<PAGE>   1


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

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

                                    FORM 10-K

           [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
               SECURITIES EXCHANGE ACT OF 1994 (FEE REQUIRED)

                   For the fiscal year ended December 31, 1996

                                       OR

           [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
               SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                        For the transition period from to

                          COMMISSION FILE NUMBER 1-9859

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

              DELAWARE                                    06-1215192
             (State or other jurisdiction of              (I.R.S. Employer
             incorporation or organization)               Identification No.)


             4200 NATIONSBANK CENTER
             700 LOUISIANA STREET
             HOUSTON, TEXAS                                     77002
             (ADDRESS OF  PRINCIPAL EXECUTIVE OFFICES)        (ZIP CODE)


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


SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                                      NONE.

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                      Class A Common Stock, $.01 par value
                                 (Title of class)

       On March 26, 1997, there were outstanding 8,623,220 shares of the
Company's Class A Common Stock, $.01 par value. The aggregate market value of
the Company's voting stock held by non-affiliates of the Company is $13,919,331,
based on the closing price for the Class A Common Stock in consolidated trading
on March 26, 1997.

      INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR SUCH SHORTER PERIOD THAT THE REGISTRANT
WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X , NO ___.

      INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [X]

      INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT. YES X , NO ___.

DOCUMENTS INCORPORATED BY REFERENCE:
      Portions of the proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act
of 1934 in connection with the Company's 1997 Annual Meeting of Stockholders are
incorporated by reference in Part III of this Annual Report on Form 10-K.


<PAGE>   2


                             PIONEER COMPANIES, INC.



                                TABLE OF CONTENTS
                            FORM 10-K FOR THE PERIOD
                             ENDED DECEMBER 31, 1996

<TABLE>
<S>          <C>                                                                                           <C>
                                      PART I                                                                PAGE
                                      ------                                                                ----
Item 1.      Business                                                                                         3

Item 2.      Properties                                                                                       9

Item 3       Legal Proceedings                                                                               12

Item 4.      Submission of Matters to a Vote of Security Holders                                             12

                                     PART II
                                     -------
Item 5.      Market for Registrant's Common Equity and Related Stockholder Matters                           14

Item 6.      Selected Financial Data                                                                         15

Item 7.      Management's Discussion and Analysis of Financial Condition and Results of Operations           17

Item 8.      Financial Statements and Supplementary Data                                                     24

Item 9.      Changes in and Disagreements with Accountants on Accounting and Financial Disclosure            48

                                    PART III
                                    --------
Item 10.     Directors and Executive Officers of the Registrant                                              49

Item 11.     Executive Compensation                                                                          49

Item 12.     Security Ownership of Certain Beneficial Owners and Management                                  49

Item 13.     Certain Relationships and Related Transactions                                                  49

                                     PART IV
                                     -------
Item 14.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K                                50
</TABLE>


                                       2


<PAGE>   3


                                     PART I

     Unless the context otherwise requires, (i) the term "Pioneer" refers to
Pioneer Companies, Inc., (ii) the term "PAAC" refers to Pioneer Americas
Acquisition Corp., a wholly-owned subsidiary of Pioneer, (iii) the terms
"Pioneer Americas" and "Predecessor Company" refer to Pioneer Americas, Inc.
and its subsidiaries, and (iv) the term "Company" means Pioneer and its
consolidated subsidiaries.


Item 1.  BUSINESS.

THE ACQUISITION

     On April 20, 1995 (the "Closing Date"), pursuant to a Stock Purchase
Agreement, dated as of March 24, 1995 (the "Acquisition Agreement"), by and
among Pioneer, PAAC and the holders of the outstanding common stock and other
common equity interests of Pioneer Americas, Inc. (the "Sellers"), PAAC acquired
all of such stock and interests (the "Acquisition") for a purchase price equal
to the sum of approximately (i) $102 million, paid in cash, (ii) $11.5 million
aggregate principal amount of subordinated promissory notes of Pioneer (the
"Seller Notes") and (iii) certain amounts payable after the closing based upon
earnings or proceeds attributable to certain of the Company's direct and
indirect real estate holdings which are not necessary for the Company's
chlor-alkali business. In addition, as further consideration for the
Acquisition, PAAC paid approximately $51.7 million to retire all outstanding
indebtedness of Pioneer Americas and $5 million to redeem the outstanding
preferred stock of Pioneer Americas, Inc.

     In connection with the consummation of the Acquisition, (i) PAAC issued
$135 million in principal amount of 13 3/8% Senior Notes due 2005 (the "Senior
Notes"), (ii) Pioneer issued the Seller Notes in exchange for certain of the
outstanding shares of Pioneer Americas, Inc., which Pioneer contributed to PAAC,
(iii) Pioneer issued to Interlaken Investment Partners, L.P., a Delaware limited
partnership (the "Interlaken Partnership"), Class A Common Stock of Pioneer for
an aggregate purchase price of $15 million (the "Interlaken Partnership
Purchase"), the proceeds of which were contributed to PAAC, (iv) Pioneer issued
to certain employees of Pioneer Americas Class A Common Stock of Pioneer for an
aggregate purchase price of $6 million (the "Management Purchase"), the proceeds
of which were contributed to PAAC, and (v) Pioneer Americas entered into a new
bank revolving credit facility (the "Bank Credit Facility") with Bank of America
Illinois, providing for borrowings of up to $30 million. The net proceeds of the
sale of the Senior Notes, the Interlaken Partnership Purchase, the Management
Purchase and a borrowing under the Bank Credit Facility were used to pay the
cash portion of the purchase price of the Acquisition, to retire the outstanding
Pioneer Americas indebtedness and to redeem the outstanding preferred stock of
Pioneer Americas, Inc.

GENERAL

         Prior to the Acquisition, Pioneer was actively seeking acquisitions and
had no other operations. As of December 31, 1996, Pioneer had a net operating
loss carryforward ("NOL") which it believes is now approximately $35.6 million
and is available to offset future taxable income. As of December 31, 1996, the
Interlaken Partnership beneficially owned approximately 35.6% of the voting
power of Pioneer and William R. Berkley (who may be deemed to beneficially own
all shares of Pioneer common stock held by the Interlaken Partnership)
beneficially owned approximately 61.0% of the voting power of Pioneer. Mr.
Berkley is Chairman of the Board of Directors of Pioneer.

     Following its formation in 1988, the Predecessor Company acquired two
chlor-alkali plants previously owned and operated by Stauffer Chlor Alkali
Company, Inc., and several businesses engaged in municipal, industrial and
commercial water treatment. During 1996 the Company conducted its primary
business through its operating subsidiaries: Pioneer Chlor Alkali Company, Inc.
("PCAC"), All-Pure Chemical Co. ("All-Pure") (including T.C. Products, Inc.
following its acquisition in July 1996), and Imperial West Chemical Co.
("Imperial West") and Kemwater North America Company ("Kemwater"). In 1996, PCAC
accounted for 58% of the Company's total

                                       3
<PAGE>   4

revenues, and All-Pure and Imperial West/Kemwater accounted for 24% and 18%,
respectively, of the Company's total revenues, net of intercompany eliminations.
In February 1996 Pioneer formed Kemwater to continue the business activities
previously conducted by its subsidiary, Imperial West, and to operate the
business acquired through the acquisition of KWT, Inc. ("KWT") from a subsidiary
of Kemira Oy of Finland ("Kemira").

         PCAC. PCAC owns and operates two chlor-alkali production facilities,
located in St. Gabriel, Louisiana and Henderson, Nevada. These facilities, which
are the largest operated by the Company, produce chlorine and caustic soda for
sale in the merchant markets and for use as raw materials by PCAC, All-Pure and
Kemwater in the manufacture of downstream products. The Henderson facility also
produces hydrochloric acid. PCAC also has an indirect 15% equity interest in
Saguaro Power Company L.P. ("Saguaro Power"), which owns and operates a
90-megawatt cogeneration facility located on approximately six acres of the
Henderson property.

     Chlorine and caustic soda are co-products, concurrently produced in a ratio
of 1 to 1.1, respectively, through electrolysis of salt water. An
electrochemical unit ("ECU") consists of one ton of chlorine and 1.1 tons of
caustic soda.

       On December 11, 1996, the Company announced that it had initiated
discussions with Occidental Chemical Corporation ("OxyChem") regarding the
proposed acquisition by the Company of OxyChem's Tacoma, Washington chlor-alkali
facility (the "Tacoma Facility"). If agreement with OxyChem on the terms of the
transaction can be reached, the Company expects that the securing of required
financing and completion of the transaction could occur during the first half
of 1997. The Tacoma Facility would be PCAC's largest plant.

     All-Pure. All-Pure manufactures bleach, repackages chlorine and
hydrochloric acid and distributes these products along with caustic soda and
related products to municipalities, swimming pool supply distributors and
selected commercial and retail markets in the western United States. Because
bleach contains a high percentage of water, freight costs and logistics are an
important competitive factor. All-Pure's production plants and distribution
facilities are strategically located in or near most of the largest population
centers of the West Coast. All-Pure purchases all of its chlorine and caustic
soda and a substantial portion of its hydrochloric acid from PCAC. In July 1996,
All-Pure acquired T.C. Products, Inc. ("T.C. Products"), which is engaged in the
manufacture and marketing of bleach and related products from its plant in
Tacoma, Washington.

     Kemwater. Fifty percent of the common stock of Kemwater is held by a
subsidiary of PAAC and fifty percent of the common stock of Kemwater is owned by
another subsidiary of the Company. A subsidiary of PAAC also owns all of the
outstanding shares of Kemwater's preferred stock.

     Kemwater manufactures and supplies iron chlorides to the potable and waste
water markets in the western United States, and, through KWT, polyaluminum
chloride to the same markets in the eastern United States. The products are used
primarily to remove solids from waste water streams and to control hydrogen
sulfide emissions. Kemwater also manufactures and markets aluminum sulfate to
the waste water and pulp and paper industries and in the western U.S. is a
manufacturer of bleach for municipal water disinfection. KWT also produces
aluminum sulfate, sodium aluminate and ferric sulfate at its plant in Savannah,
Georgia for sale to the water treatment market in the eastern United States and
the Caribbean. Kemwater intends to add polyaluminum chloride production capacity
to its western plants. Kemwater has exclusive licenses to use Kemira's existing
and future advanced water treatment technology in the development and sale of
products and services for the potable water, waste water and industrial water
treatment markets in the United States (other than the northeastern U.S.) and
the Caribbean, and nonexclusive access to the use of the technology for the
Canadian and Mexican markets, with an option to acquire an exclusive license for
those markets in the future. During 1996 Imperial West and Kemwater purchased a
substantial portion of their chlorine, caustic soda and hydrochloric acid needs
from PCAC, and it is anticipated that in the future PCAC will continue to
provide Kemwater with a substantial amount of its raw materials.

                                       4

<PAGE>   5


         The following tables set forth, for the periods indicated, certain
sales and operating data regarding the Company's principal operating
subsidiaries:


Production Volumes (thousands of tons)
<TABLE>
<CAPTION>

                                                                              Year Ended December 31,
                                                                ---------------------------------------------------
                                                                  1996       1995       1994       1993       1992
                                                                --------   -------    -------    -------    -------
<S>                                                             <C>        <C>        <C>        <C>        <C>
PCAC:
     Chlorine                                                     345.7      327.9      321.1      313.4      300.8
     Caustic soda                                                 379.7      362.5      352.6      347.9      334.2
     Hydrochloric acid                                            134.3      126.6      123.0      125.5      124.7
All-Pure(1):
     Bleach (gallons in millions)                                  34.0       31.1       28.4       19.2       22.5
     Repackaged chlorine                                           29.2       28.6       27.6       27.9       26.2
Kemwater(2):
     Iron chlorides                                                53.5       62.2       65.1       65.0       65.8
     Aluminum sulfate                                              42.6       30.5       37.8       35.3       33.5
</TABLE>

Average Net Sales Prices
<TABLE>
<CAPTION>

                                                                              Year Ended December 31,
                                                                ---------------------------------------------------
                                                                  1996       1995       1994       1993       1992
                                                                --------   -------    -------    -------    -------
<S>                                                             <C>        <C>        <C>        <C>        <C>

PCAC:
     ECU                                                        $   385    $   414    $   327    $   275    $   315
     Hydrochloric acid (per ton)                                     49         50         54         60         29
All-Pure(1):
     Bleach (per gallon)                                           0.80       0.84       0.81       1.13       0.96
     Repackaged chlorine (per ton)                                  471        498        464        371        361
Kemwater(2):
     Iron chlorides (per ton)                                       220        226        214        170        149
     Aluminum sulfate (per ton)                                      98         95         94         97         98
</TABLE>

--------
(1)  GPS Pool Supply, Inc. ("GPS") was acquired by All-Pure in May 1994; the
     production volumes and average net sales prices reflect GPS operations
     since that date. The production volumes and average net sales prices
     reflect T.C. Products operations since the date of its acquisition in July
     1996.
(2)  Kemwater was formed in connection with the acquisition of KWT in February
     1996; the production volumes and average net sales prices reflect Imperial
     West operations prior to that date.

COMPETITION

     The chlor-alkali industry is highly competitive. Most of the Company's
competitors are larger and have greater financial resources than the Company.
Many of the Company's competitors are some of the world's largest chemical
companies that have their own raw material resources and numerous regional
companies that specialize in a smaller number of chemical products. While a
significant portion of the Company's business is based upon widely available
technology, the Company believes that the difficulty in obtaining permits for
the production of chlor-alkali and chlor-alkali related products inhibits easy
entry to the market. The Company's ability to compete effectively depends on its
ability to maintain competitive prices and to provide reliable and responsive
service to its customers.

     The United States chlor-alkali industry is currently dominated by two
producers, OxyChem and The Dow Chemical Company, each with approximately one
quarter of United States capacity. The remaining capacity is held by
approximately 15 companies. Approximately 70% of United States chlor-alkali
capacity is located on the Gulf

                                       5
<PAGE>   6

Coast in Texas and Louisiana. The Company believes that it currently has
approximately 2.6% of United States chlor-alkali capacity, and that following
the acquisition of the Tacoma Facility it would have approximately 4.2% of such
capacity. The Company believes it has a strong regional presence with respect to
many of its products in the markets it serves.

     Competitors in the chlor-alkali related industries in which the Company
operates are numerous and the industry is highly fragmented. The Company
believes that Kemwater is the largest producer of iron chlorides in the region
of the United States west of the Rocky Mountains and that All-Pure is the
largest supplier of chlorine and bleach for water treatment purposes in that
region.

EMPLOYEES

     As of December 31, 1996, the Company had 692 employees. Approximately 94 of
the Company's employees at its Henderson, Nevada plant are covered by collective
bargaining agreements with the United Steelworkers of America and the
International Association of Machinists and Aerospace Workers that are in effect
until March 2001. Approximately 83 of the Company's employees at All-Pure's City
of Industry facility are covered by collective bargaining agreements with the
Steel, Paper House, Chemical Drivers and Helpers Union and the International
Chemical Workers Union that are in effect until September 1997 and January 1998,
respectively. The Company's employees at other production facilities are not
covered by union contracts or collective bargaining agreements. The Company
considers its relationship with its employees to be good and it has not
experienced any strikes or work stoppages.

ENVIRONMENTAL REGULATION

     Air Quality. The Company's operations are subject to the Federal Clean Air
Act and the amendments to that act which were adopted by Congress in 1990. The
Company will be subject to some of the additional environmental regulations
adopted by the federal EPA and state environmental agencies to implement the
Clean Air Act Amendments of 1990. Among the requirements that are potentially
applicable to the Company are those that require the EPA to establish hazardous
air pollutant emissions requirements for chlorine production facilities.
Although the Company cannot estimate the cost of complying with these
requirements until the implementing regulations are proposed, at this time the
Company does not believe that such requirements will have a material adverse
effect on its results of operations or financial position.

     Most of the Company's plants manufacture or use chlorine, which is in
gaseous form if released into the air. Chlorine gas in relatively low
concentrations can irritate the eyes, nose and skin and in large quantities or
high concentrations can cause permanent injury or death. In 1991, there was an
accidental release of approximately 42 tons of chlorine from PCAC's Henderson
facility. In response, local emergency authorities evacuated areas in and around
the City of Henderson. PCAC has resolved substantially all of the personal
injury, property damage and regulatory claims relating to this release. There
was a release of about 10 tons of chlorine from PCAC's St. Gabriel facility in
1992 and another release in 1994 of less than one ton of chlorine, and from 1995
to date there have been six releases of chlorine from the Company's plants, each
of which was less than 35 pounds. These releases were controlled by plant
personnel, in some cases with the assistance of local emergency response
personnel, and there were no material claims against PCAC or All-Pure as a
result of these incidents. The Company maintains systems to detect emissions of
chlorine at its plants, and the St. Gabriel and Henderson plants are members of
their local industrial emergency response networks. The Company believes that
its insurance coverage is adequate with respect to costs that might be incurred
in connection with any future release, although there can be no assurance that
the Company will not incur substantial expenditures that are not covered by
insurance if a release does occur in the future.

     Water Quality. The Company maintains waste water discharge permits for many
of its facilities pursuant to the Federal Water Pollution Control Act of 1972,
as amended, and comparable state laws. Where required, the Company has also
applied for permits to discharge stormwater under such laws. In order to meet
the discharge requirements applicable to stormwater, the Company has a
continuing program to modify surface drainage or make other changes at certain
plants. The Company plans to spend an additional $2.1 million by the end of 1997


                                       6
<PAGE>   7

for modifications to the stormwater system at PCAC's Henderson plant. The
Company believes that the costs associated with stormwater discharge at
Henderson and its other plants will not have a material adverse effect on the
Company's financial condition, liquidity or operating results. The various
states in which the Company operates also have water pollution control statutes
and regulatory programs which include groundwater and surface water protection
provisions. The requirements of these laws vary and are generally implemented
through a state regulatory agency. These water protection programs typically
require site discharge permits, and spill notification, prevention and
corrective action plans. At several of the Company's facilities, investigations
or remediations are underway and at some of these locations regulatory agencies
are considering whether additional actions are necessary to protect or remediate
surface or groundwater resources, and the Company could be required to incur
additional costs to construct and operate remediation systems in the future. In
addition, at several of its facilities, the Company is in the process of
replacing or closing ponds for the collection of wastewater. The Company plans
to spend approximately $1.3 million during the next fifteen years for closure of
eight chlor-alkali waste water disposal ponds at the Henderson plant.

     Hazardous and Solid Wastes. The Company's manufacturing facilities generate
hazardous and non-hazardous solid wastes which are subject to the requirements
of the federal Resource Conservation and Recovery Act ("RCRA") and comparable
state statutes. Under the 1984 amendments to RCRA, the EPA promulgated
regulations banning the land disposal of certain hazardous wastes unless the
wastes meet defined treatment or disposal standards, including certain
mercury-containing wastes generated by PCAC's St. Gabriel plant. In response to
these regulations, the St. Gabriel plant has substantially reduced the quantity
of wastes that are subject to the ban. The Company has installed an in-plant
treatment system that reduces the level of mercury in its wastes below the
hazardous classification. The Company's disposal costs could increase
substantially if its present disposal sites become unavailable due to capacity
or regulatory restrictions. The Company presently believes, however, that its
current disposal arrangements, together with the new treatment system, will
allow the Company to continue to dispose of land-banned wastes with no material
adverse effect on it.

     Superfund. In the ordinary course of the Company's operations, substances
are generated that fall within the definition of "hazardous substances," and the
Company is the owner or operator of several sites at which hazardous substances
have been released into soil or groundwater. Under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), also known as
the "Superfund" law, regulatory agencies or third parties may incur costs to
investigate or remediate such conditions and seek reimbursement from the Company
for such costs. However, no investigations or remedial activities are currently
being conducted under CERCLA by third parties at any of the Company's
facilities. Such activities are being carried out at certain facilities under
the other statutory authorities discussed above.

