental remediation liabilities are excluded
    from the table as they are not contracted obligations. The
    timing of payment for environmental remediation liabilities is
    predicated upon the timing of future events that have not
    occurred and may not be predicted with certainty.                                                                                   
|   
|(4) | Consists primarily of tank car leases and leases of certain
    facilities and equipment.                                                                                                                                                                                                                                                                                                               
|   
|(5) | Consists primarily of purchase contracts with fixed and
    determinable payment obligations for goods and services used in
    manufacturing and producing operations in the normal course of
    business.                                                                                                                                                                                            



Tax Liability Upon Payment of Senior Notes.


Sarbanes-Oxley Section 404 Compliance.


41



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Capital and Environmental Expenditures.




See


Defined Benefit Pension and Post-Retirement Plan
Liabilities.


Net Operating Loss Carry-forward. See


42



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Foreign Operations and Exchange Rate Fluctuations.


see


Working Capital.


Net Cash Flows from Operating Activities.


Net Cash Flows Used in Investing Activities.


Net Cash Flows Used in Financing Activities.


Cumulative Effect of Accounting Change


Accounting for Conditional Asset Retirement
Obligations   an interpretation of FASB Statement
No. 143 Accounting for Asset Retirement
Obligations


43



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Results of Operations




|                                                                  |  |                         |          |   |      |  |     |      |  |   |          |   |  |  |     |   |  |   |          |   |  |  |     |  
|----------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- |  | --- | ---- |  | - | -------- | - |  |  | --- | - |  | - | -------- | - |  |  | --- | -
|                                                                  |  | Year Ended December 31, |         
|                                                                  |  |                         |         
|                                                                  |  | 2005                    |          |   | 2004 |  |     | 2003 | 
|                                                                  |  |                         |          |   |      |  |     |      | 
|Revenues                                                          |  | $                       | 515,715  |   |      |  | 100 | %    |  | $ | 407,115  |   |  |  | 100 | % |  | $ | 378,675  |   |  |  | 100 | %
|Cost of sales  product                                           |  |                         | (376,225 | ) |      |  | (73 | )    |  |   | (353,454 | ) |  |  | (87 | ) |  |   | (340,804 | ) |  |  | (90 | )
|Cost of sales  derivatives                                       |  |                         |         |   |      |  |    |      |  |   |         |   |  |  |    |   |  |   | (20,999  | ) |  |  | (6  | )
|                                                                  |  |                         |          |   |      |  |     |      |  |   |          |   |  |  |     |   |  |  
|Total cost of sales                                               |  |                         | (376,225 | ) |      |  | (73 | )    |  |   | (353,454 | ) |  |  | (87 | ) |  |   | (361,803 | ) |  |  | (96 | )
|                                                                  |  |                         |          |   |      |  |     |      |  |   |          |   |  |  |     |   |  |  
|Gross profit                                                      |  |                         | 139,490  |   |      |  | 27  |      |  |   | 53,661   |   |  |  | 13  |   |  |   | 16,872   |   |  |  | 4   |  
|Selling, general and administrative expenses                      |  |                         | (38,187  | ) |      |  | (8  | )    |  |   | (27,608  | ) |  |  | (7  | ) |  |   | (23,204  | ) |  |  | (6  | )
|Change in fair value of derivatives                               |  |                         |         |   |      |  |    |      |  |   |         |   |  |  |    |   |  |   | 87,271   |   |  |  | 23  |  
|Asset impairment                                                  |  |                         |         |   |      |  |    |      |  |   |         |   |  |  |    |   |  |   | (40,818  | ) |  |  | (11 | )
|Other items                                                       |  |                         | (1,222   | ) |      |  |    |      |  |   | (3,974   | ) |  |  | (1  | ) |  |   | (340     | ) |  |  |    |  
|                                                                  |  |                         |          |   |      |  |     |      |  |   |          |   |  |  |     |   |  |  
|Operating income                                                  |  |                         | 100,081  |   |      |  | 19  |      |  |   | 22,079   |   |  |  | 5   |   |  |   | 39,781   |   |  |  | 11  |  
|Interest expense, net                                             |  |                         | (15,267  | ) |      |  | (3  | )    |  |   | (18,356  | ) |  |  | (5  | ) |  |   | (19,064  | ) |  |  | (5  | )
|Other expense                                                     |  |                         | (1,543   | ) |      |  |    |      |  |   | (2,838   | ) |  |  | (1  | ) |  |   | (5,816   | ) |  |  | (2  | )
|                                                                  |  |                         |          |   |      |  |     |      |  |   |          |   |  |  |     |   |  |  
|Income before income tax items                                    |  |                         | 83,271   |   |      |  | 16  |      |  |   | 885      |   |  |  |    |   |  |   | 14,901   |   |  |  | 4   |  
|Income tax (expense) benefit                                      |  |                         | (10,781  | ) |      |  | (2  | )    |  |   | (2,127   | ) |  |  | (1  | ) |  |   | 3,286    |   |  |  | 1   |  
|                                                                  |  |                         |          |   |      |  |     |      |  |   |          |   |  |  |     |   |  |  
|Income before cumulative effect of change in accounting principle |  |                         | 72,490   |   |      |  | 14  |      |  |   | (1,242   | ) |  |  |    |   |  |   | 18,187   |   |  |  | 5   |  
|Cumulative effect of a change in accounting principle, net of tax |  |                         | (2,194   | ) |      |  |    |      |  |   |         |   |  |  |    |   |  |   |         |   |  |  |    |  
|                                                                  |  |                         |          |   |      |  |     |      |  |   |          |   |  |  |     |   |  |  
|Net income (loss)                                                 |  | $                       | 70,296   |   |      |  | 14  | %    |  | $ | (1,242   | ) |  |  |    |   |  | $ | 18,187   |   |  |  | 5   | %
|                                                                  |  |                         |          |   |      |  |     |      |  |   |          |   |  |  |     |   |  |  



44



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| |                                                                           
| | --------------------------------------------------------------------------
| | Year Ended December 31, 2005, Compared to Year Ended
    December 31, 2004

Revenues.


|                          |                |      |         |         |      |   |         |         | 
|------------------------- | -------------- | ---- | ------- | ------- | ---- | - | ------- | ------- | 
|                          |                | 2005 |         |         | 2004 |  
|                          |                |      |         |         |      |  
|Chlorine and caustic soda |                | $    | 386,011 |         |      | $ | 293,508 |        
|Other                     |                |      | 129,704 |         |      |   | 113,607 |        
|                          |                |      |         |         |      |  
|                          | Total revenues |      | $       | 515,715 |      |   | $       | 407,115 | 
|                          |                |      |         |         |      |  
|Average ECU netback*      |                | $    | 581     |         |      | $ | 393     |        
|                          |                |      |         |         |      |  






|  |                                                                                                                    
|- | -------------------------------------------------------------------------------------------------------------------
|* | The average ECU netback relates only to sales of chlorine and
    caustic soda, and not to sales of other products.



Cost of Sales.


Selling, General and Administrative Expenses.


45



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Other Items.


Interest Expense, Net.


Other Expense.


Income Tax Benefit.




| |                                                                           
| | --------------------------------------------------------------------------
| | Year Ended December 31, 2004, Compared to Year Ended
    December 31, 2003

Revenues.


|                          |                |      |         |         |      |   |         |         | 
|------------------------- | -------------- | ---- | ------- | ------- | ---- | - | ------- | ------- | 
|                          |                | 2004 |         |         | 2003 |  
|                          |                |      |         |         |      |  
|Chlorine and caustic soda |                | $    | 293,508 |         |      | $ | 276,309 |        
|Other                     |                |      | 113,607 |         |      |   | 102,366 |        
|                          |                |      |         |         |      |  
|                          | Total revenues |      | $       | 407,115 |      |   | $       | 378,675 | 
|                          |                |      |         |         |      |  
|Average ECU netback*      |                | $    | 393     |         |      | $ | 382     |        
|                          |                |      |         |         |      |  






| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| | * | The average ECU netback relates only to sales of chlorine and
    caustic soda, and not to sales of other products.



46



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®


Cost of Sales  Product.


Selling, General and Administrative Expenses.


Other Items.


Interest Expense, Net.


Other Expense.


Income Tax (Benefit) Expense.




| |                                                                        
| | -----------------------------------------------------------------------
| | Settlement of dispute with the Colorado River Commission
    of Nevada.





47



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mark-to


Recent Accounting Pronouncements






Accounting for Conditional Asset
Retirement Obligations. Accounting for Asset Retirement
Obligations,




48



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



|                       |            |                                                                      |       |       |               |   |     |      |  |   |         |         |      |   |            |   |  |                   |   |   |  |   |       |       |  |   |         |         | 
|---------------------- | ---------- | -------------------------------------------------------------------- | ----- | ----- | ------------- | - | --- | ---- |  | - | ------- | ------- | ---- | - | ---------- | - |  | ----------------- | - | - |  | - | ----- | ----- |  | - | ------- | ------- | 
|                       |            | Expected Maturity Date at December 31, 2005 Year Ending December 31, |       |       |              
|                       |            |                                                                      |       |       | Fair Value at |  
|                       |            | 2006                                                                 |       |       | 2007          |   |     | 2008 |  |   | 2009    |         | 2010 |   | Thereafter |   |  | December 31, 2005 |  
|                       |            |                                                                      |       |       |               |   |     |      |  |   |         |         |      |   |            |   |  |                   |  
|Fixed rate
    debt(1) |            | $                                                                    | 1,858 |       |               | $ | 983 |      |  | $ | 150,000 |         |      | $ |           |   |  | $                 |  |   |  | $ |      |       |  | $ | 152,841 |        
|Variable rate debt     |            |                                                                      |      |       |               |   |    |      |  |   |        |         |      |   |           |   |  |                   |  |   |  |   | 1,756 |       |  |   | 1,756   |        
|                       |            |                                                                      |       |       |               |   |     |      |  |   |         |         |      |   |            |   |  |                   |   |   | 
|                       | Total debt |                                                                      | $     | 1,858 |               |   | $   | 983  |  |   | $       | 150,000 |      |   | $          |  |  |                   | $ |  |  |   | $     | 1,756 |  |   | $       | 154,597 | 
|                       |            |                                                                      |       |       |               |   |     |      |  |   |         |         |      |   |            |   |  |                   |   |   | 






|    |                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Debt instruments at fixed interest rates ranging from 8.0% to
    10.0%, with the majority at 10.0%; includes the payment of the
    Senior Notes in 2008. In January 2006 we redeemed
    $50.0 million in principal amount of the Senior Notes that
    is included in the above table with a maturity in 2008.










|        |                                            
|------- | -------------------------------------------
|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA








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








|         |                        
|-------- | -----------------------
|ITEM 9A. | CONTROLS AND PROCEDURES



| |                                   
| | ----------------------------------
| | Disclosure Controls and Procedures

13a-15 15d-15,


49



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##### Table of Contents







| |                                                                     
| | --------------------------------------------------------------------
| | Managements Report on Internal Control Over
    Financial Reporting





| |                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) pertain to the maintenance of records that, in
    reasonable detail, accurately and fairly reflect the
    transactions and dispositions of our assets;                                                                                                                                                                                  
|
| | (ii) provide reasonable assurance that transactions are
    recorded as necessary to permit preparation of financial
    statements in accordance with generally accepted accounting
    principles, and that our receipts and expenditures are being
    made only in accordance with authorizations of our management
    and directors; and
|
| | (iii) provide reasonable assurance regarding prevention or
    timely detection of unauthorized acquisition, use or disposition
    of our assets that could have a material effect on the financial
    statements.                                                                                                                          



Internal Control 
Integrated Framework




50



---



##### Table of Contents



Report of Independent Registered Public Accounting Firm on
Internal


Control over Financial Reporting








Internal Control 
Integrated Framework








Internal
Control  Integrated Framework Internal Control  Integrated
Framework


Accounting for Conditional
Asset Retirement Obligations


Deloitte &
Touche LLP






51



---



##### Table of Contents








|         |                  
|-------- | -----------------
|ITEM 9B. | OTHER INFORMATION






PART III







|         |                                                   
|-------- | --------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

10-K, 10-K S-K S-K).







|         |                       
|-------- | ----------------------
|ITEM 11. | EXECUTIVE COMPENSATION

10-K, 10-K S-K,







|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT AND RELATED STOCKHOLDER MATTERS

10-K, 10-K S-K,









|         |                                               
|-------- | ----------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

10-K, 10-K S-K,







|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES

10-K, 10-K


52



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##### Table of Contents






PART IV







|         |                                           
|-------- | ------------------------------------------
|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Financial Statements




| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | An index to the
    consolidated financial statements filed with this report appears
    on page F-1.

Financial
Statement Schedule




| |                                                                    
| | -------------------------------------------------------------------
| | The information
    required by this item is filed as Exhibit 99.1.

Exhibits




| |                          
| | -------------------------
| | See Item 15(b)
    below.

Exhibits


|            |   |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|----------- | - | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |   | Description
|            |   |            
|            | 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 and Sale Agreement dated December 22, 2005
    between Mariana Properties, Inc. and Pioneer Americas LLC
    (incorporated by reference to Exhibit 10.1 to
    Pioneers Current Report on Form 8-K filed on
    January 5, 2006).                                                                                                                                                                             
|            | 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          |  | First Supplemental Indenture dated as of June 30, 2005
    among PCI Chemicals Canada Company, the guarantors named therein
    and Wells Fargo Bank, National Association, as trustee, relating
    to the $150,000,000 principal amount of 10% Senior Secured
    Guaranteed Notes due 2008.                                                                                                                                

53



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##### Table of Contents



|            |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                        
|----------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 4  | .4*         |  | 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  | .5*         |  | 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  | .6*         |  | 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).                              
|            | 4  | .7*         |  | 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 (incorporated
    by reference to Exhibit 4.8 to Pioneers Annual Report
    on Form 10-K for the fiscal year ended December 31,
    2002).     
|            | 4  | .8*         |  | 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
    (incorporated by reference to Exhibit 4.9 to Pioneers
    Annual Report on Form 10-K for the fiscal year ended
    December 31, 2002).
|            | 4  | .9*         |  | Fifth Amendment to Loan and Security Agreement effective as of
    July 1, 2003, 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 4.10 to Pioneers Annual
    Report on Form 10-K for the fiscal year ended
    December 31, 2003).     
|            | 4  | .10*        |  | Sixth Amendment to Loan and Security Agreement effective as of
    December 31, 2003, 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 4.11 to
    Pioneers Annual Report on Form 10-K for the fiscal
    year ended December 31, 2003).
|            | 4  | .11*        |  | 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 (incorporated by
    reference to Exhibit 10.2 to Pioneers Annual Report
    on Form 10-K for the fiscal year ended December 31,
    2002).                                                                                                                                               
|            | 10 | .3*         |  | Indemnity Agreement dated March 14, 2002, between Pioneer
    Companies, Inc. and Marvin E. Lesser (incorporated by reference
    to Exhibit 10.1 to Pioneers Quarterly Report on
    Form 10-Q for the quarter ended March 31, 2002).                                                                                                                                                                
|            | 10 | .4*         |  | Indemnity Agreement dated March 14, 2002, between Pioneer
    Companies, Inc. and Michael Y. McGovern (incorporated by
    reference to Exhibit 10.2 to Pioneers Quarterly
    Report on Form 10-Q for the quarter ended March 31,
    2002).                                                                                                                                                         
|            | 10 | .5*         |  | Indemnity Agreement dated March 9, 2005, between Pioneer
    Companies, Inc. and David A. Scholes (incorporated by reference
    to Exhibit 10.7 to Pioneers Annual Report on
    Form 10-K for the fiscal year ended December 31, 2004).                                                                                                                                                             
|            | 10 | .6          |  | Indemnity Agreement dated May 13, 2004, between Pioneer
    Companies, Inc. and Charles L. Mears.                                                                                                                                                                                                                                                                                                      
|            | 10 | .7          |  | Indemnity Agreement dated May 12, 2005, between Pioneer
    Companies, Inc. and Richard L. Urbanowski.                                                                                                                                                                                                                                                                                                 

54



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|            |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|----------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 10 | .8          |  | Indemnity Agreement dated January 24, 2006 between Pioneer
    Companies, Inc. and Robert E. Allen.                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            | 10 | .9*+        |  | Pioneer Companies, Inc. Discretionary Severance Benefit Plan,
    effective May 1, 2003 (incorporated by reference to
    Exhibit 10.9 to Pioneers Annual Report on
    Form 10-K for the fiscal year ended December 31, 2003).                                                                                                                                                                                                                                                                                                            
|            | 10 | .10+        |  | Notice Letter dated November 14, 2005 between Kent R.
    Stephenson and Pioneer Companies, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            | 10 | .11*        |  | Agreement of Purchase and Sale and Joint Escrow Instructions
    dated effective as of June 3, 2005 (Henderson Sale
    Agreement), by and between Pioneer Americas LLC
    (PALLC) and Marnell Properties, LLC relating to the
    sale of approximately sixty acres of real property adjacent to
    PALLCs chlor-alkali manufacturing facility in Henderson,
    Nevada (incorporated by reference to Exhibit 10.1 to
    Pioneers Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2005 filed on August 12, 2005).
|            | 10 | .12         |  | First Amendment and Assignment of Agreement of Purchase and Sale
    and Joint Escrow Instructions, dated as of October 31,
    2005, among PALLC, Marnell Properties, LLC and Century Steel,
    Inc.                                                                                                                                                                                                                                                                                                                                      
|            | 14 | .1*         |  | Pioneer Companies, Inc. Code of Business Conduct and Ethics
    (incorporated by reference to Exhibit 14.1 to
    Pioneers Annual Report on Form 10-K for the fiscal
    year ended December 31, 2003).                                                                                                                                                                                                                                                                                                                                    
|            | 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).                                                                                                                                                                                                                                                                                                                                                                               
|            | 23 | .1          |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | 31 | .1          |  | Certification of Michael Y. McGovern required by
    Rule 13a-14(a) or Rule 15d-14(a) under the Securities
    Exchange Act of 1934.                                                                                                                                                                                                                                                                                                                                                                                                        
|            | 31 | .2          |  | Certification of Gary L. Pittman required by Rule 13a-14(a)
    or Rule 15d-14(a) under the Securities Exchange Act of 1934.                                                                                                                                                                                                                                                                                                                                                                                                                
|            | 32 | .1          |  | Certification of Michael Y. McGovern required by
    Rule 13a-14(b) or Rule 15d-14(b) under the Securities
    Exchange Act of 1934 and 18 U.S.C. Section 1350.                                                                                                                                                                                                                                                                                                                                                                             
|            | 32 | .2          |  | Certification of Gary L. Pittman required by Rule 13a-14(b)
    or Rule 15d-14(b) under the Securities Exchange Act of 1934
    and 18 U.S.C. Section 1350.                                                                                                                                                                                                                                                                                                                                                                                 
|            | 99 | .1          |  | Schedule II   Valuation and Qualifying Accounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           






|  |                                                                                                                                          
|- | -----------------------------------------------------------------------------------------------------------------------------------------
|* | 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.

