PIONEER AMERICAS ACQUISITION CORP, 10-K405, 1997-03-31

PIONEER AMERICAS ACQUISITION CORP
10-K405, 1997-03-31
CHEMICALS & ALLIED PRODUCTS

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<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

[ ] 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 33-98828

PIONEER AMERICAS ACQUISITION CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 06-1420850
(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:
13 3/8% FIRST MORTGAGE NOTES DUE 2005
(Title of class)

On March 7, 1997, there were outstanding 1,000 shares of the Registrant's
Common Stock, $.01 par value. All of such shares are owned by Pioneer Companies,
Inc.

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: None.

The Registrant meets the conditions set forth in General Instruction (I)(1)(a)
and (b) of Form 10-K, and is therefore filing this Form with the reduced
disclosure format permitted by General Instruction (I)(2) of Form 10-K.

<PAGE> 2

PIONEER AMERICAS ACQUISITION CORP.

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

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

Item 2. Properties 7

Item 3 Legal Proceedings 7

Item 4. Submission of Matters to a Vote of Security Holders 7

PART II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 8

Item 6. Selected Financial Data 8

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 8

Item 8. Financial Statements and Supplementary Data 9

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 32

PART III
--------
Item 10. Directors and Executive Officers of the Registrant 32

Item 11. Executive Compensation 32

Item 12. Security Ownership of Certain Beneficial Owners and Management 32

Item 13. Certain Relationships and Related Transactions 32

PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 33
</TABLE>

<PAGE> 3

PART I

Unless the context otherwise requires, (i) the term "Pioneer" refers to
Pioneer Americas Acquisition Corp., (ii) the terms "Pioneer Americas" and
"Predecessor Company" refer to Pioneer Americas, Inc. and its subsidiaries,
(iii) the term "Company" means Pioneer and its subsidiaries and (iv) the term
"PCI" refers to Pioneer Companies, Inc., the parent company of Pioneer.

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 PCI, Pioneer and the holders of the outstanding common stock and other
common equity interests of Pioneer Americas, Inc. (the "Sellers"), Pioneer
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 PCI
(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, Pioneer 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) Pioneer issued
$135 million in principal amount of 13 3/8% Senior Notes due 2005 (the "Senior
Notes"), (ii) PCI issued the Seller Notes in exchange for certain of the
outstanding shares of Pioneer Americas, Inc., which PCI contributed to Pioneer,
(iii) PCI issued to Interlaken Investment Partners, L.P., a Delaware limited
partnership (the "Interlaken Partnership") Class A Common Stock of PCI for an
aggregate purchase price of $15 million (the "Interlaken Partnership Purchase"),
the proceeds of which were contributed to Pioneer, (iv) PCI issued to Richard C.
Kellogg, Jr. and Frans G.J. Speets, directors and executive officers of Pioneer
Americas, and to certain other employees of Pioneer Americas, Class A Common
Stock of PCI for an aggregate purchase price of $6 million (the "Management
Purchase"), the proceeds of which were contributed to Pioneer, 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

Pioneer is a wholly-owned subsidiary of PCI. PCI is a publicly-traded
company, which prior to the Acquisition was actively seeking acquisitions and
had no operations. As of December 31, 1996, PCI had a net operating loss
carryforward ("NOL") which PCI believes is 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 PCI, William R. Berkley (who may be deemed to beneficially own all
shares of PCI common stock held by the Interlaken Partnership) beneficially
owned approximately 61.0% of the voting power of PCI.

3
<PAGE> 4

Following its formation in 1988, the Predecessor Company acquired two
chlor-alkali plants previously owned and operated by Stauffer Chlor Alkali
Company, Inc., and it subsequently acquired 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.
In 1996, PCAC accounted for 71% of the Company's total revenues, and All-Pure
and Imperial West accounted for 28% and 1%, respectively, of the Company's total
revenues, net of intercompany eliminations. In February 1996 PCI formed a new
company, Kemwater North America Company ("Kemwater"), to continue the business
activities previously conducted by its subsidiary, Imperial West Chemical Co.
("Imperial West"), and to operate the business acquired through the acquisition
of KWT, Inc. ("KWT") from a subsidiary of Kemira Oy of Finland ("Kemira"). Fifty
percent of the common stock of Kemwater is held by a subsidiary of Pioneer and
fifty percent of the common stock of Kemwater is owned by a subsidiary of PCI. A
subsidiary of Pioneer also owns all of the outstanding shares of Kemwater's
preferred stock. Fifty percent of the results of Kemwater's operations are
included in the Company's equity in net loss of unconsolidated subsidiary.

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.

<PAGE> 5

RESULTS OF OPERATIONS

The following table sets forth certain operating data for the periods
indicated:
<TABLE>
<CAPTION>
PRO FORMA (1)
-----------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995
------------------- ---------------------
% OF % OF
$'000S REVENUES $'000S REVENUES
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues:
PCAC $129,569 71 % $ 118,298 59 %
Imperial West (2) 2,439 1 32,909 16
All-Pure (3) 51,317 28 49,549 25
--------- ----- --------- -----
Total revenues 183,325 100 200,756 100
Cost of sales 126,739 69 135,575 67
--------- ----- --------- -----
Gross profit 56,586 31 65,181 33
Selling, general and administrative expense 23,528 13 26,883 14
--------- ----- --------- -----
Operating income 33,058 18 38,298 19
Equity in net loss of unconsolidated subsidiaries 2,607 1 -- --
Interest expense, net 17,290 9 14,570 7
Settlement of litigation and insurance claims, net -- -- -- --
Other income, net 1,684 -- 1,494 1
--------- ----- --------- -----
Income before income taxes and extraordinary item 14,845 8 25,222 12
Provision for income taxes 6,734 4 11,017 5
--------- ----- --------- -----
Net income before extraordinary item 8,111 4 14,205 7
Extraordinary item, net of applicable tax (4) -- -- (3,420) 2
---------- ----- --------- -----
Net income $ 8,111 4 % $ 10,785 5%
========== ===== ========= =====
</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 include operations of
Imperial West only for the month of January 1996. Fifty percent of
Kemwater's results of operations are included as equity in net loss of
unconsolidated subsidiary since the acquisition.
(3) 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.
(4) 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 prior to the Acquisition.

5
<PAGE> 6

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

Revenues

Revenues decreased by $17.4 million or 9% to $183.3 million for 1996
compared to 1995. The business activities of Imperial West were transferred in
February 1996 to Kemwater which caused a decrease in sales of approximately
$19.8 million. The Company owns 50% of the common stock of Kemwater. The
decrease in sales was partially offset by the acquisition of T.C. Products
during 1996, which accounted for a $5.1 million increase in revenue. 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 decreased by approximately $8.8 million from $135.5 million
in 1995 to $126.7 in 1996. The decrease was a result of the aforementioned
transfer of Imperial West operations to Kemwater, partially offset by a $3.1
million increase due to the acquisition of T.C. Products.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased approximately $3.4
million to $23.5 million in 1996 due primarily to the aforementioned transfer
of Imperial West operations to Kemwater during 1996.