INDEMNITIES

     ZENECA Indemnity. PCAC's Henderson plant is located within what is known as
the "Basic Complex." Soil and groundwater contamination have been identified
within and adjoining the Basic Complex, including land owned by PCAC. A
groundwater treatment system was installed at the facility in 1983 and, pursuant
to a Consent Agreement with the Nevada Division of Environmental Protection, a
study is being conducted to further evaluate soil and groundwater contamination
at the facility and other properties within the Basic Complex and to determine
whether additional remediation will be necessary with respect to PCAC's
property.

     In connection with the 1988 acquisition of the Henderson and St. Gabriel
facilities by Pioneer Americas, the sellers agreed to indemnify Pioneer Americas
with respect to, among other things, certain environmental liabilities
associated with historical operations at the Henderson site. ZENECA Delaware
Holdings, Inc. and ZENECA, Inc. (collectively, the "ZENECA Companies") have
assumed the indemnity obligations. In general, Pioneer Americas is indemnified
against environmental costs which arise from or relate to pre-acquisition
actions which involved disposal, discharge or release of materials resulting
from the former agricultural chemical and other non-chlor-alkali manufacturing
operations at the Henderson plant. The ZENECA Companies are also responsible for
costs arising out of the pre-acquisition actions of Basic Investments and
pre-acquisition actions at the Basic Complex and for other pre-acquisition
environmental liabilities arising at other off-site locations. Under the ZENECA


                                       7
<PAGE>   8

indemnity, Pioneer Americas may only recover indemnified amounts for
environmental work to the extent that such work is required to comply with
environmental laws or is reasonably required to prevent an interruption in the
production of chlor-alkali products. The indemnity also covers certain claims by
non-governmental third parties, provided notice of such claims is given to the
ZENECA Companies not later than April 20, 1999. Pioneer Americas is responsible
for environmental costs relating to the chlor-alkali manufacturing operations at
the Henderson plant, both pre- and post-acquisition, for certain actions taken
without ZENECA's consent and for certain operating and maintenance costs of a
groundwater treatment system at the facility. In addition, subject to certain
exceptions, Pioneer Americas has a contractual duty not to take any action that
could reasonably be expected to increase materially the obligations of the
ZENECA Companies under the indemnity.

     Payments for environmental liabilities under the ZENECA indemnity, together
with other non-environmental liabilities for which the ZENECA Companies have
agreed to indemnify Pioneer Americas, cannot exceed approximately $65 million.
To date, Pioneer Americas has been reimbursed for approximately $12 million of
costs covered by the indemnity, but the ZENECA Companies may have directly
incurred additional costs that would further reduce the total amount remaining
under the indemnity. In 1994, Pioneer Americas recorded an additional $3.2
million environmental reserve related to pre-acquisition actions at sites that
are the responsibility of ZENECA. At the same time a receivable was recorded
from ZENECA for the same amount. It is the Company's policy to record such
amounts when a liability can be reasonably estimated. No additional amounts were
recorded in 1995 or 1996.

     The ZENECA indemnity will terminate on April 20, 1999. The indemnity will
continue to cover claims after the expiration of the term of the indemnity
provided that, prior to its expiration, proper notice to the ZENECA Companies is
given and either the ZENECA Companies have assumed control of such claims or the
Company is contesting the legal requirements that gave rise to such claims, or
has commenced removal, remedial or maintenance work with respect to such claims,
or has commenced an investigation which results in the commencement of such work
within ninety days. The Company believes that the ZENECA Companies will continue
to honor their obligations under the indemnity for claims properly presented by
the Company. It is possible, however, that disputes could arise between the
parties concerning the effect of contractual language and that the Company would
have to subject its claims for clean-up expenses, which could be substantial, to
the contractually-established arbitration process.

     Sellers' Indemnity. In the Acquisition Agreement, the Sellers have agreed
to indemnify the Company for certain environmental liabilities that result from
certain discharges of hazardous materials or violations of environmental laws
arising prior to the Closing Date from or relating to the Pioneer Americas plant
sites or arising before or after the Closing Date with respect to certain
environmental liabilities relating to the Contingent Payment Properties (as
described in the next two paragraphs). Amounts payable pursuant to the Sellers'
Indemnity will generally be payable as follows: (i) out of certain reserves
established on Pioneer Americas' balance sheet at December 31, 1994; (ii) either
by offset against the amounts payable under the Seller Notes or from amounts
received in connection with the Contingent Payment Properties; and (iii) in
certain circumstances and subject to specified limitations, out of the personal
assets of the Sellers. The Company is required to reimburse the Sellers with
amounts recovered under the ZENECA indemnity or from other third parties. The
Company and the Sellers have agreed that they will cooperate in matters relating
to the ZENECA indemnity. The Company has also agreed to indemnify the Sellers
for certain environmental liabilities that may arise after the Closing Date.

     The Company owns an equity interest of approximately 32% in Basic
Investments, Inc., a Nevada corporation ("Basic Investments"). Through its
subsidiaries, Basic Investments owns certain undeveloped land in the Las
Vegas/Clark County, Nevada area and is, through a subsidiary, the general
partner of Victory Valley Land Company, L.P., a Delaware limited partnership
("Victory Valley"), that owns additional undeveloped land in such area as well
as an option to acquire the remainder of the undeveloped land owned by Basic
Investments. Basic Investments also owns and maintains the water and power
distribution network within the Basic Complex. The Company contracts with
subsidiaries of Basic Investments for the delivery of the Company's water to the
Company's plant site and transmission of the Company's power within the
Henderson site. The Company believes pricing for the services provided is on an
arm's-length basis. The Company owns a 21% limited partnership interest in


                                       8
<PAGE>   9

Victory Valley, and Basic Investments owns an indirect 50% partnership interest
in Victory Valley. The Company has a combined interest in Victory Valley of
approximately 37% through its own direct interest and its partial ownership of
Basic Investments. The Company also owns certain real property adjoining the
sites of the Henderson, St. Gabriel and Mojave plants that is not used in the
businesses conducted at such sites. Such property, now comprising approximately
845 acres in the aggregate, is referred to herein as the "Excess Land."

     In accordance with the terms of the Acquisition, the Company's interests in
Basic Investments, Victory Valley and the Excess Land (collectively, the
"Contingent Payment Properties") are being held for the benefit of the Sellers
until April 20, 2015. The Company will not receive any of the economic benefits
from the Contingent Payment Properties, except that certain environmental and
other indemnification obligations of the Sellers to the Company may be satisfied
from proceeds of or payments on account of such investments and except to the
extent that such investments are owned by the Company at the end of such 20-year
period. As of December 31, 1996, such proceeds, which are held by the Company in
a separate account as collateral for any indemnification obligations of the
Sellers to the Company, amounted to $2.3 million.


Item 2.  PROPERTIES.

FACILITIES

     The following table sets forth certain information regarding the Company's
principal production and distribution facilities as of March 24, 1997. All
property is leased unless otherwise indicated.

Type of Facility                                Location
----------------                                --------
Chlor-alkali plants                             St. Gabriel, Louisiana*
                                                Henderson, Nevada*

Bleach plants                                   Antioch, California*
                                                Santa Fe Springs, California
                                                Tracy, California
                                                Kalama, Washington
                                                City of Industry, California
                                                Marysville, California

Chlorine and hydrochloric acid repackaging      Santa Fe Springs, California
                                                Tracy, California
                                                Kalama, Washington
                                                City of Industry, California
                                                Marysville, California

Iron chloride plants                            Mojave, California*
                                                Pittsburg, California*

Aluminum sulfate plants                         Antioch, California*
                                                Spokane, Washington
                                                Savannah, Georgia

Polyaluminum chloride plant                     Savannah, Georgia

Sodium aluminate plant                          Savannah, Georgia


                                       9
<PAGE>   10


Caustic soda terminals                          Tampa, Florida
                                                Wilmington, California
                                                Tracy, California
                                                Antioch, California*

Aluminum sulfate and sulfuric acid terminal     Albany, Oregon

Ferric sulfate terminal                         Cape Girardeau, Missouri

Distribution centers                            Fresno, California
                                                Spokane, Washington

---------------
*  Owned property

      The Company's corporate headquarters are located in leased office space in
Houston, Texas under a lease terminating in 2006.

      PAAC has $135.0 million of 13 3/8% First Mortgage Notes due 2005 (the
"Mortgage Notes") outstanding. The Mortgage Notes and obligations outstanding
under the Bank Credit Facility are secured by first mortgages on PCAC's St.
Gabriel and Henderson facilities.


PCAC FACILITIES

     St. Gabriel, Louisiana. The St. Gabriel plant is located on a 100-acre site
near Baton Rouge, Louisiana and serves the southern U.S. and Mississippi River
markets and the export market. Approximately 228 acres adjoining this site are
available to the Company for future industrial development, and approximately
400 acres adjoining the site constitute Excess Land. The plant was completed in
1970 and is situated on the Mississippi River with river frontage and deep water
docking, loading and unloading facilities. The dock is capable of berthing
ocean-going vessels of up to 36,000 DWT. The Company calculates its rated
capacity ("Rated Capacity") as a product of a production unit's instantaneous
rate and an average onstream time factor. Rated Capacity at St. Gabriel is
196,000 tons of chlorine and 215,600 tons of caustic soda.

     Henderson, Nevada. The Henderson plant is located on a 374-acre site near
Las Vegas, Nevada. Approximately 70 acres are developed and used for production
facilities, and approximately 16 acres adjoining the site constitute Excess
Land. The original plant, which began operation in 1942, was upgraded and
rebuilt in 1976-1977. Rated Capacity at the plant is 150,000 tons of chlorine,
165,000 tons of caustic soda, 130,000 tons of hydrochloric acid and 5,100 tons
of bleach. The Henderson plant is part of an industrial complex shared with
three other manufacturing companies. Common facilities and property are owned
and managed by subsidiaries of Basic Investments, which provide common services
to the four site companies. Basic Investments' facilities include extensive
water and high voltage power distribution systems and access roads.


ALL-PURE FACILITIES

     Tracy, California. The Tracy plant includes a 168,000 ton per year bleach
production facility and a chlorine repackaging facility on a 15-acre tract. The
land at the facility is leased under a lease expiring in the year 2000.
All-Pure's corporate office is currently located in separate leased offices in
Tracy. During the second quarter of 1997, All-Pure headquarters will be
relocated to rented offices in Walnut Creek, California to be shared with
Kemwater.


                                       10
<PAGE>   11


     Santa Fe Springs, California. The Santa Fe Springs plant includes a 262,000
ton per year bleach production plant and a chlorine repackaging facility on a
4.5-acre tract. The land at the facility is leased under a lease expiring in
1998 with a five-year renewal option.

     Kalama, Washington. The Kalama plant includes a 52,500 ton per year bleach
production facility and a chlorine repackaging facility on a three-acre tract.
The land at the facility is leased under a month-to-month lease; All-Pure and
the lessor are engaged in discussions regarding a long-term lease extension or
the lease of a new site within the same port facility.

     Marysville, California. The Marysville plant includes a chlorine and sulfur
dioxide repackaging facility and a 5,000 ton per year bleach production facility
on a 10-acre tract. The land is leased under a lease expiring in the year 2000.
In January 1997, heavy rains and river overflows flooded the plant, and it has
not yet been determined whether the plant will be returned to operation, or when
it might be possible to resume operations. In the opinion of the Company's
management, there are no material impairment writedowns required as a result of
this uncertainty.

     Fresno, California. The Fresno facility consists of an approximately 10,000
square foot warehouse. All product shipped from the warehouse is transferred
from the Tracy, California production facility for distribution to customers.
The land at the facility is leased under a lease expiring in 2001.

     City of Industry, California. The City of Industry plant includes a 262,000
ton per year bleach production facility and chlorine, hydrochloric acid and dry
chemical repackaging facilities on a five-acre tract. The facility includes a
96,000 square foot warehouse. The land at the facility is leased under a lease
expiring in 1998 with options to extend until 2008.

KEMWATER FACILITIES

     Antioch, California. Production facilities at the Antioch facility include
a 30,000 ton per year aluminum sulfate plant and a 12,500 ton per year bleach
plant. Caustic soda and sulfuric acid are terminaled and distributed from the
location. The site also currently serves as corporate headquarters for Kemwater;
during the second quarter of 1997, Kemwater headquarters will be relocated to
rented offices in Walnut Creek, California to be shared with All-Pure. The
22-acre company-owned site has deepwater access and rail service.

     Mojave, California. The Mojave facility, which was constructed in 1988 and
1989, includes a 130,000 ton per year iron chlorides production facility that is
located on approximately eight acres of a 30-acre company-owned tract.
Approximately 429 acres of adjoining land constitute Excess Land. The plant
consists of two separate, identical production trains and has rail service. The
facility also terminals caustic soda, sulfuric acid, polyaluminum chloride and
hydrochloric acid for distribution.

     Pittsburg,  California.  The Pittsburg  plant has a 30,000 ton per year
iron  chlorides  production  facility. The 10-acre rail served site is owned
by Kemwater.

     Spokane, Washington. The Spokane facility has a 30,000 ton per year
aluminum sulfate plant located on four acres. Sulfuric acid purchased from third
parties is also distributed from the location, and the facility also terminals
polyaluminum chloride and sulfuric acid. The land at the site is leased under a
lease that can be terminated by either party with 30 days' notice.

     Albany, Oregon. Aluminum sulfate, which is manufactured in Spokane,
Washington, is distributed from the Albany terminal. Sulfuric acid purchased
from third parties is also distributed from the terminal. The land at the site
is leased under a lease with an indefinite term, with cancellation by either
party on 30 days' notice.

     Savannah, Georgia. Production facilities at Savannah include a 45,000 ton
per year polyaluminum chloride plant, a 25,000 ton per year aluminum sulfate
plant, a 15,000 ton per year sodium aluminate plant, and a 18,000 ton per year

                                       11
<PAGE>   12


ferric sulfate granule dissolving plant. The two acre site is leased under a
lease expiring in 2005, subject to options to extend the lease until 2015.



Item 3.  LEGAL PROCEEDINGS.

      From time to time, the Company is involved in litigation relating to
claims arising out of its operations in the normal course of its business. The
Company maintains insurance coverage against potential claims in amounts which
it believes to be adequate. In the opinion of management, uninsured losses, if
any, resulting from these matters will not have a material adverse effect on the
Company's results of operations, cash flow or financial position.


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

      No matters were submitted during the fourth quarter of 1996 to a vote of
holders of Pioneer's Common Stock.

Item 4.1  EXECUTIVE OFFICERS OF THE REGISTRANT.

      The names, ages and current offices of the executive officers of the
Company, who are to serve until the next annual meeting of the Board of
Directors to be held in 1997, are set forth below.
                ......
Name and Age....               Office
------------                   ------

Michael J. Ferris (52)         President and Chief Executive Officer
Philip J. Ablove (56)          Vice President and Chief Financial Officer
Jerry B. Bradley (51)          Vice President, Human Resources of Pioneer
                                   Americas, Inc.
Verrill M. Norwood (65)        Vice President, Environmental, Health and Safety
                                   of Pioneer Americas, Inc.
Kent R. Stephenson (47)        Vice President, General Counsel and Secretary
James E. Glattly (50)          President of Pioneer Chlor Alkali Company, Inc.
Ronald E. Ciora (55)           President of All-Pure Chemical Co.
Frank B. Belliss (43)          President of Kemwater North America Company


     Michael J. Ferris has served as President and Chief Executive Officer of
Pioneer since January 5, 1997. Prior to joining the Company, he was employed by
Vulcan Materials Company from March 1974 to January 1997, where he served as
Executive Vice President, Chemicals from 1996 to 1997. Mr. Ferris is also a
director of ChemFirst, Inc., a specialty chemical company.

     Philip J. Ablove has served as Vice President and Chief Financial Officer
of Pioneer since March 1996, after serving as Acting Chief Financial Officer
since October 1995, and has been a director of Pioneer since January 1991. He
was President and Chief Executive Officer of Pioneer from January 1991 to July
1992, and he served as a consultant to Pioneer from October 1990 to January 1991
and from October 1995 to March 1996. He also served as an officer and director
specializing in restructuring financially distressed companies from 1983 to
1995. From June 1988 until June 1990, he was a director and officer of Ironstone
Group, Inc., a holding company with interests in wholesale plumbing distribution
and oil and gas exploration and production, which filed a chapter 11 petition in
January 1991 for reorganization under federal bankruptcy law. Mr. Ablove was
Executive Vice President and a director of Iron-Oak Supply Corporation from July
1988 until June 1990, which filed a bankruptcy petition in January 1991.


                                       12
<PAGE>   13

     Jerry B. Bradley has served as Vice President, Human Resources of Pioneer
Americas, Inc. since October 1995. From May 1993 to October 1995, Mr. Bradley
was President of Tandem Partners, Inc., a human resources consulting firm. From
1978 to 1993 he was employed by Occidental Chemical Corporation, where he served
as Vice President, Human Resources.

     Verrill M. Norwood has served as Vice President, Environmental, Health and
Safety of Pioneer Americas, Inc. since 1990. Prior to joining Pioneer Americas,
Mr. Norwood was employed by Olin Corporation from 1973 to 1990, where he served
as Vice President, Environmental Affairs from 1978 to 1990.

     Kent R. Stephenson has served as Vice President, General Counsel and
Secretary of Pioneer since June 1995, and as Vice President, General Counsel and
Secretary of Pioneer Americas, Inc. since 1993. Prior to joining Pioneer
Americas, he was employed by Zapata Corporation, a gas services company, from
1978 to 1993, where he served as Senior Vice President, General Counsel and
Secretary from 1987 to 1993.

     James E. Glattly has served as President of Pioneer Chlor Alkali Company,
Inc. since December 1996. He was Vice President, Sales and Marketing of Pioneer
Chlor Alkali Company, Inc. from 1988 to 1996. Prior to joining Pioneer Americas,
Inc., he was employed by Occidental Chemical Corporation from 1985 to 1988 and
from 1974 to 1983, where he served in various capacities, including Western
Regional Manager and various other sales positions. From 1983 to 1985 Mr.
Glattly served as General Manager of HCI Chemical.

      Ronald E. Ciora has served as President of All-Pure since November 1995.
For more than five years prior thereto, he was President and Chief Executive
Officer of DPC Industries, Inc., DX Distribution, Inc. and DXI Industries, Inc.,
which are companies engaged in chemical distribution, chlorine repackaging and
bleach manufacturing.

      Frank B. Belliss has served as President of Kemwater since February 1996.
He served as President of Imperial West from February 1994 to February 1996. Mr.
Belliss was Vice President and General Manager of Imperial West for more than
five years prior to February 1994.



                                       13






<PAGE>   14


                                     PART II

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

      On March 31, 1995, Pioneer's stockholders approved a one-for-four reverse
stock split which was effective on April 27, 1995 (the "Reverse Stock Split").
On December 4, 1996, Pioneer's Board of Directors approved a seven percent stock
dividend, which was paid on January 7, 1997 to stockholders of record on
December 16, 1996 (the "Stock Dividend"). The number of authorized shares
remained at 46.0 million for Class A Common Stock and 4.0 million for Class B
Common Stock, and the par value of the Common Stock was unchanged. Unless the
context otherwise requires, all references in this Report to Common Stock share
and per share amounts reflect the Reverse Stock Split and the Stock Dividend.