55



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##### Table of Contents



SIGNATURES






| |                        
| | -----------------------
| | PIONEER COMPANIES, INC.
| | (Registrant)           



| |     |                        
| | --- | -----------------------
| | By: | /s/ Michael Y. McGovern

| |                                      
| | -------------------------------------
| |                                      
| | Michael Y. McGovern                  
| | President and Chief Executive Officer





|                                                 |  |                                                                               |  |                |  | 
|------------------------------------------------ |  | ----------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                        |  | Title                                                                         |  | Date          
|                                                 |  |                                                                               |  |               
|                                                
|/s/ MICHAEL Y. McGOVERN(Michael Y. McGovern)     |  | President, Chief Executive Officer and Chairman of the Board of
    Directors |  | March 15, 2006
|                                                
|/s/ GARY L. PITTMAN(Gary L. Pittman)             |  | Vice President and Chief Financial Officer (Principal Financial
    Officer)  |  | March 15, 2006
|                                                
|/s/ CARL MONTICONE(Carl Monticone)               |  | Vice President and Controller (Principal Accounting Officer)                  |  | March 15, 2006
|                                                
|/s/ ROBERT E. ALLEN(Robert E. Allen)             |  | Director                                                                      |  | March 15, 2006
|                                                
|/s/ MARVIN E. LESSER(Marvin E. Lesser)           |  | Director                                                                      |  | March 15, 2006
|                                                
|/s/ CHARLES L. MEARS(Charles L. Mears)           |  | Director                                                                      |  | March 15, 2006
|                                                
|/s/ DAVID A. SCHOLES(David A. Scholes)           |  | Vice President, Manufacturing
    and Director                                |  | March 15, 2006
|                                                
|/s/ RICHARD L. URBANOWSKI(Richard L. Urbanowski) |  | Director                                                                      |  | March 15, 2006

56



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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES


|                                                                                                             |                                                                                  |      |     |  | 
|------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------- | ---- | --- |  | 
|                                                                                                             |                                                                                  | Page |    
|                                                                                                             |                                                                                  |      |    
|Report of Independent Registered Public
    Accounting Firm                                                  |                                                                                  |      | F-2 | 
|                                                                                                             | Consolidated Financial Statements, Pioneer Companies, Inc. and
    subsidiaries: |      |     |  | 
|Consolidated Balance Sheets as of
    December 31, 2005 and 2004                                             |                                                                                  |      | F-3 | 
|Consolidated Statements of Operations for
    the years ended December 31, 2005, 2004 and 2003               |                                                                                  |      | F-4 | 
|Consolidated Statements of
    Stockholders Equity for the years ended December 31,
    2005, 2004 and 2003 |                                                                                  |      | F-5 | 
|Consolidated Statements of Cash Flows for
    the years ended December 31, 2005, 2004 and 2003               |                                                                                  |      | F-6 | 
|Notes to Consolidated Financial
    Statements                                                               |                                                                                  |      | F-7 | 



F-1



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














Internal Control  Integrated
Framework




Deloitte &
Touche LLP






F-2



---



##### Table of Contents






PIONEER COMPANIES, INC.


CONSOLIDATED BALANCE SHEETS


|                                                                           |                                                                                                                               |                                            |         |              |         |  |         |         |         | 
|-------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------------ | ------- |  | ------- | ------- | ------- | 
|                                                                           |                                                                                                                               | December 31,                               |         | December 31,
|                                                                           |                                                                                                                               | 2005                                       |         | 2004        
|                                                                           |                                                                                                                               |                                            |         |             
|                                                                           |                                                                                                                               | (In Thousands, Except Par                 
|                                                                           |                                                                                                                               | Value)                                    
|ASSETS                                                                    
|Current assets:                                                            |                                                                                                                               |                                            |         |              |         |  |         |        
|                                                                           | Cash and cash equivalents                                                                                                     |                                            | $       | 62,790       |         |  | $       | 16,191  |        
|                                                                           | Accounts receivable, less allowance for doubtful accounts:
    2005, $3,748; 2004, $2,563                                     |                                            |         | 65,937       |         |  |         | 52,693  |        
|                                                                           | Inventories, net                                                                                                              |                                            |         | 19,076       |         |  |         | 16,417  |        
|                                                                           | Prepaid expenses and other current assets                                                                                     |                                            |         | 3,800        |         |  |         | 5,682   |        
|                                                                           |                                                                                                                               |                                            |         |              |         |  |         |        
|                                                                           |                                                                                                                               | Total current assets                       |         |              | 151,603 |  |         |         | 90,983  | 
|Property, plant and equipment:                                             |                                                                                                                               |                                            |         |              |         |  |         |        
|                                                                           | Land                                                                                                                          |                                            |         | 6,516        |         |  |         | 6,520   |        
|                                                                           | Buildings and improvements                                                                                                    |                                            |         | 30,234       |         |  |         | 30,375  |        
|                                                                           | Machinery and equipment                                                                                                       |                                            |         | 209,457      |         |  |         | 198,121 |        
|                                                                           | Construction in progress                                                                                                      |                                            |         | 2,208        |         |  |         | 3,013   |        
|                                                                           |                                                                                                                               |                                            |         |              |         |  |         |        
|                                                                           |                                                                                                                               |                                            | 248,415 |              |         |  | 238,029 |        
|Less accumulated depreciation                                              |                                                                                                                               |                                            | (89,455 | )            |         |  | (65,831 | )      
|                                                                           |                                                                                                                               |                                            |         |              |         |  |         |        
|                                                                           |                                                                                                                               |                                            | 158,960 |              |         |  | 172,198 |        
|Other assets, net                                                          |                                                                                                                               |                                            | 4,310   |              |         |  | 4,359   |        
|Excess reorganization value over the fair value of identifiable
    assets |                                                                                                                               |                                            | 84,064  |              |         |  | 84,064  |        
|                                                                           |                                                                                                                               |                                            |         |              |         |  |         |        
|                                                                           |                                                                                                                               | Total assets                               |         | $            | 398,937 |  |         | $       | 351,604 | 
|                                                                           |                                                                                                                               |                                            |         |              |         |  |         |        
|                                                                          
|LIABILITIES AND STOCKHOLDERS EQUITY                                      
|Current liabilities:                                                       |                                                                                                                               |                                            |         |              |         |  |         |        
|                                                                           | Accounts payable                                                                                                              |                                            | $       | 18,630       |         |  | $       | 16,545  |        
|                                                                           | Accrued liabilities                                                                                                           |                                            |         | 39,444       |         |  |         | 24,295  |        
|                                                                           | Short-term debt, including current portion of long-term debt                                                                  |                                            |         | 1,858        |         |  |         | 1,979   |        
|                                                                           |                                                                                                                               |                                            |         |              |         |  |         |        
|                                                                           |                                                                                                                               | Total current liabilities                  |         |              | 59,932  |  |         |         | 42,819  | 
|Long-term debt, less current portion                                       |                                                                                                                               |                                            | 152,739 |              |         |  | 200,797 |        
|Accrued pension and other employee benefits                                |                                                                                                                               |                                            | 26,619  |              |         |  | 23,248  |        
|Other long-term liabilities                                                |                                                                                                                               |                                            | 54,657  |              |         |  | 46,845  |        
|Commitments and contingencies                                              |                                                                                                                               |                                            |         |              |         |  |         |        
|Stockholders equity:                                                      |                                                                                                                               |                                            |         |              |         |  |         |        
|                                                                           | Preferred stock, $.01 par value, 10,000 shares
    authorized, none issued or outstanding                                     |                                            |         |             |         |  |         |        |        
|                                                                           | Common stock, $.01 par value, 50,000 shares
    authorized, 11,759 (2005) and 11,176 (2004) shares
    issued and outstanding |                                            |         | 118          |         |  |         | 112     |        
|Additional paid-in capital                                                 |                                                                                                                               |                                            | 36,784  |              |         |  | 33,649  |        
|Other comprehensive loss                                                   |                                                                                                                               |                                            | (14,396 | )            |         |  | (8,054  | )      
|Retained earnings                                                          |                                                                                                                               |                                            | 82,484  |              |         |  | 12,188  |        
|                                                                           |                                                                                                                               |                                            |         |              |         |  |         |        
|                                                                           |                                                                                                                               | Total stockholders equity                 |         |              | 104,990 |  |         |         | 37,895  | 
|                                                                           |                                                                                                                               |                                            |         |              |         |  |         |        
|                                                                           |                                                                                                                               | Total liabilities and stockholders equity |         | $            | 398,937 |  |         | $       | 351,604 | 
|                                                                           |                                                                                                                               |                                            |         |              |         |  |         |        



F-3



---



##### Table of Contents






PIONEER COMPANIES, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                             |          |                                                                 |                   |        |       |      |          |        |       |       |          |        |      |      | 
|---------------------------------------------------------------------------- | -------- | --------------------------------------------------------------- | ----------------- | ------ | ----- | ---- | -------- | ------ | ----- | ----- | -------- | ------ | ---- | ---- | 
|                                                                             |          | Year Ended December 31,                                         |                  
|                                                                             |          |                                                                 |                  
|                                                                             |          | 2005                                                            |                   |        | 2004  |      |          | 2003   |      
|                                                                             |          |                                                                 |                   |        |       |      |          |        |      
|                                                                             |          | (In Thousands, Except Per Share Data)                           |                  
|Revenues                                                                     |          | $                                                               | 515,715           |        |       | $    | 407,115  |        |       | $     | 378,675  |       
|Cost of sales  product                                                      |          |                                                                 | (376,225          | )      |       |      | (353,454 | )      |       |       | (340,804 | )     
|Cost of sales  derivatives                                                  |          |                                                                 |                  |        |       |      |         |        |       |       | (20,999  | )     
|                                                                             |          |                                                                 |                   |        |       |      |          |        |      
|Total cost of sales                                                          |          |                                                                 | (376,225          | )      |       |      | (353,454 | )      |       |       | (361,803 | )     
|                                                                             |          |                                                                 |                   |        |       |      |          |        |      
|Gross profit                                                                 |          |                                                                 | 139,490           |        |       |      | 53,661   |        |       |       | 16,872   |       
|Selling, general and administrative expenses                                 |          |                                                                 | (38,187           | )      |       |      | (27,608  | )      |       |       | (23,204  | )     
|Change in fair value of derivatives                                          |          |                                                                 |                  |        |       |      |         |        |       |       | 87,271   |       
|Asset impairment                                                             |          |                                                                 |                  |        |       |      |         |        |       |       | (40,818  | )     
|Other items                                                                  |          |                                                                 | (1,222            | )      |       |      | (3,974   | )      |       |       | (340     | )     
|                                                                             |          |                                                                 |                   |        |       |      |          |        |      
|Operating income                                                             |          |                                                                 | 100,081           |        |       |      | 22,079   |        |       |       | 39,781   |       
|Interest expense, net                                                        |          |                                                                 | (15,267           | )      |       |      | (18,356  | )      |       |       | (19,064  | )     
|Other expense, net                                                           |          |                                                                 | (1,543            | )      |       |      | (2,838   | )      |       |       | (5,816   | )     
|                                                                             |          |                                                                 |                   |        |       |      |          |        |      
|Income before income taxes                                                   |          |                                                                 | 83,271            |        |       |      | 885      |        |       |       | 14,901   |       
|Income tax (expense) benefit                                                 |          |                                                                 | (10,781           | )      |       |      | (2,127   | )      |       |       | 3,286    |       
|                                                                             |          |                                                                 |                   |        |       |      |          |        |      
|Income (loss) before cumulative effect of change in accounting
    principle |          |                                                                 | 72,490            |        |       |      | (1,242   | )      |       |       | 18,187   |       
|Cumulative effect of change in accounting principle, net of tax              |          |                                                                 | (2,194            | )      |       |      |         |        |       |       |         |       
|                                                                             |          |                                                                 |                   |        |       |      |          |        |      
|Net income (loss)                                                            |          | $                                                               | 70,296            |        |       | $    | (1,242   | )      |       | $     | 18,187   |       
|                                                                             |          |                                                                 |                   |        |       |      |          |        |      
|Income (loss) per share:                                                     |          |                                                                 |                   |        |       |      |          |        |       |       |          |       
|                                                                             | Basic:   |                                                                 |                   |        |       |      |          |        |       |       |          |        |     
|                                                                             |          | Income (loss) before change in accounting principle             |                   | $      | 6.37  |      |          | $      | (0.12 | )     |          | $      | 1.82 |     
|                                                                             |          | Cumulative effect of change in accounting principle, net of tax |                   |        | (0.19 | )    |          |        |      |       |          |        |     |     
|                                                                             |          |                                                                 |                   |        |       |      |          |        |      
|                                                                             |          |                                                                 | Net income (loss) |        | $     | 6.18 |          |        | $     | (0.12 | )        |        | $    | 1.82 | 
|                                                                             |          |                                                                 |                   |        |       |      |          |        |      
|                                                                             | Diluted: |                                                                 |                   |        |       |      |          |        |       |       |          |        |     
|                                                                             |          | Income (loss) before change in accounting principle             |                   | $      | 6.14  |      |          | $      | (0.12 | )     |          | $      | 1.79 |     
|                                                                             |          | Cumulative effect of change in accounting principle, net of tax |                   |        | (0.19 | )    |          |        |      |       |          |        |     |     
|                                                                             |          |                                                                 |                   |        |       |      |          |        |      
|                                                                             |          |                                                                 | Net income (loss) |        | $     | 5.95 |          |        | $     | (0.12 | )        |        | $    | 1.79 | 
|                                                                             |          |                                                                 |                   |        |       |      |          |        |      
|Weighted average number of shares outstanding:                               |          |                                                                 |                   |        |       |      |          |        |       |       |          |       
|                                                                             | Basic    |                                                                 |                   | 11,379 |       |      |          | 10,113 |       |       |          | 10,002 |     
|                                                                             | Diluted  |                                                                 |                   | 11,808 |       |      |          | 10,113 |       |       |          | 10,169 |     



F-4



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##### Table of Contents






PIONEER COMPANIES, INC.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


|                                                    |                                         |                            |        |       |            |   |     |             |  |   |               |        |   |      |        |        |       |   |         |        |   |   |         |        |        |  
|--------------------------------------------------- | --------------------------------------- | -------------------------- | ------ | ----- | ---------- | - | --- | ----------- |  | - | ------------- | ------ | - | ---- | ------ | ------ | ----- | - | ------- | ------ | - | - | ------- | ------ | ------ | -
|                                                    |                                         |                            |        |       |            |   |     | Accumulated |  |   |              
|                                                    |                                         | Common Stock               |        |       | Additional |   |     | Retained    |  |   | Other         |        |   |     
|                                                    |                                         |                            |        |       | Paid-In    |   |     | Earnings    |  |   | Comprehensive |        |   |     
|                                                    |                                         | Shares                     |        |       | Amount     |   |     | Capital     |  |   | (Deficit)     |        |   | Loss |        |        | Total |  
|                                                    |                                         |                            |        |       |            |   |     |             |  |   |               |        |   |      |        |        |       |  
|                                                    |                                         | (In Thousands)             |       
|Balance at December 31, 2002                        |                                         |                            | 10,000 |       |            | $ | 100 |             |  | $ | 10,933        |        |   | $    | (4,757 | )      |       | $ | (5,024  | )      |   | $ | 1,252   |       
|Comprehensive income:                               |                                         |                            |        |       |            |   |     |             |  |   |               |        |   |      |        |        |       |   |         |        |   |   |         |       
|                                                    | Net income                              |                            |        |      |            |   |     |            |  |   |               |       |   |      |        | 18,187 |       |   |         |       |   |   |         | 18,187 |       
|                                                    | Other comprehensive loss, net of taxes: |                            |        |       |            |   |     |             |  |   |               |        |   |      |        |        |       |   |         |        |   |   |         |        |       
|                                                    | Additional minimum pension liability    |                            |        |      |            |   |     |            |  |   |               |       |   |      |        |       |       |   |         | (457   | ) |   |         | (457   | )     
|                                                    |                                         |                            |        |       |            |   |     |             |  |   |               |        |   |      |        |        |       |  
|                                                    |                                         | Total comprehensive income |        |       |            |   |     |             |  |   |               |        |   |      |        |        |       |   |         |        |   |   |         |        | 17,730 |  
|                                                    | Issuance of new shares                  |                            |        | 4     |            |   |     |            |  |   |               | 8      |   |      |        |       |       |   |         |       |   |   |         | 8      |       
|                                                    |                                         |                            |        |       |            |   |     |             |  |   |               |        |   |      |        |        |       |  
|Balance at December 31, 2003                        |                                         |                            | 10,004 |       |            |   | 100 |             |  |   | 10,941        |        |   |      | 13,430 |        |       |   | (5,481  | )      |   |   | 18,990  |       
|Utilization of net operating loss carryback benefit |                                         |                            |       |       |            |   |    |             |  |   | 346           |        |   |      |       |        |       |   |        |        |   |   | 346     |       
|Comprehensive income:                               |                                         |                            |        |       |            |   |     |             |  |   |               |        |   |      |        |        |       |   |         |        |   |   |         |       
|                                                    | Net loss                                |                            |        |      |            |   |     |            |  |   |               |       |   |      |        | (1,242 | )     |   |         |       |   |   |         | (1,242 | )     
|                                                    | Other comprehensive loss, net of taxes: |                            |        |       |            |   |     |             |  |   |               |        |   |      |        |        |       |   |         |        |   |   |         |        |       
|                                                    | Additional minimum pension liability    |                            |        |      |            |   |     |            |  |   |               |       |   |      |        |       |       |   |         | (2,573 | ) |   |         | (2,573 | )     
|                                                    |                                         |                            |        |       |            |   |     |             |  |   |               |        |   |      |        |        |       |  
|                                                    |                                         | Total comprehensive loss   |        |       |            |   |     |             |  |   |               |        |   |      |        |        |       |   |         |        |   |   |         |        | (3,815 | )
|                                                    | Issuance of new shares                  |                            |        | 1,172 |            |   |     | 12          |  |   |               | 22,362 |   |      |        |       |       |   |         |       |   |   |         | 22,374 |       
|                                                    |                                         |                            |        |       |            |   |     |             |  |   |               |        |   |      |        |        |       |  
|Balance at December 31, 2004                        |                                         |                            | 11,176 |       |            |   | 112 |             |  |   | 33,649        |        |   |      | 12,188 |        |       |   | (8,054  | )      |   |   | 37,895  |       
|Utilization of net operating loss carryback benefit |                                         |                            |       |       |            |   |    |             |  |   | 937           |        |   |      |       |        |       |   |        |        |   |   | 937     |       
|Comprehensive income:                               |                                         |                            |        |       |            |   |     |             |  |   |               |        |   |      |        |        |       |   |         |        |   |   |         |       
|                                                    | Net income                              |                            |        |      |            |   |     |            |  |   |               |       |   |      |        | 70,296 |       |   |         |       |   |   |         | 70,296 |       
|                                                    | Other comprehensive loss, net of taxes: |                            |        |       |            |   |     |             |  |   |               |        |   |      |        |        |       |   |         |        |   |   |         |        |       
|                                                    | Additional minimum pension liability    |                            |        |      |            |   |     |            |  |   |               |       |   |      |        |       |       |   |         | (6,342 | ) |   |         | (6,342 | )     
|                                                    |                                         |                            |        |       |            |   |     |             |  |   |               |        |   |      |        |        |       |  
|                                                    |                                         | Total comprehensive income |        |       |            |   |     |             |  |   |               |        |   |      |        |        |       |   |         |        |   |   |         |        | 63,954 |  
|                                                    | Issuance of new shares                  |                            |        | 583   |            |   |     | 6           |  |   |               | 2,220  |   |      |        |       |       |   |         |       |   |   |         | 2,226  |       
|                                                    | Other                                   |                            |        |      |            |   |     |            |  |   |               | (22    | ) |      |        |       |       |   |         |       |   |   |         | (22    | )     
|                                                    |                                         |                            |        |       |            |   |     |             |  |   |               |        |   |      |        |        |       |  
|Balance at December 31, 2005                        |                                         |                            | 11,759 |       |            | $ | 118 |             |  | $ | 36,784        |        |   | $    | 82,484 |        |       | $ | (14,396 | )      |   | $ | 104,990 |       
|                                                    |                                         |                            |        |       |            |   |     |             |  |   |               |        |   |      |        |        |       |  