Equity in Net Loss of Unconsolidated Subsidiaries

Equity in net loss of unconsolidated subsidiaries, resulting from the KWT
acquisition in 1996, arises from a 50% ownership interest in Kemwater.

Interest Expense, Net

Interest expense increased by $2.7 million or 19% to $17.3 million for
1996. This increase was a result of debt incurred in connection with the
Acquisition as well as debt incurred in financing the T.C. Products acquisition.

Provision for Income Taxes

Provision for income taxes for 1996 was $6.7 million, with an effective tax
rate of 45%, compared to $11.0 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 income before income tax and extraordinary item to $14.8 million
for 1996 from $25.2 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 the year ended December
31, 1996 was $8.1 million, compared to $10.8 million for 1995.

6
<PAGE> 7

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
---------------- ---------
<S> <C>
Chlor-alkali plants St. Gabriel, Louisiana*
Henderson, Nevada*

Bleach plants 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

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

Distribution centers Fresno, California
Spokane, Washington
</TABLE>

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

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

In accordance with the terms of an Exchange and Registration Rights
Agreement (the "Exchange Agreement") which Pioneer entered into at the time of
the Acquisition, on January 23, 1996, Pioneer exchanged $135.0 million of its
13 3/8% First Mortgage Notes due 2005 (the "Mortgage Notes") for all of the
outstanding Senior Notes. The Mortgage Notes and obligations outstanding under
the Bank Credit Facility are secured by first mortgages on PCAC's St. Gabriel
and Henderson facilities.

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.

This item is omitted in accordance with General Instruction (I)(2) of Form
10-K.

7
<PAGE> 8

PART II

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

All of Pioneer's outstanding Common Stock, which is Pioneer's only class
of equity securities, is owned by PCI.

Pursuant to the terms of the indenture with respect to the Mortgage Notes,
prior to April 1, 1997, dividends on Pioneer's Common Stock cannot be paid in
amounts in excess of those necessary to enable PCI to pay interest on the Seller
Notes, of which there is $11.5 million in principal amount outstanding. As a
result of such restriction, dividends on Pioneer's Common Stock are limited to
such amounts prior to that date.

ITEM 6. SELECTED FINANCIAL DATA.

This item is omitted in accordance with General Instruction (I)(2) of Form
10-K. In accordance with General Instruction (I)(2)(a) of Form 10-K,
management's narrative analysis of the results of operations is contained in
Item 1. Business "Results of Operations."

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

<PAGE> 9

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Index:
<TABLE>
<CAPTION>

PAGE
----
<S> <C>
(1) Consolidated financial statements, Pioneer Americas Acquisition Corp.
and subsidiary companies:
Report of Deloitte & Touche LLP, independent public accountants 10

Report of Ernst & Young LLP, independent auditors 11

Report of Piercy, Bowler, Taylor & Kern, independent public accountants 12

Consolidated balance sheets for the Company at December 31, 1996 and 1995 13

Consolidated statements of operations of the Company for the
year ended December 31, 1996 and the period from March 6,
1995 ("Inception") through December 31, 1995 and of the
Predecessor Company for the period from January 1, 1995
through April 20, 1995 and for the year ended December 31,
1994 14

Consolidated statements of stockholders' equity of the
Company for the period from Inception through December 31, 1995
and for the year ended December 31, 1996 and of the Predecessor
Company for the year ended December 31, 1994 and for the period
from January 1, 1995 through April 20, 1995. 15

Consolidated statements of cash flows of the Company for the
year ended December 31, 1996 and the period from Inception
through December 31, 1995 and of the Predecessor Company
for the period from January 1, 1995 through April 20, 1995
and for the year ended December 31, 1994 16

Notes to consolidated financial statements 17

(2) Supplemental Schedules:

Schedule II - Valuation and Qualifying Accounts -
Pioneer Americas Acquisition Corp. 36

Schedule II - Valuation and Qualifying Accounts -
Pioneer Americas, Inc. 37

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.
</TABLE>

9
<PAGE> 10

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
Pioneer Americas Acquisition Corp.

We have audited the accompanying consolidated balance sheets of Pioneer
Americas Acquisition Corp. and its subsidiaries (the "Company"), as of December
31, 1996 and 1995, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the year ended December 31,
1996 and for the period from March 6, 1995 ("Inception") through December 31,
1995. Our audit also includes 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 these financial
statements and schedule based on our audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company at December 31, 1996 and 1995, and the results of their operations
and their cash flows for the year ended December 31, 1996 and the period from
Inception through December 31, 1995 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

<PAGE> 11

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 for 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

<PAGE> 12

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 combined operations and cash
flows of Basic Investments, Inc. and affiliates for the year ended December 31,
1994 in conformity with generally accepted accounting principles.

PIERCY, BOWLER, TAYLOR & KERN
January 30, 1995 CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS ADVISORS
A PROFESSIONAL CORPORATION

12
<PAGE> 13

PIONEER AMERICAS ACQUISITION CORP.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>

DECEMBER 31,
----------------------------
1996 1995
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 14,417 $ 11,218
Accounts receivable, less allowance for doubtful accounts:
1996, $1,311; 1995, $1,424 18,830 27,825
Due from parent 2,547 574
Inventories 6,247 11,347
Prepaid expenses 1,156 3,766
----------- ------------
Total current assets 43,197 54,730
Property, plant, and equipment, at cost:
Land 3,735 1,711
Buildings and improvements 17,062 13,997
Machinery and equipment 71,704 67,587
Cylinders and tanks 4,540 4,503
Construction in progress 11,871 9,394
----------- ------------
108,912 97,192
Less accumulated depreciation (16,429) (7,795)
----------- ------------
92,483 89,397
Investment in and advances to unconsolidated subsidiary 28,586 --
Other assets, net of accumulated amortization: 1996, $2,458; 1995, $1,068 19,621 11,664
Excess cost over the fair value of net assets acquired, net of accumulated
amortization: 1996, $7,556; 1995, $3,311 107,123 108,940
----------- ------------
Total assets $ 291,010 $ 264,731
=========== ============

LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 17,221 $ 20,183
Accrued liabilities 19,276 20,660
Returnable deposits 3,238 3,437
Current portion of long-term debt 128 --
----------- ------------

Total current liabilities 39,863 44,280
Long-term debt, less current maturities 141,629 135,000
Returnable deposits 3,272 3,281
Accrued pension and other employee benefits 14,100 13,573
Other long-term liabilities 17,823 13,170
Commitments and contingencies (Note 10)
Stockholder's equity:
Common stock, $.01 par value, authorized 1,000 shares, issued and
outstanding 1,000 shares 1 1
Additional paid-in capital 61,124 49,652
Retained earnings 13,198 5,774
----------- ------------
Total stockholder's equity 74,323 55,427
----------- ------------
Total liabilities and stockholder's equity $ 291,010 $ 264,731
=========== ============
</TABLE>

See notes to consolidated financial statements.