      Since May 19, 1995, Pioneer's Class A Common Stock has been traded on the
NASDAQ National Market under the symbol "PIONA". Prior to that date it was
traded on the NASD OTC Bulletin Board. There is no established trading market
for Pioneer's Class B Common Stock. The price range for the Class A Common
Stock, as adjusted to reflect the Reverse Stock Split, for each quarterly period
for the last two fiscal years is shown in the following table:

                                          High                Low
                                         -----               -----
  1996
  ----
  Fourth Quarter                        $ 5.88               $4.32
  Third Quarter                           6.54                5.25
  Second Quarter                          7.36                5.37
  First Quarter                           9.23                6.08

  1995
  ----
  Fourth Quarter                          8.63                5.25
  Third Quarter                           9.38                5.00
  Second Quarter                         12.00                3.75
  First Quarter                           6.50                1.25



      Information set forth in the table with respect to periods prior to May
19, 1995, is derived from high and low bid and ask prices, and is not indicative
of actual trading prices. For periods after that date, prices are as reported in
the consolidated transaction reporting system.

      As of March 7, 1997, there were approximately 230 holders of record of the
Class A Common Stock and there were two holders of record of the Class B Common
Stock.

      No cash dividends have been declared with respect to Pioneer's Common
Stock during the two most recent fiscal years. Pursuant to the terms of the
indenture with respect to the outstanding 13 3/8% First Mortgage Notes issued
by PAAC, prior to April 1, 1997, dividends on PAAC's stock cannot be paid in
amounts in excess of those necessary to enable Pioneer to pay interest on the
$11.5 million principal amount of its outstanding Seller Notes.


                                       14
<PAGE>   15


Item 6.  SELECTED FINANCIAL DATA.

     The following table sets forth selected historical financial data of the
Predecessor Company for the years ended December 31, 1994, 1993, and 1992. The
data should be read in conjunction with the Consolidated Financial Statements
included in Item 8. Financial Statements and Supplementary Data. The table also
sets forth the financial condition of the Company at December 31, 1996 and 1995
and the results of operations of the Company for the years ended December 31,
1996 and 1995. For comparative purposes the Predecessor Company's operating
results from January 1, 1995 through April 20, 1995 are also presented. Certain
amounts have been reclassified in prior years to conform to the current year
presentation. All reclassifications have been applied consistently for the
periods presented. Per share information for all periods presented reflects a 7%
stock dividend on the Class A and Class B Common Stock declared December 4, 1996
to shareholders of record December 16, 1996 and paid January 7, 1997. The
following table should also be read in conjunction with Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.

<TABLE>
<CAPTION>

                                                                                 PREDECESSOR COMPANY
                                                              -----------------------------------------------------
                                                               PERIOD FROM
                                                               JANUARY 1,
                                                                  1995
                                    YEAR ENDED DECEMBER 31,     THROUGH             YEAR ENDED DECEMBER 31,
                                  --------------------------    APRIL 20,    --------------------------------------
                                     1996(1)       1995(2)        1995          1994(3)        1993         1992
                                  ----------     ----------   -----------    -----------    ----------   ----------

                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                               <C>            <C>          <C>            <C>            <C>          <C>
STATEMENT OF OPERATIONS DATA:
Revenues                          $  208,908     $  142,908   $    57,848    $  167,217     $  151,191   $  157,401
Cost of sales                        150,464         98,175        37,400       134,556        131,711      126,149
                                  ----------     ----------   -----------    -----------    ----------   ----------
Gross profit                          58,444         44,733        20,448        32,661         19,480       31,252
Selling, general and
administrative expenses               29,860         20,765         7,047        22,529         21,850       22,602
                                  ----------     ----------   -----------    -----------    ----------   ----------
Operating income (loss)               28,584         23,968        13,401        10,132         (2,370)       8,650
Interest expense, net                 19,212         13,540         1,665         6,407          7,551        8,189
Settlement of  litigation and
  insurance claims, net                  --             --            --          3,326          8,360        2,755
Other income (expense), net              887            637          (115)        1,337          2,103        1,130
                                  ----------     ----------   -----------    -----------    ----------   ----------
Income before income taxes and
  extraordinary items (4)             10,259         11,065        11,621         8,388            542        4,346
Income tax provision                   5,859          5,579         4,809         3,242            486        1,765
                                  ----------     ----------   -----------    -----------    ----------   ----------
Income before extraordinary
  item                                 4,400          5,486         6,812         5,146             56        2,581
Extraordinary item, net of
  applicable tax                          --             --         3,420            --            --            --
                                  ----------     ----------   -----------    -----------    ----------   ----------
Net income                        $    4,400     $    5,486   $     3,392    $    5,146     $       56   $    2,581
                                  ==========     ==========   ===========    ===========    ==========   ==========

Net income per share              $     0.48     $     0.70
                                  ==========     ==========

OTHER FINANCIAL DATA:
Capital expenditures              $   17,839     $   13,556   $     3,447    $    5,681     $    5,888   $    6,652

Depreciation and amortization         18,213         12,274         4,490        13,595         13,446       12,992

BALANCE SHEET DATA:
Total assets                      $  301,568     $  264,083   $   165,329    $  163,039     $  154,922   $  165,915
Total long-term debt (exclusive
of current maturities), redeemable
   preferred stock and redeemable
   stock put warrants                161,103        146,463        57,677        57,865         67,709       76,848
Common stockholders' equity           59,901         44,475        26,370        23,102         19,721       20,165
</TABLE>

                                 (See footnotes)

                                       15
<PAGE>   16


(1)  In February 1996, KWT was acquired and its operations were combined with
     Imperial West and are now conducted by Kemwater; the results of operations
     for the year ended December 31, 1996 include the results of operations from
     the effective date of acquisition in February 1996 through December 31,
     1996 on a consolidated basis. KWT generated third party sales during such
     period of $7.7 million. T.C. Products was acquired in July 1996 and,
     accordingly, the results of operations for the year ended December 31, 1996
     include the results of operations from the date of acquisition through
     December 31, 1996. T.C. Products generated third party sales during such
     period of $5.1 million.
(2)  The results of operations include the results of operations of Pioneer
     Americas since its acquisition.
(3)  GPS was acquired in May 1994 and accordingly, the results of operations
     for the year ended December 31, 1994 include the results of operations
     from the date of acquisition through December 31, 1994. GPS generated
     third party sales during such period of $9.4 million.
(4)  An extraordinary item of $3.4 million net of an income tax benefit of $2.1
     million recorded during the period ended April 20, 1995 was due to costs
     incurred and previously capitalized costs written off, pertaining to debt
     refinanced by the Predecessor Company prior to the Acquisition.

      The following table sets forth selected historical financial data of the
Company prior to the Acquisition for the years ended December 31, 1994, 1993,
and 1992. The data should be read in conjunction with the Consolidated Financial
Statements included in Item 8. Financial Statements and Supplementary Data.

<TABLE>
<CAPTION>

                                                               YEAR ENDED DECEMBER 31,
                                                      ---------------------------------------
                                                        1994          1993           1992
                                                      ---------     -----------    ----------
                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                   <C>           <C>            <C>
STATEMENT  OF OPERATIONS DATA:
General and administrative expenses                   $     155      $     505      $     560
Bankruptcy costs                                            --             --             377
Interest (income) expense, net                              (15)            15              9
                                                      ---------     -----------    ----------

Loss before income taxes and extraordinary item            (140)          (520)          (946)

Extraordinary item(1)                                        --            --          34,698
                                                      ---------     -----------    ----------
Net income (loss)                                     $    (140)     $    (520)     $  33,752(2)
                                                      =========      =========      =========
Net income (loss) per share                           $    (.03)     $    (.14)     $   10.39
                                                      =========      =========      =========

Average number of shares of common stock outstanding       4,626          3,658         3,250

BALANCE SHEET DATA:
Total assets                                          $     912      $     217      $     283
Long-term obligations                                       --             --             478
Stockholders' equity (deficiency)                           762           (223)          (355)
</TABLE>


(1)  Represents gain on settlement of pre-petition liabilities.

(2)  The 1992 period included an extraordinary gain from the settlement of
     pre-petition liabilities totaling $34,698, or $10.68 per share.

                                       16
<PAGE>   17


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

OVERVIEW

     The Company manufactures chlorine, caustic soda and several downstream
water treatment products, principally hydrochloric acid, bleach, iron chlorides,
aluminum sulfate and polyaluminum chlorides. The Company's products are used in
a variety of applications including water treatment, plastics, detergents, and
agricultural chemicals.

     Chlorine and caustic soda markets and profitability have been, and are
likely to continue to be, cyclical. Periods of high demand, high capacity
utilization, and increasing operating margins tend to result in new plant
investments and increased production until supply exceeds demand, followed by
periods of declining prices and declining capacity utilization until the cycle
is repeated. In addition, markets for chlorine and caustic soda are affected by
general economic conditions, both in the U.S. and elsewhere in the world, and a
downturn in the economy could have a material adverse effect on the Company's
operations and its cash flows.

     Chlorine demand over the last three years has experienced steady growth,
following trends in polyvinyl chloride ("PVC"), non-vinyl polymers and water
treatment markets. This increased demand has been partially offset by declining
chlorine use in the pulp and paper industry and as a feedstock in the production
of chlorofluorocarbons ("CFC's") due to regulatory pressures. Due to increased
demand, published chlorine prices have risen from $145/ton in early 1994 to
approximately $160/ton at the end of 1996.

     As chlorine demand continued strong in 1996, the industry's operating rate
remained high. However, this resulted in an overproduction of chlorine's
co-product, caustic soda, relative to demand. This oversupply led to decreasing
caustic soda prices, offsetting increased chlorine prices and resulting in ECU
netbacks (net selling prices) decreasing during 1996 from 1995 levels.

     Large quantities of chlorine are not typically stored on- or off-site.
Chlor-alkali production rates are therefore typically based on short-term
chlorine demand (typically one month). However, chlor-alkali plants do not
achieve optimum cost efficiency if production rates are cycled. The maintaining
of steady production rates is made difficult by the cyclical nature of the
chlor-alkali business, which is at times exacerbated by the fact that the price
and demand curves for chlorine differ from those of caustic soda. Peak and
trough demand for chlorine and caustic soda rarely coincide and caustic soda
demand, in the past, has tended to trail chlorine demand into and out of
economic growth cycles. In addition, the chlor-alkali market has shifted from
ECU buyers to independent markets, further unlinking the markets for these two
products.

     To achieve operating efficiencies and to help mitigate the effects of
cyclicality on the Company's business, the Company has pursued a strategy of
converting chlorine and caustic soda into products that are used in markets with
steady demand, particularly water treatment chemicals. In pursuit of this
strategy, the Predecessor Company and the Company acquired Imperial West and
All-Pure in 1990, GPS in 1994, and T.C. Products in July 1996, each of which is
a major manufacturer and distributor of water treatment chemicals such as iron
chlorides, aluminum sulfate, repackaged chlorine and bleach, primarily in the
western United States. The KWT acquisition enabled the Company to broaden its
water treatment product line and improve its technology, allowing the Company to
offer a wider range of cost-effective solutions to its customers' water
treatment products. Gross profit margins for all downstream products vary from
that of chlor-alkali; the difference depends on where the chlor-alkali industry
is in its cycle.

     Due in part to these acquisitions and the improved chlorine market, the
Predecessor Company and the Company increased ECU capacity utilization rates
over the last seven years from 93% in 1990 to approximately 100% in 1996.

                                       17
<PAGE>   18
RESULTS OF OPERATIONS

     The following table sets forth certain operating data for the periods
indicated:
<TABLE>
<CAPTION>

                                                                   PRO FORMA (1)          PREDECESSOR COMPANY
                                                                -------------------       -------------------
                                                              YEAR ENDED DECEMBER 31,
                                       ----------------------------------------------------------------------
                                              1996                      1995                     1994
                                       ------------------       -------------------       -------------------
                                                  % OF                      % OF                      % OF
                                       $'000S    REVENUES       $'000S     REVENUES        $'000S     REVENUES
                                       --------  -----          ---------  ------          --------    -----
<S>                                    <C>       <C>            <C>        <C>             <C>        <C>
Revenues:
  PCAC                                 $121,192     58 %        $ 118,298     59 %         $ 88,907      53 %
  Kemwater (2)                           36,830     18             32,909     16             30,438      18
  All-Pure (3)                           50,886     24             49,549     25             47,872      29
                                       --------  -----          ---------  ------          --------    -----
    Total revenues                      208,908    100            200,756    100            167,217     100
Cost of sales                           150,464     72            135,575     67            134,556      80
                                       --------  -----          ---------  ------          --------    -----

Gross profit                             58,444     28             65,181     33             32,661      20
Selling, general and administrative
  expense                                29,860     14             27,812     14             22,529      14
                                       --------  -----          ---------  ------          --------    -----
Operating income                         28,584     14             37,369     19             10,132       6
Interest expense, net                    19,212      9             15,205      8              6,407       4
Other income from settlement of
  litigation and insurance claims,
  net                                       --      --                --      --              3,326       2
Other income, net                           887     --              1,494      1              1,337       1
                                       --------  -----          ---------  ------          --------    -----
Income before income taxes and
  extraordinary item                     10,259      5             23,658     12              8,388       5
Provision for income taxes                5,859      3             10,388      5              3,242       2
                                       --------  -----          ---------  ------          --------    -----
Net income before extraordinary
  item                                    4,400      2             13,270      7              5,146       3
Extraordinary item, net of
  applicable tax                             --     --             (3,420)     2                --       --
                                       --------  -----          ---------  ------          --------    -----

Net income                             $  4,400      2 %         $  9,850      5%          $  5,146       3 %
                                       ========  =====           ========  ======          ========    =====
</TABLE>

(1)  The pro forma results of operations, which combine the Company's operating
     results for the year ended December 31, 1995 and the Predecessor Company's
     operating results from January 1, 1995 through April 20, 1995, are provided
     for comparative purposes. The Predecessor Company's operating results
     exclude approximately $1.0 million of transaction costs related to the
     Acquisition. The Company believes that this provides a meaningful basis for
     comparison. The Company and the Predecessor Company have different asset
     bases and the effects on operating results of these differences are
     discussed in the comparison which follows.
(2)  To continue the business activities previously conducted by Imperial West,
     Kemwater was formed in connection with the acquisition of KWT in February
     1996 and, accordingly, the results of operations for the year ended
     December 31, 1996 include the results of operations of KWT since the
     effective acquisition date. KWT generated third party sales during such
     partial period of $7.7 million.
(3)  GPS was acquired in May 1994 and therefore the results of operations for
     the year ended December 31, 1994 include the results of operations from the
     date of acquisition. GPS generated third party sales during such period of
     $9.4 million. T.C. Products was acquired in July 1996 and, accordingly, the
     results of operations for the year ended December 31, 1996 includes the
     results of operations since the acquisition date. T.C.
     Products generated third party sales during such period of $5.1 million.


                                       18
<PAGE>   19


YEAR ENDED DECEMBER 31, 1996 COMPARED TO PRO FORMA YEAR ENDED DECEMBER 31, 1995


Revenues

     Revenues increased by $8.2 million or 4% to $208.9 million for 1996
compared to 1995. The KWT and T.C. Products acquisitions during 1996 accounted
for a $12.8 million increase in revenue, more than off-setting a revenue
decrease of $3.1 million for the operations of Kemwater. Revenues for the
Company's chlor-alkali products during 1996 remained relatively unchanged from
1995 as an approximate 9% increase in caustic soda sales volumes was offset by a
7% decrease in ECU netback.

Cost of Sales

     Cost of sales increased by approximately 11% from $135.6 million in 1995 to
$150.5 million in 1996. The KWT and T.C. Products acquisitions accounted for
$10.1 million of this increase. In addition, higher caustic soda sales volumes
resulted in an increase in cost of sales of approximately $3.6 million.

Interest Expense, net

     Interest expense increased by $4.0 million or 26% to $19.2 million for
1996. This increase was a result of debt incurred in connection with the
Acquisition, as well as debt incurred in financing the KWT and T.C. Products
acquisitions.

Provision for Income Taxes

     The provision for income taxes for 1996 was $5.9 million, with an effective
tax rate of 57%, compared to $10.4 million, with an effective tax rate of 44%,
for 1995. The decrease in the provision was primarily a result of the decrease
in the Company's pre-tax income to $10.3 million for 1996 from $23.7 million in
1995. Taxable income is higher than book income due to the non-deductibility of
amortization of the excess cost over the fair value of net assets acquired. A
provision is recorded on the income statement based on taxable income; however,
federal income taxes payable are reduced and paid-in capital is increased due to
the utilization of the net operating loss carryforward.

Net Income

     Due to the factors  described above,  net income for December 1996 was
$4.4 million,  compared to $9.9 million for 1995.

                                       19
<PAGE>   20


PRO FORMA YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994


Revenues

     Revenues increased by $33.5 million or 20% to $200.7 million for 1995
compared to 1994. This increase was primarily due to a $29.4 million increase in
chlor-alkali sales, a result of industry-wide strengthening of ECU prices. The
average ECU price during the 1995 period increased 27% over the same period in
1994. This was partially offset by reduced sales volumes due to the planned
shutdown for maintenance at the St. Gabriel facility.

Cost of Sales

     Cost of sales as a percentage of revenues decreased to 67% for 1995 from
80% for 1994 as a result of lower raw material costs which were partially offset
by higher transportation and other expenses and an Acquisition related inventory
step-up.

Selling, General and Administrative Expense

     Selling, general and administrative expense increased by $5.3 million or
23% to $27.8 million for the year ended December 31, 1995. This increase was
primarily the result of the impact of an acquisition by the Predecessor Company
in May 1994, additional compensation pursuant to the Company's incentive
compensation program, and increased amortization as a result of the Acquisition.

Interest Expense, net

     Interest expense increased by $8.8  million to $15.2 million for 1995
from $6.4  million  for 1994. This increase was a result of debt incurred in
connection with the Acquisition.

Income Before Taxes and Extraordinary Item

     As a result of the above, net income before taxes and extraordinary item
increased by $15.3 million to $23.7 million of income for the year ended
December 31, 1995 from $8.4 million for the year ended December 31, 1994.

Provision for Income Taxes

     Provision for income taxes increased to $10.4 million, with an effective
tax rate of 44%, for the year ended December 31, 1995 from $3.2 million, with an
effective tax rate of 39%, for the comparable 1994 period due to higher income.
The increase in the effective tax rate is due primarily to the nondeductible
nature of the amortization of the excess cost over the fair value of net assets
acquired.

Extraordinary Item

     An extraordinary item of $3.4 million net of an income tax benefit of $2.1
million recorded during the 1995 period was due to costs incurred, and
previously capitalized costs written off, pertaining to debt refinanced by the
Predecessor Company in the 1995 period prior to the Acquisition.

Net Income

     Due to the factors described above, net income increased 91% to $9.9
million for 1995.

                                       20
<PAGE>   21


LIQUIDITY AND CAPITAL RESOURCES

     The Company incurred substantial indebtedness in connection with the
Acquisition. Concurrently with the Acquisition, the Bank Credit Facility became
available to Pioneer Americas. The Bank Credit Facility provides a $30 million
revolving line of credit, subject to borrowing base limitations that relate to
the level of accounts receivable and inventory of PCAC and All-Pure ("Subsidiary
Guarantors"). As of December 31, 1996, the Subsidiary Guarantors had $5.2
million of letters of credit outstanding and had, subject to certain
restrictions (including borrowing base limitations), the ability to draw up to
$15.7 million of additional secured indebtedness under the Bank Credit Facility.
The Bank Credit Facility is secured by the accounts receivable and inventory of
the Subsidiary Guarantors, and the guarantee of PCAC issued in connection
therewith is secured by first mortgage liens on PCAC's St. Gabriel, Louisiana
and Henderson, Nevada plants shared pari passu with PAAC's outstanding 13 3/8%
First Mortgage Notes ( the "Mortgage Notes."). The only financial coverage ratio
requirements included in either the indenture with respect to the Mortgage Notes
or the Bank Credit Facility are those which require a calculation of a
consolidated cash flow coverage ratio and an interest coverage ratio. The
indenture requires that, on a pro forma basis, when the Company seeks to incur
additional indebtedness the Company's consolidated cash flow coverage ratio for
the most recently ended four full fiscal quarters immediately preceding the date
on which indebtedness is incurred, calculated on a pro forma basis as if
indebtedness was incurred on the first day of such four full fiscal quarter
period, would be at least 2.75 to 1.0. Dividends may not be paid unless, among
other tests, PAAC could incur $1.00 of additional indebtedness. The Bank Credit
Facility requires an interest coverage ratio of 1:00 to 1:00. PAAC and Pioneer
Americas are in compliance with the financial coverage ratio requirements.