F-5



---



##### Table of Contents






PIONEER COMPANIES, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                 |                                                                                             |                                                         |                                                                        |         |        |         |        |         |        |         |       |        |         |         |  
|------------------------------------------------ | ------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ---------------------------------------------------------------------- | ------- | ------ | ------- | ------ | ------- | ------ | ------- | ----- | ------ | ------- | ------- | -
|                                                 |                                                                                             | Year Ended December 31,                                 |                                                                       
|                                                 |                                                                                             |                                                         |                                                                       
|                                                 |                                                                                             | 2005                                                    |                                                                        |         | 2004   |         |        | 2003    |       
|                                                 |                                                                                             |                                                         |                                                                        |         |        |         |        |         |       
|                                                 |                                                                                             | (In thousands)                                          |                                                                       
|Operating activities:                            |                                                                                             |                                                         |                                                                        |         |        |         |        |         |        |         |       |       
|                                                 | Net income (loss)                                                                           |                                                         | $                                                                      | 70,296  |        |         | $      | (1,242  | )      |         | $     | 18,187 |        
|                                                 | Adjustments to reconcile net income (loss) to net cash flows
    from operating activities: |                                                         |                                                                        |         |        |         |        |         |        |         |       |        |        
|                                                 |                                                                                             | Depreciation and amortization                           |                                                                        |         | 24,564 |         |        |         | 25,514 |         |       |        | 21,551  |        
|                                                 |                                                                                             | Provision for (recovery of) loss on accounts receivable |                                                                        |         | 1,185  |         |        |         | (384   | )       |       |        | 1,296   |        
|                                                 |                                                                                             | Deferred tax expense (benefit)                          |                                                                        |         | 8,636  |         |        |         | 2,127  |         |       |        | (3,142  | )      
|                                                 |                                                                                             | Derivatives  cost of sales and change in fair value    |                                                                        |         |       |         |        |         |       |         |       |        | (66,272 | )      
|                                                 |                                                                                             | Asset impairment                                        |                                                                        |         |       |         |        |         |       |         |       |        | 40,818  |        
|                                                 |                                                                                             | (Gain) loss on disposal of assets                       |                                                                        |         | 316    |         |        |         | (10    | )       |       |        | 761     |        
|                                                 |                                                                                             | Currency exchange loss                                  |                                                                        |         | 1,470  |         |        |         | 2,840  |         |       |        | 5,825   |        
|                                                 |                                                                                             | Cumulative effect of change in accounting principle     |                                                                        |         | 2,194  |         |        |         |       |         |       |        |        |        
|                                                 |                                                                                             | Changes in operating assets and liabilities:            |                                                                        |         |        |         |        |         |        |         |       |        |         |        
|                                                 |                                                                                             |                                                         | (Increase) decrease in accounts receivable                             |         |        | (12,074 | )      |         |        | (12,803 | )     |        |         | 1,644   |  
|                                                 |                                                                                             |                                                         | Increase in inventories, prepaid expenses and other current
    assets |         |        | (256    | )      |         |        | (774    | )     |        |         | (780    | )
|                                                 |                                                                                             |                                                         | (Increase) decrease in other assets                                    |         |        | (40     | )      |         |        | (494    | )     |        |         | 700     |  
|                                                 |                                                                                             |                                                         | Increase (decrease) in accounts payable and accrued liabilities        |         |        | 10,657  |        |         |        | 8,313   |       |        |         | (10,618 | )
|                                                 |                                                                                             |                                                         | Increase (decrease) in other long-term liabilities                     |         |        | (4,000  | )      |         |        | (3,794  | )     |        |         | 4,291   |  
|                                                 | Other                                                                                       |                                                         |                                                                        |        |        |         |        | 346     |        |         |       |       |        
|                                                 |                                                                                             |                                                         |                                                                        |         |        |         |        |         |       
|                                                 |                                                                                             |                                                         | Net cash flows from operating activities                               |         |        | 102,948 |        |         |        | 19,639  |       |        |         | 14,261  |  
|                                                 |                                                                                             |                                                         |                                                                        |         |        |         |        |         |       
|Investing activities:                            |                                                                                             |                                                         |                                                                        |         |        |         |        |         |        |         |       |       
|                                                 | Capital expenditures                                                                        |                                                         |                                                                        | (12,605 | )      |         |        | (8,384  | )      |         |       | (9,998 | )      
|                                                 | Proceeds from disposal of assets                                                            |                                                         |                                                                        | 2,255   |        |         |        | 315     |        |         |       |       |        
|                                                 |                                                                                             |                                                         |                                                                        |         |        |         |        |         |       
|                                                 |                                                                                             |                                                         | Net cash flows used in investing activities                            |         |        | (10,350 | )      |         |        | (8,069  | )     |        |         | (9,998  | )
|                                                 |                                                                                             |                                                         |                                                                        |         |        |         |        |         |       
|Financing activities:                            |                                                                                             |                                                         |                                                                        |         |        |         |        |         |        |         |       |       
|                                                 | Net borrowings (payments) under revolving credit
    arrangements                           |                                                         |                                                                        |        |        |         |        | (16,823 | )      |         |       | 2,119  |        
|                                                 | Repayments of long-term debt                                                                |                                                         |                                                                        | (48,320 | )      |         |        | (3,079  | )      |         |       | (7,494 | )      
|                                                 | Proceeds from issuance of stock, net                                                        |                                                         |                                                                        | 2,226   |        |         |        | 22,374  |        |         |       | 8      |        
|                                                 |                                                                                             |                                                         |                                                                        |         |        |         |        |         |       
|                                                 |                                                                                             |                                                         | Net cash flows from (used in) financing activities                     |         |        | (46,094 | )      |         |        | 2,472   |       |        |         | (5,367  | )
|                                                 |                                                                                             |                                                         |                                                                        |         |        |         |        |         |       
|Effect of exchange rate changes on cash          |                                                                                             |                                                         | 95                                                                     |         |        |         | 203    |         |        |         | 261   |       
|                                                 |                                                                                             |                                                         |                                                                        |         |        |         |        |         |       
|Net change in cash and cash equivalents          |                                                                                             |                                                         | 46,599                                                                 |         |        |         | 14,245 |         |        |         | (843  | )     
|                                                 |                                                                                             |                                                         |                                                                        |         |        |         |        |         |       
|Cash and cash equivalents at beginning of period |                                                                                             |                                                         | 16,191                                                                 |         |        |         | 1,946  |         |        |         | 2,789 |       
|                                                 |                                                                                             |                                                         |                                                                        |         |        |         |        |         |       
|Cash and cash equivalents at end of period       |                                                                                             | $                                                       | 62,790                                                                 |         |        | $       | 16,191 |         |        | $       | 1,946 |       
|                                                 |                                                                                             |                                                         |                                                                        |         |        |         |        |         |       



F-6



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##### Table of Contents



PIONEER COMPANIES, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |                                       
|-- | --------------------------------------
|1. | Organization and Basis of Presentation









|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies

Cash and Cash Equivalents.


Inventories. first-in,


Property, Plant and Equipment.




Planned Major Maintenance Activities.


Impairment of Long-Lived Assets.


Other Assets.


F-7



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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




Excess Reorganization Value Over The Fair Value of
Identifiable Assets.


Environmental Expenditures.


Asset Retirement Obligations.


Revenue Recognition.


Cost of Sales  Product.


Selling, General and Administrative Expenses.


Interest Expense.


|                      |  |                         |        |   |      |   |        |      |  |   |        |  
|--------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                      |  | Year Ended December 31, |       
|                      |  |                         |       
|                      |  | 2005                    |        |   | 2004 |   |        | 2003 | 
|                      |  |                         |        |   |      |   |        |      | 
|Interest expense      |  | $                       | 16,191 |   |      | $ | 18,462 |      |  | $ | 19,082 |  
|Interest income       |  |                         | (924   | ) |      |   | (106   | )    |  |   | (18    | )
|                      |  |                         |        |   |      |   |        |      | 
|Interest expense, net |  | $                       | 15,267 |   |      | $ | 18,356 |      |  | $ | 19,064 |  
|                      |  |                         |        |   |      |   |        |      | 

F-8



---



##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




Income (Loss) Per Share.






|                                                           |                         |                         |        |        |      |  |        |        |   |  |        |        | 
|---------------------------------------------------------- | ----------------------- | ----------------------- | ------ | ------ | ---- |  | ------ | ------ | - |  | ------ | ------ | 
|                                                           |                         | Year Ended December 31, |       
|                                                           |                         |                         |       
|                                                           |                         | 2005                    |        |        | 2004 |  |        | 2003   |  
|                                                           |                         |                         |        |        |      |  |        |        |  
|Numerator for basic and diluted income (loss) per share:   |                         |                         |        |        |      |  |        |        |   |  |        |       
|                                                           | Net income (loss)       |                         | $      | 70,296 |      |  | $      | (1,242 | ) |  | $      | 18,187 | 
|                                                           |                         |                         |        |        |      |  |        |        |  
|Denominator for basic and diluted income (loss) per share: |                         |                         |        |        |      |  |        |        |   |  |        |       
|                                                           | Weighted average shares |                         |        | 11,379 |      |  |        | 10,113 |   |  |        | 10,002 | 
|Potentially dilutive common shares:                        |                         |                         |        |        |      |  |        |        |   |  |        |       
|                                                           | Stock options           |                         |        | 429    |      |  |        |       |   |  |        | 167    | 
|                                                           |                         |                         |        |        |      |  |        |        |  
|Denominator for diluted income (loss) per share            |                         |                         | 11,808 |        |      |  | 10,113 |        |   |  | 10,169 |       
|                                                           |                         |                         |        |        |      |  |        |        |  
|Net income (loss) per share:                               |                         |                         |        |        |      |  |        |        |   |  |        |       
|                                                           | Basic                   |                         | $      | 6.18   |      |  | $      | (0.12  | ) |  | $      | 1.82   | 
|                                                           |                         |                         |        |        |      |  |        |        |  
|                                                           | Diluted                 |                         | $      | 5.95   |      |  | $      | (0.12  | ) |  | $      | 1.79   | 
|                                                           |                         |                         |        |        |      |  |        |        |  

Stock-Based Compensation.


F-9



---



##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




|                              |                                                                                       |      |        |        |      |   |        |        |   |   |        |        |  
|----------------------------- | ------------------------------------------------------------------------------------- | ---- | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                              |                                                                                       | 2005 |        |        | 2004 |   |        | 2003   |  
|                              |                                                                                       |      |        |        |      |   |        |        |  
|Net income (loss):            |                                                                                       |      |        |        |      |   |        |        |   |   |        |       
|                              | As reported                                                                           |      | $      | 70,296 |      |   | $      | (1,242 | ) |   | $      | 18,187 |  
|                              | Add: Stock-based compensation expense included in reported Net
    income (loss)      |      |        |       |      |   |        | 57     |   |   |        |       |  
|                              | Deduct: Stock-based compensation expense determined under
    fair-value-based method |      |        | (825   | )    |   |        | (701   | ) |   |        | (733   | )
|                              |                                                                                       |      |        |        |      |   |        |        |  
|Pro forma net income (loss)   |                                                                                       | $    | 69,471 |        |      | $ | (1,886 | )      |   | $ | 17,454 |       
|                              |                                                                                       |      |        |        |      |   |        |        |  
|Net income (loss), per share: |                                                                                       |      |        |        |      |   |        |        |   |   |        |       
|                              | Basic, as reported                                                                    |      | $      | 6.18   |      |   | $      | (0.12  | ) |   | $      | 1.82   |  
|                              | Basic, pro forma                                                                      |      | $      | 6.11   |      |   | $      | (0.19  | ) |   | $      | 1.75   |  
|                              | Diluted, as reported                                                                  |      | $      | 5.95   |      |   | $      | (0.12  | ) |   | $      | 1.79   |  
|                              | Diluted, pro forma                                                                    |      | $      | 5.88   |      |   | $      | (0.19  | ) |   | $      | 1.72   |  



|                            |  |                         |           |  |      |  |           |      |  |  |           | 
|--------------------------- |  | ----------------------- | --------- |  | ---- |  | --------- | ---- |  |  | --------- | 
|                            |  | Year Ended December 31, |          
|                            |  |                         |          
|                            |  | 2005                    |           |  | 2004 |  |           | 2003 | 
|                            |  |                         |           |  |      |  |           |      | 
|Risk-free interest rate     |  |                         | 4.40%     |  |      |  | 4.25%     |      |  |  | 4.25%     | 
|Expected dividend yield     |  |                         | None      |  |      |  | None      |      |  |  | None      | 
|Expected Life               |  |                         | 10  years |  |      |  | 10  years |      |  |  | 10  years | 
|Average Expected Volatility |  |                         | 48%       |  |      |  | 54%       |      |  |  | 95%       | 



Foreign Currency Translation.


Concentration of Credit Risk.




Fair Value of Financial Instruments.


F-10



---



##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)






Estimates and Assumptions.


Derivatives.




mark-to mark-to






| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements



F-11



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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)






Accounting for Conditional Asset Retirement
Obligations  an interpretation of FASB Statement
No. 143 Accounting for
Asset Retirement Obligations See






|   |                      
|-- | ---------------------
|3. | Cash Flow Information







|                                                                            |  |      |       |  |      |   |      |  |  |   |   | 
|--------------------------------------------------------------------------- |  | ---- | ----- |  | ---- | - | ---- |  |  | - | - | 
|                                                                            |  | 2005 |       |  | 2004 |   | 2003
|                                                                            |  |      |       |  |      |   |     
|Property, plant and equipment acquisitions included in accounts
    payable |  | $    | 1,438 |  |      | $ |     |  |  | $ |  | 



|                             |  |      |        |  |      |   |        |   |  |  |  | 
|---------------------------- |  | ---- | ------ |  | ---- | - | ------ | - |  |  |  | 
|                             |  | 2005 |        |  | 2004 |   |        |  
|                             |  |      |        |  |      |   |        |  
|Interest paid                |  | $    | 16,264 |  |      | $ | 18,434 |   |  |  |  | 
|Income taxes paid (refunded) |  |      | 729    |  |      |   | (346   | ) |  |  |  | 

F-12



---



##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)


See




|   |                                   
|-- | ----------------------------------
|4. | Supplemental Financial Information



| |            
| | -----------
| | Inventories



|                                       |             |      |       |        |      |   |       |        | 
|-------------------------------------- | ----------- | ---- | ----- | ------ | ---- | - | ----- | ------ | 
|                                       |             | 2005 |       |        | 2004 |  
|                                       |             |      |       |        |      |  
|Raw materials, supplies and parts, net |             | $    | 9,807 |        |      | $ | 7,089 |       
|Finished goods                         |             |      | 9,269 |        |      |   | 9,328 |       
|                                       |             |      |       |        |      |  
|                                       | Inventories |      | $     | 19,076 |      |   | $     | 16,417 | 
|                                       |             |      |       |        |      |  



| |                                          
| | -----------------------------------------
| | Prepaid Expenses and Other Current Assets



|                    |                                           |      |       |       |      |   |       |       | 
|------------------- | ----------------------------------------- | ---- | ----- | ----- | ---- | - | ----- | ----- | 
|                    |                                           | 2005 |       |       | 2004 |  
|                    |                                           |      |       |       |      |  
|Prepaid insurance   |                                           | $    | 2,034 |       |      | $ | 2,627 |      
|Deferred tax assets |                                           |      | 1,383 |       |      |   | 1,476 |      
|Other               |                                           |      | 383   |       |      |   | 1,579 |      
|                    |                                           |      |       |       |      |  
|                    | Prepaid expenses and other current assets |      | $     | 3,800 |      |   | $     | 5,682 | 
|                    |                                           |      |       |       |      |  



| |                    
| | -------------------
| | Accrued Liabilities



|                      |                     |      |        |        |      |   |       |        | 
|--------------------- | ------------------- | ---- | ------ | ------ | ---- | - | ----- | ------ | 
|                      |                     | 2005 |        |        | 2004 |  
|                      |                     |      |        |        |      |  
|Payroll and benefits  |                     | $    | 13,567 |        |      | $ | 7,250 |       
|Electricity           |                     |      | 10,104 |        |      |   | 8,558 |       
|Professional services |                     |      | 3,037  |        |      |   | 308   |       
|Maintenance services  |                     |      | 4,702  |        |      |   | 1,901 |       
|Other                 |                     |      | 8,034  |        |      |   | 6,278 |       
|                      |                     |      |        |        |      |  
|                      | Accrued liabilities |      | $      | 39,444 |      |   | $     | 24,295 | 
|                      |                     |      |        |        |      |  



| |                            
| | ---------------------------
| | Other long-term liabilities



|                 |                             |      |        |        |      |   |        |        | 
|---------------- | --------------------------- | ---- | ------ | ------ | ---- | - | ------ | ------ | 
|                 |                             | 2005 |        |        | 2004 |  
|                 |                             |      |        |        |      |  
|Environmental    |                             | $    | 14,508 |        |      | $ | 20,321 |       
|Deferred revenue |                             |      | 1,237  |        |      |   |       |       
|Deferred taxes   |                             |      | 34,533 |        |      |   | 25,915 |       
|Other            |                             |      | 4,379  |        |      |   | 609    |       
|                 |                             |      |        |        |      |  
|                 | Other long-term liabilities |      | $      | 54,657 |      |   | $      | 46,845 | 
|                 |                             |      |        |        |      |  

F-13



---



##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




|   |                  
|-- | -----------------
|5. | Employee Benefits



| |                              
| | -----------------------------
| | Defined Benefit Pension Plans









F-14



---



##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




|                              |                                                 |            |   |        |                  |  |   |                      |   |  |      |        |   |      |   |        |      |  |   |         |   |  |   |        |  
|----------------------------- | ----------------------------------------------- | ---------- | - | ------ | ---------------- |  | - | -------------------- | - |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                              |                                                 | PCI Canada |   |        | Pioneer Americas |  |   | Pioneer Consolidated |  
|                              |                                                 |            |   |        |                  |  |   |                      |  
|                              |                                                 | 2005       |   |        | 2004             |  |   | 2005                 |   |  | 2004 |        |   | 2005 |   |        | 2004 | 
|                              |                                                 |            |   |        |                  |  |   |                      |   |  |      |        |   |      |   |        |      | 
|Change in benefit obligation: |                                                 |            |   |        |                  |  |   |                      |   |  |      |        |   |      |   |        |      |  |   |         |   |  |   |       
|                              | Projected benefit obligation, beginning of year |            | $ | 43,031 |                  |  | $ | 36,612               |   |  | $    | 51,922 |   |      | $ | 50,493 |      |  | $ | 94,953  |   |  | $ | 87,105 |  
|                              | Service cost                                    |            |   | 1,047  |                  |  |   | 1,182                |   |  |      | 74     |   |      |   | 328    |      |  |   | 1,121   |   |  |   | 1,510  |  
|                              | Interest cost                                   |            |   | 2,657  |                  |  |   | 2,291                |   |  |      | 2,977  |   |      |   | 2,939  |      |  |   | 5,634   |   |  |   | 5,230  |  
|                              | Benefits paid                                   |            |   | (2,297 | )                |  |   | (1,685               | ) |  |      | (3,140 | ) |      |   | (2,328 | )    |  |   | (5,437  | ) |  |   | (4,013 | )
|                              | Decrease in obligation due to curtailment       |            |   | 394    |                  |  |   |                     |   |  |      | (121   | ) |      |   | (4,349 | )    |  |   | 273     |   |  |   | (4,349 | )
|                              | Special termination benefits                    |            |   | 343    |                  |  |   |                     |   |  |      |       |   |      |   |       |      |  |   | 343     |   |  |   |       |  
|                              | Actuarial loss                                  |            |   | 7,203  |                  |  |   | 1,580                |   |  |      | 5,051  |   |      |   | 4,839  |      |  |   | 12,254  |   |  |   | 6,419  |  
|                              | Currency translation loss                       |            |   | 1,812  |                  |  |   | 3,051                |   |  |      |       |   |      |   |       |      |  |   | 1,812   |   |  |   | 3,051  |  
|                              |                                                 |            |   |        |                  |  |   |                      |   |  |      |        |   |      |   |        |      | 
|                              | Projected benefit obligation, end of year       |            | $ | 54,190 |                  |  | $ | 43,031               |   |  | $    | 56,763 |   |      | $ | 51,922 |      |  | $ | 110,953 |   |  | $ | 94,953 |  
|                              |                                                 |            |   |        |                  |  |   |                      |   |  |      |        |   |      |   |        |      | 
|Change in plan assets:        |                                                 |            |   |        |                  |  |   |                      |   |  |      |        |   |      |   |        |      |  |   |         |   |  |   |       
|                              | Market value of plan assets, beginning of year  |            | $ | 36,938 |                  |  | $ | 30,571               |   |  | $    | 40,588 |   |      | $ | 36,557 |      |  | $ | 77,526  |   |  | $ | 67,128 |  
|                              | Actual return on plan assets                    |            |   | 4,020  |                  |  |   | 2,483                |   |  |      | 3,937  |   |      |   | 3,397  |      |  |   | 7,957   |   |  |   | 5,880  |  
|                              | Employer contributions                          |            |   | 3,336  |                  |  |   | 3,201                |   |  |      | 2,037  |   |      |   | 2,963  |      |  |   | 5,373   |   |  |   | 6,164  |  
|                              | Benefits paid                                   |            |   | (2,297 | )                |  |   | (1,685               | ) |  |      | (3,029 | ) |      |   | (2,192 | )    |  |   | (5,326  | ) |  |   | (3,877 | )
|                              | Actual plan expenses                            |            |   | (457   | )                |  |   | (335                 | ) |  |      | (111   | ) |      |   | (137   | )    |  |   | (568    | ) |  |   | (472   | )
|                              | Currency translation gain                       |            |   | 1,422  |                  |  |   | 2,703                |   |  |      |       |   |      |   |       |      |  |   | 1,422   |   |  |   | 2,703  |  
|                              |                                                 |            |   |        |                  |  |   |                      |   |  |      |        |   |      |   |        |      | 
|                              | Market value of plan assets, end of year        |            | $ | 42,962 |                  |  | $ | 36,938               |   |  | $    | 43,422 |   |      | $ | 40,588 |      |  | $ | 86,384  |   |  | $ | 77,526 |  
|                              |                                                 |            |   |        |                  |  |   |                      |   |  |      |        |   |      |   |        |      | 
|                              | Accumulated benefit obligation                  |            | $ | 46,485 |                  |  | $ | 35,294               |   |  | $    | 56,763 |   |      | $ | 51,721 |      |  | $ | 103,248 |   |  | $ | 87,015 |  
|                              |                                                 |            |   |        |                  |  |   |                      |   |  |      |        |   |      |   |        |      | 