13
<PAGE> 14

PIONEER AMERICAS ACQUISITION CORP.

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

PREDECESSOR COMPANY
----------------------------
PERIOD FROM PERIOD FROM
INCEPTION JANUARY 1, 1995
YEAR ENDED THROUGH THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31, APRIL 20, DECEMBER 31,
1996 1995 1995 1994
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenues $ 183,326 $ 142,908 $ 57,848 $ 167,217
Cost of sales 126,739 98,175 37,400 134,556
------------ ------------ ------------ -----------

Gross profit 56,587 44,733 20,448 32,661
Selling, general and administrative 23,528 19,836 7,047 22,529
------------ ------------ ------------ -----------

Operating income 33,059 24,897 13,401 10,132
Equity in net loss of unconsolidated subsidiary (2,607) -- -- --
Interest expense, net (17,290) (12,905) (1,665) (6,407)
Settlement of litigation and insurance claims, net -- -- -- 3,326
Other income (expense), net 1,684 637 (115) 1,337
------------ ------------ ------------ -----------

Income before taxes and extraordinary item 14,846 12,629 11,621 8,388
Income tax provision 6,735 6,208 4,809 3,242
------------ ------------ ------------ -----------
Income before extraordinary item 8,111 6,421 6,812 5,146
Extraordinary item, early extinguishment of debt
(net of income tax benefit of $2,140) -- -- 3,420 --
------------ ------------ ------------ -----------

Net income 8,111 6,421 3,392 5,146

Accretion of dividends on preferred stock and
adjustment to redeemable stock put warrants -- -- -- (1,824)
------------ ------------ ------------ -----------

Net income applicable to common stock $ 8,111 $ 6,421 $ 3,392 $ 3,322
============ ============ ============ ===========

Net income per share $ 8,111 $ 6,421
============= ============

Weighted average number of shares of common stock
outstanding 1 1
============= ============
</TABLE>

See notes to consolidated financial statements.

14
<PAGE> 15

PIONEER AMERICAS ACQUISITION CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>

NUMBER OF
COMMON ADDITIONAL
SHARES COMMON PAID-IN RETAINED
OUTSTANDING STOCK CAPITAL EARNINGS TOTAL
----------- ---------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
POST ACQUISITION
Balance at Acquisition 1 $ 1 $ 46,062 $ -- $ 46,063
Recognition of the NOL benefit -- -- 3,590 -- 3,590
Dividend paid to parent -- -- -- (647) (647)
Net income -- -- -- 6,421 6,421
----------- ----------- ------------- ------------- --------------
Balance at December 31, 1995 1 1 49,652 5,774 55,427
Recognition of the NOL benefit -- -- 11,472 -- 11,472
Dividend paid to parent -- -- -- (687) (687)
Net income -- -- -- 8,111 8,111
----------- ----------- ------------- ------------- --------------
Balance at December 31, 1996 1 $ 1 $ 61,124 $ 13,198 $ 74,323
=========== =========== ============= ============= ==============

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.

15
<PAGE> 16

PIONEER AMERICAS ACQUISITION CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>

PREDECESSOR COMPANY
--------------------------
PERIOD FROM PERIOD FROM
INCEPTION JANUARY 1,
YEAR ENDED THROUGH 1995 YEAR ENDED
DECEMBER 31, DECEMBER 31, THROUGH DECEMBER 31,
APRIL 20,
1996 1995 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 8,111 $ 6,421 $ 3,392 $ 5,146
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 15,695 12,274 4,490 13,595
Provision for bad debts -- 138 47 1,235
Write-off of previous finance costs -- -- 1,282 --
Gain on disposal of property, plant and equipment -- -- 13 (4)
Provision for SAR's -- -- -- 968
Equity in net loss (earnings) of unconsolidated
subsidiaries 2,607 -- (204) (183)
Net change in deferred taxes 4,339 3,590 (2,086) (1,256)
Net effect of changes in operating assets and
liabilities (net of acquisitions) 1,701 5,865 (4,323) 2,918
------------ ------------ ------------ ------------

Net cash flows from operating activities 32,453 28,288 2,611 22,419
------------ ------------ ------------ ------------

INVESTING ACTIVITIES:
Acquisitions of businesses (5,459) (152,318) -- --
Investment in and advances
to unconsolidated subsidiaries (6,645) -- -- --
Capital expenditures (17,121) (13,556) (3,447) (5,681)
Proceeds from sale of property, plant and equipment -- -- 58 694
------------ ------------ ------------ ------------
Net cash flows from investing activities (29,225) (165,874) (3,389) (4 ,987)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES:
Borrowings:
Proceeds -- 153,500 106,000 83,900
Repayments (70) (27,500) (103,971) (99,961)
Dividends paid to parent (687) (416) -- --
Dividends paid on preferred stock and purchase of
stock put warrant -- -- (2,341) --
Proceeds from issuance of common stock -- 21,000 -- 170
------------ ------------ ------------ ------------
Net cash flows from financing activities (757) 146,584 (312) (15,891)
------------ ------------ ------------ ------------

Net increase (decrease) in cash 2,471 8,998 (1,090) 1,541
Cash at beginning of period 11,218 -- 3,310 1,769
Cash acquired in acquisition 728 2,220 -- --
------------ ------------ ------------ ------------

Cash at end of period $ 14,417 $ 11,218 $ 2,220 $ 3,310
============ =========== ============ ===========
</TABLE>

See notes to consolidated financial statements.

16
<PAGE> 17

PIONEER AMERICAS ACQUISITION CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

Pioneer Americas Acquisition Corp. ("Pioneer") is a Delaware corporation
formed on March 6, 1995 ("Inception"). Pioneer is 100% owned by Pioneer
Companies, Inc. ("PCI").

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, PCI 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 25 years.

In February 1996, Pioneer acquired an interest in Kemwater North America
Company ("Kemwater") for $0.3 million of cash and a contribution of the assets
and liabilities of its subsidiary Imperial West Chemical Co. ("Imperial West").
Kemwater was formed to conduct the operations of Imperial West and KWT, Inc.
(acquired by PCI in February 1996). Kemwater, which manufactures and supplies
iron chlorides that are used to remove solids from water streams and to control
hydrogen sulfide emissions by the potable and waste water markets, is owned 50%
by Pioneer and 50% by PCI. Since it does not own a controlling interest in
Kemwater, Pioneer accounts for Kemwater using the equity method. In the 1996
consolidated financial statements, Pioneer's investment in Kemwater is presented
as "Investment in and advances to unconsolidated subsidiary" and its equity in
the loss of Kemwater is shown as "Equity in net loss of unconsolidated
subsidiary." In the 1995 consolidated financial statements of Pioneer, Imperial
West is consolidated and includes the following: total assets of $25.7 million,
total revenues of $23.7 million and net loss of $0.6 million. Had the
acquisition been made as of January 1, 1996 and 1995, it would not have had a
significant impact on the consolidated financial statements for 1996 and 1995.
The acquisition did not have a material impact on Pioneer's financial
statements, and therefore pro forma information is not presented.