     The Company incurred $8.0 million of term debt concurrently with the
acquisition of KWT, with principal payments due at various times beginning March
31, 2000 and with a final payment due December 31, 2002. The Company incurred an
additional $4.5 million of term debt concurrently with the acquisition of T.C.
Products, with principal payments due July 31, 2001, subject to prepayment. T.C.
Products has an issue of tax-exempt bonds outstanding in the amount of $2.3
million.

     The Company believes that cash flow from current and anticipated future
levels of operations and, to a lesser extent, the availability under the Bank
Credit Facility, will be adequate to make the required payments of principal and
interest on outstanding indebtedness, as well as to fund its foreseeable capital
expenditures and working capital requirements. Annual cash interest of $19.0
million will be payable on the Mortgage Notes and on the Seller Notes. The
Company routinely incurs expenses associated with environmental compliance
matters in ongoing operations. These operating expenses include items such as
outside waste management, fuel, electricity and salaries. The amounts of these
operating expenses were approximately $1.9 million and $1.2 million for the
years ended December 31, 1996 and 1995, respectively. The Company considers
these types of environmental expenditures normal operating expenses and includes
them in cost of sales. The Company does not anticipate a material increase in
these types of expenses during 1997. Capital expenditures for
environmental-related matters at existing facilities were approximately $4.5
million and $2.2 million for the years ended December 31, 1996 and 1995,
respectively. The Company anticipates that capital expenditures for 1997 will be
approximately $16.0 million, including approximately $4.4 million for
environmental compliance matters. The Company believes that forecasted capital
expenditures will permit it to maintain its facilities on a basis competitive
within the industry through improved efficiency and throughput and continuation
of high operating rates. To the extent that the Company were to draw upon the
commitments under the Bank Credit Facility due to adverse business conditions or
to finance acquisitions or for other corporate purposes, the Company's aggregate
interest expense would be increased.

     The Company's belief that it will generate sufficient cash flow for its
requirements is based, among other things, on the assumptions that: (i) the
Company's cash flow will be positive as a result of continuing operating
profitability of its business; (ii) the Company's working capital requirements
will be consistent; (iii) the Company will not incur any material capital
expenditures in excess of its business plan.

     Pioneer's source of funds for payment of principal and interest on the
Seller Notes will be provided by dividends from PAAC. PAAC is restricted in
paying such dividends to 50% of the cumulative consolidated net income of PAAC
for the period subsequent to January 1, 1995, and is also required to meet a


                                       21
<PAGE>   22

consolidated cash flow coverage ratio test of at least 2.75 to 1.0 for the prior
four fiscal quarters. Payment of dividends by PAAC to Pioneer should not impair
PAAC's liquidity if the tests are met.

      On December 11, 1996, the Company announced that it had initiated
discussions with Occidental Chemical Corporation ("OxyChem") regarding the
proposed acquisition by the Company of OxyChem's Tacoma, Washington chlor-alkali
facility (the "Tacoma Facility"). If agreement with OyyChem on the terms of the
transaction can be reached, the Company expects that the securing of required
financing and completion of the transaction could occur during the first half
of 1997. The Tacoma Facility would be the Company's largest plant.

     Working Capital. The Company had working capital of $8.3 million at
December 31, 1996, as compared to $11.0 million at December 31, 1995,
principally because accrued liabilities at December 31, 1996 increased to $23.9
million from $20.9 million at December 31, 1995 and accounts receivable
decreased by $2.6 million.

     Net Cash Used in Investing Activities. Cash used in investing activities
for 1996 was $25.1 million, a decrease of $140.8 million from that used by the
Predecessor Company in 1995. This decrease was due primarily to the purchase of
the Predecessor Company by the Company for $152.3 million in 1995.

     Net Cash Provided by (Used in) Financing Activities. Cash provided by
financing activities in 1996 was $0.1 million compared to cash provided by
financing activities in 1995 of $147.0 million. The difference is primarily due
to the borrowings on the Mortgage Notes of $135 million and the issuance of
$21.0 million of Common Stock during 1995 to finance the Acquisition.

     Property, Plant and Equipment. Property, plant and equipment, gross,
increased $26.6 million due to routine capital expenditures in 1996 of $17.8
million along with $9.4 million associated with the KWT and T.C.
Products acquisitions.

     Other Assets. Other assets increased $15.5 million to $27.2 million at
December 31, 1996 compared to $11.7 million at December 31, 1995. This increase
was primarily due to the elimination of the Company's valuation allowance
associated with the future utilization of the Company's net operating loss
carryforward ("NOL") as the Company determined that future utilization of the
NOL was more likely than not. The elimination of the Company's valuation
allowance resulted in a corresponding increase in additional paid-in capital.

     Excess Cost Over the Fair Value of Net Assets Acquired. Excess cost over
the fair value of net assets acquired increased $5.5 million to $114.4 million
at December 31, 1996 compared to December 31, 1995. This increase was mainly
attributable to the goodwill recorded as a result of the Company's acquisition
of KWT and T.C. Products during 1996, partially offset by the amortization of
the asset during 1996.

     Other Long-Term Liabilities. Other long-term liabilities increased by $4.7
million at December 31, 1996 compared to December 31, 1995 due to an increase in
technology license fees payable, incurred in connection with the KWT
acquisition, along with the incurrence of a capital lease obligation
associated with equipment replaced at the St. Gabriel plant.

                                       22
<PAGE>   23


ACCOUNTING CHANGES

     The Company adopted Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of " ("SFAS No. 121"), on January 1, 1996. SFAS No. 121 sets forth
guidance on how to measure an impairment of long-lived assets and when to
recognize such an impairment. The adoption of this standard did not have a
material impact on the Company's financial position or results from operations.

     The Company adopted Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), on January 1, 1996.
Under SFAS No. 123, a company is permitted to either adopt this new standard
and record expenses for stock options and other stock-based employee
compensation plans based on their fair value at date of grant, or continue to
apply its current accounting policy under Accounting Principles Board ("APB")
Opinion No. 25 and increase its footnote disclosure. The Company has elected to
continue to apply APB Opinion No. 25, and accordingly has increased its footnote
disclosure to include the pro-forma impact on net income and earnings per share
pursuant to the application of the fair value based method of accounting.


                                       23
<PAGE>   24


Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Index:
<TABLE>
<CAPTION>

                                                                                          PAGE
                                                                                          ----
<S>                                                                                       <C>
     (1) Consolidated  financial  statements,  Pioneer Companies,  Inc. and
         subsidiary companies:

         Report of Deloitte & Touche LLP,  independent public  accountants,
              dated March 7, 1997                                                          25

         Report of Ernst & Young  LLP,  independent  auditors,  dated  June
              26, 1995                                                                     26

         Report  of  Piercy,  Bowler,  Taylor  & Kern,  independent  public
              accountants, dated January 30, 1995                                          27

         Consolidated balance sheets--December 31, 1996 and 1995                           28

         Consolidated   statements  of  operations   for  the  years  ended
              December  31,  1996,  1995 and 1994 and  Predecessor  Company
              Period from January 1, 1995  through  April 20, 1995 and year
              ended December 31, 1994                                                      30

         Consolidated  statements  of  stockholders'  equity for the  years
              ended  December  31,  1994,  1995  and  1996  and Predecessor
              Company  year  ended  December  31,  1994  and   Period  from
              January  1, 1995 through April 20, 1995                                      31

         Consolidated   statements  of  cash  flows  for  the  years  ended
              December  31,  1996,  1995 and 1994 and  Predecessor  Company
              Period from January 1, 1995  through  April 20, 1995 and year
              ended December 31, 1994                                                      32

         Notes to consolidated financial statements                                        33

     (2) Supplemental Schedules:

         Schedule II - Valuation and Qualifying Accounts -
              Pioneer Companies, Inc.                                                      54

         Schedule II - Valuation and Qualifying Accounts -
              Pioneer Americas, Inc.                                                       55
</TABLE>

    All schedules, except the one listed above, have been omitted since the
information required to be submitted has been included in the financial
statements or notes or has been omitted as not applicable or not required.


                                       24
<PAGE>   25


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Pioneer Companies, Inc.

We have audited the accompanying consolidated balance sheets of Pioneer
Companies, Inc. and its subsidiaries (the "Company"), as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996. Our audits also included the consolidated financial statement schedule
II. These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
at December 31, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles. Also, in our opinion,
the related consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.



                                                      DELOITTE & TOUCHE LLP

Houston, Texas
March 7, 1997


                                       25
<PAGE>   26


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Pioneer Americas, Inc.

We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Pioneer Americas, Inc. (the "Predecessor
Company") for the period from January 1, 1995 through April 20, 1995 and for the
year ended December 31, 1994. Our audits also included the related financial
statement schedule II. These financial statements and schedule are the
responsibility of the Predecessor Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits. The financial statements of certain of the Predecessor Company's
investments (as described in Note 4) have been audited by other auditors whose
report has been furnished to us; insofar as our opinion on the consolidated
financial statements relates to data included for these investments, it is based
solely on their report.

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

In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated results of operations and cash flows of the
Predecessor Company for the period from January 1, 1995 through April 20, 1995
and the year ended December 31, 1994, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects, the information set forth
therein.



                                                     ERNST & YOUNG LLP
Houston, Texas
June 26, 1995



                                       26

<PAGE>   27


                          INDEPENDENT AUDITORS' REPORT


Board of Directors
Basic Investments, Inc.
Henderson, Nevada

We have audited the combined statements of income, equity and cash flows of
Basic Investments, Inc. and affiliates (the Company) for the year ended December
31, 1994. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of Basic Investments, Inc. and
affiliates combined operations and cash flows for the year ended December 31,
1994 in conformity with generally accepted accounting principles.




                                               PIERCY, BOWLER, TAYLOR & KERN
                          CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS ADVISORS
                                                  A PROFESSIONAL CORPORATION



Las Vegas, Nevada
January 30, 1995

                                       27
<PAGE>   28


                             PIONEER COMPANIES, INC.

                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                                   DECEMBER 31,
                                                                          -----------------------------
                                                                               1996             1995
                                                                          ------------     ------------
<S>                                                                        <C>              <C>
                                ASSETS
Current assets:
     Cash                                                                  $    15,754      $    11,276
     Accounts receivable, less allowance for doubtful accounts:
        1996, $1,311; 1995, $1,424                                              25,053           27,678
     Inventories                                                                11,026           11,347
     Prepaid expenses                                                            1,807            3,781
                                                                           ------------     ------------
          Total current assets                                                  53,640           54,082
Property, plant and equipment:
     Land                                                                        5,043            1,711
     Buildings and improvements                                                 20,956           13,997
     Machinery and equipment                                                    80,898           67,587
     Cylinders and tanks                                                         4,540            4,503
     Construction in progress                                                   12,321            9,394
                                                                           ------------     ------------
                                                                               123,758           97,192
     Less accumulated depreciation                                            (17,479)          (7,795)
                                                                           ------------     ------------
                                                                               106,279           89,397
Other assets, net of accumulated amortization:
   1996, $1,631; 1995, $1,168                                                   27,190           11,664
Excess cost over the fair value of net assets acquired, net of
   accumulated amortization:  1996, $8,027; 1995, $3,311                       114,459          108,940
                                                                           ------------     ------------
          Total assets                                                     $   301,568      $   264,083
                                                                           ============     ============
</TABLE>





                 See notes to consolidated financial statements.

                                       28
<PAGE>   29



                             PIONEER COMPANIES, INC.

                           CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


 <TABLE>
<CAPTION>

                                                                                   DECEMBER 31,
                                                                          -----------------------------
                                                                               1996             1995
                                                                          ------------     ------------
<S>                                                                        <C>              <C>
                 LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                                     $   18,103       $   18,793
     Accrued liabilities                                                      23,859           20,891
     Returnable deposits                                                       3,238            3,437
     Current maturities of long-term debt                                        128              --
                                                                          ------------     ------------
          Total current liabilities                                           45,328           43,121
Bank Credit Facility                                                             --               --
Long-term debt, less current maturities                                      161,103          146,463
Returnable deposits                                                            3,272            3,281
Accrued pension and other employee benefits                                   14,100           13,573
Other long-term liabilities                                                   17,864           13,170
Commitments and contingencies (Note 10)
Stockholders' equity:
     Preferred stock: $.01 par value, authorized 10,000
        shares, none issued
     Common stock:
        Class A, $.01 par value, authorized 46,000 shares, issued and
          outstanding:
          1996, 7,906; 1995, 7,884                                                79               79
        Class B, $.01 par value, authorized 4,000 shares,
          655 shares issued and outstanding,
          convertible share-for-share into Class A shares                          7                7
     Additional paid-in capital                                               53,853           40,056
     Retained earnings                                                         5,962            4,333
                                                                          ------------     ------------
          Total stockholders' equity                                          59,901           44,475
                                                                          ------------     ------------
          Total liabilities and stockholders' equity                       $ 301,568        $ 264,083
                                                                          ============      ===========
</TABLE>



                 See notes to consolidated financial statements.

                                       29
<PAGE>   30



                             PIONEER COMPANIES, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>


                                                                                 PREDECESSOR COMPANY
                                                                            ----------------------------
                                                                             PERIOD FROM
                                                                              JANUARY 1
                                              YEAR ENDED DECEMBER 31,          THROUGH      YEAR ENDED
                                        ----------------------------------     APRIL 20,    DECEMBER 31,
                                            1996        1995        1994         1995          1994
                                        ---------    ---------    --------   ----------     ---------
<S>                                     <C>          <C>          <C>        <C>            <C>
Revenues                                $ 208,908    $ 142,908    $    --    $   57,848     $ 167,217
Cost of sales                             150,464       98,175         --        37,400       134,556
                                        ---------    ---------    --------   ----------     ---------
Gross profit                               58,444       44,733         --        20,448        32,661
Selling, general and
   administrative expenses                 29,860       20,765         155        7,047        22,529
                                        ---------    ---------    --------   ----------     ---------
Operating income (loss)                    28,584       23,968        (155)      13,401        10,132
Interest expense, net                     (19,212)     (13,540)         15       (1,665)       (6,407)
Settlement of litigation and
   insurance claims, net                      --           --          --           --          3,326
Other income (expense), net                  887           637         --          (115)        1,337
                                        ---------    ---------    --------   ----------     ---------
Income (loss) before taxes and
   extraordinary item                      10,259       11,065        (140)      11,621         8,388
Income tax provision                        5,859        5,579          --        4,809         3,242
                                        ---------    ---------    --------   ----------     ---------
Income (loss) before extraordinary
    item                                    4,400        5,486        (140)       6,812         5,146
Extraordinary item, early
   extinguishment of debt (net of
   income tax benefit of $2,140)               --           --          --        3,420           --
                                        ---------    ---------    --------   ----------     ---------
Net income (loss)                           4,400        5,486        (140)       3,392         5,146
Accretion of dividends on preferred
   stock and adjustment to redeemable
   stock put warrants                          --          --           --           --        (1,824)
                                        ---------    ---------    --------   ----------     ---------
Net income (loss) applicable to
   common stock                         $   4,400    $   5,486    $   (140)  $  3,392       $   3,322
                                        =========    =========    ========   ==========     =========

Net income (loss) per share             $     .48    $     .70    $   (.03)
                                        =========    =========    ========

Weighted average number of shares of
   common stock outstanding                 9,156        7,850       4,626
                                        =========    =========    ========
</TABLE>






                 See notes to consolidated financial statements.

                                       30
<PAGE>   31



                             PIONEER COMPANIES, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                      COMMON STOCK ISSUED AND OUTSTANDING
                                     --------------------------------------     ADDITIONAL   RETAINED
                                         CLASS A               CLASS B           PAID-IN     EARNINGS
                                     SHARES    AMOUNT     SHARES     AMOUNT      CAPITAL     (DEFICIT)       TOTAL
                                     -------   ------     ------     ------     ----------   --------     ---------
<S>                                   <C>      <C>        <C>        <C>       <C>          <C>           <C>
PIONEER COMPANIES, INC.
Balance at December 31, 1993           2,650   $   27        769     $    8     $    754     $ (1,013)    $    (224)
   Private placement                   1,102       11         --         --        1,092           --         1,103
   Net loss                               --       --         --         --           --         (140)         (140)
   Stock issued to non-employee
       Directors                          16       --         --         --           23           --            23
                                      ------   ------     ------     ------     --------     --------     ---------
Balance at December 31, 1994           3,768       38        769          8        1,869       (1,153)          762
   Private placement                      24        1         --         --           36           --            37
   Stock issued to Interlaken
     Investment Partners, L.P.         2,841       28         --         --       14,972           --        15,000
   Stock issued to certain employees
     and directors of the Predecessor
      Company                          1,136       11         --         --        5,989           --         6,000
   Conversion of Class B shares into
     Class A shares                      114        1       (114)        (1)          --           --            --
   Recognition of the NOL benefit         --       --         --         --       17,190           --        17,190
   Net income                             --       --         --         --           --        5,486         5,486
                                      ------   ------     ------     ------     --------     --------     ---------
Balance at December 31, 1995           7,883       79        655          7       40,056        4,333        44,475
   Stock issued to non-employee
     Directors                            22       --         --         --          147           --           147
   Stock dividend issuable                --       --         --         --        2,771       (2,771)           --
   Recognition of the NOL benefit         --       --         --         --       10,879           --        10,879
   Net income                             --       --         --         --           --        4,400         4,400
                                      ------   ------     ------     ------     --------     --------     ---------
Balance at December 31, 1996           7,905   $   79        655     $    7     $ 53,853     $  5,962     $  59,901
                                      ======   ======     ======     ======     ========     ========     =========
</TABLE>
<TABLE>
<CAPTION>

                                                  COMMON STOCK          ADDITIONAL
                                             ISSUED AND OUTSTANDING       PAID-IN        RETAINED
                                               SHARES       AMOUNT        CAPITAL        EARNINGS       TOTAL
                                            -----------   --------     ----------    -----------     -----------
<S>                                         <C>           <C>          <C>           <C>             <C>
PREDECESSOR COMPANY
Balance at December 31, 1993                      1,453   $     14     $    4,028    $    15,679     $    19,721
   Common Stock issuance                             56          1            158             --             159
   Adjust carrying value of stock
     warrants                                        --         --             --         (1,424)         (1,424)
   Accretion of excess redemption value
     of redeemable preferred stock over
     carrying value and amount of
     dividends not declared or paid                  --         --             --           (500)           (500)
   Net income                                        --         --             --          5,146           5,146
                                            -----------   --------     ----------     ----------     -----------
Balance at December 31, 1994                      1,509         15          4,186         18,901          23,102
   Accretion of excess redemption value
     of redeemable preferred stock over
     carrying value and amount of
     dividends not declared or paid                  --         --             --           (124)           (124)
   Net income                                        --         --             --          3,392           3,392
                                            -----------   --------     ----------     ----------     -----------
Balance at April 20, 1995                         1,509   $     15     $    4,186     $   22,169     $    26,370
                                            ===========   ========     ==========     ==========     ===========
</TABLE>

                 See notes to consolidated financial statements.