|                                      |                                           |            |   |         |                  |  |   |                      |   |  |      |         |   |      |   |         |      |  |   |          |   |  |   |         |  
|------------------------------------- | ----------------------------------------- | ---------- | - | ------- | ---------------- |  | - | -------------------- | - |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | - |  | - | ------- | -
|                                      |                                           | PCI Canada |   |         | Pioneer Americas |  |   | Pioneer Consolidated |  
|                                      |                                           |            |   |         |                  |  |   |                      |  
|                                      |                                           | 2005       |   |         | 2004             |  |   | 2005                 |   |  | 2004 |         |   | 2005 |   |         | 2004 | 
|                                      |                                           |            |   |         |                  |  |   |                      |   |  |      |         |   |      |   |         |      | 
|Development of net amount recognized: |                                           |            |   |         |                  |  |   |                      |   |  |      |         |   |      |   |         |      |  |   |          |   |  |   |        
|                                      | Benefit obligation  end of year          |            | $ | (54,190 | )                |  | $ | (43,031              | ) |  | $    | (56,763 | ) |      | $ | (51,922 | )    |  | $ | (110,953 | ) |  | $ | (94,953 | )
|                                      | Market value of plan assets  end of year |            |   | 42,962  |                  |  |   | 36,938               |   |  |      | 43,422  |   |      |   | 40,588  |      |  |   | 86,384   |   |  |   | 77,526  |  
|                                      |                                           |            |   |         |                  |  |   |                      |   |  |      |         |   |      |   |         |      | 
|                                      | Funded status  deficit                   |            |   | (11,228 | )                |  |   | (6,093               | ) |  |      | (13,341 | ) |      |   | (11,334 | )    |  |   | (24,569  | ) |  |   | (17,427 | )
|                                      | Unamortized net actuarial loss            |            |   | 10,327  |                  |  |   | 3,789                |   |  |      | 12,617  |   |      |   | 9,266   |      |  |   | 22,944   |   |  |   | 13,055  |  
|                                      |                                           |            |   |         |                  |  |   |                      |   |  |      |         |   |      |   |         |      | 
|                                      | Net liability recognized                  |            | $ | (901    | )                |  | $ | (2,304               | ) |  | $    | (724    | ) |      | $ | (2,068  | )    |  | $ | (1,625   | ) |  | $ | (4,372  | )
|                                      |                                           |            |   |         |                  |  |   |                      |   |  |      |         |   |      |   |         |      | 
|                                      | Accrued benefit liability                 |            | $ | (3,522  | )                |  | $ | (2,304               | ) |  | $    | (12,499 | ) |      | $ | (10,122 | )    |  | $ | (16,021  | ) |  | $ | (12,426 | )
|                                      | Accumulated other comprehensive loss      |            |   | 2,621   |                  |  |   |                     |   |  |      | 11,775  |   |      |   | 8,054   |      |  |   | 14,396   |   |  |   | 8,054   |  
|                                      |                                           |            |   |         |                  |  |   |                      |   |  |      |         |   |      |   |         |      | 
|                                      | Net amount recognized                     |            | $ | (901    | )                |  | $ | (2,304               | ) |  | $    | (724    | ) |      | $ | (2,068  | )    |  | $ | (1,625   | ) |  | $ | (4,372  | )
|                                      |                                           |            |   |         |                  |  |   |                      |   |  |      |         |   |      |   |         |      | 

F-15



---



##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)


|                                                |                                           |        |   |        |          |  |   |              |   |  |   |        |  
|----------------------------------------------- | ----------------------------------------- | ------ | - | ------ | -------- |  | - | ------------ | - |  | - | ------ | -
|                                                |                                           | PCI    |   |        | Pioneer  |  |   | Pioneer      |  
|                                                |                                           | Canada |   |        | Americas |  |   | Consolidated |  
|                                                |                                           |        |   |        |          |  |   |              |  
|Year Ended December 31, 2005                    |                                           |        |   |        |          |  |   |              |   |  |   |       
|Components of net periodic benefit cost:        |                                           |        |   |        |          |  |   |              |   |  |   |       
|                                                | Service cost                              |        | $ | 1,172  |          |  | $ | 74           |   |  | $ | 1,246  |  
|                                                | Interest cost                             |        |   | 2,652  |          |  |   | 2,977        |   |  |   | 5,629  |  
|                                                | Expected return on plan assets            |        |   | (2,885 | )        |  |   | (3,208       | ) |  |   | (6,093 | )
|                                                | Amortization of net actuarial loss        |        |   | 234    |          |  |   | 850          |   |  |   | 1,084  |  
|                                                | Loss on plan curtailment                  |        |   | 735    |          |  |   |             |   |  |   | 735    |  
|                                                |                                           |        |   |        |          |  |   |              |  
|                                                | Net periodic benefit cost                 |        | $ | 1,908  |          |  | $ | 693          |   |  | $ | 2,601  |  
|                                                |                                           |        |   |        |          |  |   |              |  
|Weighted average assumptions as of December 31: |                                           |        |   |        |          |  |   |              |   |  |   |       
|                                                | Discount rate                             |        |   | 5.00   | %        |  |   | 5.50         | % |  |   | 5.30   | %
|                                                | Expected return on plan assets            |        |   | 7.75   | %        |  |   | 8.00         | % |  |   | 7.90   | %
|                                                | Rate of compensation increase             |        |   | 3.50   | %        |  |   | 3.50         | % |  |   | 3.50   | %
|Year Ended December 31, 2004                    |                                           |        |   |        |          |  |   |              |   |  |   |       
|Components of net periodic benefit cost:        |                                           |        |   |        |          |  |   |              |   |  |   |       
|                                                | Service cost                              |        | $ | 1,182  |          |  | $ | 328          |   |  | $ | 1,510  |  
|                                                | Interest cost                             |        |   | 2,291  |          |  |   | 2,939        |   |  |   | 5,230  |  
|                                                | Expected return on plan assets            |        |   | (2,487 | )        |  |   | (2,995       | ) |  |   | (5,482 | )
|                                                | Loss on plan curtailment                  |        |   |       |          |  |   | 77           |   |  |   | 77     |  
|                                                | Gain on plan settlement                   |        |   |       |          |  |   | (58          | ) |  |   | (58    | )
|                                                | Amortization of net actuarial loss        |        |   |       |          |  |   | 745          |   |  |   | 745    |  
|                                                |                                           |        |   |        |          |  |   |              |  
|                                                | Net periodic benefit cost                 |        | $ | 986    |          |  | $ | 1,036        |   |  | $ | 2,022  |  
|                                                |                                           |        |   |        |          |  |   |              |  
|Weighted average assumptions as of December 31: |                                           |        |   |        |          |  |   |              |   |  |   |       
|                                                | Discount rate                             |        |   | 6.00   | %        |  |   | 5.75         | % |  |   | 5.90   | %
|                                                | Expected return on plan assets            |        |   | 7.75   | %        |  |   | 8.00         | % |  |   | 7.90   | %
|                                                | Rate of compensation increase             |        |   | 3.50   | %        |  |   | 3.50         | % |  |   | 3.50   | %
|                                               
|Year Ended December 31, 2003                    |                                           |        |   |        |          |  |   |              |   |  |   |       
|Components of net periodic benefit cost:        |                                           |        |   |        |          |  |   |              |   |  |   |       
|                                                | Service cost                              |        | $ | 872    |          |  | $ | 1,314        |   |  | $ | 2,186  |  
|                                                | Interest cost                             |        |   | 2,010  |          |  |   | 2,877        |   |  |   | 4,887  |  
|                                                | Expected return on plan assets            |        |   | (1,930 | )        |  |   | (2,392       | ) |  |   | (4,322 | )
|                                                | Amortization of prior service costs       |        |   |       |          |  |   | (5           | ) |  |   | (5     | )
|                                                | Amortization of net actuarial loss (gain) |        |   | (6     | )        |  |   | 622          |   |  |   | 616    |  
|                                                |                                           |        |   |        |          |  |   |              |  
|                                                | Net periodic benefit cost                 |        | $ | 946    |          |  | $ | 2,416        |   |  | $ | 3,362  |  
|                                                |                                           |        |   |        |          |  |   |              |  
|Weighted average assumptions as of December 31: |                                           |        |   |        |          |  |   |              |   |  |   |       
|                                                | Discount rate                             |        |   | 6.25   | %        |  |   | 6.00         | % |  |   | 6.10   | %
|                                                | Expected return on plan assets            |        |   | 8.00   | %        |  |   | 8.00         | % |  |   | 8.00   | %
|                                                | Rate of compensation increase             |        |   | 3.50   | %        |  |   | 3.50         | % |  |   | 3.50   | %

F-16



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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




Selection of the Expected Return on Assets.


Investment Strategy.




|                                  |  |                   |     |   |                   |  |     |        |  |  |          |   |  |  |     |  
|--------------------------------- |  | ----------------- | --- | - | ----------------- |  | --- | ------ |  |  | -------- | - |  |  | --- | -
|                                  |  | December 31, 2005 |     |   | December 31, 2004 | 
|                                  |  |                   |     |   |                   | 
|                                  |  | PCI               |     |   | Pioneer           |  |     | PCI    |  |  | Pioneer  |  
|                                  |  | Canada            |     |   | Americas          |  |     | Canada |  |  | Americas |  
|                                  |  |                   |     |   |                   |  |     |        |  |  |          |  
|Equity securities  U.S.          |  |                   | 21  | % |                   |  | 40  | %      |  |  | 20       | % |  |  | 42  | %
|Equity securities  Canadian      |  |                   | 25  |   |                   |  |    |        |  |  | 25       |   |  |  |    |  
|Equity securities  International |  |                   | 20  |   |                   |  | 13  |        |  |  | 19       |   |  |  | 13  |  
|Debt securities                   |  |                   | 33  |   |                   |  | 23  |        |  |  | 35       |   |  |  | 20  |  
|Real estate fund                  |  |                   |    |   |                   |  | 5   |        |  |  |         |   |  |  | 4   |  
|Guaranteed accounts               |  |                   |    |   |                   |  | 19  |        |  |  |         |   |  |  | 21  |  
|Short-term investments            |  |                   | 1   |   |                   |  |    |        |  |  | 1        |   |  |  |    |  
|                                  |  |                   |     |   |                   |  |     |        |  |  |          |  
|                                  |  |                   | 100 | % |                   |  | 100 | %      |  |  | 100      | % |  |  | 100 | %
|                                  |  |                   |     |   |                   |  |     |        |  |  |          |  



|                                  |       |        |        |        |          |  |        |              |  |  |        |        | 
|--------------------------------- | ----- | ------ | ------ | ------ | -------- |  | ------ | ------------ |  |  | ------ | ------ | 
|                                  |       | PCI    |        |        | Pioneer  |  |        | Pioneer      | 
|For the years ending December 31: |       | Canada |        |        | Americas |  |        | Consolidated | 
|                                  |       |        |        |        |          |  |        |              | 
|2006                              |       |        | 1,494  |        |          |  | 2,443  |              |  |  | 3,937  |       
|2007                              |       |        | 1,686  |        |          |  | 2,446  |              |  |  | 4,132  |       
|2008                              |       |        | 1,897  |        |          |  | 2,556  |              |  |  | 4,453  |       
|2009                              |       |        | 2,104  |        |          |  | 2,761  |              |  |  | 4,865  |       
|2010                              |       |        | 2,343  |        |          |  | 2,961  |              |  |  | 5,304  |       
|2011 through 2015                 |       |        | 15,937 |        |          |  | 17,923 |              |  |  | 33,860 |       
|                                  |       |        |        |        |          |  |        |              | 
|                                  | Total |        | $      | 25,461 |          |  | $      | 31,090       |  |  | $      | 56,551 | 
|                                  |       |        |        |        |          |  |        |              | 



| |                                   
| | ----------------------------------
| | Defined Contribution Pension Plans



F-17



---



##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)








| |                                             
| | --------------------------------------------
| | Post-Retirement Benefits Other Than Pensions



F-18



---



##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




|                                 |                                       |            |   |        |                  |  |   |                      |   |  |      |        |   |      |   |        |      |  |   |        |   |  |   |        |  
|-------------------------------- | ------------------------------------- | ---------- | - | ------ | ---------------- |  | - | -------------------- | - |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                 |                                       | PCI Canada |   |        | Pioneer Americas |  |   | Pioneer Consolidated |  
|                                 |                                       |            |   |        |                  |  |   |                      |  
|                                 |                                       | 2005       |   |        | 2004             |  |   | 2005                 |   |  | 2004 |        |   | 2005 |   |        | 2004 | 
|                                 |                                       |            |   |        |                  |  |   |                      |   |  |      |        |   |      |   |        |      | 
|Change in benefit obligation:    |                                       |            |   |        |                  |  |   |                      |   |  |      |        |   |      |   |        |      |  |   |        |   |  |   |       
|                                 | Benefit obligation, beginning of year |            | $ | 5,737  |                  |  | $ | 4,461                |   |  | $    | 579    |   |      | $ | 828    |      |  | $ | 6,316  |   |  | $ | 5,289  |  
|                                 | Service cost                          |            |   | 192    |                  |  |   | 148                  |   |  |      | 2      |   |      |   | 2      |      |  |   | 194    |   |  |   | 150    |  
|                                 | Interest cost                         |            |   | 339    |                  |  |   | 277                  |   |  |      | 28     |   |      |   | 35     |      |  |   | 367    |   |  |   | 312    |  
|                                 | Benefits paid                         |            |   | (93    | )                |  |   | (44                  | ) |  |      | (51    | ) |      |   | (223   | )    |  |   | (144   | ) |  |   | (267   | )
|                                 | Actuarial loss (gain)                 |            |   | 2,540  |                  |  |   | 475                  |   |  |      | (74    | ) |      |   | (63    | )    |  |   | 2,466  |   |  |   | 412    |  
|                                 | Currency translation loss             |            |   | 320    |                  |  |   | 420                  |   |  |      |       |   |      |   |       |      |  |   | 320    |   |  |   | 420    |  
|                                 |                                       |            |   |        |                  |  |   |                      |   |  |      |        |   |      |   |        |      | 
|                                 | Benefit obligation, end of year       |            | $ | 9,035  |                  |  | $ | 5,737                |   |  | $    | 484    |   |      | $ | 579    |      |  | $ | 9,519  |   |  | $ | 6,316  |  
|                                 |                                       |            |   |        |                  |  |   |                      |   |  |      |        |   |      |   |        |      | 
|Reconciliation of funded status: |                                       |            |   |        |                  |  |   |                      |   |  |      |        |   |      |   |        |      |  |   |        |   |  |   |       
|                                 | Funded status  deficit               |            | $ | (9,035 | )                |  | $ | (5,737               | ) |  | $    | (484   | ) |      | $ | (579   | )    |  | $ | (9,519 | ) |  | $ | (6,316 | )
|                                 | Unamortized prior service costs       |            |   | (155   | )                |  |   | (174                 | ) |  |      | (3,198 | ) |      |   | (3,822 | )    |  |   | (3,353 | ) |  |   | (3,996 | )
|                                 | Unamortized net actuarial loss (gain) |            |   | 3,511  |                  |  |   | 942                  |   |  |      | (533   | ) |      |   | (507   | )    |  |   | 2,978  |   |  |   | 435    |  
|                                 | Currency translation loss             |            |   | 139    |                  |  |   | 63                   |   |  |      |       |   |      |   |       |      |  |   | 139    |   |  |   | 63     |  
|                                 |                                       |            |   |        |                  |  |   |                      |   |  |      |        |   |      |   |        |      | 
|                                 | Accrued benefit liability             |            | $ | (5,540 | )                |  | $ | (4,906               | ) |  | $    | (4,215 | ) |      | $ | (4,908 | )    |  | $ | (9,755 | ) |  | $ | (9,814 | )
|                                 |                                       |            |   |        |                  |  |   |                      |   |  |      |        |   |      |   |        |      | 

|                                                |                                           |        |   |      |          |  |   |              |   |  |   |      |  
|----------------------------------------------- | ----------------------------------------- | ------ | - | ---- | -------- |  | - | ------------ | - |  | - | ---- | -
|                                                |                                           | PCI    |   |      | Pioneer  |  |   | Pioneer      |  
|                                                |                                           | Canada |   |      | Americas |  |   | Consolidated |  
|                                                |                                           |        |   |      |          |  |   |              |  
|Year Ended December 31, 2005                    |                                           |        |   |      |          |  |   |              |   |  |   |     
|Components of net periodic benefit cost:        |                                           |        |   |      |          |  |   |              |   |  |   |     
|                                                | Service cost                              |        | $ | 192  |          |  | $ | 2            |   |  | $ | 194  |  
|                                                | Interest cost                             |        |   | 339  |          |  |   | 28           |   |  |   | 367  |  
|                                                | Amortization of prior service costs       |        |   | (31  | )        |  |   | (623         | ) |  |   | (654 | )
|                                                | Amortization of net actuarial loss (gain) |        |   | 40   |          |  |   | (49          | ) |  |   | (9   | )
|                                                |                                           |        |   |      |          |  |   |              |  
|                                                | Net periodic benefit cost                 |        | $ | 540  |          |  | $ | (642         | ) |  | $ | (102 | )
|                                                |                                           |        |   |      |          |  |   |              |  
|Weighted average assumptions as of December 31: |                                           |        |   |      |          |  |   |              |   |  |   |     
|                                                | Discount rate                             |        |   | 5.00 | %        |  |   | 5.50         | % |  |   | 5.00 | %

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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)


|                                                |                                           |        |   |      |          |  |   |              |   |  |   |      |  
|----------------------------------------------- | ----------------------------------------- | ------ | - | ---- | -------- |  | - | ------------ | - |  | - | ---- | -
|                                                |                                           | PCI    |   |      | Pioneer  |  |   | Pioneer      |  
|                                                |                                           | Canada |   |      | Americas |  |   | Consolidated |  
|                                                |                                           |        |   |      |          |  |   |              |  
|Year Ended December 31, 2004                    |                                           |        |   |      |          |  |   |              |   |  |   |     
|Components of net periodic benefit cost:        |                                           |        |   |      |          |  |   |              |   |  |   |     
|                                                | Service cost                              |        | $ | 148  |          |  | $ | 2            |   |  | $ | 150  |  
|                                                | Interest cost                             |        |   | 277  |          |  |   | 35           |   |  |   | 312  |  
|                                                | Amortization of prior service costs       |        |   | (29  | )        |  |   | (623         | ) |  |   | (652 | )
|                                                | Amortization of net actuarial loss (gain) |        |   | 2    |          |  |   | (47          | ) |  |   | (45  | )
|                                                |                                           |        |   |      |          |  |   |              |  
|                                                | Net periodic benefit cost                 |        | $ | 398  |          |  | $ | (633         | ) |  | $ | (235 | )
|                                                |                                           |        |   |      |          |  |   |              |  
|Weighted average assumptions as of December 31: |                                           |        |   |      |          |  |   |              |   |  |   |     
|                                                | Discount rate                             |        |   | 6.00 | %        |  |   | 5.75         | % |  |   | 6.00 | %
|                                               
|Year Ended December 31, 2003                    |                                           |        |   |      |          |  |   |              |   |  |   |     
|Components of net periodic benefit cost:        |                                           |        |   |      |          |  |   |              |   |  |   |     
|                                                | Service cost                              |        | $ | 100  |          |  | $ | 2            |   |  | $ | 102  |  
|                                                | Interest cost                             |        |   | 211  |          |  |   | 207          |   |  |   | 418  |  
|                                                | Amortization of prior service costs       |        |   | (27  | )        |  |   | (312         | ) |  |   | (339 | )
|                                                | Amortization of net actuarial gain        |        |   | (10  | )        |  |   | (43          | ) |  |   | (53  | )
|                                                |                                           |        |   |      |          |  |   |              |  
|                                                | Net periodic benefit cost                 |        | $ | 274  |          |  | $ | (146         | ) |  | $ | 128  |  
|                                                |                                           |        |   |      |          |  |   |              |  
|Weighted average assumptions as of December 31: |                                           |        |   |      |          |  |   |              |   |  |   |     
|                                                | Discount rate                             |        |   | 6.25 | %        |  |   | 6.00         | % |  |   | 6.20 | %



|                                                                                           |  |        |        |   |         |   |    |              |  |   |        |  
|------------------------------------------------------------------------------------------ |  | ------ | ------ | - | ------- | - | -- | ------------ |  | - | ------ | -
|                                                                                           |  | PCI    |        |   | Pioneer |   |    | Pioneer      | 
|                                                                                           |  | Canada |        |   | America |   |    | Consolidated | 
|                                                                                           |  |        |        |   |         |   |    |              | 
|Effect of a one-percentage-point change to the health care cost
    trend rate assumption: |  |        |        |   |         |   |    |              |  |   |        |  
|Effect of + 1% on service cost plus interest cost                                          |  | $      | 122    |   |         | $ |   |              |  | $ | 122    |  
|Effect of  1% on service cost plus interest cost                                          |  | $      | (104   | ) |         | $ |   |              |  | $ | (104   | )
|Effect of + 1% on accrued benefit obligation                                               |  | $      | 1,663  |   |         | $ | 2  |              |  | $ | 1,665  |  
|Effect of  1% on accrued benefit obligation                                               |  | $      | (1,328 | ) |         | $ | (2 | )            |  | $ | (1,330 | )