Pioneer acquired T.C. Products in July 1996 for $10.0 million. T.C.
Products manufactures bleach and related products. The acquisitions 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 for the acquired company was included in the consolidated
financial statements from the date acquired. The acquisition resulted in $7.0
million of excess cost over the fair value of the net assets acquired, which is
being amortized on a straight line basis over 25 years. Had the acquisition been
made as of January 1, 1996 and 1995, it would not have had a significant impact
upon the consolidated financial statements for 1996 and 1995. The acquisition
did not have a material impact on Pioneer's financial statements, and therefore
pro forma information is not presented.

The consolidated financial statements include the accounts of Pioneer and
its consolidated 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.

<PAGE> 18

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

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 year ended December 31, 1996 and the period from Inception
through December 31, 1995 of $0.7 million and $0.3 million, respectively. The
Predecessor Company had interest income of $0.1 million for each of the period
from January 1, 1995 through April 20, 1995 and the year ended December 31,
1994.

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 period from Inception through 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 years 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 year ended December 31, 1996 was
$1.3 million and for the period from Inception through December 31, 1995 was
approximately $1.1 million.

Other assets of the Predecessor Company included amounts for organization
costs, deferred financing costs, non-compete agreements, permits, licenses, and
customer lists obtained in conjunction with the acquisitions of All-Pure
Chemical Co. ("All-Pure"), GPS Pool Supply, Inc. ("GPS") and 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 ending 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
$115 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

18
<PAGE> 19

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 $4.7 million for the year ended December 31,
1996 and $3.3 million for the period from Inception through December 31, 1995.

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

RETURNABLE DEPOSITS

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

INCOME TAXES

The Company files a consolidated tax return with PCI. Pioneer has entered
into a tax sharing agreement with PCI whereby the Company will make tax sharing
payments to PCI with respect to federal cash income taxes reflecting the
consolidated cash tax liability of PCI. The tax sharing agreement has the effect
of presenting the income tax provision on a separate return basis. 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. State income taxes are
included in income taxes payable.

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

During 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.

19
<PAGE> 20

RECLASSIFICATION

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:

PREDECESSOR COMPANY
---------------------------
1996 1995 1995 1994
---------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Accounts receivable $ 5,228 $ 802 $ (3,617) $ (4,889)
Due from parent (1,973) 111 -- 535
Receivable from insurance carriers and agents -- -- -- (102)
Income taxes receivable -- -- -- 2,738
Inventories 3,151 1,541 (638) (876)
Prepaid expenses 76 (1,404) 722 (371)
Other assets (1,254) (3,104) (1,342) (305)
Accounts payable (4,168) (1,030) 4,899 862
Accrued liabilities (4,457) 8,777 (3,784) 3,783
Returnable deposits (199) (234) (259) (323)
Other long-term liabilities 4,770 (71) (726) 1,079
Accrued pension and other employee benefits 527 477 422 787
------------- ------------- -------- --- -------------

Net change in operating accounts $ 1,701 $ 5,865 $ (4,323) $ 2,918
=========== =========== ========= ===========
</TABLE>

Following is supplemental cash information:
<TABLE>
<CAPTION>

PREDECESSOR COMPANY
-----------------------------
1996 1995 1995 1994
------------ -------------------------------------
<S> <C> <C> <C> <C>
Cash paid during the period for:
Interest $ 18,297 $ 8,288 $ 3,067 $ 4,482
=========== =========== ========== ============
Income taxes $ 3,556 $ 1,707 $ 1,852 $ 3,730
=========== =========== ========== ============

Investing activities of acquisitions during the period:
Cash paid for acquisition $ 5,459 $ 152,318 $ -- $ 238
Long-term debt issued 4,500 11,463 -- 3,254
Liabilities assumed 3,994 90,596 -- --
NOL benefit recognized -- 13,600 -- --
----------- ----------- ---------- ------------

Fair value of assets acquired $ 13,953 $ 267,977 $ -- $ 3,492
=========== =========== ========== ============
</TABLE>

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

Other non-cash items included in the consolidated financial statements
include: increase in stockholders' equity of $11.5 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% First Mortgage
Notes for $135 million of 13 3/8% First Mortgage Notes in 1996.

<PAGE> 21

4. INVENTORIES

Inventories consisted of the following at December 31:

1996 1995
---------------- ---------------
Raw materials, supplies and parts $ 7,512 $ 9,849
Finished goods and work-in-process 2,668 3,155
Inventories under exchange agreements (3,933) (1,657)
---------------- ---------------
$ 6,247 $ 11,347
================ ==============

5. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES

KEMWATER

Pioneer and PCI each own a 50% interest in Kemwater which was formed in
February 1996 to continue the business activities previously conducted by
Pioneer's subsidiary, Imperial West and to operate the business acquired by PCI
through the acquisition of KWT, Inc. At December 31, 1996, Pioneer's investment
in and advances to Kemwater aggregated $28.6 million investment in and advances
to Kemwater are primarily for purchase of product and to fund Kemwater's current
operations and capital requirements. Pioneer and PCI have funded, and intend to
continue funding in the foreseeable future, Kemwater's operations and capital
requirements; accordingly, Pioneer has reduced its investment at December 31,
1996 to a deficit of $0.3 million. Following is a summary of selected items from
Kemwater's balance sheet at December 31, 1996 and operations 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)

BII AND VVLC

The Company, through its subsidiary Pioneer Chlor Alkali Company, Inc.
("PCAC"), owns approximately 32% of the common stock of Basic Investments, Inc.
("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 Victory Valley
Land Company ("VVLC"). The purpose of the 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 a
related Contingent Payment Agreement, will be held for the

21
<PAGE> 22

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 a Contingent Payment Account and used to satisfy
certain obligations of the Sellers under environmental and other indemnities 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
consolidated financial statements since the Acquisition.

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 expenses (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 $ 2,371 $ 5,371
Interest and bank fees 4,595 4,941
Future tax effects 2,237 2,293
Miscellaneous accrued liabilities 10,073 8,055
-------------- --------------
Accrued liabilities $ 19,276 $ 20,660
============== ==============

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 of 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%

22
<PAGE> 23
Pension expense for the periods presented was comprised of:

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>

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:

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-contribution 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 $0.4 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.

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
----------- ------------
<S> <C> <C>
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
=========== ============
</TABLE>

23
<PAGE> 24

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

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. 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.

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.