                                       31
<PAGE>   32


                             PIONEER COMPANIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                                                PREDECESSOR COMPANY
                                                                                              -----------------------
                                                                                                PERIOD
                                                                                                 FROM
                                                                                              JANUARY 1,
                                                                                                 1995
                                                                   YEAR ENDED DECEMBER 31,     THROUGH     YEAR ENDED
                                                      ---------------------------------------  APRIL 20,   DECEMBER 31,
                                                           1996            1995        1994       1995        1994
                                                      ------------      ----------  ---------  --------     ---------
<S>                                                   <C>               <C>        <C>         <C>         <C>
OPERATING ACTIVITIES:
Net income (loss)                                     $      4,400      $    5,486  $   (140)  $  3,392     $   5,146
Adjustments to reconcile net income to
   net cash provided by (used in)
   operating activities:
     Depreciation and amortization                          18,213          12,274         6      4,490        13,595
     Provision for bad debts                                   --              138       --          47         1,235
     Write-off of previous finance
        costs                                                  --              --        --       1,282           --
     Loss (gain) on disposal of
        property, plant and equipment                          --              --        --          13            (4)
     Provision for SAR's                                       --              --        --         --            968
     Equity in earnings of BII and
        VVLC                                                   --              --        --        (204)         (183)
     Net change in deferred taxes                            3,773           3,590       --      (2,086)       (1,256)
     Net effect of changes in
        operating assets and liabilities
         (net of acquisitions)                               2,848           5,526      (267)    (4,323)        2,918
                                                      ------------      ----------  ---------  --------     ---------
Net cash flows from operating activities                    29,234          27,014      (401)     2,611        22,419
                                                      ------------      ----------  ---------  --------     ---------
INVESTING ACTIVITIES:
   Acquisition of businesses                                (7,281)       (152,318)      --         --            --
   Capital expenditures                                    (17,839)        (13,556)      --      (3,447)       (5,681)
   Proceeds from sale of property,
     plant and equipment                                       --              --          --         58          694
                                                      ------------      ----------  ---------  --------     ---------

Net cash flows from investing activities                   (25,120)       (165,874)        --   ( 3,389)       (4,987)
                                                      ------------      ----------  ---------  --------     ---------

FINANCING ACTIVITIES:
   Borrowings:
     Proceeds                                                  --          153,500        75    106,000        83,900
     Repayments                                                (75)        (27,500)      --    (103,971)      (99,961)
   Dividends paid on preferred stock
     and purchase stock put warrant                            --              --        --      (2,341)          --
   Proceeds from issuance of
      equity securities                                        147          21,036     1,102         --           170
                                                      ------------      ----------  ---------  --------     ---------

Net cash flows from financing activities                        72         147,036     1,177       (312)      (15,891)
                                                      ------------      ----------  ---------  --------     ---------
Net increase (decrease) in cash                              4,186           8,176       776     (1,090)        1,541
Cash acquired in acquisition                                   292           2,220       --         --            --
Cash at beginning of period                                 11,276             880       104      3,310         1,769
                                                      ------------      ----------  ---------  --------     ---------

Cash at end of period                                     $ 15,754       $  11,276  $    880  $   2,220    $    3,310
                                                      ============       =========  ========  =========    ==========
</TABLE>




                 See notes to consolidated financial statements.

                                       32
<PAGE>   33


                             PIONEER COMPANIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.  ORGANIZATION AND BASIS OF PRESENTATION

     As of March 31, 1995, GEV Corporation ("GEV") changed its name to Pioneer
Companies, Inc. ("Pioneer"). GEV had previously sold its businesses and had no
active operations before it made the acquisitions described below.

     On April 20, 1995, Pioneer acquired Pioneer Americas, Inc. ("Pioneer
Americas" or the "Predecessor Company") for approximately $177 million (the
"Acquisition"). Pioneer Americas manufactured chlorine, caustic soda and related
products used in a variety of applications including water treatment, plastics,
detergents and agricultural chemicals. Consideration for the Acquisition
included cash, assumption of certain liabilities and repayment of debt of the
Predecessor Company, redemption of preferred stock of the Predecessor Company
and fees and expenses related to the Acquisition. In connection with the
Acquisition, Pioneer sold common stock, issued long-term debt and entered into a
new bank revolving credit facility. The Acquisition was accounted for as a
purchase; accordingly, the purchase price was allocated to the assets acquired
and liabilities assumed based upon their fair market value and the operations of
the Predecessor Company were included in the consolidated financial statements
from the date acquired. The acquisition resulted in $112 million of excess cost
over the fair value of the net assets acquired, which is being amortized on a
straight line basis over periods of up to 25 years.

     Pioneer acquired KWT, Inc. in February 1996 for $9.6 million and T.C.
Products in July 1996 for $10.0 million. KWT, Inc. produces polyaluminum
chloride, aluminum sulfate, sodium aluminate and ferric sulfate for the waste
water treatment market. T. C. Products manufactures bleach and related products.
The acquisitions were accounted for as a purchase; accordingly, the purchase
price was allocated to the assets acquired and liabilities assumed based upon
their fair market value and the operations for the acquired companies were
included in the consolidated financial statements from the date acquired. The
acquisitions resulted in $9.8 million of excess cost over the fair value of the
net assets acquired, which is being amortized on a straight line basis over
periods of up to 25 years. Had the acquisitions been made as of January 1, 1996
and 1995, they would not have had a significant impact upon the consolidated
results of operations for the years ended December 31, 1996 and 1995. The
acquisitions do not have a significant impact on the Company's financial
statements, and therefore pro forma information is not presented.

     The consolidated financial statements include the accounts of Pioneer and
its subsidiaries (the "Company"). All significant intercompany balances and
transactions have been eliminated in consolidation. All dollar amounts in
tabulations in the notes to the consolidated financial statements are stated in
thousands of dollars unless otherwise indicated.

     Amounts presented in the notes to the consolidated financial statements for
the Predecessor Company are based upon its historical accounting basis for the
periods presented. Such amounts do not include effects of the purchase of the
Predecessor Company by Pioneer. Amounts presented in the notes to the
consolidated financial statements for the Predecessor Company for the period
from January 1, 1995 through April 20, 1995 and for the year ended December 31,
1994 are included under the captions "Predecessor Company, 1995" and
"Predecessor Company, 1994," respectively.

     The Company operates in one industry segment and one geographic area.

                                       33
<PAGE>   34


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

      All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents. Interest income is netted
against interest expense for the periods presented. The company had interest
income for the years ended December 31, 1996 and 1995 of $0.7 million and $0.3
million, respectively. The Predecessor Company had interest income for the
period from January 1, 1995 through April 20, 1995 and the year ended December
31, 1994 of $0.1 million for each period.

INVENTORIES

     Inventories are valued at the lower of cost or market. Finished goods and
work-in-process costs are calculated under the average cost method, which
includes appropriate elements of material, labor, and manufacturing overhead
costs, while the first-in, first-out method is utilized for raw materials,
supplies, and parts. The Company enters into agreements with other companies to
exchange chemical inventories in order to minimize working capital requirements
and to facilitate distribution logistics. Balances related to quantities due to
or payable by the Company are included in inventory. The results of operations
for the year ended December 31, 1995 include the effects of an increase of $1.7
million to cost of sales due to the step-up in value of inventory in connection
with the Acquisition.

PROPERTY, PLANT, AND EQUIPMENT

     Depreciation for financial reporting purposes is computed primarily under
the straight-line method over the estimated remaining useful lives of the
assets. Asset lives range from 5 to 15 years with a predominant life of 10
years.

OTHER ASSETS

     Other assets include amounts for deferred financing costs which are being
amortized on a straight-line basis over the term of the related debt.
Amortization of such costs using the interest method would not result in
material differences in the amounts amortized during the periods presented.
Amortization expense for other assets for the years ended December 31, 1996 and
1995 were approximately $2.3 million and $1.1 million, respectively.

     Other assets of the Predecessor Company included amounts for organization
costs, deferred financing costs, noncompete agreements, permits, licenses, and
customer lists obtained in conjunction with the acquisitions of All-Pure, GPS
Pool Supply, Inc. ("GPS") and Imperial West Chemical Co. ("Imperial West") which
were being amortized on a straight-line basis over their estimated useful lives.
The Predecessor Company's deferred financing costs were being amortized on a
straight-line basis over the term of the related debt. Amortization of such
costs using the interest method would not result in material differences in the
amounts amortized during the periods presented. Amortization expense for other
assets was approximately $0.8 million for the period from January 1, 1995
through April 20, 1995 and $1.7 million for the year ended December 31, 1994 .

EXCESS COST OVER THE FAIR VALUE OF NET ASSETS ACQUIRED

      Excess cost over the fair value of net assets acquired of approximately
$122 million is amortized on a straight-line basis over periods of up to 25
years. The carrying value of excess cost over the fair value of net assets
acquired is reviewed annually and if this review indicates that such excess cost
will not be recoverable, as determined based on the estimated future
undiscounted cash flows of the entity acquired over the remaining amortization
period, the Company's carrying value of excess cost over the fair value of net
assets acquired will be reduced by the estimated shortfall of discounted cash
flows or the fair value of the related entity. No such reductions were made in
1996 or 1995. Amortization expense for excess cost over the fair value of net
assets acquired was approximately $5.1 million and $3.3 million for the years
ended December 31, 1996 and 1995, respectively.


                                      34
<PAGE>   35

     The Predecessor Company's excess cost over the fair value of net assets
acquired of approximately $12.8 million and is amortized on a straight-line
basis over 20 years. Amortization expense was approximately $0.2 million for the
period from January 1, 1995 through April 20, 1995 and $0.6 million for 1994.

ENVIRONMENTAL EXPENDITURES

     Remediation costs are accrued based on estimates of known environmental
remediation exposure. Such accruals are based upon management's best estimate of
the ultimate cost and are recorded even if significant uncertainties exist over
the ultimate cost of the remediation. Ongoing environmental compliance cost,
including maintenance and monitoring costs, are charged to operations as
incurred.

RETURNABLE DEPOSITS

     Customers are required to pay a security deposit on cylinders, tanks, and
containers. The deposits are refunded to the customer upon the termination of
service and return of the cylinders, tanks, and containers.

INCOME TAXES

     For financial reporting purposes, deferred income taxes are determined
utilizing an asset and liability approach. This method gives consideration to
the future tax consequences associated with differences between the financial
accounting basis and tax basis of the assets and liabilities, and the ultimate
realization of any deferred tax asset resulting from such differences.

PER SHARE INFORMATION

     Income per common share is computed using the weighted average number of
common shares outstanding during the period, after giving retroactive effect to
the one-for-four reverse stock split of Pioneer's Class A and Class B Common
Stock, effective as of April 27, 1995, and after giving retroactive effect to a
7% stock dividend on the Class A and Class B Common Stock to shareholders of
record on December 16, 1996. Common stock equivalents are not significant;
accordingly, such items were not used in the computation of income per common
share.

USE OF ESTIMATES

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

IMPAIRMENT OF LONG-LIVED ASSETS

      For 1996, the Company adopted a new accounting standard for the impairment
of long-lived assets. This standard requires that certain assets be reviewed for
impairment whenever events or circumstances indicate that the carrying amount of
the assets may not be recovered. If it is determined that the asset's carrying
amount is not recoverable, the new accounting standard requires that the
carrying value be reduced to the fair value of the assets. Implementation of
this standard did not have a significant impact on the Company's 1996
consolidated financial statements.

STOCK-BASED COMPENSATION

     For 1996, the Company adopted a new accounting standard for stock-based
compensation. Under the new standard, a company may elect to continue its
current method to account for stock-based compensation and include additional
disclosure in its financial statements or record expenses for such compensation
based on the fair value of the instruments on the date of their grant. The
Company elected to continue with the method that it had previously used;
accordingly, the 1996 consolidated financial statements do not include any
charge for the fair value of grants for stock-based-compensation instruments.
The additional disclosure required by the accounting standard is presented in
Note 15.


                                       35
<PAGE>   36

RECLASSIFICATIONS

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


3.  SUPPLEMENTAL CASH FLOW INFORMATION

      Net effect of changes in operating assets and liabilities (net of
acquisitions) are as follows:
<TABLE>
<CAPTION>

                                                                                      PREDECESSOR COMPANY
                                                                                  --------------------------
                                                    YEAR ENDED DECEMBER 31,
                                             ------------------------------------
                                               1996             1995        1994       1995          1994
                                             ---------      ----------    ------   --------     ---------
<S>                                         <C>             <C>           <C>      <C>          <C>
Accounts receivable                         $    4,588      $    1,866    $  --    $(3,617)     $  (4,889)
Due from affiliates                                --              --        --        --             535
Receivable from insurance carriers and
   agents                                          --              --        --        --            (102)
Income taxes receivable                            --              --        --        --           2,738
Inventories                                      2,259           1,541       --       (638)          (876)
Prepaid expenses                                  (241)         (1,416)      --        722           (371)
Other assets                                    (2,617)         (3,104)       24    (1,342)          (305)
Accounts payable                                (3,171)         (2,464)      --      4,899            862
Accrued liabilities                                187           8,931      (291)   (3,784)         3,783
Returnable deposits                               (199)           (234)      --       (259)          (323)
Other long-term liabilities                      1,515             (71)      --       (726)         1,079
Accrued pension and other employee
   benefits                                        527             477       --        422            787
                                            ---------       ----------    ------   --------     ---------
Net change in operating accounts            $    2,848      $    5,526    $ (267)  $(4,323)     $   2,918
                                            ==========      ==========    ======   ========     =========
</TABLE>

      Following is supplemental cash information:

<TABLE>
<CAPTION>

                                                                                      PREDECESSOR COMPANY
                                                                                  --------------------------
                                                    YEAR ENDED DECEMBER 31,
                                             ------------------------------------
                                               1996             1995        1994       1995          1994
                                             ---------    ------------  -----------   ----------  ----------
<S>                                          <C>          <C>           <C>           <C>         <C>
Cash payments for:
   Interest                                  $  19,215    $      8,704  $       --    $    3,067  $    4,482
                                             =========    ============  ===========   ==========  ==========

   Income taxes                              $   4,106    $      1,707  $       --    $    1,852  $    3,730
                                             =========    ============  ===========   ==========  ==========
Investing activities of acquisitions
   during the period:
     Cash paid for acquisition               $   7,281    $    152,318  $       --    $       --  $      238
     Long-term debt issued                      12,517          11,463          --            --       3,254
     Liabilities assumed                         7,419          90,596          --            --          --
     NOL benefit recognized                         --          13,600          --            --          --
                                             ---------    ------------  -----------   ----------  ----------
     Fair value of assets acquired           $  27,217    $    267,977  $       --    $       --   $   3,492
                                             =========    ============  ===========   ===========  =========
</TABLE>


      Included in the above table are the acquisitions of: KWT, Inc. and T.C.
Products in 1996;  Pioneer  Americas, Inc. in 1995; and GPS in 1994 by the
Predecessor Company.


                                       36
<PAGE>   37

      Other non-cash items included in the consolidated financial statements
include: increase in shareholders equity of $10.9 million and $3.6 million in
1996 and 1995, respectively, due to recognizing the benefit of the net operating
loss carryforward; and exchange of $135 million of 13 3/8% Senior Notes for
$135 million of 13 3/8% First Mortgage Notes in 1996.

4.  INVENTORIES

Inventories consisted of the following at December 31:


                                                   1996              1995
                                               -------------    ------------

Raw materials, supplies, and parts             $      10,610    $      9,849
Finished goods and work-in-process                     4,349           3,155
Inventories under exchange agreements                 (3,933)         (1,657)
                                               -------------    ------------
                                               $      11,026    $     11,347
                                               =============    ============

5.  INVESTMENTS IN BASIC INVESTMENTS, INC. (BII) AND VICTORY VALLEY LAND
    COMPANY, L.P. (VVLC)

     The Company, through its subsidiary Pioneer Chlor Alkali Company, Inc.
("PCAC"), owns approximately 32% of the common stock of BII, which owns and
maintains the water and power distribution network within the Henderson, Nevada
industrial complex and which is a large landowner in Clark County, Nevada. The
remainder of the common stock of BII is owned by other companies located in the
industrial complex. Prior to the Acquisition, the investment in BII was
accounted for by the Predecessor Company under the equity method after
adjustment to reflect PCAC's basis.

     PCAC has an approximate 21% limited partnership interest in VVLC. The
purpose of VVLC's business is to receive, hold and develop the lands, water
rights, and other assets contributed by the partners for investment. A wholly
owned subsidiary of BII, acting as general partner with a 50% interest in VVLC,
contributed all rights, title, and interest in and to certain land to VVLC. PCAC
assigned certain water rights to VVLC. Prior to the Acquisition, the investment
in VVLC was accounted for by the Predecessor Company under the equity method.

     The Company's interests in BII and in VVLC (referred to as the Basic
Ownership) constitute assets that, pursuant to the Acquisition Agreement and the
Contingent Payment Agreement, will be held for the economic benefit of the
Sellers for a period of 20 years. Dividends and distributions received by the
Company on account of the Basic Ownership (including amounts payable as a result
of sales of land or other assets owned by BII or VVLC) are deposited into the
Contingent Payment Account and used to satisfy certain obligations of the
Sellers under environmental and other obligations in favor of the Company. After
payment or provision for payment of such obligations in accordance with the
provisions of the Contingent Payment Agreement, amounts received by the Company
subsequent to April 20, 1995 on account of the Basic Ownership will be remitted
to the Sellers under the Contingent Payment Agreement for such 20-year period.
The Sellers also have certain rights during such period with respect to
determinations affecting the Basic Ownership, including the right (subject to
certain limited conditions) to direct the sales or disposition of interests
constituting the Basic Ownership and the right (with certain limited
exceptions) to vote the interests constituting the Basic Ownership,
notwithstanding the ownership of such interests by the Company. Since the
Sellers maintain the economic benefit of the Basic Ownership and the Company
has not received, nor expects to receive in the future, any economic benefit
from BII or VVLC, the Company has not maintained these balances in its
financial statements since the Acquisition.


                                       37
<PAGE>   38


     The BII financial information includes the accounts of VVLC. The following
is a summary of financial information pertaining to BII and VVLC for the
Predecessor Company for the year ended December 31, 1994:


Revenues                                          $       5,659
Costs and expenses                                        4,834
                                                  -------------
Income before taxes                                         825
Income tax expense                                         (274)
                                                  -------------
     Net income                                   $         551
                                                  =============
Equity in earnings (included in other income)     $         183
                                                  =============


6.  ACCRUED LIABILITIES

     Accrued liabilities consist of the following at December 31:

                                                1996           1995
                                            --------------  -----------
Payroll, benefits, and pension              $     2,583     $     5,371
Interest and bank fees                            5,327           5,172
Current deferred tax liability                    2,305           2,293
Other accrued liabilities                        13,644           8,055
                                            -----------     -----------
      Accrued liabilities                   $    23,859     $    20,891
                                            ===========     ===========

7.  PENSION AND OTHER EMPLOYEE BENEFITS

     Annual pension costs and liabilities for the Company under its two
defined-benefit plans covering all of its employees are determined by actuaries
using various methods and assumptions. The Company has agreed to voluntarily
contribute such amounts as are necessary to provide assets sufficient to meet
the benefits to be paid to its employees. The Company's present intent is to
make annual contributions, which are actuarially computed, in amounts not more
than the maximum nor less than the minimum allowable under the Internal Revenue
Code. For purposes of determining annual expenses and funding contributions, the
following assumptions were used for the years ended December 31:

                                      1996              1995             1994
                                      ----              ----             ----
Rate of return on plan assets         8.0%              8.0%             8.0%
Discount rate                         7.5%              7.5%             7.5%
Annual compensation increase          4.0%              4.0%             5.0%

     Pension expense for the periods presented was comprised of:

<TABLE>
<CAPTION>

                                                                         PREDECESSOR COMPANY
                                                                       -----------------------
                                                 1996         1995        1995         1994
                                            -----------   ----------   ----------   ----------
<S>                                         <C>           <C>          <C>          <C>
SERVICE COST                                $      597    $     410    $     178    $     571
INTEREST COST                                      892          566          260          770
RETURN ON PLAN ASSETS                           (1,132)        (394)        (149)        (537)
AMORTIZATION OF PRIOR SERVICE AND OTHER            462           56           (7)         225
                                            -----------   ----------    ---------   ----------

TOTAL PENSION EXPENSE                       $      819    $     638     $    282    $   1,029
                                            ===========   ==========    =========   ==========
</TABLE>







                                      38

<PAGE>   39
     The funded status of the pension plans for which assets exceed accumulated
benefits and the plan for which accumulated benefits exceed assets as of the
actuarial valuation dates of December 31, 1996 and 1995 were as follows:


<TABLE>
<CAPTION>

                                                                           1996                       1995
                                                               ----------------------------      --------------
                                                                 Accumulated    Assets Exceed      Accumulated
                                                               Benefits Exceed   Accumulated     Benefits Exceed
                                                                   Assets         Benefits           Assets
<S>                                                            <C>            <C>                <C>
Actuarial present value of benefits based on service to date
  and present pay levels:

Vested benefit obligation                                       $     3,823   $      6,122       $      8,488
Non-vested benefit obligation                                           212            389              1,513
                                                              -------------   ------------       ------------
Accumulated benefit obligation                                        4,035          6,511             10,001
Plan assets at fair value                                             3,318          6,963              7,293
                                                               ------------   ------------       ------------
Plan assets in excess (less than) accumulated benefit
obligation                                                              717           (452)            (2,708)
Additional amounts related to projected salary increases              2,171            911              2,199
                                                               ------------   ------------       ------------
Plan assets less than total projected benefit obligation             (1,454)        (1,363)            (4,907)
Unrecognized gain                                                       236          1,254                185
Unrecognized prior service cost                                        (372)           220               (202)
                                                              -------------   ------------       ------------
         Pension obligation                                    $      1,318   $      2,837       $      4,890
                                                               ============   ============       ============
</TABLE>


     Plan assets at December 31, 1996 and 1995 consist primarily of fixed income
investments and equity investments.