F-20



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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




|                                  |       |        |       |       |          |  |    |              |  |  |       |       | 
|--------------------------------- | ----- | ------ | ----- | ----- | -------- |  | -- | ------------ |  |  | ----- | ----- | 
|                                  |       | PCI    |       |       | Pioneer  |  |    | Pioneer      | 
|For the years ending December 31: |       | Canada |       |       | Americas |  |    | Consolidated | 
|                                  |       |        |       |       |          |  |    |              | 
|2006                              |       |        | 136   |       |          |  | 78 |              |  |  | 214   |      
|2007                              |       |        | 163   |       |          |  | 57 |              |  |  | 220   |      
|2008                              |       |        | 199   |       |          |  | 48 |              |  |  | 247   |      
|2009                              |       |        | 242   |       |          |  | 14 |              |  |  | 256   |      
|2010                              |       |        | 284   |       |          |  | 15 |              |  |  | 299   |      
|2011 through 2015                 |       |        | 2,094 |       |          |  | 96 |              |  |  | 2,190 |      
|                                  |       |        |       |       |          |  |    |              | 
|                                  | Total |        | $     | 3,118 |          |  | $  | 308          |  |  | $     | 3,426 | 
|                                  |       |        |       |       |          |  |    |              | 





|   |                         
|-- | ------------------------
|6. | Stock-Based Compensation



F-21



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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




|                                 |           |           |     |                |   |                |                |                 |  |   |       |       | 
|-------------------------------- | --------- | --------- | --- | -------------- | - | -------------- | -------------- | --------------- |  | - | ----- | ----- | 
|                                 |           |           |     |                |   | Weighted      
|                                 |           |           |     |                |   | Average       
|                                 |           | Number of |     | Exercise Price |   | Exercise Price
|                                 |           | Shares    |     | Per Share      |   | Per Share     
|                                 |           |           |     |                |   |               
|2003:                            |           |           |     |                |   |                |                |                 |  |   |       |      
|Outstanding at December 31, 2002 |           |           | 778 |                |   |                | $2.00  $4.00  |                 |  | $ | 3.04  |      
|                                 | Granted   |           |     | 20             |   |                |                | $8.15           |  |   | $     | 8.15  | 
|                                 | Exercised |           |     | (4             | ) |                |                | $2.50           |  |   | $     | 2.50  | 
|                                 | Forfeited |           |     | (47            | ) |                |                | $2.50           |  |   | $     | 2.50  | 
|                                 |           |           |     |                |   |                |                |                 |  |   |       |      
|Outstanding at December 31, 2003 |           |           | 747 |                |   |                | $2.00  $8.15  |                 |  | $ | 2.97  |      
|2004:                            |           |           |     |                |   |                |                |                 |  |   |       |      
|                                 | Granted   |           |     | 198            |   |                |                | $4.00  $20.75  |  |   | $     | 9.32  | 
|                                 | Exercised |           |     | (82            | ) |                |                | $2.00  $8.15   |  |   | $     | 2.82  | 
|                                 | Forfeited |           |     | (98            | ) |                |                | $2.50           |  |   | $     | 2.50  | 
|                                 |           |           |     |                |   |                |                |                 |  |   |       |      
|Outstanding at December 31, 2004 |           |           | 765 |                |   |                | $2.00  $20.75 |                 |  | $ | 4.92  |      
|2005:                            |           |           |     |                |   |                |                |                 |  |   |       |      
|                                 | Granted   |           |     | 55             |   |                |                | $20.85  $29.97 |  |   | $     | 26.37 | 
|                                 | Exercised |           |     | (583           | ) |                |                | $2.50  $8.28   |  |   | $     | 3.82  | 
|                                 | Forfeited |           |     | (1             | ) |                |                | $2.50           |  |   | $     | 2.50  | 
|                                 |           |           |     |                |   |                |                |                 |  |   |       |      
|Outstanding at December 31, 2005 |           |           | 236 |                |   |                | $2.00  $29.97 |                 |  | $ | 12.69 |      
|                                 |           |           |     |                |   |                |                |                 |  |   |       |      



|                             |  |                        |        |  |      |   |         |      |  |   |         | 
|---------------------------- |  | ---------------------- | ------ |  | ---- | - | ------- | ---- |  | - | ------- | 
|                             |  | Year ended December 31 |       
|                             |  |                        |       
|                             |  | 2005                   |        |  | 2004 |   |         | 2003 | 
|                             |  |                        |        |  |      |   |         |      | 
|Fair market value of options |  | $                      | 1,500  |  |      | $ | 1,300   |      |  | $ | 100     | 
|Shares exercisable           |  |                        | 69,000 |  |      |   | 390,000 |      |  |   | 280,000 | 
|Average exercise price       |  | $                      | 8.93   |  |      | $ | 3.43    |      |  | $ | 2.97    | 

F-22



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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




|   |     
|-- | ----
|7. | Debt



|                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                                         |         |         |         |        |         |         |         | 
|------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----- | --------------------------------------- | ------- | ------- | ------- | ------ | ------- | ------- | ------- | 
|                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                   | 2005  |                                         |         | 2004    |        
|                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                                         |         |         |        
|Senior Secured Debt:                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                                         |         |         |         |        |        
|                                                                                                              | 10% Senior Secured Guaranteed Notes, due December 2008
    (Senior Notes)                                                                                                                                                                                                                                                                                                                                       |       | $                                       | 150,000 |         |         | $      | 150,000 |        
|                                                                                                              | Senior Secured Floating Rate Guaranteed Notes, variable rates
    (Senior Guaranteed Notes)                                                                                                                                                                                                                                                                                                                     |       |                                         |        |         |         |        | 43,151  |        
|                                                                                                              | Senior Floating Rate Term Notes, variable interest rates
    (Senior Floating Notes)                                                                                                                                                                                                                                                                                                                            |       |                                         |        |         |         |        | 3,090   |        
|                                                                                                              | Revolving credit facility; variable interest rates based on
    U.S. prime rate plus a margin ranging from 0.5% to 1.25% or
    LIBOR* plus a margin ranging from 2.50% to 3.25% expiring
    December 31, 2006, as amended (Revolver)                                                                                                                                                                          |       |                                         |        |         |         |        |        |        
|Other debt:                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                                         |         |         |         |        |        
|                                                                                                              | 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
    $43,000 at December 31, 2005 |       |                                         | 1,253   |         |         |        | 1,947   |        
|Other notes, maturing in various years through 2014, with
    various installments, at various interest rates |                                                                                                                                                                                                                                                                                                                                                                                                                   |       | 3,344                                   |         |         |         | 4,588  |        
|                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                                         |         |         |        
|                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                   | Total |                                         |         | 154,597 |         |        |         | 202,776 |        
|Short-term debt, including current maturities of long-term debt                                               |                                                                                                                                                                                                                                                                                                                                                                                                                   |       | (1,858                                  | )       |         |         | (1,979 | )      
|                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                                         |         |         |        
|                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                   |       | Long-term debt, less current maturities |         | $       | 152,739 |        |         | $       | 200,797 | 
|                                                                                                              |                                                                                                                                                                                                                                                                                                                                                                                                                   |       |                                         |         |         |        






|  |                                                                                                                                                      
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|* | The three-month London inter-bank offered rate
    (LIBOR) for the periods ended December 31, 2005
    and 2004 was 4.39% and 1.98% , respectively.



Debt Prepayments.




F-23



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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)








Revolver.






|                              |  |           |        |  |          |   |        |               |  |   |              |  |  |              |        |  |  |   |         | 
|----------------------------- |  | --------- | ------ |  | -------- | - | ------ | ------------- |  | - | ------------ |  |  | ------------ | ------ |  |  | - | ------- | 
|                              |  | Three     |        |  | Three    |   |        | Three         |  |   | Three        |  |  | Twelve       |       
|                              |  | Months    |        |  | Months   |   |        | Months        |  |   | Months       |  |  | Months       |       
|                              |  | Ended     |        |  | Ended    |   |        | Ended         |  |   | Ended        |  |  | Ended        |       
|                              |  | March 31, |        |  | June 30, |   |        | September 30, |  |   | December 31, |  |  | December 31, |       
|                              |  | 2005      |        |  | 2005     |   |        | 2005          |  |   | 2005         |  |  | 2005         |       
|                              |  |           |        |  |          |   |        |               |  |   |              |  |  |              |       
|Net income                    |  | $         | 15,020 |  |          | $ | 24,089 |               |  | $ | 20,102       |  |  | $            | 11,085 |  |  | $ | 70,296  | 
|Income tax expense            |  |           | 3,411  |  |          |   | 2,957  |               |  |   | 2,058        |  |  |              | 2,355  |  |  |   | 10,781  | 
|                              |  |           |        |  |          |   |        |               |  |   |              |  |  |              |       
|Income before income taxes    |  |           | 18,431 |  |          |   | 27,046 |               |  |   | 22,160       |  |  |              | 13,440 |  |  |   | 81,077  | 
|Depreciation and amortization |  |           | 5,685  |  |          |   | 6,647  |               |  |   | 6,250        |  |  |              | 5,982  |  |  |   | 24,564  | 
|Interest expense, net         |  |           | 4,256  |  |          |   | 4,114  |               |  |   | 3,597        |  |  |              | 3,300  |  |  |   | 15,267  | 
|                              |  |           |        |  |          |   |        |               |  |   |              |  |  |              |       
|Lender-Defined EBITDA         |  | $         | 28,372 |  |          | $ | 37,807 |               |  | $ | $32,007      |  |  | $            | 22,722 |  |  | $ | 120,908 | 
|                              |  |           |        |  |          |   |        |               |  |   |              |  |  |              |       

F-24



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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)














F-25



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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




|           |  |         |         |  |       |   |       |       |  |   |         | 
|---------- |  | ------- | ------- |  | ----- | - | ----- | ----- |  | - | ------- | 
|           |  | Senior  |         |  |       |   |      
|           |  | Secured |         |  |       |   |      
|           |  | Debt    |         |  | Other |   |       | Total | 
|           |  |         |         |  |       |   |       |       | 
|2006       |  |         |        |  |       |   | 1,858 |       |  |   | 1,858   | 
|2007       |  |         |        |  |       |   | 983   |       |  |   | 983     | 
|2008*      |  |         | 150,000 |  |       |   |      |       |  |   | 150,000 | 
|2009       |  |         |        |  |       |   |      |       |  |   |        | 
|2010       |  |         |        |  |       |   |      |       |  |   |        | 
|Thereafter |  |         |        |  |       |   | 1,756 |       |  |   | 1,756   | 
|           |  |         |         |  |       |   |       |       | 
|           |  | $       | 150,000 |  |       | $ | 4,597 |       |  | $ | 154,597 | 
|           |  |         |         |  |       |   |       |       | 






|  |                                                                                                                                                    
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|* | The amount of Senior Secured Debt does not reflect the
    redemption of $50.0 million in principal amount of the
    Senior Notes in January 2006.





|   |                                             
|-- | --------------------------------------------
|8. | Condensed Consolidating Financial Statements







F-26



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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)


CONDENSED CONSOLIDATING BALANCE SHEET


December 31, 2005


|                                                                       |                                           |                                            |         |       |         |  |         |          |         |       |            |        |         |              |         |    |              |  |          |    |          |   |         |        |         | 
|---------------------------------------------------------------------- | ----------------------------------------- | ------------------------------------------ | ------- | ----- | ------- |  | ------- | -------- | ------- | ----- | ---------- | ------ | ------- | ------------ | ------- | -- | ------------ |  | -------- | -- | -------- | - | ------- | ------ | ------- | 
|                                                                       |                                           |                                            |         | PCI   |         |  | Pioneer |          |         | Other |            |        |         |              | Pioneer |   
|                                                                       |                                           | PCI                                        |         |       | Canada  |  |         | Americas |         |       | Guarantors |        |         | Eliminations |         |    | Consolidated | 
|                                                                       |                                           |                                            |         |       |         |  |         |          |         |       |            |        |         |              |         |    |              | 
|                                                                      
|Assets                                                                 |                                           |                                            |         |       |         |  |         |          |         |       |            |        |         |              |         |    |              |  |          |    |          |   |         |       
|Current assets:                                                        |                                           |                                            |         |       |         |  |         |          |         |       |            |        |         |              |         |    |              |  |          |    |          |   |         |       
|                                                                       | Cash and cash equivalents                 |                                            | $       |      |         |  | $       | 1,587    |         |       | $          | 61,198 |         |              | $       | 5  |              |  | $        |   |          |   | $       | 62,790 |        
|                                                                       | Accounts receivable, net                  |                                            |         |      |         |  |         | 14,264   |         |       |            | 51,673 |         |              |         |   |              |  |          |   |          |   |         | 65,937 |        
|                                                                       | Inventories, net                          |                                            |         |      |         |  |         | 9,040    |         |       |            | 10,036 |         |              |         |   |              |  |          |   |          |   |         | 19,076 |        
|                                                                       | Prepaid expenses and other current assets |                                            |         | 2,034 |         |  |         | 1,516    |         |       |            | 250    |         |              |         |   |              |  |          |   |          |   |         | 3,800  |        
|                                                                       |                                           |                                            |         |       |         |  |         |          |         |       |            |        |         |              |         |    |              | 
|                                                                       |                                           | Total current assets                       |         |       | 2,034   |  |         |          | 26,407  |       |            |        | 123,157 |              |         |    | 5            |  |          |    |         |   |         |        | 151,603 | 
|Property, plant and equipment, net                                     |                                           |                                            |        |       |         |  | 93,977  |          |         |       | 63,455     |        |         |              | 1,528   |    |              |  |         |    |          |   | 158,960 |       
|Other assets, net                                                      |                                           |                                            |        |       |         |  | 186     |          |         |       | 4,124      |        |         |              |        |    |              |  |         |    |          |   | 4,310   |       
|Intercompany receivable                                                |                                           |                                            | 15,887  |       |         |  | 148,733 |          |         |       |           |        |         |              | 88,541  |    |              |  | (253,161 | )  |          |   |        |       
|Investment in subsidiaries                                             |                                           |                                            | 88,530  |       |         |  |        |          |         |       |           |        |         |              |        |    |              |  | (88,530  | )  |          |   |        |       
|Excess reorganization value over fair value of identifiable
    assets |                                           |                                            |        |       |         |  | 84,064  |          |         |       |           |        |         |              |        |    |              |  |         |    |          |   | 84,064  |       
|                                                                       |                                           |                                            |         |       |         |  |         |          |         |       |            |        |         |              |         |    |              | 
|                                                                       |                                           | Total assets                               |         | $     | 106,451 |  |         | $        | 353,367 |       |            | $      | 190,736 |              |         | $  | 90,074       |  |          | $  | (341,691 | ) |         | $      | 398,937 | 
|                                                                       |                                           |                                            |         |       |         |  |         |          |         |       |            |        |         |              |         |    |              | 
|                                                                      
|Liabilities and Stockholders Equity                                   |                                           |                                            |         |       |         |  |         |          |         |       |            |        |         |              |         |    |              |  |          |   
|Current liabilities:                                                   |                                           |                                            |         |       |         |  |         |          |         |       |            |        |         |              |         |    |              |  |          |    |          |   |         |       
|                                                                       | Accounts payable                          |                                            | $       |      |         |  | $       | 8,171    |         |       | $          | 10,460 |         |              | $       |   |              |  | $        | (1 | )        |   | $       | 18,630 |        
|                                                                       | Accrued liabilities                       |                                            |         | 128   |         |  |         | 12,815   |         |       |            | 26,501 |         |              |         |   |              |  |          |   |          |   |         | 39,444 |        
|                                                                       | Current portion of long-term debt         |                                            |         |      |         |  |         | 825      |         |       |            | 1,005  |         |              |         | 28 |              |  |          |   |          |   |         | 1,858  |        
|                                                                       |                                           |                                            |         |       |         |  |         |          |         |       |            |        |         |              |         |    |              | 
|                                                                       |                                           | Total current liabilities                  |         |       | 128     |  |         |          | 21,811  |       |            |        | 37,966  |              |         |    | 28           |  |          |    | (1       | ) |         |        | 59,932  | 
|Long-term debt, less current portion                                   |                                           |                                            |        |       |         |  | 150,429 |          |         |       | 2,303      |        |         |              | 7       |    |              |  |         |    |          |   | 152,739 |       
|Investment in subsidiary                                               |                                           |                                            |         |       |         |  | 133,690 |          |         |       |           |        |         |              | 429     |    |              |  | (134,119 | )  |          |   |        |       
|Intercompany payable                                                   |                                           |                                            | 1,333   |       |         |  | 347     |          |         |       | 251,481    |        |         |              |        |    |              |  | (253,161 | )  |          |   |        |       
|Accrued pension and other employee benefits                            |                                           |                                            |        |       |         |  | 9,064   |          |         |       | 17,555     |        |         |              |        |    |              |  |         |    |          |   | 26,619  |       
|Other long-term liabilities                                            |                                           |                                            |        |       |         |  | 38,670  |          |         |       | 15,121     |        |         |              | 865     |    |              |  | 1        |    |          |   | 54,657  |       
|Stockholders equity (deficiency in assets)                            |                                           |                                            | 104,990 |       |         |  | (644    | )        |         |       | (133,690   | )      |         |              | 88,745  |    |              |  | 45,589   |    |          |   | 104,990 |       
|                                                                       |                                           |                                            |         |       |         |  |         |          |         |       |            |        |         |              |         |    |              | 
|                                                                       |                                           | Total liabilities and stockholders equity |         | $     | 106,451 |  |         | $        | 353,367 |       |            | $      | 190,736 |              |         | $  | 90,074       |  |          | $  | (341,691 | ) |         | $      | 398,937 | 
|                                                                       |                                           |                                            |         |       |         |  |         |          |         |       |            |        |         |              |         |    |              | 

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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)