24
<PAGE> 25

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
Subordinated notes payable to sellers of T.C. Products, principal payments due
July 31, 2001, 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 values of comparable securities, interest is paid monthly 2,257 --
--------- ---------
Total 141,757 135,000
Current maturities of long-term debt (128) --
--------- ---------
Long-term debt $ 141,629 $ 135,000
========= =========
</TABLE>

Long-term debt matures as follows: $0.1 million in 1997; $0.1 million in
1998; $0.1 million in 1999; $0.1 million in 2000; $4.6 million in 2001; and
$136.6 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 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 the
Company's direct and indirect wholly-owned subsidiaries and are secured by
first mortgage liens on certain manufacturing facilities. 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
common stock of the Company or PCI (to the extent such funds are contributed to
the Company). Upon a 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 and other long-term debt contain 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 chlorine and caustic-based 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.

25
<PAGE> 26

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 Facility 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 $2.5 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
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.

26
<PAGE> 27

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 commitments $ 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 $ 8,318
1998 7,960
1999 7,916
2000 6,267
2001 5,786
Thereafter 4,685
-------------
Total minimum obligations $ 40,932
=============

Lease expense charged to operations for the year ended December 31, 1996
and for the period from Inception through December 31, 1995 was
approximately $7.8 million and $6.3 million, respectively. Lease expense charged
to the Predecessor Company's operations for the period from January 1, 1995
through and the year ended December 31, 1994 was approximately $3.3 million
and $8.4 million, respectively.

LITIGATION

During 1993, Imperial West was awarded $1.4 million as the result of a
breach of contract claim it had 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
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

27
<PAGE> 28

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 financial position or results of operations.

The Company is party to other legal proceedings and potential claims
arising in the ordinary course of its business. 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
the deferred tax liabilities and assets are as follows at December 31:

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 carryforward 671 --
Allowance for doubtful accounts 511 569
Other accrued liabilities 6,165 6,530
Net operating loss carry forward of PCI 14,391 22,091
--------- ----------
Total deferred tax assets 27,290 34,981
Valuation allowance for deferred tax assets -- (11,433
--------- ----------
Net deferred tax assets 27,290 23,498
--------- ----------
Net deferred taxes $ 6,885 $ --
========= ==========
</TABLE>

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

Predecessor Company
------------------------------
1996 1995 1995 1994
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Current:
Federal $ 614 $ 799 $ 5,938 $ 3,930
State 1,528 1,830 957 568
------------ ------------ ----------- ----------
Total current 2,142 2,629 6,895 4,498
------------ ------------ ----------- ----------
Deferred:
Federal 5,032 4,180 (1,816) (1,010)
State (439) (601) (270) (246)
------------ ------------ ----------- ----------
Total deferred 4,593 3,579 (2,086) (1,256)
------------ ------------ ----------- ----------
Total income tax provision $ 6,735 $ 6,208 $ 4,809 $ 3,242
========== =========== =========== ==========
</TABLE>

28
<PAGE> 29

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 $ 4,390 35% $ 4,420 35% $ 4,068 35% $ 2,936 35%
State income taxes, net of federal
tax benefits 708 6 799 6 407 3 321 4
Amortization of excess cost over
the fair value of net assets
acquired 1,591 14 1,159 9 69 1 221 2
Adjustment of previously provided
taxes -- -- -- -- -- -- (285) (3)
Other, net 46 -- (170) (1) 265 2 49 1
------- ----- ------- ----- ------- ----- ------- -----
$ 6,735 55% $ 6,208 49% $ 4,809 41% $ 3,242 39%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>

At December 31, 1996, PCI 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. A tax
sharing agreement provides that the Company will be liable to PCI for its
separate tax liability only to the extent the consolidated group has a tax
liability. However as long as PCI's NOL is available to the consolidated group
to reduce taxable income, the Company's tax liability to PCI will be
substantially reduced. As a result of the tax sharing agreement, the NOL is
reflected by the Company for financial reporting purposes.

For the year ended December 31, 1996 and the period from Inception through
December 31, 1995, the benefit of the utilization of the NOL of $11.5 million
and $3.6 million, respectively was recognized as an increase to additional
paid-in capital. Approximately $13.6 million was recognized as an increase to
additional paid-in capital as part of the purchase price allocation of the
Acquisition.

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 pollutants 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-closing
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
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 effect on the consolidated financial statements.

29
<PAGE> 30

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 plant sites or
arising before or after the Closing Date with respect to certain environmental
liabilities relating to certain properties held for the benefit of the Sellers
("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.
PCI 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. PCI 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 charge 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 $1.7 million and $1.2 million for the year
ended December 31, 1996 and for the period from Inception through December
31, 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 were approximately $4.3
million and $2.2 million for the year ended December 31, 1996 and for the period
from Inception through December 31, 1995, respectively, 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
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

30
<PAGE> 31

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:

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 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 the
year ended December 31, 1996 and the period from Inception through December 31,
1995, BII charged expenses to the Company of approximately $0.2 million and $0.2
million, respectively. 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.

The Company sells certain products to Kemwater at market prices. Sales to
Kemwater totaled $8.8 million during the year ended December 31, 1996. Kemwater
provides transportation services to the Company at market prices which totaled
$1.8 million for 1996.

31
<PAGE> 32

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

Deloitte & Touche LLP has acted as independent accountants of the Company
since its inception. 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 audits
of the financial statements of Pioneer Americas the fiscal year ended December
31, 1994, and in the subsequent interim period, there were no disagreements with
Ernst & Young LLP on any 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 LLP to make reference to the matter in their report.

Ernst & Young LLP furnished a letter addressed to the Securities and
Exchange Commission stating whether 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.

This item is omitted in accordance with General Instruction (I)(2) of Form
10-K.

ITEM 11. EXECUTIVE COMPENSATION.

This item is omitted in accordance with General Instruction (I)(2) of Form
10-K.

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

This item is omitted in accordance with General Instruction (I)(2) of Form
10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

This item is omitted in accordance with General Instruction (I)(2) of Form
10-K.

<PAGE> 33

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 7 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 7 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
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 PCI, Pioneer and the Sellers parties
thereto (incorporated by reference to Exhibit 2 to
the Registration Statement on form S-4 filed by
Pioneer on October 30, 1995).

3.1* Certificate of Incorporation of Pioneer filed with
the Secretary of State of Delaware on March 6, 1995
(incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-4 filed by Pioneer
on October 30, 1995).

3.2* By-laws of Pioneer (incorporated by reference to
Exhibit 3.2 to the Registration Statement on Form
S-4 filed by Pioneer on October 30, 1995).

4.1(a)* Indenture, dated as of April 1, 1995, by and among
Pioneer, 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(a) to the Registration Statement on Form S-4
filed by Pioneer on October 30, 1995).

4.1(b)* First Supplemental Indenture, dated as of September
14, 1995, by and among Pioneer, 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 filed by Pioneer on October 30,
1995).

4.1(c) Second Supplemental Indenture, dated as of December
30, 1996, by and among Pioneer, 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 on Form
S-4 filed by Pioneer on October 30, 1995).