   The Company offers defined-contributions plans for its employees with the
employees generally contributing from 1% to 15% of their compensation. Aggregate
contributions by the Company to such plans were $0.5 million and $0.2 million in
1996 and 1995, respectively. Aggregate contributions by the Predecessor Company
for such plans were $0.1 million for the period from January 1, 1995 through
April 20, 1995 and none for 1994.


                                       39
<PAGE>   40


     In addition to providing pension benefits, PCAC provides certain health
care and life insurance benefits for retired employees. Substantially all of
PCAC's employees may become eligible for those benefits if they reach normal
retirement age while working for the Company. The following table presents the
plan's funded status reconciled with amounts recognized in the Company's balance
sheet at December 31:


                                                        1996           1995
                                                    -------------  ---------

Accumulated post-retirement benefit obligation:
     Retirees                                     $       3,737  $        3,669
     Fully eligible active plan participants              1,483           1,380
     Other active plan participants                       4,986           4,169
                                                  -------------  --------------
                                                         10,206           9,218
Unrecognized net loss                                      (125)             --
                                                  -------------  --------------
     Accrued post-retirement benefit cost         $      10,081  $        9,218
                                                  =============  ==============

     Net periodic post-retirement benefit cost for the periods presented
includes the following components:


<TABLE>
<CAPTION>

                                                                                    PREDECESSOR COMPANY
                                                                                  ----------------------
                                                     1996              1995          1995        1994
                                                 ---------          ----------    ---------   -----------
<S>                                              <C>                <C>           <C>         <C>
Service cost                                     $    369           $     243     $    109    $      324
Interest cost                                         693                 449          176           519
Amortization of transition obligation
    over 20 years                                      --                  15            8            32
Other components                                       --                  48           --            --
                                                 ---------          ----------    ---------   -----------
     Net periodic post-retirement benefit cost   $  1,062           $     755     $    293    $      875
                                                 =========          ==========    =========   ===========
</TABLE>

     The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) is 10.0% for 1996 (the
same as the rate previously assumed for 1995 and 1994) and is assumed to
decrease gradually to 6% for 2010 and remain at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. For example, increasing the assumed health care cost trend rates by
one percentage point in each year would increase the accumulated post-retirement
benefit obligation as of December 31, 1996, 1995 and 1994 by $0.8 million, $0.7
million and $0.6 million, respectively, and the aggregate of the service and
interest cost components of the net periodic post-retirement benefit cost for
each of 1996, 1995 and 1994 by $0.1 million.

     The weighted-average discount rate used in determining the accumulated
post-retirement benefit obligation was 7.5% at December 31, 1996, 1995 and 1994.

     As a result of the Acquisition, the unrecognized net loss and unrecognized
transition obligation amounts as of that date were recognized.

8.  BANK CREDIT FACILITY

     In April 1995, the Company entered into a credit agreement which provides
for the three-year Bank Credit Facility with Bank of America, Illinois ("BAI").
The Company may borrow up to $30.0 million, subject to certain borrowing base
limitations. At December 31, 1996, no amounts were outstanding under the Bank
Credit Facility. The revolving loans bear interest at a rate equal to, at the
Company's option, (i) the reference rate set by BAI or (ii) the LIBOR Base Rate.
The Bank Credit Facility requires the Company to pay a fee equal to one half of
one percent per annum on the total unused balance. Indebtedness outstanding
under the Bank Credit Facility is collateralized by a security interest in all
of the inventory, accounts receivable and certain other assets of PCAC and
All-Pure Chemical Co. ("All-Pure). Up to $10.0 million of the Borrowing Base, as
defined by the Bank Credit Facility, can be utilized for letters of credit. The
Borrowing Base at December 31, 1996 was approximately $18.6 million. After
consideration of applicable outstanding letters of credit of approximately $2.9
million, the unused availability of the Borrowing Base was approximately $15.7
million at December 31, 1996.

                                       40
<PAGE>   41

     The Bank Credit Facility contains restrictive covenants that, among other
things and under certain conditions, limit the ability of the Company to incur
additional indebtedness, to acquire or dispose of assets or operations and to
pay dividends or redeem shares of stock.

9.  LONG-TERM DEBT

     Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
                                                                                          1996          1995
                                                                                       ------------ -------------
<S>                                                                                     <C>          <C>
13 3/8% First Mortgage Notes, due 2005                                                    $135,000    $135,000
Seller  notes,  interest  at 8% per annum and payable  quarterly,  due in five annual
    installments beginning in 2001                                                          11,463      11,463
Promissory note to Kemira Kemi AB, principal  payments due in four equal installments
    on March 31, 2000,  2001,  2002 and December 31, 2002,  with a variable  interest
    rate based on LIBOR plus 1.2%, interest is paid semi-annually                            8,016          --
Subordinated  notes payable to the sellers of T.C.  Products,  principal payments due
    July 31, 2001,  subject to prepayment,  with a variable  interest rate based on a
    bank's prime rate plus 1%, interest is paid monthly                                      4,500          --
Tax-exempt  bond  financed  through the Economic  Development  Corporation  of Pierce
    County,  Washington,  principal  payments  due in  variable  annual  installments
    through 2014,  with a variable  interest  rate based on current  market rates for
    comparable securities, interest is paid monthly                                          2,252          --
                                                                                       ------------ -------------
Total                                                                                      161,231     146,463
Current maturities of long-term debt                                                          (128)         --
                                                                                       ------------ -------------
Long-term debt                                                                            $161,103    $146,463
                                                                                       ============ =============
</TABLE>

     Long-term  debt matures as follows:  $0.1 million in 1997;  $0.1 million
in 1998:  $0.1 million in 1999;  $2.1 million in 2000; $6.6 million in 2001;
and $152.1 million thereafter.

     As part of the Acquisition in April 1995, the Company issued and sold $135
million of 13 3/8% Senior Notes due in 2005. In January 1996, the Company
exchanged, as part of a public offering, the $135 million of Senior Notes for
$135 million of 13 3/8% First Mortgage Notes due in 2005. Like the Senior Notes,
the Mortgage Notes are senior secured obligations of the Company, ranking senior
in right of payment to all subordinated indebtedness. The Mortgage Notes are
fully and unconditionally guaranteed on a joint and several basis by all of
Pioneer Americas Acquisition Corp.'s direct and indirect wholly-owned
subsidiaries and are secured by first mortgage liens on certain manufacturing
facilities. Following is a summary of selected items for the direct and indirect
subsidiaries which are not guarantors of the Mortgage Notes as of and for the
year ended December 31, 1996 (in thousands):

Current assets                        $  13,004
Non-current assets                       32,224
Current liabilities                       7,294
Non-current liabilities                  40,498
Revenues                                 36,142
Gross profit                              1,865
Net loss                                 (5,214)

     The Company is a holding company with no operating assets or operations.
Financial statements of the Company's direct and indirect wholly-owned
subsidiaries are not separately included as the Company's management does not
believe this information would be material to investors.

     The Mortgage Notes are redeemable at the Company's option starting in 2000.
Before 1998, the Company may redeem a maximum of $35 million of the Mortgage
Notes at 113% of the principal amount due with funds from a public offering of


                                       41
<PAGE>   42

common stock of the Company (to the extent such funds are contributed to the
Company). Upon change of control, as defined in the agreement, the Company is
required to offer to purchase the Mortgage Bonds for 101% of the principal due.

     The Mortgage Notes, the Seller Notes and other long-term debt contains
various restrictions on the Company, which, among other things, limit the
ability of the Company to incur additional indebtedness, to acquire or dispose
of assets or operations and to pay dividends or redeem shares of stock.

10.  FINANCIAL INSTRUMENTS

CONCENTRATION OF CREDIT RISK

     The Company manufactures and sells its products to companies in diverse
industries. The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. The Company's
sales are primarily to customers in the western and southeastern regions of the
United States. Credit losses relating to these customers have been within
management's expectations.

     The Company maintains cash deposits with major banks, which from time to
time may exceed federally insured limits. The Company periodically assesses the
financial condition of the institutions and believes that any possible loss is
minimal.

     Net sales of the Company included sales to a major customer of
approximately $23.5 million for the year ended December 31, 1996. Net sales of
the Predecessor Company included sales to a major customer of approximately $7.5
million for the period from January 1, 1995 through April 20, 1995 and $18.7
million in 1994.

INVESTMENTS

     It is the policy of the Company to invest its excess cash in investment
instruments or securities whose value is not subject to market fluctuations such
as master notes of issuers rated at the time of such investment of at least
"A-2" or the equivalent thereof by S&P or at least "P-2" or the equivalent
thereof by Moody's or any bank or financial institution party to the Company's
Bank Credit Agreement with Bank of America.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     In preparing disclosures about the fair value of financial instruments, the
Company has assumed that the carrying amount approximates fair value for cash
and cash equivalents, receivables, short-term borrowings, accounts payable and
certain accrued expenses because of the short maturities of those instruments.
The fair values of long-term debt instruments are estimated based upon quoted
market values (if applicable), or on the current interest rates available to the
Company for debt with similar terms and remaining maturities. Considerable
judgment is required in developing these estimates and, accordingly, no
assurance can be given that the estimated values presented herein are indicative
of the amounts that would be realized in a free market exchange. The Company
held no derivative financial instruments as of December 31, 1996 and 1995.

     At December 31, 1996, the fair market value of all of the Company's
financial instruments approximated the book value, except its 13 3/8% First
Mortgage Notes due 2005, which had a book value of $135 million and a fair value
based upon its current quoted market price of $153 million.

11.  COMMITMENTS AND CONTINGENCIES

LETTERS OF CREDIT

     At December 31, 1996 the Company had letters of credit and performance
bonds outstanding of approximately $5.2 million and $4.7 million, respectively.
These letters of credit and performance bonds were issued for the benefit of:
customers under sales agreements securing delivery of products sold, a power


                                       42
<PAGE>   43

company as a deposit for the supply of electricity, and a state environmental
agency as required for manufacturers in the state. The letters of credit expire
at various dates in 1997 and 1998. No amounts were drawn on the letters of
credit at December 31, 1996.

PURCHASE COMMITMENTS
     The Company has committed to purchase salt used in the production process
under contracts which continue through December 31, 2003. Based on the contract
terms, a minimum of 563,111 tons of salt are to be purchased in 1997, 280,000
tons in 1998 and 225,000 tons in each of the years 1999 through 2003. The future
minimum salt commitments are as follows (in thousands):

                1997                          $  4,402
                1998                             2,480
                1999                             1,903
                2000                             1,960
                2001                             2,019
                Thereafter                       4,221
                                              --------
                Total purchase commitment     $ 16,985
                                              ========


OPERATING LEASES

     The Company leases certain manufacturing and distribution facilities,
computer equipment, and administrative offices under noncancelable leases.
Minimum future rental payments on such leases with terms in excess of one year
in effect at December 31, 1996 are as follows (in thousands):


                1997                          $  9,851
                1998                             9,439
                1999                             9,363
                2000                             7,647
                2001                             7,023
                Thereafter                       4,952
                                              --------
                Total minimum obligations     $ 48,275
                                              ========

     Lease expense charged to operations for the years ended December 31, 1996
and 1995 was approximately $9.5 million and $6.3 million, respectively. Lease
expense charged to the Predecessor Company's operations for the period from
January 1, 1995 through April 20, 1995 and the year ended December 31, 1994 was
approximately $3.3 million and $8.4 million, respectively.

LITIGATION

     During 1993, Imperial West was awarded $1.38 million as the result of a
breach of contract claim it asserted against the lessor of one of the Imperial
West plants. Appeals of the judgment were upheld and the award together with
interest was paid in January 1996. The consolidated financial statements at
December 31, 1995 included a receivable for the award. The lessor also filed
suit alleging that Imperial West was required to remediate alleged contamination
prior to the termination of the lease in July 1995. The parties settled that
action under terms pursuant to which (i) Imperial West paid the lessor $900,000
upon the termination of the lease in July 1995, and (ii) the lessor transferred
title to the property to Imperial West. In addition, Imperial West agreed to
indemnify the lessor against any future environmental liability with respect to
the property. Certain insurers paid a portion of Imperial West's defense costs
in connection with the lawsuit by the lessor.

     In 1994, the trustee in the bankruptcy of a company which was a customer of
the Predecessor Company filed suit against the Predecessor Company, seeking the
recovery of up to $2.2 million in payments made to the Predecessor Company on a


                                       43
<PAGE>   44

basis which the trustee alleges was preferential to other creditors' claims.
Management has been advised by counsel that the range of any loss which may be
incurred as the result of the suit will be substantially below the amount
claimed, and the Company is vigorously contesting the action. The Company does
not believe this action will have a significant effect on its consolidated
financial position at December 31, 1996.

     The Company is party to other legal proceedings and potential claims
arising in the ordinary course of its businesses. In the opinion of
management, the Company has adequate legal defenses and/or insurance coverage
with respect to these matters and management does not believe that they will
materially affect the Company's operations or financial position.

12.  INCOME TAXES

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

                                                                                        1996              1995
                                                                                    -------------    --------------
<S>                                                                                 <C>             <C>
Deferred tax liabilities:
     Tax over book basis--property, plant and equipment                             $      20,006    $       22,063
     Other--net                                                                               399             1,435
                                                                                    -------------   --------------
Total deferred tax liabilities                                                             20,405            23,498
                                                                                    -------------    --------------
Deferred tax assets:
     Post employment benefits                                                               5,552             5,791
     Alternative minimum tax credit carryover                                                 671                --
     Allowance for doubtful accounts                                                          511               569
     Other accrued liabilities                                                              6,165             6,530
     Net operating loss carryforward                                                       14,964            22,091
                                                                                    -------------    --------------
Total deferred tax assets                                                                  27,863            34,981
Valuation allowance for deferred tax assets                                                  --              11,483
                                                                                    -------------    --------------
Net deferred tax assets                                                                    27,863            23,498
                                                                                    -------------    --------------
Net deferred taxes                                                                  $       7,458                --
                                                                                    =============    ==============
</TABLE>

     Significant components of the provision for income taxes for the periods
presented are as follows:

<TABLE>
<CAPTION>

                                                                                    Predecessor Company
                                                                             ------------------------------
                                              1996             1995              1995               1994
                                         ------------      ------------      -----------        -----------
<S>                                      <C>               <C>               <C>                <C>
Current:
     Federal                             $       418       $       715       $     5,938         $    3,930
     State                                     1,416             1,701               957                568
                                         ------------      ------------      -----------         ----------
Total current                                  1,834             2,416             6,895              4,498
                                         ------------      ------------      -----------         ----------
Deferred:
     Federal                                   4,470             3,764            (1,816)            (1,010)
     State                                      (445)             (601)             (270)              (246)
                                         ------------      ------------      -----------         ----------
Total deferred                                 4,025             3,163            (2,086)            (1,256)
                                         ------------      ------------      -----------         ----------
     Total income tax provision           $    5,859       $     5,579       $     4,809          $   3,242
                                          ==========       ============      ===========         ==========
</TABLE>

                                      44

<PAGE>   45


      The reconciliation of income tax computed at the U.S. federal statutory
tax rates to income tax expense for the periods presented are as follows:
<TABLE>
<CAPTION>

                                                                                      PREDECESSOR COMPANY
                                                                              ----------------------------------
                                           1996               1995               1995               1994
                                        -----------------   ----------------   ----------------  ----------------
                                         AMOUNT   PERCENT   AMOUNT   PERCENT   AMOUNT   PERCENT  AMOUNT   PERCENT
                                         ------   -------   ------   -------   ------   -------  ------   -------
<S>                                      <C>      <C>       <C>      <C>       <C>      <C>      <C>      <C>
Tax at U.S. statutory rates              $3,591     35%     $3,872     35%     $4,068     35%    $2,936      35%
State income taxes, net of
   federal tax benefit                      631      6         723      7         407      3        321       4
Amortization of excess cost over
   the fair value of net assets
   acquired                               1,591     16       1,159     10          69      1        221       2
Adjustment of previously
   provided taxes                           --      --          --     --          --     --       (285)     (3)
Other--net                                   46     --        (175)    (2)        265      2         49       1
                                         ------   -------   ------   -------   ------   -------  ------   -------

                                         $5,859     57%     $5,579     50%     $4,809     41%    $3,242      39%
                                         ======   =======   ======   =======   ======   =======  ======   =======
</TABLE>


     At December 31, 1996, the Company had available to it on a consolidated tax
return basis approximately $35.6 million of net operating loss carryforward
("NOL") for income tax purposes (expiring 2003 to 2010). The NOL is available
for offset against future taxable income if generated during the carryforward
period.

     Since the Company had no operations before the Acquisition, it had no means
to generate taxable income; accordingly, the Company established a valuation
allowance equal to the full amount of the NOL at December 31, 1994. Concurrent
with the Acquisition, the Company estimated that approximately $13.6 million of
the NOL would be utilized; as a result, the valuation allowance was reduced by
that amount as part of the purchase price allocation. The Company's taxable
income for 1995 exceeded its estimate; the Company, therefore, recognized an
additional $3.6 of NOL in 1995. Since it has continued to generate more taxable
income than it originally expected, the Company eliminated the valuation
allowance in 1996, thereby recognizing the remaining $10.9 million of the NOL.
The Company's NOL originated before it was reorganized in 1992; accordingly, any
recognition of the NOL is recorded as an increase in the Company's paid-in
capital rather than as a reduction in the provision for income taxes. Thus, the
reduction of the valuation allowance for the NOL in 1996 and 1995 had no effect
on the Company's provision for income taxes or net income.

13.  OTHER LONG-TERM LIABILITIES--ENVIRONMENTAL

         The Company's operations are subject to extensive environmental laws
and regulations related to protection of the environment, including those
applicable to waste management, discharge of materials into the air and water,
clean-up liability from historical waste disposal practices, and employee health
and safety. At several of the Company's facilities, investigations or
remediations are underway and at some of these locations regulatory agencies
are considering whether additional actions are necessary to protect or remediate
surface or groundwater resources, and the Company could be required to incur
additional costs to construct and operate remediation systems in the future. In
addition, at several of its facilities, the Company is in the process of
replacing or closing ponds for the collection of wastewater. The Company plans
to spend approximately $1.3 million during the next fifteen years for closure of
eight chlor-alkali waste water disposal ponds at the Henderson plant.The
Company believes that it is in substantial compliance with existing
governmental regulations.