CONDENSED CONSOLIDATING BALANCE SHEET


December 31, 2004


|                                                                       |                                           |                                            |        |       |        |  |         |          |         |       |            |        |         |              |         |    |              |  |          |   |          |   |         |        |         | 
|---------------------------------------------------------------------- | ----------------------------------------- | ------------------------------------------ | ------ | ----- | ------ |  | ------- | -------- | ------- | ----- | ---------- | ------ | ------- | ------------ | ------- | -- | ------------ |  | -------- | - | -------- | - | ------- | ------ | ------- | 
|                                                                       |                                           |                                            |        | PCI   |        |  | Pioneer |          |         | Other |            |        |         |              | Pioneer |   
|                                                                       |                                           | PCI                                        |        |       | Canada |  |         | Americas |         |       | Guarantors |        |         | Eliminations |         |    | Consolidated | 
|                                                                       |                                           |                                            |        |       |        |  |         |          |         |       |            |        |         |              |         |    |              | 
|Assets                                                                 |                                           |                                            |        |       |        |  |         |          |         |       |            |        |         |              |         |    |              |  |          |   |          |   |         |       
|Current assets:                                                        |                                           |                                            |        |       |        |  |         |          |         |       |            |        |         |              |         |    |              |  |          |   |          |   |         |       
|                                                                       | Cash and cash equivalents                 |                                            | $      |      |        |  | $       | 148      |         |       | $          | 16,041 |         |              | $       | 2  |              |  | $        |  |          |   | $       | 16,191 |        
|                                                                       | Accounts receivable, net                  |                                            |        |      |        |  |         | 11,199   |         |       |            | 41,494 |         |              |         |   |              |  |          |  |          |   |         | 52,693 |        
|                                                                       | Inventories, net                          |                                            |        |      |        |  |         | 7,317    |         |       |            | 9,100  |         |              |         |   |              |  |          |  |          |   |         | 16,417 |        
|                                                                       | Prepaid expenses and other current assets |                                            |        | 2,627 |        |  |         | 2,011    |         |       |            | 1,044  |         |              |         |   |              |  |          |  |          |   |         | 5,682  |        
|                                                                       |                                           |                                            |        |       |        |  |         |          |         |       |            |        |         |              |         |    |              | 
|                                                                       |                                           | Total current assets                       |        |       | 2,627  |  |         |          | 20,675  |       |            |        | 67,679  |              |         |    | 2            |  |          |   |         |   |         |        | 90,983  | 
|Property, plant and equipment, net                                     |                                           |                                            |       |       |        |  | 103,554 |          |         |       | 67,116     |        |         |              | 1,528   |    |              |  |         |   |          |   | 172,198 |       
|Other assets, net                                                      |                                           |                                            |       |       |        |  | 179     |          |         |       | 4,180      |        |         |              |        |    |              |  |         |   |          |   | 4,359   |       
|Intercompany receivable                                                |                                           |                                            | 13,808 |       |        |  | 100,789 |          |         |       |           |        |         |              | 76,550  |    |              |  | (191,147 | ) |          |   |        |       
|Investment in subsidiaries                                             |                                           |                                            | 22,792 |       |        |  |        |          |         |       |           |        |         |              |        |    |              |  | (22,792  | ) |          |   |        |       
|Excess reorganization value over fair value of identifiable
    assets |                                           |                                            |       |       |        |  | 84,064  |          |         |       |           |        |         |              |        |    |              |  |         |   |          |   | 84,064  |       
|                                                                       |                                           |                                            |        |       |        |  |         |          |         |       |            |        |         |              |         |    |              | 
|                                                                       |                                           | Total assets                               |        | $     | 39,227 |  |         | $        | 309,261 |       |            | $      | 138,975 |              |         | $  | 78,080       |  |          | $ | (213,939 | ) |         | $      | 351,604 | 
|                                                                       |                                           |                                            |        |       |        |  |         |          |         |       |            |        |         |              |         |    |              | 
|                                                                      
|Liabilities and Stockholders Equity                                   |                                           |                                            |        |       |        |  |         |          |         |       |            |        |         |              |         |    |              |  |          |  
|Current liabilities:                                                   |                                           |                                            |        |       |        |  |         |          |         |       |            |        |         |              |         |    |              |  |          |   |          |   |         |       
|                                                                       | Accounts payable                          |                                            | $      |      |        |  | $       | 8,109    |         |       | $          | 8,436  |         |              | $       |   |              |  | $        |  |          |   | $       | 16,545 |        
|                                                                       | Accrued liabilities                       |                                            |        |      |        |  |         | 7,990    |         |       |            | 16,305 |         |              |         |   |              |  |          |  |          |   |         | 24,295 |        
|                                                                       | Current portion of long-term debt         |                                            |        |      |        |  |         | 734      |         |       |            | 1,217  |         |              |         | 28 |              |  |          |  |          |   |         | 1,979  |        
|                                                                       |                                           |                                            |        |       |        |  |         |          |         |       |            |        |         |              |         |    |              | 
|                                                                       |                                           | Total current liabilities                  |        |       |       |  |         |          | 16,833  |       |            |        | 25,958  |              |         |    | 28           |  |          |   |         |   |         |        | 42,819  | 
|Long-term debt, less current portion                                   |                                           |                                            |       |       |        |  | 151,213 |          |         |       | 49,550     |        |         |              | 34      |    |              |  |         |   |          |   | 200,797 |       
|Investment in subsidiary                                               |                                           |                                            |       |       |        |  | 157,176 |          |         |       |           |        |         |              | 632     |    |              |  | (157,808 | ) |          |   |        |       
|Intercompany payable                                                   |                                           |                                            | 1,332  |       |        |  | 261     |          |         |       | 189,554    |        |         |              |        |    |              |  | (191,147 | ) |          |   |        |       
|Accrued pension and other employee benefits                            |                                           |                                            |       |       |        |  | 7,211   |          |         |       | 16,037     |        |         |              |        |    |              |  |         |   |          |   | 23,248  |       
|Other long-term liabilities                                            |                                           |                                            |       |       |        |  | 30,483  |          |         |       | 15,052     |        |         |              | 1,310   |    |              |  |         |   |          |   | 46,845  |       
|Stockholders equity (deficiency in assets)                            |                                           |                                            | 37,895 |       |        |  | (53,916 | )        |         |       | (157,176   | )      |         |              | 76,076  |    |              |  | 135,016  |   |          |   | 37,895  |       
|                                                                       |                                           |                                            |        |       |        |  |         |          |         |       |            |        |         |              |         |    |              | 
|                                                                       |                                           | Total liabilities and stockholders equity |        | $     | 39,227 |  |         | $        | 309,261 |       |            | $      | 138,975 |              |         | $  | 78,080       |  |          | $ | (213,939 | ) |         | $      | 351,604 | 
|                                                                       |                                           |                                            |        |       |        |  |         |          |         |       |            |        |         |              |         |    |              | 

F-28



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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


Fiscal Year Ended December 31, 2005


|                                                                                                   |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |   |          |   |  |   |          |  
|-------------------------------------------------------------------------------------------------- |  | --- | ------ | --- | ------ | - | -------- | -------- |  | ----- | ---------- | - |  | ------------ | ------- | - | ------------ | - | -------- | - |  | - | -------- | -
|                                                                                                   |  |     |        | PCI |        |   | Pioneer  |          |  | Other |            |   |  |              | Pioneer |  
|                                                                                                   |  | PCI |        |     | Canada |   |          | Americas |  |       | Guarantors |   |  | Eliminations |         |   | Consolidated |  
|                                                                                                   |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |  
|Revenues                                                                                           |  | $   |       |     |        | $ | 244,553  |          |  | $     | 408,834    |   |  | $            |        |   |              | $ | (137,672 | ) |  | $ | 515,715  |  
|Cost of sales                                                                                      |  |     |       |     |        |   | (172,381 | )        |  |       | (341,684   | ) |  |              | 168     |   |              |   | 137,672  |   |  |   | (376,225 | )
|                                                                                                   |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |  
|Gross profit                                                                                       |  |     |       |     |        |   | 72,172   |          |  |       | 67,150     |   |  |              | 168     |   |              |   |         |   |  |   | 139,490  |  
|Selling, general and administrative expenses                                                       |  |     | (846   | )   |        |   | (9,042   | )        |  |       | (28,291    | ) |  |              | (8      | ) |              |   |         |   |  |   | (38,187  | )
|Change in fair value of derivatives                                                                |  |     |       |     |        |   |         |          |  |       |           |   |  |              |        |   |              |   |         |   |  |   |         |  
|Asset impairment                                                                                   |  |     |       |     |        |   |         |          |  |       |           |   |  |              |        |   |              |   |         |   |  |   |         |  
|Other items                                                                                        |  |     |       |     |        |   | (4,536   | )        |  |       | 3,314      |   |  |              |        |   |              |   |         |   |  |   | (1,222   | )
|                                                                                                   |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |  
|Operating income (loss)                                                                            |  |     | (846   | )   |        |   | 58,594   |          |  |       | 42,173     |   |  |              | 160     |   |              |   |         |   |  |   | 100,081  |  
|Interest expense, net                                                                              |  |     |       |     |        |   | (15,095  | )        |  |       | (168       | ) |  |              | (4      | ) |              |   |         |   |  |   | (15,267  | )
|Other income (expense), net                                                                        |  |     |       |     |        |   | (1,471   | )        |  |       | (12,381    | ) |  |              | 12,309  |   |              |   |         |   |  |   | (1,543   | )
|                                                                                                   |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |  
|Income (loss) before income taxes                                                                  |  |     | (846   | )   |        |   | 42,028   |          |  |       | 29,624     |   |  |              | 12,465  |   |              |   |         |   |  |   | 83,271   |  
|Income tax expense                                                                                 |  |     |       |     |        |   | (9,237   | )        |  |       | (1,544     | ) |  |              |        |   |              |   |         |   |  |   | (10,781  | )
|                                                                                                   |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |  
|Net income (loss) before equity in earnings of subsidiaries and
    change in accounting principle |  |     | (846   | )   |        |   | 32,791   |          |  |       | 28,080     |   |  |              | 12,465  |   |              |   |         |   |  |   | 72,490   |  
|Cumulative effect of change in accounting principle, net of tax                                    |  |     |       |     |        |   | (385     | )        |  |       | (1,809     | ) |  |              |        |   |              |   |         |   |  |   | (2,194   | )
|Equity in net earnings of subsidiaries                                                             |  |     | 71,142 |     |        |   | 26,271   |          |  |       |           |   |  |              | 202     |   |              |   | (97,615  | ) |  |   |         |  
|                                                                                                   |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |  
|Net income (loss)                                                                                  |  | $   | 70,296 |     |        | $ | 58,677   |          |  | $     | 26,271     |   |  | $            | 12,667  |   |              | $ | (97,615  | ) |  | $ | 70,296   |  
|                                                                                                   |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |  

F-29



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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


Fiscal Year Ended December 31, 2004


|                                                            |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |   |         |   |  |   |          |  
|----------------------------------------------------------- |  | --- | ------ | --- | ------ | - | -------- | -------- |  | ----- | ---------- | - |  | ------------ | ------- | - | ------------ | - | ------- | - |  | - | -------- | -
|                                                            |  |     |        | PCI |        |   | Pioneer  |          |  | Other |            |   |  |              | Pioneer |  
|                                                            |  | PCI |        |     | Canada |   |          | Americas |  |       | Guarantors |   |  | Eliminations |         |   | Consolidated |  
|                                                            |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |  
|Revenues                                                    |  | $   |       |     |        | $ | 193,691  |          |  | $     | 310,810    |   |  | $            |        |   |              | $ | (97,386 | ) |  | $ | 407,115  |  
|Cost of sales                                               |  |     |       |     |        |   | (162,192 | )        |  |       | (288,468   | ) |  |              | (180    | ) |              |   | 97,386  |   |  |   | (353,454 | )
|                                                            |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |  
|Gross profit                                                |  |     |       |     |        |   | 31,499   |          |  |       | 22,342     |   |  |              | (180    | ) |              |   |        |   |  |   | 53,661   |  
|Selling, general and administrative expenses                |  |     | (885   | )   |        |   | (8,082   | )        |  |       | (18,693    | ) |  |              | 52      |   |              |   |        |   |  |   | (27,608  | )
|Change in fair value of derivatives                         |  |     |       |     |        |   |         |          |  |       |           |   |  |              |        |   |              |   |        |   |  |   |         |  
|Asset impairment                                            |  |     |       |     |        |   |         |          |  |       |           |   |  |              |        |   |              |   |        |   |  |   |         |  
|Other items                                                 |  |     |       |     |        |   | (2,046   | )        |  |       | (1,928     | ) |  |              |        |   |              |   |        |   |  |   | (3,974   | )
|                                                            |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |  
|Operating income (loss)                                     |  |     | (885   | )   |        |   | 21,371   |          |  |       | 1,721      |   |  |              | (128    | ) |              |   |        |   |  |   | 22,079   |  
|Interest expense, net                                       |  |     |       |     |        |   | (15,135  | )        |  |       | (3,215     | ) |  |              | (6      | ) |              |   |        |   |  |   | (18,356  | )
|Other income (expense), net                                 |  |     |       |     |        |   | (2,834   | )        |  |       | (9,421     | ) |  |              | 9,417   |   |              |   |        |   |  |   | (2,838   | )
|                                                            |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |  
|Income (loss) before income taxes                           |  |     | (885   | )   |        |   | 3,402    |          |  |       | (10,915    | ) |  |              | 9,283   |   |              |   |        |   |  |   | 885      |  
|Income tax expense                                          |  |     |       |     |        |   | (2,127   | )        |  |       |           |   |  |              |        |   |              |   |        |   |  |   | (2,127   | )
|                                                            |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |  
|Net income (loss) before equity in earnings of subsidiaries |  |     | (885   | )   |        |   | 1,275    |          |  |       | (10,915    | ) |  |              | 9,283   |   |              |   |        |   |  |   | (1,242   | )
|Equity in net earnings (loss) of subsidiaries               |  |     | (357   | )   |        |   | (10,915  | )        |  |       |           |   |  |              | (186    | ) |              |   | 11,458  |   |  |   |         |  
|                                                            |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |  
|Net income (loss)                                           |  | $   | (1,242 | )   |        | $ | (9,640   | )        |  | $     | (10,915    | ) |  | $            | 9,097   |   |              | $ | 11,458  |   |  | $ | (1,242   | )
|                                                            |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |  

F-30



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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


Fiscal Year Ended December 31, 2003


|                                                            |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |   |         |   |  |   |          |  
|----------------------------------------------------------- |  | --- | ------ | --- | ------ | - | -------- | -------- |  | ----- | ---------- | - |  | ------------ | ------- | - | ------------ | - | ------- | - |  | - | -------- | -
|                                                            |  |     |        | PCI |        |   | Pioneer  |          |  | Other |            |   |  |              | Pioneer |  
|                                                            |  | PCI |        |     | Canada |   |          | Americas |  |       | Guarantors |   |  | Eliminations |         |   | Consolidated |  
|                                                            |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |  
|Revenues                                                    |  | $   |       |     |        | $ | 178,805  |          |  | $     | 287,427    |   |  | $            |        |   |              | $ | (87,557 | ) |  | $ | 378,675  |  
|Cost of sales                                               |  |     |       |     |        |   | (154,064 | )        |  |       | (295,450   | ) |  |              | 154     |   |              |   | 87,557  |   |  |   | (361,803 | )
|                                                            |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |  
|Gross profit                                                |  |     |       |     |        |   | 24,741   |          |  |       | (8,023     | ) |  |              | 154     |   |              |   |        |   |  |   | 16,872   |  
|Selling, general and administrative expenses                |  |     | (332   | )   |        |   | (5,318   | )        |  |       | (17,533    | ) |  |              | (21     | ) |              |   |        |   |  |   | (23,204  | )
|Change in fair value of derivatives                         |  |     |       |     |        |   |         |          |  |       | 87,271     |   |  |              |        |   |              |   |        |   |  |   | 87,271   |  
|Asset impairment                                            |  |     |       |     |        |   |         |          |  |       | (40,818    | ) |  |              |        |   |              |   |        |   |  |   | (40,818  | )
|Other items                                                 |  |     |       |     |        |   | (320     | )        |  |       | (20        | ) |  |              |        |   |              |   |        |   |  |   | (340     | )
|                                                            |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |  
|Operating income (loss)                                     |  |     | (332   | )   |        |   | 19,103   |          |  |       | 20,877     |   |  |              | 133     |   |              |   |        |   |  |   | 39,781   |  
|Interest expense, net                                       |  |     |       |     |        |   | (15,172  | )        |  |       | (3,884     | ) |  |              | (8      | ) |              |   |        |   |  |   | (19,064  | )
|Other income (expense), net                                 |  |     |       |     |        |   | (5,829   | )        |  |       | (13,769    | ) |  |              | 13,782  |   |              |   |        |   |  |   | (5,816   | )
|                                                            |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |  
|Income (loss) before income taxes                           |  |     | (332   | )   |        |   | (1,898   | )        |  |       | 3,224      |   |  |              | 13,907  |   |              |   |        |   |  |   | 14,901   |  
|Income tax benefit                                          |  |     |       |     |        |   | 3,142    |          |  |       | 144        |   |  |              |        |   |              |   |        |   |  |   | 3,286    |  
|                                                            |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |  
|Net income (loss) before equity in earnings of subsidiaries |  |     | (332   | )   |        |   | 1,245    |          |  |       | 3,368      |   |  |              | 13,907  |   |              |   |        |   |  |   | 18,187   |  
|Equity in net earnings of subsidiaries                      |  |     | 18,519 |     |        |   | 3,368    |          |  |       |           |   |  |              | 145     |   |              |   | (22,032 | ) |  |   |         |  
|                                                            |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |  
|Net income                                                  |  | $   | 18,187 |     |        | $ | 4,612    |          |  | $     | 3,368      |   |  | $            | 14,052  |   |              | $ | (22,032 | ) |  | $ | 18,187   |  
|                                                            |  |     |        |     |        |   |          |          |  |       |            |   |  |              |         |   |              |  

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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS


Fiscal Year Ended December 31, 2005


|                                                             |                                   |                                          |        |       |        |   |         |          |        |       |            |         |         |              |    |     |     |   |         |         |         |  
|------------------------------------------------------------ | --------------------------------- | ---------------------------------------- | ------ | ----- | ------ | - | ------- | -------- | ------ | ----- | ---------- | ------- | ------- | ------------ | -- | --- | --- | - | ------- | ------- | ------- | -
|                                                             |                                   |                                          |        | PCI   |        |   | Pioneer |          |        | Other |            |         | Pioneer |             
|                                                             |                                   | PCI                                      |        |       | Canada |   |         | Americas |        |       | Guarantors |         |         | Consolidated |   
|                                                             |                                   |                                          |        |       |        |   |         |          |        |       |            |         |         |              |   
|Net cash flows from operating activities                     |                                   | $                                        | (2,226 | )     |        | $ | 8,638   |          |        | $     | 96,527     |         |         | $            | 9  |     |     | $ | 102,948 |        
|Cash flows from investing activities:                        |                                   |                                          |        |       |        |   |         |          |        |       |            |         |         |              |    |     |     |   |         |        
|                                                             | Capital expenditures              |                                          |        |       |        |   |         | (6,480   | )      |       |            | (6,125  | )       |              |    |    |     |   |         | (12,605 | )      
|                                                             | Proceeds from disposal of assets  |                                          |        |      |        |   |         | 6        |        |       |            | 2,249   |         |              |    |    |     |   |         | 2,255   |        
|                                                             |                                   |                                          |        |       |        |   |         |          |        |       |            |         |         |              |   
|                                                             |                                   | Net cash flows from investing activities |        |       |       |   |         |          | (6,474 | )     |            |         | (3,876  | )            |    |     |    |   |         |         | (10,350 | )
|                                                             |                                   |                                          |        |       |        |   |         |          |        |       |            |         |         |              |   
|Cash flows from financing activities:                        |                                   |                                          |        |       |        |   |         |          |        |       |            |         |         |              |    |     |     |   |         |        
|                                                             | Proceeds from stock issuance, net |                                          |        | 2,226 |        |   |         |         |        |       |            |        |         |              |    |    |     |   |         | 2,226   |        
|                                                             | Revolving credit borrowings, net  |                                          |        |      |        |   |         |         |        |       |            |        |         |              |    |    |     |   |         |        |        
|                                                             | Repayments on long-term debt      |                                          |        |      |        |   |         | (827     | )      |       |            | (47,475 | )       |              |    | (18 | )   |   |         | (48,320 | )      
|                                                             |                                   |                                          |        |       |        |   |         |          |        |       |            |         |         |              |   
|                                                             |                                   | Net cash flows from financing activities |        |       | 2,226  |   |         |          | (827   | )     |            |         | (47,475 | )            |    |     | (18 | ) |         |         | (46,094 | )
|                                                             |                                   |                                          |        |       |        |   |         |          |        |       |            |         |         |              |   
|Effect of exchange rate changes on cash and cash equivalents |                                   |                                          |       |       |        |   | 95      |          |        |       |           |         |         |              |   |     |     |   | 95      |        
|                                                             |                                   |                                          |        |       |        |   |         |          |        |       |            |         |         |              |   
|Net increase in cash and cash equivalents                    |                                   |                                          |       |       |        |   | 1,432   |          |        |       | 45,176     |         |         |              | (9 | )   |     |   | 46,599  |        
|Cash and cash equivalents at beginning of period             |                                   |                                          |       |       |        |   | 148     |          |        |       | 16,041     |         |         |              | 2  |     |     |   | 16,191  |        
|                                                             |                                   |                                          |        |       |        |   |         |          |        |       |            |         |         |              |   
|Cash and cash equivalents at end of period                   |                                   | $                                        |       |       |        | $ | 1,580   |          |        | $     | 61,217     |         |         | $            | (7 | )   |     | $ | 62,790  |        
|                                                             |                                   |                                          |        |       |        |   |         |          |        |       |            |         |         |              |   