33
<PAGE> 34

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

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 filed by Pioneer 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, Pioneer,
Pioneer Americas, Inc. and Pioneer Chlor Alkali
Company, Inc. (incorporated by reference to Exhibit
4.4 to the Registration Statement on Form S-4 filed
by Pioneer 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 4.3(a) to the Registration
Statement on Form S-4 filed by Pioneer on October 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 4.3(b) to the
Registration Statement on Form S-4 filed by Pioneer
on October 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 4.3(c) to the Registration
Statement on Form S-4 filed by Pioneer on
October 30, 1995).

10.1* Contingent Payment Agreement, dated as of April 20,
1995, by and among PCI, Pioneer and the Sellers
party thereto (incorporated by reference to Exhibit
10.2 to PCI's Current Report on Form 8-K filed on May
5, 1995 (file no. 1-9859)).

10.2* Tax Sharing Agreement, dated as of April 20, 1995, by
and among PCI, Pioneer and the Subsidiary Guarantors
(incorporated by reference to Exhibit 10.3 to the
Registration Statement on Form S-4 filed by Pioneer
on October 30, 1995).

10.3*+ Pioneer Companies, Inc. 1995 Stock Incentive Plan
(incorporated by reference to Exhibit 10.4 to the
Registration Statement on Form S-4 filed by
Pioneer on October 30, 1995).

10.4*+ 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).

10.5*+ 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).

10.6*+ Employment Agreement, dated April 20, 1995, between
PCI and Richard C. Kellogg, Jr. (incorporated by
reference to Exhibit 10.1 to PCI's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1995 (file no. 1-9859)).

34
<PAGE> 35
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------

10.7*+ 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).

10.8*+ 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).

10.9*+ 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).

10.10*+ 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).

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

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

10.13+ 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 16.1 to the Registration Statement on
Form S-4 filed by Pioneer on October 30, 1995).

21 Subsidiaries of Pioneer.

(B) REPORTS ON FORM 8-K.

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

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.

35
<PAGE> 36

SCHEDULE II

PIONEER AMERICAS ACQUISITION CORP.

VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

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.

<PAGE> 37
SCHEDULE II

PIONEER AMERICAS, INC.

VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

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.

37
<PAGE> 38

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 AMERICAS ACQUISITION CORP.

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.

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)

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

38
<PAGE> 39

/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>

39
<PAGE> 40
EXHIBIT INDEX

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

3.2* By-laws of Pioneer (incorporated by reference to
Exhibit 3.2 to the Registration Statement on Form
S-4 filed by Pioneer on October 30, 1995).

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

<PAGE> 41

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

10.3*+ Pioneer Companies, Inc. 1995 Stock Incentive Plan
(incorporated by reference to Exhibit 10.4 to the
Registration Statement on Form S-4 filed by
Pioneer on October 30, 1995).

10.4*+ 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).

10.5*+ 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).

<PAGE> 42
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------

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

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

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

21 Subsidiaries of Pioneer.

27 Financial Data Schedule

<PAGE> 1
EXHIBIT 4.1(c)

================================================================================

SECOND SUPPLEMENTAL INDENTURE

dated as of December 30, 1996

INDENTURE

dated as of April 1, 1995

among

PIONEER AMERICAS ACQUISITION CORP.
as Issuer,

PIONEER AMERICAS, INC.,
PIONEER CHLOR ALKALI COMPANY, INC.,
IMPERIAL WEST CHEMICAL CO.,
ALL-PURE CHEMICAL CO.,
BLACK MOUNTAIN POWER COMPANY,
ALL-PURE CHEMICAL NORTHWEST, INC.,
PIONEER CHLOR ALKALI INTERNATIONAL, INC.,
G.O.W. CORPORATION,
as Subsidiary Guarantors

and

UNITED STATES TRUST COMPANY OF NEW YORK
as Trustee

================================================================================
<PAGE> 2

Table of Contents

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS.................................................................... 3

ARTICLE II GUARANTEES..................................................................... 3

ARTICLE III REPRESENTATIONS AND WARRANTIES................................................. 4

Section 301. Representations of the New Subsidiary Guarantors............................... 4

Section 302. Representations of the Company and the Subsidiary Guarantors................... 4

Section 303. Representations of the Trustee................................................. 5

ARTICLE IV CONDITIONS PRECEDENT........................................................... 5

ARTICLE V MISCELLANEOUS.................................................................. 6

Section 501. Execution of Supplemental Indenture; Ratification of Original
Indenture...................................................................... 6

Section 502. Concerning the Trustee......................................................... 6

Section 503. Counterparts................................................................... 6

Section 504 GOVERNING LAW.................................................................. 7
</TABLE>

<PAGE> 3
Reconciliation and tie between Trust Indenture Act of 1939
and Indenture, dated as of April 1, 1995

<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
--------------- -------
<S> <C>
Section 310(a)(1) . . . . . . . . . . . . . 608
(a)(2) . . . . . . . . . . . . . 608
(a)(3) . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . 607, 609
(c) . . . . . . . . . . . . . N.A.
Section 311(a) . . . . . . . . . . . . . 612
(b) . . . . . . . . . . . . . 612
(c) . . . . . . . . . . . . . N.A.
Section 312(a) . . . . . . . . . . . . . 701
(b) . . . . . . . . . . . . . 117
(c) . . . . . . . . . . . . . 117
Section 313(a) . . . . . . . . . . . . . 703
(b)(1) . . . . . . . . . . . . . 703
(b)(2) . . . . . . . . . . . . . 703
(c) . . . . . . . . . . . . . 703
(d) . . . . . . . . . . . . . 703
Section 314(a) . . . . . . . . . . . . . 704, 1003
(b) . . . . . . . . . . . . . 1402
(c)(1) . . . . . . . . . . . . . 103
(c)(2) . . . . . . . . . . . . . 103
(c)(3) . . . . . . . . . . . . . 103
(d) . . . . . . . . . . . . . 1403, 1404
(e) . . . . . . . . . . . . . 103
(f) . . . . . . . . . . . . . N.A.
Section 315(a) . . . . . . . . . . . . . 602, 613, 903
(b) . . . . . . . . . . . . . 601, 602, 903
(c) . . . . . . . . . . . . . 602, 903
(d) . . . . . . . . . . . . . 602, 903
(e) . . . . . . . . . . . . . 512
Section 316(a) (last sentence)
(a)(1)(A) . . . . . . . . . . . . . 502, 505
(a)(1)(B) . . . . . . . . . . . . . 504
(a)(2) . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . 507
(c) . . . . . . . . . . . . . 105
Section 317(a)(1) . . . . . . . . . . . . . 508
(a)(2) . . . . . . . . . . . . . 509
(b) . . . . . . . . . . . . . N.A.
Section 318(a) . . . . . . . . . . . . . 310
</TABLE>

N.A. means not applicable.
-------------------------------------------
Note: This reconciliation and tie shall not, for any purpose, be
deemed a part of this Indenture.
<PAGE> 4