      PCAC's Henderson plant is located within what is known as the "Basic
Complex." Soil and groundwater contamination have been identified within and
adjoining the Basic Complex, including land owned by PCAC. A groundwater
treatment system was installed at the facility in 1983 and, pursuant to a
Consent Agreement with the Nevada Division of Environmental Protection, a study
is being conducted to further evaluate soil and groundwater contamination at the
facility and other properties within the Basic Complex and to determine whether
additional remediation will be necessary with respect to PCAC's property.

     In connection with the October 1988 acquisition of the chlor-alkali
business by the Predecessor Company, ICI Delaware Holdings, Inc. and ICI
Americas, Inc. (such companies or their successors, the "ZENECA Companies")
agreed to indemnify the Predecessor Company for certain environmental
liabilities (the "ZENECA Indemnity"), including liabilities associated with
operations at the Company's plant located in Henderson, Nevada (the "Henderson
Plant"). In general, the ZENECA Companies agreed to indemnify the Predecessor
Company from environmental costs which arise from or relate to pre-acquisition
actions which involved disposal, discharge, or release of materials resulting
from non-chlor-alkali manufacturing operations at the Henderson Plant and at
other properties within the same industrial complex. Payments under the
indemnity cannot exceed approximately $65 million.

     Due to the change in ownership resulting from the Acquisition, the ZENECA
Indemnity will terminate on April 20, 1999. The ZENECA Indemnity will continue
to cover claims after the expiration of the term of the indemnity provided that,
prior to the expiration of the indemnity, proper notice to the ZENECA Companies
is given and the Company has taken certain other actions. The Company believes
that the ZENECA Companies will continue to honor their obligations under the


                                       45
<PAGE>   46

ZENECA Indemnity for claims properly presented by the Company. It is possible,
however, that disputes could arise between the parties and that the Company
would have to subject its claims for clean-up expenses, which could be
substantial, to the contractually established arbitration process. In the
opinion of management, any environmental liability in excess of the amount
indemnified and accrued on the consolidated balance sheet, if any, would not
have a material adverse affect on the consolidated financial statements.

     In the Acquisition Agreement, the Sellers agreed to indemnify the Company
for certain environmental liabilities that result from certain discharges of
hazardous materials, or violations of environmental laws, arising prior to April
20, 1995 (the "Closing Date") from or relating to the Pioneer Americas plant
sites or arising before or after the Closing Date with respect to certain
environmental liabilities relating to the Contingent Payment Properties
("Sellers' Indemnity"). Amounts payable pursuant to the Sellers' Indemnity will
generally be payable as follows: (i) out of certain reserves established on the
Predecessor Company's balance sheet at December 31, 1994; (ii) either by offset
against the amounts payable under the Seller Notes or from amounts held pursuant
to the Contingent Payment Agreement, and (iii) in certain circumstances and
subject to specified limitations, out of the personal assets of the Sellers.
Subject to certain exceptions and limitations set forth in the Acquisition
Agreement, a claim notice with respect to amounts payable pursuant to the
Sellers' Indemnity must generally be given within 15 years of the Closing Date.
Pioneer is required to reimburse the Sellers for amounts paid under the Sellers'
Indemnity with amounts recovered under the ZENECA Indemnity or from other third
parties. Pioneer and the Sellers have agreed that they will cooperate in matters
relating to the ZENECA Indemnity.

     Remediation costs are accrued based on estimates of known environmental
remediation exposure. Such accruals are based upon management's best estimate of
the ultimate cost and are recorded even if significant uncertainties exist over
the ultimate cost of the remediation. Ongoing environmental compliance cost,
including maintenance and monitoring costs, are charged to operations as
incurred. The liabilities are based upon all available facts, existing
technology, past experience and cost-sharing arrangements, including the
viability of other parties. Charges made against income for recurring
environmental matters, included in "cost of sales" on the statements of
operations, totaled approximately $1.9 million and $1.2 million for the years
ended December 31, 1996 and 1995, respectively, and $0.4 million and $1.8
million for the Predecessor Company for the period from January 1, 1995 through
April 20, 1995 and the year ended December 31, 1994, respectively. Capital
expenditures for environmental-related matters at existing facilities
approximated $4.5 million and $2.2 million for the years ended December 31, 1996
and 1995 and $0.2 million and $0.5 million for the Predecessor Company for the
period from January 1, 1995 through April 20, 1995 and the year ended December
31, 1994, respectively. Future environmental-related capital expenditures will
depend upon regulatory requirements, as well as timing related to obtaining
necessary permits and approvals.

      Estimates of future environmental restoration and remediation costs are
inherently imprecise due to currently unknown factors such as the magnitude of
possible contamination, the timing and extent of such restoration and
remediation, the extent to which such costs are recoverable from third parties,
and the extent to which environmental laws and regulations may change in the
future. The Predecessor Company established a reserve of approximately $9.0
million at the time of its acquisition of its Henderson, Nevada and St. Gabriel,
Louisiana facilities with respect to potential remediation costs relating to
matters not covered by the ZENECA Indemnity, consisting primarily of remediation
costs that may be incurred by the Company for chlor-alkali-related remediation
of the Henderson and St. Gabriel facilities. The recorded accrual included
certain amounts related to anticipated closure and post-closure actions that may
be required in the event that operation of the present chlor-alkali plants
ceases. Such accrual is recorded in the Company's consolidated balance sheets at
December 31, 1996 and 1995. However, complete analysis and study has not been
completed and therefore additional future charges may be recorded at the time a
decision for closure is made.

     In 1994, the Predecessor Company recorded an additional $3.2 million
environmental reserve related to pre-closing actions at sites that are the
responsibility of the ZENECA Companies. Such accrual is recorded in the
Company's consolidated balance sheets at December 31, 1996 and 1995. Other
assets include an account receivable of the same amount from the ZENECA
Companies. The Company believes it will be reimbursed by the ZENECA Companies
for substantially all of such costs that are incurred at the Henderson Plant and


                                       46
<PAGE>   47

other properties within the same industrial complex. Additionally, certain other
environmental matters exist which have been assumed directly by the ZENECA
Companies. No assurance can be given that actual costs will not exceed accrued
amounts or the amounts currently estimated. The imposition of more stringent
standards or requirements under environmental laws or regulations, new
developments or changes respecting site cleanup costs, or a determination that
the Company is potentially responsible for the release of hazardous substances
at other sites could result in expenditures in excess of amounts currently
estimated by the Company to be required for such matters. Further, there can be
no assurance that additional environmental matters will not arise in the future.

14.  RELATED PARTY TRANSACTIONS

     The Company has a 15% partnership interest in Saguaro Power Company
("Saguaro"), which owns a cogeneration plant located in Henderson, Nevada. The
Company's interest in Saguaro is accounted for using the cost method of
accounting. The Company sells certain products and services to and purchases
steam from Saguaro at market prices. Transactions with Saguaro are as follows:

<TABLE>
<CAPTION>

                                                                               PREDECESSOR COMPANY
                                                                          ---------------------------
                                               1996            1995           1995            1994
                                            ----------    -----------     -----------     -----------
<S>                                         <C>           <C>             <C>             <C>
Sales to Saguaro                            $    1,005    $       754     $       353     $     1,286
Purchases from Saguaro                           1,840          1,388             616           2,096
Partnership distribution  from Saguaro
   (included in other income)                      735            637             --            1,290
</TABLE>


     Accounts receivable from and accounts payable to Saguaro are at the
Company's normal trade terms and are generally not significant to the Company's
consolidated balance sheet.

      The Company is a party to an agreement negotiated on an arms-length basis
with BII for the delivery of the Company's water to the Henderson production
facility. The agreement provides for the delivery of a minimum of eight million
gallons of water per day. The agreement expires on December 31, 2014, unless
terminated earlier in accordance with the provisions of the agreement. For each
of the years ended December 31, 1996 and 1995, BII charged expenses to the
Company of approximately $0.2 million. For the period from January 1, 1995
through April 20, 1995 and the year ended December 31, 1994, BII charged
expenses to the Predecessor Company of approximately $0.2 million and $0.5
million, respectively.

15.  STOCK-BASED COMPENSATION

     Under the terms of the Company's Incentive Stock Option Plan (the "Plan")
750,000 shares of the Company's Common Stock were reserved for issuance to key
employees. Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>

                                                                                                Weighted Average
                                                                            Exercise                Exercise
                                             Number of Shares            Price Per Share        Price Per Share
                                             ----------------           ----------------        ---------------
<S>                                          <C>                        <C>                     <C>
1995:
         Granted                                   449,476              $  5.625-$  7.25            $  6.50
         Exercised                                  --                         --                      --
         Forfeited                                   3,600                   $  6.50                $  6.50
Outstanding at December 31, 1995                   445,876              $  5.625-$  7.25            $  6.50
1996:
         Granted                                    51,800               $  6.00-$  7.25            $  6.04
         Exercised                                  --                         --                      --
         Forfeited                                   3,600                   $  6.50                $  6.50
Outstanding at December 31, 1996                   494,076              $  5.625-$  7.25            $  6.50
</TABLE>

                                       47
<PAGE>   48

     All stock options are granted at fair market value of the Common Stock at
the grant date. The weighted average fair value of the stock options granted
during 1996 and 1995 was $2.0 million and $0.2 million, respectively. The fair
value of each stock option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for the grants in 1996 and 1995: risk free interest rate of
6.7%; expected dividend yield of 0.0%; expected life of six years; and expected
volatility of 111.7%. Stock options generally expire ten years from the date of
grant. Stock options fully vest after three years. The outstanding stock options
at December 31, 1996 have a weighted average contractual life of 8.45 years.
There were no stock option shares exercisable at December 31, 1996.

     The Company accounts for the Plan in accordance with Accounting Principles
Board Opinion No. 25, under which no compensation costs have been recognized for
stock option awards. Had compensation cost for the Plan been determined
consistent with Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation" (SFAS No. 123), the Company's pro forma net income
and earnings per share for 1996 would have been $3.7 million and $0.40,
respectively. The Company's pro forma net income and earnings per share for 1995
would have been $5.1 million and $0.65, respectively.

16.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>

                                                                FIRST         SECOND         THIRD           FOURTH
                                                               QUARTER       QUARTER        QUARTER          QUARTER
                                                                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                          <C>           <C>             <C>           <C>
For Year Ended December 31, 1996
Revenues                                                     $    48,896    $   54,217     $   55,969    $   49,826
Net income                                                         1,155         1,091            786         1,368
Net income per share                                                0.13          0.12           0.09          0.15


For Year Ended December 31, 1995
Revenues                                                             --         36,405         59,248        47,255
Net income (loss)                                                   (152)          179          3,443         2,011
Net income (loss) per share                                        (0.03)         0.02           0.38          0.22
</TABLE>

     No dividends were paid by the Company in 1996 or 1995.


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

     Deloitte & Touche LLP has acted as independent accountants of the Company
for many years. Following the Acquisition it was determined that Deloitte &
Touche LLP would continue to act as independent accountants of the Company and
its consolidated subsidiaries.

     Ernst & Young LLP had been the independent accountants for Pioneer Americas
and its consolidated subsidiaries prior to its dismissal, effective October 16,
1995. The reports of Ernst & Young LLP on the financial statements of Pioneer
Americas for the fiscal year ended December 31, 1994 did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles. In connection with the audit
of the financial statements of Pioneer Americas for the year ended December 31,
1994, and in the subsequent interim period, there were no disagreements with
Ernst & Young LLP on matters of accounting principles or practices, financial
statement disclosure or auditing scope and procedures which, if not resolved to
the satisfaction of Ernst & Young LLP, would have caused Ernst & Young to make
reference to the matter in their report.


                                       48
<PAGE>   49

     Ernst & Young LLP furnished a letter addressed to the Securities and
Exchange Commission stating that it agreed with the above statements. A copy of
that letter, dated October 30, 1995, is filed as an exhibit to this Annual
Report.


                                    PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     Pursuant to General Instruction G of Form 10-K, the information called for
by Item 10 of Part III of Form 10-K is incorporated by reference to the
information set forth in Pioneer's definitive proxy statement relating to the
1997 Annual Meeting of Stockholders of Pioneer (the "1997 Proxy Statement") to
be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), in response to Items 401 and 405 of Regulation
S-K under the Securities Act of 1933, as amended, and the Exchange Act
("Regulation S-K"), or if the 1997 Proxy Statement is not so filed within 120
days after December 31, 1996, such information will be included in an amendment
to this report filed not later than the end of such period. Reference is also
made to the information appearing in Item 4.1 of Part I of this report under the
caption "Executive Officers of the Registrant."

Item 11.  EXECUTIVE COMPENSATION.

     Pursuant to General Instruction G of Form 10-K, the information called for
by Item 11 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 1997 Proxy Statement in response to Item 402 of
Regulation S-K, or if the 1997 Proxy Statement is not so filed within 120 days
after December 31, 1996, such information will be included in an amendment to
this report filed not later than the end of such period.

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

     Pursuant to General Instruction G of Form 10-K, the information called for
by Item 12 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 1997 Proxy Statement in response to Item 403 of
Regulation S-K, or if the 1997 Proxy Statement is not so filed within 120 days
after December 31, 1996, such information will be included in an amendment to
this report filed not later than the end of such period.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Pursuant to General Instruction G of Form 10-K, the information called for
by Item 13 of Part III of Form 10-K is incorporated by reference to the
information set forth in the 1997 Proxy Statement in response to Item 404 of
Regulation S-K, or if the 1997 Proxy Statement is not so filed within 120 days
after December 31, 1996, such information will be included in an amendment to
this report filed not later than the end of such period.

                                       49
<PAGE>   50


                                     PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

      (A)  LIST OF DOCUMENTS FILED.

      (1) The financial statements filed as part of this report are listed in
the Index to Financial Statements under Item 8 on page 24 hereof.

      (2) Additional financial information and schedules included pursuant to
the requirements of Form 10-K are listed in the Index to Financial Statements
under Item 8 on page 24 hereof.

      (3)  Exhibits

   The exhibits indicated by an asterisk (*) are incorporated by reference. The
exhibits indicated by a plus sign (+) each constitute a management contract or
compensatory plan or arrangement required to be filed as an exhibit pursuant to
the requirements of Item 14(c) of Form 10-K.

EXHIBIT
NUMBER                                          DESCRIPTION OF EXHIBIT
------                                          ----------------------

   2*             Stock  Purchase  Agreement,  dated as of March  24,  1995,
                  by and  among  Pioneer,  PAAC and the Sellers parties thereto
                  (incorporated  by reference to Exhibit 2 to Pioneer's Current
                  Report on Form 8-K filed on May 5, 1995).

   3.1(a)*        Third Restated Certificate of Incorporation of Pioneer filed
                  with Secretary of State of Delaware on May 21, 1993
                  (incorporated by reference to Exhibit 3.1 to Pioneer's Annual
                  Report on Form 10-K for the year ended December 31, 1993).

   3.1(b)*        Amendment to Third Restated Certificate of Incorporation of
                  Pioneer filed with Secretary of State of Delaware on April 20,
                  1995 (incorporated by reference to Exhibit 3.1(b) to Pioneer's
                  Annual Report on Form 10-K for the year ended December 31,
                  1995).

   3.1(c)*        Amendment to Third Restated Certificate of Incorporation of
                  Pioneer filed with Secretary of State of Delaware on April 27,
                  1995 (incorporated by reference to Exhibit 3.1(c) to Pioneer's
                  Annual Report on Form 10-K for the year ended December 31,
                  1995).

   3.2*           By-laws of Pioneer  (incorporated  by reference to Exhibit
                  3.2 to Pioneer's Annual Report on Form 10-K for the year
                  ended December 31, 1988).

   4.1(a)*        Indenture, dated as of April 1, 1995, by and among PAAC, the
                  Subsidiary Guarantors parties thereto and IBJ Schroder Bank &
                  Trust Company, as trustee, relating to $135,000,000 principal
                  amount of 13 3/8% Senior Notes due 2005, including form of
                  Senior Note and Guarantee (incorporated by reference to
                  Exhibit 4.1 to Pioneer's Quarterly Report on Form 10-Q for the
                  quarter ended June 30, 1995).

                                       50
<PAGE>   51



EXHIBIT
NUMBER                                 DESCRIPTION OF EXHIBIT
------                                 ----------------------

   4.1(b)*        First Supplemental Indenture, dated as of September 14, 1995,
                  by and among PAAC, the Subsidiary Guarantors parties thereto
                  and United States Trust Company of New York, as trustee
                  (incorporated by reference to Exhibit 4.1(b) to the
                  Registration Statement on Form S-4 (file no. 33-98828) filed
                  by PAAC on October 30, 1995).

   4.1(c)         Second Supplemental Indenture, dated as of December 30, 1996,
                  by and among PAAC, the Subsidiary Guarantors parties thereto
                  and United States Trust Company of New York, as trustee.

   4.1(d)*        Mortgage,  Assignment  of  Leases  and  Rents,  Security
                  Agreement, Fixture Filing and Financing Statement by Pioneer
                  Chlor  Alkali  Company,   Inc.  (St.   Gabriel,   Louisiana)
                  (incorporated   by  reference  to  Exhibit   4.2(a)  to  the
                  Registration Statement in Form S-4 (file no. 33-98828) filed
                  by PAAC on October 30, 1995).

   4.1(e)*        Deed of Trust,  Assignment of Leases and Rents,  Security
                  Agreement, Fixture Filing and Financing Statement by Pioneer
                  Chlor Alkali Company, Inc. (Henderson, Nevada) (incorporated
                  by reference to Exhibit 4.2(b) to the Registration Statement
                  on Form S-4 (file no. 33-98828) filed by PAAC on October 30,
                  1995).

   4.1(f)*        Intercreditor and Collateral Agency Agreement, dated as of
                  September 14, 1995, by and among United States Trust Company
                  of New York, as Trustee and Collateral Agent, Bank of America
                  Illinois, as Agent, the Company, Pioneer, PAAC and Pioneer
                  Chlor Alkali Company, Inc. (incorporated by reference to
                  Exhibit 4.4 to the Registration Statement on Form S-4 (file
                  no. 33-98828) filed by PAAC on October 30, 1995).

   4.2(a)*        Loan and Security Agreement, dated as of April 12, 1995, by
                  and among Pioneer Americas, Inc. and certain Subsidiary
                  Guarantors, the lenders party thereto and Bank of America
                  Illinois, as Agent (incorporated by reference to Exhibit
                  4.2(a) to Pioneer's Quarterly Report on Form 10-Q for the
                  quarter ended June 30, 1995).

   4.2(b)*        Master Corporate Guaranty, dated April 12, 1995, executed by
                  each of the Subsidiary Guarantors party thereto, as guarantor,
                  respectively, in favor of Bank of America Illinois, as Agent,
                  for the ratable benefit of the lenders, guaranteeing the
                  obligations of one another under the Bank Credit Agreement
                  (incorporated by reference to Exhibit 4.2(b) to Pioneer's
                  Quarterly Report on Form 10-Q for the quarter ended June 30,
                  1995).

   4.2(c)*        Master Security Agreement, dated April 12, 1995, executed by
                  each of the Subsidiary Guarantors party thereto, as debtor,
                  respectively, in favor of Bank of America Illinois, as Agent,
                  for the ratable benefit of the lenders (incorporated by
                  reference to Exhibit 4.2(c) to Pioneer's Quarterly Report on
                  Form 10-Q for the quarter ended June 30, 1995).

   4.3*           Form of Seller Note issued to the Sellers party to the Stock
                  Acquisition   Agreement   dated   as  of  March   24,   1995
                  (incorporated  by  reference  to  Exhibit  4.1 to  Pioneer's
                  Current Report on Form 8-K filed on May 5, 1995).