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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS


Fiscal Year Ended December 31, 2004


|                                                             |                                   |                                          |         |        |        |   |         |          |        |       |            |         |         |              |     |     |     |   |        |         |        |  
|------------------------------------------------------------ | --------------------------------- | ---------------------------------------- | ------- | ------ | ------ | - | ------- | -------- | ------ | ----- | ---------- | ------- | ------- | ------------ | --- | --- | --- | - | ------ | ------- | ------ | -
|                                                             |                                   |                                          |         | PCI    |        |   | Pioneer |          |        | Other |            |         | Pioneer |             
|                                                             |                                   | PCI                                      |         |        | Canada |   |         | Americas |        |       | Guarantors |         |         | Consolidated |    
|                                                             |                                   |                                          |         |        |        |   |         |          |        |       |            |         |         |              |    
|Net cash flows from operating activities                     |                                   | $                                        | (22,374 | )      |        | $ | 3,363   |          |        | $     | 38,656     |         |         | $            | (6  | )   |     | $ | 19,639 |        
|Cash flows from investing activities:                        |                                   |                                          |         |        |        |   |         |          |        |       |            |         |         |              |     |     |     |   |        |        
|                                                             | Capital expenditures              |                                          |         |       |        |   |         | (3,074   | )      |       |            | (5,310  | )       |              |     |    |     |   |        | (8,384  | )     
|                                                             | Proceeds from disposal of assets  |                                          |         |       |        |   |         |         |        |       |            | 315     |         |              |     |    |     |   |        | 315     |       
|                                                             |                                   |                                          |         |        |        |   |         |          |        |       |            |         |         |              |    
|                                                             |                                   | Net cash flows from investing activities |         |        |       |   |         |          | (3,074 | )     |            |         | (4,995  | )            |     |     |    |   |        |         | (8,069 | )
|                                                             |                                   |                                          |         |        |        |   |         |          |        |       |            |         |         |              |    
|Cash flows from financing activities:                        |                                   |                                          |         |        |        |   |         |          |        |       |            |         |         |              |     |     |     |   |        |        
|                                                             | Repayments on long-term debt      |                                          |         |       |        |   |         | (793     | )      |       |            | (2,270  | )       |              |     | (16 | )   |   |        | (3,079  | )     
|                                                             | Revolving credit borrowings, net  |                                          |         |       |        |   |         |         |        |       |            | (16,823 | )       |              |     |    |     |   |        | (16,823 | )     
|                                                             | Proceeds from stock issuance, net |                                          |         | 22,374 |        |   |         |         |        |       |            |        |         |              |     |    |     |   |        | 22,374  |       
|                                                             |                                   |                                          |         |        |        |   |         |          |        |       |            |         |         |              |    
|                                                             |                                   | Net cash flows from financing activities |         |        | 22,374 |   |         |          | (793   | )     |            |         | (19,093 | )            |     |     | (16 | ) |        |         | 2,472  |  
|                                                             |                                   |                                          |         |        |        |   |         |          |        |       |            |         |         |              |    
|Effect of exchange rate changes on cash and cash equivalents |                                   |                                          |        |        |        |   | 203     |          |        |       |           |         |         |              |    |     |     |   | 203    |        
|                                                             |                                   |                                          |         |        |        |   |         |          |        |       |            |         |         |              |    
|Net increase (decrease) in cash and cash equivalents         |                                   |                                          |        |        |        |   | (301    | )        |        |       | 14,568     |         |         |              | (22 | )   |     |   | 14,245 |        
|Cash and cash equivalents at beginning of period             |                                   |                                          |        |        |        |   | 499     |          |        |       | 1,423      |         |         |              | 24  |     |     |   | 1,946  |        
|                                                             |                                   |                                          |         |        |        |   |         |          |        |       |            |         |         |              |    
|Cash and cash equivalents at end of period                   |                                   | $                                        |        |        |        | $ | 198     |          |        | $     | 15,991     |         |         | $            | 2   |     |     | $ | 16,191 |        
|                                                             |                                   |                                          |         |        |        |   |         |          |        |       |            |         |         |              |    

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS


Fiscal Year Ended December 31, 2003


|                                                             |                                  |                                          |    |     |        |   |         |          |        |       |            |        |         |              |    |     |     |   |        |        |        |  
|------------------------------------------------------------ | -------------------------------- | ---------------------------------------- | -- | --- | ------ | - | ------- | -------- | ------ | ----- | ---------- | ------ | ------- | ------------ | -- | --- | --- | - | ------ | ------ | ------ | -
|                                                             |                                  |                                          |    | PCI |        |   | Pioneer |          |        | Other |            |        | Pioneer |             
|                                                             |                                  | PCI                                      |    |     | Canada |   |         | Americas |        |       | Guarantors |        |         | Consolidated |   
|                                                             |                                  |                                          |    |     |        |   |         |          |        |       |            |        |         |              |   
|Net cash flows from operating activities                     |                                  | $                                        | (8 | )   |        | $ | 2,980   |          |        | $     | 11,252     |        |         | $            | 37 |     |     | $ | 14,261 |       
|Cash flows from investing activities:                        |                                  |                                          |    |     |        |   |         |          |        |       |            |        |         |              |    |     |     |   |        |       
|                                                             | Capital expenditures             |                                          |    |    |        |   |         | (3,794   | )      |       |            | (6,206 | )       |              |    | 2   |     |   |        | (9,998 | )     
|                                                             | Proceeds from disposal of assets |                                          |    |    |        |   |         |         |        |       |            |       |         |              |    |    |     |   |        |       |       
|                                                             |                                  |                                          |    |     |        |   |         |          |        |       |            |        |         |              |   
|                                                             |                                  | Net cash flows from investing activities |    |     |       |   |         |          | (3,794 | )     |            |        | (6,206  | )            |    |     | 2   |   |        |        | (9,998 | )
|                                                             |                                  |                                          |    |     |        |   |         |          |        |       |            |        |         |              |   
|Cash flows from financing activities:                        |                                  |                                          |    |     |        |   |         |          |        |       |            |        |         |              |    |     |     |   |        |       
|                                                             | Revolving credit borrowings, net |                                          |    |    |        |   |         |         |        |       |            | 2,119  |         |              |    |    |     |   |        | 2,119  |       
|                                                             | Repayments on long-term debt     |                                          |    |    |        |   |         | (649     | )      |       |            | (6,817 | )       |              |    | (28 | )   |   |        | (7,494 | )     
|                                                             | Proceeds from issuance of stock  |                                          |    | 8   |        |   |         |         |        |       |            |       |         |              |    |    |     |   |        | 8      |       
|                                                             |                                  |                                          |    |     |        |   |         |          |        |       |            |        |         |              |   
|                                                             |                                  | Net cash flows from financing activities |    |     | 8      |   |         |          | (649   | )     |            |        | (4,698  | )            |    |     | (28 | ) |        |        | (5,367 | )
|                                                             |                                  |                                          |    |     |        |   |         |          |        |       |            |        |         |              |   
|Effect of exchange rate changes on cash and cash equivalents |                                  |                                          |   |     |        |   | 261     |          |        |       |           |        |         |              |   |     |     |   | 261    |       
|                                                             |                                  |                                          |    |     |        |   |         |          |        |       |            |        |         |              |   
|Net increase (decrease) in cash and cash equivalents         |                                  |                                          |   |     |        |   | (1,202  | )        |        |       | 348        |        |         |              | 11 |     |     |   | (843   | )     
|Cash and cash equivalents at beginning of period             |                                  |                                          |   |     |        |   | 1,702   |          |        |       | 1,074      |        |         |              | 13 |     |     |   | 2,789  |       
|                                                             |                                  |                                          |    |     |        |   |         |          |        |       |            |        |         |              |   
|Cash and cash equivalents at end of period                   |                                  | $                                        |   |     |        | $ | 500     |          |        | $     | 1,422      |        |         | $            | 24 |     |     | $ | 1,946  |       
|                                                             |                                  |                                          |    |     |        |   |         |          |        |       |            |        |         |              |   

F-33



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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)


See






|   |                             
|-- | ----------------------------
|9. | Business Segment Information







|          |               |      |   |         |      |  |   |         |  |  |   |         | 
|--------- | ------------- | ---- | - | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|          |               | 2005 |   |         | 2004 |  |   | 2003    | 
|          |               |      |   |         |      |  |   |         | 
|Revenues: |               |      |   |         |      |  |   |         |  |  |   |        
|          | United States |      | $ | 405,867 |      |  | $ | 310,118 |  |  | $ | 284,625 | 
|          | Canada        |      |   | 108,665 |      |  |   | 96,423  |  |  |   | 92,778  | 
|          | Other         |      |   | 1,183   |      |  |   | 574     |  |  |   | 1,272   | 
|          |               |      |   |         |      |  |   |         | 
|          | Consolidated  |      | $ | 515,715 |      |  | $ | 407,115 |  |  | $ | 378,675 | 
|          |               |      |   |         |      |  |   |         | 

|                                 |               |      |   |         |      |  |   |         |  |  |  |  | 
|-------------------------------- | ------------- | ---- | - | ------- | ---- |  | - | ------- |  |  |  |  | 
|                                 |               | 2005 |   |         | 2004 |  |   |        
|                                 |               |      |   |         |      |  |   |        
|Long-lived assets (at year end): |               |      |   |         |      |  |   |         |  |  |  | 
|                                 | United States |      | $ | 64,382  |      |  | $ | 69,625  |  |  |  |  | 
|                                 | Canada        |      |   | 178,040 |      |  |   | 187,617 |  |  |  |  | 



|          |                           |      |   |         |      |  |   |         |  |  |   |         | 
|--------- | ------------------------- | ---- | - | ------- | ---- |  | - | ------- |  |  | - | ------- | 
|          |                           | 2005 |   |         | 2004 |  |   | 2003    | 
|          |                           |      |   |         |      |  |   |         | 
|Revenues: |                           |      |   |         |      |  |   |         |  |  |   |        
|          | Chlorine and caustic soda |      | $ | 386,011 |      |  | $ | 293,508 |  |  | $ | 276,209 | 
|          | Other                     |      |   | 129,704 |      |  |   | 113,607 |  |  |   | 102,366 | 
|          |                           |      |   |         |      |  |   |         | 
|          | Total revenues            |      | $ | 515,715 |      |  | $ | 407,115 |  |  | $ | 378,675 | 
|          |                           |      |   |         |      |  |   |         | 





|    |                 
|--- | ----------------
|10. | Asset Impairment

See


F-34



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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)






|    |                              
|--- | -----------------------------
|11. | Commitments and Contingencies



| |                      
| | ---------------------
| | Environmental Matters

See




| |                  
| | -----------------
| | Letters of Credit





| |                 
| | ----------------
| | Operating Leases



|           |                           |   |        |        | 
|---------- | ------------------------- | - | ------ | ------ | 
|2006       |                           | $ | 13,977 |       
|2007       |                           |   | 12,804 |       
|2008       |                           |   | 10,388 |       
|2009       |                           |   | 6,957  |       
|2010       |                           |   | 4,806  |       
|Thereafter |                           |   | 8,157  |       
|           |                           |   |       
|           | Total minimum obligations |   | $      | 57,089 | 
|           |                           |   |       





| |           
| | ----------
| | Litigation





St. Gabriel Mercury Vapor Emissions Release.


F-35



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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)






Claude
Frazier, et al. v. Pioneer Americas, LLC and State of
Louisiana through the Department of Environmental Quality,


Albany, N.Y. Mercury Refining Superfund Site. clean-up




| |                                 
| | --------------------------------
| | Collective Bargaining Agreements







|    |             
|--- | ------------
|12. | Income Taxes



F-36



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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)






|                                       |        |                                    |       |        |         |        |   |        |        |        |   |       |       |       | 
|-------------------------------------- | ------ | ---------------------------------- | ----- | ------ | ------- | ------ | - | ------ | ------ | ------ | - | ----- | ----- | ----- | 
|                                       |        | 2005                               |       |        | 2004    |        |   | 2003   |       
|                                       |        |                                    |       |        |         |        |   |        |       
|Current income tax (expense) benefit:  |        |                                    |       |        |         |        |   |        |        |        |   |      
|                                       | U.S.   |                                    | $     | (590   | )       |        | $ |       |        |        | $ | 144   |      
|                                       | State  |                                    |       | (17    | )       |        |   |       |        |        |   |      |      
|                                       | Canada |                                    |       | (1,538 | )       |        |   |       |        |        |   |      |      
|                                       |        |                                    |       |        |         |        |   |        |       
|                                       |        |                                    | Total |        | $       | (2,145 | ) |        | $      |       |   |       | $     | 144   | 
|                                       |        |                                    |       |        |         |        |   |        |       
|Deferred income tax (expense) benefit: |        |                                    |       |        |         |        |   |        |        |        |   |      
|                                       | U.S.   |                                    | $     | (886   | )       |        | $ |       |        |        | $ |      |      
|                                       | State  |                                    |       | (51    | )       |        |   |       |        |        |   |      |      
|                                       | Canada |                                    |       | (7,699 | )       |        |   | (2,127 | )      |        |   | 3,142 |      
|                                       |        |                                    |       |        |         |        |   |        |       
|                                       |        |                                    | Total |        | $       | (8,636 | ) |        | $      | (2,127 | ) |       | $     | 3,142 | 
|                                       |        |                                    |       |        |         |        |   |        |       
|                                       |        | Total income tax (expense) benefit |       | $      | (10,781 | )      |   | $      | (2,127 | )      |   | $     | 3,286 |      
|                                       |        |                                    |       |        |         |        |   |        |       



|                                                        |                             |        |         |         |         |  |     |        |   |   |         |        |   |        |      |      |         |   |        |       |  |  |     |    | 
|------------------------------------------------------- | --------------------------- | ------ | ------- | ------- | ------- |  | --- | ------ | - | - | ------- | ------ | - | ------ | ---- | ---- | ------- | - | ------ | ----- |  |  | --- | -- | 
|                                                        |                             | 2005   |         |         | 2004    |  |     | 2003   |  
|                                                        |                             |        |         |         |         |  |     |        |  
|                                                        |                             | Amount |         |         | Percent |  |     | Amount |   |   | Percent |        |   | Amount |      |      | Percent |  
|                                                        |                             |        |         |         |         |  |     |        |   |   |         |        |   |        |      |      |         |  
|Tax at U.S. statutory rates                             |                             | $      | (29,145 | )       |         |  | (35 | )      |   | $ | (310    | )      |   |        | (35  | )    |         | $ | (5,293 | )     |  |  | (35 | ) 
|State and foreign income taxes, net of U.S. tax benefit |                             |        | (13,280 | )       |         |  | (16 | )      |   |   | 1,732   |        |   |        | 196  |      |         |   | 2,837  |       |  |  | 19  |   
|U.S. income tax refund                                  |                             |        |        |         |         |  |    |        |   |   |        |        |   |        |     |      |         |   | 144    |       |  |  | 1   |   
|Adjustments to carryforward                             |                             |        | (69,993 | )       |         |  | (84 | )      |   |   |        |        |   |        |     |      |         |   |       |       |  |  |    |   
|Other                                                   |                             |        | (1,001  | )       |         |  | (1  | )      |   |   | (637    | )      |   |        | (72  | )    |         |   | (67    | )     |  |  |    |   
|Valuation allowance                                     |                             |        | 102,638 |         |         |  | 123 |        |   |   | (2,912  | )      |   |        | (329 | )    |         |   | 5,665  |       |  |  | 37  |   
|                                                        |                             |        |         |         |         |  |     |        |   |   |         |        |   |        |      |      |         |  
|                                                        | Total tax (expense) benefit |        | $       | (10,781 | )       |  |     | (13    | ) |   | $       | (2,127 | ) |        |      | (240 | )       |   | $      | 3,286 |  |  |     | 22 | 
|                                                        |                             |        |         |         |         |  |     |        |   |   |         |        |   |        |      |      |         |  

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PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




|                                            |                                            |                                |         |         |         |   |      |         |         |   |         |         |         |        |          |         |         |   |        |         |         |   |          |         |         |  
|------------------------------------------- | ------------------------------------------ | ------------------------------ | ------- | ------- | ------- | - | ---- | ------- | ------- | - | ------- | ------- | ------- | ------ | -------- | ------- | ------- | - | ------ | ------- | ------- | - | -------- | ------- | ------- | -
|                                            |                                            | 2005                           |         |         | 2004    |  
|                                            |                                            |                                |         |         |         |  
|                                            |                                            | U.S.                           |         |         | Canada  |   |      | Total   |         |   | U.S.    |         |         | Canada |          |         | Total   |  
|                                            |                                            |                                |         |         |         |   |      |         |         |   |         |         |         |        |          |         |         |  
|Deferred tax liabilities:                   |                                            |                                |         |         |         |   |      |         |         |   |         |         |         |        |          |         |         |   |        |         |         |   |          |        
|                                            | Property, plant and equipment              |                                | $       | (27,556 | )       |   | $    | (30,730 | )       |   | $       | (58,286 | )       |        | $        | (22,817 | )       |   | $      | (31,147 | )       |   | $        | (53,964 | )      
|                                            |                                            |                                |         |         |         |   |      |         |         |   |         |         |         |        |          |         |         |  
|                                            |                                            | Total deferred tax liabilities |         |         | (27,556 | ) |      |         | (30,730 | ) |         |         | (58,286 | )      |          |         | (22,817 | ) |        |         | (31,147 | ) |          |         | (53,964 | )
|                                            |                                            |                                |         |         |         |   |      |         |         |   |         |         |         |        |          |         |         |  
|Deferred tax assets:                        |                                            |                                |         |         |         |   |      |         |         |   |         |         |         |        |          |         |         |   |        |         |         |   |          |        
|                                            | Goodwill                                   |                                |         | 1,522   |         |   |      | (9,275  | )       |   |         | (7,753  | )       |        |          | 7,623   |         |   |        | (8,371  | )       |   |          | (748    | )      
|                                            | Pension and other post-retirement benefits |                                |         | 3,986   |         |   |      | 1,350   |         |   |         | 5,336   |         |        |          | 7,597   |         |   |        | 1,907   |         |   |          | 9,504   |        
|                                            | Environmental reserve                      |                                |         | 2,680   |         |   |      | 884     |         |   |         | 3,564   |         |        |          | 4,831   |         |   |        | 1,412   |         |   |          | 6,243   |        
|                                            | Tax credit and other tax loss carryovers   |                                |         | 2,444   |         |   |      | 3,681   |         |   |         | 6,125   |         |        |          | 1,318   |         |   |        | 6,015   |         |   |          | 7,333   |        
|                                            | Other                                      |                                |         | 10,793  |         |   |      | 1,875   |         |   |         | 12,668  |         |        |          | 7,993   |         |   |        | 1,476   |         |   |          | 9,469   |        
|                                            | Net operating loss carryforward            |                                |         | 20,992  |         |   |      |        |         |   |         | 20,992  |         |        |          | 103,103 |         |   |        | 8,137   |         |   |          | 111,240 |        
|                                            |                                            |                                |         |         |         |   |      |         |         |   |         |         |         |        |          |         |         |  
|                                            |                                            | Total deferred tax assets      |         |         | 42,417  |   |      |         | (1,485  | ) |         |         | 40,932  |        |          |         | 132,465 |   |        |         | 10,576  |   |          |         | 143,041 |  
|Valuation allowance for deferred tax assets |                                            |                                | (14,861 | )       |         |   | (935 | )       |         |   | (15,796 | )       |         |        | (109,648 | )       |         |   | (3,867 | )       |         |   | (113,515 | )      
|                                            |                                            |                                |         |         |         |   |      |         |         |   |         |         |         |        |          |         |         |  
|                                            |                                            | Net deferred tax assets        |         |         | 27,556  |   |      |         | (2,420  | ) |         |         | 25,136  |        |          |         | 22,817  |   |        |         | 6,709   |   |          |         | 29,526  |  
|                                            |                                            |                                |         |         |         |   |      |         |         |   |         |         |         |        |          |         |         |  
|                                            |                                            | Net deferred tax liabilities   |         | $       |        |   |      | $       | (33,150 | ) |         | $       | (33,150 | )      |          | $       |        |   |        | $       | (24,438 | ) |          | $       | (24,438 | )
|                                            |                                            |                                |         |         |         |   |      |         |         |   |         |         |         |        |          |         |         |  







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PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)














|    |                                            
|--- | -------------------------------------------
|13. | Other Long-Term Liabilities  Environmental

clean-up




F-39



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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)






Henderson, Nevada.