SECOND SUPPLEMENTAL INDENTURE, dated as of December 30, 1996 (this
"Second Supplemental Indenture"), to the Indenture dated as of April 1, 1995
(the "Original Indenture") among PIONEER AMERICAS ACQUISITION CORP., a
Delaware corporation (together with its successors and assigns, the "Company"),
PIONEER AMERICAS, INC. ("PAI"), PIONEER CHLOR ALKALI COMPANY, INC. ("PCAC"),
each a Delaware corporation, IMPERIAL WEST CHEMICAL CO., a Nevada corporation,
ALL-PURE CHEMICAL CO. ("APC"), a California corporation, BLACK MOUNTAIN POWER
COMPANY, a Texas corporation, ALL-PURE CHEMICAL NORTHWEST, INC., a Washington
corporation, PIONEER CHLOR ALKALI INTERNATIONAL, INC., a Barbados corporation,
and G.O.W. CORPORATION, a Nevada corporation (collectively, the "Original
Subsidiary Guarantors"), and UNITED STATES TRUST COMPANY OF NEW YORK, as
trustee (the "Trustee"), as amended and supplemented by the First Supplemental
Indenture, dated as of September 14, 1995 (the "First Supplemental Indenture")
among the Company, the Original Subsidiary Guarantors and the Trustee (the
Original Indenture, as so supplemented and amended, the "Indenture").

WHEREAS, the Company, the Original Subsidiary Guarantors and IBJ
Schroder Bank & Trust Company ("IBJ"), as trustee, have heretofore executed and
delivered the Original Indenture to provide for the issuance of Securities (as
defined in the Original Indenture) of the Company, and the issuance of
Guarantees (as defined in the Original Indenture) with respect thereto by the
Original Subsidiary Guarantors;

WHEREAS, by an Instrument of Resignation, Appointment and Acceptance
dated as of September 14, 1995, IBJ resigned as trustee under the Original
Indenture, the Company appointed the Trustee as successor trustee under the
Original Indenture, and the Trustee accepted such appointment, all in
accordance with the terms of the Original Indenture;

WHEREAS, the Company, the Original Subsidiary Guarantors and the
Trustee have heretofore executed and delivered the First Supplemental Indenture
to secure PCAC's Guarantee with liens on PCAC's St. Gabriel, Louisiana and
Henderson, Nevada plants (including real property, buildings, fixtures and
equipment), and in connection therewith, to modify covenants, to provide
additional indemnity to the Trustee, and to modify other provisions of the
Original Indenture, the Securities or the Guarantees that relate to such
collateral or that were or may be impacted by the providing of such collateral,
and entered into certain agreements, documents and other instruments to effect
the foregoing, including, without limitation, an intercreditor agreement
relating to liens on such collateral on a pari passu basis in favor of the
Trustee for the benefit of itself and the Holders (as defined in the Original
Indenture) and the Agent Bank (as defined in the First Supplemental Indenture)
for the benefit of itself and the other lenders under the Bank Credit Facility
(as defined in the Original Indenture);

WHEREAS, on June 5, 1996, Pioneer (East), Inc. ("Pioneer (East)") was
incorporated in Delaware and all of Pioneer (East)'s outstanding Capital Stock
(as defined in the Original

-1-
<PAGE> 5
Indenture) was issued to PAI, as a result of which Pioneer (East) is a
Subsidiary (as defined in the Original Indenture) of the Company and is a
Restricted Subsidiary (as defined in the Original Indenture);

WHEREAS, on July 31, 1996, APC acquired all of the issued and
outstanding Capital Stock of T.C. Holdings, Inc. ("Holdings"), a New Mexico
corporation, which owns all of the issued and outstanding Capital Stock of T.C.
Products, Inc. ("Products"), a Washington corporation, and as a result of such
acquisition each of Holdings and Products is a Subsidiary of the Company and is
a Restricted Subsidiary;

WHEREAS, Section 1019 of the Indenture provides that if any Subsidiary
of the Company becomes a Restricted Subsidiary after the Closing Date (as
defined in the Original Indenture), the Company shall cause such Subsidiary to
execute and deliver to the Trustee a supplemental indenture pursuant to which
such Subsidiary shall unconditionally guarantee, in accordance with Article
Thirteen of the Original Indenture, all of the Company's obligations under the
Original Indenture and the Securities on the same terms as the other Subsidiary
Guarantors (as defined in the Original Indenture), which Guarantee shall rank
pari passu with any Senior Indebtedness (as defined in the Original Indenture)
of such Subsidiary;

WHEREAS, Section 901 of the Original Indenture provides that the
Company, the Subsidiary Guarantors and the Trustee may, without the consent of
the Holders, enter into indentures supplemental to the Original Indenture to
add a Subsidiary Guarantor pursuant to the requirements of Section 1019
thereof;

WHEREAS, the Company has requested the Trustee, the Original
Subsidiary Guarantors, Pioneer (East), Holdings and Products to enter into this
Second Supplemental Indenture for the purpose of adding Pioneer (East),
Holdings and Products (collectively, the "New Subsidiary Guarantors") as
Subsidiary Guarantors under the Original Indenture, and to provide for each
such New Subsidiary Guarantor's unconditional guarantee, in accordance with
Article Thirteen of the Original Indenture, of all of the Company's obligations
under the Original Indenture and the Securities on the same terms as the
Original Subsidiary Guarantors; and

WHEREAS, all acts and things necessary to constitute these presents a
valid and binding supplemental indenture according to its terms, have been done
and performed, and the execution of this Second Supplemental Indenture (the
Original Indenture, as supplemented by the First Supplemental Indenture and
this Second Supplemental Indenture, being hereinafter called the "Indenture")
has in all respects been duly authorized, and the Company, the Original
Subsidiary Guarantors and the New Subsidiary Guarantors, in the exercise of the
legal rights and powers vested in them, each executes this Second Supplemental
Indenture;

NOW, THEREFORE, THIS SECOND SUPPLEMENTAL INDENTURE WITNESSETH:

- 2 -
<PAGE> 6
That, for and in consideration of the premises and of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree, for the equal and proportionate
benefit of all Holders of the Securities, as follows:

ARTICLE I

DEFINITIONS

(a) Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings assigned thereto in the Original Indenture.

(b) For all purposes of the Indenture, except as otherwise
expressly provided or unless the context otherwise requires, the following
terms shall have the following respective meanings (such meanings shall apply
equally to both the singular and plural forms of the respective terms):

"Effective Date" means, subject to the satisfaction of the conditions
precedent specified in Article IV hereof, the date of execution and delivery of
this Second Supplemental Indenture.

"First Supplemental Indenture" has the meaning specified in the
recitals hereto.

"Indenture" means the Original Indenture as amended and supplemented
by the First Supplemental Indenture and this Second Supplemental Indenture, and
as otherwise amended or supplemented from time to time in accordance with its
terms.