   4.4*           Registration  Rights Agreement,  dated as of April 20, 1995,
                  by and among Pioneer, Richard C. Kellogg, Jr. and Frans G.J.
                  Speets  and   certain   other   stockholders   of   Pioneer,
                  (incorporated  by  reference  to  Exhibit  4.2 to  Pioneer's
                  Current Report on Form 8-K filed on May 5, 1995).

                                       51
<PAGE>   52

EXHIBIT
NUMBER                                          DESCRIPTION OF EXHIBIT
------                                          ----------------------

   10.1*          Shareholders  Agreement,  dated as of April 20, 1995, by and
                  between  William R.  Berkley  and  Richard C.  Kellogg,  Jr.
                  (incorporated  by  reference  to Exhibit  10.1 to  Pioneer's
                  Current Report on Form 8-K filed on May 5, 1995).

   10.2*          Contingent  Payment  Agreement,  dated as of April 20, 1995,
                  by and among  Pioneer,  PAAC and the Sellers  party  thereto
                  (incorporated  by  reference  to Exhibit  10.2 to  Pioneer's
                  Current Report on Form 8-K filed on May 5, 1995).

   10.3*          Tax Sharing  Agreement,  dated as of April 20, 1995,  by and
                  among   Pioneer,   PAAC   and  the   Subsidiary   Guarantors
                  (incorporated   by   reference   to  Exhibit   10.3  to  the
                  Registration Statement on Form S-4 (file no. 33-98828) filed
                  by PAAC on October 30, 1995).

   10.4*+         Pioneer   Companies,   Inc.  1995  Stock  Incentive  Plan
                  (incorporated   by   reference   to  Exhibit   10.4  to  the
                  Registration Statement on Form S-4 (file no. 33-98828) filed
                  by PAAC on October 30, 1995).

   10.5*+         Pioneer  Companies,  Inc. Key  Executive  Stock Grant Plan
                  (incorporated  by  reference  to Exhibit  10.2 to  Pioneer's
                  Quarterly Report on Form 10-Q for the quarter ended June 30,
                  1996).

   10.6*+         Pioneer Chlor Alkali Company, Inc. Supplemental Retirement
                  Plan (incorporated by reference to Exhibit 10.5 to Pioneer's
                  Annual  Report on Form 10-K for the year ended  December 31,
                  1995).

   10.7*+         Employment  Agreement,  dated April 20, 1995,  between the
                  Pioneer  and  Richard  C.  Kellogg,   Jr.  (incorporated  by
                  reference to Exhibit 10.1 to Pioneer's  Quarterly  Report on
                  Form 10-Q for the quarter ended June 30, 1995).

   10.8*+         Employment Agreement, dated November 1, 1992, and First
                  Amendment to Employment Agreement, dated as of April 20, 1995,
                  between Pioneer Chlor Alkali Company, Inc. and Paul J.
                  Kienholz (incorporated by reference to Exhibit 10.7 to
                  Pioneer's Annual Report on Form 10-K for the year ended
                  December 31, 1995).

   10.9*+         Employment  Agreement,  dated  April  20,  1995,  between
                  Pioneer Americas, Inc. and James E. Glattly (incorporated by
                  reference to Exhibit 10.8 to Pioneer's Annual Report on Form
                  10-K for the year ended December 31, 1995).

   10.10*+        Employment  Agreement,  dated  April 20,  1995,  between
                  Pioneer   Americas,   Inc.  and  Verrill  M.  Norwood,   Jr.
                  (incorporated  by  reference  to Exhibit  10.9 to  Pioneer's
                  Annual  Report on Form 10-K for the year ended  December 31,
                  1995).

   10.11*+        Employment  Agreement,  dated  April 20,  1995,  between
                  Pioneer Americas, Inc. and Kent R. Stephenson  (incorporated
                  by reference to Exhibit 10.10 to Pioneer's  Annual Report on
                  Form 10-K for the year ended December 31, 1995).

   10.12*+        Employment  Agreement,  dated  April 20,  1995,  between
                  Pioneer Americas, Inc. and Frank B. Belliss (incorporated by
                  reference  to Exhibit  10.11 to Pioneer's  Annual  Report on
                  Form 10-K for the year ended December 31, 1995).

   10.13+         Executive  Employment  Agreement,  dated  January 4, 1997,
                  between Pioneer Companies, Inc. and Michael J. Ferris.

                                       52
<PAGE>   53


NUMBER                                          DESCRIPTION OF EXHIBIT
------                                          ----------------------

   10.14+         Stock Purchase Agreement,  dated January 4, 1997, between
                  Pioneer Companies,  Inc. and Michael J. Ferris.

   10.15+         Non-Qualified  Stock Option Agreement, dated January 4, 1997,
                  between Pioneer Companies,  Inc. and Michael J. Ferris.

   16*            Letter   from  Ernst  &  Young  LLP   regarding   change  in
                  independent   accountants   (incorporated  by  reference  to
                  Exhibit 16 to Pioneer's  Annual  Report on Form 10-K for the
                  year ended December 31, 1995).

   21             Subsidiaries of Pioneer.

   27             Financial Data Schedule.
   -------------------

      (B)  REPORTS ON FORM 8-K.

      Pioneer did not file any reports on Form 8-K during the quarter ended
December 31, 1996.

      (C)  FINANCIAL STATEMENT SCHEDULE.

      Filed herewith as a financial statement schedule is Schedule II with
respect to Valuation and Qualifying Accounts. All other schedules have been
omitted because they are not applicable or not required or the required
information is included in the financial statements or notes thereto.

                                       53
<PAGE>   54


                                                                   SCHEDULE II

                             PIONEER COMPANIES, INC.

                        VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                  BALANCE AT    CHARGED TO                           BALANCE AT
                                                  BEGINNING     COSTS AND                              END OF
               DESCRIPTION                        OF PERIOD      EXPENSE    ADDITIONS    DEDUCTIONS    PERIOD
               -----------                        ----------    ---------   ---------    ----------   --------
<S>                                               <C>           <C>         <C>          <C>           <C>
   YEAR ENDED DECEMBER 31, 1996:
       Allowance for doubtful accounts             $1,424         $--        $--          $(113)(A)     $1,311

   YEAR ENDED DECEMBER 31, 1995:
       Allowance for doubtful accounts                --            138        1,416(B)    (130)(A)      1,424
</TABLE>

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

(B) Allowance balance established on April 20, 1995 in connection with the
    acquisition of Pioneer Americas, Inc.


                                       54
<PAGE>   55


                                                                   SCHEDULE II

                             PIONEER AMERICAS, INC.

                        VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>

                                                  BALANCE AT    CHARGED TO                           BALANCE AT
                                                  BEGINNING     COSTS AND                              END OF
               DESCRIPTION                        OF PERIOD      EXPENSE    ADDITIONS    DEDUCTIONS    PERIOD
               -----------                        ----------    ---------   ---------    ----------   --------
<S>                                               <C>           <C>         <C>          <C>           <C>
PERIOD FROM JANUARY 1, 1995 THROUGH APRIL 20,
   1995:
     Allowance for doubtful accounts              $   2,038     $     47    $   --        $  (169)(A)   $1,916

YEAR ENDED DECEMBER 31, 1994:
     Allowance for doubtful accounts                    521        1,235       300(B)         (18)(A)    2,038
</TABLE>

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

(B) Allowance balance established in May 1994 in connection with the acquisition
    of GPS.




                                      55

<PAGE>   56




                                                    SIGNATURES

      PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

                                           PIONEER COMPANIES, INC.



                                           By:  /s/ Michael J. Ferris
                                               -------------------------------
                                               Michael J. Ferris, President
                                                 and Chief Executive Officer


March 31, 1997


      PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>

           SIGNATURE                                 TITLE                                         DATE
           ---------                                 -----                                         ----
<S>                                  <C>                                                      <C>
      /s/  Michael J. Ferris         President and Chief Executive Officer                    March 31, 1997
--------------------------------     (Principal Executive Officer) and Director
         (Michael J. Ferris)



      /s/  Philip J. Ablove          Vice President and Chief Financial Officer                March 31, 1997
--------------------------------        and Director  (Principal Financial
         (Philip J. Ablove)             Officer)



      /s/  John R. Beaver            Controller (Principal Accounting Officer)                 March 31, 1997
--------------------------------
           (John R. Beaver)



      /s/  William R. Berkley        Chairman of the Board                                     March 31, 1997
--------------------------------
       (William R. Berkley)



      /s/  Andrew M. Bursky          Director                                                  March 31, 1997
---------------------------
       (Andrew M. Bursky)
</TABLE>

                                       56
<PAGE>   57
<TABLE>

<S>                                  <C>                                                       <C>
      /s/  Donald J. Donahue         Director                                                  March 31, 1997
--------------------------------
         (Donald J. Donahue)



      /s/  Richard C. Kellogg, Jr.   Director                                                  March 31, 1997
--------------------------------
        (Richard C. Kellogg, Jr.)



      /s/  Paul J. Kienholz          Director                                                  March 31, 1997
--------------------------------
        (Paul J. Kienholz)



      /s/  Jack H. Nusbaum           Director                                                  March 31, 1997
--------------------------------
          (Jack H. Nusbaum)



      /s/  Thomas H. Schnitzius      Director                                                  March 31, 1997
--------------------------------
     (Thomas H. Schnitzius)

</TABLE>

                                      57

<PAGE>   58
                                EXHIBIT INDEX

EXHIBIT
NUMBER                                          DESCRIPTION OF EXHIBIT
------                                          ----------------------

   2*             Stock  Purchase  Agreement,  dated as of March  24,  1995,
                  by and  among  Pioneer,  PAAC and the Sellers parties thereto
                  (incorporated  by reference to Exhibit 2 to Pioneer's Current
                  Report on Form 8-K filed on May 5, 1995).

   3.1(a)*        Third Restated Certificate of Incorporation of Pioneer filed
                  with Secretary of State of Delaware on May 21, 1993
                  (incorporated by reference to Exhibit 3.1 to Pioneer's Annual
                  Report on Form 10-K for the year ended December 31, 1993).

   3.1(b)*        Amendment to Third Restated Certificate of Incorporation of
                  Pioneer filed with Secretary of State of Delaware on April 20,
                  1995 (incorporated by reference to Exhibit 3.1(b) to Pioneer's
                  Annual Report on Form 10-K for the year ended December 31,
                  1995).

   3.1(c)*        Amendment to Third Restated Certificate of Incorporation of
                  Pioneer filed with Secretary of State of Delaware on April 27,
                  1995 (incorporated by reference to Exhibit 3.1(c) to Pioneer's
                  Annual Report on Form 10-K for the year ended December 31,
                  1995).

   3.2*           By-laws of Pioneer  (incorporated  by reference to Exhibit
                  3.2 to Pioneer's Annual Report on Form 10-K for the year
                  ended December 31, 1988).

   4.1(a)*        Indenture, dated as of April 1, 1995, by and among PAAC, the
                  Subsidiary Guarantors parties thereto and IBJ Schroder Bank &
                  Trust Company, as trustee, relating to $135,000,000 principal
                  amount of 13 3/8% Senior Notes due 2005, including form of
                  Senior Note and Guarantee (incorporated by reference to
                  Exhibit 4.1 to Pioneer's Quarterly Report on Form 10-Q for the
                  quarter ended June 30, 1995).

<PAGE>   59



EXHIBIT
NUMBER                                          DESCRIPTION OF EXHIBIT
------                                          ----------------------

   4.1(b)*        First Supplemental Indenture, dated as of September 14, 1995,
                  by and among PAAC, the Subsidiary Guarantors parties thereto
                  and United States Trust Company of New York, as trustee
                  (incorporated by reference to Exhibit 4.1(b) to the
                  Registration Statement on Form S-4 (file no. 33-98828) filed
                  by PAAC on October 30, 1995).

   4.1(c)         Second Supplemental Indenture, dated as of December 30, 1996,
                  by and among PAAC, the Subsidiary Guarantors parties thereto
                  and United States Trust Company of New York, as trustee.

   4.1(d)*        Mortgage,  Assignment  of  Leases  and  Rents,  Security
                  Agreement, Fixture Filing and Financing Statement by Pioneer
                  Chlor  Alkali  Company,   Inc.  (St.   Gabriel,   Louisiana)
                  (incorporated   by  reference  to  Exhibit   4.2(a)  to  the
                  Registration Statement in Form S-4 (file no. 33-98828) filed
                  by PAAC on October 30, 1995).

   4.1(e)*        Deed of Trust,  Assignment of Leases and Rents,  Security
                  Agreement, Fixture Filing and Financing Statement by Pioneer
                  Chlor Alkali Company, Inc. (Henderson, Nevada) (incorporated
                  by reference to Exhibit 4.2(b) to the Registration Statement
                  on Form S-4 (file no. 33-98828) filed by PAAC on October 30,
                  1995).

   4.1(f)*        Intercreditor and Collateral Agency Agreement, dated as of
                  September 14, 1995, by and among United States Trust Company
                  of New York, as Trustee and Collateral Agent, Bank of America
                  Illinois, as Agent, the Company, Pioneer, PAAC and Pioneer
                  Chlor Alkali Company, Inc. (incorporated by reference to
                  Exhibit 4.4 to the Registration Statement on Form S-4 (file
                  no.
                  33-98828) filed by PAAC on October 30, 1995).

   4.2(a)*        Loan and Security Agreement, dated as of April 12, 1995, by
                  and among Pioneer Americas, Inc. and certain Subsidiary
                  Guarantors, the lenders party thereto and Bank of America
                  Illinois, as Agent (incorporated by reference to Exhibit
                  4.2(a) to Pioneer's Quarterly Report on Form 10-Q for the
                  quarter ended June 30, 1995).

   4.2(b)*        Master Corporate Guaranty, dated April 12, 1995, executed by
                  each of the Subsidiary Guarantors party thereto, as guarantor,
                  respectively, in favor of Bank of America Illinois, as Agent,
                  for the ratable benefit of the lenders, guaranteeing the
                  obligations of one another under the Bank Credit Agreement
                  (incorporated by reference to Exhibit 4.2(b) to Pioneer's
                  Quarterly Report on Form 10-Q for the quarter ended June 30,
                  1995).

   4.2(c)*        Master Security Agreement, dated April 12, 1995, executed by
                  each of the Subsidiary Guarantors party thereto, as debtor,
                  respectively, in favor of Bank of America Illinois, as Agent,
                  for the ratable benefit of the lenders (incorporated by
                  reference to Exhibit 4.2(c) to Pioneer's Quarterly Report on
                  Form 10-Q for the quarter ended June 30, 1995).

   4.3*           Form of Seller Note issued to the Sellers party to the Stock
                  Acquisition   Agreement   dated   as  of  March   24,   1995
                  (incorporated  by  reference  to  Exhibit  4.1 to  Pioneer's
                  Current Report on Form 8-K filed on May 5, 1995).

   4.4*           Registration  Rights Agreement,  dated as of April 20, 1995,
                  by and among Pioneer, Richard C. Kellogg, Jr. and Frans G.J.
                  Speets  and   certain   other   stockholders   of   Pioneer,
                  (incorporated  by  reference  to  Exhibit  4.2 to  Pioneer's
                  Current Report on Form 8-K filed on May 5, 1995).

<PAGE>   60

EXHIBIT
NUMBER                                          DESCRIPTION OF EXHIBIT
------                                          ----------------------

   10.1*          Shareholders  Agreement,  dated as of April 20, 1995, by and
                  between  William R.  Berkley  and  Richard C.  Kellogg,  Jr.
                  (incorporated  by  reference  to Exhibit  10.1 to  Pioneer's
                  Current Report on Form 8-K filed on May 5, 1995).

   10.2*          Contingent  Payment  Agreement,  dated as of April 20, 1995,
                  by and among  Pioneer,  PAAC and the Sellers  party  thereto
                  (incorporated  by  reference  to Exhibit  10.2 to  Pioneer's
                  Current Report on Form 8-K filed on May 5, 1995).

   10.3*          Tax Sharing  Agreement,  dated as of April 20, 1995,  by and
                  among   Pioneer,   PAAC   and  the   Subsidiary   Guarantors
                  (incorporated   by   reference   to  Exhibit   10.3  to  the
                  Registration Statement on Form S-4 (file no. 33-98828) filed
                  by PAAC on October 30, 1995).

   10.4*+         Pioneer   Companies,   Inc.  1995  Stock  Incentive  Plan
                  (incorporated   by   reference   to  Exhibit   10.4  to  the
                  Registration Statement on Form S-4 (file no. 33-98828) filed
                  by PAAC on October 30, 1995).

   10.5*+         Pioneer  Companies,  Inc. Key  Executive  Stock Grant Plan
                  (incorporated  by  reference  to Exhibit  10.2 to  Pioneer's
                  Quarterly Report on Form 10-Q for the quarter ended June 30,
                  1996).

   10.6*+         Pioneer Chlor Alkali Company, Inc. Supplemental Retirement
                  Plan (incorporated by reference to Exhibit 10.5 to Pioneer's
                  Annual  Report on Form 10-K for the year ended  December 31,
                  1995).

   10.7*+         Employment  Agreement,  dated April 20, 1995,  between the
                  Pioneer  and  Richard  C.  Kellogg,   Jr.  (incorporated  by
                  reference to Exhibit 10.1 to Pioneer's  Quarterly  Report on
                  Form 10-Q for the quarter ended June 30, 1995).

   10.8*+         Employment Agreement, dated November 1, 1992, and First
                  Amendment to Employment Agreement, dated as of April 20, 1995,
                  between Pioneer Chlor Alkali Company, Inc. and Paul J.
                  Kienholz (incorporated by reference to Exhibit 10.7 to
                  Pioneer's Annual Report on Form 10-K for the year ended
                  December 31, 1995).

   10.9*+         Employment  Agreement,  dated  April  20,  1995,  between
                  Pioneer Americas, Inc. and James E. Glattly (incorporated by
                  reference to Exhibit 10.8 to Pioneer's Annual Report on Form
                  10-K for the year ended December 31, 1995).

   10.10*+        Employment  Agreement,  dated  April 20,  1995,  between
                  Pioneer   Americas,   Inc.  and  Verrill  M.  Norwood,   Jr.
                  (incorporated  by  reference  to Exhibit  10.9 to  Pioneer's
                  Annual  Report on Form 10-K for the year ended  December 31,
                  1995).

   10.11*+        Employment  Agreement,  dated  April 20,  1995,  between
                  Pioneer Americas, Inc. and Kent R. Stephenson  (incorporated
                  by reference to Exhibit 10.10 to Pioneer's  Annual Report on
                  Form 10-K for the year ended December 31, 1995).

   10.12*+        Employment  Agreement,  dated  April 20,  1995,  between
                  Pioneer Americas, Inc. and Frank B. Belliss (incorporated by
                  reference  to Exhibit  10.11 to Pioneer's  Annual  Report on
                  Form 10-K for the year ended December 31, 1995).

   10.13+         Executive  Employment  Agreement,  dated  January 4, 1997,
                  between Pioneer Companies, Inc. and Michael J. Ferris.

<PAGE>   61


NUMBER                                          DESCRIPTION OF EXHIBIT
------                                          ----------------------

   10.14+         Stock Purchase Agreement,  dated January 4, 1997, between
                  Pioneer Companies,  Inc. and Michael J. Ferris.

   10.15+         Non-Qualified  Stock Option Agreement, dated January 4, 1997,
                  between Pioneer Companies,  Inc. and Michael J. Ferris.

   16*            Letter   from  Ernst  &  Young  LLP   regarding   change  in
                  independent   accountants   (incorporated  by  reference  to
                  Exhibit 16 to Pioneer's  Annual  Report on Form 10-K for the
                  year ended December 31, 1995).

   21             Subsidiaries of Pioneer.

   27             Financial Data Schedule.