F-40



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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)






Tacoma, Washington.


See


Canadian Sites.




F-41



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PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)










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PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




|    |                                              
|--- | ---------------------------------------------
|14. | Selected Quarterly Financial Data (Unaudited)

|                             |                                                                   |                           |                                                                 |         |         |      |         |         |       |      |         |        |      |      |         |        |      |       |  
|---------------------------- | ----------------------------------------------------------------- | ------------------------- | --------------------------------------------------------------- | ------- | ------- | ---- | ------- | ------- | ----- | ---- | ------- | ------ | ---- | ---- | ------- | ------ | ---- | ----- | -
|                             |                                                                   | First                     |                                                                 |         | Second  |      |         | Third   |       |      | Fourth  |       
|                             |                                                                   | Quarter                   |                                                                 |         | Quarter |      |         | Quarter |       |      | Quarter |       
|                             |                                                                   |                           |                                                                 |         |         |      |         |         |       |      |         |       
|Year ended December 31, 2005 |                                                                   |                           |                                                                 |         |         |      |         |         |       |      |         |        |      |      |         |       
|Revenues                     |                                                                   | $                         | 119,090                                                         |         |         | $    | 132,859 |         |       | $    | 132,773 |        |      | $    | 130,993 |       
|                             | Gross profit                                                      |                           |                                                                 | 31,482  |         |      |         | 40,262  |       |      |         | 36,686 |      |      |         | 31,060 |     
|                             | Operating income                                                  |                           |                                                                 | 22,514  |         |      |         | 30,751  |       |      |         | 27,468 |      |      |         | 19,348 |     
|                             | Income before income taxes                                        |                           |                                                                 | 18,431  |         |      |         | 27,046  |       |      |         | 22,160 |      |      |         | 15,634 |     
|                             | Income before cumulative effect of change in accounting principle |                           |                                                                 | 15,020  |         |      |         | 24,089  |       |      |         | 20,102 |      |      |         | 13,279 |     
|                             | Cumulative effect of change in accounting principle, net of tax   |                           |                                                                 |        |         |      |         |        |       |      |         |       |      |      |         | (2,194 | )   
|                             | Net income                                                        |                           |                                                                 | 15,020  |         |      |         | 24,089  |       |      |         | 20,102 |      |      |         | 11,085 |     
|                             | Per share data:                                                   |                           |                                                                 |         |         |      |         |         |       |      |         |        |      |      |         |        |     
|                             |                                                                   | Basic:                    |                                                                 |         |         |      |         |         |       |      |         |        |      |      |         |        |      |      
|                             |                                                                   |                           | Income before change in accounting principle                    |         | $       | 1.34 |         |         | $     | 2.14 |         |        | $    | 1.76 |         |        | $    | 1.14  |  
|                             |                                                                   |                           | Cumulative effect of change in accounting principle, net of tax |         |         |     |         |         |       |     |         |        |      |     |         |        |      | (0.19 | )
|                             |                                                                   |                           |                                                                 |         |         |      |         |         |       |      |         |       
|                             |                                                                   |                           | Net income                                                      |         | $       | 1.34 |         |         | $     | 2.14 |         |        | $    | 1.76 |         |        | $    | 0.95  |  
|                             |                                                                   |                           |                                                                 |         |         |      |         |         |       |      |         |       
|                             |                                                                   | Diluted:                  |                                                                 |         |         |      |         |         |       |      |         |        |      |      |         |        |      |      
|                             |                                                                   |                           | Income before change in accounting principle                    |         | $       | 1.28 |         |         | $     | 2.05 |         |        | $    | 1.70 |         |        | $    | 1.12  |  
|                             |                                                                   |                           | Cumulative effect of change in accounting principle, net of tax |         |         |     |         |         |       |     |         |        |      |     |         |        |      | (0.18 | )
|                             |                                                                   |                           |                                                                 |         |         |      |         |         |       |      |         |       
|                             |                                                                   |                           | Net income                                                      |         | $       | 1.28 |         |         | $     | 2.05 |         |        | $    | 1.70 |         |        | $    | 0.94  |  
|                             |                                                                   |                           |                                                                 |         |         |      |         |         |       |      |         |       
|Year ended December 31, 2004 |                                                                   |                           |                                                                 |         |         |      |         |         |       |      |         |        |      |      |         |       
|Revenues                     |                                                                   | $                         | 90,026                                                          |         |         | $    | 97,072  |         |       | $    | 104,979 |        |      | $    | 115,038 |       
|                             | Gross profit                                                      |                           |                                                                 | 3,715   |         |      |         | 12,755  |       |      |         | 14,679 |      |      |         | 22,512 |     
|                             | Operating income (loss)                                           |                           |                                                                 | (3,039  | )       |      |         | 1,209   |       |      |         | 9,158  |      |      |         | 14,751 |     
|                             | Income (loss) before income taxes                                 |                           |                                                                 | (7,555  | )       |      |         | (2,743  | )     |      |         | 2,732  |      |      |         | 8,451  |     
|                             | Net income (loss)                                                 |                           |                                                                 | (7,293  | )       |      |         | (2,401  | )     |      |         | 3,917  |      |      |         | 4,535  |     
|                             | Per share data:                                                   |                           |                                                                 |         |         |      |         |         |       |      |         |        |      |      |         |        |     
|                             |                                                                   | Basic net income (loss)   |                                                                 | $       | (0.73   | )    |         | $       | (0.24 | )    |         | $      | 0.39 |      |         | $      | 0.44 |      
|                             |                                                                   |                           |                                                                 |         |         |      |         |         |       |      |         |       
|                             |                                                                   | Diluted net income (loss) |                                                                 | $       | (0.73   | )    |         | $       | (0.24 | )    |         | $      | 0.38 |      |         | $      | 0.41 |      
|                             |                                                                   |                           |                                                                 |         |         |      |         |         |       |      |         |       
|Year ended December 31, 2003 |                                                                   |                           |                                                                 |         |         |      |         |         |       |      |         |        |      |      |         |       
|Revenues                     |                                                                   | $                         | 89,031                                                          |         |         | $    | 96,316  |         |       | $    | 100,001 |        |      | $    | 93,327  |       
|                             | Gross profit (loss)                                               |                           |                                                                 | (16,559 | )       |      |         | 15,544  |       |      |         | 13,650 |      |      |         | 4,237  |     
|                             | Operating income                                                  |                           |                                                                 | 21,536  |         |      |         | 10,276  |       |      |         | 7,682  |      |      |         | 287    |     
|                             | Income (loss) before income taxes                                 |                           |                                                                 | 14,845  |         |      |         | 2,920   |       |      |         | 3,010  |      |      |         | (5,874 | )   
|                             | Net income (loss)                                                 |                           |                                                                 | 16,378  |         |      |         | 5,046   |       |      |         | 1,953  |      |      |         | (5,190 | )   

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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)


|                |                           |         |   |      |         |  |   |         |  |  |         |      |  |  |   |       |  
|--------------- | ------------------------- | ------- | - | ---- | ------- |  | - | ------- |  |  | ------- | ---- |  |  | - | ----- | -
|                |                           | First   |   |      | Second  |  |   | Third   |  |  | Fourth  |     
|                |                           | Quarter |   |      | Quarter |  |   | Quarter |  |  | Quarter |     
|                |                           |         |   |      |         |  |   |         |  |  |         |     
|Per share data: |                           |         |   |      |         |  |   |         |  |  |         |      |  |  |   |      
|                | Basic net income (loss)   |         | $ | 1.64 |         |  | $ | 0.50    |  |  | $       | 0.20 |  |  | $ | (0.52 | )
|                |                           |         |   |      |         |  |   |         |  |  |         |     
|                | Diluted net income (loss) |         | $ | 1.63 |         |  | $ | 0.50    |  |  | $       | 0.19 |  |  | $ | (0.52 | )
|                |                           |         |   |      |         |  |   |         |  |  |         |     





|    |                              
|--- | -----------------------------
|15. | Asset Sales and Redeployments

Tacoma, Washington.




Cornwall, Ontario.


Pending Sale of Acreage in Henderson, Nevada.


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PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)






|    |                      
|--- | ---------------------
|16. | Restructuring Charges

see


Project STAR.


Cornwall Asset Sale and Redeployment.


Tacoma Plant Shutdown.




|                |                                                 |                   |       |       |                     |   |       |                   |  |   |                   |       |  |            |       |       |  |   |       |       | 
|--------------- | ----------------------------------------------- | ----------------- | ----- | ----- | ------------------- | - | ----- | ----------------- |  | - | ----------------- | ----- |  | ---------- | ----- | ----- |  | - | ----- | ----- | 
|                |                                                 | Liability Balance |       |       | Costs Recognized    |   |       | Costs Paid Twelve |  |   | Liability Balance |       |  | Cumulative |      
|                |                                                 | as of             |       |       | Twelve Months Ended |   |       | Months Ended      |  |   | as of             |       |  | Costs      |      
|                |                                                 | Dec. 31, 2004     |       |       | December 31, 2005   |   |       | December 31, 2005 |  |   | December 31, 2005 |       |  | Recognized |      
|                |                                                 |                   |       |       |                     |   |       |                   |  |   |                   |       |  |            |      
|Severance       |                                                 |                   |       |       |                     |   |       |                   |  |   |                   |       |  |            |       |       |  |   |       |      
|                | Project STAR  Original                         |                   | $     | 1,446 |                     |   | $     | 98                |  |   | $                 | 1,370 |  |            | $     | 174   |  |   | $     | 3,640 | 
|                | Extension of Project STAR concepts to Dalhousie |                   |       |      |                     |   |       | 340               |  |   |                   | 148   |  |            |       | 192   |  |   |       | 340   | 
|                |                                                 |                   |       |       |                     |   |       |                   |  |   |                   |       |  |            |      
|                | Total, Project STAR                             |                   |       | 1,446 |                     |   |       | 438               |  |   |                   | 1,518 |  |            |       | 366   |  |   |       | 3,980 | 
|                | Cornwall  asset transfer and sale              |                   |       | 447   |                     |   |       | 1,437             |  |   |                   | 481   |  |            |       | 1,403 |  |   |       | 1,884 | 
|                | Termination of Tacoma terminal operations       |                   |       |      |                     |   |       | 254               |  |   |                   |      |  |            |       | 254   |  |   |       | 254   | 
|                |                                                 |                   |       |       |                     |   |       |                   |  |   |                   |       |  |            |      
|Total Severance |                                                 | $                 | 1,893 |       |                     | $ | 2,129 |                   |  | $ | 1,999             |       |  | $          | 2,023 |       |  | $ | 6,118 |      
|                |                                                 |                   |       |       |                     |   |       |                   |  |   |                   |       |  |            |      



F-45



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PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




|    |                             
|--- | ----------------------------
|17. | Asset Retirement Obligations

Accounting for Asset Retirement
Obligations






F-46



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##### Table of Contents



PIONEER COMPANIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS   (Continued)




|                                                                                          |          |                                                                              |        |      |       |   |        |       |       |   |        |      |      | 
|----------------------------------------------------------------------------------------- | -------- | ---------------------------------------------------------------------------- | ------ | ---- | ----- | - | ------ | ----- | ----- | - | ------ | ---- | ---- | 
|                                                                                          |          | As of and for the Year ended                                                 |       
|                                                                                          |          | December 31,                                                                 |       
|                                                                                          |          |                                                                              |       
|                                                                                          |          | 2005                                                                         |        |      | 2004  |   |        | 2003  |      
|                                                                                          |          |                                                                              |        |      |       |   |        |       |      
|Pro-forma amounts assuming the accounting change is applied
    retroactively net of tax: |          |                                                                              |        |      |       |   |        |       |       |   |        |     
|Net income (loss)                                                                         |          | $                                                                            | 71,911 |      |       | $ | (1,797 | )     |       | $ | 17,656 |     
|Net income (loss) per share data:                                                         |          |                                                                              |        |      |       |   |        |       |       |   |        |     
|                                                                                          | Basic    |                                                                              | $      | 6.32 |       |   | $      | (0.18 | )     |   | $      | 1.77 |     
|                                                                                          | Diluted  |                                                                              | $      | 6.09 |       |   | $      | (0.18 | )     |   | $      | 1.74 |     
|                                                                                         
|As-reported income (loss) per share data:                                                 |          |                                                                              |        |      |       |   |        |       |       |   |        |     
|                                                                                          | Basic:   |                                                                              |        |      |       |   |        |       |       |   |        |      |     
|                                                                                          |          | Income (loss) before cumulative effect of change in accounting
    principle |        | $    | 6.37  |   |        | $     | (0.12 | ) |        | $    | 1.82 | 
|                                                                                          |          | Cumulative effect of change in accounting principle, net of tax              |        |      | (0.19 | ) |        |       |      |   |        |      |     | 
|                                                                                          |          |                                                                              |        |      |       |   |        |       |      
|                                                                                          |          | Net income (loss)                                                            |        | $    | 6.18  |   |        | $     | (0.12 | ) |        | $    | 1.82 | 
|                                                                                          |          |                                                                              |        |      |       |   |        |       |      
|                                                                                          | Diluted: |                                                                              |        |      |       |   |        |       |       |   |        |      |     
|                                                                                          |          | Income (loss) before cumulative effect of change in accounting
    principle |        | $    | 6.14  |   |        | $     | (0.12 | ) |        | $    | 1.79 | 
|                                                                                          |          | Cumulative effect of change in accounting principle, net of tax              |        |      | (0.19 | ) |        |       |      |   |        |      |     | 
|                                                                                          |          |                                                                              |        |      |       |   |        |       |      
|                                                                                          |          | Net income (loss)                                                            |        | $    | 5.95  |   |        | $     | (0.12 | ) |        | $    | 1.79 | 
|                                                                                          |          |                                                                              |        |      |       |   |        |       |      
|                                                                                         
|Pro-forma amounts of liability for asset retirement obligation
    at end of period       |          | $                                                                            | 4,036  |      |       | $ | 3,734  |       |       | $ | 3,433  |     

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EXHIBIT INDEX


|            |   |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|----------- | - | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |   | Description
|            |   |            
|            | 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 and Sale Agreement dated December 22, 2005
    between Mariana Properties, Inc. and Pioneer Americas LLC
    (incorporated by reference to Exhibit 10.1 to
    Pioneers Current Report on Form 8-K filed on
    January 5, 2006).                                                                                                                                                                             
|            | 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          |  | First Supplemental Indenture dated as of June 30, 2005
    among PCI Chemicals Canada Company, the guarantors named therein
    and Wells Fargo Bank, National Association, as trustee, relating
    to the $150,000,000 principal amount of 10% Senior Secured
    Guaranteed Notes due 2008.                                                                                                                                
|            | 4 | .4*         |  | 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 | .5*         |  | 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 | .6*         |  | 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).                                                     
|            | 4 | .7*         |  | 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 (incorporated
    by reference to Exhibit 4.8 to Pioneers Annual Report
    on Form 10-K for the fiscal year ended December 31,
    2002).                            



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##### Table of Contents



|            |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|----------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 4  | .8*         |  | 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
    (incorporated by reference to Exhibit 4.9 to Pioneers
    Annual Report on Form 10-K for the fiscal year ended
    December 31, 2002).                                                                                                                                     
|            | 4  | .9*         |  | Fifth Amendment to Loan and Security Agreement effective as of
    July 1, 2003, 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 4.10 to Pioneers Annual
    Report on Form 10-K for the fiscal year ended
    December 31, 2003).                                                                                                                                          
|            | 4  | .10*        |  | Sixth Amendment to Loan and Security Agreement effective as of
    December 31, 2003, 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 4.11 to
    Pioneers Annual Report on Form 10-K for the fiscal
    year ended December 31, 2003).                                                                                                                                     
|            | 4  | .11*        |  | 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 (incorporated by
    reference to Exhibit 10.2 to Pioneers Annual Report
    on Form 10-K for the fiscal year ended December 31,
    2002).                                                                                                                                                                                                                                                                                    
|            | 10 | .3*         |  | Indemnity Agreement dated March 14, 2002, between Pioneer
    Companies, Inc. and Marvin E. Lesser (incorporated by reference
    to Exhibit 10.1 to Pioneers Quarterly Report on
    Form 10-Q for the quarter ended March 31, 2002).                                                                                                                                                                                                                                                                                                     
|            | 10 | .4*         |  | Indemnity Agreement dated March 14, 2002, between Pioneer
    Companies, Inc. and Michael Y. McGovern (incorporated by
    reference to Exhibit 10.2 to Pioneers Quarterly
    Report on Form 10-Q for the quarter ended March 31,
    2002).                                                                                                                                                                                                                                                                                              
|            | 10 | .5*         |  | Indemnity Agreement dated March 9, 2005, between Pioneer
    Companies, Inc. and David A. Scholes (incorporated by reference
    to Exhibit 10.7 to Pioneers Annual Report on
    Form 10-K for the fiscal year ended December 31, 2004).                                                                                                                                                                                                                                                                                                  
|            | 10 | .6          |  | Indemnity Agreement dated May 13, 2004, between Pioneer
    Companies, Inc. and Charles L. Mears.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            | 10 | .7          |  | Indemnity Agreement dated May 12, 2005, between Pioneer
    Companies, Inc. and Richard L. Urbanowski.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | 10 | .8          |  | Indemnity Agreement dated January 24, 2006 between Pioneer
    Companies, Inc. and Robert E. Allen.                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            | 10 | .9*+        |  | Pioneer Companies, Inc. Discretionary Severance Benefit Plan,
    effective May 1, 2003 (incorporated by reference to
    Exhibit 10.9 to Pioneers Annual Report on
    Form 10-K for the fiscal year ended December 31, 2003).                                                                                                                                                                                                                                                                                                            
|            | 10 | .10+        |  | Notice Letter dated November 14, 2005 between Kent R.
    Stephenson and Pioneer Companies, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            | 10 | .11*        |  | Agreement of Purchase and Sale and Joint Escrow Instructions
    dated effective as of June 3, 2005 (Henderson Sale
    Agreement), by and between Pioneer Americas LLC
    (PALLC) and Marnell Properties, LLC relating to the
    sale of approximately sixty acres of real property adjacent to
    PALLCs chlor-alkali manufacturing facility in Henderson,
    Nevada (incorporated by reference to Exhibit 10.1 to
    Pioneers Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2005 filed on August 12, 2005).
|            | 10 | .12         |  | First Amendment and Assignment of Agreement of Purchase and Sale
    and Joint Escrow Instructions, dated as of October 31,
    2005, among PALLC, Marnell Properties, LLC and Century Steel,
    Inc.                                                                                                                                                                                                                                                                                                                                      
|            | 14 | .1*         |  | Pioneer Companies, Inc. Code of Business Conduct and Ethics
    (incorporated by reference to Exhibit 14.1 to
    Pioneers Annual Report on Form 10-K for the fiscal
    year ended December 31, 2003).                                                                                                                                                                                                                                                                                                                                    



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##### Table of Contents



|            |    |             |  |                                                                                                                                                                
|----------- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 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).  
|            | 23 | .1          |  | Consent of Independent Registered Public Accounting Firm.                                                                                                      
|            | 31 | .1          |  | Certification of Michael Y. McGovern required by
    Rule 13a-14(a) or Rule 15d-14(a) under the Securities
    Exchange Act of 1934.                           
|            | 31 | .2          |  | Certification of Gary L. Pittman required by Rule 13a-14(a)
    or Rule 15d-14(a) under the Securities Exchange Act of 1934.                                   
|            | 32 | .1          |  | Certification of Michael Y. McGovern required by
    Rule 13a-14(b) or Rule 15d-14(b) under the Securities
    Exchange Act of 1934 and 18 U.S.C. Section 1350.
|            | 32 | .2          |  | Certification of Gary L. Pittman required by Rule 13a-14(b)
    or Rule 15d-14(b) under the Securities Exchange Act of 1934
    and 18 U.S.C. Section 1350.    
|            | 99 | .1          |  | Schedule II   Valuation and Qualifying Accounts.                                                                                                              






|  |                                                                                                                                          
|- | -----------------------------------------------------------------------------------------------------------------------------------------
|* | 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.