"New Subsidiary Guarantors" means Pioneer (East), Holdings and
Products.

"Original Indenture" has the meaning specified in the recitals hereto.

(c) For all purposes of this Indenture, the words "herein",
"hereof" and "hereunder" and other words of similar import refer to the
Indenture as a whole and not to this Second Supplemental Indenture or to any
particular Article, Section or other subdivision.

ARTICLE II

GUARANTEES

For value received, each of the New Subsidiary Guarantors hereby
unconditionally guarantees, jointly and severally, to the Holders of the
Securities the payment of principal of, premium, if any, and interest on the
Securities in the amounts and at the time when due and interest on the overdue
principal and interest, if any, of the Securities, if lawful, and the payment

- 3 -
<PAGE> 7
or performance of all other obligations of the Company under the Indenture or
the Securities, to the Holders of the Securities and the Trustee, all in
accordance with and subject to the terms and limitations of the Securities and
Article Thirteen of the Indenture.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

Section 301. Representations of the New Subsidiary Guarantors.

The New Subsidiary Guarantors, jointly and severally, represent and
warrant that the Guarantees have been duly and validly authorized and, when
executed and authenticated in accordance with the terms of the Indenture, (i)
will be legal, valid and binding obligations of the New Subsidiary Guarantors
enforceable against the New Subsidiary Guarantors in accordance with their
terms, except as (A) the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect affecting creditors' rights generally and (B) the
availability of equitable remedies may be limited by equitable principles of
general applicability (regardless of whether in a proceeding in equity or at
law) and as may be limited by the discretion of the court before which any
proceeding therefor may be brought, and (ii) will be entitled to the benefits
of the Indenture.

Section 302. Representations of the Company and the Subsidiary
Guarantors.

The Company and the Subsidiary Guarantors, jointly and severally,
represent and warrant that:

(a) This Second Supplemental Indenture has been duly authorized by
each of the Company and the Subsidiary Guarantors, and, when executed and
delivered by the Company and the Subsidiary Guarantors on the Effective Date
and, assuming due authorization, execution and delivery by the Trustee, will be
a legal, valid and binding agreement of the Company and the Subsidiary
Guarantors enforceable against the Company and the Subsidiary Guarantors in
accordance with its terms, except as (i) the enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect affecting creditors' rights
generally, (ii) the availability of equitable remedies may be limited by
equitable principles of general applicability (regardless of whether in a
proceeding in equity or at law) and as may be limited by the discretion of the
court before which any proceeding therefor may be brought and (iii) rights to
indemnity and contribution may be limited by state or Federal laws relating to
securities or by policies underlying such laws; and

(b) The execution, delivery and performance by the Company and the
Subsidiary Guarantors of this Second Supplemental Indenture and the
consummation of the transactions contemplated hereby will not (1) conflict with
or result in a breach or violation of any of the

- 4 -
<PAGE> 8
terms or provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, bank loan or credit agreement, lease or other agreement or
instrument to which the Company or any of the Subsidiary Guarantors is a party
or by which the Company or any of the Subsidiary Guarantors is bound or to
which any of the property or assets of the Company or any of the Subsidiary
Guarantors is subject, (2) result in any violation of the provisions of the
Certificate of Incorporation or the By-laws, in each case as amended, of the
Company or any of the Subsidiary Guarantors or any statute or any order, rule
or regulation of any court or governmental agency or body having jurisdiction
over the Company or any of the Subsidiary Guarantors or any or their
properties, (3) result in or require the creation or imposition of any Lien
upon or with respect to any of the properties of the Company or any of the
Subsidiary Guarantors, except pursuant to or as contemplated by the terms of
the Indenture, or (4) constitute a default under any ordinance, license or
permit, except, in the case of the events specified in clauses (1), (3) and (4)
above, for such conflicts, violations or defaults which would not have a
material adverse effect upon the business, assets, condition (financial or
otherwise), results of operations or prospects of the Company and the
Subsidiary Guarantors, taken as a whole, or on the ability of the Company and
the Subsidiary Guarantors to perform their respective obligations under the
Indenture.

Section 303. Representations of the Trustee.

The Trustee represents that it is duly authorized to execute and
deliver this Second Supplemental Indenture, authenticate the Securities and
perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility on Form T-1, if any, supplied to the Company are true
and accurate subject to the qualifications set forth therein.

ARTICLE IV

CONDITIONS PRECEDENT

This Second Supplemental Indenture shall become effective as of the
Effective Date upon the satisfaction of the following conditions precedent:

(a) The Trustee shall have received a true and complete original,
except where stated otherwise, of:

(i) this Second Supplemental Indenture, duly executed and
delivered by the Company and the Subsidiary Guarantors;

(ii) an opinion of Kent R. Stephenson, Esq., the General Counsel of
the Company, with respect to the due authorization, execution and delivery
of this Second Supplemental Indenture and such other matters as the
Trustee and its counsel shall reasonably require, and meeting the
requirements of Section 903 of the Indenture; and

- 5 -
<PAGE> 9
(iii) such other approvals, consents, opinions, or documents as the
Trustee or its counsel may reasonably request.

(b) On the Effective Date, each of the Company and the Subsidiary
Guarantors shall be in compliance with all the terms and provisions on its
respective part to be observed or performed as set forth in the Indenture; any
representations and warranties of the Company and the Subsidiary Guarantors or
the Trustee set forth in this Second Supplemental Indenture shall be true and
correct in all material respects on and as of the Effective Date as if made on
and as of the Effective Date; and no Event of Default shall have occurred and
be continuing on such date, and no event shall have occurred which, with notice
or lapse of time, or both, would constitute an Event of Default under the
Indenture.

ARTICLE V

MISCELLANEOUS

Section 501. Execution of Supplemental Indenture; Ratification of
Original Indenture.

This Second Supplemental Indenture is executed and shall be construed
as an indenture supplemental to the Original Indenture and, as provided in the
Original Indenture, this Second Supplemental Indenture forms a part thereof.

Except as otherwise expressly provided for in this Second Supplemental
Indenture, all of the terms and conditions of the Original Indenture, as
heretofore supplemented and amended by the First Supplemental Indenture, are
hereby ratified and shall remain unchanged and continue in full force and
effect.

Section 502. Concerning the Trustee.

The recitals contained herein and in the Securities, except with
respect to the Trustee's certificates of authentication, shall be taken as the
statements of the Company and the Subsidiary Guarantors and the Trustee assumes
no responsibility for the correctness of same. The Trustee makes no
representations as to the validity or sufficiency of this Second Supplemental
Indenture or of the Securities.

Section 503. Counterparts.

This Second Supplemental Indenture may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
but all such counterparts shall together constitute but one of the same
instrument.

- 6 -
<PAGE> 10
SECTION 504. GOVERNING LAW.

THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

IN WITNESS WHEREOF, the parties have caused this Second Supplemental
Indenture to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.

PIONEER AMERICAS ACQUISITION CORP.